What is CPTPP?
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement (FTA) between 11 countries, including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam. Malaysia has joined the CPTPP as its ninth member recently. The addition of Malaysia to the CPTPP will further deepen economic integration, boost the economic coverage of the agreement and enhance the mutual benefits that all parties reap from the CPTPP.
A long history of TPPA
TPPA is known as Trans-Pacific Partnership Agreement. It is a trade agreement between 12 economies, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.
In 2005, Brunei, Chile, New Zealand and Singapore established the Trans-Pacific Strategic Economic Partnership Agreement. It evolved into TPPA with the addition of 8 more economies, including Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam in 2008.
US withdrawal once Donald Trump took office
In 2017, on the first day of Donald Trump in office, he formally withdrew the United States from TPP. Withdrawal from the TPPA has raised concern about US international leadership and its role in Asia. The perceived weakening of the US leadership role has intensified the strategic rivalry between China and Japan.
Japan took over the lead after the withdrawal of the US
After Trump withdrew from TPP, Japan took the lead in negotiating with other TPP countries to establish a new bloc without the United States. To everyone’s surprise, the negotiation went smoothly, and the remaining 11 economies signed on a new free trade agreement, which led to a comprehensive and progressive agreement for trans-pacific partnership (CPTPP). The most significant change for CPTPP is the provisions for intellectual property. In previous negotiations, Washington pushed hard for longer copyright terms, automatic patent extensions and separate protection for cutting edge technologies. Since the US withdrawal from TPP, the provisions for intellectual properties were suspended from CPTPP.
What is next?
Recently, several countries such as Colombia, Taiwan, Thailand, the United Kingdom and China have expressed interest in joining the CPTPP.
There is another regional comprehensive economic partnership agreement (RCEP), a mega free trade agreement among 15 economies, including Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam. This agreement has contributed to 30% of global GDP, around US$ 25.8 trillion and covers about 30% of the population.
CPTPP and RCEP are the two mega FTAs that bring great significance for Malaysia and other foreign investors as they bring huge import-export opportunities for Malaysia. With CPTPP and RCEP, Malaysia has a more stable and solid trade connection with Asia-Pacific and Trans-Pacific countries such as China, North America and South America.
What are the rules for CPTPP?
The CPTPP includes trade-facilitating Rules of Origin (ROO) that are intended to support modern business practices and further encourage greater integration of Malaysian companies into regional supply chains. The Agreement enables Malaysian manufacturers to get raw materials from any CPTPP nation to meet the ROO standards and be eligible for reduced or waived import tariffs.
The Agreement offers exporters several Regional Value Content (RVC) calculation techniques to help them comply with ROO, as opposed to the few options now available under the existing free trade agreement. As a result, the CPTPP presents a more trade-friendly strategy compared to the ROO environment, which is anticipated to make compliance by businesses easier.
Following the CPTPP's implementation, Malaysian businesses will have rapid access to the GP or Government Procurement markets of other CPTPP nations at substantially lower thresholds than the high standards Malaysia agreed to. For instance, a Malaysian business can bid for GP contracts in the Japanese construction industry for projects valued at SDR4.5 million and higher (RM26.5 million or above) as soon as the CPTPP is implemented. However, a Japanese business can only submit a bid for GP contracts in the same industry in Malaysia for projects valued at SDR63 million and more (RM371.7 million or above).
Similarly, a Malaysian business can submit a proposal for GP contracts of SDR130,000 and above (RM766,957 and above) to provide surgical gloves to government hospitals in Canada. However, a Canadian business can only participate in GP contracts at SDR1.5 million and higher (RM8.8 million and above) if it wants to provide comparable items to a Malaysian government hospital.
The CPTPP encourages the export of services by recognising professional credentials, licences, or registrations between member nations, allowing for better regulatory coherence. As a consequence, Malaysian service providers, including businesses and people, will be able to increase their exports to CPTPP nations. For example, Malaysian accountants, quantity surveyors, veterinarians, dentists, physicians, and architects are anticipated to gain from the CPTPP's facilitation mechanisms, which include increased mobility with clear regulations governing regional economic integration.
Since it was signed, the corporate sector has pushed for quick ratification of the CPTPP. Over 70 media comments from various business chambers and trade and industry associations have been released in the past year, which has vehemently encouraged the government to ratify the CPTPP speedily.
MITI, along with other Ministries and Agencies, will step up stakeholder engagements now that Malaysia has ratified the CPTPP to make it easier for all parties to understand Malaysia's rights and obligations under this Agreement and to implement strategies that will allow Malaysian businesses across all tiers, in particular, Small and Medium Enterprises (SMEs), to benefit to the fullest extent possible from the CPTPP.
How effective is the CPTPP?
As previously mentioned, the CPTPP eliminates 95% of tariffs between its 11 participants, giving Malaysian firms much more access to new markets like Canada, Mexico, and Peru that are not covered by any existing free trade agreement. Additionally, this implies that companies operating in other CPTPP economies would have improved access to the Malaysian market, giving them access to a more extensive selection of high quality raw materials at competitive prices.
According to the government, this will make the nation more appealing as an investment destination. However, MITI argued that Malaysia would continue to have a trade surplus despite the CPTPP opening up more local markets to international companies. Additionally, according to the cost benefit analysis, Malaysian exports are anticipated to reach US$354.7 billion in 2030, with trade balance remaining in strong surplus at 8.5% of GDP in that same year.
According to projections, the CPTPP will render nearly all key Malaysian exports to all CPTTP nations duty-free by January 1, 2033. Malaysia's exports to Australia, Canada, Mexico, and Singapore will be duty-free once the CPTPP goes into effect. In 2024 and 2029, exports to New Zealand and Canada will be duty-free. It is important to remember that, at the moment, shipments to Canada and Mexico are subject to taxes that range from 15 to 30%. The abolition of these taxes will benefit exporters significantly.
Additionally, state owned enterprises will be given access to international trade for public contracts in other CPTPP participants at lower barriers than those set by the Malaysian government. Government contracts may pay out handsomely. The ratification of the CPTPP is expected to impact several sectors of the Malaysian economy positively. MITI emphasised that the agreement will improve the mutual recognition of professional credentials and licencing or registration between member nations in terms of services.
But the export of commodities also presents a wide range of opportunities. Malaysia's main exports include integrated circuits, valued at US$65 billion. Refined petroleum, worth US$15,9 billion, and palm oil, worth US$10,6 billion. Semiconductor devices, worth US$8,67 billion; and rubber clothing, at US$8,25 billion. Many of these industries can now export to other member nations with reduced charges. This includes the annual export to Singapore of commodities worth US$36.5 billion.
The accord would provide businesses more reasons to invest in Malaysia thanks to improved intellectual property regulations, safeguards against discrimination, and increased predictability and transparency.