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Trade War

Malaysia fears tariff-dodging probes amid US-China trade war

Trade minister counts on FTAs as companies seek to evade tariffs

Malaysia wants to avoid being targeted in anti-circumvention investigations for trade war related tariffs.   © AP

KUALA LUMPUR -- Malaysia is counting on free trade agreements to avoid being subject to anti-circumvention probes, as U.S. and Chinese companies relocate production to the country to stay away from the impact of the ongoing trade war, a senior government official said.

In a recent written interview with the Nikkei Asian Review, Minister of International Trade and Industry Darell Leiking said that companies from the two countries will inevitably try to avoid the impact by producing in low-tariff and low-cost locales such as Malaysia, Thailand and Vietnam.

"This, however, could potentially result in Malaysia [being] targeted as a country circumventing tariffs against China or U.S. and subject to some costly anti-circumvention investigations," said Leiking, who was appointed to the post in July by Prime Minister Mahathir Mohamad.

Recent trade data suggests there has so far been only limited impact from the escalating trade tensions between the two major economies, but it is expected to increase. The administration of U.S. President Donald Trump imposed a third round of import duties on some $200 billion worth of Chinese goods, forcing Beijing to retaliate in kind.

In response, Malaysia will pursue FTA negotiations, because exporters have to stipulate the country of origin of their products. Malaysia has implemented 13 FTAs and is negotiating four more, including with the Regional Comprehensive Economic Partnership.

Malaysia's Minister of International Trade and Industry Darell Leiking

RCEP, which comprises the 10 Southeast Asian countries plus China, Japan, South Korea, India, Australia and New Zealand, accounts for about one-third of the world's gross domestic product and half its population. The 16 countries aim to conclude the FTA by 2018 after missing several deadlines in the past.

So far, five of the 18 chapters have been finalized, said Leiking, referring to government procurement, customs procedures and trade facilitation, economic and technical cooperation, small and medium enterprises, and institutional provisions.

"While all negotiating parties including Malaysia want to conclude the RCEP negotiations as soon as possible, we do not want to rush into things at the expense of achieving constructive outcomes for everyone," Leiking said.

Challenges to reaching an agreement, he added, remain with "fundamental" chapters such as trade in goods and services, investment, and intellectual property rights.

Regarding the third national car project proposed by Mahathir, Leiking said it is covered under the revision of the National Automotive Policy, which seeks to transform the sector into a driver of economic growth.

Malaysia already has Proton Holdings, which was bailed out by China's Zhejiang Geely Holding Group with a 49.9% capital investment. The second national automaker is Perodua, which is controlled by Japanese companies, including Mitsui and Co.

Leiking said the third automaker will be privately held, but with customized incentives from the state. Malaysia sold about 576,000 vehicles in 2017, the third largest market in Southeast Asia after Indonesia and Thailand.

Separately, Malaysia and Indonesia signed deals in August, looking into collaboration in the supply chain to develop an ASEAN car, a concept proposed by Mahathir.

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