KUALA LUMPUR: Malaysia’s ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is essential and will provide a positive impact on trade and investment, say economists.
Yesterday, the International Trade and Industry Ministry (Miti) said the cabinet had agreed for Malaysia to ratify the free trade agreement (FTA).
Malaysia is the ninth country to ratify the CPTPP, which has been implemented in stages since December 2018, by Australia, Canada, Japan, Mexico, New Zealand, Singapore, Vietnam and Peru.
Sunway University professor of economics Dr Yeah Kim Leng told StarBiz that together with the 15-member Regional Comprehensive Economic Partnership, Malaysia’s ratification of the CPTPP will give the country a boost in market expansion through further reduction in tariffs and non-tariff barriers.
“The key benefits are increased market access and opportunities for global companies to use Malaysia as a gateway to both trade blocs.
“While the positive impact on trade and investment may take time to emerge, the immediate effect is an increase in investor confidence, buoyed by economic studies pointing to net positive gains in gross domestic product (GDP) for Malaysia and member countries,” he said.
Meanwhile, Malaysia University of Science and Technology economics professor Dr Geoffrey Williams said it is essential for Malaysia to verify its CPTPP membership.
“As a small open economy, Malaysia must be fully part of any emerging trade arrangements. It will add to export scope and this is important for the future as Malaysia comes out of Covid-19 and moves into a new growth phase.
“We think there are structural changes in the economy due to the Covid-19 lockdowns, so trade and investment options must be kept open,” he added.
Centre for Market Education chief executive officer Dr Carmelo Ferlito said he welcomed any step in the direction of creating and enlarging spaces for free trade.
However, Ferlito doubts agreements like the CPTPP can properly be called “FTAs”, although he concurred that Malaysia ratifying the CPTPP is better than not doing it.
“At risk of oversimplifying, I tend to be sceptical about agreements that consist of hundreds of pages; if they are so complex, they hardly move in the direction of what can be fundamentally called ‘free trade’.
“I believe that in the long term, it would be better for Malaysia to sign the agreement although I hope to see in the future the emergence of agreements that are more fundamentally committed to free trade and – to go in that direction – those agreements should be clear and simple,” he said.
Regarding the potential drawbacks for Malaysia in ratifying the CPTPP, Yeah said there are industries such as electronics and electrical, machinery and equipment, chemicals, plastics and rubber that could face more intense export and import competition.
“The stronger ones that are more efficient and competitive will thrive with market expansion and the weaker ones will see erosion in sales and market share.
“More uneven industry growth would be a major drawback, with greater competition threats from firms in other countries,” he said.
Williams also pointed out that free trade areas are not in fact “that free” – they are better called common regulation areas.
“To be a member will remove some degree of independent policy because it must be in line with the CPTPP rules and most of these are about regulation, favouring big companies rather than free trade favouring all companies.
“It removes some restrictions on foreign firms and state-ownership through government-linked companies (GLCs), for example, but actually this is a balance; perhaps Malaysia needs to free up access to foreign capital and reduce GLCs crowding out,” he said.
Ferlito said while Malaysia may suffer from more aggressive competition from foreign countries, this could become a push toward modernisation and help the country take steps in the right direction.
Meanwhile, Miti said the benefits accruing from the ratification of CPTPP far outweigh any potential costs that may arise, based on the Cost-Benefit Analysis (CBA).
The United Kingdom (UK) is in the final stages of acceding to the CPTPP while China, Ecuador and Costa Rica have also applied to join.
“With the eventual inclusion of more economies, particularly the UK and China, Malaysian exporters will gain wider and deeper market access opportunities,” said Miti.
The CPTPP also broadens Malaysia’s access to new markets such as Canada, Mexico and Peru, which are not covered by any existing FTA, providing access to a wider range of high-quality raw materials at competitive prices and increases the country’s attractiveness as an investment destination.
The CBA projects that by joining the CPTPP, Malaysia’s total trade will increase to US$655.9bil (RM3.04 trillion) in 2030.
Also, Malaysia’s exports are projected to reach US$354.7bil (RM1.64 trillion) in 2030, with trade balance remaining in strong surplus at 8.5% of GDP for 2030.
Under the CPTPP, by Jan 1, 2033, almost all Malaysian exports to CPTPP countries will enjoy duty-free treatment.
As soon as the CPTPP enters into force for Malaysia, all the country’s exports to Australia and Singapore will not be imposed duties.
Subsequently, in 2024 and 2029, all Malaysian products exported to New Zealand and Canada, respectively, will be duty-free.
Notably, the high duties on key Malaysian exports to Canada and Mexico, which currently range from 15% to 30%, will be eliminated immediately.
This means that Malaysian exporters will enjoy duty-free treatment on products such as automotive parts and components, plastics products, surgical gloves, rubber products, textiles and clothing, cocoa products and food items.
In the processed food and beverage (F&B) sector, Malaysian exporters will be able to expand their businesses into Canada, Mexico, Japan and Peru.
Since the current duties for this sector can go up to 313.5% in Canada, 158% in Mexico, 52.5% in Japan and 17% in Peru, Malaysian exporters will benefit from the significant reductions in import duties under the CPTPP.
For these countries, all duties currently imposed on processed F&B will be eliminated by the year 2028 (Canada), 2032 (Mexico), 2038 (Japan) and 2033 (Peru).
Also, Malaysian manufacturers can source raw materials from all CPTPP countries to fulfill the Rules of Origin requirements and consequently, qualifying for reduction and elimination of import duties.
Malaysian companies will also have access to the government procurement markets of CPTPP countries at much lower thresholds compared to the high thresholds committed by Malaysia.