Ratify RCEP fast to spur post-pandemic economic recovery

The sooner RCEP comes into force, the sooner all businesses can enjoy its benefits

by NUR HANANI AZMAN / pic by BERNAMA

THE government must quickly ratify the Regional Comprehensive Economic Partnership (RCEP) to support the post-Covid-19 economic recovery and reposition Malaysia as an attractive place of doing business.

Socio-Economic Research Centre (SERC) ED Lee Heng Guie said trade and investment facilitation must also be provided to Malaysian companies, manufacturers and exporters to market internationally within the 15-member RCEP market and the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) bloc respectively.

“The sooner RCEP comes into force, the sooner domestic and foreign businesses in Malaysia can enjoy its benefits from a trade and investment liberalisation. It will give greater uniformity and clarity on the Rules of Origin classification.

“The government and relevant agencies must work with the chamber and industry associations to explain how RCEP will benefit our domestic players, especially small and medium enterprises (SMEs),” he said during a SERC online media briefing on Malaysia’s quarterly economy tracker (April to June 2021) yesterday.

While Malaysia had agreed and signed the CPTPP and RCEP on March 8, 2018, and November 15, 2020, respectively, the country has yet to ratify both the free trade agreements.

Lee said SMEs can take advantage of e-commerce in RCEP with better market access, competitive goods price and sourcing of raw materials and reduce market barriers.

SMEs can reap more RCEP opportunities via its facilitation policies including financial, tax credits and incentives, networking, and Intellectual Property Rights support programmes to promote their research, development and innovation.

“The upcoming trend is ‘Go Green’ where consumers are highly conscious about eco-friendly products. In China, 73.3% of consumers are willing to pay premium prices for sustainable products.

“Through strategic collaborations with foreign partners and merger and acquisition, SMEs could take large quantity orders from overseas buyers,” he explained.

Lee expected the current lockdown with a 60% manpower capacity for the export-oriented industries, manufacturing sector and plantation to hamper the export shipments, which may result in the cancellation of future orders.

He said amid a varying recovery between advanced and regional economies, exports are expected to grow by 15.8%, with a stronger first half of 2021 (1H21) before slowing to an estimated 6.6% year-on-year in 2H21 as the low base effect dissipates.

“Global demand for electronics will be sustained by the increasing digitalisation, data solutions and applications, as well as the 5G development. Palm oil and crude oil prices are expected to hold steadily, underpinned by firm global demand,” he added.

SERC maintained its GDP growth estimates of 4%, subject to downside risk due to the continued deeper and lasting economic scarring effects from the movement restrictions and restricted interstate travel. Overall headline inflation is estimated to increase by 3% to 4% this year (1.2% in 2020), said Lee.

With the current movement restrictions likely to be temporary, he said it is appropriate to reserve the monetary arsenal (a historic low interest rate) for future shocks.

Hence, Lee expected Bank Negara Malaysia (BNM) to keep the Overnight Policy Rate steady at 1.75% by end-2021.

“We expect BNM to continue to closely monitor developments surrounding the pandemic, including the incoming data and information to ascertain that the economic recovery is not stalled and derailed in the quarters ahead.

“The central bank is weighing the domestic inflation expectations, as well as the implications on exchange rate and capital flows arising from the US Federal Reserve’s tapering of bond purchase and the eventual increase in interest rate in 2022-2023,” he said.

Lee said the world continues to recover in the second quarter of 2021, albeit divergence in major advanced and developing economies.

“It is a critical time now for countries in South-East Asia as they race vaccination with the speed of new variants of the virus.

Both the US and China continue to lead global recovery, followed by moderate recovery in Europe and Japan, albeit unevenly amid the continued roll out of various stimulus packages and measures.