Malaysia’s participation in the Trans-Pacific Partnership Agreement (TPPA) is projected to achieve a cumulative gain in gross domestic product (GDP) of US$107 billion (RM458.9 billion) to US$211 billion over 2018-2027.
This is assuming that all tariffs are eliminated and non-tariff measures (NTMs) are reduced by 25 percent to 50 percent across the prospective 12 member countries, according to the PricewaterhouseCoopers’ (PwC) study on potential economic impact of TPPA on the Malaysian economy and selected key economic sectors.
This is part of the TPPA cost-benefit analysis studies released by International Trade and Industry Ministry (Miti) which is readily available on its website.
The PwC study also indicated that Malaysia’s participation would see investments increase by an additional US$136 billion to US$239 billion over 2018-2027, while export would also rise by 0.54 percent to 0.9 percent in 2027, mainly due to higher manufacturing exports.
As for the GDP, PwC said more than 90 percent of the cumulative gains would be attributable to the reduction in NTMs because an elimination of tariffs without any reduction in NTMs, would reap a cumulative gain of only US$12 billion over 2018-2027.
In contrast, Malaysia’s non-participation in the TPP agreement is projected to incur a cumulative GDP loss of US$9 billion to US$16 billion over 2018-2027.
“Notably, the cumulative opportunity cost of non-participation in the TPP agreement would be US$116 billion to US$227 billion over the 10-year period,” it said.
Malaysia’s participation in the TPP agreement is expected to raise GDP growth by 0.6 percent to 1.15 percent in 2027, reflecting a 10 percent to 23 percent increase in Malaysia’s growth potential in 2027.
While Malaysia’s non-participation would incur a relatively negligible decline in GDP growth of 0.02 percent to 0.03 percent in 2027, the opportunity cost to growth would be significantly larger at 0.62 percent to 1.18 percent, it noted.
In terms of the investments projection over the 2018-2027 period, the textile sector will register the largest increase in investment growth in 2027, followed by construction and distributive trade sectors.
In contrast, Malaysia’s non-participation in the TPPA agreement could result in a diversion of foreign investment away from Malaysia and a projected decline of US$7 billion to US$13 billion over 2018-2027.
In terms of exports, growth in 2027 is expected to increase by 4.09 percent to 4.87 percent for textile, 1.02 percent to 1.74 percent for automotive and transport equipment and 0.73 pecent to 1.28 percent for electrical and electronic (E&E) goods.
In contrast, Malaysia’s non-participation in the TPPA agreement will result in a marginal decline in export growth by 0.03 percent to 0.06 percent in 2027.
Import growth set to increase by 0.65-1.17pct
Meanwhile, import growth is projected to increase by 0.65 percent to 1.17 percent in 2027, driven mainly by higher imports of intermediate and capital goods.
“The increase in import growth is projected to outpace the increase in export growth, as the reductions in import tariffs and NTMs are larger for Malaysia relative to the other TPPA countries,” according to the study.
The average import tariff imposed by Malaysia was 2.4 percent as of 2014, while the average import tariff imposed by the TPPA countries (excluding the Asean economies) was 1.2 percent.
While NTMs in Malaysia’s manufacturing sector is equivalent to 22.1 percent, that in the manufacturing sectors of the other TPPA countries averages 11.8 percent.
Hence, the impact of lower import tariffs on the growth of exports and imports is, nevertheless, projected to narrow over the simulation period, to be approximately comparable by 2027.
In 2027, the trade balance is projected to remain in surplus following Malaysia’s participation in the TPPA.
“The size of the trade surplus will be smaller at US$29.7 billion to US$35.1 billion, compared to the baseline scenario of US$41.9 billion where the TPPA does not exist.
“The 2027 surplus position post-TPPA participation will remain larger than the 2014 surplus position of US$26.1 billion,” it said.
In the event Malaysia does not participate in the TPPA, the trade balance is projected to remain largely unchanged from the baseline scenario.
Meanwhile, trade balance as a share of GDP is projected to be lower at 4.3 percent to 5.3 percent in 2027 post-TPPA participation, compared to the baseline scenario of 6.5 percent.
“It is, however, notable that the share of trade balance to GDP in 2027 is projected to be smaller relative to the 2014 share of trade balance to GDP of 7.5 percent, even in the baseline scenario where TPPA does not exist,” it added.