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Home , Economy of Malaysia

ASIA-PACIFIC TRADE AND INVESTMENT REPORT 2015 Supporting Participation in Value Chains

Asia-Pacific Trade Briefs Merchandise trade: Trade is critical to the economy of Malaysia. It has the 13th busiest container port and 7th highest merchandise trade to GDP ratio in the world (133.7%). Malaysian are highly diversified across 4339 products and 125 markets compared to the Asia-Pacific average of 2107 products and 95 partners. Malaysia is a significant exporter of -related products and intermediate goods such as electronic circuits and . and are Malaysia’s largest trading partners, jointly accounting for 34.2% of exports and 49.0% of imports. Similar to other South-East Asia countries, the slowdown of China’s demand for commodities and intermediate goods in the midst of weak demand from advanced economies has contributed to the deceleration of trade growth. Merchandise and import growth of Malaysia decelerated to just 2.5% and 1.4%, respectively, in 2014 – from an average annual growth of 4.2% and 6.1% between 2010 and 2014. However, competitiveness in manufacturing exports has mitigated the negative impacts from the falling of fuel exports. Indeed, Malaysia still performed better than the Asia-Pacific region as a while which saw export and import growth of 1.5% and -1.0% in 2014. Services trade: Malaysia’s services exports contracted by -0.8% in 2014 – considerably below the Asia-Pacific regional growth of 4.8%. This was driven by a sharp fall in exports of business services. The growth of services imports decelerated to just 0.7% – from an average annual growth of 8.5% between 2010-2014 – led by higher transport services, and a sharp fall in imports of travel and business services. Transport and travel account for over half of exports and imports. Global value chains (GVCs): Malaysia is highly integrated into GVCs, particularly as an assembly centre for electronics and machinery. Intermediate goods are among the country’s top export products (e.g. integrated circuits; semiconductors; motor parts). The share of intermediate goods in trade – a proxy for participation in GVCs is marginally higher in Malaysia’s imports (23%) than the Asia-Pacific (22%). However, intermediate exports accounted for only 14% of Malaysian exports, significantly lower those of the Asia-Pacific region (18%), mainly because final assembled products and commodities take greater shares of exports. Foreign direct investment (FDI): Malaysia’s FDI inflows contracted sharply, by -10.9% in 2014. The investment climate was soured by a combination of factors, including: an uncertain outlook for the global economy; falling investment in the oil and gas sector – due to lower fuel prices; political scandals involving public funds; and increased volatility in currency markets. Malaysia’s investment risk profile also increased as a result of the nationalization of Malaysian Airlines. The Government offers tax incentives and ‘pioneer company’ status to encourage investment, however the Government retains discretionary powers for authorisation of investment projects. Tariffs: Average MFN applied and effective tariffs at 5.1% and 5.3% are slightly lower than Asia-Pacific averages of 7.4% and 7.4%. Average WTO bound duty, at 14.6%, is lower than the Asia-Pacific average of 21.7%. Trade costs: Intraregional trade costs in Malaysia have increased slightly since 2009. It is costlier for Asia-Pacific economies to trade with Malaysia than with East Asia-3 (China, and Republic of Korea) – the intraregional benchmark – however cheaper than with EU-3 (, and ) – the extraregional benchmark. Based on the UNRC Survey 2015*, Malaysia‘s trade facilitation and paperless trade implementation score is at 71.0%, compared to 46.5% for the Asia-Pacific. Trade agreements: Malaysia has 14 trade agreements in force, much higher than the Asia-Pacific average of 7 agreements. Sixty seven per cent of exports are to PTA partners, compared to 35% for the Asia-Pacific. Seventy six per cent of imports are from PTA partners, compared to 45% for the Asia-Pacific. Figure 1. Key trade and investment indicators 10 8

6

4 6.1 4.8 2 2.5 1.5 1.4 - 1.0 - 0.8 0.7 - 10.9 - 1.5 0 -2 Malaysia Asia-Pacific Malaysia Asia-Pacific Malaysia Asia-Pacific Malaysia Asia-Pacific Malaysia Asia-Pacific -4 Merchandise Exports Merchandise Imports Services Exports Services Imports FDI Inflows

-6 Annual Growth (%) Growth Annual -8 -10 -12 2013-2014 2010-2014 *Country notes summarising results of the UNRC Survey 2015 are available at: http://unnext.unescap.org/UNTFSurvey2015.asp Figure 2. Top merchandise markets Figure 3. Top merchandise products

Motor cars and Printing machinery ; -2.4 ; 3.6 other motor 25 used for printin; 1.6 ; -1.2 Petroleum coke, Automatic data Australia; -2.8 ; 3.9 petroleum bitumen processing a; -1.2 ; 2.8 Parts and Parts and 20 Germany; -3.3 India; 3.9 accessories (other accessories (other than c; -1.3 than c; 3.1 Liquid crystal and its Republic of Korea; Republic of Korea; devices not fractions, whether; -3.9 4.0 constitu; -1.4 3.7 15 Diodes, transistors Diodes, transistors Indonesia; -5.0 ; 4.6 and similar sem; - and similar sem; 1.6 4.1 Parts and , Petroleum oils and ; -5.6 accessories of the China; 4.8 oils obtained fr; 4.3 motor ; -1.7 10 Telephone sets, Telephone sets, Thailand; -6.6 Japan; 10.6 including including telephone; -2.0 telephone; 5.1 Commodities not Petroleum gases Japan; -7.2 United States; 11.0 specified and other gaseous 5 according; -2.1 h; 6.8 Electronic Petroleum oils and China; -23.8 Singapore; 14.1 integrated circuits.; oils obtained fr; 8.8 -9.8 Petroleum oils and Electronic Singapore; -25.2 China; 20.1 oils obtained fr; - integrated circuits.; 0 11.8 20.1 1 2 -30 -20 -10 0 10 20 30 -15 -10 -5 0 5 10 15 20 25 Imports (%) Exports (%)

Figure 4. Trade in goods by their use Figure 5. Foreign direct investment 100 18

90 17

80 16

70 64 15 70 71 60 79 14 50 13 40 12 Total Exports (%) Exports Total 30

22 billions in USD Value 11 20 18 23 14 10 10 12 13 7 6 0 9 Malaysia Asia-Pacific Malaysia Asia-Pacific 8 Exports Imports 2011 2012 2013 2014

Raw Materials Intermediate Goods Final Goods FDI Inflows FDI Outflows

Figure 6. Tariffs Figure 7. Trade costs 100 100 90 80

90 70

60 80 50

Rate (%) Rate 40 83.5 70 30

20 (%) equivalent valorem Ad 60 10 14.6 0 5.1 5.3 MFN MFN Effectively Binding 50 Bound Applied Applied Coverage 2009 2010 2011 2012

Malaysia Asia-Pacific Malaysia East Asia - 3 EU-3

Sources: Trade and tariff data were accessed through WITS. FDI data was accessed through UNCTADstat. Notes: Trade data follows the HS2007 classification. Mirror data is used. Products are defined at the 6-digit level. Definitions: Primary, intermediate, consumer, and capital goods are defined using UNCTAD System of Accounts. Final goods are defined as the sum of consumer and capital goods. Bound tariff is the maximum (MFN) tariff permitted under WTO obligations. MFN applied tariff is the tariff applied on imports among WTO members. Effectively applied rate is the lowest tariff available, i.e. preferential rates where available. Authors: Aman Saggu and Luca Parisotto; comments from Mia Mikic, Witada Anukoonwattaka, Rajan Ratna, and Adam Heal; contact: [email protected].