Businesses must brace for challenges in RCEP
09 Aug 2022
The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) has advised businesses, especially small and medium enterprises (SMEs) to be mindful of challenges involving the Regional Comprehensive Economic Partnership Agreement (RCEP).
ACCCIM deputy president Datuk Ng Yih Pyng said there may be increasing competition from RCEP participating countries, even in sectors where Malaysian companies have the traditional strengths.
He pointed out that a joint study by researchers from the United Nations Conference on Trade and Development and Boston University has indicated that several member countries including Malaysia will become the net loser post RCEP.
Ng said the study also highlighted that the country’s balance of trade will deteriorate by 6% per annum due to the trade diversion by more efficient exporters.
“However, analysts have commented that the result of this study needs to be interpreted carefully, as the study on trade effects is based on a static assumption.
“Other factors such as dynamic and multiplier effects on foreign direct investments flows, export services and intersectoral spill-over have not been taken into account.
“Nevertheless, Malaysian companies must actively adapt and take appropriate measures to sustain and enhance their capability and competitiveness,” he said during ACCCIM webinar on “Using RCEP for Expanding Business Opportunities for Malaysian Companies: Trade in Goods” today.
Ng noted that it has been more than four months since RCEP came into force this year and overall, the agreement is a step into free trade and open markets.
He added that as business professionals, ACCCIM’s greatest concern is the opportunities available and potential threats from regional RCEP member competitors.
“We also have to be aware that the supply chain among the member countries would be more robust, cost of goods more competitive, creating a better investment environment for the region,” he said.
Having said that, Ng believes that while RCEP will benefit from greater efficiency and ease of doing business overtime, the trade agreement is set to help member countries, especially Malaysian businesses.
He emphasised that this is in terms of elimination or reduction tariffs and improved trade policies and regulatory environment consistency.
“We also believe that enterprises will have broader and better market access to cheaper raw materials.
“It will lead to further reduction in trade costs and expansion of trade items, allowing goods and services to flow freely across industries in the region,” he said.
The RCEP is the largest free trade agreement in 2020, completed on Nov 15, 2020, comprising 10 members of Asean (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) and five other regional countries with whom Asean has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).
According to the Economic Research Institute for Asean and East Asia, the RCEP is currently the largest trading block in the world consisting of a combined population of 2.2 billion people (30% of the world population), total regional GDP of around US$38,813 billion (RM173.11 trillion) (30% of global GDP in 2019) and nearly 28% of global trade.
Malaysia had ratified the RCEP which came into force on March 18, 2022, paving the way for domestic businesses and industries to have greater market access of goods and services with Malaysia’s 14 RCEP member trading countries.
Malaysia’s total trade with RCEP members accounted for 58.3% of total trade, with China remaining the country’s largest trading partner since 2009 with a total trade’s share of 18.9% in 2021.
Meanwhile, ACCCIM president Datuk Low Kian Chuan said China, as a leading nation in Asia and the second largest world economy, can nudge the RCEP members to adopt broader and deeper economic integration in the region via greater facilitation of cross-border trade, services and investment.
He concurred that while the RCEP will accelerate the entry of domestic enterprises, especially SMEs into the global value chain, these businesses also face competition from imports in the domestic market.
“In this regard, we urge SMEs to undertake transformative actions to build competitive advantage through strengthening their capability in areas of technology, digitalisation, product and market development.
“This is to ride on the opportunities offered by RCEP while being able to withstand the competitive pressures coming from abroad,” he added.
On that note, Low said greater public-private collaboration is needed to assist more Malaysian companies to go abroad.
He noted that SMEs require facilitation support in the forms of understanding foreign market environment; trade rules and regulations; product and market development; marketing through e-commerce; and market intelligence.
Source: The Malaysian Reserve