Scholarly article on topic 'The Impact of Trans Pacific Partnership (TPP) Agreement on US and Malaysian Business’ Foreign Labour Practices'

The Impact of Trans Pacific Partnership (TPP) Agreement on US and Malaysian Business’ Foreign Labour Practices Academic research paper on "Economics and business"

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{"Trans Pacific Partnership Agreement" / TPP / "foreign labour practices" / "forced labour" / "sustainable development" / "regiona trade agreement" / "human rights" / "social sustainability"}

Abstract of research paper on Economics and business, author of scientific article — Kamala Vainy Pillai, Rajah Rasiah, Geoffrey Williams

Abstract The Obama Administration achieved a symbolic milestone in October 2015 when the Trans Pacific Partnership (TPP) Agreement was signed among 12 nations. The total trade share between the United States (US) and TTP partners are estimated at US892.4 billion. An important implication of TPP is the explicit expectation on Malaysia to ameliorate its poignant foreign labour practices. The paper examines the extent of TPP-readiness among Malaysia and US companies in tackling foreign labour issues. Concomitantly, the feasibility of TPP's ambitious standards on labour rights or remains a political rhetoric?

Academic research paper on topic "The Impact of Trans Pacific Partnership (TPP) Agreement on US and Malaysian Business’ Foreign Labour Practices"

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Procedia - Social and Behavioral Sciences 219 (2016) 589 - 597

3rd Global Conference on Business and Social Science-2015, GCBSS-2015, 16-17 December

2015, Kuala Lumpur, Malaysia

The Impact of Trans Pacific Partnership (TPP) Agreement on US and Malaysian Business' Foreign Labour Practices

Kamala Vainy Pillai*, Rajah Rasiahb and Geoffrey Williamsc

*Curtin University Sarawak, CDT 250, 98009, Miri, Sarawak, Malaysia bUniversity of Malaya, 50603, Kuala Lumpur, Malaysia cUniversity Tun Abdul Razak, Jalan Tangsi, 50480, Kuala Lumpur, Malaysia


The Obama Administration achieved a symbolic milestone in October 2015 when the Trans Pacific Partnership (TPP) Agreement was signed among 12 nations. The total trade share between the United States (US) and TTP partners are estimated at US892.4 billion. An important implication of TPP is the explicit expectation on Malaysia to ameliorate its poignant foreign labour practices. The paper examines the extent of TPP-readiness among Malaysia and US companies in tackling foreign labour issues. Concomitantly, the feasibility ofTPP's ambitious standards on labour rights or remains a political rhetoric?

© 2016 The Authors.PublishedbyElsevierLtd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).

Peer-reviewunderresponsibilityof theOrganizingCommittee ofthe3rdGCBSS-2015

Keywords: Trans Pacific Partnership Agreement; TPP; foreign labourpractices; forced labour; sustainable development; regionatrade agreement; human rights; social sustainability

1. Introduction

In October 2015, the Obama Administration achieved a significant milestone when the Trans Pacific Partnership (TPP) Agreement was signed among 12 nations: United States of America (US), Japan, Brunei, Chile, New Zealand, Singapore, Australia, Canada, Malaysia, Mexico, Peru and Vietnam, after long negotiations that began since 2004. The total trade share between the US and TPP partners are estimated at US892.4 billion. Regional Trade Agreements

* Corresponding author. Tel.: +6085 443939 ; fax: +6085 443950 E-mail address:

1877-0428 © 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.Org/licenses/by-nc-nd/4.0/).

Peer-review under responsibility of the Organizing Committee of the 3rd GCBSS-2015 doi:10.1016/j.sbspro.2016.05.038

(RTAs) like the TPP has proven to facilitate integration of partner countries with global market access. Both the US and Malaysian business are expected to gain immensely through the partnership with estimated trade volume worth US$26.7 billion. In the context ofMalaysia, financial reports (Fortune, 2015; Bloomberg Markets, 2014) have listed Malaysia in 'Top 5 Emerging Markets' for three consecutive years. Further, weakening of the Ringgit currency is set to springboard Malaysian business into new markets as well as attract foreign direct investments (FDIs). At the same time, US business sets to gain strong trade traction from the sturdy market growth within the region. With concerns over China's influence, TPP augments US government's political strategy to strengthen its presence within the heart of Asia Pacific's dynamic economic belt.

