Malaysia is headed in the right direction by signing several Free Trade Agreements (FTAs) with recognised ASEAN member countries as well as bilateral countries. FTAs have proven to be one of the best ways to open up foreign markets for Malaysian exporters.

After a series of negotiations from October 2010 and an initial agreement in April 2016, the European Union (EU) and Malaysia signed the EU-Malaysia Partnership and Cooperation Agreement (EU-MY PCA) during the inaugural ASEAN-EU Commemorative Summit in Brussels on 14 December 2022, a significant milestone in the history of the EU-Malaysia bilateral relationship. Besides serving to enhance the political dialogue on global issues, the agreement lays the ground for mutually beneficial cooperation in multiple policy areas: environment, transport, trade and employment to name a few.

Significance of the EU-MY PCA for the Malaysia Economy

Valid for five years, this agreement is in recognition of the importance of the cooperation between the European Union and ASEAN member countries. An effort to strengthen the existing relationship between the EU and Malaysia, the agreement serves to enhance cooperation and diversify relations in areas of mutual interest. 

Based on Article 29 in the agreement, the parties are to promote industrial policy cooperation in all fields deemed suitable to improve the competitiveness of small and medium-sized enterprises through a series of initiatives, including but not limited to - information exchanges, joint research, and innovation projects. Composed of representatives of both parties, a Joint Committee will be established to ensure and oversee the implementation of the agreement.

The EU-MY PCA paves a promising path towards recommencing discussions on the EU-Malaysia Free Trade Agreement (MEUFTA). Formally launched on 5 October 2010, the latter agreement saw a total of eight rounds of negotiations between between December 2010 and September 2012. The MEUFTA covers 16 areas spanned over 13 Working Groups, which includes market access for goods, services, investment, intellectual property rights (IPR) and sustainability development. 

The PCA further complements and strengthens current partnership and cooperation in the areas of trade and investment, energy, transport, agriculture, finance and maritime among others between the EU and Malaysia.

This will promote a safer and better access to open markets in a stable and predictable trading environment. This PCA would also facilitate European green initiatives as well as promote the circular economy the EU is encouraging here because Malaysia is one of the world’s seventeen megadiverse countries. 

Underlining the Economic Opportunities of the MEUFTA

Negotiations for the MEUFTA reached an impasse in 2012 upon the exhaustion of options and the consensus was to resume when a fresh mandate or flexibilities become available to both sides. MEUFTA is a preferential trading agreement expected to facilitate the free movement of goods, services and investment between Malaysia and the EU, the largest economic bloc.

Based in the Malaysian External Trade Statistics released by the Malaysian Ministry of International Trade and Industry (MITI) mid-2020, trade with the EU in July 2022 rose by 14.0% y-o-y to RM17.04 billion, depicting 6.7% of Malaysia’s total trade.

The first seven months of 2022 recorded an increase of 22.8% to RM124.53 billion compared to the same period in the year before, characterised by higher exports of electrical and electronic (E&E) products, as well as manufactures of metal and palm oil-based products. Similar positive growth can be surmised with the MEUFTA in place. 

EUROCHAM Malaysia has jointly formed a task force with the Federation of Malaysian Manufacturers (FMM) to facilitate the process of reviving the dialogue with the EU. We will continue to support and combine efforts with FMM and our bilateral ties to continuously work towards enhancing Malaysia’s position as an attractive destination for foreign direct investment.

EUROCHAM Malaysia Supports CPTPP

In the context of the CPTPP, Malaysia has become the ninth out of eleven countries to ratify the agreement. The other signatories include Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore and Vietnam. EUROCHAM Malaysia supports the ratification of the CPTPP, as we believe it will continue to bring further development into the country through its increasing trade and investment opportunities.

The EU is the fifth largest trading partner of Malaysia (after China, Singapore, South Korea and the US), accounting for 7.4% of the country’s total trade in 2021. In 2020, Malaysia became the EU’s 20th largest trading partner in goods. With that in mind, although Malaysia has not been a major trading partner in services so far, opportunities have already been increasing due to its liberalisation policies and would even further advance with the enforcement of the agreement.

EUROCHAM Malaysia applauds the ratification of the CPTPP and advocates for the Malaysian government to follow through with the agreement. The impact of the CPTPP will be multi-fold, potentially boosting Malaysia’s standing as a global trading economy with total trade expecting to see an expansion to RM3.4 trillion in 2030 according to MITI. European companies will in turn find Malaysia more attractive as a hub for trade and investment activities.

Per the findings of the cost-benefit analysis (CBA) conducted by MITI, benefits accruing from the ratification of the CPTPP outweigh any potential costs that may arise from the implementation of the agreement by a good measure. The CBA also indicates a projection of US$354.7 billion in 2030 for Malaysia’s exports with the trade balance remaining in strong surplus at 8.5%.

Under the FTA, almost all Malaysian exports to countries within the CPTPP will enjoy duty-free treatment. Immediate access will be granted for Malaysian companies at consequentially lower thresholds to the government procurement (GP) markets of CPTPP countries, estimated at US$1.5 trillion excluding Malaysia.

EUROCHAM Malaysia encourages the Malaysian Government to officially restart the negotiation phase of the MEUFTA as it will improve business opportunities for all Malaysian industries, increase technology and knowledge exchange as well as significantly increase EU foreign direct investment. The FTA will allow the EU-Malaysian business community to expand and penetrate overseas markets with easier market access in both directions to the benefit of both populations.

EUROCHAM Malaysia to Promote EU-Malaysian Business Relations

EUROCHAM Malaysia commends the ratification of the CPTPP and will engage with the respective ministries to support the implementation, which the chamber recognises as another step closer to MEUFTA. In line with stipulations within the EU-MY PCA and CPTPP, EUROCHAM Malaysia remains vested in facilitating trade and investments between the EU and Malaysia and to that end, we envisage stakeholder consultations as well as engagements with government ministries and agencies to further enhance and bolster alliances for a prosperous EU-Malaysia partnership.

Furthermore, EUROCHAM Malaysia is looking into organising a media roundtable early 2023, involving representatives and members to share more about the rapid-developing potential and opportunities. We also look forward to the resumption of the bilateral trade negotiations soon.