Editorial: Malaysia pact boosts Asean trade strategy

Opinion

And then there were seven. New Zealand's latest free-trade agreement, with Malaysia, was accompanied by the customary enthusiasm from politicians and business representatives. There was much talk of a gateway into Asia, and the Prime Minister described it as "a significant step forward in relations with Malaysia and further evidence of our economic integration with Asia". Michael Barnett, of the Auckland Chamber of Commerce, said it was a great opportunity for businesses if they chose to take it. Clearly, this is a welcome development, but its importance lies as much in its actual signing as in the likelihood of any dramatic change in trade between New Zealand and Malaysia.

Malaysia is our eighth-largest market, accounting for almost $1 billion of exports last year. Trade has been growing rapidly, and the kiwifruit trade, liquid-milk exports and education providers are expected to be particular winners from the pact, which phases out almost all tariffs between the two countries from next year. Effectively, the agreement accelerates the benefits of a deal that New Zealand signed this year with the 10 members of the Association of South-east Asians Nations (Asean), of which Malaysia is a part. In reality, it will not create huge waves, or lead to a sea change in our trading landscape. But it is significant in terms of what Trade Minister Tim Groser said was "New Zealand's commitment to being 'open for business' and to a liberal global trading regime".

Equally, it underlined the growth in Asia of a similar sentiment. Formulating an agreement with Malaysia was, obviously, always going to be far simpler than the ground-breaking deal struck with China last year. But that does not mean there were no complications. For the first time, Malaysia has, at New Zealand's insistence, agreed to include environmental and labour-law co-operation clauses in such a pact. New Zealand, for its part, had to bow to Muslim Malaysia's demand that alcohol-related products, notably wine, be excluded.

The signing of the agreement has not been the only high note on John Key's trip. The new Indian Prime Minister, Manmohan Singh, told him that his country was willing to seriously consider a trade deal. This is significant because India has previously put the protection of its farming sector first and foremost. The East Asia Summit in Thailand, which Mr Key attended before going to Kuala Lumpur, also agreed to look at the idea of a pan-Asia free-trade zone stretching from New Zealand to India. Before the meeting, there was no guarantee that New Zealand, Australia and India would be included in a proposed pact encompassing the 10 Asean nations, plus China, Korea and Japan.

Such an agreement is, clearly, many years away. It also remains to be seen how it would fit into a framework that includes Apec and Australia's proposed Asia-Pacific Community. Some rationalisation of aims and ambitions seems inevitable. But even the planning for an East Asia agreement, which would include more than half the world's population, confirms the keenness for free trade in that part of the world.

This contrasts with the moves towards protectionism in the United States and Europe virtually as soon as the recession started to bite. Hopefully, that will have no serious long-term ramifications for progress in World Trade Organisation negotiations, which must remain New Zealand's major interest. But the developments in Asia confirm the different instincts at work. That, coupled with the strong rate of growth of Asian economies, offers exporters a telling commentary on where their best prospects may lie. And therein lies the significance of New Zealand's latest free-trade agreement.