The paper examines the impact of TPP Agreement on both US and Malaysian business operations. First, an important implication of TPP is the explicit expectation by the US and TPP members on Malaysia to address its poignant forced labour and human rights grievances or potentially face severe trade sanctions. The question that arises is "What is the level of TPP-readiness among Malaysian business in relation to foreign labour practices?" The level of readiness inadvertently influences the extent of business opportunities available to Malaysian companies from the TPP zone or otherwise. Concomitantly, bigger US presence in the TPP region has multi-fold implications on corporate America. Firstly, US is a signatory to the United Nations' Sustainable Development Goals (SDGs) adopted in December 2015. In RTAs like the TPP, companies who take advantage of regional trade opportunities, in fact, serve as ambassadors for their country. The extent of commitment to sustainability issues exhibited by corporate America has a profound impact on strengthening or negating US government's political strategy to position itself as a champion for social justice through the TPP Agreement. Secondly, imminent pressures from political consumerism (Stolle and Micheletti, 2013) inextricably means that US business operating in this region are expected to explicitly demonstrate commitment towards the promotion of fair labour practices and addressing human rights issues in order to retain favourable global brand reputation and continued social licence to operate. Hence, the inherent question that arises is "What is the level of TPP-readiness among US business in relation to tackling foreign labour issues?" The paper examines the state of readiness among US and Malaysian companies in addressing a critical social sustainability issue relating to human rights affirmed in the TPP Agreement. In the context of this study, foreign labour practices are examined in four sectors: the plantation/agriculture, construction, mining and manufacturing sectors which are expected to gain the most from this regional trade agreement.

2. TPP challenges - A political rhetoric on labour rights?

Despite the ratification by the US government and its TPP partner nations on addressing human rights issues, which includes forced labour or foreign labour/worker rights in Malaysia and Vietnam through the TPP, the incontrovertible reality is that issues on foreign labour rights may remain a political rhetoric. Substantial literature (Peters and Pierre, 2007; Stolle & Micheletti, 2013; Keohane 2003) asseverate the traditional model of political responsibility that assumes the government as the collective actor with supreme authority to solve matters on common and public good has limitations and challenges. In the TPP context, does the US Government have significant influence over Corporate America (which runs on the fundamental principles of capitalism) to support and act as strategic facilitators to promote responsible labour practices and sustainable business practices with its Malaysian counterparts?

If a regional trade agreement like the TPP's ambitious standards is expected to make significant inroads in terms of ameliorating the state of human rights practices in this region, particularly in Malaysia, there is a need to make a strong business case for corporate sector buy-in to act as key political agents for meaningful change.

3. Making a business case through Sustainable Development Goals (SDGs)

With deepening tensions among US and Malaysian citizenry, on the actual beneficiaries from regional trade agreements such as the TPP, are often the large corporations (evident from existing RTAs) - making a strong business case for corporate buy-in and participation is critical. Otherwise, the Agreement's ambitious standards as well as US's strategic political positioning are set to fail in the face of enticing China's trade influence within the region.

Here, one compelling business proposition is the alignment of TTP Agreement with United Nations' Sustainable Development Goals (SDGs). As climate change threats take centre stage on a global scale, nations and corporations

have begun to grapple with the hard reality that the planet has entered the era of anthropocene - an era where humanity is shaping the planet's biosphere. SDGs is a global agenda that articulates the importance of inter-linkages of economy, social, environmental, political and governance processes for continued growth and profitability, concomitantly, balanced with innovative solutions to mitigate pressures on the planetary boundaries. If the business as usual (BAU) trajectory continues, and the planetary boundaries pass the tipping points, empirical scientific evidences assert that the planet would face irreversible damage. In addition, escalating pressures from political consumerism catapulted by the social media juggernaut, while does not augur well with a capitalist US business society, presents a valid and strong business case for corporate sector participation and commitment towards social sustainability initiatives for longer term 'social license' to operate profitably.

In the case of TPP and the ambitious objectives asserted in its Agreement, the primal SDGs goal that fits coherently to address labour rights issues is

• Goal 8: Promote inclusive and sustainable economic growth, employment and decent work for all

(Figure 1) - Roughly half the world's population still lives on the equivalent of about US$2 a day. And in too many places, having a job doesn't guarantee the ability to escape from poverty. A continued lack of decent work opportunities, insufficient investments and under-consumption lead to an erosion of the basic social contract underlying democratic societies: that all must share in progress. . The creation of quality jobs will remain a major challenge for almost all economies well beyond 2015 (United Nations, 2015).


