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Free Trade Agreement in Malaysian Beef Industry Research Paper


Abstract

Malaysia is the country with a crucial regional economy. Free trade agreements (FTAs) are the opportunities for Malaysia to promote the economic growth, identify regulations and obligations in import-export markets, and create the conditions under which the economic development can be sustainable. Beef is a recognizable industry in Malaysia, and the importance of FTAs cannot be neglected because it helps to improve market relations and choose the right directions.

Introduction

During the last several years, the Malaysian economy has undergone a considerable economic growth. Today, it is expected that the country continues improving its beef industry and integrating its beef cattle with palm oil production to achieve certain changes in a domestic and foreign supply of beef (Ariff, Sharifah & Hafidz 2015). Another important aspect of the economic growth of the country is the ability to arrange free trade agreements with the help of which Malaysia can reduce trade barriers that may exist between different countries and increase trade of red meat.

Malaysia has a fast developing export market, and it is very important for the country not to lose its opportunities and offer the agreements that can stabilize export and import relations with Australia, New Zealand, ASEAN, and Indonesia. This paper aims at developing the study about the importance of free trade agreements in Malaysia, analyzing the relations between different countries, and explaining the worth and outcomes of free trade agreements.

Overview of Malaysia Beef Industry

Though Malaysia is the country known for its significant changes in beef production at the beginning of the 2000s, there are certain challenges and uncertainties that bother Malaysia beef industry. The main problem is based on the fact that Malaysian beef sub-sector remains to be uncommercialized because of low productivity and the necessity to import its beef from other countries and meet the domestic demand (Mohamed, Hosseini & Kamarulzaman 2013).

Overview of Malaysia Involvement in Free Trade Agreement

Malaysia is interested in developing international trade as it is a significant contribution to its economic growth. The country arranges various regional and bilateral agreements that can be used to promote multilateral trade approaches (MITI 2015).Today, FTAs help to identify the specific conditions in such areas as financial cooperation, education, training, or competition policy and create new opportunities to enhance its competitiveness, choose better market entries, and settle tariffs.

Literature Review

Growth trend in quantity of total consumption.

One of the main goals that Malaysia tries to achieve is the promotion of trade liberalization with such countries as New Zealand, Australia, and Indonesia. During a long period of time, Malaysia had to understand the essence of the ASEAN-based regional framework and try to utilize its regional, bilateral, and multilateral trade agreements (Aggarwal & Urata 2013). Besides, regarding the latest results of beef consumption of the Malaysian citizens mentioned in Figure 1, Malaysia has to comprehend that FTAs are crucial for its citizens the most.

FTAs help to provide countries with the required guarantees that all of them have enough economic resources and products to meet the needs and expectations of other parties of the same agreements. However, the investigations by Baldwin and Jaimovich (2012) show that even the best FTAs may lead to unpredictable outcomes under the pressure of regionalism.

They explain that some FTAs may just re-dress a new type of trade discrimination and lead to the necessity of more FTAs as a part of the domino theory (Baldwin & Jaimovich 2012). Therefore, Malaysia has to be careful when it decides to sign a new free trade agreement, make sure that positive outcomes can occur, and encourage the required development and improvement.

Impact of Trade Policies in Beef Industry of Different Countries

During the last years, a number of countries have achieved success in developing their trade relations using their own policies. For example, in Indonesia, economy is based on domestic consumption that has been improved due to urbanization, retail penetration, and a middle class expansion (Permani 2013). Internal and external trade policies serve as the main source that helps to create wealth in the country by means of which high incomes, improvements to farm cattle prices, and consumer demand are improved.

Brunei is another country that gained benefits from its trade policies in the beef industry due to the possibility to import high-quality beef to Australia where a halal program was introduced several years ago. The possibility to work on the Muslim consumer market serves as the best evidence for the country to be recognized on the beef market (Oi & Begawa 2014).

The economic situation of China is better than those of Malaysia, Brunei, and Indonesia due to its world’s recognition. China remains to be one of the main exporters in the beef industry regarding production, consumption, and trade aspects. Its domestic industry is divided into several segments with the help of which the country demonstrates a high economic growth, as well as successful industrialization, urbanization, and the possibility to set high prices for its beef production and offer it to different regions.

