Trans-Pacific Partnership Agreement (TPPA)

Opportunities and Impacts for Taiwanese and Malaysian Companies

Study undertaken by the Asian Strategy and Leadership Institute (ASLI) on behalf of the Taipei Economic and Cultural Office in Malaysia (TECO)

Analysis approaches taken:1.GTAP2.RCA3.Perception Survey

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Global Trade Analysis Project (GTAP)

• A general equilibrium approach (widely used by trade economists)

• Used to examine the effects of various regional trade agreements

• The GTAP database contains wide coverage of 140 countries/regions in the world and 57 sectors

Quantitative Assessment on the Likely Economic Effects of Taiwan’s Potential Entry Into the TPPA on Selected Industries in Malaysia

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Global Trade Analysis Project (GTAP) cont’d

• Specifically Examines Impacts on:o Outputs o Importso Exports

*On Selected Malaysian Industries

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Global Trade Analysis Project (GTAP) cont’d

• The GTAP analysis looks for:o Possible positive and/or negative effects on Malaysia’s

firms in various goods and services industries

• Gains to Malaysia’s industries:o Inputs from Taiwanese firms used in the production

chain by Malaysian firms

• Losses to Malaysia’s industries:o Goods and services produced by Taiwan in

competition in destination markets

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Effects on Malaysia’s Overall Economy by Taiwan entering TPPA

• Malaysia will gain from :– GDP growth– Welfare improvements

• This is consistent with the survey findings in which the majority of firms interviewed indicated they would benefit from Taiwan entering the TPPA

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Effects on Malaysia and Taiwan’s Welfare (change in USD millions)

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Without Taiwan’s Entry With Taiwan’s Entry

Effects on Malaysia and Taiwan’s GDP (change in USD million )

8Without Taiwan’s Entry With Taiwan’s Entry

Exports of Electronics Goods

• Both Malaysia and Taiwan are large exporters of manufactured good (esp. electronics)oWill Taiwan in TPPA pose a threat to Malaysia’s

electronics sector?

• GTAP indicates that Taiwan’s entry strengthens Malaysia’s electronics and electrical industry.o Consistent with survey feedback – e.g. some firms

acquire raw materials from Taiwan and do not see Taiwan as a threat or competitor

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Effects on Financial, Insurance and Business Services

• GTAP analysis indicates Malaysia’s financial, insurance and business services will expand under the TPPA and only be very slightly negatively impacted by Taiwan’s entry

o Survey feedback from Malaysian firms in these industries reported mixed results

o Taiwanese firms were more optimistic on this question

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Effects on Financial, Insurance and Business Services cont’d

• Further liberalising this sector will expand Malaysia’s service output

oOutput expansion from increased foreign firms operating in Malaysia

• GTAP general equilibrium analysis shows potential for financial and insurance industries to be slightly negatively affected by Taiwan’s entry into the TPPA

oOther industries are greatly enhanced

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Effects on the Agriculture Sector

• GTAP indicates that the agriculture sector will contract with the implementation of the current 12-member TPPAo This is consistent if Taiwan were to enter the TPPAo Survey feedback indicated there is a worry from

Taiwanese firms that generous government assistance given to the industry would be affected by joining the TPPA

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Revealed Comparative Advantage (RCA) Index

• Measures a country’s exports of a service relative to its own total exports, and to the corresponding exports of all countries in the world

• If a country has comparative advantage, their export share in the particular service in question is higher than the world’s average share

• RCA can examine strengths and weakness in various services provisions on the world platformo Will also show if Taiwan and Malaysia are in direct

competition in the world on services exports

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Revealed Comparative Advantage (RCA) Index cont’d

Malaysia Taiwan

Transport Services No (and Deteriorating) No (but Improving)

Travel Services Yes (and Improving) No (but Improving)

Construction Services Yes (in some years) No

Insurance and Pension Services

No No

Financial Services No No

Charges for the use of Intellectual property Services

No Yes (in some years)

Telecommunication, Computer and Information Services

No No

Other Business Services No (but Improving) No (but Improving) 14

Comparative Advantage in Services

*Transport – includes sea, air, rail road, internal waterway, pipeline, space transport as well as electricity transmission.

Revealed Comparative Advantage (RCA) Index cont’d

• This is a simple analysis not to be taken on its own, but to compliment the GTAP and survey analysis

• RCA shows that Taiwan’s entry into the TPPA does not pose significant competition towards Malaysia’s services sector o The two economies possess comparative

advantage in different service subsectors

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Policy Recommendations for Consideration

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• Increase awareness, as well as understanding about the TPPA among industry players

• Policy makers should see Taiwan’s potential entry into TPPA as an overall positive development for Malaysia

• Further study on detailed industry impact is needed. This will be useful, particularly when more transparent information regarding Malaysia’s negotiations with other TPPA members are available

Conclusions

• The Positive effects of Taiwan entering the TPPA outweigh the negatives - both on Malaysia’s imports and exports, as well as on Taiwan’soMalaysia’s overall welfare, GDP, total output

levels, exports and imports are expected to increase when Taiwan is added to the TPPA coalition

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Key Takeaway:

Conclusions cont’d

• When Taiwan is not part of the TPPA, trade diversion is expected.

• Malaysia’s services subsectors, particularly: Financial, Insurance and Business Services are expected to expand (in outputs, exports and imports)o For Financial and Insurance Services, the increases in

imports are expected to be larger than the rise in its exports

o For Business Services, the rise in exports is larger than its increase in imports

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• Taiwan’s entry into TPPA further strengthens Malaysia’s Electronics and Electrical Subsector o Output and exports in this subsector expand

significantly with Taiwan’s entry• Malaysia’s Agriculture Sector is expected to

contract in the current 12-member TPPAo With Taiwan’s entry, the extent of impact is more or

less the same• Malaysia is expected to rely more on imports

from its partner TPPA members, including Taiwan if it were to join the TPPA

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Conclusions cont’d

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Thank you

For more information please email:

Jordan Heng: jordanhc@asli.com.my or

Yap Yee Chern: ycyap@asli.com.my