Although Malaysia's industrialization and economic growth is highly dependent on international

trade, the Malaysian government was less supportive of full economic liberalization than
neighboring Singapore.

Malaysia's leadership was quite reluctant to support free trade within the Asia Pacific Economic
Co-operation (APEC) region, arguing that developing countries need more time to prepare for
lifting all trade barriers. Additionally, the Malaysian prime minister, Dr. Mahathir, suggested
setting up a new regional body, the East Asian Economic Caucus (EAEC), in order to strengthen
the negotiating power of East-Asian countries with regard to the North American Free-Trade
Agreement (NAFTA) and the European Union

Question 1
Illustrate the benefits of FIVE (5) types of trade interventions imposed by the Malaysian
government.

Import tariffs
Malaysia’s tariffs are typically imposed on an ad valorem basis, with a simple average applied
tariff of 6.1 percent for industrial goods. For certain goods, such as alcohol, wine, poultry, and
pork, Malaysia charges specific duties that represent extremely high effective tariff rates. Duties
for tariff lines where there is significant local production are often higher. The Goods and
Service Tax (GST) has been repealed and the old Sales and Service Taxation (SST) with possible
modification will commence in September 2018. Malaysia is having a three months GST free
holiday from June-August (2018).

Prohibited and Restricted Imports

Quantitative import restrictions are seldom imposed, except on a limited range of products for
protection of local industries or for reasons of security. Seventeen percent of Malaysia’s tariff
lines (principally in the construction equipment, agricultural, mineral, and motor vehicle sectors)
are also subject to non-automatic import licensing which is designed to protect import-sensitive
or strategic industries.

Trade Agreements
Malaysia has always been a trading nation. Strategically located along the Straits of Malacca, it
sits on a major shipping channel that connects the Indian Ocean to the west and the Pacific
Ocean to the east. Malaysia recognizes the importance of international trade and relations to the
nation’s growth and development; gross exports of goods and services constituted 73 percent of
Gross Domestic Product (GDP) in 2017. Fifty-one percent was in services and 22 percent in
manufacturing. Given Malaysia’s reliance on international trade, Malaysia has adopted liberal
trade policies and puts a high emphasis on regional and bilateral trade agreements.

Malaysia joined the General Agreement on Trade and Tariff (GATT) in 1957, and was therefore
a founding member of the World Trade Organization (WTO), which replaced the GATT.
Malaysia has established bilateral Free Trade Agreements (FTAs) with the following countries:
Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey.

At the regional level, Malaysia through the Association of Southeast Asian Nations (ASEAN)
has established the ASEAN Free Trade Area. In addition to Malaysia, ASEAN’s members
include: Brunei, Burma, Cambodia, Indonesia, Laos, the Philippines, Singapore, Thailand, and
Vietnam. The ASEAN Free Trade Area (AFTA) is a trade bloc agreement to support local
manufacturing in all ASEAN countries. ASEAN collectively represents a market with a GDP of
more than $2.2 trillion and a population of 620 million people. The primary goal of AFTA is to
increase ASEAN's competitive edge as a production base in the world market. The secondary
goal is to attract more foreign direct investment to ASEAN. The Common Effective Preferential
Tariff, through elimination of tariffs and non-tariff barriers within ASEAN members are the
main instruments in achieving its goals. Through ASEAN, Malaysia has regional FTAs with
China, Japan, Korea and India, Australia, and New Zealand.

Other concluded trade agreements include: Trade Preferential System-Organization of Islamic

Conference (TPS-OIC), and Developing Eight (D-8) Preferential Tariff Agreements (PTA).
FTAs currently under negotiation are: Malaysia-European Union Free Trade Agreement
(MEUFTA), Malaysia-EFTA Economic Partnership Agreement (MEEPA), and ASEAN - Hong
Kong Free Trade Agreement (AHKFTA).

