Will RCEP usher in a year of trade for Malaysia?
04 Jan 2021
The anticipated ratification of the Regional Comprehensive Economic Partnership (RCEP) in 2021 is projected to usher in a new era of trade as the newly minted trade bloc will be the largest in the world, accounting for a third of the world’s population and close to 30% of global gross domestic product.
Economists noted the deal, which includes Malaysia as part of the 10 Asean member countries, as well as China, South Korea, Japan, Australia and New Zealand, is expected to translate into an additional US$200 billion (RM803.4 billion) annually to the global economy by 2030.
Sunway University Business School professor of economics Dr Yeah Kim Leng pointed out that the RCEP, as the world’s largest trade bloc, represents an important signal of the member countries’ pushback against trade protectionism and anti-globalisation forces that were especially evident in the US under the Trump administration.
“As seen in the tremendous expansion in trade and investment under the Asean-China FTA between 2010 and 2020, the new regional pact when implemented in 2021 is expected to provide Asean economies with a new growth impetus in the coming years,” he told SunBiz.
Yeah opined that the RCEP, coming on the heels of the creation of the Asean Economic Community, will be an important driver of regional economic integration, especially with China that is expected to overtake the US as the world’s largest economy within this decade.
He believes that the trade agreement is unlikely to lead to an EU-type of economic and political integration given the diverse social, cultural, political and economic backgrounds of the member countries.
However, the RCEP is expected to be an important institution to support Asia’s economic dynamism as it is predicted to be the quickest to recover from the Covid-19 pandemic as well as being the fastest growing region in the years to come.
With such developments, the professor recommended the Malaysian government to enhance its investment climate, reduce political uncertainty and strengthen the government machinery to support the establishment of supply chain hubs.
“To complement its abundant land and natural resources, continuing investment in good quality physical and digital infrastructure is also important for regional production centres and logistics and distribution hubs to proliferate so that local and foreign investors are able to benefit from agglomeration effects and economies of scale,” he said.
At present, tariffs on Malaysia’s exports to non-Asean RCEP partners are generally low, ranging from 10.35% for China, 1.52% for Japan, 4% for Australia and 1.88% for New Zealand.
Against this backdrop, Yeah highlighted the facilitation of trade and removal of non-tariff barriers under the RCEP that will boost Malaysia’s diversified exports.
He stated that most manufacturing and primary commodity industries will face increased competition in import and export markets, but Malaysia’s trade openness for most products suggests that the new trade pact will not be disruptive.
“Certain protected industries such as automotive and iron and steel will have to adapt more aggressively to the expected increase in competitive pressures when the RCEP is fully in force.”
AmBank Research chief economist Anthony Dass noted that most RCEP countries already have bilateral free trade agreements (FTAs). As such, the impact of RCEP on trade is likely to be mainly on the countries that currently don’t have bilateral FTAs, that is, China-Japan, and Japan-South Korea,” he said.
Nonetheless, Dass estimated that 90% of the goods traded in the region will eventually achieve zero tariffs, except for some agricultural and other sensitive goods.
Domestically, he foresees this could possibly benefit a wide range of manufacturing and service sectors, from banking & finance, ICT, electrical & electronics, chemical & chemical products, rubber products and plastic products as well as machinery & equipment.
“Nevertheless, the textile and apparel industry is expected to face competition from lower-cost producers in the RCEP region such as Vietnam. Likewise, the timber and timber product industry,” said the chief economist.
Source: The Sun Daily