Tag: Malaysia’s Trade Surplus Could Decline Post TPP Agreement

Malaysia’s Trade Surplus Could Decline Post TPP Agreement

Based on a study by World Trade Organization (WTO), the impact of tariff liberalization for Malaysia among Trans Pacific Partnership Agreement (TPPA) members is not necessarily favorable for overall trades.

Many developing countries like Malaysia are experiencing a fall in their domestic value-added (DVA) exports due to the rise in imports for inputs in export sectors. For instance, Malaysia’s intermediate imports account for close to 60% of total imports.

“We gather that trade liberalization among TPPA member countries is negative for Malaysia’s net trades,” wrote AmResearch economist Patricia Oh Swee Ling in an economic update. “Overall trade surplus could decline by US$1.3 billion to US$24.1 billion post TPPA.”

In the economist’s view, Malaysia’s exports to TPPA partner countries may rise to US$99.4 billion (from US$97.8 billion in 2014) but imports will improve to US$75.3 billion post TPPA (vs US$72.5 billion in 2014).

“Malaysia’s trade with Japan will experience the most decline in balance of trade (BOT) post TPPA (with a decline in BOT by US$1.2 billion), followed by Australia (-US$287 million); the US (-US$266.2 million) and Singapore (-US$60 million),” projected the economist. “Malaysia-Vietnam bilateral trades are positive owing to the boost in BOT by US$579 million.”

Oh pointed out that TPPA is unfavorable for Malaysia’s bilateral trade with the US owing to the reduction in balance of trade by more than US$266 million. Many sectors in Malaysia including boilers, tobacco, articles of iron and steel, electrical machinery and glass and glassware, plastics will experience narrower surpluses.

“Meanwhile, Malaysia’s BOT would improve post TPPA for textiles and clothing, rubber articles, wood pulp and wood articles and miscellaneous chemicals,” justified the economist.

According to Oh, rise in DVA exports is important for a country in terms of production-linked gains via exports growth. While gains in exports and net trade augur well for domestic growth, the additional benefit to the general economy derives from the domestic value-added segment.

“In recent years, maximum decline in DVA exports of Malaysia has been with the US,” explained Oh. “DVA slipped to 42% in 2009 from 65% in 1995.”

According to the economist, total imports are likely to grow by 3.9% to RM75.3 billion post TPPA. Noteworthy to mention is that imports of vehicles could potentially rise by US$470.3 million to US$552.5 million in Malaysia post TPPA (2013: US$82.2 million).

Other sectors which will likely experience a significant increase in imports include iron and steel; mineral fuels; plastics and articles thereof; nuclear reactors, boilers and machinery as well as electrical machinery.

In essence, AmResearch opined that it is unnecessary that production-linked gains from higher exports and GDP growth will result in higher employment for the economy. High intermediate imports could result in a decline in DVA exports going forward.

“As such, focus for trade should be in terms of productivity growth to stimulate the economy via trade activities and not just for increasing overall trades,” suggested the research house. “All in, Malaysia’s imports are expected to rise by US$2.8 billion and exports to gain by US$1.6 billion post TPPA.”

As such, Malaysia’s balance of trade is likely to decline by approximately US$1.3 billion per annum as imports grow at a stronger pace compared to exports.