This article first appeared in Forum, The Edge Malaysia Weekly, on January 18 - 24, 2015.

Now that the cost-benefit analysis or economic impact of the Trans-Pacific Partnership agreement (TPP) by PwC has been released, it appears that many have jumped to a premature conclusion. Some may have glanced through the executive summary without reading the fine print on the limitations and assumptions.

A member of parliament from Petaling Jaya arrived at the simplistic deduction that as the trade balance is expected to deteriorate over the 10-year period, the negative figures “do not support any significant macroeconomic justification in signing the TPP”.

First, let us be reminded that the economic growth of any nation is not contingent solely on a trade surplus. The findings that gross domestic product and investments would increase seem to be conveniently left out of the macroeconomic equation.

Basic macroeconomic policies focus on GDP growth, raising employment and controlling inflation as the main targets. The GDP hike has been established in the report, leaving the other two components. With an expected rise of US$136 billion (RM571 billion), given a 25% cut in non-tariff measures (NTMs), the number of new jobs to be created has not been factored in. On top of that, what about the multiplier effects on the small and medium enterprises (SMEs) that are supporting the new or expanded investments?

As for inflation, a freer and more open economy with a reduction in NTMs should lead to more competitive prices of both finished goods and intermediate inputs. The impact should be lower pricing across the board for consumers and producers.

If one cares to read Section 4 of the same report, the composition of the increase in imports is supposed to be mainly from intermediate and capital goods.

These capital goods could be from the new investments, domestic and foreign, that are being spurred by better market access from the TPP. With the rise in investments, the demand for jobs should increase in tandem and provide additional employment for the people.

What about the impact on SMEs?

The report shows a neutral impact overall. It has been acknowledged that the SMEs in food and beverages, wood, textiles, automotive and plastics should benefit from improved market access with lower tariffs.

The PwC report did not measure the impact of local linkages to the new and existing investments as export opportunities increase. Local supporting and ancillary SMEs could be indirect exporters selling to the exporting multinationals, and the rise in sales would not be captured in the export statistics.

In addition, one major concern of US companies in dealing with SMEs stems from the apprehension over security and intellectual property protection issues. With the TPP, some of these concerns could be allayed, thereby opening up opportunities for SMEs in the information and communications technology and electrical and electronics sectors.

The US government procurement figure from foreign suppliers is estimated at RM650 billion annually. The TPP opens up this opportunity, as I was reminded of the case of notebooks from Dell. Although the Dell notebooks produced in Penang are more price-competitive, the US government had to source from Dell Ireland because Malaysia did not ratify the Agreement on Government Procurement.

With the signing of the TPP, SMEs that are supplying to Dell and others in similar situations would benefit from the new trade opportunities.

The specialist construction sector is expected to face stiffer competition with the TPP. However, do we really expect US contractors to compete at the Class F level? Realistically, SME contractors can continue to be subcontractors to the bigger boys, whether they are local or foreign.

As for the retail or convenience sector, the multinational hypermarkets such as Dairy Farm, Tesco, IKEA, and 7-Eleven are already in town. Having Walmart from the US or Japan’s Lawson, would not necessarily tip the retail scale excessively. Instead, it could offer more options and variety to consumers with more competition. SME vendors would have more avenues to supply.

Some have ventured to portray the TPP as the “bogeyman” to scare the SMEs. The argument that exports from TPP countries would swarm the local market and kill off our SMEs just does not hold water.

If one cares to analyse the imports from the US, the threats are mostly imaginary. The real threats for the local SMEs, if any, are from China, Vietnam, Thailand and Indonesia. There is already an existing Asean-China Free Trade Agreement in place, including the Asean Free Trade Area and the Asean Economic Community. The tariffs and NTMs have already been completely removed or reduced and the SMEs have faced the competition head on.

The government can facilitate by having policies that reduce the cost of doing business, create better infrastructure for logistics and digital connections, improve the quality of education at the tertiary and vocational levels, maintain stable interest rates and reduce bureaucratic control.

For a country with a population of about 30 million, the domestic market is rather small. SMEs have to punch above their weight if they want to grow and exporting is a necessity and no longer an option. Free trade agreements that assist to improve market access and remove NTMs, be they TPP or the Regional Comprehensive Economic Partnership, cannot be ignored.

Yeoh Seng Hooi is the national secretary of the Small and Medium Enterprises Association

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.