Column - Can Trump’s policies affect Malaysia?

AT least one of US President Donald Trump's policies will have an impact on Malaysia. His decision to pull out of the Trans-Pacific Partnership Agreement (TPPA), in which Malaysia would have been one of the 12 participating countries, is widely known.

But there has been very little discussion – at least in the Malaysian context – about Trump and the Congressional Republicans' plans this week to overturn a rule requiring US oil companies to disclose payments to governments outside of the US.

This rule (known as the Cardin-Lugar extractive industries payment transparency provision) was passed in 2010 as part of the Dodd-Frank Act, with the intention to detect (and deter) potential bribery in the resource sector.

For six years, oil companies publicly listed in the US fought its inclusion in the Dodd-Frank Act, the act that sought to reform Wall Street. It essentially requires any oil company that is listed in the US stock exchange (the SEC) to publish the amount of taxes, royalties and other payments to host countries for public viewing.

Many of the large oil companies fought against the rule arguing that it would impact upon their competitiveness. The American Petroleum Institute, for instance, stated that it would "give some large industry players an advantage on future business projects". However, some of its members' biggest competitors such as BP and Royal Dutch Shell already disclose payments to foreign governments as a result of similar requirements in the UK and the European Union. Companies have already disclosed payments of over US$150 billion to governments of over 100 countries to date and "none of the reporting companies have claimed that business has been negatively impacted through such disclosures".

While it is true that overregulating industry often makes it cumbersome for the private sector to move efficiently, in this case the argument against burdensome regulation cannot be viewed so simplistically. And these companies cannot be equated with small and medium enterprises or entrepreneurs who are the ones that suffer the most at the hands of a big, highly regulated government. If we are to oppose regulation, it should be primarily for the sake of small, not big, business.

Why is this important and how would it affect us?

The natural resource sector is a multi-billion dollar industry, and in many resource-rich countries, oil companies both national and international have invested heavily into extracting their oil and gas – both at great cost and for great profit. The significance of oil to a country's political economy is made even more evident when a large percentage of the country's revenues are drawn from natural resources.

In fact, and my previous columns have highlighted this, a resource curse is known to occur in resource-rich countries, where instead of bringing greater growth and development, the reverse is true. Between 1960 and 1990, per capita incomes in resource-deficient countries grew two to three times faster than resource-reliant export-driven countries. A country is said to be resource-dependent if at least 26% of its national revenues come from the extractive industry.

Malaysia has up to recently drawn as much as 40% of its annual revenues from oil and gas – this includes large dividends from Petronas on top of other taxes and royalties paid by international oil companies that operate in the country. One of the main reasons this has fallen to a low of 19% in 2016 is because of the drastic fall in oil prices, which also accounts for the budget cuts in many ministries that we have now become familiar with (especially in higher education, but that is another story). If oil prices were to climb again, it is likely that extractives will continue to play a large role – as it has in the past – in Malaysia's growth and development story.

The current rule requires companies listed in the US stock exchange to disclose payments they make to countries it operates in. Oil companies listed in the SEC currently operating in Malaysia include ExxonMobil and Chevron, both of which contribute significantly to our oil and gas sector. Exxon Mobil has four production sharing contracts (PSCs) with Petronas, "producing one-fifth of the nation's oil production and about one-half of natural gas supplies to Peninsular Malaysia", while Chevron is most visible through its network of Caltex service stations.

At the moment, the federal government does publish some financial information in its economic reports and annual budget documents, but these are consolidated and not disaggregated. It is unclear whether there are any other sources for researchers like me who are interested in oil and gas payments to the government of Malaysia.

It is important to have this information so that civil society as independent watchdogs of the government's finances can keep government in check: in short, is the government disclosing that they are receiving the same amount of money that the companies say they are paying to government, and vice versa? Having two sources of information is crucial for this verification process.

Likewise, transparency advocates would argue the same for any disclosure around the world. Oil companies operate in countries that have questionable human rights records, including Saudi Arabia, Iraq and others. Equipping civil society and independent researchers with corroborative information on how much their governments receive from oil companies would help them build a comprehensive picture of the amount of actual wealth they receive from their extractive sector. Ultimately this allows us to follow the money trail all the way to how much government actually spends on long-term investment projects like schools, hospitals and public transport.

It would plug the information gap between what the Treasury reports as national revenues received from various sources, what it reports as having spent each year, and most importantly what the Auditor-General reports in its audits of government agencies, where wasteful spending is often highlighted. This would then quell any accusations about leakages from public funds.

If things go according to Trump's plans – and let's not forget that the new secretary of state is the former chief executive of ExxonMobil – the congressional votes will pass as expected in the coming week (all that is required are simple majority votes, as per the Congressional Review Act). This will remove an opportunity for greater transparency in the oil industry that would have contributed to the better governance of numerous countries around the world, Malaysia included.

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