We are shocked and disappointed to find that the government is persisting with the Malaysia- US Free Trade Agreement (FTA) negotiations despite all the protests and the fact that the US government is in transition. The latest round begins on Monday, July 14 in Washington, DC.

Civil society has a number of concerns that have never really been satisfactorily addressed by the government, for example by releasing a comprehensive cost-benefit analysis. This FTA will have a significant impact on all sectors of Malaysian society and the economy. The impact on Malaysian small and medium enterprises (SMEs) is likely to be particularly severe.

A total of 99.2% of the establishments in Malaysia are SMEs. According to the Third Industrial Master Plan, the development of competitive and resilient SMEs are an integral part of the initiatives for Malaysia to achieve developed country status by 2020.

However, SMEs are likely to be harmed by almost all chapters of the proposed Malaysia-US FTA.

Agricultural SMEs, for example chicken farmers and rice growers, will find it harder to compete with imported products because the FTA will remove almost all of Malaysia’s tariffs on US agricultural products.

These agricultural products are highly subsidised and sold at below the cost of production. The intellectual property chapter will also increase the costs for Malaysian farmers who in future will be trapped with seeds claimed under private property rights.

Manufacturing SMEs will also face increased competition because the US-FTA will require the removal of almost all tariffs on manufactured products from the US.

The revenue that the Malaysian government loses from the removal of these tariffs is difficult to obtain from other sources according to studies of FTAs by the International Monetary Fund, so one of the areas of spending that may be cut is assistance to SMEs.

SMEs in the services sector are also likely to face increased competition due to the FTA. Malaysia has already seen what happens when it liberalise its services. An example is the opening of the retail sector to foreign hypermarkets which expanded so quickly that small local shops could not compete.

Malaysia could reverse this by restricting where a hypermarket opens because it was not beholden to any FTA to allow unregulated expansion of foreign hypermarkets.

SMEs that are dependent either directly or indirectly on contracts from the Malaysian government are also likely to suffer if Malaysia accepts US demands to open up its government procurement to American companies via the FTA.

What do Malaysian SMEs have to gain from the FTA? The United Nations Conference on Trade and Development notes that SMEs face a variety of obstacles that reduce their ability to benefit from international trade. Even Australian SMEs did not expect to gain much from the Australia-US FTA.

Furthermore, for a Malaysia-US FTA to take effect, it must pass the US Congress. The US government used to have a ‘fast track authority’ which limited the Congress to voting for or against an entire FTA.

However, this authority expired on June 30, 2007 and has not been renewed by Congress. US political analysts point out that for various reasons, Congress is unlikely to renew it for President Bush.

This means that even if President Bush signs the Malaysia-US FTA, this does not bind the Congress or any future US president. Each member of Congress could make further demands from Malaysia in order to pass it and Malaysia would not be in a position to make demands in return.

For these reasons, many trade experts in and outside Malaysia are puzzled as to why Malaysia is continuing to negotiate this FTA.

Once again, for the future of the country and our SMEs, we strongly urge the government to stop negotiating.

The writer is president, Consumers Association of Penang.