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IDEAS: Free Trade Agreements Like The TPPA Can Help Transform Govt. Contracting

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KUALA LUMPUR: Free Trade Agreements with procurement provisions like the Transpacific Partnership Agreement (TPPA) can help transform government contracting because they require all partner countries to follow the same principles and procedures in procurement, says the latest briefing paper released by the Institute for Democracy and Economic Affairs (IDEAS) today, titled “Public Procurement in FTAs: The challenges for Malaysia” by Dr. David Seth Jones, a public policy specialist and former Associate Professor at University of Brunei and the National University of Singapore.

Dr Jones explores the opportunities and challenges for Malaysia if it enters into an FTA with a provision on public procurement such as in the TPPA and the Malaysian European Union Free Trade Agreement (MEUFTA). He argues such FTAs will benefit Malaysia as they provide Malaysian companies with greater market access and provide them with opportunities to win contracts in foreign procurement markets and improve domestic procurement standards.

Malaysian firms are now competing to get access to the domestic procurement market whose value reaches about RM 261 billion annually. If Malaysia signs to the TPPA, the size of procurement market available to them, based on the value of public procurement contracts above threshold in two TPPA countries alone (Singapore and the USA), is more than RM 4 trillion annually.

Dr Jones acknowledges that “opening up the Malaysian procurement market in which local suppliers and contractors have been protected for decades is especially challenging.” For that reason, he explores a number of exemptions and allowances that Malaysia may apply in its FTAs such as higher value threshold and retention of preferential margins temporarily or permanently. However, he encourages the Malaysian government to make all exemptions and allowances transitional in nature so that Malaysian firms can become more competitive and take full advantage of procurement opportunities in future FTAs.

Competitiveness in an FTA market can be gained if Malaysian companies can provide a wider range and better quality of goods, services and works as required by the public sector in partner countries. This competitiveness can be encouraged by first phasing out preferential treatment for Bumiputera and local companies.

Commenting on the paper, Wan Saiful Wan Jan, IDEAS CEO, said: “Malaysia’s procurement market has been protected for too long such that local companies are not encouraged to be competitive and to strive for looking for markets outside Malaysia. Nurturing competitiveness in a protective environment is more difficult than in an open environment. The government should therefore use the FTAs as an opportunity to encourage local companies, especially the Bumiputera ones, to be more competitive.”

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