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Advantages And Disadvantages Regional Trade Agreement With Malaysia Economics Essay

In this report we would be looking at the advantages, disadvantages of having an RTA with Malaysia .How would an RTA help the both the countries. New Zealand is already an member of the AANZFTA which includes the ASEAN countries, Australia and New Zealand .How Would and MNZFTA be useful over the AANZFTA. The various effects like the social, environmental, cultural of the MNZFTA.

In the second part we would be looking at as to how the MNZFTA would help an local producer and expanding his business into Asia. What are the advantage and disadvantages or having free trade between New Zealand and Malaysia? .Does the MNZFTA help us in expanding our business in real, provide us better access to other countries or not?.

In the final part we would be looking at an comparison between the RTA’s, multilateral trade agreements in terms of WTO .Do these agreements violate the conduct of WTO or not?.

Introduction:

Regional trade agreement is an agreement which is a tool for economic reforming of two or more countries. This agreement uses tools for reducing the tariffs and restrictions. As of now there are total 205 of such agreements which are in force since July 2007. (en.wikipedia.org, 2009 ).

Why should countries like New Zealand participate in the regional trade agreement (RTAs)? Offer some argument to convince your fellow New Zealanders to agree (not to agree) to a possible free trade agreement with Malaysia. You should include potential direct trade effects as well as non trade effects from such an agreement.

The economy of New Zealand is based on the imports and exports. The goods/raw materials needed for industries/businesses to operate here are highly depended on the imports. The Free trade agreement (FTA) with Malaysia is definitely a good move by the government and certainly has positive effects.

The positive effects can be broadly grouped as below:

Economic

Social

Cultural

Environmental

Economic Effects: An FTA with Malaysia would help the New Zealand business as the good/services would get fair treatment and competitiveness in the Malaysian market .This would certainly increase the opportunities for doing business in Malaysian market, If there was not a FTA between Malaysia and New Zealand the trade barriers would certainly prevent New Zealand business to gain the comparative advantage ,with an FTA the products from new Zealand in Malaysia would be treated as if they were locally produced. With a population of 28 million and counting the market is huge for New Zealand products/services. In the year 2008 the exports to Malaysia alone were close a billion dollars. Around 32% of the exports which includes goods and services from New Zealand account for the economy of the country (http://mfat.govt.nz/Trade-and-Economic-Relations/Trade-Relationships-and-Agreements/Malaysia/index.php )

Social Effects: MNZFTA (Malaysia – New Zealand Free Trade Agreement) might impact the social regulations, employment status and immigration in New Zealand either in a positive or a negative way. The negative effect are less when compared to the positive effect, the negative effects are only for a short period of time.

There would be more exports from New Zealand to Malaysia which in turn creates more employment as human power is needed for producing more goods, but this would also result in negative employment only for a short time .The effect would depend on the speed at which tariff is reduced and the level to which the domestic firms are competitive internationally. New Zealand is an open economy it has several agreements with other countries such as Japan, China, Singapore, Korea, The products originating from New Zealand are of international standards and are competitive enough with the outside world. Now if we look at the social regulations in regards to the MNZFTA there would not be any impact as such .We would also see a lot of expats (largely skilled labor) from Malaysia settling in New Zealand and the same with Kiwis settling in Malaysia.

Cultural Effects: MNZFTA ensures that the cultural values of New Zealand are not affected by this agreement. Few of them can be listed below

Favorable treatment of Mäori and fulfillment of obligations under the treaty of Waitangi.

Protect national treasures such as historical, archeological value and anything which is treated as national value.

The MNZFTA also provides an opportunity for even Malaysia to protect its traditional knowledge.

Environmental Effects: The trade agreements like the MNZFTA and a few others with countries like Japan, China, Korea, and Singapore emphasize on the environment of the country as well .Few of the commitments by Malaysia in regards to the environment are as below

Better Waste water management, cleaning of exhaust gasses from industries, nature and landscape protection

Reduction of noise pollution.

Access to New Zealand services in preserving the environment and providing the same level of treatment to the suppliers of services to that of local suppliers.

Enforcement of strict laws and policies so that the foreign investment in to setting up any business or industry doesn’t affect the environment

Sharing environmental technology and natural resource management by the country’s officials

(http://mfat.govt.nz/Trade-and-Economic-Relations/Trade-Relationships-and-Agreements/Malaysia/index.php )

Non Trade effects of MNZFTA

BRO COULDN GET INFO

If New Zealand doesn’t have free trade with Malaysia it is already under treaty of AANZFTA. So it already has the tariff eliminations under that treaty but not as high as compared with MNZFTA. There would be elimination of tariff of about 99.8 percent in 20 years in AANZFTA as compared with MNZFTA which eliminates the same amount of tariff in 7 years. Tariff on kiwi fruit in MNZFTA when exported to Malaysia would be removed in the first year itself as compared to AANZFTA in twelve years. (parliament.nz) (mfat.govt.nz, New Zealand–Malaysia Free Trade Agreement: National Interest Analysis).

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2) Imagine that you are New Zealand based company that wants to expand into Asia. Would you be happy if New Zealand Signs a FTA with Malaysia? What are the possible advantages or disadvantages?

New Zealand and Malaysian economies are majorly dependent on the international trade for the economic growth .New Zealand doesn’t have any resources for its industries every raw material has to be imported in to the country and the produced goods are not only sold in New Zealand but also worldwide as the population to consume the goods is comparatively low locally.

