Fran O'Sullivan on business

Business analysis and comment from Herald columnist Fran O'Sullivan

Fran O'Sullivan: Malaysia the key to unlock other doors

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Trade Minister Tim Groser's theatrical groan as he lifted the 1100 word document which details New Zealand's free trade agreement with Malaysia went down a treat with a 60-strong Kiwi business delegation in Kuala Lumpur to witness the official signing of the deal.

Most free trade agreements are extremely complex and permeated with arcane terminology which quickly defeats the enthusiasm of other than the most persistent trade policy wonks.

The Malaysian FTA is no exception.

But it's not until you dig deep into the detailed schedules to the FTA that you realise just how good a trade template New Zealand's negotiators have secured.

A template which if leveraged well could unlock greater gains in other countries with which New Zealand is seeking to cement trade deals like South Korea.

Take education which is New Zealand's second largest export services sector after tourism.

Malaysia is currently New Zealand's 10th largest source of international students, the third largest source of university students and second largest source of PhD students.

In 2008, 2147 international students came from Malaysia to study in New Zealand which was a 70 per cent increase since 2003 - a period in which overall international student numbers actually declined by 27 per cent.

Malaysia has placed a huge priority on education which it sees as vital to underpinning its drive to be a knowledge economy (pity this same drive has dropped out of favour in NZ).

The Kiwi negotiators deliberately targeted this sector because of the growth potential and the value-added component it entails.

The upshot is they have secured a deal which will enable New Zealand education providers to hold up to 70 per cent of shares in Malaysian-domiciled joint ventures targeting primary, secondary and tertiary students by 2015.

A similar ownership threshold applies to distance learning for language training and other tuition. Previously, they were limited to a 49 per cent stake which meant control rested on the Malaysian side.

Leveraged well this will open the door to New Zealand institutions and private education providers to unlock the Malaysian growth market.

It is a big deal within Malaysia where the Government will have to amend legislation to allow New Zealand's educationalists to take up much higher equity stakes than it has granted under previous FTAs with other nations.

The beauty of the deal is that if Malaysia does subsequently allow companies from other countries even greater equity stakes, New Zealand companies will be able to match the greater access under the FTA's "most favoured nation" clause.

In addition Malaysia will within one year of the free trade deal coming into force establish a mechanism to approve NZ's educational qualifications (under an "equivalency" clause) which will pave the way for knowledge workers from fields as diverse as engineering, accounting and architecture to provide services within Malaysia without having to counter bureaucratic objections.

The impact of such measures will ensure a much greater integration between the New Zealand and Malaysian economies.

Not all the services that New Zealand professionals provide offshore come under the agreement. But environmental services like sewage and waste water management, engineering, ICT and mining are included. In particular, these sectors come under the "most favoured nation" provisions.

Given that Malaysia is currently negotiating deals with the United States, Australia, India, Chile and the Gulf states, the ability for New Zealand companies and professional firms to automatically be awarded any greater sectoral services gains achieved in the subsequent agreements is invaluable.

But the big challenges will come as New Zealand's negotiators try to convince the South Koreans and ultimately the Japanese (if Prime Minister John Key can persuade Japan to come to the negotiating table) that they should start dismantling the high level of agricultural protectionism within their respective countries.

It is a fundamental absurdity that South Korea and Japan - two of the most go-ahead nations when it comes to high-level manufacturing - have been afraid to open their agricultural sectors to competition whereas Malaysia (like China before it) will now be able to use its FTA with New Zealand to hasten reform.

There was some resistance from the Malaysian side to remove the 15 per cent tariff on New Zealand kiwifruit. But it will immediately go once the FTA comes into force. Malaysia has also bound in existing duty-free access for New Zealand dairy (except liquid milk) products, meat, wool, fish and forestry exports which means it can't reapply tariffs if the going gets rough. Under the China deal, the Chinese Government can introduce "safeguards" to slow down the rate of tariff reduction for the dairy sector in extreme economic circumstances.

New Zealand ought to be able to use the fact that Malaysia - which like China is still a developing country - is continuing to liberalise its agriculture market to shame its more wealthy neighbours to follow suit.

Importantly, Malaysia has agreed to provisions that forbid any arbitrary expropriation of NZ investments.

Another major plus is the increased access to Malaysia for New Zealand businesspeople and companies. Visa processes will be sped up and NZ companies which have established operations in Malaysia will be able to place ex-pats there for 10 years instead of the current limit of five years.

Importantly, those companies will also be able to source "knowledge workers" from other foreign countries to work in their operations.

If our negotiators can persuade other countries to follow suit, the prospects for New Zealand firms and professionals within the Asian region will be exciting.

- NZ Herald

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