Chapter 2

Economic regionalism

As members of the Commonwealth, Britain's move to the European Economic Community (later European Union) in the early 1970s and the eroding of Commonwealth tariff preferences impacted both Australia and Malaysia. Australia was particularly affected and the event saw the notion of a free trade area for Australia and Asia raised as early as 1972.18 But it was not until 1989 that Australian Prime Minister Bob Hawke launched an audacious plan for an Asia–Pacific Economic Cooperation (APEC) forum and tasked the then Secretary of DFAT, Richard Woolcott, to consult widely across the region on the proposal. The vision for APEC was to facilitate economic growth and prosperity by creating a seamless regional economy through trade and investment liberalisation, business facilitation, and economic and technical cooperation. Malaysian Prime Minister Tun Dr Mahathir Mohamad did not support the idea initially and instructed Minister of International Trade and Industry Datuk Seri Rafidah Aziz to consult on an alternative East Asian Economic Group (EAEG) that would include ASEAN member states, plus Japan, China, Taiwan, Hong Kong and South Korea.

Ultimately, regional support coalesced around a grouping with wider membership that encompassed the then-six ASEAN members, Japan, South Korea, Australia, New Zealand, Canada and the United States. APEC has now grown to 21 members and accounts for 48 per cent of world trade.19 After the Asian Financial Crisis of 1997–98, however, the idea for an East Asian grouping was revived, consolidating around a newly-formed ASEAN-Plus Three (China, Japan and South Korea). This was followed by the launch in Kuala Lumpur of the East Asia Summit in 2005, bringing in Australia, New Zealand and India (the United States and Russia joined later in 2012). These two forums, APEC and the EAS, in which Australia and Malaysia have played productive roles, were outcomes of a new era of regionalism and today play central roles in regional economic and security cooperation.

Malaysia and Australia are also part of the ASEAN–Australia–New Zealand Free Trade Agreement (AANZFTA) which entered into force in January 2010. It sits among Australia's largest, and most ambitious, trade arrangements. It is also ASEAN's first comprehensive FTA covering goods, services, investment and other issues including intellectual property, electronic commerce and competition.20 AANZFTA's reach is extensive—across a combined population of 649 million people and a combined GDP of US$4.2 trillion.21 The conclusion of the Trans-Pacific Partnership Agreement (TPP) negotiations in October 2015 provides further opportunities to Malaysian and Australian businesses across the fast-growing Asia-Pacific region. The TPP builds upon the Trans-Pacific Strategic Economic Partnership Agreement (2006) that consists of Brunei, Chile, New Zealand and Singapore. There are currently 12 parties involved in the TPP which, as well as the four originating members, include Australia, Canada, Japan, Malaysia, Mexico, Peru, the United States and Vietnam. Reflecting our continued shared commitment to pursuing further regional trade liberalisation and integration, Malaysia and Australia are also parties to negotiations on the Regional Comprehensive Economic Partnership (RCEP).22 The RCEP is an ASEAN initiative that proposes an FTA comprising all ten ASEAN nations, plus their current FTA partners, which include Australia, China, India, Japan, Republic of Korea and New Zealand.

MAFTA: New bilateral impetus

Our shared involvement in these multilateral regional efforts, however, did not see our bilateral trade relationship neglected and, on 1 January 2013, the Malaysia–Australia Free Trade Agreement (MAFTA) entered into force. Building on the market access provisions of AANZFTA, MAFTA guarantees tariff-free entry for 97.6 per cent of current Australian goods exports to Malaysia, rising to 99 per cent by 2017, while Malaysian exports benefit from comprehensive duty-free entry into Australia.23 This trade stimulus is supported by important institutional alignments. Our banking and judicial systems share similarities, while some Malaysian regulatory frameworks, such as the Malaysian Securities Commission, are modelled in part on the Australian system. These synergies open the services sector up to opportunities for greater collaboration. Leading the way in the financial services area has been the Australia and New Zealand Banking Group Limited (ANZ). ANZ entered the Malaysian market in 1971 and in 2007, purchased a 19.1 per cent interest in Malaysia's AmBank Group, now one of the largest financial institutions in Malaysia. Under MAFTA there is scope for further mutually beneficial partnerships to be forged in the financial services sector.

Another area of considerable collaboration is oil and gas. Malaysia is the second largest, and Australia the third largest, liquid natural gas (LNG) exporter in the world. While Australia has the region's largest gas reserves, Malaysia is the fourth largest reserve holder.24 Australian companies 'have learned to be innovative, nimble and highly efficient' in this lucrative sector and Malaysian and Australian entrepreneurs recognise the potential for collaboration. At the government-level, Austrade is working with Malaysia to build cooperation in this sector and, in 2014, convened a Global Oil and Gas Workforce Development Forum in Kuala Lumpur together with the Malaysian Oil and Gas Services Council (MOGSC) and Universiti Teknologi Petronas (UTP).25 Such collaboration highlights the mutually beneficial potential to be

Opportunities for future growth

There are many areas that are ripe for future growth in the Australia–Malaysia bilateral trade relationship. These include financial services, the resources and agriculture sectors, and infrastructure development. But perhaps the most dynamic areas in this growth trajectory are currently found in the services sector, notably education and tourism. Education related travel is Australia's largest service export to Malaysia, amounting to around A$720 million in 2014. On average, around 22 000 Malaysian students enrol to study in Australia each year, with another 12–15 000 studying on an Australian university campus in Malaysia. Recreational tourism follows close behind, adding just over A$533 million to the Australian economy in 2014. These two thriving areas of exchange—tourism and education—are discussed in subsequent chapters.

For Malaysia, the bilateral relationship holds enormous potential in investment. There are already significant Malaysian interests in Australia, notably in the property–tourism nexus. In 2012 Malaysia's YTL Corporation Berhad—owner Marriott hotels in Brisbane, Melbourne and Sydney. The deluxe Hayman Island Resort is also owned by Malaysian company Mulpha. In 2015, more Malaysian-backed hotels will open their doors, with the boutique Mayfair Hotel in Adelaide being developed by the Adabaco Group and The Tank Stream Hotel in Sydney by IGB Corporation Berhad. As Malaysian investment in Australia's tourism sector increases, so too have Australian investors become increasingly engaged in Malaysia. Lend Lease, for example, is a key partner in the development of the A$2.8 billion Tun Razak Exchange Lifestyle Quarter in central Kuala Lumpur. Lend Lease has been a part of many developments in Malaysia over the past 35 years, including the iconic Petronas Twin Towers and the state-of-the-art Pinewood Iskandar Malaysia Studios, a television and film production facility that opened in 2014.

The past 60 years have been truly dynamic for Australia–Malaysia trade and investment relations and demonstrate—from tin to television—the compatibility and vision in our many partnerships. Today, our capacities and our interests are closely aligned. From economic interactions that began over a century ago, when the spirit of entrepreneurship first animated the relationship, the frameworks for future cooperation have been moved into place. With continued growth across a range of sectors, both countries can look forward to a deepening and mutually beneficial economic engagement.