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The
services sector is becoming increasingly important in the international
market place and contributes significantly to many countries’ foreign
exchange earnings. Exports of services
can be delivered through cross-border supply, consumption, commercial
presence, and the physical presence of people abroad.
In New Zealand, as in most developed countries, the services sector is becoming an increasingly important component of the economy. Given New Zealand’s growing trading interest and the importance of the services sector to the economy, facilitating the free flow of services would deliver important economic benefits.
The services sector is the largest sector in Malaysia’s economy, accounting for 50 percent of nominal GDP in 2003. For the delivery of a number of services in Malaysia, a commercial presence is required. Foreign professionals can be employed by both foreign affiliates and Malaysian companies. In both cases, the Malaysian authorities regulate the number and category of professionals. By contrast, with regard to the Multimedia Super Corridor (MSC),36 all restrictions on foreign ownership and the presence of foreign professionals have been removed in order to facilitate the development of these projects.
Overall, further progress could be achieved in the areas of mutual recognition, temporary entry (work permits/visas), employment restrictions, education (access, recognition of qualifications), tourism facilitation and promotion, and air services37. Enhanced transparency in project tender processes would benefit New Zealand exporters. Commercial presence is generally limited to joint ventures in which equity by foreigners is limited to 15 percent by a single foreign interest or to an aggregate foreign interest of 30 percent.38 Ownership beyond this threshold requires approval from Malaysia’s Foreign Investment Committee (FIC).39
Services dominate the New Zealand economy. In 2003 the services sector accounted for two-thirds of New Zealand’s GDP and over 1.5 million jobs (over three-quarters of total employment). The external dimension of New Zealand’s services story must also be noted. Growth in services exports since 1991 has outstripped that of merchandise trade and now represents over one-quarter of New Zealand exports. The largest service sectors in 2003 were business services, wholesale trade, property services and retail trade. Communication services, cultural and recreational services, health and community services, finance and insurance, transport and storage, and business services have been the fastest growing service sectors. Growth in services exports has also been significant. Transport, tourism and education have been the main services exports, but the range of exported services has diversified in recent years.
By international standards New Zealand’s private services sector is considered to be open, with few barriers to foreign services suppliers. Indeed, where immigration and qualification requirements have been met,40 national treatment is generally extended to foreign suppliers of services.
Foreign investment in services is subject to the Overseas Investment Commission,41 while financial institutions with a commercial presence in New Zealand remain subject to the provisions of the Financial Reporting Act 1993 and the Companies Act 1993.
Trade in services between New Zealand and Malaysia is governed by the commitments contained in the respective services schedules under the WTO General Agreement on Trade in Services (GATS). While trade in services is relatively modest in the overall relationship between Malaysia and New Zealand, an increasing number of Malaysian and New Zealand companies are establishing cross-border operations. The key services sectors are now considered in more detail.
Education ranks among New Zealand’s five largest export earners and is a critical component of New Zealand’s total exports of services. More than 118,000 international students were estimated to have contributed $2.28 billion to the domestic economy in 2003 through tuition costs and related cost-of-living expenditure (making the sector about one-third the size of New Zealand’s tourism market).42
Education linkages between Malaysia and New Zealand have been an important component of the bilateral relationship since the Colombo Plan. Around the late 1980s and mid-1990s, Malaysian tertiary students were the mainstay of international students studying in New Zealand. However, while there has been a significant increase in the number of international students studying in New Zealand since the market opened up, there has also been a decline in the numbers of Malaysian students studying at secondary, tertiary and English language institutions. This is likely to be the result of Malaysian students studying elsewhere overseas or at international institutions at home.