Japan is known for its effective bilateral agreements with the USA. The peculiar feature of this country’s trade policies is the creation of certain sanitary rules and the identification of the import tariff (Obara, McConnell & Dyck 2010). Though the countries that want to export its production to Japan define these regulations as significant barriers in trade relations, many countries continue cooperating with Japan and paying more attention to the Japanese sensitivity to income and price changes. In the following table, there are the results of how much money different countries spent on import and export of beef in 2015-2016:

Country Import (1000 MT CWE) Export (1000 MT CWE)
Malaysia 250.00 13.00
China 700.00 25.00
Japan 727.00 2.00
Brunei Risen by 10% Reduced by 6%
Indonesia 40,000 45% of total export
Australia 12.00 1.625.00
New Zealand 18.00 598.00

Methodology

Free trade agreements play a crucial role in the economy of each country and support the idea of global trade liberalization. The World Trade Organization (WTO) establishes the rules and identifies the regulations applicable to each country in regards to its economic position, the possibilities to develop international relations, and the abilities to meet trade expectations. Any free trade agreement is a treaty that helps to remove trade barriers and facilitate trade relations in different countries. FTAs may be of several types: regional, bilateral, and multilateral. One of the first tasks is to identify the database of the required FTAs that may be taken into consideration in the analysis.

Some FTAs may be not operational; still, their role remains to be considerable because it proves the intentions of the WTO to implement new ideas in the existing economies. The strategy lies in the necessity to create a list of positive and negative aspects that can be observed while evaluating the importance of free trade agreements between Malaysia, as one of the possible importers and exporters of beef production, and other countries like New Zealand, Australia, and Indonesia. The chosen method should prove that it is necessary not to neglect the fact that FTAs can influence the country’s economy in two different ways.

Results

FTA Types

There are three types of trade agreements that Malaysia can develop:

Type of FTA FTA Details and Peculiarities
Regional Reciprocal trade agreements that can be arranged between two or more parties that are the representatives of the same region. They are also defined as preferential by the WTO.
Bilateral Trade agreements that may be signed by the representatives of two countries or trade blocks regardless their regions. The FTAs of Malaysia with Japan, India, and New Zealand are the most famous and frequently cited agreements.
Multilateral Trade agreements that may involve several countries that have to be treated equally regardless their economic situations and income statuses. The majority of such agreements are controlled by the WTO. Still, there are also such operating FTAs as MAFTA or ASEAN Free Trade Area under which the representatives of Brunei, Indonesia, Malaysia, and several more members could create favorable conditions for their trade relations.

Australia, New Zealand, India, and the USA are the main beef importers to Malaysia. The development of international relations and the creation of free trade agreements with these countries play an importance role for the Malaysian people. MNZFTA, MICECA, MAFTA, and TPPA are the examples of free trade agreements between Malaysia and four different countries that could affect directly the Malaysian beef industry.

MNZFTA regulates and strengthens the economic relations between New Zealand and Malaysia with establishing the framework, liberalizes trade, and removes a number of trade barriers. In this agreement, the elimination of tariffs is faster in comparison to the FTAs with other countries. The results of the last several years show the picture that the tariffs can be about 99% duty-free. The reduction of tariffs on frozen meat or the quota of live cattle have not undergone considerable changes during the last years (about 3-5%), still, it is also wrong to neglect the fact that the reduction of tariffs is taking place.

MAFTA is the agreement between Malaysia and Australia that opens new opportunities for the Australian suppliers and Malaysian consumers. Almost all tariffs are eliminated so that almost all export and the majority of import goods are free. It helps to develop the beef industry and demonstrate the opportunities of the country. According to the agreement, Australia will eliminate tariffs on 100% of its tariff lives by 2020 (Regulation impact statement 2012).

It could improve the beef industry in Malaysia because the country can make use of frozen meat and live animals without a fear of fraud or loss of money. MICECA is another agreement the representatives of Malaysia signed with the representatives of India in 2011 as a significant addition to the existing ASEAN Agreement. In this agreement, the reduction of tariffs is also observed and has its peculiarities called as the Highly Sensitive List (tariffs are reduced to 5%), the Special Track (tariffs are reduced to certain levels identified in the agreement), and the Normal Track (tariffs are eliminated) (Comprehensive economic cooperation agreement 2011).

