Malaysia-US Free Trade Agreements

(FTA):
Assessing the Potential Positive and
Negative Impacts

Associate Professor
Dr. Shakila Yacob
University of Malaya

Wacana Urustadbir Soleh siri 3

“FTA: Benarkah Rakyat Sengsara?”
Anjuran JK SAKSI, JIM
14 Julai 2007
Pusat Komuniti JIM, Pusat Bandar Melawati, KL
Malaysia (Potential)

 Malaysia 's objectives in negotiating FTAs are to:

– seek better market access by addressing tariffs and non-
tariff measures;
– further facilitate and promote trade, investment and
economic development;
– enhance the competitiveness of Malaysian exporters; and
– build capacity in specific targeted areas through technical
cooperation and collaboration.
 The FTAs or Comprehensive Economic Partnership (CEP)
agreements currently pursued with selected countries are not
confined to liberalisation and market opening measures alone.
They are comprehensive and include investment, trade
facilitation, intellectual property rights (IPR) as well as
economic cooperation in areas such as:
– competition policy;
– standards and conformity assessment;
– information and communication technology;
– science and technology;
– education and training;
– research and development;
– financial cooperation;
– Small and Medium Enterprises (SMEs) development; and
– paperless trading.
Benefits:

 Increased intense competition will lead to lower

prices for consumers for example in the areas of IT
hardware;
 Breaking up the monopoly of local giants and gives
more choice to local consumers;
 Local or domestic producers will be compelled to raise
productivity, invest more in research and development
(R&D), thus increasing the quality of goods and
services; in the areas of bio-tecnology: food technology,
foodstuff.
Chilean example:
• From 2003-2005, Chilean exports to the United States
increased by over 80 percent.
• Increases in U.S. exports to Chile have also been
spectacular with over 90 percent growth.
• Chile took on the hard work of undertaking the necessary
economic reforms to ensure a key role of the private sector
in the productive process, general openness,
macroeconomic stability, and overall competitiveness.
• Chile managed to achieve these reforms in conjunction with
enactment of social programs to reduce poverty that
were missing with NAFTA.
US-Malaysia FTA
 Serve as an impetus for Malaysia to ‘leap-frog’ its way to
being an R&D hub in the region, as local manufacturers will
focus on R&D as a branding tool for market distinction, explore
international joint-ventures (IJVs) with US firms for technical
transfer on a wider basis (i.e. the expansion of IJVs in
Malaysia), taking advantage of the increase exposure to the
free flow of goods and services as a means to test and engage
in comparative analysis for the purpose of quality improvement;
 More employment opportunities for Malaysia as it has an
educated and sophisticated population which speak English.
Representative offices, sales and marketing agencies, etc. will
be set up by US firms to facilitate the transactions and liaisons
between the two countries;
US-Malaysia FTA
 A prelude to the a freer cross-border movement of
labour, thus granting the privilege and right to Malaysians
to have more opportunities of seeking employment in the
US without having to go through stringent immigration
controls or naturalisation process. Thus, Malaysia need
not worry about suffering a ‘brain-drain’ since it is more an
issue of geographical mobility within a globalised economy
rather than migration per se.
 More transparency in the awarding of contracts and
tenders, reversing the cronyism trend and promoting
efficiency in the delivery system.
Losses - 1
 National pride would be impacted in the area of government
procurement, if the US insists that it should be incorporated into the
FTA; To Malaysia it means the erosion of NEP indirectly.
Government procurement in Malaysia includes the area of
telecommunications, banking and insurance, construction, utilities
(water and electricity).
 Unlike our closest neighbour, Singapore we are not ready to be as
open. Among the more competitive U.S. service sectors that will enjoy
non-discriminatory treatment in Singapore under the agreement are
tourism, express delivery, telecommunications, advertising, construction
and engineering, and financial services, including banking and
insurance.
 Malaysian GLCs like MAS, Tenaga , Telekom Malaysia are
considered as strategic national assets which is vital to the
government agenda of economic development.
Losses - 2
 Dilution of the symbolism of national icons such as Proton, and
perhaps other strategic national assets;
 Downsizing of the bureaucracy in the ‘backroom’ offices
because of business process outsourcing (BPO);
 The increase in the price of branded medical supplies because
of intellectual property rights (IPO) protection, thus burdening
the Malaysian consumers, and hampering equitable healthcare
access;
 Real danger of trade deficit with the US with the Malaysian
Ringgit further weakening instead of appreciating since de-
pegging in order to stall the deficit. One implication is that
inflation will continue to rise, burdening the lower income
groups.
Losses - 3
 Malaysian Agricultural sector would be affected as Malaysia
would not be able to compete with American agricultural products in
terms quality, price and varieties. The signing of the FTA would quash
the PM’s vision to turn the agricultural sector to be the third engine of
growth in the Malaysian economy.
 For example in Australia-US FTA (2004) improved the overall U.S.
trade deficit situation with Australia creating a trade surplus with
Australia which rose 31.7% in the first quarter of 2005, compared to
the same timeframe in 2004. U.S. exports to Australia increased
11.7% in the first quarter of 2005 to nearly $3.7 billion for the quarter.
Agriculture exports to Australia were up 20%.
CONCLUSION

 Overall the signing of the US-Malaysia FTA would

generate positive impact in certain sectors but the
disadvantages outweighs the advantages in other
sectors in particular agriculture.
 With the expiration of the Fast Track, there is a likelihood
that the US-Malaysia FTA would not be signed in the near
future.
 This allows for a period of reflection on the part of Malaysia
to continually assess the positive and negative impact of
signing the FTA. Probably Malaysia should carry out
domestic reforms to enhance its competitiveness in the
global market.