Figure 7.1 displays the breakdown of enrolments in 2002 and 2003. In 2003 more than 1,100 Malaysian students attended New Zealand education institutions. Fees paid by these students were estimated at $14.7 million. The overall contribution to the New Zealand economy would be in the order of $37.5 million, according to Education New Zealand figures. Some 841 Malaysian students attended New Zealand universities, contributing $31.9 million and accounting for 3.2 percent of international students attending universities. Secondary/primary and English language training institutions attracted respectively 147 (1 percent of total international students) and 101 (0.2 percent) students, and $3.8 million and $0.8 million in contributions to the economy.43
Recent data shows that although student enrolments (excluding private tertiary) have decreased by a third over the past five years, Malaysia remains New Zealand’s ninth largest source of international students from Asia. It accounts for 1.2 percent of Asian students studying in New Zealand. Overall, Malaysia ranks as New Zealand’s 11th largest source of international students, accounting for 1.1 percent of the total. This places it well below the top three markets of China (46.4 percent), South Korea (17.1 percent) and Japan (14.8 percent).
Figure 7.1: Malaysian
Students in New Zealand
Source: Ministry of Education.
In 1995 Malaysia launched “Vision 2020”. Its goal is to have achieved by 2020 significantly increased availability of public sector higher education, a viable and robust private education sector, and selective partnerships with overseas universities. The intention is to turn Malaysia into a regional centre for higher education, thus decreasing the numbers of students studying abroad. As Malaysia develops its role as a regional education hub, new opportunities for New Zealand education providers may arise – though new restrictions, such as measures already in place to make local institutions the preferred choice, may also be applied.
There is a recent trend towards the provision of education services by overseas suppliers in Malaysia. This means Malaysian students will be educated in New Zealand or in joint venture arrangements with campuses in Malaysia. For example, Lincoln University delivered a commerce and management degree programme in peninsular Malaysia between 1994 and 2001 and 900 students graduated. Subsequently the university introduced a Diploma in Tourism in Sarawak and plans are now well advanced for the teaching of a postgraduate diploma in tropical forestry, also in Sarawak.
In the 2002 Ministry of Education study of overseas activities by New Zealand public tertiary education providers, Malaysia ranked as the number one market (in terms of programmes offered) for New Zealand’s offshore education programmes. Fifteen programmes were offered.
The offshore “commercial presence” mode of delivery of education services to Malaysia faces the most restrictions. It is in this area that an FTA with Malaysia may offer some assistance to New Zealand export education service providers. The major barriers are related to market access and recognition of qualifications. Commercial presence is restricted by the requirement to have a Bumiputera company as a partner and joint venture equity by foreigners is limited by shareholding restrictions. Foreign providers wanting to establish a commercial presence in Malaysia essentially have to be invited. This is enforced by a requirement that the Ministry of Education approves all applications. To date, the Malaysian Ministry of Education has invited mainly high-profile, internationally well-known institutions. Criteria for approval have not been published.
This sector has enjoyed a steady yet impressive growth over the last few years and is a leading export sector for New Zealand. While SARS and other global uncertainties hindered growth in the global tourism sector during 2003, Malaysian and New Zealand links remained strong. In 2003, 24,000 tourists from Malaysia visited New Zealand, and are estimated to have spent over $54 million. In turn, 11,900 New Zealanders visited Malaysia.
Figure 7.2: Visitor* flows between New Zealand and Malaysia (1993 – 2003)
Source:
Ministry of Tourism. * Short term, under one year.
Figure 7.2 displays bilateral visitor flows between Malaysia and New Zealand since 1993. Throughout the early to mid-1990s the number of Malaysian visitors grew strongly, peaking at 18,000 in 1997. The impact of the Asian financial crisis was significant, with Malaysian visitor numbers falling 23 percent between 1997 and 1998. A recovery took place over 1999 and 2000 as the trend resumed its steady growth path. The SARS outbreak during 2003 did not lead to a fall in the upward trend of Malaysian visitors to New Zealand.
The Ministry of Tourism predicts that overall visitor numbers from Malaysia will increase 5.4 percent per year to 2010.44 It is hoped that the profile-raising effect of an FTA would help sustain the flow of Malaysian visitors over the long term.
