DISCUSS THE SECTORAL BIAS OF MALAYSIA’S EXPORT AND EXPORT DESTINATIONS. WHAT SHOULD BE DONE TO REDUCE THESE BIASNESS?
INTRODUCTION As we already know, nowadays Malaysia is among the largest exporters of some goods and services to the worldwide especially in palm oil products, rubber, electric & electronic components and Bio-Diesel. When there is some sectoral biasness both in Malaysia’s export and export destinations our GDP is affected. Export bias for us is not only limited to the internal factors but also to the external factors.
Malaysia's Top 10 Export Products for 2008 & 2009 http://www.matrade.gov.my
Malaysia's Top 10 Export Destination for 2008 & 2009 http://www.matrade.gov.my
SECTORAL BIAS OF MALAYSIA’S EXPORT PRODUCTS. Thus, in contrast to many other economies which tried to preserve foreign exchange through stricter import controls, Malaysia tried to earn additional foreign exchange by increasing exports. Malaysia remained committed to a policy of pegging its exchange rate to a basket of currencies dominated by the appreciating U.S dollar. The export demand was strong in the late 1980’s and early 1990’s up till 1996 and the government did not see the need to improve currency values by devaluing the ringgit. But after the financial crisis in 1998, there was a decline in the growth rate of exports following a decline in world demand for Malaysian products, the strength of the ringgit was perceived to be weakness.
INTERNAL FACTORS Internal factors are like Ringgit currency system and government incentives will affect our exports and trade. After the Asia Financial Crisis 1997/1998, our government has decide to control Ringgit value by using Fixed Exchange Rate system which peg Ringgit fixed to the US Dollars, RM 3.80/USD 1.00. However in last two year, Government has turn off the Fixed Exchange Rate and replaces it with Float Exchange Rate which will put the Ringgit value on the market force. Under the floating exchange rate, if Ringgit appreciates to high, our export will decrease simply because the cost or price of our goods and services at the importers country also will be increase.
EXTERNAL FACTORS External factors such as food security and quality control also will affect our export sector. For example, our agriculture and aquaculture products must meet the FDA (Food and Drug Administration) requirement before our products can enter into the USA. Import Tariff on the other countries also will consider as external factor. For example, if the other countries put the higher tariff to import our goods, means our export will decrease.
SECTORAL BIAS OF MALAYSIA’S EXPORT DESTINATION’S For instance, although tariff rates are generally low in developed countries, they can be quick to introduce anti-dumping duties, nontariff barriers, or special safeguards. Also, agricultural products remain heavily protected in developed countries. This could affect countries like Malaysia and cause sectoral bias on Malaysia’s export destination. Thus, in contrast to many other economies which tried to preserve foreign exchange through stricter import controls, Malaysia tried to earn additional foreign exchange by increasing exports.
Malaysia remained committed to a policy of pegging its exchange rate to a basket of currencies dominated by the appreciating U.S dollar. The fact that a large proportion of firms investing in the country consisted of transnational that were involved in manufacturing, assembling and exporting activities for foreign consumption means that demand was primarily determined in major markets like US and Europe. Furthermore, the export demand was strong in the late 1980’s and early 1990’s up till 1996 and the government did not see the need to improve currency values by devaluing the ringgit. However, when there was a decline in the growth rate of exports following a decline in world demand for Malaysian products, the strength of the ringgit was to be weakness.
How to Reduce this Biasness? Multilateral and Bilateral Agreements Malaysia continues to accord high priority to the rule-based multilateral trading system under the World Trade Organization (WTO). Regional and bilateral trading arrangements are allowed by the WTO provided that tariffs are eliminated substantially on all trade, that all parties to the agreement must eliminate duties according to mutually agreed rules and time frames. So, Malaysia has concluded and signed two bilateral FTAs with Japan and Pakistan. At the regional level, Malaysia and its ASEAN partners have established the ASEAN Free Trade Area (AFTA). ASEAN has also concluded FTAs with China, Japan and Korea.
The AFTA was incepted by the introduction of the Common Effective Preferential Tariff Scheme (CEPT) in 1993 to eliminate intra-ASEAN import tariffs. ASEAN-6 was supposed to remove duties on all products by 2010 with the exception of some highly sensitive unprocessed agricultural products. Special privileges were also given to Indonesia and Filipina for certain agricultural products like rice and sugar by 2015.
FTA FTAs is another way to reduce these biasness. FTA’s have traditionally been confined to trade in goods. However, after the establishment of the WTO, trade in services and other areas such as investment, intellectual property protection, competition policy and cooperation measures have been included. Malaysia has signed and is implementing two bilateral FTAs and four regional FTAs. The bilateral FTAs signed are with Japan (MJEPA) and Pakistan (MPCEPA). Together with its ASEAN partners, Malaysia are parties to the ASEAN Free Trade Area (AFTA), ASEAN-Japan Close Economic Partnership Agreement (AJCEP), ASEAN Korea Free Trade Agreement (AKFTA) and the ASEAN-China Free Trade Agreement (ACFTA).
Exporters in Malaysia will benefit from FTAs through preferential treatment and market access. Exporters will also enjoy cost savings from elimination or reduction of customs duties and from mutual recognition agreements, trade facilitating customs procedures and removal of regulations. For service providers, FTAs provide improved market access for various commercial and professional services from Malaysia. FTAs also provide for easier entry for businessmen as well as more predictable terms for investment in the FTA partner country. The tariff liberalization implemented by Malaysia would facilitate imports from our FTA partners. These imports may also be inputs for manufacturers in Malaysia thus contributing to enhancing competitiveness of Malaysian exports.
CONCLUSION So, government incentives such as subsidy, loan, tax free, infrastructure and agreements will affect export sector and help to reduce export biasnes in our country.
REFERENCE: 1. Economic trends, Uptrend in Malaysia’s exports (2009), MITI Weekly Buletin, Volume 56, August 5, http://www.miti.gov.my. (accessed on 30 March 2010)
2. http://www.matrade.gov.my (accessed on 28 March 2010) 3.http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Articleb01 c0a81573-10311031-88cddae1 (accessed on 28 March 2010) 4. http://www.matrade.gov.my/cms/content.jsp?id=com.tms.cms.article. Article_hide_TradePerformance2008 (accessed on 29 March 2010) 5. Koi Nyen Wong and Tuck Cheong Tang, The effects of exchange rate variability on Malaysia’s disaggregated electrical exports, School of Business, Monash University Malaysia, Selangor Darul Ehsan, Malaysia, www.emeraldinsight.com/0144-3585.htm.( accessed on 30 March 2010) 6. Mohamed Ariff and Syarisa Yanti Abubakar, Trends and Issues in Malaysia Future Challenge for Economic Development. 7. Stephen Tokarick, Research Department, International Monetary Fund, How large is the bias against exports from import tariffs, World Trade Review (2007), 6: 2, 193–212 Printed in the United Kingdom.