Fig.l - SDG Goal 8

By aligning with SDG's Goal 8, both the US and Malaysian government have a legitimate and unified consensus that serves as building blocks for post-2015 TPP partnership design, implementation as well as strong business case to convince and mobilize their corporate sectors to participate cohesively towards explicit social justice targets.

The following section of the study outlines the findings on the state of foreign labour practices among Malaysia and US business until December 2015 and the level ofTPP-readiness.

4. State of Foreign Labour

According to International Labour Organization (ILO, 2014), labour migration has been beneficial for the economic and social position of foreign or migrant workers and their families globally. 2013 Migrant Worker Statistics indicated 231.5 million people worked abroad, out of which Asian labour migration represented 70.8 million (30 per cent) of global migration figures (United Nations, 2013 as cited in UNDESA & OECD, 2013). The foreign labour sector is worth US$75 billion - a mainstay ofSoutheast Asian countries' export-driven economy (Reuters, 2014).

4.1 Foreign Labour in Malaysia

In the Asian region, Malaysia's rapid economic growth and tight labour market has attracted the highest influx of foreign migrant workers (Malaysian Digest, 2015) both legal and illegal from neighbouring South East Asian nations (Indonesia, Cambodia, Vietnam, Philippines and Myanmar) and South Asian countries, in particular, Nepal, India and Bangladesh (MEF, 2014). In addition, the minimum wages policy implemented in Malaysia has been another major pull factor for foreign labour (ASEAN Briefing, 2013). Foreign labour/workers are employed in semiskilled and low skilled jobs in five major sectors: plantation, agriculture, manufacturing, construction and the services sector. A 'foreign worker' in Malaysia is defined as non-Malaysian citizen or Permanent Resident (PR) but allowed

for employment and temporary stay on Visit Pass (Temporary Employment Pass) issued by the Department of Immigration of Malaysia. Table 1 below exhibits the breakdown of foreign labour in Malaysia by source countries over five years (Immigration Department of Malaysia, 2014) while Figure 2 illustrates foreign labour employed by sector during the same period.

Table 1. Foreign workers by source country 2009 to2013 (5-yeartrend)

Country/Year 2009 2010 2011 2012 2013

Indonesia 991,940 792,809 785,236 746,063 1,021,655

Bangladesh 319,020 319,475 116,663 132,350 322,750

Thailand 19,402 17,209 5,838 7,251 17,044

Philippines 24,384 35,338 44,359 44,919 69,126

Pakistan 21,891 28,992 26,229 31,249 50,662

Myanmar 139,731 160,504 146,126 129,506 161,447

Nepal 182,668 251,416 258,497 304,717 385,466

India 122,382 95,112 87,399 93,761 124,017

Others (Vietnam, Cambodia, 96,728 117,086 102,714 81,773 98,155

China, Sri Lanka & Laos)

Total 1,918,146 1,817,871 1,573,061 1,571,589 2,250,322

Source: Immigration Department, Ministry of Home Affairs Malaysia (2014)

Employment of Foreign Workers By Sector in Malaysia

Fig.2 Foreign labour By Sector in Malaysia

Further, it is evident from Figure 3 that the foreign labour force represents 32 per cent of the total labour market in Malaysia. According to Central Bank of Malaysia Annual Report (Bank Negara, 2013), foreign labour made up 35 per cent of total workforce in the manufacturing sector, 26 per cent in agriculture/plantation sector and 20 per cent in the construction sector. Malaysian Employers' Federation (MEF, 2014) report affirmed that all legal foreign workers receive equal protection under various labour laws and regulations enacted in Malaysia similar to that afforded to the Malaysian workforce. MEF asserted that only foreign workers who entered the country illegally or failed to renew work permit and worked in breach of immigration laws exposed themselves to abuse and exploitation. In the first

quarter of 2015, United Nations' Special Rapporteur on trafficking in persons, reported that there are about two million documented and another two million or more undocumented foreign labour in Malaysia (The Star, 2015).

