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NOVEMBER 4 — Having successfully flattened the Covid-19 curve, it is time for Malaysia to begin focusing on longer-term recovery policies.
As an open economy, our growth is very much dependent on the health of the global economy. Yet as the current outlook for an export- and foreign investment-driven recovery remains grim, we cannot look to the world for help. The United Nations Conference on Trade and Development (UNCTAD) estimates that foreign direct investment (FDI) flows to developing Asia will fall by up to 45 per cent in 2020 alone, necessitating a new impetus for growth.
Alongside the signing of the Regional Comprehensive Economic Partnership (RCEP) late this year, a piece of low-hanging fruit comes in the form of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). With Malaysia being an original signatory of the CPTPP, it might come as a surprise that we have yet to formally ratify the agreement, despite having extracted strategic concessions in the form of Bumiputera development, including special preferences for Bumiputra contractors in public procurement, and maintaining continued government-linked corporation (GLC) presence, such as the dominance of Petronas in the petroleum market. Seven existing members have already formalised the partnership, including Japan, Singapore and Australia. As such, the prospect of expanding trade with these nations without compromising on key components of our national agenda makes the agreement a logical progression towards economic growth — boosting export-led growth with limited domestic consequences.
Furthermore, many countries, including the UK and Taiwan, have expressed interest in joining, presenting an opportunity to benefit from low- to zero-tariff commitments with some of our largest trading partners, while cementing our existing carve-outs. IDEAS’ recent work on the CPTPP is in line with this view, estimating a one per cent increase in GDP including a 1.45 per cent rise in exports from ratifying the agreement, and perhaps more importantly, creating an additional 140,000 jobs to Malaysians.
Malaysian manufacturers are currently slapped with high import tariffs in the automotive, biotechnology and electronics manufacturing sub-sectors, raising costs from 20 per cent to 40 per cent and effectively reducing our competitiveness vis-a-vis other countries, especially against competitors in the CPTPP. Given that Taiwan is consistently among our top ten trading partners, having it also join the partnership would be strategic for Malaysian trade. Taiwan provides more high technology intermediate goods to Malaysia than any other CPTPP member, particularly in the above manufacturing sub-sectors. Delaying the ratification of the partnership may therefore hinder Malaysia’s progress in transitioning towards the Fourth Industrial Revolution, overall reducing our short-term recovery outlook and long-term development.
The ratification of the CPTPP has the potential to improve our relative competitiveness, and at no time is this more pressing considering the current wave of supply chain relocations out of China, following the US-China Trade War and Covid-19 supply chain disruptions. Malaysia is in a good position to capture these much-needed investments from multinational corporations. However, to establish our position as a regional manufacturing hub, we need to start reducing artificial barriers — both tariff and non-tariff barriers alike — on high technology imports from current and future CPTPP members.
In order to truly maximise the economic benefits of the free-trade agreement, Malaysia should prioritise the CPTPP ratification in tandem with further structural reforms. For instance, developing more robust transparency measures and stakeholder engagement approaches on our public procurement processes, especially given the high-level government debt, will lead to greater public accountability, instilling domestic and international trust in our governing institutions. While likely painful in the short term, greater confidence in our systems will eventually boost Malaysia’s international competitiveness. We should ultimately adopt a longer-term outlook on recovery and development, placing our economy on a more sustainable and resilient growth trajectory.
The twin pandemic and economic crises of 2020 have been devastating on our society in many ways. However, it has also provided us with a good opportunity to rethink our strategic advantages and the structural reforms needed. The expected signing of the RCEP is a positive step in the right direction, and Malaysia should continue to engage in similar open economic policies. Ratifying the CPTPP is a progression that the Malaysian government ought to certainly consider as we reposition ourselves for an eventual recovery.
* Tricia Yeoh is the chief executive officer of IDEAS, the Institute for Democracy and Economic Affairs.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.