Saying no to TPP could cost Malaysia up to US$227b, study shows

According to a PwC cost-benefit analysis, Malaysia may lose between US$116 billion and US$227 billion in cumulative opportunity cost from 2018 to 2027 if it chooses not to join the Trans-Pacific Partnership. — File pic
According to a PwC cost-benefit analysis, Malaysia may lose between US$116 billion and US$227 billion in cumulative opportunity cost from 2018 to 2027 if it chooses not to join the Trans-Pacific Partnership. — File pic

KUALA LUMPUR, Dec 3 — Malaysia may incur between US$116 billion and US$227 billion in cumulative opportunity cost from 2018 to 2027 if it chooses not to join the Trans-Pacific Partnership (TPP), according to a cost-benefit analysis.

The analysis by accounting firm PricewaterhouseCoopers (PwC) also projected that Malaysia’s non-participation in the Pacific free trade agreement would incur a cumulative GDP loss of US$9 billion to US$16 billion within the same period, as the country would not be able to gain from the elimination of tariffs together with a reduction of non-tariff measures from 25 to 50 per cent in prospective TPP member countries.

“Notably, the cumulative opportunity cost of non-participation in the TPP would be USD 116-227 billion over the 10-year period,” said PwC’s Study on Potential Economic Impact of TPP on the Malaysian Economy and Selected Key Economic Sectors released today.

Opportunity cost was defined as costs incurred plus benefits foregone.

Non-tariff measures are trade barriers that are not in tariff form, such as embargoes, quotas, levies, sanctions and other restrictions.

The PwC analysis said Malaysia’s participation in the TPP was projected to achieve a cumulative GDP gain of US$107 billion to US$211 billion from 2018 to 2027, assuming that all tariffs are eliminated and non-tariff measures are reduced by 25 to 50 per cent across the 12 prospective TPP member countries.

The report added that Malaysia’s participation in the TPP was projected to raise GDP growth by 0.6 to 1.15 percentage points in 2027.

“While Malaysia’s non-participation in the TPP would incur a relatively negligible decline in GDP growth of 0.02-0.03 ppt in 2027, the opportunity cost to growth would be significantly larger at 0.62-1.18 ppt,” said the report, using the “ppt” initials for percentage points.

According to the PwC report, Malaysia also stands to lose US$7 billion to US$13 billion in investment from 2018 to 2027 due to a diversion of foreign investment away from the country if it opts out of the TPP, but is projected to see increased investment by an additional US$136 billion to US$239 billion in that period if it joins the agreement.

“The textiles sector will register the largest increase in investment growth in 2027, followed by the construction and distributive trade sectors,” said PwC.

On the political aspect, local think-tank Institute of Strategic and International Studies (ISIS) Malaysia’s cost-benefit analysis of the TPP said some US lawmakers may put pressure on their government on select issues if Southeast Asia’s third-largest economy opts out of the Pacific trade bloc.

“While executive-to-executive relations may not be dramatically affected, especially given the desire of both sides to strengthen defence cooperation, a rejection of the TPP is likely to be seen by at least some members of the US Congress as an act of partiality towards China.

“This could incentivise US legislators to continue pursuing Malaysia on alleged issues such as human trafficking, currency manipulation and environmental degradation,” ISIS said.

ISIS also noted that without the TPP, Malaysia would not be motivated enough to liberalise the economy and was unlikely to undertake economic reforms.

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