Trade Barriers and Standards

Malaysia's ease of trading across borders remains highly ranked in international comparisons.
However, is it not a totally free and open market. Malaysia’s import barriers are aimed at
protecting the domestic market and strategic sectors as well as maintaining cultural and religious
norms.

Technical barriers such as halal certification for the importation of meat and poultry are
regulated through licensing and sanitary controls. All imported beef, lamb, and poultry products
must originate from facilities that have been approved by Malaysian authorities as halal or
acceptable for consumption by Muslims.

Pork and pork products may be imported into Malaysia only if Malaysia's Department of
Veterinary Services (DVS) issues a permit authorizing its importation. Each consignment of pork
and pork products must be accompanied by a valid import permit issued by the Malaysian
Quarantine and Inspection Services, Malaysia (MAQIS). The permits are granted on a case-by-
case basis and are sometimes refused without explanation.

In 2011, Malaysia implemented a food product standard MS1500:2009 which sets out general
guidelines on halal food production, preparation and storage, which many exporters consider it
much stricter than the multilaterally-agreed Codex Alimentarius halal standard. This new
standard requires slaughtering plants to maintain dedicated halal facilities and ensure segregated
transportation for halal and non-halal products. Malaysia also requires audits of all
establishments that seek to export meat and poultry products to Malaysia, an issue on which the
United States has raised concerns.

In January 2012, the Malaysian Department of Standards implemented MS2424:2012 General

Guidelines on Halal Pharmaceuticals, a voluntary certification system. The guidelines enabled
manufacturers of pharmaceutical products to apply for halal certification and established basic
requirements for manufacturing and handling.

Malaysia is not party to the WTO Government Procurement Agreement, and as a result foreign
companies do not have the same opportunity as some local companies to compete for contracts,
and in most cases are required to take on a local partner before their bids will be considered. In
domestic tenders, preferences are provided to Bumiputra (Malay) suppliers over other domestic
suppliers. In most procurement, foreign companies must take on a local partner before their
tenders will be considered. Procurement often goes through middlemen rather than being
conducted directly by the government. The procurement can also be negotiated rather than
tendered. International tenders generally are invited only where domestic goods and services are
not available.

The services sector constitutes 51 percent of the national economy and has been a key driver of
economic and job growth in Malaysia in recent years. Since 2009, Malaysia has liberalized 45
services sub-sectors., Malaysia allows 100 percent foreign equity participation in private hospital
services, medical specialist clinics, department and specialty stores, incineration services,
accounting and taxation services, courier services, private universities, vocational schools, dental
specialist services, skills training centers, international schools, vocational schools for special
needs. In November 2014, the Lower House of the Parliament passed amendments to laws
governing architectural services, quantity surveying services, and engineering services, which
eased restrictions on foreigners working in these professions in Malaysia. The amended
legislation on architectural services came into force in June 2015.

Malaysia has an export licensing system. In some sectors, Malaysia maintains tax programs that
appear to provide subsidies for exports. In other cases, the goal is to restrict exports of specific
commodities. For products such as textiles, export licenses are used to ensure compliance with
bilateral export restraint agreements. For other products, such as rubber, timber, palm oil, and tin
exports, special permission from government agencies is required and taxes are assessed on these
exports to encourage domestic processing. Although still maintaining its second position as a
global supplier of palm oil and palm oil products, Malaysia is slowly being challenged by other
new exporters such as Colombia, Italy, UAE and Denmark, posting a decline of 21.4 percent in
its export of palm oil as compared to 2016. The total global production of palm oil and related
product for 2017 was 69.9 million metric tons. Malaysia exported USD $9.7 billion worth of
palm oil and palm oil products in 2017 or capturing 29percent of the global market.

In January 2018, the government suspended the 5percent export tax for three months due to
falling Crude Palm Oil (CPO) prices to prevent stockpiling and the decline in both price and
exports. A calculated palm oil reference price of RM2,250.00 (US$580) per ton was used as a
threshold and any price above this price will incur a tax. It was also a political move to boost
exports of CPO to keep small-holder (FELDA) farmers happy.
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