FTAs won’t stop subtle forms of discrimination
New Straits Times, Malaysia
Comment: FTAs won’t stop subtle forms of discrimination
3 September 2006
By Adam Kadir
A reflexive response to a difficult question is to say that it’s a good question. The ruse provides time for the person questioned to come up with an answer, or avoid embarrassment, or to plainly gloss it over.
So when one is asked how beneficial the US-Malaysia free trade agreement (FTA) is to us, one would best repeat the phrasing and then go into some figuring.
A few days ago, the Deputy International Trade and Industry Minister told Members of Parliament that Malaysia would benefit from the FTA, emphasising that the goods included in the free trade schedule would be tax-free when entering the American market, doing away with the so-far entrenched taxes ranging from five per cent to 32 per cent.
An FTA, to all intents and purposes, is about taxation, either its abolition or reduction. Looming beyond the question of taxation is the central issue of price. This means imposing taxes, otherwise it is only an element in the determination of price.
Other elements include quality, which is very subjective, packaging, quota and content, etc. The cost to the importing country, say the United States, in making decisions on the right quality, packaging, quota and content, may be transferred to the exporting country, say Malaysia.
For example, notwithstanding the good relationship between Japan and the US, one often comes across how Japan digs out reasons why it cannot continue importing US rice. Non-quantifiable reasons like the lack of quality were highlighted.
Long before the mad cow outbreak, Japan intermittently stopped or curtailed US beef from reaching Japanese borders.
Conversely, the US never failed to punch Japan at its soft belly, the car trade. For being too-good competitors against the big automobile manufacturers, Japanese cars in the US were singled out as the epitome of dumping practices, contrary to the spirit of free trade and all sorts of bilateral arrangements.
It took a long time for American automobile manufacturers to come to terms with the fact that, quality-wise, Japanese cars were superior and that questions of dumping and anti-FTA practices were irrelevant.
In other words, while our FTA with the US is welcome to begin with, it is to one’s benefit to proceed discreetly going by the Japanese experience, on the one hand, and what the European Union (EU) has gone through, on the other.
In practical terms, the EU, being the mother of all FTAs, starting from the original six about 50 years ago to 25 as it now stands, has been grappling with the issues of taxes and duties when goods cross borders. Having established tax-free positions for their goods on crossing the member-countries’ borders, there were many other forms of taxation that the goods had to contend with. Internal taxation is the most potent one.
Imported goods only enjoyed a short-lived happiness on crossing into the importing country because no sooner had they entered than the goods were scrutinised for reasons described as non-quantifiable above.
Having gone through such scrutiny, the goods would then be subject to internal taxation, as in the case of similar domestic goods, while the duty rate might not be similar at all. It could be discriminatory in the most subtle ways.
Tan Sri Adam Kadir, trained in commercial, corporate and market law at the University of London, is chairman of Pos Malaysia.