While the value of education and tourism is well documented, there are other opportunities in the service sector. New Zealand has increasing interests in the provision of “other services”: business (including professional), computer‑related, consulting, communication and construction/engineering services.
Creating favourable terms for the import of environmental services and for technology transfer is an area of potential interest. These goods and services could relate to traditional environmental issues such as waste management or air quality, or even climate change mitigation. In the latter case, the emergence of an international carbon market may create a demand for environmental services from New Zealand, particularly under the Kyoto Protocol's Clean Development Mechanism (CDM). However, while the terms of importing associated climate change services (environmental auditing, for example) could be explored in an FTA, issues related to the technical details of the CDM would be part of a separate agreement. As with environmentally friendly goods, both countries could explore opportunities to ensure that conditions for trade in such services are enhanced, eg. by allowing establishment of a commercial presence.
Figure 7.3 suggests, from the data available, that there was modest services trade between New Zealand and Malaysia between 2001 and2003. In this three-year period, Malaysia imported services from New Zealand totalling $48.9 million (or valued at an average of $16.3 million per year), while Malaysia exported services to New Zealand totalling $9.6 million ($3.2 million per year ).45 Available data identified New Zealand trading interests in the research and development, consultancy, computer and engineering service sectors.
Figure 7.3: Services Trade Relationship between Malaysia and New Zealand
Source:
Statistics New Zealand.
Greater bilateral economic activity resulting from an FTA would help foster the services relationship between Malaysia and New Zealand by providing additional opportunities for service suppliers in both countries. Increased trade in services also assists with the exchange and transfer of skills and knowledge, because the ideas and experience of Malaysian and New Zealand service suppliers can be combined in order to offer more competitive service products in a competitive global environment.
Protection, to the extent it exists, is by definition a non-tariff barrier. Identifying and quantifying barriers to services trade is therefore a challenging and complex process. Unlike trade in goods, which generally involves the imposition of a tariff (a relatively easily identifiable price effect), trade in services is a less tangible exchange between producer and consumer, with restrictions usually taking the form of government regulation. Nevertheless barriers to services trade are a reality and, in many cases, prohibitive. The “trade chilling” analysis applied to merchandise goods in Chapter Six is equally applicable to services trade, although there are greater data limitations for the service sector.
This section draws on two sources to assess barriers to Malaysian services markets: “trade restrictiveness” measures of regulations across ASEAN countries, including Malaysia; and WTO (GATS) material as discussed above. Where possible, descriptions of barriers are tied to key New Zealand interests.
Australia’s Productivity Commission, in partnership with the Australian National University, has undertaken comprehensive research and modelling of barriers faced by services exporters across a wide variety of Asian and Pacific Rim economies. The core result of this work has been the production of “trade restrictiveness” indices, measuring the negative effect an economy’s regulations has on services trade.46 While the results should be treated with caution, they do provide a broad indication of the barriers services exporters encounter. Indeed, Computable General Equilibrium (CGE) modelling has used these scores as proxies for tariff barriers in service areas.
The index methodology classifies the restrictions in two ways:
establishment (broadly relating to commercial presence) – regulations that hinder the ability of a service supplier to establish a physical outlet in a territory and supply services through those outlets;
ongoing operations (broadly relating to cross-border supply, consumption abroad, or movement of natural persons) – regulations that affect the operations of a service supplier after it has entered the market.
The results indicate that there is little difference in the openness of architecture, engineering and maritime services between New Zealand and Malaysia, though Malaysia is more restrictive in accountancy, legal and telecommunication services.
A comparison with relevant GATS information reaffirms these findings, as Malaysia screens all foreign investment seeking control of Malaysian corporations. Additional equity and business form constraints are also common, including in the areas of accounting, integrated engineering, computer-related services, advertising, construction and tourism-related operations. Compared with other ASEAN economies, Malaysia is considered to have one of the most restricted service sectors.
