New Zealand-Malaysia Free Trade Agreement

A Study on the Benefits of a Free Trade Agreement (FTA) between New Zealand and Malaysia

Chapter Five: Malaysia and New Zealand: Global Economic Relationships

• 5.1 Malaysia
• 5.1.1 Merchandise Trade: Exports
• 5.1.2 Merchandise Trade: Imports
• 5.1.3 Trade in Services
• 5.2 New Zealand
• 5.2.1 Merchandise Trade: Exports
• 5.2.2 Merchandise Trade: Imports
• 5.2.3 Trade in Services

5.1 Malaysia

International trade has played a crucial role in Malaysia’s economic development.  Malaysia has, in recent times, maintained a liberal trade regime, though barriers have been raised in the past in response to economic shocks (eg. the Asian financial crisis).  Malaysia is a member of the WTO and pursues trade liberalisation through the WTO’s multilateral framework.  Malaysia also seeks closer economic relations at both a regional and bilateral level to enhance economic growth and complement its push for greater market access.  At a regional level, Malaysia is a participant in the ASEAN Free Trade Agreement (AFTA).  ASEAN is engaged in trade negotiations with China, India and Japan and in November 2004 announced its intention to open joint negotiations with New Zealand and Australia.  Malaysia is pursuing bilateral FTA negotiations with Japan and India and is undertaking parallel scoping studies on possible FTAs with New Zealand and Australia.  Malaysia has also recently signed a Trade and Investment Facilitation Agreement (TIFA) with the US.

As a result of its economic and trade policies, Malaysia is a highly trade-oriented economy.  In 2003, exports of goods and services were 114 percent of nominal GDP - a high figure by international standards.  Exports of merchandise goods were worth $171.8 billion in 2003 and imports were worth $137.4 billion, resulting in a trade surplus on merchandise goods of $34.4 billion.  The continued high merchandise surplus reflects the fact that private investment has been weak since the Asian financial crisis, suppressing demand for imported capital goods.

Table 5.1:  Key Exports and Imports - 2003  

 

5.1.1 Merchandise Trade: Exports

Exports of manufactured goods accounted for 82 percent of Malaysia’s total exports in 2003.  Electrical machinery is the largest manufactured export, accounting for 38 percent of all merchandise goods exports (Table 5.1).  Malaysia has greatly benefited from the strong demand elsewhere in the world for electronic products, but this dependence also leaves it vulnerable to any global slowdown in the demand for these products.  Other important exports include machinery, fuels, fats and oils, and wood.  An increase in the export of electrical machinery, fuel and oil accounted for most of the growth in exports over the last year.

Table 5.2 shows Malaysia’s major trading partners.  ASEAN is the largest market for Malaysian exports, accounting for 26 percent of the total.  The US is the second largest market, with an 18 percent share.  Other important export destinations include the EU, Japan and China.  New Zealand is the 27th largest destination for Malaysian exports. Malaysian exports to New Zealand were worth $592 million in 2003, or a 0.3 percent share of total exports.

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5.1.2 Merchandise Trade: Imports

Malaysia’s import profile is fairly similar to its export profile, highlighting its approach of importing intermediate goods and exporting value-added products.  Electronics are Malaysia’s main import, accounting for 43 percent of the total.  Other major imports include machinery, fuels, plastics, and iron and steel.

The ASEAN economies are collectively the largest source of imports into Malaysia – $34.7 billion in 2003, or 25 percent of total imports.  Japan is the single largest source of imports into Malaysia, with a market share of 17 percent in 2003. It is followed closely by the US, European Union, and China.  With imports of $521 million (0.4 percent of total imports), New Zealand was the 27th largest source of imports in 2003.

Table 5.2:  Major Trading Partners - 2003

a.  ASEAN – 10:  Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam.

b.  EU – 25:  Austria, Belgium, Cyprus, Czechoslovakia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Spain, Slovakia, Slovenia, Sweden and United Kingdom.

 

5.1.3 Trade in Services 7

Traditionally Malaysia has been a net importer of services because of the high demand created by merchandise trade for services such as insurance and freight.  This situation means the services balance tends to deteriorate when growth in the export of merchandise goods is strong.  Transportation and “Other” services are generally in deficit, while the surplus on the travel account (activities related to tourism) offsets these to some degree (Figure 5.1).

Fig.5.1: Services Account Balance Malaysian Ringgit (millions)

In 2003 Malaysia’s services deficit increased to RM15 billion,  up from RM6 billion in 2002.  The services balance deteriorated because of a fall in tourism receipts brought about by travel restrictions during the SARS outbreak. This caused the surplus on the travel account to  fall from RM17.1 billion in 2002 to RM11.6 billion in 2003.  The    travel account has grown steadily since the late 1980s, when it was in deficit.  It is now Malaysia’s major services export, worth RM22.4 billion in 2003.

