Door open to vital export market

Kiwi companies such as Datacom are flourishing in Kuala Lumpur. Photo / Supplied

In Wellington you discuss the weather and in Auckland the property market - Malaysians bond over food.

The profile of our exports to Malaysia is also dominated by food. When the tariffs on key products such as butter, cheese, milk powder, honey, kiwifruit and apples fell to zero as the Malaysia-New Zealand Free Trade Agreement (MNZFTA) came into force on August 1, it was a good day for New Zealand businesses.

Malaysia is New Zealand's ninth-largest trading partner and, based on the statistics, the profile of our exports is not dissimilar to what you would find for other export markets in Southeast Asia.

It is only when you work in Malaysia with New Zealand companies that you realise there is a lot the statistics don't show.

Malaysia is Zespri's fastest-growing market in the region and what "milk" we do bring in is being transformed into high-value and specialised dairy products because Malaysia, with its relatively high income and diverse racial mix, is an ideal testing ground for new flavours and formulations.

Nearly half of Fonterra's Malaysian production is exported in value-added form to other Southeast Asian and Middle East markets.

My team in Kuala Lumpur has had an unusually high level of visits from New Zealand manufacturing firms this year and it was the tariff reductions that had put the market on their radar.

These companies are selling specialised equipment and products; a far cry from New Zealand's commodity export profile.

Since the agreement entered into force at the beginning of the month, I've had a steady stream of inquiries from companies wanting our help to understand what the free trade agreement (FTA) means for them - these companies sell appliances, sophisticated electronics, clothing and equipment for airports, and include smaller SMEs and some of New Zealand's household brands.

When you're considering establishing a concept store for your niche clothing range, an instant drop in the tariff from 20 to 10 per cent - followed by 5 per cent the following year and a zero tariff by 2012 - makes a considerable difference.

By 2016, all New Zealand companies in Malaysia will have this competitive advantage when 99.5 per cent of tariffs on New Zealand products are eliminated (saving exporters $10 million a year based on current trade). Significantly, this is four years faster than the Association of Southeast Asian Nations (Asean) and Australia-New Zealand FTA (AANZFTA), which provides an opportunity for New Zealand exporters to Malaysia over their Australian counterparts.

The Malaysia-New Zealand FTA offers other benefits. Unlike the China FTA or AANZFTA, firms don't need to obtain a "certificate of origin" from a third party and there is a guaranteed customs processing time of 48 hours.

Tariffs tend to dominate people's understanding of FTAs but the services and investment outcomes under the Malaysian-New Zealand FTA also offer significant opportunities for New Zealand firms.

Both governments have agreed to not discriminate against Malaysian or New Zealand service suppliers or investors. Already, New Zealand's foreign direct investment in Malaysia is estimated at more than half a billion dollars and Malaysian enterprises hold large investments in New Zealand in forestry, fisheries, automotive sales and engineering.

Trade in services between Malaysia and New Zealand has grown strongly, particularly in information and communication technologies, consulting and engineering. The agreement secures improved access or conditions for New Zealand companies in the private education, environmental, engineering, computing, tourism, veterinary and consulting sectors.

The liberalisation of foreign equity limits in Malaysia's education sector will give New Zealand suppliers an advantage over other countries to tap into Malaysia's push to improve skills and training.

Datacom, which supplies business process services from its Malaysian operation to support multinational clients throughout Asia and Pacific, is one example of the diversity of New Zealand companies selling services here. It selected Kuala Lumpur as its regional hub in 2000.

Among other things, it was attracted by Malaysia's competitive cost base and well-educated workforce, and currently employs more than 450 staff in Malaysia. Provenco Malaysia, with its "pay at the pump" electronic payment systems, has established a service centre in Kuala Lumpur and provides technology and technical support to petrol station owners.

Medical devices company Precept Health is in the final stages of deploying a tailored critical-care system in a Malaysian hospital, putting it in a good position to take advantage of Malaysia's growing investment in health IT.

Helping Malaysia develop its natural tourism assets, which include national parks, has made the country one of Tourism Resource Consultants (TRC) most important markets. And Malaysians who join the country's largest gym network, Fitness First, get in shape using Les Mill's group fitness programmes.

The agreement provides assurance to Malaysian and New Zealand businesses that they can explore new and more sophisticated partnerships. They can be confident that the agreement will underpin their investments, help them transfer the key managerial and skilled staff required to run their businesses and help protect intellectual property.

Free trade agreements in themselves aren't a panacea. They don't replace good business practice or a genuine understanding of the market and culture.

New Zealand companies tend to under-invest in two areas - relationship building and ongoing promotional and service support for their brands.

Sufficient attention to these will help ensure gains from FTAs are lasting and significant.

Fiona Acheson is New Zealand's Trade Commissioner for Malaysia, Indonesia and Brunei.

PARTNERSHIP

*Total trade in goods between Malaysia and New Zealand stood at $2.1 billion last year.

*The Malaysia-NZ Free Trade Agreement came into force on August 1.

*90 per cent of NZ's goods exports to Malaysia are now tariff-free and by 2016 99.5 per cent of tariffs will be eliminated.

*Around 2200 Malaysians studied in New Zealand last year.

*On average, more than 1000 New Zealanders visit Malaysia each week.

*Further information on the Malaysia-NZ FTA, including a tariff locator, can be found at www.mfat.govt.nz