Malaysia Summary

Introduction

With Malaysia's traditional economic and political stability, many foreign businesses have chosen it as their regional hub. Reliance on exports and direct investment from overseas however, is no longer the best strategy available. Malaysia is in transition, focusing on promoting developing domestic industries such as biotechnology and tourism. The hope is that this shift, coupled with increased regional trade with emerging markets such as India and China, will increase sustainable growth. Malaysia supports the principles of progressive liberalization, most ardently services and market opening for agricultural and non-agricultural products.

Regionalism

Though in the past a not very active member of Association of South-East Asian Nations (ASEAN), developments in Malaysia�s bilateral free trade agreements show that the country is responding to the stepped up competition. Malaysia has been independently, without ASEAN, intensifying options outside the multilateral system to pursue trade interests.

In the Fall of 2002, the Federation of Indian Export Organizations signed an agreement with Kuala Lumpur and Selangor Indian Chamber of Commerce (KLSICCI) for enhancing bilateral trade cooperation between India and Malaysia, in Fall 2002. The agreement will encourage cooperation in the areas of trade and investment, technology transfer, visit of delegation, joint ventures and consultancy services.

Efforts have also been made to spur East Asian growth by promoting trade within the region. Within the ASEAN there is already a decision to engage China in a partnership agreement including a free trade agreement, also involving Taiwan that should be completed in 2010. A similar initiative exists involving ASEAN member countries and Japan, while Malaysia is concurrently looking for a bilateral deal with the island nation.

New Market: China

China's recent entry into the WTO paved the way for closer trade ties with Malaysia. Malaysia is now China's largest trading partner within ASEAN and China has begun using Malaysian ports to deliver goods. China is keen to further strengthen bilateral relations with Malaysia, especially in trade and industry. A World Bank study highlights the vast potential of the Chinese market: exports from East Asian countries to China surged 50 percent in the first half of 2002, advancing at a rate two to three times faster than their global exports[1].

Malaysia�s Islamic Identity

Malaysia's trade with countries in the Middle East has been on an upward trend in the past few years. Malaysia has achieved some success in pushing itself as an alternative destination for Muslim tourists from the Middle East in the immediate aftermath of the September 11th attacks as well as for the increasingly wealthy Chinese population.ASEAN�s image as an investment site has been shaken by the emergence of terror networks in the region. The extremist Islamic group Jemaah Islamiyah (JI), is purported to have operations in Malaysia. Analysts say cooperation among key Southeast Asian countries is crucial in combating the terrorist threat.

Investment and Domestic Growth

For decades, Malaysia�s economic growth has been heavily reliant on foreign direct investment and international trade, even more so than the rest of the region. Therefore, With the recent decrease in foreign direct investments the country is being proactive about shifting its focus to domestic sectors: agriculture, tourism and small local enterprises, in order to help drive growth.Malaysia aims to increase tourism, which could attract as much as US$10 billion in foreign exchange earnings. It is also looking at developing the medical tourism market and turning the country into a hub for education, with an eye on the student market in the Middle East, China, Africa and Indonesia. American and European companies are trying to take advantage of Malaysian tax breaks and regard the nation as an attractive regional hub. Malaysia's incentives, competitive investment package and politically and economically stable environment offer companies good opportunities to operate profitably.

Market Access

Malaysia has submitted a list of requests for market access in the services sector to the WTO. These include market access in the construction and engineering, accountancy, telecommunications, financial and architectural services sectors. This fits in with the new strategy of fostering new domestic industries. Submission of requests to trade partners for market opening began in June 2002; negotations are scheduled to end by January 1, 2005.

Biotechnology and Modernizing Agriculture

Malaysia has begun to work on nurturing its biotechnology industry as a step toward a new growth strategy. However, in order to be successful in this endeavor to boost its competitive edge in the world market, Malaysia needs to be updated with the latest technology in agriculture. The country's challenge therefore, is in converting its natural resources, including over 15,000 species of plants, effectively into functional foods and medicines, adding value to every step in the food value chain for local consumption and foreign export.

The Malaysian government is hoping that development of biotechnology intellectual property will spawn new sources of growth and enhance existing economic sectors. Measures to help develop the biotechnology industry include an industrial park for biotechnology-related companies. The government will also support firms in applying for patents and information-technology concerns in commercializing their innovation. (see the GTN biotechnology issue page)

Intellectual Property

In an attempt to increase intellectual property enforcement, Malaysia has sought the assistance of international music and film companies to trace suppliers of content to local manufacturers of pirated DVDs and CDs. The Intellectual Property Corporation will be launched in March 2003, in conjunction with a nationwide campaign to educate the public on copyright, patent, trademark and industry design laws.

Textiles and Clothing

Even though textile quotas are being gradually integrated into the WTO system, there is a need to phase in more products that are commercially meaningful to developing countries. Malaysia is disappointed with the slow progress in the implementation of the Agreement on Textiles and Clothing, which is a necessary for full implementation of the Uruguay Round Agreement.

Conclusion

As Malaysia shifts to a domestically focused economy, success of the new initiative relies on the incentives the government can create for development of emerging industries. The vast potential of tourism, biotechnology and the new services sectors can only be tapped if accompanied by intellectual property rights legislation and maintenance of a stable investment environment. While an inward focus is important for Malaysia at this juncture, the new and pending bilateral trade agreements, especially with the fast growing markets of India and China, represent a prudent move in response to regional competition. In addition, the trade issues of agriculture tariffs and textile quotas remain important for Malaysia and will undoubtedly be addressed at the next WTO summit.

[1] AFX - Asia, November 6, 2002 Wednesday, ECONOMIC NEWS, 374 words, EAsia growth to be driven by regional trade; China to have pivotal role -WBank, TOKYO