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A free trade agreement between Malaysia and US means that there are no barriers to trade between each other and goods and services are allowed to move freely between countries. However, this FTA has its advantages and disadvantages which will be discussed further.
In 2005, Malaysia had an annual US$23 billion trade surplus with the US. By using FTA, Malaysia might obtain extra market access in the US, but the structural and legal rules by the US Trade Representative might limit the access. For example, according to the “rules of origin” like the “yarn forward rule” makes it difficult for Malaysia to export its textiles to the US even if the tariffs for it are lowered. Interestingly, it is predicted by US’ National Association of Manufacturers that it will be able to double its exports to Malaysia by 2010. This might seem rather one-sided or biased.
Furthermore, it is a well-known fact Malaysia has relatively high tariffs. By establishing an FTA with the US, the tariff cuts which might be as drastic as 0% since it is a free trade agreement will affect Malaysia more, demanding a bigger sacrifice by Malaysia. This can bring a lot of impacts. For example, a huge tariff cut on tobacco and alcohol might bring a lot of negative externalities to the country which is trying to campaign against smoking as cigarettes now will be cheaper. Also, by eliminating or cutting down the tariffs, Malaysia won’t be able to protect against artificially cheap products from the US. US might dump its surplus agricultural products in Malaysia, thus affecting our local producers. This is especially because US provides agricultural subsidies, thus its agricultural products can be exported below the cost of production.
Services are the most important sector of the Malaysian economy for employment, local participation, and social policy. The Malaysian Government has successfully ensured greater local ownership and participation through careful government policies over...