UOBKH: TPP to have clear winners and losers

By G. Sharmila

Export-oriented companies within the electrical and electronics and cost-efficient automobile component manufacturing sectors, will be clear winners from the Trans-Pacific Partnership (TPP) agreement, according to UOB Kay Hian.

According to the research house, these sectors are set to benefit from the higher regional content value requirement and the opportunity to participate in direct government procurement, especially in the US.

“Similarly, textile manufacturers are set to benefit from the ‘yarn forward rule’ that requires TPP nations’ fabric production to use member-produced yarn in textiles in order to qualify for duty-free access,” the research house said in a note today.

However, protected industries could face additional headwinds as the elimination of import tariffs promotes a higher degree of competition within the domestic market, it said.

“Vulnerable sectors include steel manufacturing and national automobile assemblers. Nevertheless, the impact on the tobacco, brewery and pharmaceutical players would likely be muted in the near term as we understand that the period to achieve full liberalisation has been extended further from the standard 24-month threshold,” UOB Kay Hian said.

The research house expects minimal impact from the TPP on the financial sector. “The TPP is unlikely to have a significant impact on the banking sector’s competitiveness and regulatory landscape as any further liberalisation remains subjected to various criteria.

“For example, under the TPP agreement, BNM (Bank Negara Malaysia) will permit 100% foreign ownership of banks but subject to the “best interest of Malaysia” criteria. This is broadly similar to BNM’s current flexibility on foreign shareholding limit granted to non-TPP members but based on special government-to-government arrangements on the principle of reciprocity,” it said.

It added that to date, no such agreements have been established as many member and non-member countries continue to have different regulatory limits and flexibility on foreign shareholdings on local banking entities.