72671 v1 World Trade Indicators 2009/10 Malaysia Trade Brief Trade Policy 2009, Malaysia successfully arranged several bartering deals whereby it traded palm oil with the Democratic Following the East Asian financial crisis in 1997, People’s Republic of Korea, Cuba, and the Russian Malaysia implemented aggressive reforms by cutting Federation for fertilizer and machinery. Several other tariffs and systematically and gradually liberalizing barter deals were proposed with countries in the various sectors of the economy. As a result, Malaysia Middle East but were never completed. Since the start now has a relatively open economy, as judged by its of the world economic slowdown, Malaysia has MFN Tariff Trade Restrictiveness Index (TTRI)1 of decreased restrictions on imports of iron and steel 4.1 percent, below the averages for both the East Asia products and removed import duties on steel.2 The and Pacific (EAP) region (4.8 percent) and upper- government has also provided subsidies for the middle-income countries (6.9 percent). The barrier to country’s automobile industry and instituted a scheme imports remains slightly higher for non-agricultural that would encourage Malaysians to purchase new goods than for agricultural goods (TTRIs of 4.2 and automobiles.3 Also, in an attempt to protect Malaysian 1.6 percent, respectively). Based on the MFN TTRI, it workers, the government banned the hiring of new ranks 24th out of 125 countries (where 1st is least foreign workers in the manufacturing and services restrictive). The simple average of the MFN applied sectors after a government report predicted that tariff rate had been steady since 2001, but then 45,000 people would be laid off at the end of January. increased slightly in 2008 to 8.8 percent. Malaysia’s It also ordered companies that if they had to cut their maximum tariff on all goods (excluding alcohol and work force, they should first fire foreign employees.4 tobacco) increased by more than 65 percent in 2008 to Furthermore, in April 2009, the government dropped 122 percent. The trade policy space, as measured by some domestic ownership (the 30 percent Bumiputra the wedge between bound and applied tariffs (the equity) requirements on 27 services sub-sectors, overhang), has remained constant in the past several facilitating foreign investment in the country.5 years at 60 percent. This represents a change from the early 2000s when the overhang was in single digits. Malaysia taxes exports of palm oil, rubber, and timber External Environment products to encourage domestic processing. Regarding Malaysian exporters have relatively good access to the extent of its commitment to liberalizing trade in international markets. The country’s Market Access services, Malaysia ranks 63rd out of 148 countries on TTRI6 (including preferences) is 2.3 percent for all the GATS Commitment Index. goods, with a significant difference between In response to the food crisis, Malaysian officials agricultural and non-agricultural goods (6.6 percent attempted to barter palm oil for rice to avoid paying versus 1.9 percent). This is slightly lower than the the high market prices in the first half of 2008, average for the EAP region (3.8 percent) and equal to although no bartering agreements were reached at that the average for upper-middle-income countries. The time. As trade financing became scarcer, in January weighted average rest of the world tariff faced by Malaysian exports is 1.8 percent, with the rate faced by agricultural goods and non-agricultural goods fairly different (7.6 and 1.4 percent, respectively). In 2008 Unless otherwise indicated, all data are as of August 2009 there were nine anti-dumping investigations initiated and are drawn from the World Trade Indicators 2009/10 against Malaysia, which was an increase from six in Database. The database, Country Trade Briefs and 2009. This is much higher than the regional average Trade-at-a-Glance Tables, are available at (excluding China), which is less than two per country. http://www.worldbank .org/wti. Over the course of 2008, the real effective exchange rate of the Malaysian ringgit appreciated by 2.1 If using information from this brief, please provide the percent, making exports less competitive. following source citation: World Bank. 2010. ―Malaysia Trade Brief.‖ World Trade Indicators 2009/10: Country Trade In January 2008, an economic partnership agreement Briefs. Washington, DC: World Bank. Available at between Malaysia and Pakistan went into effect that http://www.worldbank.org/wti. World Trade Indicators 2009/10 Malaysia Trade Brief eliminated or reduced tariffs on many imports. As a downturn.9 This was partially felt in 2008 when export member of the Association of South-East Asia growth decelerated to 1.3 percent in real terms, having Nations (ASEAN), Malaysia has recently been gradually slowed down from an impressive growth of involved in the negotiation of several additional free 16.1 percent in 2004. Exports are projected to fall by trade agreements (FTAs). In March 2008, Japan signed 12.8 percent in 2009 due to significant decreases in an FTA with ASEAN member countries whereby retail demand. Real growth of imports also decelerated Japan agreed to eliminate tariffs on 93 percent