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M’sia’s goods trade balance to worsen post-RCEP

The Malaysian Reserve - 26 March 2021

M’sia’s goods trade balance to worsen post-RCEP
By S Birruntha

MALAYSIA’S goods trade balance will decline by 36% or US$4 billion (RM16.4 billion) per annum, post the Regional Comprehensive Economic Partnership (RCEP), according to a report by the Global Development Policy Centre of Boston University.

The report titled, “RCEP: Goods Market Access Implications for Asean” stated that Asean’s overall goods trade balance is expected to deteriorate by 6% amounting to US$8.5 billion per annum, with almost all Asean members including Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam seeing a decline.

Commenting on the report, United Nations Conference on Trade and Development (UNCTAD) senior economic affairs officer Dr Rashmi Banga said Malaysia’s imports will be higher than exports post-RCEP, with imports rising by US$1.8 billion from China and US$500 million from Japan.

She added that Malaysia’s import will be mostly coming from China post-RCEP, and the major products will be electrical machinery, vehicles parts and accessories.

“In terms of exports, our findings show that Malaysia will experience a decline in its exports post-RCEP.

“Exports to RCEP countries are estimated to fall for not only Malaysia, but also Cambodia, Myanmar, the Philippines, Singapore and Vietnam because of trade diversion in favour of more efficient exporters within the RCEP,” she said in a virtual presentation of the report yesterday.

Additionally, Banga noted that Malaysia is also expected to face the maximum loss of tariff revenue among the RCEP member states, amounting to US$2.2 billion per year.

She emphasised that with the ongoing pandemic, Asean governments need to mobilise domestic financial resources to revive their economies.

“Tariffs are simple and effective policy tools not only to generate revenue for the governments, but to also preserve valuable domestic financial resources from being spent on imports of luxury items.

“Tariff liberalisation under a free trade agreement can lead to substantial tariff revenue losses if tariffs are liberalised heavily on importable items,” she said.

Meanwhile, the report also revealed that most of the non-Asean partners stand to make gains in goods trade balance with Japan being the biggest winner, followed by New Zealand and Australia.

Japan’s goods trade balance is expected to improve by 99% by rising from US$12.1 billion to US$4 billion.

“While, Australia and New Zealand’s increased exports in future will be mainly due to the ongoing implementation of the comprehensive and progressive agreement for Trans-Pacific Partnership rather than from RCEP,” the report noted.

Commenting further, Banga said with the onset of the pandemic, developing countries are facing multiple challenges including health, economic, financial and environmental challenges.

She added that to recover faster and better with sustainable growth, it becomes important for countries to revisit their trade and industrial policies.

“Tariffs are the most simple and efficient tools in the hands of the governments for raising financial resources at the times of crisis, protecting valuable domestic financial resources from being wasted on imports of luxury items, protecting domestic firms from unreasonable competition, and protecting the livelihoods of their citizens.

“We believe that tariff liberalisation under RCEP may not yield the desired results of improving the goods balance of trade through increased market access for Asean countries,” she noted.

Given the shifting export competitiveness in the digital era and multiple challenges, Banga said it has become extremely important for developing countries to preserve their policy space, as well as their valuable domestic financial resources, for reviving their economies and progressing on sustainable development goals.

 source: The Malaysian Reserve