The agreement will eventually see almost all tariffs on imports and exports lifted, with the aim being to significantly boost two way trade.
But a parliamentary committee has questioned the benefit of the agreement, and has called on the government to outline what it hopes the deal will do for the Australian people.
Correspondent: Stephanie March
Speakers: Jason Clare, Australia's Home Affairs Minister; Larry Gould, President of the Australia Malaysia Business Council; Kelvin Thomson MP, Chair of the Australian Parliament Joint Standing Committee on Treaties
MARCH: It's been seven years in the making. Legislation to support the Malaysia-Australia Free Trade Agreement has finally made its way to the floor of the Australian Parliament.
Australia's Home Affairs Minister, Jason Clare.
CLARE: I rise to introduce the Customs Amendment Malaysia-Australia Free-Trade Agreement Implementation and Other Measures Bill 2012.
Both countries have committed to the treaty coming into force on January 1 and passage of this amendment and the subsequent amendment to the Customs Tariff Act will enable this to happen.
MARCH: The agreement will reduce almost all tariffs on dairy, automotive, food, wine and iron and steel products and also business and education services.
Larry Gould is the President of the Australia-Malaysia Business Council.
GOULD: You can see it is quite detailed and it will actually I believe assist businesses in considering offshoring expansion into the region.
Malaysia is a great business hub, because of its location in Asia, English-speaking, fairly stable political environment.
MARCH: Trade between the two countries was worth 16 billion dollars last year.
The idea is that under the Free-Trade Agreement that figure will grow, but Larry Gould says it's hard to say by how much.
GOULD: It is a difficult thing to put a figure on and it would be a very brave man to suggest what that number might be. But given the attitude of both the Malaysian and the Australian governments to this agreement, I would expect it to significantly increase two-way trade.
MARCH: That uncertainty is something that's worrying the Australian Parliament's Committee on Treaties.
The Committee handed down its final report on the Free-Trade Agreement yesterday.
It called for the government to outline what it hopes to achieve from the agreement and an independent cost benefit analysis.
The Australian Government is already predicting it will lose 80 million dollars in tariff revenue over the next four years.
The Committee's Chair is Member of Parliament, Kelvin Thompson.
THOMPSON: We think that if there various costs and benefits at stake that the government should be able to have those independently looked at and to tell the Australian community what its intentions are and so that people can see what the likely outcomes are in terms of Free Trade Agreements, rather than simply being presented with them as a fait accompli.
MARCH: Mr. Thompson also says some members of the Committee raised concerns about the impact the agreement might have on environmental and labour standards.
Protections around these areas are not included in the agreement, but instead, in legally binding side letters.
THOMPSON: If you have imports that are being made by companies that aren't observing proper labour standards or proper environmental standards and they're cheaper than the local manufacture, they could enjoy an unfair advantage and provide an incentive for poor labour standards and poor environmental standards in Australia and we don't want to see that. We want to see standards being maintained and indeed lifted right around the world.
MARCH: The Committee also recommended the government review the treaty after 24 months.
THOMPSON: So things like the impact on jobs or things like the impact on the environment or other issues of concern should be looked at afterwards and we can all make an assessment about whether the things that people thought would happen have happened.
MARCH: The government isn't bound to adopt the Committee's recommendations, but does have to respond to them within 90 days,
It's expected the legislation will be passed by Parliament before the end of this month and the agreement is due to take effect on January the first.