Look to Europe, not the US
The Borneo Post | February 25th, 2007
Look to Europe, not the US
By TL Cheam
NEGOTIATIONS on a free trade agreement (FTA) between Malaysia and the United States have hit a sticky patch.
Although Minister of International Trade and Industry Datuk Seri Rafidah Aziz was quick to deny the talks have stalled, it is clear that both sides are stuck on some hard issues.
The fifth round of talks in Kota Kinabalu ended recently without any fixed date scheduled for the sixth round.
Rafidah said there are 58 issues still unresolved. Some of them concern affirmative policies that benefit the bumiputera, which the government has stressed are non-negotiable.
She added: “There is no deadlock. Informal talks are still on.” But she conceded that the negotiators might not meet the March deadline sought by the Americans to conclude an agreement.
Malaysian opponents of the FTA are quietly celebrating the apparent impasse, and hoping it will eventually kill the FTA plan. These groups include farmers, fishermen and workers who believe the FTA will harm their livelihood while people living with HIV/AIDS fear the insistence by the US on intellectual property protection will lead to more costly drugs that they need to stay alive.
On the other side, supporters of the FTA have convinced themselves that freer trade with the US will result in more exports, higher foreign investments and enhanced efficiency in the Malaysian economy.
Is a FTA with the US really vital to Malaysia as argued by the proponents? Isn’t Malaysia already getting what it wants without having to give away any of its present advantages?
Let’s look at how the two economies are performing.
Malaysia is among the top 20 trading nations in the world. Total trade volume exceeded the trillion ringgit mark for the first time in 2006, and we have been running a trade surplus every month since 1998.
Foreign investments in manufacturing totalled RM20.2 billion last year, compared with RM17.9 billion in 2005 and RM13.1 billion in 2004.
The unemployment rate in Malaysia is among the lowest in the world.
The US is Malaysia’s second largest trading partner, after Asean as a group. Trade with the US is heavily in Malaysia’s favour, with exports at RM100.9 billion in January-November 2006 against imports of RM55.7 billion.
Obviously, the US needs more help to penetrate Malaysia’s market instead of the other way around.
In fact, the US needs a lot of help in a few other areas as well.
It is running a massive current account deficit that rose to US$805 billion (RM2.81 trillion) in 2005, up from US$668 billion in 2004.
Instead of supplying capital to the rest of the world, the US is today the world’s biggest borrower.
So far, the US has been able to sustain its deficit of spending over income thanks to the inflow of funds from overseas investors and the willingness of emerging economies to accept dollars as payment of goods the US buys from them.
As a result of the trade imbalance, China’s reserves - mainly in US dollars - have swollen to over US$1 trillion.
With the dollar sinking rapidly, it means the more business anyone does with the US will earn more dollars but lower value.
The euro, on the other hand, has been appreciating.
Thus, instead of looking to the US market to push our exports, Malaysia may do better to consider expanding sales into Europe.
The European Union (EU) is Malaysia’s third largest export market, taking RM67.6 billion worth of goods in January-November 2006, and Malaysia’s fifth biggest source of imports.
Malaysia is the EU’s second most important trading partner in Asean, after Singapore, and Malaysia records a trade surplus with 19 of the 25 EU member states.
In foreign direct investment, the EU has consistently been the biggest foreign investor in Malaysia’s manufacturing sector for the past few years.
Looking at the bigger picture, relations between Europe and East Asia go back a long way, to the time of Marco Polo who travelled on the Silk Road to China and Mongolia seven centuries ago.
Later the British set up trading posts in India, Malaya, Singapore and Brunei, and in the course of time, took over their governments.
The Dutch ruled present day Indonesia. The Portuguese established pockets of empire from India to Malacca to Macau.
The Spaniards were entrenched in the Philippines for more than 300 years before giving way to the Americans.
The British occupied Hong Kong until 1997 when it was returned to China.
Today the unique legacy of Portuguese, Dutch and British influences lives on in the people and architecture in Malacca.
An English adventurer, Raja Brooke, even became the ruler of Sarawak.
The past several centuries show that Europeans and the East Asians are ‘old hands’ in dealing with each other.
Let us consider the potentials for more trade between the two regions.
Asia as a whole accounts for 21 percent of the EU’s external exports and is the EU’s third largest regional trading partner, after Europe outside the EU and the North American Free Trade Area countries.
The major East Asian economies, from India to China, South Korea and Japan to the Asean 10, have a combined GDP of US$10 trillion, not far behind the EU’s GDP of US$12.18 trillion and the United States GDP of US$12.49 trillion.
The combined population of the East Asian economies is 3.1 billion - far greater than the 460 million in the EU and 300 million in the US.
Japan is the second largest economy in the world, followed by China in third place.
India is the world’s outsourcing centre while South Korea sells electrical and electronic products around the globe.
Singapore and Hong Kong are among the biggest ports in the world.
Malaysia and Indonesia produce more than 75 percent of the world’s palm oil while, together with Thailand, they constitute the ‘Big Three’ in natural rubber production.
The ties are already very strong.
The EU is South Korea’s top foreign investor, accounting for a third of all foreign direct investment. China is the EU’s second largest export market and Japan is the fifth largest.
Negotiations for bilateral agreements have started between the EU and a number of East Asian countries. A network covering education cooperation, cultural exchanges and technical assistance is being built up.
The Asia-Europe Meeting or ASEM, an informal process of dialogue and cooperation initiated in 1996, addresses political, economic and cultural issues. It involves the EU, Asean and China, Japan and South Korea.
ASEM is helping to strengthen the relationship between the two regions in a spirit of mutual respect and equal partnership.
The economic and cultural ties are growing. The institutional and political infrastructure is being laid.
Now, we just need one country to declare that Europe is the future El Dorado of trade for East Asians, and not the US, to get minds to re-adjust to the possibilities. Why not Malaysia?
Quote1:
Malaysian opponents of the FTA are quietly celebrating the apparent impasse, and hoping it will eventually kill the FTA plan.These groups include farmers, fishermen and workers who believe the FTA will harm their livelihood while people living with HIV/AIDS fear the insistence by the US on intellectual property protection will lead to more costly drugs that they need to stay alive.
Quote 2:
The US is Malaysia’s second largest trading partner, after Asean as a group. Trade with the US is heavily in Malaysia’s favour, with exports at RM100.9 billion in January-November 2006 against imports of RM55.7 billion.
Obviously, the US needs more help to penetrate Malaysia’s market instead of the other way around.
