Journal Issue

Malaysia positions itself as a gateway to ASEAN and East Asia

International Monetary Fund. External Relations Dept.
Published Date:
June 2004
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Just hours after signing a Trade and Investment Framework Agreement with the United States on May 10, Rafidah Aziz, Malaysia’s Minister of International Trade and Industry, spoke at the Institute for International Economics in Washington, D.C. She focused her remarks on the potential benefits to foreign direct investors of selecting Malaysia as an export base within the Association of Southeast Asian Nations (ASEAN) and made the case for why Malaysia is opting to negotiate bilateral trade agreements in the face of the stalled Doha Round.

What does Malaysia hope to gain from its bilateral economic relations with the United States? Rafidah saw the agreement as a means to encourage collaboration between the countries’ private sectors and provide a formal channel for their governments to move forward on commercially oriented initiatives, such as trade and investment facilitation, protection of intellectual property rights, and capacity building programs. The agreement could, she said, lead to further economic arrangements—perhaps even a free trade area.

Rafidah encouraged her predominantly U.S.-based audience to view Malaysia, given its strategic location, as a gateway to other ASEAN member countries and the broader region. “East Asia is evolving as a region, and ASEAN is the prime mover in this,” she said, noting that ASEAN’s young population and rising per capita incomes offer a long-term dynamism that may be lacking in other countries and regions with aging populations.

Rafidah also insisted that the region’s long-term vision of an ASEAN Economic Community—a single market providing for the free flow of goods, services, skilled labor, and capital by 2020—is not a pipe dream. So far, the member countries have identified 11 priority sectors for accelerated integration—agro-based products, air travel, automotive products, electronics, fisheries, health care, rubber-based products, service sectors of electronic commerce, textiles and apparel, tourism, and wood-based products—and are now working to forge a mutual recognition arrangement for key products widely traded within ASEAN. The hope is that by November 2004, ASEAN leaders will be able to sign an agreement providing for the integration of these 11 sectors across the member countries.

China as a partner

“Because China is a market that no one can ignore, rather than cry over China as a competitor,” said Rafidah, “we see China as a market.” Although Malaysia’s economy is small vis-a-vis China’s, she pointed out that Malaysia has its own globally competitive niches. Rafidah explained how she visits China to encourage Chinese entrepreneurs to invest in Malaysia, where they can make use of the economy’s comparative advantage in natural resources. Moreover, Malaysian-based manufacturers have found a growing, higher-income market in China for luxury products—which has helped make China the fastest growing market for Malaysia.

Malaysia is also taking steps, Rafidah said, “to forge closer economic partnership arrangements that would entail free trade areas between ASEAN and three regional partners: China, Japan, and South Korea.” These negotiations have begun with China, setting 2010 as the target for a free trade area with ASEAN, and a study on an ASEAN-Korea Free Trade Area is in progress.

Commenting on the stalled Doha Round of multilateral trade negotiations, Rafidah said that, although the negotiations are unlikely to come to any conclusion in the near future, “this does not matter for Malaysia because trade goes on.” While conceding that a multilateral trade agreement would be good in the long term, she argued that it makes sense for Malaysia to continue to negotiate trade agreements on a bilateral basis. In her view, this would not detract from the multilateral trading system.

Keeping up

What must Malaysia do to remain competitive globally? According to Rafidah, the focus now is on further improving the business and investment climate, including by removing remaining administrative impediments, notably at the local district level, to registering and operating a business. Another way to improve the business and investment climate, she suggested, is by reviewing and fine tuning relevant policies. One aspect of this is identifying profitable new areas for the private sector and Malaysia, more generally. Among the new areas already identified are manufacturing-related services, the biotech sector, and commercially oriented agriculture.

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