Malaysia’s participation in TPPA to lift export for textile industry

Malaysia’s participation in the Trans-Pacific Partnership Agreement (TPPA) would not only see rise in exports by 0.54 percent to 0.9 percent in 2027 mainly due to higher manufacturing exports but increase investments by an additional US$136 billion to US$239 billion over 2018-2027. It 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, the PricewaterhouseCoopers (PwC) study indicated.

Malaysian textile sector, which contributes only 1.4 percent of total exports last year, will register the largest gains in exports within the first decade of the implementation of the Trans Pacific Partnership agreement, according to a cost-benefit analysis.

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.

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.

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.

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.

According to the study, 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.

On textiles, PwC explained that the yarn-forward rule of origin under the TPP is expected to increase the export competitiveness of Malaysia’s textile industry. The yarn-forward rule applies to textiles which originate from TPP member countries only.

Higher demand for yarn produced in TPP countries is also expected to spur textile companies to expand their upstream yarn operations in Malaysia, which are higher value-added than downstream garment production, the firm said.

The reduction in tariff lines for textile products is expected to benefit Malaysia’s downstream garment producers, as 59 per cent of the country’s garment exports were to TPP countries last year. Exports to the US are expected to benefit the most, given that 34 percent of the sale of made-up garments were to the US in 2014.

A 10 percent reduction in tariffs across all textile products exported to the US could result in savings of RM190 million per annum, assuming the yarn-forward rule is fulfilled. PwC said that the removal of non-tariff barriers, particularly in Mexico and Peru, was also expected to increase Malaysia’s textile exports. Presently, these countries impose special sector registry requirements for the import of textiles, which increase the cost of customs clearance.

The removal of these import requirements under the TPP is expected to encourage higher trade between Malaysia and the TPP countries in Latin America. Malaysia exported RM83 million worth of textiles to Mexico and Peru last year.

In the event Malaysia does not participate in the TPPA, the trade balance is projected to remain largely unchanged from the baseline scenario.