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Malaysia’s New Economic Model:
Risks and Rewards
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AseanAffairs Magazine May - June 2010

Prime Minister Najib Razak vows to take Malaysia forward and transform it into a high income nation through economic and social reforms. Initial responses to this ambitious drive are mixed, details are scarce and investors play wait-and-see.Yet, Najib insists he’s got support to push ahead.

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Interview with Dato Sri Mustapa Mohamed
Minister of International Trade & Industry, Malaysia

On the Fast Track

Q:  What is your Ministry’s role in implementing the new economic model? 

The Ministry of International Trade and Industry (MITI) plays a key role in realising Malaysia’s transition into a high income, knowledge-based economy. As Malaysia already observes a liberal investment regime in the manufacturing sector, MITI’s main focus will be in progressively liberalising Malaysia’s services sector.

Within the context of Asean, Malaysia has completed 7 packages of services liberalisation under Asean Framework Agreement on Services (AFAS) and is currently negotiating the 8th Package. This is complemented by the liberalisation of 27 sub-sectors that Malaysia has undertaken unilaterally.

MITI’s initiatives are aimed at improving the competitiveness of Malaysia’s services sector and bring about the creation of highvalue jobs, new business opportunities and the sharing of expertise, skills and technology.

Q:  Asean Free Trade Agreement has been in effect since January. What are the positive effects of this FTA on Malaysia’s trade performance? 

The Common Effective Preferential Tariff (CEPT) Agreement for the implementation of an Asean Free Trade Area (AFTA) was signed in 1992 and implemented in 1993. Since then, duties were eliminated through stages and effective 1 January 2010, Asean-6 eliminated duties on their balance of products in the Inclusion List. Exceptions remain on very few tariff lines in the sensitive and highly sensitive lists.

Since 1993, Malaysia’s trade with Asean Member States expanded by 132 percent and is now valued at $ 72 billion (2009). Malaysian manufacturers have been able to benefit from preferential access to the larger Asean, which is Malaysia’s largest trading partner with an average annual trade of 25 percent of Malaysia’s global trade.

Q:  How would you describe Malaysia’s Trade with fellow Asean members – before and after the AFTA? What are the prospects for expanding bilateral trade between Malaysia and Thailand? 

Malaysia’s trade with Asean Member States has grown significantly since the implementation of AFTA. Over a decade of progressive liberalisation, Malaysia’s trade with Asean more than doubled from $34.3 billion in 1999 to $72 billion in 2009.

Within Asean, Thailand is Malaysia’s second largest trading partner after Singapore. In 2009, Malaysia’s exports to Thailand were valued at $ 8.5 billion while imports were $ 7.5 billion.

Bilateral trade can be enhanced through discussions at the Joint Trade Committee (JTC) which Malaysia has established with Thailand. In addition, Malaysia and Thailand are exploring mechanisms to increase trade at their respective border areas, i.e. the Southern Provinces of Thailand and Northern States of Malaysia.

Q:  Do you see the launch of AEC in 2015 significantly boosting Malaysia’s trade with its key partners? 

The realisation of AEC (Asean Economic Community) in 2015 represents a new dimension to free trade, as it positions the region in general and Malaysia in particular, within a framework of clear and precise regulations, that will attract and encourage substantial flow of investments into the country.

By embracing the AEC goals, Malaysia takes a clear stand against protectionism and reaffirms our commitment to lowering barriers to trade and investment. This commitment will strengthen Malaysia’s trade and investment linkages with countries throughout the world, particularly with our key trade partners.

Q:  Why should Malaysia join the Trans-Pacific Partnership? Couldn’t there be a conflict of priorities between TPP and AEC?



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