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How can Malaysian businesses leverage the RCEP?

19 September 2022 3 Mins Read

Facilitating better trade relationships and movements is key to sustaining the global economy. The Regional Comprehensive Economic Partnership (RCEP), is a step in that direction. By creating greater opportunities for free trade across the ASEAN region and corresponding free trade partners, member countries can foster increased economic cooperation through strengthened partnerships, and drive local and regional growth. We dive into the details below:

What is RCEP and its significance?

The RCEP is a free trade agreement between 15 countries, mainly from Asia. Ten of these RCEP members belong to the ASEAN, which include Cambodia, Brunei, Laos, Indonesia, Myanmar, Malaysia, the Philippines, Vietnam, Thailand, and Singapore. The remaining five are ASEAN’s Free Trade Agreement members: China, New Zealand, Australia, Japan, and the Republic of Korea.

This RCEP is the world’s largest free trade pact in Asia, comprising a third of the world’s population and the global GDP, each. It is set to pave the way for strengthening trade and business ties between the RCEP ASEAN and other member countries so that products and services can easily be made available in the region. One of the major moves to support this include the reduction of tariffs on 65% of goods; these will apply to almost 90% of goods over the next 20 years.

It is estimated that RCEP’s share of the world economy could account for half of the estimated US$0.5 quadrillion by 2050, reports the Business Standard.

RCEP and Malaysia

The RCEP trade deal came into force for Malaysia on 18th March 2022, allowing the country to integrate with the largest world trade agreement and enjoy preferential rates, removal of non-tariff barriers, and many other benefits. Although the United States, being the biggest world economy, is not part of this Asian trade pact, according to the International Trade and Industry Ministry, the RCEP will help position the Asia-Pacific region as the new economic hub of the world with the intraregional trade expected to grow by almost US$42 billion.

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How does Malaysia benefit from the RCEP?

Malaysia is expected to be the largest beneficiary of the RCEP trade deal among the ASEAN states. According to the New Strait Times article mentioned above, Malaysian exports are expected to increase by US$200 million under this agreement.

Although all RCEP countries will benefit from the agreement, Malaysia is expected to benefit the most in the following ways:

Tariff reduction: 90% of the trade tariffs will be eliminated under this pact which will help facilitate cross-border import and export of goods, increase intra-regional trade, and provide Malaysians with better access to a wider regional market.
Attract investments: The agreement will promote trade and attract investments for all RCEP member countries, including Malaysia, providing more opportunities for growth for local manufacturers. It will also facilitate the creation of uninterrupted supply chains and boost the economic growth in the region.
Open new revenue areas: Another major benefit Malaysia and other countries in this regional economic partnership will enjoy is the change in the ‘rules of origin’ framework. RCEP exporters will only need to show that at least 40% of the materials for the final products are sourced from the country of origin to qualify as an originating product, so that preferential tariff rates can be applied. This means that small and medium enterprises in Malaysia can establish more regional economic ties, and further boost intra-Asian trade.

Through an inclusive and rules-based multilateral trading system, the RCEP can help local Malaysian businesses to access the wider market and establish a global brand within and beyond Asia. Through a sound logistics strategy, many companies are sure to reap the benefits of such a lucrative trade pact. Why not explore your business niche today and see how you can take advantage of the RCEP?