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5.2 New Zealand

New Zealand is an export-oriented economy that relies heavily on trade.  As part of the market-oriented reforms of the mid-1980s, New Zealand unilaterally reduced barriers to trade by cutting tariff and non-tariff barriers.  As a result New Zealand has an open and highly transparent trade and investment regime.  New Zealand is one of the original members of the WTO and is committed to further trade liberalisation through that multilateral forum.  Complementing this is New Zealand’s intention to pursue trade liberalisation at a bilateral and regional level.  The 1983 Closer Economic Relations (CER) trade agreement with Australia has led to a free flow of trade in goods and services across the Tasman in almost all areas.  New Zealand has FTAs with Singapore and Thailand. It is currently negotiating FTAs with China, and through the Pacific Three CEP negotiations involving Chile, New Zealand and Singapore.  The negotiation of a regional FTA between Australia–New Zealand and ASEAN was agreed at the Vientiane Summit of ASEAN, Australian and New Zealand leaders in November 2004.

Since the reforms of the mid-1980s, international trade has played an increasingly important role in the New Zealand economy. In 1987 international trade was 46 percent of GDP but by 2003 this had risen to 68 percent, with exports accounting for one-quarter of GDP growth over this period.  Exports in 2003 were worth $28.4 billion and imports $29.8 billion, resulting in a merchandise trade deficit of $1.4 billion.

 

5.2.1 Merchandise Trade: Exports

Despite sluggish world demand between 2000 and 2002, New Zealand’s exports grew in value by 4.2 percent per year.  Since then global demand for New Zealand exports has picked up, and this has helped to offset the high value of the New Zealand dollar over the last year (Figure 5.2).  Overall, New Zealand’s merchandise exports grew by a strong 14 percent in 2003 to $28.4 billion.

Fig.5.2: Commodity Prices Index (base = 100)

New Zealand’s share of world merchandise trade is small, just 0.22 percent of world exports and 0.23 percent of imports.8  However, New Zealand is a major exporter of agricultural products. In 2001 they accounted for 52 percent of total merchandise exports, compared with the OECD average of just 6.8 percent.9   Internationally, New Zealand is a major player in the export of dairy and meat products, reflecting its wealth of natural resources and comparative advantage in producing these commodities.  In 2003 these two items accounted for 32 percent of total merchandise exports.  Other important exports include wood products, machinery, and fish and seafood (Table 5.3).

Table 5.3:  Key Exports and Imports - 2003

Australia is by far New Zealand’s most important trading partner, taking 22 percent of all exports (Table 5.4).  The majority of New Zealand exports to Australia are manufactured goods.  Bilateral trade between the two countries has expanded since the early 1980s, when New Zealand and Australia entered into CER.  The EU is the second largest export destination, taking 16 percent of New Zealand’s exports, followed by the US (15 percent), Japan (11 percent) and ASEAN (8 percent).

Table 5.4:  Major Trading Partners - 2003

 

a. EU – 25:  Austria, Belgium, Cyprus, Czechoslovakia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Spain, Slovakia, Slovenia, Sweden and United Kingdom.

b.  ASEAN – 10:  Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam.  

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5.2.2 Merchandise Trade: Imports

Imports into New Zealand in 2003 totalled $29.8 billion.  The rise in the value of the New Zealand dollar over the last year has made imports relatively cheaper, fuelling strong growth in private consumption and investment.  Table 5.3 shows New Zealand’s top five import categories.  Vehicle and machinery imports are the largest of these. Together they account for 30 percent of the import market.  Other significant imports include electrical machinery, fuels, and plastics.

Australia is the largest foreign supplier into the New Zealand market, holding a 23 percent share of the import market (Table 5.4).  The EU is the second largest with a 20 percent share, followed by the US (12 percent), Japan (11 percent) and China (9 percent).

5.2.3 Trade in Services

Historically New Zealand has been a net importer of services.  However, strong growth in tourist numbers pushed the services balance into a surplus of $0.2 billion in 2001.  In 2003, as tourist numbers continued to grow, this expanded to a surplus of $1.5 billion.  The development of the New Zealand tourism industry is reflected in the travel account, which now more than offsets the deficits on the transportation and “Other” services accounts (Figure 5.3).  New Zealand service exports are now worth around a quarter of total New Zealand exports.  Tourism and education are the two big-ticket service items and rank in the top five foreign exchange earners for New Zealand.  Tourism and international education, along with transport, are the commonly identified service exports, but New Zealand companies are also actively providing more specialised professional consultancy and communication services to clients around the world.

Fig. 5.3 - Services Account Balance New Zealand $(billions)

Source:  Statistics New Zealand

[7] Figures are in Malaysian Ringgit.

[8] UNCTAD Statistics

[9] OECD in Figures (2003 edition): 2001 year.  The World Trade Organisation defines seafood and forestry as non-agricultural products.

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