Fig. 3 Labour Market in Malaysia as at September 2015 (Department of Statistics Malaysia, 2015)

In its attempt to regulate foreign labour management, since 2006, the recruitment of foreign labour has been streamlined by the Malaysian Government through the official appointment of outsourcing companies. Companies that require less than 50 foreign workers must go through these outsourcing companies. The outsourcing companies are responsible for contract negotiation, visa application, provision of accommodation, food, insurance and disciplining employees (Reuters, 2014; MEF, 2014). As at 2014, a total of 277 legally registered outsourcing companies supplied foreign workers to companies operating in Malaysia. Despite the legal and policy infrastructure

in place within the Malaysian context, civil society and human rights activists have raised the 'red flag' on numerous

foreign labour-related violations:

Table 2. Foreign Labour Grievances in Malaysia

Forced labour and trafficking Work condition

• sexual harassment among female workers • long work hours: up to 72 hours of overtime

• contract fraud • 7-day work week

• passport/work document confiscation (restricted movement) • Paid and managed by third-party agents - grey areas that

• verbal and physical abuse prevent foreign workers to seek recourse from factory owners

• post-employment issues (repatriation measures to ensure safe • Limited or absence of access to grievance procedures and

return to home country) redress mechanism

Debt Bondage Social Wellbeing

• wage fraud • Undermined accessibility to health, social services and decent

• recruitment & contracting fees deducted from wages accommodation

• burden of paying immigration and employment authorization • Absence of benefits provision (such as annual leave, public

fees holidays and paid sick leave)

• an average of six months' wages withheld • restrictions of freedom of association

Sources: Various

The foreign labour rights issues have an obvious and immediate impact on workers as well as consequences for

companies and participating source counties. Secondary research on the five major sectors (plantation, agriculture,

manufacturing, construction and the services sector) reveal that despite the profound contribution of foreign labour to Malaysia's economy, corporate sustainability reports published since the mandatory reporting requirement in 2007 by the Malaysian Stock Exchange (Bursa Malaysia) - there is very limited or absence of affirmative initiatives and

evidence in reports that illustrate continuous commitment towards ameliorating the dismal state of foreign labour conditions. While there has been some attempt in the plantation and electronics industry, yet, very limited discourse was articulated in the annual reports. Extensive initiatives in relation to employees in annual sustainability reports were dedicated to domestic labour force. The findings inextricably mean that level of readiness of Malaysian companies in tackling the high expectation ofTTP Agreement is questionable.

4.2 US Companies-readiness on foreign labour

A review on existing US companies' performance delineate two palpable obstacles expected to hinder corporate America's commitment towards a cohesive corporate social responsiveness on labour and human rights practices within the TPP region. First, the analytical processes for the identification and evaluation of social risks (such as foreign labour practices) are far from refined in the US; and second, as a consequence of the perceived lack of affirmative material relevance, there is no mandatory reporting requirement by the US Securities and Exchange Commission on community-related or human rights practices and performance. Hence, this has resulted in widespread discrepancies in US companies' disclosures (if they are disclosed at all).

Further, as voluntary sustainability frameworks such as the Global Reporting Initiatives (GRI), Global Compact and others offer broad guidance, there is an explicit tendency among US companies to 'cherry pick' their approaches in sustainability reporting and presents limited insight on ongoing business operations. One RTA case example is the discord on NAFTA (North American Free Trade Agreement) and the labour abuses complaints against US and Mexican companies that cultivated dozens of sham unions in Mexico - through so-called "protection contracts". The 'labour protection contracts' was found to silence employees' voices and trample their rights, and represented the interests of management rather than its workers and prevented the formation of independent unions (Alfcio, 2015).

In the absence of governance and market incentives, US companies will not be prompted to participate actively as political agents of change. In this circumstance, unless a corporate crisis occurs due to supply chain mis-management (for instance, Nike sweat shop crisis) or heavy social costs experienced arising from boycotts, damaged reputation from media exposés or loss of market support as a result of political consumerism that may force change in US corporate conduct.

5. Addressing foreign labour issues and strengthening social sustainability for US-Malaysia TPP trade success

As business today operates in an unprecedented social and environmental risks periphery - the concept of corporate sustainability is expected to bring new meanings and heightened expectations. The accessions by civil societies as major market force driving businesses to embrace sustainability (Willard, 2007) and the impact from political consumerism post SDGs' ratification in 2015 cannot be underestimated, in particular in the dynamic TPP's market growth belt. Concomitantly, the strong link between corporate financial and social performance continues to gain broad recognition. In the context of foreign labour, it is established at the onset that labour migration is beneficial for both economic and social position of migrant workers and their families globally (ILO, 2014). This sector which serves the mainstay of Southeast Asian's export-driven industry is worth US$75 billion. Social sustainability considerably has the least attention in corporate and political dialogue compared to economic and environmental sustainability. Findings of this study illuminate an obvious lack of appreciation or recognition of foreign labour rights among US and Malaysian companies as part of its broader social sustainability discourse.

