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The TPP and Government Procurement in Malaysia

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Paradigm Shift in International Economic Law Rule-Making (ODS 2017)

Part of the book series: Economics, Law, and Institutions in Asia Pacific ((ELIAP))

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Abstract

Government procurement (GP) is one of the most controversial areas in TPP, particularly for Malaysia where government procurement activities contribute significantly to the development and growth of businesses and the economy a whole. This paper seeks to investigate the impact of the TPP on Malaysian government procurement rules. While efficiency, competition, and effectiveness will be the rule of the game, the GP Chapter of the TPP can make the Malaysian legal framework regulating GP more predictable, accessible and transparent, giving value for money to consumers and taxpayers. This paper, however, will explore the challenges to procuring entities who have to comply with higher international standards when awarding contracts and to the recipients of those contracts among local companies including Bumiputera companies as they have to brace for an open GP market post-TPP. There are flexibilities offered by the GP Chapter, but there will be an issue whether those flexibilities could help balance between the positive and negative effects of the Chapter on Malaysia.

This paper is part of the Research Acculturation Grant Scheme (RAGS) entitled ‘Formulating Regulatory and Institutional Frameworks to Promote Competition in the Malaysian Procurement System’, awarded to the authors by the Ministry of Higher Education (MOHE), Malaysia.

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Notes

  1. 1.

    Sue Arrowsmith (2010).

  2. 2.

    See generally Annet Blank and Gabrielle Marceau, ‘The History of Government Procurement Negotiations Since 1945’, in Evenett and Hoekman (2006). By 2016, out of 17 State Parties to the GPA, only three can be considered developing (Armenia, Montenegro and Aruba).

  3. 3.

    Thai and others (2005).

  4. 4.

    See generally Simon J Evenett and Bernard M Hoekman, ‘Introduction’, in Simon J Evenett and Bernard Hoekman, The WTO and Government Procurement (Edward Elgar 2006).

  5. 5.

    ‘Malaysia’s Government Procurement Regime’ (Ministry of Finance, 2010).

  6. 6.

    Article 15.2 of GP Chapter of TPP, ‘Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Text/15.-Government-Procurement.pdf accessed 13 June 2016.

  7. 7.

    See Section A of Annex 15-A of GP Chapter of TPP: ‘Malaysia Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/15-A.-Malaysia-Government-Procurement-Annex.pdf accessed 16 June 2016.

  8. 8.

    See Section B of Annex 15-A: ‘Malaysia Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/15-A.-Malaysia-Government-Procurement-Annex.pdf accessed 16 June 2016.

  9. 9.

    ‘Malaysia’s Government Procurement Regime’ 2.

  10. 10.

    Article 74 of the Federal Constitution (Malaysia) Federal constitution provides that the State Legislature may make laws with respect to any of the subject matters in the State List but Article 76 of the same Constitution gives power to Federal Legislature to make laws with respect to any matter enumerated in the State List, but “only (a) for the purpose of implementing any treaty, agreement or convention between the Federation and any other country, or any decision of an international organization of which the Federation is a member”. This power however cannot be exercised with respect to Islamic law, Malay and other Natives’ customs until the Federal Government has consulted the State Government.

  11. 11.

    See Section C of Annex 15-A: ‘Malaysia Government Procurement’.

  12. 12.

    See Section G, ‘Malaysia Government Procurement’.

  13. 13.

    Article 15.5.1, of TPP: ‘Government Procurement’.

  14. 14.

    Article 15.5.5, ‘Government Procurement’.

  15. 15.

    See Section A of Annex 15-A: ‘Malaysia Government Procurement’.

  16. 16.

    See http://fx-rate.net/SDR/MYR/ accessed 16 June 2016.

  17. 17.

    See Section A of Annex 15-A of GP Chapter of TPP: ‘Mexico Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/15-A.-Mexico-Government-Procurement-Annex.pdf accessed 16 June 2016.

  18. 18.

    See Section A of Annex 15-A of GP Chapter of TPP: ‘Peru Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/15-A.-Peru-Government-Procurement-Annex.pdf accessed 16 June 2016.

