RCEP and CPTPP agreements: How will they benefit Malaysia?

Regional Comprehensive Economic Partnership (“RCEP”) agreement and Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) are Malaysia’s newly-implemented mega Regional Free Trade Agreements (“FTAs”)[1]. The current participating countries of RCEP are Australia, China, Japan, South Korea, New Zealand and the 10 members of the Association of Southeast Asian Nations (ASEAN) which are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.[2] whereas the current participating countries of CPTPP are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam[3].

United Kingdom is expected to join CPTPP having met virtually with other CPTPP members’ ministers and representatives for a substantial conclusion of the negotiations for UK’s accession on 31.03.2023, thus being the first European country to join the dynamic trade bloc wherein is beneficial to Malaysia considering that Malaysia is one of the CPTPP members which the UK does not currently have a bilateral agreement with[4].

BENEFITS OF RCEP

Besides tariff concession and having preferential rates for trade of certain goods and services, the benefits for Malaysian business owners who enjoy the participation of  Malaysia RCEP are including but are not limited to as follows:-

1. Market Access to the Largest Free Trade Area and Population In The World

RCEP is the world’s largest free trade agreement (FTA)[5]. As of 2020, World Bank data showed that the 15 RCEP Participating Countries (“RPCs”) consist of a total of 29.46% of the global population with 30.6% of the world’s Combined Gross Domestic Products which accounts for 28.33% of global merchandise trade volume.[6]  Malaysian companies are able to benefit from the RCEP to increase the sales of goods and services in such an extensive region and are able to break through the domestic barrier into the international field. Besides, Malaysian businesses are also able to thrive from the vast market access of certain competitively-priced raw materials and intermediate goods at lower tariff rates (gradual elimination of tariff gains in a long transition period) from other RPCs which renders the sacrifice of lesser output (lower or no tariffs, duty charges) for more input (imported products) by Malaysian businesses.

2. Integrating Supply Chain Within RCEP Region

While in the midst of creating the world’s largest tariff-free zone, wherein 90% of goods traded will be exempted from tariffs gradually (gains from tariff eliminated gradually due to a long transition period)[7], RCEP encourages RPCs to strengthen business and economic ties with each other to utilise the gradual full exemption of tariffs. Hence, RCEP also indirectly cause reshuffles of supply chains in Malaysia[8] and Malaysian businesses get to integrate supply chains internationally with the other RPCs’ businesses gradually and work together to prosper from RCEP.

3. Promoting Information Sharing, Cooperation and Trade Facilitation

Since RCEP has created a regional framework for protecting and enforcing intellectual property rights of RPCs products (“IPRs”)[9] which is built upon various multilateral frameworks on IP protection, namely the TRIPS Agreement, the WIPO Performance and Phonograms Treaty, the Paris Convention for the Protection of Industry Property, and the Berne Convention of Literary and Artistic Works[10], RCEP standardises IPRs’ compliance matters and reduces regulatory and business compliance costs[11]. RCEP also promotes transparency in intellectual property regimes and reduces IP-related barriers to trade and investment[12]. Consequently, information sharing is promoted among RPCs’ business entities and at the same time indirectly enhances cooperation and trade facilitation among RPCs’ business entities.  

4. Business Growth

With the elimination or reduction of tariffs or preferential rates for certain goods and/or services with the RPCs, cross-border economic will become frequent within the largest FTA region thus promoting the growth and boost of e-commerce, trade and investment businesses especially for domestic companies. With the participation in RCEP, Malaysian products can penetrate into wider markets and Malaysian businesses can also obtain raw materials at cheaper prices for further production purposes to sell out. According to RCEP’s chapter on rule of origin, to apply preferential tariff rates, RCEP exporters will only need to show that at least 40% of the materials for the final products are sourced from the country of origin to qualify as an originating product[13]. This “rule of origin” framework is beneficial for small and medium enterprises (“SMEs”) in Malaysia wherein the SMEs can establish more regional economic ties, and further penetrate the intra-Asian trade market.[14] Moreover, workmen and professional individuals within RCEP region can also move around RPCs including Malaysia to assist in technical and capacity-building advancement which will help develop Malaysia’s local capabilities of service-line businesses.

5. Standardisation of International Rules, Procedures and Measures

RCEP consists of among others chapters, annexes and schedules on procedures, measures, rules and regulations including but not limited to, a schedule of reservations and non-conforming measures for investment, a schedule of specific commitments on temporary movement of natural persons, chapter on rules of origin, annex on product-specific rules and annex on minimum information requirements[15].