The Trans-Pacific Partnership Agreement (TPPA) provides Malaysia with access to the US market and opens a number of new opportunities such as the reduction of non-tariff barriers (because at the moment, the country’s gains are low) (Study on potential economic impact of TPPA 2015).

Pros and Cons of FTA on Malaysian Beef Industry

Free Trade Agreements Malaysia signed with different countries including Australia, India, and New Zealand open new horizons for the country. From the observations offered by Baldwin and Jaimovich (2012), Malaysia had three agreements till 2005 (the first agreement was signed in 1976).

Nowadays, Malaysia has more than ten operational agreements with different countries including Chile, New Zealand, Australia, Japan, Pakistan, India, Turkey, and Korea, more than five proposed agreements with the United States, European Free Trade Association, and other regions the cooperation with which can be rather beneficial for the country (Malaysia’s free trade agreements 2016). In the table below, there are the results of Malaysian cooperation with different countries in the beef industry:

Pros Cons
Low trade barriers help the Malaysian industry access new markets in different regions and find more people to sell their production to. Powerful economies of the developed countries may impose their opinions and impacts on smaller economies of the developing countries. More concessions from the small economies should be expected.
The benefits for consumers are obvious because more products can be found on shelves, and low prices can be offered to people. No other foreign policies except the bilateral economic benefit are observed.
The opportunities to develop and protect market access are observed so that trade terms and investments are properly identified. Trade liberalization is still under doubts of some critics.
Industrial opportunities are open. Global demand increases, the environment protection is promised, and the progress at the multilateral level is observed. Economic instability is possible because of the existence of competitive trading blocks.
Increased economic growth of the country is evident. The necessity to create inconsistent trade rules takes place to provide each trading sector with a discrete strand of regulation.
The development of dynamic business climate is possible. Competitiveness requires the development of business-related services that could influence the quality of services and goods. The farmers could not compete with the prices set and the standards established.
Direct investments from foreign countries can be offered. Regulatory framework conflict
Facilitated trade with different countries is possible. Job outsourcing can influence the economy because of the possibility to reduce tariffs.
Recognition of Malaysian as a powerful economic body plays a crucial role for the country. The possibility of degradation of natural sources to meet the needs of the partners cannot be neglected.
Technical cooperation and collaboration with different partners are open to Malaysia (MITI 2015). Worsening of working conditions should be expected.

During the last several decades, Malaysia arranged a number of FTAs with different countries. As soon as beef production became one of the most important agricultural industries in Malaysia, the country took a number of steps to improve its economic value and the beef consumption value (Ariff, Sharifah & Hafidz 2015). The independence area of the country brought a number of benefits and open new opportunities to enlarge and improve its oil palm plantations. Despite the fact that some researchers admit that beef consumption should not be regarded as the direct reason for why consumer income was increased (Ariff, Sharifah & Hafidz 2015), it is wrong to deny the fact that this factor influenced the development of international relations considerably.

Discussion

In fact, there are two different points about the impact of FTAs on Malaysian beef industry. On the one hand, there are a number of opportunities that can be available to the country, the possibilities to change the GDP ratings, and make use of the resources of other countries at affordable prices. On the other hand, in the beef market, Malaysia has to open its natural resource sectors the same way other participants of the treaties do.

Therefore, it is necessary to comprehend if the pros of FTA in the beef industry of Malaysia may prevail over the cons of the same agreements, and if it is possible to create the conditions under which Malaysia can get more than it is even expected so that the possible disadvantages may be covered by the benefits in a short period of time.

First of all, it is necessary to underline that the bilateral FTAs with such countries as Australia, China, and Japan will put Malaysia on the same level playing field with such huge and recognizable nations. In addition, such agreements may put the country at the advantage over some other participants of similar treaties such as Brunei or Indonesia and become a serious competitor in the beef industry.

Then, it is necessary to admit that Malaysia has been already introduced as a promising market for Australian and Indian beef exports. The trade relationships have been already identified as a crucial aspect in development. The country experiences a significant demand for beef nowadays so that its government plans to raise the self-sufficiency level of beef to 32.7% by 2020 (Ariff, Sharifah & Hafidz 2015). During almost the same period, it is expected to increase Malaysian GDP by 5% that is about $6.5 billion (Ariff, Sharifah & Hafidz 2015). Even though the predictions say that the world population growth could be slow indeed, the level of beef consumptions could hardly be decreased because there are many countries that continue growing and playing a certain role in the economic environment.

