Malaysia External Trade Development Corporation

Introduction To FTA

Free trade agreements (FTAs) have proved to be one of the best ways to open up foreign markets for Malaysian exporters. FTA is an agreement made between two or more countries under which countries involved are given preferential market access. FTAs' partner countries provide each other favorable treatment on trade, investment, provision of services and trade facilitation as well as economic and technical cooperation.To date, Malaysia has signed and is implementing two bilateral FTAs and four regional FTAs. The bilateral FTAs signed are with Japan (MJEPA) and Pakistan (MPCEPA). Together with its ASEAN partners, Malaysia are parties to the ASEAN Free Trade Area (AFTA), ASEAN-Japan Close Economic Partnership Agreement (AJCEP), ASEAN Korea Free Trade Agreement (AKFTA) and the ASEAN-China Free Trade Agreement (ACFTA).Exporters in Malaysia will benefit from FTAs through preferential treatment and market access. Exporters will also enjoy cost savings from elimination or reduction of customs duties and from mutual recognition agreements, trade facilitating customs procedures and removal of onerous regulations. For service providers, FTAs provide improved market access for various commercial and professional services from Malaysia. FTAs also provide for easier entry for businessmen as well as more predictable terms for investment in the FTA partner country.

 

Benefits of FTA

Among the benefits which can be derived from the FTAs are:

• accord and enhance long term market access opportunities for Malaysian products and services;
• provide access to cheaper imports from the FTA partner countries, which can be inputs for Malaysia's exports;
• enhance Malaysia's position as an attractive destination for foreign direct investment;
• promote capacity building through economic and technical cooperation activities;
• improve the efficiency and competitiveness of Malaysian industries, through increased competition and economies ofscale; and
• facilitate trade through establishment of mutual recognition agreements.

How business can take advantage of FTAs

• • FTAs can be used by Malaysian businesses to expand and penetrate overseas market. With the easier market access, Malaysian businesses can embark on joint ventures or acquisition into the overseas market.
• • The elimination of import duties on negotiated products serves as an opening for Malaysian products to be introduced into the overseas market, apart from increasing existing market share. Manufacturing companies in Malaysia should take advantage of duty elimination or substantial reduction as they now have an edge over their competitors from countries not enjoying preferential treatment.
• • FTAs would enable Malaysian industries to source inputs at more competitive prices.
• • Bilateral FTAs enable Malaysia to expand its services and products into third countries through partnerships withenterprises from FTA members.
• • FTAs would offer trade facilitation measures for industries to expand trade, as well as capacity building to improve andenhance their competitiveness.

Assessment of FTAs

(i) Japan-Malaysia Economic Partnership Agreement (JMEPA)

• For the period 13 July-31 December 2006, Malaysia issued a total of 21,477 MJEPA Certificates of Origin for products totaling RM3.1 billion for exports to Japan.
• Malaysia's main exports under MJEPA were:
  
  • palm oil;
  • polymer of ethylene;
  • plywood; and
  • lauric and strearic acids.
• For the same period, Japan issued a total of 631 MJEPA Certificates of Origin. Main products were:
  
  • CKD parts (1,305 items);
  • car parts (43 items);
  • excavators (63 items); and
  • televisions (19 items).
• Exports to Japan have increased by 9.2 per cent from RM20.6 billion for the period July-December 2005 to RM22.5 billion in the correspondent period in 2006.
• In 2007, preferential COO issued under MJEPA were valued at RM6.7 billion with major export products being industrial grade palm oil and sludge oil, stretch film, polyethylene bags, heavy cut alcohol and laminated veneer lumber.
• Approved investment from Japan in 2006 increased by 20 percent to RM4,411.6 million, from RM3,671.7 million in 2005.
• Under the Malaysia-Japan Automotive Industrial Cooperation (MAJAICO), 10 projects have been launched and are progressing well. The projects are:
  
  • The Automotive Technical Expert Assistance Programme;
  • Enhancement of Mould and Die Centre in Malaysia;
  • Vehicle Type Approval;
  • Automotive Skill Training Centre in Malaysia;
  • Automotive Training Centre in Japan;
  • Component and Part Testing Centre in Malaysia;
  • Business Development Programme;
  • Cooperation in Automotive Market Information;
  • Cooperation in Exhibition; and
  • Consultation on JV Contract.

(ii) Malaysia-Pakistan Free Trade Agreement (MPFTA)

• For the period January-December 2006, Malaysia's exports to Pakistan under the EHP amounted to RM44.8 million.
• Products exported under the EHP include:
  
  • butyl acrylate;
  • ethylhexanol;
  • crude acrylic acid;
  • n-buthanol;
  • iso-buthanol;
  • PVC stabilizer; and
  • oleic acid.

• Malaysia's exports under the ACFTA arrangement in 2004, 2005 and 2006 are:

• Malaysia's major exports using the preferential access in 2006 were:
  • chemical products;
  • rubber products;
  • vegetable oil;
  • cocoa products;
  • glass and glassware;
  • plastic products;
  • fish and crustaceans;
  • mineral fuels and oils;
  • fruits; and
  • electrical and electronics products.
• In 2007, a total of 12,456 COO were issued under ACFTA with a total value of RM5.6 billion. Major export products were compound rubber, vegetable fat and oil, glycerin and acetic acid.
• Imports under the ACFTA using the preferential Certificates of Origin amounted to RM115.3 million (January-September 2006 or 0.26 per cent of Malaysia's total imports of RM43 billion from the People's Republic of China).