Malaysia, Chile Sign Trade Agreement to Scrap Tariffs Starting Next Year

Malaysia signed a free trade agreement with Chile that will see the two countries progressively reduce or eliminate tariffs on their respective agricultural and industrial products.

The agreement, to be implemented during the first half of 2011, will benefit Malaysian exporters because Chile will eliminate import duties initially for 6,960 products, according to a media release from the Southeast Asian nation’s Ministry of International Trade and Industry. A further 668 tariff eliminations will follow within five years, the statement said.

“This agreement is a positive for Malaysia, especially considering where Chile is located,” Alvin Liew, a Singapore- based economist at Standard Chartered Plc said in a phone interview. “Trade between Malaysia and developed economies will likely be fairly stagnant but there will be more growth in trade between emerging-market economies. Free trade agreements like this one will only help accelerate that.”

Bilateral trade between Malaysia and Chile, a long South American coastal country bordered by the Andes mountains to the east and the Pacific Ocean to the west, totaled 853.7 million ringgit ($274 million) in the first nine months of 2010 while exports totaled 199.8 million ringgit, according to Malaysian government figures. Malaysia’s $192 billion economy is expected to grow 7 percent this year before expanding as much as 6 percent in 2011, and its central bank was the first in Asia to start raising interest rates to tame inflation.

Chile Rebounding

Chile’s $164 billion economy is also rebounding, expanding at the fastest pace in five years and forecast by the government to grow 7.2 percent this quarter. The resource-rich nation approved $13.3 billion in foreign investment requests last month, a threefold increase from a year ago, Economy Minister Juan Andres Fontaine said on Nov. 10.

Malaysia’s major exports to Chile include electronic, rubber, wood and chemical products, while its major imports from Chile are scrap metal, paper and pulp products and fruits. Exports which should benefit from the tariff eliminations include surgical gloves, cocoa butter, aircraft parts, video recorders, textiles, ceramic wares and iron and steel bars and rods, the media statement said.

“Generally individual countries will do better striking these trade agreements on a bilateral basis rather than waiting for an agreement to come via a regional bloc,” Liew said.

Chile meanwhile will benefit from the elimination of import duties on a total of 10,216 items over a five-year period including copper products, kitchenware, concrete-mixer lorries and pneumatic rubber tires. The reduction of import duties on other products like wine, fireworks, rice and tobacco has been excluded from the agreement.

Research, Innovation

The two nations also agreed to cooperate in areas including research, development and innovation, trade and investment, mining, tourism and education. “Cooperation activities may include the development of joint research programs, exchanges of people and information and encouraging private sector cooperation,” the statement said.

Malaysia’s ringgit is this year’s second-best performing currency in Asia outside of Japan, behind the Thai baht. The country’s benchmark stock index reached a record high on Nov. 10 and has delivered returns of 18 percent this year.

Chile’s benchmark stock index has returned 39 percent while its currency, the Chilean peso, has appreciated 5.4 percent since January, making it Latin America’s third-best performer against the dollar.

The free trade agreement, which was signed in Yokohama, Japan, is Malaysia’s fourth after similar pacts with Japan, Pakistan and New Zealand, according to the media statement. It was signed on behalf of Malaysia by Deputy Foreign Affairs Minister Richard Riot Anak Jaem and on behalf of Chile by Minister of Foreign Affairs Alfredo Moreno Charme.

To contact the reporter on this story: Katrina Nicholas in Singapore at knicholas2@bloomberg.net

To contact the editor responsible for this story: Jim McDonald at Jmcdonald8@bloomberg.net

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