Malaysia's halal business in RCEP

THE Regional Comprehensive Economic Partnership (RCEP) agreement entered into force for Malaysia on March 18.

It is a treaty between 15 countries: Australia, Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

It is the largest free trade group of countries.

Economic Partnership Agreement (EPA) is an international treaty between Japan and another country that gives commitment to eliminating or reducing tariffs and non-tariff barriers on exports and imports  of goods as well as regulations on service sectors.

It also improves investment environments and enhance  protection of intellectual property. EPA covers a scope of economic partnership in facilitating free  movement of goods, services, capital, technology, and people. All are part and parcel of economic  integration between two signatory countries.

"Comprehensive" refers to the difference in development level between Japan and a group of signatory countries. Hence, the RCEP agreement provides assurance of strong commitment to development cooperation between member countries.

There are about 2.27 billion inhabitants in the RCEP. Their GDP is about US$26 trillion in 2020, about one third of world GDP. Total value of exports is US$5.42 trillion in 2020, which is about 31 per cent of world exports.

More excitingly, this group of countries is expected to grow at an average of five per cent per annum in the next 10 years. This means the group's GDP will become US$42.35 trillion in 2032. After that annual  growth rate will likely hover at about two to three per cent.

Put differently, I expect the RCEP will grow between US$850-US$1,270 billion a year after 2032. This is about 2.4-3.5 times of Malaysia's 2021 GDP. That said, however, I must at least underline three important elements:

* Sustainability of renewal and non-renewal natural resources; Global warming and climate change; Healthy lifestyles in post-Covid;

* Individuals, businesses and government can mutually enhance sustainability and healthy lifestyles in every community. Every agent must support Sustainable Development Goals, Corporate Social;

* Responsibility and Environmental, Social and Governance. The task is not easy but certainly doable. I  have written about these issues last year.

We know that Malaysia is top exporters in rubber, palm oil, as well as electrical and electronics products. While they will remain important earners in the future, we would need to strengthen the labour productivity as much as technological capability.

The focus on low wage labour-intensive manufacturing  will no longer add values to our economy. Whereas the RCEP will not only provide the ladder to lift our labour productivity, it also is the new avenue for creating higher value-added goods and services. I  believe many will echo my view.

Just as important, if not more, I want to reiterate the significance of Islamic economy. It will give  added tangible and non-tangible benefits to member states in the RCEP as much as to our country.

RCEP's per capita income in 2020 is about US$11,100. Intra-regional trade value grew from US$2.03 trillion in 2010 to US$2.51 trillion in 2020 (annually two per cent growth). Moreover, I can add  two more assumptions: the size of private final consumption per annum is on average 60 per cent and  the average size of annual investments is about 25 per cent.

The former represents the value between US$15.6-US$25.4 trillion in 2022-2032. The latter is about US$6.5-US$10.6 trillion. Hence, the size of population, GDP, investments, and trade is incredibly huge.

My assumptions outlined above can bring bright prospects for countries within and outside the group. The frontier for expanding the supply and demand is huge.

Markets will undoubtedly expand for  intermediate goods for construction of physical infrastructures, durable and non-durable consumer  goods, medical and health care, services such as food and beverages, retailing, finance and banking, and  so on.

In this regard, the Islamic economy can bring added tangible and non-tangible benefits to member states in the RCEP. It is a crucial platform for promoting trade and investments in halal business in and  outside Malaysia.

I and my colleague have analysed 27 sectors that are of relevance to the Halal economy. The selection is based on goods or merchandises and services that are vitally essential to the healthy lifestyles post-pandemic.

Each of them is consistent with the Malaysia Standard Industrial Classification 2008. Although we have explained our findings in earlier column on December 20, I want to reiterate the key takeaways.

Our analysis confirms Malaysia is strong in production, consumption, and exports of halal products and related goods/services. Moreover, that strength can be further optimised through directed domestic and foreign investments leveraging on Malaysia's Gold Standard Halal certification.

The imperative of  foreign inward investments in halal sectors is particularly significant because of the large volume of  domestic production it induces. The inducement effects for compensation are also impressive in terms  of bigger domestic demand and more foreign inward investments for producing halal goods and services, not to mention increased employment.

We found that domestic demand and exports indeed mutually reinforce foreign inward investments in the halal sector. Imports also equally induce increased domestic production in the domestic and  international marketplace.

Hence, the International Trade and Industry Ministry and HDC Bhd must incentivise the production of halal goods and services to expand and solidify their marketplaces in and outside Malaysia. Their interventions through the RCEP are the clear and present opportunity that will continuously  lift our living standards founded on sustainability.

Just as important, both institutions can make small and medium companies - income and employment generators - to drive the growth of halal  business in the RCEP too.

*The writer is a professor at Reitaku University, Tokyo and has been teaching Southeast Asian studies, international economics, integration, development economics and Asian economy since 1983

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