Shipment containers in Port Klang

Shipment containers in Port Klang, on the outskirts of Kuala Lumpur on April 6, 2020. (Photo: Mohd RASFAN / AFP)

Malaysia’s National Trade Blueprint: Mind the Gap

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Malaysia’s newly unveiled National Trade Blueprint seeks to arrest the country’s downward slide in global export rankings. But its prescriptions may fall short of what is needed in today’s environment.

Malaysia’s first National Trade Blueprint (NTBp) (2021-2025) was unveiled by Prime Minister Ismail Sabri Yaakob on October 25. This Blueprint is significant as there had hitherto never been a stand-alone plan to address trade-related issues which were previously addressed as a part of Malaysia’s Five-Year Plans, Industrial Master Plans and some sectoral plans. The Blueprint essentially aims to improve Malaysia’s export competitiveness in the goods sector, given that Malaysia has progressively fallen in global export rankings over time. Based on global market share, in 2004, Malaysia had been among the top 20 exporters in the world but by 2019, it ranked 26th, falling behind ASEAN neighbours like Thailand and Vietnam.

Any blueprint that seeks to enhance export competitiveness needs to address the twin drivers of exports competitiveness, which are accessing markets and producing export-competitive products. Malaysia’s new Blueprint does indeed focus on improving market access in a large part of its espoused strategies. It seeks to provide more market access-related information such as databases on importers and exporters, reducing non-tariff barriers, increasing the utilisation of free trade agreements, improving trade-related logistics, and increasing the role of digitalisation and e-commerce.

However, these initiatives appear to be a rehash of earlier solutions to address long-standing problems in some of the processes hindering market access. For example, logistics challenges were long identified in the Logistics and Trade Facilitation Master Plan (2015-2020), that was launched five years ago. In that plan, Malaysia aspired to be among the top 20 in World Bank’s Logistics Performance Index (LPI) by the end of 2020. In reality, Malaysia’s LPI fell from the 24th position in 2014 to 41 out of the same 160 countries in 2018. Malaysia has been monitoring non-tariff measures (NTMs) since the 1990s, even before it was made an ASEAN Initiative and launched the National Single Window in 2009 and the National Trade Repository as part of the ASEAN Trade Depository in 2016. But NTMs are increasing, despite regional efforts at the ASEAN level to reduce them. Although the current Blueprint has a proposed governance structure to oversee the implementation of the plan, it remains to be seen if this can overcome the implementation failures of the past.

While the Blueprint has heavily emphasised improving export-related processes, enhancing export competitiveness also requires the production of export goods that can compete globally, based on quality and cost. On this front, the Blueprint appears relatively thin on strategies and recommendations. It does emphasise the need to adopt standards and certification, but there is no mention of improving labour productivity. Yet, the ability to compete on costs requires continuous improvements in labour productivity, inputs and backbone services, while competing on quality requires improving standards and innovation.

Multinationals have warned that they will cut suppliers by 2025 for failing to meet carbon emissions. Yet, this looming export landmine is addressed in a surprisingly piecemeal fashion.

The Blueprint gives the nod to the need for product innovation to produce new and complex products for exports and the need to meet the challenges of sustainability. However, it appears lacking in substance since it merely re-emphasises the need for fostering better collaboration between public and private institutions for R&D and increasing awareness and registration of intellectual property rights. The Blueprint instead emphasises country branding as one of its key strategies. Malaysia has been promoting Made in Malaysia brands since SME Corporation Malaysia created the National Mark of Malaysian Brand in 2009 to depict the quality, excellence and distinction of the product awarded with this certification. But the idea is a double-edged sword since it depends on the consumers’ knowledge and perception of the reputation of a country. A negative country reputation can lead to a backlash on the use of country-of-origin (COO) branding. Globalisation in the production of many goods, such as electronics and textiles, can render the country-of-origin label meaningless.

One of the biggest omissions in the Blueprint is the relative lack of serious attention to the importance of addressing environmental and sustainability issues in the export sector. Multinationals have warned that they will cut suppliers by 2025 for failing to meet carbon emissions. Yet, this looming export landmine is addressed in a surprisingly piecemeal fashion. While establishing a Sustainable Manufacturing Centre in Penang is recommended in the Blueprint, other sustainability-related action items do not appear to convey strong commitment, nor do they seem to have much teeth. For example, it aims to address forced labour issues by merely “raising awareness” among manufacturers. This far understates the urgency of the matter which requires a whole-of-government approach. Moreover, despite the emphasis on local sourcing in the Blueprint, the requirement for compliance towards environmental, social and corporate standards is not taken up as a critical factor for enhancing export competitiveness. Meanwhile, ASEAN competitors such as Cambodia have already developed a Suppliers Database with Sustainability Dimensions for improving linkages between foreign firms and domestic suppliers.

Another omission of the Blueprint is its decision to deal with services separately in yet another Blueprint. This ignores the crucial linkages between the manufacturing and services sectors. Globally, servicification (or the increasing use of services in manufacturing) is an increasingly important phenomenon. It has, for example, been identified that services contribute over 50 per cent of the average cost of manufacturing an automobile. For Malaysia, the importance of manufacturing-related services has been recognised as far back as the Second Industrial Master Plan of Malaysia (1996-2005). The Blueprint fails to acknowledge that manufacturing increasingly buys, produces and sells services. For coherence, manufacturing and services need to be developed together and not in silos for the country to reap the synergies between the two sectors.

Given the many gaps in its prescriptions, Malaysia’s new National Trade Blueprint at best provides only a partial response towards enhancing Malaysia’s trade performance.

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