With the implementation of such chapters, annexes and schedules, RPCs are able to abide by the standardised rules, procedures and measures for matters in relation to trade of products, investment, intellectual property rights of RCEP regions (“Standardisation”). The said Standardisation assists Malaysian business entities to avoid any complication or confusion in application of rules, procedures and measures among business entities in RCEP regions and ensures smoother cooperation among RPCs to create a better international trade and investment environment.

BENEFITS OF CPTPP

Besides tariff concession and having preferential rates for trade of certain goods and services, the benefits for Malaysian business owners who enjoy the participation of Malaysia in CPTPP are including but not limited to as follows:-

1. First-time free trade agreement with Canada, Mexico and Peru (soon including United Kingdom)

The CPTPP eliminates 95% of tariffs for trade of goods gradually between its 11 participants (soon to include United Kingdom), giving Malaysian companies much more access to new markets in Canada, Mexico, and Peru (soon including United Kingdom) (“CPCs”) that are not covered by any other existing free trade agreement. Additionally, companies of other CPCs (not including Malaysia) (“other CPCs”) have improved access to the Malaysian market, and gives the other CPCs access to a more extensive selection of high-quality raw materials at competitive prices[16] and at the same time broadening and integrates the trade and investment connection among Malaysian companies with other CPCs.

Projections suggest that under the CPTPP, by January 1, 2033, almost all Malaysian exports to all other CPCs will be fully duty-free. Besides, all of Malaysia’s exports to Australia, Canada, Mexico, and Singapore will also be free of duties. Malaysia’s exports to New Zealand and Canada will also be free of duties in 2024 and 2029 respectively.[17]

2. Market Transparency and Governance in Trade and Investment Practices among CPTPP members

The CPTPP Agreement consists of salient chapters to ensure good governance in trade and investment practices among CPCs including but not limited to on National Treatment and Market Access for Goods (from National Treatment and Import and Export Restrictions to Tariff Elimination), Rules of Origin and Origin Procedures, Trade Remedies, Technical Barriers to Trade, Investment, Intellectual Property[18].

Besides, CPTPP also contains provisions on anti-corruption measures wherein CPTPP recognises that unreliable or false record-keeping is a key facilitator of corrupt practices. CPCs will adopt or maintain measures regarding the maintenance of books and records, financial statement disclosures and accounting and auditing standards to abide by the CPTPP in regards to the chapter on anti-corruption[19]. With such measures against corruption being made standardised for CPCs, market transparency becomes sturdy among CPCs, at the same time ensuring safe and smooth trade and investment among the CPCs.

3. Easier Compliance of CPTPP by Businesses compared to Rules of Origin (“ROO”)

Rules of Origin by CPTPP has a more trade-friendly strategy than the standard ROO environment, which is anticipated to make business compliance easier among the CPCs.[20] To enjoy the CPTPP preferential tariffs, exporters and producers are to obtain the Certificate of Origin (“CO”) issued by Malaysia’s Ministry of International Trade and Industry (MITI). Malaysian business owners exporting to other CPCs are required to comply with the respective other CPCs’ Rules of Origin requirements to qualify for the CO[21].

4. Rapid Access to Government Procurement

Government Procurement Chapter in CPTPP consists of two parts which are procedural rules and market-access schedules. Procedural rules assist in establishing government procurement’s conducting method in particular in a manner providing open, fair and transparent conditions of competition whereas market-access schedules assist CPCs in identifying the government procurement opportunities. Malaysian businesses (limited to federal level only, not including state level[22]) will have rapid and convenient access to the Government Procurement markets of other CPCs at substantially lower thresholds than the high standards Malaysia agreed to.[23]

There are many other benefits Malaysian business owners thrive from RCEP and CPTPP with Malaysia being a participating country of the said FTAs. At the same time, such FTAs also assist Malaysia in building a better reputation in the trade and investment world, better connection with other countries and at the same time the economy as a whole will experience welfare gains in the long run. Therefore, Malaysian business owners are encouraged to be more ready to accept and enjoy the participation of Malaysia in RCEP and CPTPP and enhance their competitiveness to boost Malaysia’s economy by way of trade and investment of goods and services worldwide.

If you would like legal advice for your business, please feel free to contact us at +601154304970 or email us at penang@nglaw.com.