Caution and consultations necessary before Malaysia resumes free trade talks with Korea

It was with a mix of anticipation and trepidation that I read the news report regarding the resumption of the Malaysia-Korea Free Trade Agreement (MKFTA), as reported by The Star yesterday, 26 March 2024.

As a firm believer of the rules-based trading system and the MITI Minister who finally ratified the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) for Malaysia, I have always been in favour of the right type of FTAs. In the case of the CPTPP, the Agreement not only provided new market access to countries such as Canada, Mexico, Peru and the United Kingdom, it also offered additional market access into countries with whom Malaysia already had a bilateral or regional FTA arrangement (e.g., Japan, Australia, New Zealand, Viet Nam and Brunei).

Unlike the CPTPP, the MKFTA may not necessarily add further value to the existing ASEAN-Korea FTA (AKFTA), to which Malaysia is already a Party. As I recall, under the AKFTA, Korea agreed to eliminate duties on 91% of its tariff lines and in return, Malaysia only had to eliminate duties on 83.5% of our tariff lines. This was indeed a good deal for Malaysia and I commend our negotiators who were involved in the AKFTA negotiations.

In 2019, under the administration of Pakatan Harapan when YB Darell Leiking was the MITI Minister, both Malaysia and Korea agreed to a set of Guiding Principles which stipulates an overall liberalisation threshold of 92% with a view to ensure that the MKFTA builds upon the AKFTA. Essentially, this lopsided agreement means that the Korean side will only need to improve about 1% on their offers (as they have already committed to elimination of duties on 91% of their tariff lines in AKFTA) while Malaysia will need to significantly improve our liberalisation offers from 83.5% to 92%. In other words, Malaysia will have to remove duties on substantially more goods compared with Korea.

I also recall that the Korean request involved more than 1,600 products including automotive parts and components, as well as iron and steel. In return, Malaysia requested for concessions across 500-odd products. Again, it was not possible for Malaysia to request more products as the Korean side was only required to add another 1% of products to meet the 92% threshold.

At the time I was at MITI, I recalled that the Industry Wing of the Ministry undertook several consultations with the private sector to obtain their feedback and views regarding the MKFTA. Most industry players stressed that Malaysia should not remove duties on the 1,600-plus products requested by the Korean side. Those in the iron and steel sector were particularly concerned, as they were already under immense market pressure during the pandemic and post-pandemic phases.

While I understand that the MKFTA will also cover other areas such as economic cooperation, digital and green economy, supply chain and bio-economy, outcomes in these areas are usually collaborative in nature and may not necessarily commensurate the sacrifices that Malaysia will need to make by removing duties across 1,600-plus products.