2018 WTO Trade Policy Review of Malaysia

• Author: Luke Emeka Okafor,Wing Leong Teo
• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/twec.12846

World Econ. 2019;42:3447–3463. wileyonlinelibrary.com/journal/twec

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3447

© 2019 John Wiley & Sons Ltd

Accepted: 3 July 2019

DOI: 10.1111/twec.12846

SPECIAL ISSUE ARTICLE

2018 WTO Trade Policy Review of Malaysia

Luke EmekaOkafor

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Wing LeongTeo

School of Economics,University of Nottingham Malaysia, Selangor, Malaysia

1

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INTRODUCTION

Malaysia is a relatively small, open and diverse middle‐income economy. International trade is one

of the mainstays of the economy as demonstrated by the overall trend increase in trade (exports plus

imports) as a percentage of GDP since 1980. While the share of trade in GDP was 113% in 1980, it

increased to 147% in 1990 and increased further to 220% in 2000 (World Bank, 2018). This rapid in-

crease in international trade plays an important role in the economic transformation and advancement

of the Malaysian economy. Malaysia is therefore better equipped to benefit from significant advan-

tages resulting from international trade, such as international technology spillovers, access to a wider

variety of goods and services, among others. Trade liberalisation is one of the channels for strengthen-

ing the outward orientation of the economy. Malaysia's improvement in trade openness is associated

with a relatively rapid process of trade liberalisation and globalisation (Yusoff, 2005).

International trade has been instrumental to Malaysia's economic growth and development since

the 1960s (Ramasamy & Yeung, 2007). This explains why the World Trade Organization (WTO)

Trade Policy Review (TPR) is an important document, especially for a small open economy like

Malaysia. It provides an independent view of the Malaysian economy, its trade policies and practices.

The current TPR review was conducted at the World Trade Organization in Geneva as required by

the WTO agreement. The review is aimed at ensuring transparency of trade policies and practices.

This paper aims to provide deeper insight into the TPR. This includes suggesting policies that can

help enhance Malaysia's international competitiveness in view of the current TPR review. Reviews of

previous Malaysia trade policy situations have been carried out (Athukorala, 2002; Jensen & Kara,

2011; Ramasamy & Yeung, 2007). The current review covers the period 2014–17.

We start by examining recent economic developments in Malaysia in Section 2. Section 3 looks

at trade policies and practices. Section 4 discusses the foreign investment regime, trends and pat-

terns. Section 5 looks at the services sector and international tourism in particular. The final section

concludes.

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RECENT ECONOMIC DEVELOPMENTS

During the review period, Malaysia faced a number of domestic and external shocks, such as financial

market and global commodity price volatility, domestic political controversy, spillovers from China

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OKAFOR And TEO

and weak external demand (WTO, 2018). Real GDP growth rates have declined from a peak of 6% in

2014 to 4.7% in 2018 as shown in Figure 1.

Among the domestic and external shocks, the collapse of commodity prices, especially those of

crude oil, liquefied natural gas (LNG) and palm oil—three of Malaysia's largest export commod-

ities—appears to have had significant effects on the Malaysian economy. Compared with January

2013, Brent crude oil price fell by more than 70% by January 2016, while LNG price fell by close to

50% and palm oil price fell about 30% during the same period as reported in Figure 2.

During the same period, the Malaysian currency, Ringgit Malaysia (RM), depreciated from a

monthly average of RM3.04 per dollar to RM4.34 per dollar, a depreciation of 43%. While since then,

Brent crude oil price had recovered to around 70% of its January 2013 value by October 2018, Ringgit

Malaysia had remained relatively weak, trading at more than RM4 per dollar during most of the time

in this period as shown in Figure 3.

FIGURE 1 Real GDP growth rates (%) in Malaysia, 2011–18.

Source: Growth rates computed from constant price GDP obtained from CEIC database (CEIC Data, 2019) [Colour

figure can be viewed at wileyonlinelibrary.com]

5.3 5.5

4.7

6.0

5.1

4.2

5.9

4.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2011 2012 2013 2014 2015 2016 2017 2018

FIGURE 2 Price indices of Brent Crude, LNG and palm oil, 2011M1–2019M2.

Source: Price indices computed from World Bank Commodity Price Data (The Pink Sheet) with January 2013 values

normalised to 100 [Colour figure can be viewed at wileyonlinelibrary.com]

20

40

60

80

100

120

140

160

2011 2012 2013 2014 2015 2016 2017 2018

Brent Crude Price IndexLNG Price IndexPalm Oil Price Index