The entry into force of the Comprehensive Economic Partnership Agreement between Malaysia and the UAE (CEPA), together with the launch of negotiations and the signing of the memorandum of understanding for the Malaysia-Gulf Cooperation Council Free Trade Agreement (MGFTA), represents a significant advancement in Malaysia’s trade engagement with the Gulf region.
These developments come at a time when the conditions for trade and cross-border investment between Southeast Asia and the Gulf states are increasingly favourable. Southeast Asia’s strategic appeal, boosted by its rich natural resources, favourable demographics, and generally stable diplomatic relations, continue to attract growing interest from Gulf investors.
The CEPA and the forthcoming MGFTA are expected to further unlock this potential by reducing tariffs, streamlining regulatory processes, expanding market access, and lowering trade barriers. The CEPA, in particular, is set to solidify the UAE as a strategic hub for Malaysian exports to the Middle East, while giving UAE businesses broader access to Southeast Asian markets.
What are the CEPA and the MGFTA?
The CEPA, which entered into force on 1 October 2025, is a trade and investment pact aimed at enhancing bilateral relations between Malaysia and the UAE. This agreement is Malaysia's first free trade agreement with a GCC country and is expected to significantly boost economic cooperation.
One of the CEPA’s interesting elements is its specific section on the Islamic economy, which is the first of its kind in Malaysia in trade agreements. This section seeks to enhance collaboration in halal standards, Islamic financial services, and digital innovation, especially in Islamic fintech. This aligns with both Malaysia and the UAE's ambitions in the global halal sector, and creates fresh opportunities for cooperation.
The MGFTA is an extension of the CEPA. Whilst the CEPA delivers bilateral benefits specifically between Malaysia and the UAE, the MGFTA looks to provide wider regional market access across all six GCC countries (UAE, Saudi Arabia, Qatar, Kuwait, Bahrain, and Oman). With a memorandum of understanding signed in May 2025 and negotiations expected to conclude within a year, it aims to replicate and expand the CEPA model, but now covering all six GCC nations.
Investment activities between Malaysia and the Gulf region
In 2024, Malaysia's total trade with the GCC amounted to USD22.3 billion (RM101.8 billion), with major exports including petroleum products, electrical and electronic products, palm oil & palm oil-based products, jewellery, and processed food.
In 2023, Abu Dhabi Future Energy Company PJSC (Masdar) signed a landmark agreement with the Malaysian Investment Development Authority to invest USD 8 billion in renewable energy projects by 2035. These projects include solar power plants, onshore wind farms, and battery energy storage systems.
Mubadala Energy, the oil and gas arm of the UAE’s Mubadala Investment Company, is also undertaking an expansion in its production capacity at the Pegaga gas field off the coast of Sarawak, Malaysia. The project aims to produce 550 million standard cubic feet of gas per day, contributing to Malaysia's liquefied natural gas exports.
Malaysia is also expanding cooperation with the UAE in the fields of artificial intelligence and digital economy. In January 2025, the two countries signed an MoU to facilitate joint investment in artificial intelligence. The joint venture intends to use advanced data analytics and AI to improve national security, community safety, and operational efficiencies. Under the MoU, Malaysia and the UAE will continue to cooperate on key initiatives, including the development of AI-driven national security systems, the establishment of high-performance computing data centres and national security operations centres, the enhancement of customs tax collection, and the improvement of operational efficiencies.
Additionally, Bin Zayed International Group plans to invest $2 billion over five years in Malaysia’s renewable energy, real estate and financial services sectors.
In 2023, 34 manufacturing projects involving Emirati participation were approved in Malaysia, valued at approximately USD 400 million (RM 1.5 billion). These projects span sectors such as machinery, halal pharmaceuticals, chemicals, and food manufacturing, creating over 2,000 jobs.
Saudi Arabia’s sovereign wealth fund is also set to invest USD 100 million in Malaysia’s budget airline, AirAsia.
What do the CEPA and MGFTA mean for businesses looking to invest in both regions?
Firstly, the CEPA removes tariffs on almost all eligible goods made in Malaysia or the UAE. Malaysia's electrical and electronic exports to the UAE increased by 22% post-CEPA, as reduced tariffs on components and finished products made companies in Malaysia more competitive. Halal food exports also rose by 18%, supported by mutual recognition agreements for certifications. Both the CEPA and the MGFTA are expected to strengthen trade, attract investments, and deepen economic ties between Malaysia and the UAE, providing both countries with clear clarity on tariff-free trade in the era of Trump 2.0. This provides both regions with market access certainty, a lowered cost of business and diversified trade opportunities.
Secondly, the CEPA and MGFTA introduce simplified regulatory frameworks that streamline customs procedures and reduce bureaucratic obstacles. Reduced administrative hurdles will enable faster clearance times and more efficient cross-border trade. A more predictable regulatory environment also allows companies to operate with greater certainty, encouraging investment and commercial activity.
Thirdly, there will be an improvement in market access for both goods and services, particularly in sectors such as finance, tourism, and logistics. Companies will have the opportunity to reach new customer bases and expand their regional presence.
What steps can businesses take?
Firstly, businesses can evaluate new market opportunities by reviewing supply chains and distribution channels to identify potential areas for expansion between Malaysia and the UAE, as well as across the wider Gulf region.
Secondly, companies can capitalise on tariff reductions under the CEPA and MGFTA by identifying products eligible for preferential treatment and adjusting pricing strategies to lower cost of business. This improves competitiveness and enhances the ability of Malaysian and UAE firms to expand their presence in each other’s markets.
Thirdly, businesses should explore opportunities in the services sector, taking advantage of provisions in the CEPA and MGFTA that promote national treatment, simplify licensing requirements, and encourage cooperation on professional standards and certifications. These measures can help companies broaden their service offerings and strengthen regional operations.
Finally, it is important to stay informed and monitor ongoing developments related to the CEPA and MGFTA, including updates on implementation, regulatory changes, or additional agreements that may influence market access. This will ensure that companies can adapt strategies in response to evolving trade policies.
Conclusion
We expect business activity between Malaysia and the Gulf region to continue gaining momentum.
As an international law firm with a presence in both regions, we are well-positioned to support clients with cross-border trade and investment. We look forward to helping businesses navigate and seize new opportunities across Malaysia and the Gulf region.
