Malaysia’s Ratification of CPTPP to Help Increase Trade

Malaysia’s ratification of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) looks set to provide indigenous businesses with expansion opportunities around the Asia Pacific and even further afield. The pact, deemed highly beneficial for the development of Malaysian trade, removes as much as 95 percent of tariffs between member states.

The Malaysian government officially ratified the CPTPP on September 30, 2022. The trade deal was signed in 2018 but required years of careful deliberation and consultation by Parliament for final approval.

The agreement – originally called the Trans-Pacific Partnership – was signed by 11 countries on the Pacific rim in 2018. Signatories included Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. The pact removes 95 percent of tariffs between its 11 members.

Malaysia concluded in its “Cost-Benefit Analysis” that this free trade agreement would see the country’s total trade increase to US$655.9 billion by 2030 according to the government’s Statistics Department. Malaysia’s total trade stood at around 2.2 trillion ringgit (US$481 billion) in 2021

The Ministry of International Trade and Industry (MITI) summarized that the CPTPP elevates the country’s competitiveness and enhances its strategic position.

Of the 11 countries that signed the deal in March 2018, Malaysia is the ninth country to have ratified the CPTPP, leaving Brunei and Chile to follow suit. The government said it is also looking forward to working with countries that have applied or been approved more recently, including the UK and China.

What does the CPTPP mean for Malaysia’s trade access?

As noted, the CPTPP removes 95 percent of tariffs between its 11 members, in turn providing Malaysian businesses with much greater access to new markets such as Canada, Mexico, and Peru, which are not covered by any existing Free Trade Agreement (FTA).

This also means that businesses in other CPTPP economies will have greater access to the Malaysian market, providing access to a wider range of high-quality raw materials at competitive prices. The ministry contends that this will increase the country’s attractiveness as an investment destination.

MITI contended, however, that Malaysia would still retain its trade surplus despite the CPTPP providing foreign business with greater domestic market access. “In addition, the findings of the CBA also indicate that Malaysia’s exports are projected to reach US$354.7 billion in 2030, with trade balance remaining in strong surplus at 8.5 percent of GDP for the same year,” Miti highlighted.

Projections suggest that under the CPTPP, by January 1, 2033, almost 100 percent of Malaysian exports to all CPTTP countries will be entirely free of duties. When the CPTPP enters into force for Malaysia, all of the country’s exports to Australia, Canada, Mexico, and Singapore will be free of duties. Exports to New Zealand and Canada will be duty-free in 2024 and 2029 respectively.

It is worth noting that exports to Canada and Mexico are currently subject to duties ranging from 15-30 percent. The elimination of these duties will provide exporters with a considerable boost.

Malaysian businesses will also be granted access to government procurement markets in other CPTPP member countries at lower thresholds than the Malaysian government allows in return. Government contracts can be hugely lucrative.

Many areas of the Malaysian economy are set to benefit from the ratification of the CPTPP. With regards to services, MITI highlighted that the pact will provide greater mutual recognition of professional qualifications as well as licensing or registration between member states.

For example, Malaysian accountants, architects, construction managers, engineers, dentists, doctors, and nurses, among others are expected to benefit from the CPTPP due to the easing of cross-border mobility for professional workers.

But there are also a host of opportunities in the export of goods. The top exports of Malaysia are integrated circuits (US$65 billion), refined petroleum (US$15.9 billion), palm oil (US$10.6 billion), semiconductor devices (US$8.67 billion), and rubber apparel (US$8.25 billion). Many of these sectors will now be able to export to fellow member countries with fewer duties. This includes US$36.5 billion of goods that are exported to Singapore every year.

The pact will allow companies to invest in Malaysia with greater confidence, with new intellectual property laws, protections from discriminatory treatment, and greater predictability and transparency.

Capacity development and ROO

Malaysian businesses can also benefit from technical assistance and capacity-building initiatives provided by the CPTPP, the country’s government noted. These programs are designed to improve and develop local sectoral capabilities in critical industrial areas such as automotives, E&E, chemicals, optical and scientific equipment as well as medical devices.

MITI also highlighted that the CPTPP’s Rules of Origin (ROO) requirements are designed to support modern business practices and further promote deeper integration of Malaysian businesses into the regional trade partnership. The ROO actually allows the importer, exporter, or producer to self-declare where the goods are from. 

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