Friday, April 8, 2011


As posted by Dr. Mahathir Mohamad at Che Det on April 6, 2011 2:10 PM

1. The concept of globalisation; of a world without borders; of unrestricted movements of capital, goods and investments across borders was promoted during the late 80's and early 90's when the world economy seemed set to grow forever.

2. The growth would be even greater if the poor but resource-rich countries would abolish the restriction on the movement of foreign capital to exploit opportunities presented by them. In addition to the opportunities there was cheap labour to help reduce cost.

3. The poor countries would also gain from globalisation as foreign capital invested in the extraction of raw material and simple components manufacturing would create jobs and increase the income of the people and the revenues collected by Government. Globalisation would seem to benefit everyone, the rich foreign investors and traders and people in poor countries.

4. Despite the seemingly win-win promise of globalisation, negotiation in Doha, Qatar and other places have not yielded agreements. The poor countries seem to be suspicious or unconvinced of the benefit of globalisation to them.

5. Unable to make progress the rich countries proposed bilateral free trade agreements between selected countries. The first agreement on bilateral free trade was between a highly developed country and a country which had already been practicing free trade. This agreement was lauded as a successful example of the benefits of free trade for both countries. Every country should therefore adopt free trade through bilateral agreements.

6. On closer examination it was discovered that the junior partner was not going to lose anything since it has always been a free-port and was not going to lose import duties which it did not have. Nevertheless many developing countries were persuaded that bilateral free trade agreements were good for them.

7. These agreements could possibly be less likely to result in exploitation of the poor by the rich partner. But it is still very likely that the absence of import duty would leave local products of newly industrialising countries incapable of competing against imports from the more powerful trading partner. And the Governments would lose revenue from import tax.

8. If most countries have these free-trade agreements with each other then effectively the globalisation of the world in terms of free-trade would have been achieved.

9. The G-7 (later G-8) was set up by the rich countries to enable them, among other things to manage the world economic practices so as not be detrimental to their own growth. But in 2008 the whole of their banking system collapsed. This was followed by the onset of the most severe financial crisis in the history of the world. Such is the crisis that the G-8 felt it was necessary to include other countries in the management of the world's economy. Thus was the G-20 created. The powerful but troubled economic powers merely invited countries of their own choice to be members of the G-20.

10. One of the first things agreed to by the G-20 was not to protect their economies. But everyone of them reneged on their undertakings. Yet they keep on preaching free market and globalisation to the world.

11. Malaysia seems to be unaware of what is happening. It is still pushing on religiously with dismantling its trade related taxes inspite of the failures of the Qatar rounds of negotiations on globalisation. Malaysia has entered into several bilateral free trade agreements and is proposing to go into more of such.

12. Perhaps the officials have done a thorough study of the benefits of tree trade in terms of revenue, exports and the effect on Malaysian companies competing against imports.

13. Many Malaysians support easy access of foreign goods into the Malaysian market. They can buy more foreign made cars for example. But they must know that Malaysian cars find entering foreign markets extremely difficult. It is not just the price that is unattractive but in many instances condition and regulations effectively become trade barriers.

14. Yet we are planning on removing or reducing taxes on imported cars. Obviously Government revenue from imports would be greatly reduced if we do this. Additionally there will be a great deal of money flowing out of the country to pay for the imports and much less flowing in.

15. Importing cars into the country must erode sales of locally produced cars. The profitability of local automotive companies will also be affected. Not only will the producers of cars lose their sales volume and profits but the vendors, the dealers and the agencies will also lose their sources of income. There will losses of jobs in the automotive industry including among the vendors, dealers and agents.

16. It is important to study thoroughly the benefits and the losses to the national economy which will result from tax-free agreements and globalisation. Figures such as the GDP and per capita income will be very misleading. It is far better to rely on the value of exports and imports, the reduction or increase in Government revenue, the profitability or losses by local companies and industries resulting from loss of competitiveness in the local market against possible gains from exports, jobs created and other figures which are more indicative of the true results of changes of economic policies such as globalisation and free trade agreements.

17. Only if the figures are positive should we enter into negotiations for free-trade or for globalisation. It is important to remember that when Malaysia agreed to AFTA (Asean Free Trade Agreement) in which 40% local content would qualify as national product and should be tax exempt into ASEAN countries, non-Asean car makers from Japan, Korea and Europe shifted their production to ASEAN countries so as to gain national status after including 40% local contents.

18. Malaysian national cars have 90% local contents which increase production cost. They don't have economies of scale. As a result our exports cannot compete with those foreign brands produced in ASEAN countries with 40% local content.

19. We have made many mistakes in negotiating agreements with other countries and in drawing up foreign contracts. The costs have been very high. I hope our negotiators will bear this in mind and not allow anxiety to be compliant to the so-called universal practices promoted by globalisation and free trade to affect our better judgement.