30% of SMEs risk going bust post-TPPA, says industry rep

Malaysia will sign the Trans-Pacific Partnership Agreement after the Dewan Rakyat votes on it at a special session on January 26 and 27. – AFP file pic, January 20, 2016.About 30% of small and medium companies risk going under once the Trans-Pacific Partnership Agreement (TPPA) comes into force in two years as they would have trouble meeting higher labour and environmental standards under the agreement, says an industry group.

Pressure to follow these new rules comes on top of the increased competition local businesses will face from bigger companies, from the United States and Japan, say experts, as debate rages over whether Malaysia should join the pact.

The Malaysian Small and Medium Enterprises Association said this was the projected impact of the Asia-Pacific trade pact on its members if Putrajaya did not go all out to help SMEs prepare for it.

Unlike past free trade deals (FTAs), the TPPA changes how its 12 member countries manage their economies and businesses. It sets new rules that firms will have to follow, such as worker relations, environmental practices and corporate governance.

SME association president Michael Kang said many Malaysian SMEs would be hard pressed to adjust to these new rules and laws, and required full support from the government to make those changes.

Kang’s assessment dovetails with arguments from other experts who said export-oriented companies already tapped into the global supply chain would be the biggest beneficiaries of the TPPA.

In Malaysia, only 19% of SMEs are export-oriented and the rest is still focused on producing goods and services for the domestic market. Many in the latter category will be in trouble.

One of Putrajaya’s own studies on the TPPA shows that export-oriented firms will benefit from the pact because of a bigger market for their goods.

The TPPA opens up four new markets for Malaysian companies – the United States, Canada, Peru and Mexico.

The study by PricewaterhouseCoopers (PwC) said sectors, such as retail and construction, would face increased competition and needed help to boost their abilities to operate.

Kang said this was where SMEs needed the government’s help.

“Only a handful of SMEs are in textiles and the electronics and electrical sector (which are export-oriented). To meet TPPA requirements, SMEs must meet all its standards, such as labour regulations and the environment.

“Most SMEs are not ready. If SMEs are not ready, 30% of them will disappear,” said Kang in an email interview with The Malaysian Insider.

Some of the new requirements included greater freedoms for workers, both local and foreign, to form and join unions and more scope for negotiating collective bargaining agreements.

The pact also demands that government enforce strictly environmental standards for companies.

The US-driven TPPA is a trade pact of 12 member countries. Malaysia is a party to the negotiations but will only sign after the Dewan Rakyat votes on it at a special session on January 26 and 27.

If Malaysia signs, it has two years to change laws and adjust to the new business environment before the pact comes into effect in 2018.

Besides new rules for businesses, a former senator, S. Ramakrishnan, was reported as saying that SMEs would be hit hard by increased competition from multinational corporations (MNC).

Kang echoed this assessment, saying that SMEs would face huge challenges competing with companies from big TPPA partners, such as the US and Japan. Locals did not have the size, technology and productivity to match MNCs.

In order to stay afloat post-TPPA, SMES said Kang would have to catch up in the next two years.

“SMEs must learn about TPPA requirements, move into the Asean market to build a base to build up capacity, stay competitive, productive and transform. Most of SMEs in Malaysia will be in trouble if they are not ready.” – January 20, 2016.