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Trade win with Malaysia spurs regional talks

The Australian, Canberra

Trade win with Malaysia spurs regional talks

By Rowan Callick, Asia-Pacific editor

21 May 2012

Labor hopes a breakthrough free trade agreement to be signed with Malaysia tomorrow - giving Australian companies unprecedented access to Asia’s eighth-biggest economy - will provide momentum to negotiations on other bilateral deals across the Pacific region.

The agreement - only Australia’s sixth bilateral free-trade deal - comes amid slow progress on negotiations over deals with major trading partners such as China, South Korea and Japan.

But Trade Minister Craig Emerson, who will sign the pact with his Malaysian counterpart Datuk Seri Mustapa Mohamed in Kuala Lumpur tomorrow, said he believed the deal would encourage other nations to accelerate talks on trade co-operation.

Dr Emerson told The Australian there was interest from nations such as Mexico and Colombia about entering trade talks, and the Malaysian deal was "an indication to countries like Japan, China, Korea and Indonesia that we are serious about seeking to conclude high-quality FTAs". "Such agreements can generate momentum for further deals, providing a head-turning effect from other countries," the minister said. "We’ve achieved most of what business has sought."
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Under the terms of the 21-chapter Malaysian deal, more than 97 per cent of tariffs on Australian goods sold there - including small cars, rice, wine, iron and steel - will be eliminated at once, with further gains to follow.

The services sector - including universities, schools, banks, telecommunications companies and professional services firms - has won increased access to the market, including the ability to become majority owners in Malaysian businesses.

Most companies will be able to own up to 70 per cent of Malaysian firms, and senior Australian managers will find it easier to work in Malaysia as their spouses and dependants are able to obtain automatic visas.

In return, Australia has agreed to accelerate the removal of tariffs. This was due to happen by 2020 under the ASEAN-Australian-New Zealand free trade agreement, which came into effect in 2010, but will now happen immediately for goods from Malaysia.

Australia has pledged enhanced economic and technical co-operation in sectors such as the automotive industry, agriculture, tourism and clean-coal technology. The agreement also provides a framework for the mutual recognition of qualifications.

The signing of the Malaysian deal, foreshadowed in The Australian earlier this month, is expected to be well received by the Australian business community and comes as the Gillard government seeks to mend its fractious relationship with corporate Australia in the wake of controversial policy decisions on the carbon and mining taxes, and the backflip on the company tax rate cut.

The pact may also remove any lingering awkwardness between the two countries over the failed attempt at installing a "Malaysia Solution" for people-smuggling.

And it provides a shot in the arm for the government of Malaysian Prime Minister Najib Razak ahead of an unusually tough election in coming months.

The deal will provide Australian companies with better access to a successful Asian economy with a population of 28 million ; a large, well-educated middle class ; average personal income of about $10,150 a year and gross domestic product forecast by the International Monetary Fund to keep growing at an annual rate of more than 5 per cent.

Two-way trade between the countries is today worth about $13 billion a year, ranking Malaysia as Australia’s ninth-biggest trading partner. Malaysia’s $8.2bn invested in Australia is almost double Australia’s investments in Malaysia.

Australia already boasts FTAs with New Zealand, the US, Singapore, Thailand and Chile, and in 2010 entered a regional trade deal with the 10 ASEAN nations, including Malaysia. There are eight other FTAs under negotiation, with hopes the latest deal will energise Australia’s early talks on a comprehensive economic agreement with Indonesia.

The seven years of tough bargaining over the Malaysian FTA were interrupted by almost three years while negotiators focused instead on completing the ASEAN agreement. The new deal goes a step further than the Singaporean and Thai deals in granting Australia’s dominant service sector - that comprises about 70 per cent of the economy - the right to operate majority-owned businesses in Malaysia.

It also takes a step towards completing the unfinished business of the ASEAN deal, which provided concessions that were limited because they had to be agreed to by the 10 member nations - and ASEAN itself has yet to integrate its services sectors in the lead-up towards the establishment of the ASEAN economic community in 2015.

Some Australian producers and key areas of the services economy were excluded from the full benefits of the ASEAN deal. But under the new deal, for example, Australian carmakers will gain the same access to licences to export cars to Malaysia as those based in other ASEAN countries.

Politically, the agreement may remove any lingering awkwardness between the two countries over the failed attempt at installing a "Malaysian solution" for people-smuggling.

Dr Emerson said that the rules of origin requirement for trade access under the new agreement would be simplified so that only a declaration was needed rather than a certificate of origin.

And he promised the deal would "not add to the noodle bowl of complexity, or to the trade diversion that has made some past bilateral deals onerous to access, and less beneficial" for Australia.

"The AANZFTA is a high-quality, liberalising agreement, and to do better than that, as we have done with Malaysia, is a real achievement," Dr Emerson said.

About 15 per cent of Australia’s trade is with Southeast Asia, and the Malaysia agreement will not only boost this bilateral relationship, but will provide a template for deepening the engagement between Australia and other countries in the region, where growth remains strong.

HSBC Australia’s head of commercial banking, James Hogan, said Australian businesses were "looking to diversify their trade exposure to other countries in addition to China". "Malaysia continues to position itself as a viable trading hub similar to Singapore, which is sure to pave the way for greater trade inflows heading its way in future," he said.

HSBC Global Connections research predicts two-way trade doubling over the next 15 years. Australia’s major exports are expected to be commodities, fuel and manufactures, and major imports digital products, agriculture and also manufactures.

"Our services, education and tourism sectors will likely be the ’next step’ exports as Malaysia’s middle class grows," he said.

In 2010, about 23,000 Malaysians studied in Australia.

"Australia’s natural resource advantages, relative proximity and the skills of the workforce give us a head start in capitalising on the trade opportunities that lie ahead," Mr Hogan said.