Recommendations

The necessity to develop free trade relations and introduce beef industry as a crucial aspect of the country’s economy is a responsibility Malaysia should be ready for. Such requirement can help to improve the idea of marketing animals that can be used for breeding and slaughtering. The current results show that the country faces a number of challenges in the organization of such types of activities. Therefore, the evaluation of the public sector, the security details, and the creation of the required infrastructure may be identified as the negative impact of FTAs on the countries.

At the same time, it may be introduced as a powerful motivational factor to promote changes in the existing economic and marketing system and the possibility to improve the work in different sectors. One of the main recommendations that may be given to Malaysian citizens is to focus on the marketing of animals that play an important role in the beef industry.

Another significant recommendation is the evaluation of the negotiations that have to begin by the Malaysian initiative. There are many countries that can create a significant competition to Malaysia, and this particular country should be ready for competitions. Still, if there is a chance to avoid competing but turning its potential competitors in its partners, the country has to use this chance.

Malaysia should not make fast decisions and use FTAs as the only chance to promote its economic growth. The country has to understand that FTAs introduce a number of opportunities for the countries that arrange them. For example, Malaysia should focus on economic cooperation in such areas as small and medium enterprises or science and technological development. The facilitation of trade relations and the creation of appropriate working conditions are crucial for those, who choose FTAs. Regarding all those threats and advantages of international trade relations, Malaysia should not forget about its self sufficiency and try to explain it to other countries around the whole world. Malaysians should not quit their intentions to arrange more FTAs with different countries to succeed in the beef industry and it domestic consumption.

The main policy that can be implemented by Malaysia to improve its beef industry in regards to the FTAs developed with different countries should touch upon the regulations under which the country can allow other countries to its economy and provide its citizens with the resources and services. First, it is necessary to choose responsible agents, who could compare the opportunities of the digital world in Malaysia. Second, timeframes should be clear and divided into short, medium, and long. Finally, the identification of target groups is crucial because it is necessary to comprehend the reasons for why the beef industry is necessary for the Malaysian people.

Conclusion

In general, the importance of free trade agreements to Malaysian beef industry has been proved in the project. Taking into consideration the fact that this country may face a number of challenges while developing international trade relations, it is necessary not to forget about the benefits such as the facilitation of trade, reduction of entry barriers, economic growth, and new natural resources that can be obtained due to the cooperation with other countries.

References

Aggarwal, V & Urata, S 2013, Bilateral trade agreements in the Asia-Pacific: origins, evolution, and implications, Routledge, New York.

Ariff, OM, Sharifah, NY & Hafidz, AW 2015, ‘Status of beef industry of Malaysia’, Malaysian Journal of Animal Science, vol. 18, no. 2, pp. 1-21.

Baldwin, R & Jaimovich, D 2012, ‘Are free trade agreements contagious? Journal of International Economics, vol. 88, no. 1, pp. 1-16.

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Cook, R 2016, . Web.

Malaysia’s free trade agreements. 2016. Web.

MITI: Ministry of International Trade and Industry 2015, . Web.

Mohamed, ZA, Hosseini, A & Kamarulzaman, NH, 2013, ‘Analysis of Malaysian beef industry in Peninsular Malaysia under different importation policies scenarios and rate management systems’, Pertanika Journal of Social Sciences & Humanities, vol. 21, pp. 1-16.

Obara, K, McConnell, M & Dyck, J 2010, ‘Japan’s beef market’, United States Department of Agriculture: Economic Research Services. Web.

Oi, R & Begawan, BS 2014, ‘Brunei’s meat imports growing’, The Brunei Times. Web.

Permani, R 2013, ‘’, Inside Indonesia. Web.

Regulation impact statement: Malaysia-Australia free trade agreement. 2012. Web.

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IvyPanda. "Free Trade Agreement in Malaysian Beef Industry." September 30, 2020. https://ivypanda.com/essays/free-trade-agreement-in-malaysian-beef-industry/.

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IvyPanda. 2020. "Free Trade Agreement in Malaysian Beef Industry." September 30, 2020. https://ivypanda.com/essays/free-trade-agreement-in-malaysian-beef-industry/.

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IvyPanda. (2020) 'Free Trade Agreement in Malaysian Beef Industry'. 30 September.

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