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What Are the Impacts on Malaysia Following the United Kingdom’s Accession into the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (“CPTPP”)?

Part 1: Introduction

In the wake of the United Kingdom’s (“UK”) departure from the European single market, its International Trade Secretary, Liz Truss, has recently announced the UK’s intention to apply for accession to the CPTPP, with negotiations expected to commence later this year.[1] This article will serve as a brief insight as to the likely impacts expected on Malaysia should the UK join CPTPP.

• What Is CPTPP?

In short, the CPTPP is a successor of the earlier Trans-Pacific Partnership Agreement (“TPPA”) following the United States’ withdrawal from the TPPA on 23rd January 2017. As the earlier TPPA requires a combination of at least six (6) parties with a combined total of at least 85% of gross domestic product (“GDP”) for the ratification of the TPPA, and that the United States was, at the material time, accounted for 60% of the combined GDP of the twelve (12) members, its withdrawal has caused TPPA to a standstill.[2]

Fortunately, in November 2017, Ministers of the remaining eleven (11) TPPA countries have reached an agreement on the core elements, the text of the agreement and way forward to implement the TPPA, which was subsequently renamed as the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership.[3]

As of the date of writing this article, the current members who have signed the CPTPP are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Viet Nam. As to the ratification progress, Brunei Darussalam, Chile, Peru, and Malaysia have yet to complete the ratification process of CPTPP.[4]

• What Are the Benefits of CPTPP?

Since CPTPP was the successor agreement of TPPA, it retains several defining features of the TPPA including:

(a) providing comprehensive market access whereby CPTPP eliminates or reduces tariff and non-tariff barriers across substantially all trades in goods and services;
(b) addressing any new trade challenges faced by its members;
(c) providing a regional approach to commitments such as facilitating the development of production and supply chains, as well as opening domestic markets; and
(d) acting as a platform for regional economic integration and was designed to include additional economies across the Asia-Pacific region.[5]

• What Are the Benefits of CPTPP for Malaysia?

Following the imposition of the Movement Control Order (“MCO”) by the Malaysian Government on 18 March 2020, many sectors have been severely affected and suppressed, in particular the trade and investment sectors.[6]

The Institute for Democracy and Economic Affairs (“IDEAS”) viewed that “the CPTPP presents an opportunity for Malaysia to be more competitive, which is even more important in a culture of suppression”.[7]

Apart from the oil and gas industry, Malaysia’s economic growth is also largely driven by its openness towards trade rather than infrastructure developments.[8] Thence, by implementation of the CPTPP, it could serve as an opportunity for many multinational entities that are looking to restructure their supply chains in response to this pandemic.[9]

Further, the Malaysian Institute of Economic Research (“MIER”) has also reiterated the importance of CPTPP in light of the current pandemic, commenting that “there is an urgent need to re-stimulate the economy, and that can come from the liberalised trade environment that the CPTPP can provide.”[10]

• What Is the CPTPP market?

The withdrawal of the United States does not diminish the importance of CPTPP as it is still one of the large and significant trade agreements in the world. Today, the eleven member countries’ combined economies represent 13.4% of global GDP (about US$13.5 trillion), making the CPTPP the third largest free trade agreement (“FTA”) in the world after North American Free Trade Agreement, followed by the European Union.[11]

 

Part 2: Trading Activities Between Malaysia and United Kingdom

Based on bilateral trade volumes, Malaysia is currently one of the largest trading partners with the UK from ASEAN.12 In October 2020, Malaysia’s export has reached RM 91.05 billion, an increase of 0.2% compared to October 2019, and that this was supported by higher exports to, amongst others, the UK.[13]

On the other hand, as an illustration of the trading relationship between Malaysia and the UK, UK-based Naylor Farms recently secured a three (3) year contract to export 10,800 tonnes of Lincolnshire cabbages to Malaysia.[14]

In November 2020, Malaysia and the UK also formed a Joint Committee on Bilateral Trade and Investment Cooperation (“JCBTIC”), as a platform to strengthen bilateral trade and investment ties between the two nations.[15]

 

Part 3: The Effect of United Kingdom Accessioning Into CPTPP

In June 2020, the UK’s Department of International Trade published an update regarding the UK’s position on the accession of to the CPTPP. The department viewed that the accession would benefit the country as follows:

(a) To secure increased trade and investment opportunities that would help the UK’s economy to overcome the unprecedented pandemic;
(b) To diversify the UK’s trading links and supply chains while increasing our economic security during this calamity; and
(c) To secure the UK’s future place in the world and advance its longer-term interests by turning the UK into a global hub for businesses and investors.[16]

The UK government is of opinion that its accession will help them to turbocharge the trade with the CPTPP members and also deliver even greater benefits to the UK in the whole. The CPTPP will also reduce tariffs for about 95% of goods between its members which is in line with the aim of the UK to be a champion of open trade in services.

The UK is also expecting an increment in the global GDP of up to 16% from its accession to the CPTPP. It also believes that its ambition of having 80% of the UK trades covered by the FTA in the next three years will be achievable from its accession.[17]

 

Part 4: The Impact of the UK’s Accession into the CPTPP on Malaysia’s Economy

Whilst we have provided a general list of benefits arising from the CPTPP above, this part of the article will discuss on the anticipated benefits on Malaysia’s economy following the accession of the UK into the CPTPP.