For example: Lets says I am an producer of beer which is made from raw materials sourced locally and from other countries .The market I have in New Zealand is certainly low and I cannot afford to sell only in NZ as my profit margins are going to be low, since I am dependent on raw materials sourced from a different country which involves foreign currency exchange. If I have to make marginal profits I have to sell my product internationally else my import cost is going be high and I would loose a lot on the currency exchange alone which is not good for any business. Now a FTA between New Zealand and Malaysia would certainly benefit me as it opens a whole new market to me .I can sell my product in Malaysia as if I am a local producer.

Here are some key facts we need to look at Malaysia:

Malaysia is the 8th largest export destination of New Zealand accounting to almost a billion dollar export in the year 2008

The keys exports in to Malaysia are dairy products, petroleum products, breakfast cereals, wood, furniture, chemicals, fruits, vegetables and other products.

Population of Malaysia is 28.25 million as of 2010 (www.statistics.gov.my)

The advantages of having an FTA with Malaysia:

The tourism industry of New Zealand would be benefitted with more inflow of tourists form New Zealand

There would a steep increase of international students from Malaysia to New Zealand which would account in of foreign money inflow in to the country.

An certain level of increase of expats from Malaysia settling in New Zealand ,it would also help in getting skilled labor at a comparatively cheaper price from Malaysia

An FTA would benefit both the countries from the competitive price advantage, a broader variety of goods/services available at a comparatively low price.

An increase in the value of exports and imports between both the countries and removal of any trade barriers between both the countries.

Investment opportunities in both the countries, collaborating businesses, sharing technology.

An efficient way to deal with the trade issues between both the countries.

A whole new market opening in respective country for the products produced in respective countries.

Tariff quotas for products will become extinct in the long run with the FTA resulting in a duty free product which in turn results for a competitive price.

The disadvantages of FTA with Malaysia:

Refusal by Malaysia in reducing the tariff such as alcoholic products, tobacco, fire arms, tires. Alcohol is one of the most important based out of New Zealand

Malaysia still maintains tariff quota on liquid milk, poultry which is again negates the FTA.

In order to remove impact on domestic producers Malaysia still maintains tariff for some products which are already in low tariff category under the AANZFTA products include furniture made out of woods, foot wear, clothes. These are considered as sensitive areas.

There is a bilateral safe guard mechanism in place where in either New Zealand or Malaysia can suspend the tariff reduction or increase it if the imports from either countries affect the local producers .This is a potential threat to the New Zealand because the low level tariff on Malaysian products and relatively small size of exports.

The advantages of MNZFTA are large when compared to the disadvantages .It would also provide a competitive edge for New Zealand to enter more countries with its exports.

3) How do regional trade agreements compare with multilateral trade initiatives such as those through WTO? Are they in violation of WTO rules and obligations?

“International chamber of commerce (ICC) considers multilateral agreements in the World Trade Organization (WTO) to be the preferred instruments for liberalizing international trade”(International Chamber of Commerce, 2002).The trading scenraio after the third world war has changed the way countries trade among each other .The GATT( General agreements on trade and tariff) which was signed in the year 1949 has contributed in raising the trade standards around the world ,it has decreased the prices of some goods /services.WTO’s( World Trade Organization) main objective is to remove the issues in trading between countries and be fair to all.

Globalisation has given the power to the consumer to purchase a certain product /service from any part of the world and use it and an business to sell its product /service to any part of the world .Globalisation calls in for some issues regarding tarrifs , intellectual property ,disputes .To ensure all the above issues are settled in a professional manner and help the developed,developing countires the WTO was formed on the basis of multilateral system which is just an orginazation body which above the GATT and follows the regulations of GATT.

The RTA’s( Regional Trade Agreements ) are a way where the participating countries get to choose when to enter an agreement .The RTA’s also act as an foundation for the multilateral trade.There is an assumption that the trading partenrs( countries ) will be liberalizing the trade thtough the RTA’s.There are about 162 trade aggreements which are in action today which were notified thorugh GATT and WTO .If an issue between countries arises then the RTA’s provide an fast result than the multilateral agreements or the bi lateral agreements.The WTO generally supports the RTA’s if only if these agreements result in the economic liberalization woth out hurting the other countries. (International Chamber of Commerce, 2002)

The issues in an RTA can be solved much faster as the numbers of parties (countries) involved in it are comparatively less than the parties (countries) involved in the bi lateral and multilateral agreements .The RTA’s also educate businesses in an domestic market as to how to actively compete in an foreign market before entering an bi or a multi-lateral agreement .The RTA’s are usually benefitted by the developing countries and also result in the non-preferential trade benefit. The only issue in an RTA is that it can create diversions because of discrimination. (International Chamber of Commerce, 2002)

Conclusion:

The RTA’s are certainly advantageous for a country to build up its economy and help both the countries in participating in bi or multi-lateral agreements .The RTA we discussed here was between Malaysia and New Zealand .New Zealand being a country dependent on imports and exports to support its industries an RTA with Malaysia is certainly helpful. New Zealand being relatively small country and a bit isolated country compared to other countries in the world. The MNZFTA would also help New Zealand to establish better communication with the entire world including Asia. Asia has some fast developing countries such as India, China and the population in these countries is large when compared to other countries .The MNZFTA would help New Zealand to know Asia better and sign other FTA’s .Thus an FTA with Malaysia is certainly useful to us.

Here are some quick fact we have a look in regards to the MNZFTA and AANZFTA

Table: (mfat.govt.nz, New Zealand-Malaysia Free Trade Agreement, 2009).

Table: (mfat.govt.nz, New Zealand-Malaysia Free Trade Agreement, 2009).

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