5. 1 Strengthening social sustainability on foreign labour practices in the TPP region

This section expounds on the strategies that can be explored for meaningful trade success within the TPP region. If the US and its TPP members seek to make meaningful progress, there is an urgent need for the identification and determination of contemporary approaches to clearly direct and mobilize affirmative changes from the current deplorable state of foreign labour practices in the TPP region by both US companies and corporate Malaysia.

Sustainability is a concept that can be approached from various theoretical positions. Three main theoretical approaches based on the premise by Garriga and Mele (2004) considered are: First, instrumental approach on sustainability serves as a means to achieving business goals or improving company's intangible indicators such as image or reputation. In this context, corporate sustainability as an instrument to achieving competitive advantage (inter alia gaining greater consumer support or reduce negative public image). Second, political approach to sustainability concentrates on the relationship between business and government structures, which may involve the voluntary or involuntary compliance to sustainable development guidelines, that present companies with a better position in government relations and reduces vulnerability to drastic actions by the state (Baeten, 2000; Demeritt, 2006; Bernsten, 2002; Dovers, 1996). Finally, strategic development approach to sustainability represents the link between strategic requirements to business operations and concerns for future development that focuses on sustaining finite resources in order to provide for the needs of the company in future (Porter and Kramer, 2009).

In extending this deliberation, irrespective of the corporate sustainability approaches adopted by companies, the explicit commitment of both the US and Malaysian Government in mobilizing collaborative initiatives through TPP to push their corporate sectors to play a more significant role in ameliorating foreign labour rights practices with their business partners requires a hybrid sustainability approach (a combination of instrumental, political and strategic approaches). Expecting only the Malaysian government to push changes would put the US aspiration through TPP as mere political rhetoric while corporate capitalism continues to dominate business practices.

6. Recommendation and Conclusion

If the US Government, the major proponent of TPP fails to address the serious foreign labour issues with clear course of action, then, there would be no significant difference between US presence versus Chinese presence (overtly known for their disregard for labour rights) in this region. The positive and negative impacts on trade depend on the design and implementation of the respective RTAs.

The proposed components in the TPP Foreign Labour rights pyramid (Figure 4) adapted from various studies and framework propositions, serves as plausible building blocks that facilitate the shaping and refinement of foreign labour practices.

The three levels in the pyramid have both managerial and policy implications:

• Level 1 (Fundamental): TPP ethical foundation on social justice & equity for foreign labour - There should be explicit understanding and commitment to socialjustice and equity values (UN SDG, 2015; Cuthill, 2010; United Nations, 2007; Hopwood et al, 2005; Gotlieb, 1996) with clear definitions and understanding on foreign labour practices among US and Malaysia companies that intend to trade together. The values designed and established by both US and Malaysian government (and remaining 10-TPP partner nations) guided by UN's SDG and in collaboration with ILO and recognised international human rights civic groups like Amnesty International.

• Level 2 (Operational block): TPP social infrastructure on foreign labour - Here, the design and implementation ofhard and soft social infrastructure (Cuthill, 2010) refers to the provision of foreign labour activity centres for both hard elements of recruitment policy processes by companies benefitting from TPP trade as well as soft elements that focus on capacity building among citizens, labour and companies on foreign labour rights. Business or trade opportunities within TPP should only be granted to companies that have been undergone training and awarded 'Certified Fair Labour Practice' by the respective government agencies.

• Level 3 (Continuous Improvement): TPP Engaged Governance (Social inclusiveness and collaborative stakeholder solutions) - Here, ongoing monitoring and reporting fortified with periodic engaged governance that involves various stakeholder groups working together collaboratively to find innovative solutions to emerging issues relating to foreign labour violations and best practices.

TPP Social Infrastructure

on Foreign Labour practices (operational)

guided by explicit (i) legal framework governin trade partners and (ii) ILO & SDG indicators

TPP ethical foundation on social Justice and equity

(based on ILO & SDG principles)

Fig. 4 Conceptual model for TPP foreign labour rights pyramid

In conclusion, the capitalist business players can no longer evade responsibility as critical political agents of change for social sustainability betterment and both the US and Malaysian governments need to commit and work closely together to ameliorate the existing labour rights issues. The expectation ofUS government to pass the responsibility to only Malaysia to resolve is not plausible if US intends to make a significant political presence in the TPP region.

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