How Free Trade Agreements (FTAs) Can Benefit Your Company

Today, Malaysia has trade agreements (FTA) in place with many countries. Malaysia has implemented seven bilateral FTAs with Japan, Pakistan, India, New Zealand, Chile, Australia and Turkey. Meanwhile, on the ASEAN level, Malaysia has 6 regional FTAs with ASEAN Free Trade Agreement (AFTA), China, Korea, Japan, Australia, New Zealand and India.

Bilateral FTAs

FTADate of Entry into Force (EIF)
1. Malaysia-Japan Economic Partnership Agreement (MJEPA)13 July 2006
2. Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA)1 January 2008
3. Malaysia-New Zealand Free Trade Agreement (MNZFTA)1 August 2010
4. Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA)1 July 2011
5. Malaysia-Chile Free Trade Agreement (MCFTA)25 February 2012
6. Malaysia-Australia Free Trade Agreement (MAFTA)1 January 2013
7. Malaysia-Turkey Free Trade Agreement (MTFTA)1 August 2015

However, many small and medium-sized companies (SME), might not always use the free-trade agreements and the business opportunities they create due to lack of awareness.

Some believe these trade agreements only benefit large, international corporations, but they also help many small businesses and SMEs more than you might think. Take a handmade batik manufacturer in Malaysia for example. Perhaps a French fashion label wants to export handmade batik to Paris. If the import duties are too high, it would make this deal difficult.

If Malaysia and the EU lifted certain trade barriers via an FTA, the ensuing trade deals would benefit both countries. More than that, it would benefit employees and the families of both companies and even their communities.

For example, the local batik manufacturer might end up getting a third of their sales from exporting to France. They would also be able to afford to hire new staff and create new production facilities to keep up with increased demand.

Small and medium sized businesses matter as much as big companies do. More than 30 million jobs in the EU depend on exports. Collectively, in 2019, trade with countries covered by both the regional and bilateral FTAs accounted for 66.7% of Malaysia’s total trade or RM1.22 trillion. Exports to FTA countries amounted to RM672.1 billion while imports totaled at RM551.5 billion.

Bilateral trade between the EU and Malaysia equaled € 35.2 billion in 2020. EU imports from Malaysia stand at € 24.7 billion in 2020 while EU exports have reached €10.5 billion last year.

The EU is the fifth largest trading partner of Malaysia (after China, Singapore, South Korea and the US), accounting for 7.4 % of the country’s total trade. In 2020, Malaysia became the EU’s 20 largest trading partner in goods.

The EU has the largest network of preferential trading partners in the world. More deals are being negotiated. As the number of FTAs increase, they have to be fully implemented in order for companies of all sizes to benefit from the opportunities they offer.

Some mutually beneficial agreements could take place by simplifying the processes for companies to benefit from preferential tariffs, providing information to SMEs, making international outreach activities more impactful in cooperation with stakeholders and making sure all parties adopt a more proactive approach.

Michalis Rokas, the EU ambassador to Malaysia, told reporters that Brussels is committed to strengthening its engagement with the Association of Southeast Asian Nations (ASEAN), and “the chances of reengaging in trade talks rest mainly on Malaysia’s willingness and ability to pursue ambitious and comprehensive trade and investment agreements.”

“In that respect,” he added, “we take note of the recent interest from the business community to support the resumption of negotiations.”

In late April, the European Chamber of Commerce in Malaysia (EUROCHAM) and the Federation of Malaysian Manufacturers agreed to form a joint task force to lobby for a restart to FTA talks.

A Malaysia-EU pact would assist in boosting post-pandemic recovery

The Federation of Malaysian Manufacturers’ president, Thian Lai, said in a statement last that considering “the impact of COVID-19, an FTA with the EU would greatly contribute to manufacturers’ post-pandemic recovery and re-establishing critical supply chains.” Indeed, the Malaysian economy contracted by around 5.4% last year, according to the country’s central bank.

The economic importance of FTAs are clear. We hope that related government discussions and negotiations bear fruit in creating a mutually beneficial economy and helps aid post-pandemic recovery.

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