Malaysia’s participation in TPP will boost its textile exports

Malaysia’s participation in TPP will boost its textile exports

Malaysian textile sector, which contributes only 1.4 % 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 % to 50 % 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

Malaysia’s participation in the Trans-Pacific Partnership Agreement (TPPA) would not only see rise in exports by 0.54 % to 0.9 % in 2027 mainly due to higher manufacturing exports but increase investments by an additional USD 136 billion to USD 239 billion over 2018-2027. It is projected to achieve a cumulative gain in GDP of USD 107 billion to USD 211 billion over 2018-2027, a PricewaterhouseCoopers (PwC) study indicated.

Malaysian textile sector, which contributes only 1.4 % 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 per cent to 50 per cent 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 says 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 USD 12 billion over 2018-2027.

In contrast, Malaysia’s non-participation in the TPP agreement is projected to incur a cumulative GDP loss of USD 9 billion to USD 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. Malaysia’s non-participation in the TPPA agreement could result in a diversion of foreign investment away from Malaysia and a projected decline of $7 billion to $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.

Reduction in tariff lines to spur exports to the US

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 to benefit Malaysia’s downstream garment producers, as 59 % of the country’s garment exports were to TPP countries last year. Exports to the US are to benefit the most, given that 34 % of the sale of made-up garments was to the US in 2014. A 10 % 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 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.

Removal of these import requirements under the TPP is 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 to remain largely unchanged from the baseline scenario.

www.pwc.com


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