Study finds gains in negotiating Malaysian trade deal

A study into the benefits of a Free Trade Agreement between New Zealand and Malaysia has found there are strong reasons for the two countries to launch negotiations, Trade Negotiations Minister Jim Sutton said today.

Mr Sutton said the study, released today, concluded a trade agreement would deliver economic gains for both countries through improved market access, domestic efficiency gains from lower prices and from possible measures to make it easier to do business.

Late last year Mr Sutton and Malaysian International Trade Minister Dato Seri Rafidah Aziz agreed the two countries would conduct parallel studies on a possible FTA.

Mr Sutton said it was standard practice to conduct such a study prior to considering a move to formal negotiations.

"The study reflects our two countries' commitment to liberalising trade.

"It shows both our economies stand to gain from an FTA. Such as agreement would have the potential to open up opportunities for our goods and service exporters and for investors and consumers."

Mr Sutton said New Zealand and Malaysia would discuss the findings of the studies before deciding what steps to take next. That is likely to be by the end of this month.

View the full study online at:
http://www.mfat.govt.nz/tradeagreements/malaysia/malaysiaftaindex.html

Summary of Malaysia Free Trade Agreement Study

Background

In September 2004 Trade Negotiations Minister Jim Sutton and Malaysia's International Trade Minister Dato Seri Rafidah Aziz agreed the two countries would conduct parallel studies on a possible bilateral Free Trade Agreement.

It is standard practice for each participant to conduct an initial study on the economic benefits of such an agreement prior to proceeding further.

Malaysia is a key Association of South East Asian Nations (ASEAN) country, with which New Zealand and Australia have already commenced negotiations.

Malaysia is New Zealand's largest ASEAN trading partner. It is the country's eighth largest trading partner globally and seventh largest supplier of imports. It is also a significant market for New Zealand services.

Malaysia has a very outwardly focused economy. It is experiencing strong economic growth, with 2004 growth around seven percent.

Main findings

There are strong reasons to negotiate a Free Trade Agreement with Malaysia. Overall, the study concludes that an FTA would provide modest but tangible gains for New Zealand in its trading relationship with Malaysia.

The study found an FTA would also:

· underpin and enhance the bilateral relationship at a time of important new developments in regional political and economic structures
· build on the Singapore and Thailand agreements and help maintain our overall regional trade competitiveness
· help the two countries set the benchmark for further FTAs (if the FTA was comprehensive and ambitious)
· result in economic gains through improved market access, making it easier to do business from domestic efficiency gains
· benefit people in both countries with lower consumer prices and improve exporter / importer opportunities, stimulating greater economic activity.

Trade in Goods

The two economies are broadly complementary in goods trade and removing barriers would allow bilateral trade to reach full potential, and result in increased opportunity for goods and service exporters in both countries.

Electronics, machinery and fuels account for two-thirds of all Malaysian exports to New Zealand.

In agricultural trade, the complementary nature of Malaysian and New Zealand production offers further opportunities for New Zealand exporters without threatening Malaysian domestic industry.

Agricultural goods, particularly dairy, currently dominate exports to Malaysia. An FTA would result in additional opportunities for value-added products, and widen as well as deepen goods trade with Malaysia.

Malaysia's economy is comparatively open to trade in goods and operates a relatively light (applied) tariff regime ? but with notable exceptions:

· Some specific exports (processed wood, cheese and carpets) currently face moderate tariff barriers
· High tariff barriers in certain areas (manufactured products such as wood products, whiteware, mechanical and electrical machinery, aluminium products, food and beverages) may currently be restricting or stifling potential trading opportunities. This is known as "trade chilling".

An FTA could deal with import licensing issues for products including forestry, fish, animal products and electrical goods.

Services

Barriers restrict commercial presence in markets and there are various measures affecting New Zealanders' participation in a wider range of services.

Reducing restrictions would help trade flows, deliver benefits to services exporters and assist further economic integration between the two countries.

Services liberalisation could offer significant gains in areas such as private education, tourism, business, professional and computer-related services, consulting, communications and construction/engineering.

Investment

Levels of investment between New Zealand and Malaysia appear low, though official statistics may understate actual levels. An FTA could provide a more visible platform for enhanced levels of investment.

Other areas

An FTA with Malaysia could:
· help to reduce transaction costs to business associated with different standards and regulatory approval methods.
· encourage technical cooperation between regulatory authorities to improve quarantine and food safety measure implementation and facilitate access
· promote cooperation in customs issues, intellectual property protection and competition promotion in markets, and curtail anti-competitive behaviour.

ENDS

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