Ratify the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to increase Foreign Direct Investment (FDI) and External Trade
Much was made about Malaysia registering a 15.4% growth in exports in February 2021, the strongest performance in 28 months, according to the Department of Statistics Malaysia. On the whole, after examining the trade statistics in detail, I would say that this is positive economic news for the country. But in reality, the ups and downs of trade numbers, especially with regards to export figures, are not really influenced by direct government policy, especially in the short term (unless there is a Movement Control Order which severely disrupts production and supply chains like what occurred in March 2020). If the government is serious in its efforts to increase Foreign Direct Investment (FDI) and as a result, increase our external trade, on a longer and more sustained basis, our focus should be on ratifying RCEP as well as CPTPP. In doing so, we will be sending a very strong signal to the international community that Malaysia IS indeed open for business and that we are serious in our efforts to attract FDI and at the same time, strengthen our own industrial base, with complimentary domestic policies such as our Industry 4WRD or Industry 4.0 plan.
The main driver for Malaysia’s export performance in Feb 2021 was the Electrical & Electronic (E&E) Products sector which increased its exports by 25.5% from RM25.1b to RM31.5b on a year to year basis. Export of Refined Petroleum Products and Palm oil and Palm Oil Based products grew by 6.1% and 10.4% respectively. Interestingly, the increase in Refine Petroleum Products was driven by an increase in export volume (+58.7%) because average unit value (or price, in layman’s language) actually fell by 13.2%. On the other hand, the increase in palm oil exports were driven by the increase in average unit value (+26.7%) even though export volume dropped by 14.3%. (These trends are worth monitoring moving forward)
It is likely that the E&E sector in Malaysia, which had a good year last year (MCO 1.0 notwithstanding) will continue to experience a healthy growth in 2021 especially as economic growth in the United States picks up and the effects of the massive US$1.9 trillion stimulus package is felt on the ground. Malaysia’s E&E sector most certainly benefitted from the US-China trade war with some amount of production transfer taking place from China to places like Penang and to a lesser extent Selangor and Johor. While the E&E sector will continue to face challenges in the labour market (like many others in the manufacturing and construction sectors), the trajectory for this most important sector of the economy when it comes to our export figures is definitely positive moving forward.
But in order to position (or re-position) Malaysia as an attractive place to do businesses, to prevent FDI outflow and to attract more high quality FDI, Malaysia needs to ratify RCEP as well as CPTPP.
MITI has said that Malaysia would ratify RCEP
by the end of this year.
(Singapore has already ratified RCEP earlier this month)
RCEP will enter in force 60 days after 6 ASEAN member countries and 3 non-ASEAN
member countries have ratified the agreement. I have confidence that the
responsible and hard working officers at MITI will do the necessary to get this
done. The sooner RCEP enters into force, the sooner the players in Malaysia,
both local and international, can enjoy the benefits of RCEP from a trade
perspective in areas such as greater uniformity and clarity on the Rules of
In addition, Senior Minister and Minister of
International Trade and Industry (MITI), Azmin Ali, has said that he is
committed to ratifying CPTPP but has not set any deadline to do so. He must be
Malaysia is at an important and significant political and economic crossroads.
If Malaysia could go through the challenging process of amending and updating
our domestic legislation (which includes improved labour and environmental
standards) in order to ratify the CPTPP, this would not only help Malaysian
industries and the workers in these industries, it would also send a very
strong signal to the international business community that Malaysia is
committed to raising the quality of FDI and our own manufacturing, labour and
environmental standards moving forward.
While I recognize that there are concerns with
regards to the CPTPP including the much debated Investor State Dispute
Settlement (ISDS) mechanism, the truth of the matter is that multinational
companies which are operating in Malaysia and who want to invest in Malaysia
have very little incentive to take the Malaysian government to international
arbitration (or ‘court’) because they want to continue to work with the
Malaysian government on matters of common interest (unless the government does
something truly egregious like trying to confiscate their property). CPTPP has
also raised the bar so that frivolous cases cannot be brought against member
should be an open and honest debate by various stakeholders in order to clear
the air on the ISDS matter which always gets brought up whenever CPTPP or other
free trade agreements are discussed.
 For those who may be interested, the case which Philip Morris tried to bring against the Australian government on plain packaging of tobacco could not even be heard because a tribunal decided that they had no jurisdiction to hear the case brought by this company. And this was before CPTPP entered into force! (https://www.dfat.gov.au/trade/agreements/in-force/cptpp/outcomes-documents/Pages/cptpp-investor-state-dispute-settlement)
Last but not least, the government (as well as the opposition) must explain how these FTAs will benefit the man on the street. At the same time, domestic policies must be strengthened in order to provide assistance (reskilling and job matching for the workers, upgrading capabilities for the companies via Industry 4.0 programs for example) to industries which will be negatively impacted by these FTAs. The international business community and their domestic partners and stakeholders in Malaysia are watching very closely and carefully. How will the current government respond? Let’s wait and see but we cannot afford to wait too long.
(I want to state clearly that I am in support of ratifying RCEP as well as the CPTPP. This is my personal viewpoint and does not represent the official position of my party, the Democratic Action Party, nor of Pakatan Harapan. But I am more than willing to explain my position to the leaders in my party as well as in Pakatan Harapan in the hope that they will understand the reasons both big and small as to why I have taken this position)