  19. 19.

    See Part A of Annex XVI of NAFTA.

  20. 20.

    See Annex 9.1 of the US-Peru Trade Promotion Agreement 2006.

  21. 21.

    See Section A of Annex 15-A of GP Chapter of TPP: ‘Vietnam Government Procurement’ www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/15-A.-Viet-Nam-Government-Procurement-Annex.pdf accessed 16 June 2016.

  22. 22.

    Evenett and Hoekman (n 5) xvi.

  23. 23.

    Article 15.1 of TPP Text: ‘Government Procurement’.

  24. 24.

    Article 15.1, ‘Government Procurement’.

  25. 25.

    See generally Shu Hui and others (2011).

  26. 26.

    ‘Malaysia’s Government Procurement Regime’ 4.

  27. 27.

    Article 15.7.1, ‘Government Procurement’.

  28. 28.

    Article 15.7.2(a) and (b), ‘Government Procurement’.

  29. 29.

    This is through the single entry point that the TPP requires to establish and include in it notices of intended procurement. See Article 15.7.2(a), ‘Government Procurement’.

  30. 30.

    Article 15.4, ‘Government Procurement’.

  31. 31.

    Article 15.4.1 and Article 15.4.2, ‘Government Procurement’.

  32. 32.

    Article 15.4.6, ‘Government Procurement’.

  33. 33.

    Article 15.1, ‘Government Procurement’.

  34. 34.

    Article 15.8.1, ‘Government Procurement’.

  35. 35.

    Article 15.8.2, ‘Government Procurement’.

  36. 36.

    Article 15.8.3, ‘Government Procurement’.

  37. 37.

    Article 15.16.1 c, ‘Government Procurement’.

  38. 38.

    Article 15.16.2, ‘Government Procurement’.

  39. 39.

    Article 15.16.3, ‘Government Procurement’.

  40. 40.

    See Article 15.19, ‘Government Procurement’.

  41. 41.

    Beh (2010).

  42. 42.

    The other FTAs are ASEAN, ASEAN-Australia-New Zealand FTA (AANZFTA), ASEAN-China FTA (ACFTA), ASEAN-Japan FTA (AJFTA), ASEAN-Korea FTA (AKFTA), Malaysia-Australia FTA (MAFTA), Malaysia-Japan Economic Partnership (MJEPA), Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA), Malaysia-New Zealand (MNZFTA), Malaysia-Chile FTA (MCFTA) and Malaysia-Pakistan Comprehensive Economic Cooperation Agreement (MPCEPA). See Ministry of International Trade and Industry (MITI) (2015).

  43. 43.

    But if cheaper alternatives can be sourced from non-TPP countries (such as China or India), such benefits to the local players will be overstated.

  44. 44.

    Ministry of International Trade and Industry (MITI), ‘Study on Potential Economic Impact of TPPA on the Malaysian Economy and Selected Key Economic Sectors (by PwC)’ (December 2015) http://fta.miti.gov.my/miti-fta/resources/TPPA_PwC_CBA_-_Final_Report_021215_FINAL_(corrected).pdf 32, accessed 20 June 2016.

  45. 45.

    Stiglitz and Charlton (2005).

  46. 46.

    Joseph E Stiglitz and Andrew Charlton, Fair Trade for All: How Trade Can Promote Development (Oxford Univ. Press 2005) 274–275.

  47. 47.

    But if cheaper alternatives can be sourced from non-TPP countries (such as China or India), such benefits to the local players will be overstated.

  48. 48.

    Bumiputera is a Sanskrit word for ‘son of the soil’ denoting an indigenous person. The Bumiputera issue, relates, among others, to the special position of the Malays and the natives of the States of Sabah and Sarawak which is part of race-based affirmative action policy enshrined in Article 153(1) of the Federal Constitution Federal Constitution 1957. The constitutional provision provides constitutional protection of the special position of the Malays and natives of the States of Sabah and Sarawak. See Bari (2003).

