Prioritizing Economic Stability Through Strategic Concessions
Malaysia has agreed to several trade concessions requested by the United States as a strategic measure to safeguard its valuable exports and protect local jobs, particularly within the electrical and electronics (E&E) sector. Investment, Trade and Industry (MITI) Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz underscored the critical importance of the United States as a key trading partner, with Malaysian exports to the country having reached RM198.65 billion in 2024. He warned that any negative changes in US trade policy, such as the imposition of high tariffs, could jeopardize up to 100,000 jobs, especially in the manufacturing-heavy states of Penang and Kedah. To mitigate this significant economic threat, Malaysia has proactively offered to reduce or abolish tariffs on an extensive 98.4% of all tariff lines. This proactive measure demonstrates Malaysia’s commitment to preserving its vital export market and protecting its workforce from potential economic disruption, while also addressing the initial US request for specific product tariff adjustments.
Navigating the Complexities of Digital Trade and Tariffs
In addition to traditional tariffs, Malaysia has also made significant concessions on a number of digital services and technology-related matters to address US concerns. The country has formally pledged not to implement any digital services tax that specifically targets American companies, providing a more stable and predictable regulatory environment for US firms operating within the country. Furthermore, the government has removed the requirement for US-based social media and cloud providers to contribute a 6% share of their revenue to the Universal Service Provision (USP) Fund. Another key digital concession was the permanent cancellation of a directive that would have rerouted all Domain Name System (DNS) traffic to local services, a move that eases a significant regulatory burden on US tech firms. While making these important adjustments, Malaysia also maintained its position on certain issues. For instance, while it agreed to remove discriminatory sales taxes on US agricultural goods like fruits and seafood, the government firmly upheld its stance against offering any exemptions for excise duties, demonstrating a balanced and pragmatic approach to the trade negotiations.
Strengthening Export Controls and Strategic Trade Oversight
The final set of concessions involves measures taken to enhance oversight and ensure the integrity of Malaysia’s export channels. To address US concerns about the potential misuse of transshipment practices, Malaysia has agreed to tighten its controls. A significant procedural change was implemented on May 6, when MITI became the sole issuer of Non-Preferential Certificates of Origin (NPCO) for all exports destined for the US, streamlining the process and improving accountability. Malaysia has also agreed not to impose any export restrictions on rare earths or other critical minerals destined for the US, though this does not grant the US exclusive rights to these resources. Furthermore, to reinforce its commitment to strategic trade control, the country will enforce the “catch-all” provision under Section 12 of the Strategic Trade Act 2010. This measure will strengthen oversight of US-origin artificial intelligence (AI) chips that are either exported from or transited through Malaysia to third countries, underscoring the government’s role in safeguarding global supply chain security.
