The Significance of the Malaysia-UAE Comprehensive Economic Partnership Agreement (CEPA)

Malaysia and the United Arab Emirates (UAE) signed a Comprehensive Economic Partnership Agreement (CEPA) on 14 January 2025, signifying an important shift in Malaysia’s export strategy. The comprehensive agreement is more than a simple trade pact as it encompasses trade in goods and services, investment facilitation, digital trade, support for micro, small and medium enterprises (MSMEs), and broader economic cooperation. Although the full text of the agreement has not yet been made public as it awaits entry into force, its strategic implications are already evident.

This CEPA is the first cross-border economic agreement signed by Malaysia since its ratification of the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2022. It signifies Malaysia’s first tangible step in leveraging economic agreements for effective market diversification, which is one of the country’s core trade strategies as outlined in the 2021 National Trade Blueprint and reaffirmed in the New Industrial Master Plan 2030 (NIMP 2030) launched in 2023. The UAE is Malaysia’s second largest trading partner in the West Asian region.

For the UAE, the CEPA aims to diversify its economy, enhance market access, and expand its international trade networks. Since 2022, the UAE has successfully concluded CEPA agreements with India, Israel, Indonesia, Türkiye, Cambodia, and Georgia, and continues to expand this network. It signed a CEPA with Vietnam in October 2024 and has finalised the scope for negotiations with the Philippines. Talks with Thailand are also underway, with the first round having commenced in May 2023.

The Malaysia-UAE CEPA builds on a rapidly strengthening economic relationship between the two nations. In 2023, bilateral non-oil trade exceeded US$4.9 billion, and trade volumes continued to rise in 2024, with a 7 percent year-on-year increase recorded in the first half alone. The UAE is Malaysia’s 19^th export destination, while Malaysia ranks as the UAE’s 15^th largest export destination. Key Malaysian exports include jewellery (US$738 million), broadcasting equipment (US$172 million), and other electrical machinery (US$149 million).

In 2024, Malaysia exported US$3.18 billion, while it imported US$6.04 billion from the UAE, leading to a trade deficit for Malaysia. More than 70 per cent of the imports are in crude and refined petroleum. The UAE’s economic diversification from petroleum to manufacturing will expand its demand for non-oil imports such as electrical goods and industrial inputs, as well as services.  

The agreement is expected to further enhance Malaysian export potential by lowering UAE’s tariffs from the most-favoured-nation (MFN) average of 4.7 per cent in 2023,  and reducing non-tariff barriers, particularly in sectors of strategic importance such as palm oil, halal-certified goods, and Islamic financial services. As in the case of Indonesia, Malaysia sees the UAE not just as a bilateral trade partner, but as a critical gateway to the wider Middle East, North Africa, and European markets.

Malaysia sees the UAE not just as a bilateral trade partner, but as a critical gateway to the wider Middle East, North Africa, and European markets.

A unique and groundbreaking feature of the CEPA is its inclusion of a dedicated chapter on the Islamic economy, which is the first of its kind for Malaysia. This provision is expected to strengthen bilateral cooperation in halal certification, Islamic finance, and digital innovation, including the rapidly growing field of Islamic fintech. The agreement presents new opportunities for collaboration and innovation, given both countries’ common interests in the global halal ecosystem.

Malaysia is also using the CEPA to promote its services, especially in the higher education sector which is focused on attracting more international students. Reportedly, around 700 Emirati students are enrolled in Malaysian institutions in 2021, particularly in postgraduate programs in management, business, finance, and law. The CEPA aspires to facilitate further educational exchanges and cooperation, including in artificial intelligence.

Tourism is another strategic sector targeted for growth under the strengthened bilateral relationship. Malaysia has been actively engaging Gulf Cooperation Council (GCC) members, including the UAE, in a bid to boost inbound tourism. In 2019-2023, out of the six GCC countries Malaysia received the most tourists from Saudi Arabia, followed by the UAE.

Importantly, the UAE’s position within the GCC offers Malaysia an indirect entry point into a broader economic bloc. As a member of the GCC, which includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia, the UAE participates in a common market and customs union. This opens up secondary trade opportunities for Malaysian exporters via the UAE’s strong commercial ties with its GCC neighbours. Notably, the region hosts some of the world’s fastest-growing economies; the non-oil sectors of the UAE and Saudi Arabia are projected to grow at 4.8 per cent and 5.8 per cent, respectively, in 2025. Malaysia is currently working to conclude another agreement with the GCC in the near future, to further market diversification, while Prime Minister Anwar has also proposed a CEPA between ASEAN and the GCC.

Despite the agreement’s promising scope, Malaysian businesses, particularly SMEs, may not utilise the CEPA. Historically, Malaysia has had a low utilisation rate of FTAs, as reported in NIMP 2030. This is attributed to compliance costs and limited awareness among smaller firms. For SMEs with lower trade volumes, the administrative burden of meeting rules of origin and certification requirements may outweigh the perceived benefits.

In the case of the Islamic economy, while Malaysia’s halal certification and Islamic finance frameworks are internationally respected and generally recognised in the UAE and broader GCC, each country has its own standards and certification process. Exporters will still need to navigate overlapping regulatory requirements or pursue dual certification to meet local standards. Greater regulatory harmonisation or mutual recognition agreements would go a long way in unlocking the full potential of CEPA in this area.

The Malaysia-UAE CEPA represents a landmark achievement in Malaysia’s evolving trade policy. It not only strengthens bilateral ties with one of the Middle East’s most dynamic economies but also opens doors to wider regional integration across the GCC. The challenge now lies in translating this agreement into tangible economic gains, particularly by ensuring that Malaysian firms, especially the smaller ones, can take full advantage of the opportunities created.

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