In a major bid for their relevance in a highly globalised world, Malaysia and the European Union announced the revival of negotiations for a Free Trade Agreement (FTA). Renewed efforts are poised to increase bilateral trade and investment between the two sides and create new economic opportunities as well as a deeper engagement in different areas of the two sides, including trade, technology and sustainable development.

Malaysia and the EU have revived FTA negotiations to foster economic cooperation, trade, and sustainable development in a shifting global economy.

Both parties decided to make this change as those companies recognize that the dynamics of global trade are changing, and protectionism and trade barriers are being built in many places. A strategic shift towards liberalizing trade, encouraging mutual economic growth while ensuring that Malaysia and the EU are well equipped to profit in a changing global economy other than non-liberalized agricultural products is proposed to be made in the form of a suggested FTA.

Both parties have long since desired the Malaysia-EU Free Trade Agreement. But that’s what they first started discussing behind the idea of a comprehensive trade agreement in earnest back in 2010. However, there were several problems, mainly in regulations, market access, and several sensitive sectors — for example, palm oil production in Malaysia, a substantial export. However, these hurdles did not diminish the attractiveness of the potential benefits of an FTA, which both Malaysia and the EU have been keen to strengthen their economic tie.

The FTA with the EU provides Malaysia the chance to increase its degree of economic competitiveness and broaden its trade partners. One of the largest markets in the world is the EU with its 27 member states and more than 500 million consumers. An FTA with such a huge economic bloc would give Malaysia free access to a tremendous market and allow for the export to a great variety of products: palm oil, electronics, rubber and chemicals. It could also make Malaysia a more attractive global manufacturing hub for greater FDI from EU companies base investing in the Southeast Asian region.

But the FTA will bring the EU major benefits. Malaysia is positioned at the threshold of Southeast Asia and plays a significant role in terms of regional economic players. Due to its membership in the Association of Southeast Asian Nations (ASEAN), Malaysia provides entry point to the larger ASEAN market with a population of over 600 million and a rapidly growing middle class.

Having been for long one of the world’s leading investors in the region, the United States also may be interested in differentiating itself from China, which is building up its political, economic, and military presence in Africa. Moreover, Malaysia has a well-developed infrastructure and a skilled labour force, which make it an attractive base for European companies to extend their scope in Asia.

The FTA could boost Malaysia’s access to the EU’s vast market, strengthen investment ties, and create new business opportunities.

The partial removal or reduction of tariffs and non-tariff barriers is one of the key elements of the negotiations of the FTA. The elimination of tariffs on exports to the EU could have the effect of making exporting to the EU market more competitive and increasing market access for Malaysia. For sectors such as palm oil, this is especially important as the EU has historically set tight regulations and tariffs relating to the product, claiming environmental and sustainability matters.

Because these concerns have not been adequately addressed by Malaysia during the negotiations of the SEAFTA, these concerns could be addressed in the negotiations of the renewed FTA through more robust sustainability standards that would enable Malaysia to perform better with regards to its palm oil production and align it more closely with the international sustainability expectations. This would give more opportunity for Malaysian palm oil to be exported, and it would show the commitment of Malaysia to environmental and social responsibility.

Apart from trade, an FTA may equally be a catalyst for collaboration in other spheres like technology, innovation, and sustainable development. In line with its vision of achieving sustainable economic growth, Malaysia also wants to tap into the EU’s expertise in clean energy, digital economy, and green technologies.

The deal could give opportunities for cooperation on joint research and development, knowledge transfer and cooperation on emerging technologies, including for instance artificial intelligence, renewable energy, and biotechnology. Overall, the importance of Malaysia’s economy gives the EU a great partner with which to move on together and achieve the EU’s goals in the global market in terms of promoting innovation and sustainability.

Moreover, the FTA is likely to promote bilateral investment. European companies already established in Malaysia largely in sectors such as manufacturing, automotive, and chemicals, rely on the EU as one of the largest suppliers of foreign direct investment into the country. The FTA could also further attract European companies into Malaysia by removing barriers to investment and creating transparency in the regulatory environment.

This would bring in a wave of investment which not only enhances Malaysia’s economy but also results in job creation and technology transfer. Also, as Malaysia grows into a regional economic hub, there are key investment opportunities for EU companies that need to ride on the growing ASEAN market.

Sustainability remains a key aspect of negotiations, particularly concerning palm oil production and environmental compliance.

In addition, the FTA could be used as a template for other trade agreements between the EU and other nations in the area. Nevertheless, Malaysia’s experience may shed light on the intricacies and advantages of such agreements as ASEAN members continue to investigate their trade agreements with the EU. The successful conclusion of the Malaysia-EU FTA could spur on the rest of the ASEAN countries to do the same, thereby enhancing the EU’s economic footprint in Southeast Asia and helping advance the region in the global market.

As a reaction to the growing clout of China and the United States in the region, the revived Malaysia EU FTA negotiations are also expected in the context of a rapidly changing geopolitical landscape. Malaysia and the EU are both of the opinion that economic relations between the parties must be maintained in a strong manner and on full steam for one another as they do not halt with the economic trends going global and the continuous flow of trade and investment between each other. The deepening of Malaysia’s economic relationship with the EU can be reinforced to boost the former’s resilience to external shocks and to create a more balanced and sustainable trading system.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.