Maintaining a competitive advantage requires dynamic action. While Malaysia remains a preferred investment destination for many multinational companies, to remain at the forefront of regional competitiveness, it must do the same as its neighbours — that is, to push ahead with and leverage the critical benefits and linkages provided by both the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).
Those operating in the semiconductor, chemicals, machinery and equipment and, increasingly, the medical device and other ICT sectors, find the country an attractive destination for investment and operations. But this front-runner status cannot be taken for granted.
Malaysia can now cement its position as a preferred investment destination for manufacturing, R&D and global business services and operations by creating pathways for new opportunities for Malaysian firms by entering into regional trade agreements.
Even during a global pandemic with a healthcare crisis impacting everyone in the country, bright spots exist for Malaysia from a trade and economic perspective. While the pandemic will eventually pass, hopefully sooner rather than later, the long-term sustainability of Malaysia’s economic position and its competitiveness in Southeast Asia rely heavily upon its ability to respond to new realities in global trade.
As it stands, Malaysia’s regional competitors, namely Singapore and Vietnam, are racing ahead and adopting robust strategies aimed at strengthening their economic resilience and sustainability, including through their participation in ambitious trade deals. In this context, Malaysia’s ambiguity in terms of the timeline for implementing the CPTPP raises questions from international investors about its commitment to ever do so.
Covid-19 revealed that trade ecosystems driven by strong international trade links and operating standards can best withstand shocks by ensuring resilience in supply chains. It also accelerated the digitisation of sectors and economies across the world, as digital tools and technologies provided a lifeline for many businesses.
Ratifying and implementing the CPTPP in a timely manner provides Malaysia with one of the best options to safeguard its economic position and recover from the Covid-19 induced downturn.
Similarly, implementing the RCEP will allow Malaysia to reap accruing economic benefits, particularly since this agreement has the benefit of participation from non-CPTPP members such as China and South Korea. However, the more stringent requirements for joining the CPTPP, presently the gold standard for regional trade agreements, will enable Malaysia to build back better and faster.
Implementing the CPTPP will increase external trade and bolster medium- to long-term foreign direct investment (FDI) in Malaysia by reducing the costs of imports and exports, creating a more level playing field for Malaysian businesses in regional markets, and increasing international market access for Malaysian firms, including for small and medium enterprises.
Most importantly, improvements in domestic governance brought by the CPTPP will boost international investors’ confidence that the Malaysian government remains dedicated to its reform agenda despite the setbacks of Covid-19.
For example, the IP provisions contained in the CPTPP will foster an enabling ecosystem for innovation and R&D, thus boosting foreign investors’ confidence in locating their manufacturing investments within Malaysia and, in turn, creating a more highly skilled domestic workforce.
Furthermore, some of the improvements to the domestic IP regime as required by the CPTPP will enable Malaysia to stay ahead of its regional competitors, including Thailand, the Philippines and Indonesia. Similarly, the digital trade provisions in the CPTPP will help create an enabling digital policy environment for the Malaysian digital economy to grow and scale.
Long gone are the days when countries in Southeast Asia attract FDI based on access to low-cost labour. Countries now compete for access to quality human capital. In this vein, the CPTPP requires its members to upgrade their labour laws to international standards and, consequently, sets the course for better quality human capital and talent.
While the government has made a commitment for Malaysia to join Singapore and China in ratifying RCEP by the first quarter of 2022, no such assurance was offered vis-à-vis the CPTPP. As the
latter is a gold standard agreement with an array of long-term benefits that may not necessarily accrue from the former, the CPTPP should not lag behind the RCEP.
Soon, the CPTPP will be expanded beyond Asia-Pacific to include the UK. This has opened the eyes of other interested countries and, coupled with ongoing trade and technology tensions with China, refocuses those in the US within a worker-centric context to the significance of CPTPP.
The UK’s recent efforts towards acceding to the CPTPP could have profound implications for Malaysia. Through prompt ratification of the agreement, Malaysia stands to benefit not only from greater market access to the existing CPTPP membership, but also probably to the UK. Such enhanced market access opportunities would help mitigate the adverse effects of the economic downturn caused by Covid-19 on Malaysia’s exports.
If the UK succeeds in acceding to the CPTPP, the enlarged group’s share of world GDP will rise from 13% to 16%, and its share of the world’s exports will increase from 15% to 18%.
The negotiations on expanding the CPTPP through accession will be driven by those members that have ratified it, thereby having further repercussions on Malaysia for not being able to take its seat at the negotiating table.
Building Malaysia’s trade policy principles through both the CPTPP and RCEP will enhance the sustainability of the country’s competitiveness. In particular, the CPTPP’s institutionalised reforms will help shepherd and accelerate the regulatory ecosystem on key environmental, social and governance (ESG) goals.
During her recent visit to Southeast Asia, US Vice-President Kamala Harris articulated that a digital trade initiative will be explored to demonstrate the US’ economic commitment to the region. Malaysia, too, should be a part of this initiative and by becoming a party to the CPTPP, it would be able to reap the benefits from future digital trade gains sooner, and with greater impact.
According to the e-Conomy Southeast Asia report by Google, Bain and Co and Temasek, in 2020, one in three Malaysians turned to digital services for the first time to access essential services like food and groceries, healthcare, education and news.
Malaysia’s e-commerce industry has also grown 87% year on year, the fastest growing across Southeast Asia.
It has been more than five years since Malaysia signed the original Trans-Pacific Partnership Agreement and almost three years since the CPTPP. Malaysia not ratifying the CPTPP does not mean status quo for the country’s economy; rather, it will set Malaysia back.
Siobhan Das is CEO of the American Malaysian Chamber of Commerce. Steven Okun is a senior adviser at geostrategic consultancy McLarty Associates and the former chair of the American Chamber of Commerce in Singapore.