Most of the restrictions described affect New Zealand services providers’ ability to establish operations in Malaysia. The reality is, however, that a number of other horizontal restrictions (those that apply to all scheduled sectors) limit the movement of people (Mode four of the GATS) and hinder the ability of New Zealanders to work in Malaysia. New Zealand attaches significant importance to high-quality Mode four commitments because of the high number of Small and Medium Enterprises (SMEs) involved in the export of services. These smaller service providers rely heavily on the ability to move freely between regions.
The services sector in its many forms is the single biggest component of the New Zealand economy. The importance of services to Malaysia’s economy is growing quickly. The broad aim of an FTA would be to facilitate bilateral trade in services. Barriers that restrict services trade between both countries will need to be examined and the scope for improving market access, predictability and transparency, and obtaining national treatment for each country’s services exporters, explored.
There are a number of benefits for New Zealand service providers from the possible liberalisation of the controls on the Malaysian services sector. Further liberalisation in services trade has the potential to deliver positive results for both the Malaysian and New Zealand economies. Access to new technologies and expertise could lead to significant economic development and improved consumer welfare.
Tourism, education and, to a lesser degree, engineering, construction, consulting and communication services are New Zealand’s key interests in the Malaysian market. Trade in these sectors exceeded $135 million in 2003. The comparison of research undertaken on the trade restrictiveness of Malaysian regulations and GATS material suggests barriers exist that restrict business efforts to establish a commercial presence in markets. Such a presence is a key mode of services supply. In addition, measures affecting the movement of people and their participation in a wide range of professions represent a further constraint on services providers. For example, mutual recognition of qualifications under an FTA would assist service suppliers in both countries and encourage increased education and institutional linkages. There is little doubt that reducing restrictions would facilitate trade flows, deliver benefits to services exporters and contribute to the further deepening of economic integration between Malaysia and New Zealand.
That said, an important issue in any FTA with Malaysia will be protection of the right of governments to regulate for the common good, as well as for the provision, regulation and funding of public services.
[36] The MSC is a dedicated corridor that stretches from the Petronas Twin Towers in the north of Kuala Lumpur City to the Kuala Lumpur International Airport in the South. Companies that meet the MSC’s qualifying criteria are awarded MSC-status, which provides several incentives. These include: allowing unrestricted employment of foreign workers; exemption for foreign companies from local ownership requirements; a range of financial incentives, including in some cases no income tax for up to 10 years.
[37] New Zealand has an "open skies" agreement with Malaysia. The Air Services Agreement ranks as one of New Zealand’s most liberal, although, in the medium term, New Zealand would like to negotiate third country code sharing, seventh-freedom rights (flying from Malaysia to other third country destinations) and cabotage rights.
[38] World Trade Organisation, Trade Policy Review: Malaysia (Report by the Secretariat), 5 November 2001, WT/TPR/S/92.
[39] FIC’s rules and regulations can be found on-line [external link].
[40] Immigration legislation and policy are administered by the Department of Labour, which includes the New Zealand Immigration Service. The key legislation is the Immigration Act 1987, along with the Immigration Regulations 1999. Government Residence Policy and Government Immigration Policy are set out in the New Zealand Immigration Service Operational Manual. All policies are published in the online Manual on the NZIS website [external link].
[41] See Chapter Nine for details.
[42] Estimates from Education New Zealand may differ from official Statistics New Zealand data.
[43] Education New Zealand collates data for the tertiary and school sectors, while Statistics New Zealand provides data for the English language sector.
[44] 2003-2010 Arrivals (annual average): holiday 4.6 percent; visiting friends/relatives 4.3 percent; business 4.1 percent; education -.06 percent; rest 5.0 percent; total 5.4 percent can be found on the Tourism Research Council New Zealand [external link] website.
[45] Statistics New Zealand.
[46] Findlay, C. and G. McGuire (2003) Restrictions on Trade in Services for APEC Member Economies, Report Prepared for Distribution by the Pacific Economic Cooperation Council.
