Why a comprehensive UK-Malaysia FTA could reap important benefits for both sides

As headlines focus on the twists and turns of the ongoing Brexit negotiations, many of the opportunities created by the UK’s decision to leave the EU risk being overlooked. Of all the possibilities that leaving the EU generates, it is perhaps the chance to fundamentally redesign Britain’s trading relationships with the rest of the world that has the most potential. In our pursuit of new deeper economic ties with the rest of the world we have few stronger natural allies than Malaysia.

Today’s close ties between Britain and Malaysia stem from our shared heritage. Furthermore, like Britain, Malaysia has long embraced the opportunities created by global commerce and welcomes international investors. By taking this open approach to trade, Malaysia’s economy has boomed in recent decades. Beyond sharing a common attitude to trade and investment, the UK and Malaysia are also important partners in other strategic areas. Our shared interests are reflected in our membership of the Commonwealth and the Five Powers Defence Arrangements, while Malaysia’s legal and political systems closely resemble those of the UK, although the extent of freedom and limits on judicial independence in Malaysia have been criticised.

Until we formally leave the EU in March 2019, all British trade with Malaysia takes place under WTO rules. While the EU and Malaysia had opened negotiations on a free trade agreement (FTA) in 2010, these talks were put on hold in 2012 with Malaysia instead preferring to focus attention on the Trans-Pacific Partnership (TPP). Once the UK ceases to be a member of the EU, however, it will be free to fundamentally reorient its trading relationship with Malaysia and the two countries are likely to negotiate their own FTA, which has the potential to significantly break down barriers to trade, boost competition, and increase consumer choice.

Malaysia

While the UK cannot formally begin negotiating its own trade deals before March 2019, it has already begun strengthening economic ties with Malaysia and other fast-growing economies of the Southeast Asia region. For example, in April International Trade Secretary Liam Fox visited Malaysia, Indonesia, and the Philippines, and in September the British government announced an additional £2.75bn for the export fund supporting two-way trade between the UK and Malaysia. In recognition of the opportunities that exist for expanding bilateral trade and investment, the Prime Minister last year also appointed a Trade Envoy to Malaysia, Richard Graham MP. The political will expressed by the UK side has been reciprocated by Malaysia, with Prime Minister Najib Razak committing in September to exploring ways to deepen two-way trade and investment.

Malaysia’s embrace of the free market is not only reflected in high growth rates, which currently stand at 5.8%, but also its position in various important global rankings such as ease of doing business and competitiveness. As Malaysia’s economy has been transformed in recent decades, moving away from specialisation in raw material production and towards a multi-sector approach, a diverse range of activities would benefit from freer UK-Malaysia trade. Two industries, both of which are key to achieving prosperity in the modern global economy, would benefit in particular: technology and education.

In the technology sector, a combination of Malaysia’s strong economic performance, skilled workforce, and investment-friendly approach has attracted the attention of leading tech companies from across the globe. Leading British firms in Malaysia include BAE Systems, which employs 400 highly skilled workers in its Cyber Security Global Engineering Centre in Kuala Lumpur, and Dyson, which employs over 1,000 local engineers. In 2016, Malaysia’s ICT sector was worth over £40bn, some 18.2% of the country’s GDP. Malaysia’s position as an attractive destination for tech investment led earlier this month to a Mega Tech Mission of 50 British companies visiting the country.

On the education front there is great potential for expanding current ties between the two countries. Currently, five British universities have campuses in Malaysia, over 100 international schools are teaching the British curriculum, and over 17,000 Malaysians are studying in the UK. Furthermore, there are half a million Malaysian alumni of British institutions, including Malaysia’s current Prime Minister. Beyond demonstrating Malaysia’s appetite for British education and constituting a substantial base for future British investment in the sector, such educational ties are vital to further commercial and cultural linkages.

Oil palm

One issue which has frustrated EU-Malaysia trade has been the EU’s approach to palm oil, used in many food products and a key export commodity for Malaysia which brings jobs and investment to underdeveloped rural areas. The EU, led by the European Parliament (EP) and some national parliaments, has been pushing for more control on the import of palm oil and has gone as far as saying that they do not trust Malaysia’s certification systems. In April, the EP adopted a resolution on palm oil and deforestation singling out palm oil cultivation as a leading contributor to global warming and climate change, even whilst acknowledging that Malaysian primary forest levels have increased since 1990. If we can agree a UK-Malaysia FTA after Brexit, we will be able to support palm oil producers from underdeveloped areas and reduce food prices for UK consumers, whilst ensuring that the environment is not being harmed in the process.

So, what would an expansion in UK-Malaysia trade mean for British workers and consumers? Increased two-way trade would not just mean more jobs, but also help consumers with lower prices. Tech innovation may benefit the most from creating attractive conditions for firms.

For both the UK and Malaysia, a comprehensive FTA would bring real immediate and tangible benefits. Given that our interests and political will are so closely aligned, it should be possible to achieve an early post-Brexit trade agreement.