Exploring the impact of RCEP on Malaysia: insights from select manufacturing industries

Abstract

PurposeRegional comprehensive economic partnership (RCEP) is understood as the world's largest trading bloc given its contribution to the world output (30%). The mega trade bloc brings together 15 countries of East Asia, Southeast Asia and Oceania to eliminate tariff and non-tariff barriers in goods and services trade. The study suggests the importance of sector specific reforms for Malaysia to strengthen domestic capability.Design/methodology/approachThe analytical framework constructs upon the partial equilibrium analysis and uses WITS SMART simulations.FindingsThe study finds that Malaysia's elimination of tariffs under the RCEP will cause a surge in imports from developed member countries of RCEP like Australia, South Korea and Japan. The study also finds a trade diversion in countries such as India. The empirical results establishes that RCEP would further strengthen intra-ASEAN trade.Research limitations/implicationsThe study explores select sectors of the manufacturing industry in Malaysia.Practical implicationsThe implementation of RCEP would impact the manufacturing sector immensely, especially in sectors like electrical machinery and equipment and inorganic chemicals, which are two of the major trading commodities of the Malaysian economy.Social implicationsAny trade agreement has a larger impact on the society. It may raise income, boost the consumer preferences and create or erode consumer welfare. The study reports the consumer welfare effect of the implementation of RCEP in Malaysia.Originality/valueThe study is the first attempt to do a partial equilibrium analysis for the electrical machinery and equipment sector and inorganic chemicals sector of Malaysia using both aggregated and disaggregated data at HS two-digit and HS six-digit level.