The CPTPP: What Do We Know and What’s Next?

Malaysia ratified the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on 30 September 2022, making it the 9th country to ratify the agreement. Although the previous government promised a parliamentary debate before a final decision was reached, that did not happen.

As Malaysians, should we be concerned?

Let’s start with the simplest question.

What is the CPTPP?

Branded as comprehensive and progressive, the CPTPP aims to promote economic growth, development, and regional integration by eliminating tariffs and other barriers to trade in goods and services, and by establishing common rules and standards for how government, investors and firms should regulate and conduct business.

Here are some fast facts:

• The CPTPP is a successor of the TPP, which did not materialize due to the withdrawal of the US under the Trump administration.

• It now features 11 member countries including Japan, Singapore, Vietnam, and Malaysia (see Diagram below), with a combined population of 500 million; and 13.5% global GDP.

• Malaysia has agreed to reduce tariffs on all goods to 0% by 2030, including automobiles, and electrical and electronics.

• The agreement comes with 30 chapters covering labour standards, environmental compliance, investment scheme, government procurement, state-owned enterprises, transparency, anti-corruption, and intellectual property.

FTA memberships: a comparison between CPTPP, RCEP, and ASEAN. (Source: Economist Intelligence Unit)

How did the previous government arrive at the decision to ratify CPTPP?

Absent a parliamentary discussion, it is unclear what was the government’s assessment of the cons of ratifying CPTPP.

However, a 2022 cost-benefit analysis (CBA) commissioned by the previous Ministry of International Trade and Industry (MITI), and conducted by PricewaterhouseCoopers (PwC), likely had provided the key impetus to go ahead. According to the CBA report, the ratification of CPTPP is projected to propped up Malaysian GDP by 1.9%, reaching US$628 billion in 2030 (cumulative gain of US$ 56.5 billion from 2021-2030) and additional investment of US$112.3 billion over the same period.

The then-Malaysian Investment Development Authority (MIDA) noted from the report that “If Malaysia does not ratify the CPTPP, growth of foreign wealth located in Malaysian assets would decrease… … foreign wealth is diverted away from Malaysia to participating CPTPP countries” and that the FTA offers Canada, Mexico and Peru as new trading partners. The report also cites Vietnam as an exemplary model, which has greatly benefited from its ratification of CPTPP.

Similar arguments were embraced by other proponents of CPTPP, including the Federation of Malaysian Manufacturers (FMM) and The Institute for Democracy and Economic Affairs (IDEAS).

What do the opponents say?

First and foremost, the model adopted by PwC is widely criticized for its use of unrealistic assumptions. Notwithstanding the model issue, advocates against the CPTPP argued that the projected growth the agreement may bring is minute and even unworthy, considering 3 of the CPTPP member countries, Singapore, Japan and Australia, already make up 82% of Malaysian export. It is also noted that Malaysia has existing FTA arrangement with these 3 countries. While export will be increased through CPTPP, the increase in imports is much more significant, an issue that the previous government appeared to disregard.

Concerns are also raised about the potential adverse impact of the agreement on certain sectors of the economy, such as the automotive industry, which is highly susceptible to international competition, specifically the Japanese automotive companies. There are fears that the agreement could lead to job losses and the erosion of local industries.

Additionally, the Investor-State Dispute Settlement (ISDS) mechanism of CPTPP also attracts much criticisms and skepticism, that the ISDS allows foreign investors to bring claims against the member countries for policy and regulatory changes, even if such changes are for the purpose of national interest. In other words, ratifying the CPTPP would mean a concession of government sovereignty in the policy space.

Has the dust settled for CPTPP? And what’s next?

As the agreement has entered into force on 29 November 2022, the withdrawal of Malaysia’s CPTPP membership seems unlikely. While the comparison of pros and cons may seem less imperative now, it would still be highly relevant to inform how the government should design and implement policies. Ultimately, the outcome of joining CPTPP will be very much a function of how, knowing the rules, restrictions, leeway and boundaries of the FTA, Malaysia plays the game.

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About the author

Francis Lau

A UNM-YTAR Scholar studying Economics and International Economics. He always finds Economics fascinating for its all-encompassing nature, as it offers a new perspective into every aspect of life, from personal decisions to global events.

References

Chee, Y. L., (30 September 2022). “CPTPP | No Turning Back Now?”. (Podcast) Consider This. Available at: https://audioboom.com/posts/8205197-consider-this-cptpp-no-turning-back-now

Consumer Association of Penang (CAP), (2022). CAP shocked the Cabinet has ratified CPTPP. Available at: https://consumer.org.my/cap-shocked-the-cabinet-has-ratified-cptpp/

Federation of Malaysian Manufacturers (FMM), (2022). FMM PRESS STATEMENT: Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) Presents Net Economic Benefits to Malaysia. Available at: https://www.fmm.org.my/Announcements-@-FMM_PRESS_STATEMENT-;_Comprehensive_and_Progressive_Agreement_for_Trans-Pacific_Partnership_(CPTPP)_Presents_Net_Economic_Benefits_to_Malaysia.aspx

Fox, J., (2022). Malaysia’s Ratification of CPTPP to Help Increase Trade. ASEAN Briefing. Available at: https://www.aseanbriefing.com/news/malaysias-ratification-of-cptpp-to-help-increase-trade/

Institute for Democracy and Economic Affairs (IDEAS), (2022). IDEAS welcomes ratification of the CPTPP, states it will facilitate Malaysia's post-pandemic recovery. Available at: https://www.ideas.org.my/ideas-welcomes-ratification-of-the-cptpp-states-it-will-facilitate-malaysias-post-pandemic-recovery/

PricewaterhouseCoopers (PWC) (2022). Cost-Benefit Analysis on the Potential Impacts of the CPTPP on the Malaysian Economy and Key Economic Sectors. The Ministry of International Trade and Industry. Available at: https://fta.miti.gov.my/miti-fta/resources/CPTPPA/25072022_CPTPP_Cost_Benefit_Analysis_Final_Report_-_for_publication.pdf

Sundaram, J. K., (2020). COMMENT | Why is Malaysia still committed to the CPTPP fraud? Malaysiakini. Available at: https://www.malaysiakini.com/news/537678

Sundaram, J. K. & Chowdhury, A., (2022). Reject CPTPP, Stay out of New Cold War. Inter Press Service. Available at: https://www.ksjomo.org/post/reject-cptpp-stay-out-of-new-cold-war

The Ministry of International Trade and Industry (MITI), (2022). Available at: https://fta.miti.gov.my/index.php/pages/view/71