of their to an estimated 2 percent in 2008, a gradual slowing exports. In February 2009, an FTA was signed down from the 19.6 growth rate in 2004, and imports between ASEAN members and Australia and New are expected to fall by 7.7 percent in 2009. Zealand, with a comprehensive framework covering goods and services as well as investment and In nominal U.S. dollar terms, total trade grew by an intellectual property issues. It is expected to come into estimated 14.2 percent in 2008, which was a slight effect by the end of 2009. A bilateral trade deal increase from 2007 (13.6 percent). Total exports between Malaysia and New Zealand was agreed upon increased by an estimated 13.5 percent, driven mostly in June 2009, but is yet to be signed. In August 2009, by increases in goods exports, which grew by an an FTA between India and the ASEAN countries was estimated 13.6 percent, while imports increased by an signed and is expected to take effect on January 1, estimated 15 percent, driven by a 12.7 percent increase 2010. An agreement among four countries, Malaysia, in imports of services and a 7 percent increase in the United States, New Zealand, and Australia, was to imports of goods. However, in the first half of 2009 be renegotiated in 2009.7 this trend reversed, and both exports and imports of goods contracted. Exports fell by 31.2 percent in nominal U.S. dollar terms, while imports dropped by Behind the Border Constraints 33.8 percent, compared to the first half of 2008.10 This was due to substantial decreases in some of the top Malaysia has a comparatively favorable business export categories including electrical and electronic environment, ranking 23rd out of 183 countries in the products and palm oil, which decreased by 29.2 and 35 2010 Ease of Doing Business Index, which ranks percent, respectively. The fall in imports in the first six institutional environments based on their months of 2009 was influenced by a fall in imports in conduciveness to business. This represented a all three main categories—intermediate, capital, and noteworthy improvement from 25th in 2007 due to its consumption goods—which decreased by 37.9, 21.9, impressive progress in simplifying its tax structure for and 15.9 percent, respectively. While trade of goods businesses. Malaysia also maintained its ranking as first has followed the projections that it will decrease in credit availability. The Logistics Performance Index, significantly in 2009, trade in services is expected to a measure of the extent of trade facilitation, rates grow, albeit at a lower growth rate than it did in 2008. Malaysia at 3.48 on a scale from 1 to 5 with 5 being Foreign direct investment inflows accounted for 4.5 the highest performance, compared with 2.58 for the percent of Malaysian GDP in 2007. EAP region and 2.85 for countries in the upper- middle-income group. It ranked 27th in the world and first in the EAP region. The area in which it Notes performed the best was the timeliness of shipments in 1. TTRI calculates the equivalent uniform tariff that reaching their destination, while its weakest would keep domestic welfare constant. It is weighted by performance was in lowering domestic logistics costs. import shares and import demand elasticity. 2. World Bank PREM Trade Group, 2009, p. 3, and Trade Outcomes ESCAP, 2008, p. 4. 3. World Bank PREM Trade Group, 2009, p. 4. In real (constant 2000 U.S. dollars) terms, the growth 4. Associated Press and Agence France-Presse, 2009. rate of total trade declined to 5.2 percent in 2007 and 5. WTO, 2009, p. 71. fell further to 1.6 percent in 2008. Malaysia has an 6. MA-TTRI calculates the equivalent uniform tariff of export-oriented manufacturing sector, with the largest trading partners that would keep their level of imports portion being electronic equipment, which composed constant. It is weighted by import values and import nearly 40 percent of all exports in the first half of demand elasticities of trading partners. 2009.8 As a result, Malaysia is likely to face 7. Bilaterals.org, 2008; 2009a–e. contractions in GDP due to the global economic 8. Department of Statistics Malaysia, June, 2009. Malaysia Trade Brief World Trade Indicators 2009/10 9. Asian Development Bank, 2009, p. 240. ———. June 2, 2009e. ―NZ, M’sia Agree on FTA.‖ 10. Department of Statistics Malaysia, June, 2009. . Department of Statistics Malaysia. June, 2009. Malaysia External Trade Statistics June 2009. Department of References Statistics Malaysia. August 31, 2009. . external-trade-statistics-&Itemid=12>. Associated Press and Agence France-Presse. January 22, Economic and Social Commission for Asia and the 2009. ―Ban on Foreign Workers.‖ The Straits Times. Pacific (ESCAP). June 2008. E-TISNET Monthly August 31, 2009. . Energy. June 24, 2009. ―Weekly Malaysia Tapis Bilaterals.org. January 1, 2008. ―Pak-Malaysia FTA to Be Blend Spot Price FOB.‖ Washington, DC. Operational from Today.‖ July 8, 2009. . . into Barter: Palm Oil for Rice.‖ Times Online. ———. April 2009a. ―AANZFTA.‖ . bilaterals.org/>. World Bank PREM Trade Group. April 21, WTO, ———. August 15, 2009b. ―India-ASEAN FTA: Trade Geneva. in Goods (2009).‖ . ———. April 2009c. ―Japan-ASEAN.‖ . ———. May 25, 2009d. ―Malaysia FTA Renegotiations to Start in June.‖ .