The Trans-Pacific Partnership (TPP) will open Malaysia’s government procurement market for the first time under an international agreement. While it is a relatively modest opening, it provides U.S. and other TPP suppliers with more access to Malaysian procurement than they currently enjoy. For Malaysia, the use of high thresholds and offsets during transitional periods, and permanent set-asides and price preferences, will enable it to carry out a national objective of protecting its Bumiputera – ethnic Malays that comprise a majority of its population. Overcoming Malaysia’s reluctance to open its procurement, which contributed to the scuttling of earlier U.S. efforts to negotiate a bilateral FTA with it, represents a significant achievement. This post examines the procurement that Malaysia will open to TPP suppliers, as well as the permanent and temporary measures that will restrict access.
Covered Entities: Malaysia will open the procurement of 24 ministries and the Prime Minister’s Department, limited to the divisions, departments, agencies, institutes and other governmental units that it lists for them. Its coverage includes government hospitals and clinics under the Ministry of Health. Malaysia’s central government coverage is generally comparable to that of other parties, but is much more limited with respect to other entities, where it offers only four entities. It is not opening any sub-central government procurement under the TPP.
Goods and Services Coverage: Malaysia will provide access to the procurement of all goods purchased by its listed entities, with certain exceptions, including covering only listed goods for its defense ministry. It will allow foreign suppliers to participate in the procurement of the services that it lists, which include computer and related services. In addition, it will cover all construction services, except dredging and hillside surfacing.
Bumiputera Preferences: Under the TPP, Malaysia reserves the right to accord Bumiputera status to eligible companies and to apply set-asides and price preferences under its Bumiputera policy, as specified in the Agreement.
Set-asides: Malaysia will be permitted to set aside annually, for Bumiputera, 30% of the total value of its procurement of construction services that are covered under the TPP.
Price Preferences: Malaysia will be able to apply price preferences that range from 1.25% to 10%, with the higher preferences applied to the lower-valued procurement, for three categories of Bumiputera.
- Bumiputera suppliers that provide goods and services originating from any TPP party in procurement between RMB500,000 and RMB15 million in value, with the preferences ranging from 7% for the lowest-valued procurement to 2.5% for the highest-valued.
- Bumiputera suppliers that provide goods and services originating from non-TPP countries in procurement valued between RMB500,000 and RMB15 million, with preferences ranging from 3.25% to 1.25%, inverse to the value of the procurement. These price preferences must also be applied to Malaysian suppliers (other than Bumiputera) and TPP suppliers that offer goods and services originating from any TPP party.
- Bumiputera manufacturers that produce goods in procurement valued between RMB10 million and RMB100 million with preferences ranging from 10% to 3%, with the lowest preference applied to the highest-valued procurement.
As a means of comparison, the U.S. federal government applies price preferences of 6% and 12% under the Buy American Act of 1933 to goods purchased from non-trade agreement partners. The preferences are waived for FTA partners. In earlier U.S. FTAs, price preferences have only been permitted as transitional measures.
Transitional Measures: Malaysia is permitted under the TPP to apply several transitional measures: higher thresholds, an exclusion of economic stimulus packages, offsets and delayed implementation of certain provisions.
Thresholds: As noted in an earlier assessment, Malaysia will apply high thresholds to all of its covered procurement during transitional periods that range from seven years to 20 years. Its 20-year transitional period applies to construction services purchased by all of its covered entities. Over that period, it will reduce a very high starting threshold of 63 million Special Drawing Rights (SDRs) to 14,000,000 SDRs. Its permanent threshold will be the highest construction services threshold applied by the central government entities of any TPP party, including Vietnam, which will apply a permanent threshold of 8,500,000 SDRs.
Economic Stimulus Package: For the first 25 years after Malaysia implements the TPP, it will be able to exempt “procurement funded by an economic stimulus package in response to a severe nationwide economic crisis” from its TPP obligations. Such a measure has not been included in prior U.S. FTAs.
Offsets: Like Vietnam, Malaysia will be permitted to apply offsets to procurement that it covers under the TPP. For 12 years after it implements the TPP, Malaysia may apply offsets to procurement with a value of more than RM50 million (approximately $11.7 million) that is conducted by its Prime Minister’s Department and 16 of its 24 listed ministries. For the first four years, it may apply offsets up to 60% of the value of the contract; that level will drop to 40% during the next four years, and to 20% during the final four years of the offset period.
Delayed Implementation of Obligations: Malaysia will be excused from implementing two TPP provisions for several years after the Agreement enters into force for it. It can postpone for three years the establishment of an impartial authority to review supplier complaints. In addition, Malaysia will not be subject to the TPP’s dispute settlement provisions for five years after it implements the Agreement.
Jean Heilman Grier
December 11, 2015