  49. 49.

    McCrudden (2007).

  50. 50.

    They include Ministry of Finance (Malaysia), ‘Treasury Circular No. 4 1995, Dasar Dan Keutamaan Kepada Syarikat Bumiputra Dalam Perolehan Kerajaan’ www.treasury.gov.my/pekeliling/spp/spp041995.pdf accessed 13 June 2016.

  51. 51.

    The Bumiputera company criteria under the 1995 Circular include—(i) at least 51% shares ownership by a Bumiputera person or company, (ii) at least 51% of company’s board of directors membership are Bumiputera persons, (iii) at least 51% of the workforce is among Bumiputeras. See They include Ministry of Finance (Malaysia), ‘Treasury Circular No. 4 1995, Dasar Dan Keutamaan Kepada Syarikat Bumiputra Dalam Perolehan Kerajaan’ www.treasury.gov.my/pekeliling/spp/spp041995.pdf accessed 13 June 2016. para 2.1.

  52. 52.

    The margin of preference depends on the tender value:

    Between RM100,000 and RM500,000−10%

    Between RM500,000 and RM1.7 million−7%

    Between RM1.5 million and RM5 million−5%

    Between RM5 million and RM10 million−3%

    Between RM10 million and RM15 million−2.5%

    More than RM15 million −nil

    They include Ministry of Finance (Malaysia), ‘Treasury Circular No. 4 1995, Dasar Dan Keutamaan Kepada Syarikat Bumiputra Dalam Perolehan Kerajaan’ www.treasury.gov.my/pekeliling/spp/spp041995.pdf accessed 13 June 2016 5.2.1.

  53. 53.

    National Economic Advisory Council (2010). See also Munusamy (2012).

  54. 54.

    Literally, “Ali Baba” is a combination of the words “Ali” and “Baba”. Ali is a common name of a Malay man while Baba refers to a Peranakan Chinese man. Under the Ali Baba concept, Malay (or indigenous) entrepreneurs receive government projects but they will collaborate and share those projects with the more experienced and competitive Chinese businesses who would execute them. The idea was to transfer expertise to the Malay entrepreneurs but that did not happen.

  55. 55.

    Kanapathy and Hazri (2014).

  56. 56.

    The denial of benefits provision allows a State to deny protection to foreign investors on the basis that the investors do not have substantial business in another different State with a bilateral investment treaty (or FTA) with the protecting State.

  57. 57.

    Refer to the discussion on the flexibilities allowed for Malaysia above.

  58. 58.

    See generally Ahamat and Abdul Rahman (2015).

  59. 59.

    Para 2 of Section G of Annex 15-A: ‘Malaysia Government Procurement’.

  60. 60.

    In 2014, more than two third of Bumiputera players in construction are Grade 1 contractors, the lowest category of building contractors (i.e. microenterprise). See Construction Industry Development Board (CIDB) Malaysia (2015).

  61. 61.

    There is no express provision in the GP Chapter that excludes the TPP dispute settlement.

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Authors and Affiliations

  1. Faculty of Law, The National University of Malaysia (UKM), Selangor, Malaysia

    Haniff Ahamat

  2. Ahmad Ibrahim Kulliyyah (Faculty) of Laws, International Islamic University Malaysia (IIUM), Kuala Lumpur, Malaysia

    Nasarudin Abdul Rahman

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  1. Haniff Ahamat
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  2. Nasarudin Abdul Rahman
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  1. Faculty of Law, Chinese University of Hong Kong, Shatin, New Territories, Hong Kong

    Julien Chaisse

  2. Singapore Management University, Singapore, Singapore

    Henry Gao

  3. Judicial Yuan, Justices of the Constitutional Court, Taipei, Taiwan

    Chang-fa Lo

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Ahamat, H., Rahman, N.A. (2017). The TPP and Government Procurement in Malaysia. In: Chaisse, J., Gao, H., Lo, Cf. (eds) Paradigm Shift in International Economic Law Rule-Making. ODS 2017. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-10-6731-0_19

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