Malaysia could see up to US$200bn in economic gains by 2027 through its participation in the Trans-Pacific Partnership (TPP) trade agreement – with the country's textile and clothing sector likely to be one of the biggest beneficiaries.

The calculation by financial services firm PricewaterhouseCoopers (PwC) is based on further and faster investment growth and access to more markets as a result of the trade pact. GDP is projected to increase by $107bn-$211bn between 2018 and 2027, raising GDP growth by 0.6-1.15 percentage points. 

Investment could rise by $136bn-$239bn over the same time frame, largely due to higher investment growth in textiles, construction and distributive trades. Export growth, however, is expected to be outpaced by an increase in import growth, narrowing the trade surplus to 4.3%-5.2% of GDP in 2027.

It is the country's textile sector, however, that is set to register the largest gains in output growth from the TPP, with sectoral growth projected to increase by 3.14-3.78 percentage points by 2027. 

Malaysia is one of 12 countries involved in the trade agreement, which also includes Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, the US, Vietnam and Japan. Collectively, they account for around 40% of the global economy, with a cumulative GDP of almost $30 trillion, and a population of more than 800m, as of 2014. 

For Malaysia, in particular, the TPP will provide it with market access to four additional free trade partners: Canada, Mexico, Peru, and the US. These countries account for around 74% of the market size of the TPP economic bloc, with a GDP of around $21trn as of 2014. 

"The yarn-forward rule of origin under the TPP, which requires TPP countries to use yarn produced from a TPP country in textiles to qualify for duty-free access, is expected to increase the export competitiveness of Malaysia's textile industry," the report notes. "Higher demand for yarn produced in TPPA countries is also expected to spur textile companies to expand their upstream yarn operations in Malaysia, which are higher value-added than downstream garment production."

A 10% reduction in tariffs to the US could achieve sector savings of MYR190m (US$44.4m) per annum, assuming the yarn-forward rule is fulfilled, while new investments could amount to MYR1bn to MYR1.5bn per company. 

The removal of non-tariff barriers, particularly in Mexico and Peru, is also expected to increase Malaysia's exports of textiles, and encourage higher trade with Latin America, the report says.  Malaysia exported MYR83m of textiles to Mexico and Peru in 2014.

Higher demand for yarn produced in TPP countries could also spur more investment in higher value-added upstream activities, the report suggests, with one leading integrated textile company indicating it would invest more than MYR1 bn in its upstream operations to expand from being self-sufficient in yarn inputs to becoming a net exporter of yarn and fabrics.

Key textile producers in the non-TPP countries that source inputs mainly from the TPP countries could also shift investments to Malaysia to take advantage of the yarn-forward rule, particularly given that Malaysia has more developed infrastructures than Vietnam, the report notes.

For downstream companies, however, that rely largely on non-TPP inputs, it may mean a relocation out of Malaysia and into Vietnam if their input providers already have a presence there, or to non-TPP countries that already enjoy zero tariff rates to the US without imposing any rules of origin, such as Jordan and Haiti.

For further insight into what the TPP might mean for textile and apparel imports into the US, click on the following link:

How TPP will change US textile and apparel tariffs