The potential benefits to Malaysia’s economy include the implementation of modern digital trade rules which would allow data to be flow freely between Malaysia and the UK, the removal of unnecessary barriers for businesses which in turn would reduce costs and time, and facilitate easier travels for business people between the two countries including the potential for faster and cheaper business or investment visas.[18]

Additionally, both member states will also be opened to new opportunities across different business sectors, encouraging increases in bilateral foreign investments and job opportunities.[19]

Malaysia’s Minister of International Trade and Industry, Datuk Seri Mohamed Azmin Ali has commented that, “the CPTPP requires the Malaysian government to be more open, more transparent and more competitive and have positive pressure on the government-linked companies sector.”[20]

Thus, with the impending entry of the UK into the CPTPP, which has one of the strictest and developed set of laws, this presents another opportunity for Malaysia to promote its reputation as a country which practices good corporate governance and regain foreign investors’ trust and confidence.[21]

At the date of writing this article, the majority of the exports and imports of Malaysia are mainly dominated by China, followed by Singapore and the United States, whilst the total trade between Malaysia and the UK is only RM26.6 billion.[22]

Nevertheless, these statistics should not be viewed as conclusive evidence in relation to Malaysia and the UK’s long-term trade relationship as many members have suffered financial losses due to the current pandemic.

 

Part 5: Conclusion

Statistically, the total trade between Malaysia and the UK in a year is significantly lower compared to its trade with the other countries such as China or Singapore whilst Malaysia is still in the process of completing the ratification of the CPTPP.

Nevertheless, MITI is currently engaging with stakeholders in the trade sector to get feedback on crucial issues such as government procurement before deciding on the ratification of the CPTPP though there is no announced timeline for the government to ratify the CPTPP.[23]

The Government of Malaysia is urged to ratify the CPTPP soonest as it would constitute a significant economic move for Malaysia whilst delays may portray a signal which foreign investors might not find endearing.[24]

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1. https://www.reuters.com/article/us-britain-trade-cptpp/uk-set-to-formally-apply-for-trans-pacific-trade-bloc-membership-idUSKBN29Z0W1?il=0
2. https://fta.miti.gov.my/index.php/pages/view/71?mid=40
3. ibid.
4. ibid.
5. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/summary-trans-pacific-partnership
6. https://www.freemalaysiatoday.com/category/nation/2020/09/05/joining-cptpp-will-help-economy-recover-putrajaya-told/
7. https://www.freemalaysiatoday.com/category/nation/2020/09/05/joining-cptpp-will-help-economy-recover-putrajaya-told/
8. https://www.freemalaysiatoday.com/category/nation/2018/12/20/cptpp-is-good-for-malaysia-says-think-tank/
9. https://www.freemalaysiatoday.com/category/nation/2020/09/05/joining-cptpp-will-help-economy-recover-putrajaya-told/
10. https://www.freemalaysiatoday.com/category/nation/2020/09/05/joining-cptpp-will-help-economy-recover-putrajaya-told/
11. https://thediplomat.com/2018/02/tpp-2-0-the-deal-without-the-us/
12. https://www.theedgemarkets.com/article/more-needs-be-done-boost-uk-exports-malaysia-says-british-envoy#:~:text=Trade%20volume%20between%20Malaysia%20and,months%20ended%20Sept%2030%2C%202019.&text=Over%20the%20same%20period%2C%20the,y%2Do%2Dy%20to%20%C2%A32.1%20billion.
13. https://www.matrade.gov.my/en/181-malaysian-exporters/trade-performance-2020/5207-trade-performance-october-2020-and-january-october-2020
14. https://www.theedgemarkets.com/article/more-needs-be-done-boost-uk-exports-malaysia-says-british-envoy#:~:text=Trade%20volume%20between%20Malaysia%20and,months%20ended%20Sept%2030%2C%202019.&text=Over%20the%20same%20period%2C%20the,y%2Do%2Dy%20to%20%C2%A32.1%20billion.
15. https://www.theedgemarkets.com/article/malaysiauk-trade-investment-ties-enhanced-formation-joint-committee
16. https://www.gov.uk/government/publications/uk-approach-to-joining-the-cptpp-trade-agreement/an-update-on-the-uks-position-on-accession-to-the-comprehensive-and-progressive-agreement-for-trans-pacific-partnership-cptpp
17. ibid.
18. https://www.businesstoday.in/current/world/uk-to-join-asia-pacific-free-trade-pact-cptpp/story/429652.html
19. https://www.businesstoday.in/current/world/uk-to-join-asia-pacific-free-trade-pact-cptpp/story/429652.html
20. https://www.nst.com.my/business/2018/12/442354/malaysia-should-ratify-cptpp-sustain-economic-development-ideas
21. https://www.freemalaysiatoday.com/category/nation/2018/12/20/cptpp-is-good-for-malaysia-says-think-tank/
22. https://www.matrade.gov.my/en/malaysian-exporters/services-for-exporters/trade-market-information/trade-statistics
23. https://www.theedgemarkets.com/article/azmin-malaysia-address-sensitive-issues-deciding-cptpp-ratification
24. https://www.freemalaysiatoday.com/category/nation/2020/09/05/joining-cptpp-will-help-economy-recover-putrajaya-told/

 

Prepared By:

Lee Kin Hing (Senior Associate 1) leekinhing@azmilaw.com

Ong Sern Tai (Associate) ongserntai@azmilaw.com

Chris Lim Chee Kiung (Trainee Solicitor) chrislim@azmilaw.com