This article first appeared in The Edge Malaysia Weekly on April 7, 2025 - April 13, 2025

JUST before President Donald Trump announced the reciprocal tariffs on trading partners of the US on April 2, the US Trade Representative released its National Trade Estimate Report 2025. The annual report highlights outstanding tariff  and non-tariff trade barriers that  the US alleges as  impediments to their exporters. 

USTR head Jamieson Green in his foreword to the report wrote: “No American President in modern history has recognised the wide-ranging and harmful foreign trade barriers American exporters face more than President Trump. Under his leadership,  this administration is working diligently to address these unfair and non-reciprocal practises helping restore fairness and put hardworking American businesses and workers first in the global market place.” 

We reproduce here the chapter on Malaysia that highlights key issues like restriction on car imports and foreign participation in the financial services sector,  procurement restrictions and ownership in certain industries. 

The United States-Malaysia Trade and Investment Framework Agreement 

The US and Malaysia signed a Trade and Investment Framework Agreement on May 10, 2004. This agreement is the primary mechanism for discussions of trade and investment issues between the US and Malaysia. 

Tariffs and taxes

Tariffs 

Malaysia’s average Most-Favored-Nation (MFN) applied tariff rate was 5.6% in 2023 (latest data available). Malaysia’s average MFN applied tariff rate was 7.4% for agricultural products and 5.3% for non-agricultural products in 2023 (latest data available). Malaysia has bound 83.8% of its tariff lines in the World Trade Organization (WTO), with an average WTO bound tariff rate of 21.1%. Malaysia’s maximum WTO bound tariff rate varies significantly by product group, for example, from 5% for petroleum to 251% for dairy products. 

Duties for tariff lines where there is significant local production are often higher. In general, tariffs are lower for raw materials than for value-added goods. 

Taxes 

Malaysia continues to assess a higher excise tax on imported distilled spirits than on spirits that are predominantly produced domestically. Malaysia maintains very high excise taxes on motor vehicles, ranging from 60% to 105%, based on vehicle type and engine size. 

Non-tariff barriers 

Import restrictions on motor vehicles 

Malaysia imposes import restrictions on automobiles under the Malaysian National Automotive Policy, which makes a fundamental distinction between “national” cars (example, domestic automakers Proton and Perodua) and “non-national” cars, which include other vehicles produced or assembled in Malaysia, as well as imports. The Malaysian system of “national approved permits” confers on permit holders the right to import and distribute cars and motorcycles. The national approved permits system is administered in a non- transparent manner and is used to implement a cap on the total number of vehicles that can be imported each year, currently set at 10% of the domestic market. In addition, Malaysia applies high tariffs in the automobile sector and has traffic restrictions and noise standards that affect the usage of large motorcycles. 

In its 2024 federal budget, the Malaysian Government proposed import and excise duty exemptions for imported electric vehicles (EVs) through December 31, 2025, and through December 31, 2027, for locally assembled EVs. 

Technical barriers to trade 

Halal import requirements 

Malaysia requires that all imported meat (besides pork) and animal-based products, including dairy products, obtain halal certification from an approved Foreign Halal Certification Body (FHCB) as a condition of entry. Additionally, Malaysia’s halal requirements are more prescriptive than relevant international practices. Specifically, Malaysia requires slaughter plants to maintain dedicated halal production facilities and to ensure segregated storage and transportation facilities for halal and non-halal products. In contrast, relevant international practices allow for halal food to be prepared, processed, transported, or stored using facilities that have been previously used for non-halal foods, provided that Islamic cleaning procedures have been observed. US industry has expressed concerns regarding the costs of creating new, segregated production facilities to access Malaysia’s market. 

Additionally, the halal practices at each individual US meat and poultry plant must be inspected by Malaysia’s Department of Islamic Development (JAKIM) and certified by a JAKIM-accredited FHCB before the plant can export to Malaysia. Malaysia’s Department of Veterinary Services (DVS), in conjunction with JAKIM, previously approved one US beef plant and one US turkey plant to export halal products to Malaysia. In October 2023, Malaysia unexpectedly suspended imports from the sole approved US beef plant following an audit by DVS and JAKIM due to alleged halal concerns. JAKIM did not accept input or corrective actions from the plant. The US is working to improve communication and engagement on halal issues with the Malaysian Government. 

Facility registration requirements 

In addition to halal certification requirements, Malaysia requires that all meat, poultry, and dairy facilities that export to the country be registered by DVS. This process requires submission of an application with extensive supporting documentation for DVS review, which can take several months. Following the application review, meat and poultry products are subject to plant-by-plant on-site inspection by DVS and JAKIM. For all products subject to registration, DVS requires additional documentation to make any adjustment to registration parameters (example, introduction of a new product in an approved plant and clerical changes to plant numbers or addresses). Updating the registration can involve additional delays of weeks to months. US industry reports that the registration system is overly burdensome, creates significant delays, and is unnecessary in light of the US’ long history of supplying safe animal products to Malaysia. 

Additionally, facilities that successfully complete the registration process with DVS continue to face challenges as a result of the extensive process. Minor differences between export certificate and facility details in the registration system can result in detained shipments that often take several days to weeks to clarify. 

Restrictive regulations on alcoholic beverages 

Malaysia’s Food Regulations of 1985 narrowly defines alcoholic beverages in a manner that does not provide for the sale of new products that do not fit neatly within certain defined product categories. As a result, Malaysia prohibits the importation of products that do not meet these defined categories. The US is concerned that US malt-based and spirit-based ready-to-drink products are not permitted in Malaysia, even though similar wine-based beverages are allowed. The US continues to engage with Malaysia on its regulations for alcoholic beverage products, including its potentially trade-restricting definitions for alcoholic beverages. 

Live poultry and poultry products 

In June 2022, Malaysia banned all live poultry and poultry products from the US due to concerns about highly pathogenic avian influenza (HPAI). In December 2022, the US Department of Agriculture Animal and Plant Health Inspection Service (APHIS) proposed a regionalisation arrangement, which would limit suspension of poultry trade to those areas affected by HPAI. The regionalisation arrangement would also allow for resumption of trade when the outbreak is controlled. APHIS has subsequently provided additional information about its HPAI control programs at DVS’s request, but to date Malaysia has not completed internal decision making to begin discussion of a regionalisation arrangement. 

Malaysia generally invites international tenders only when domestic goods and services are unavailable. In those cases, foreign companies are required by law to take on a local, bumiputera (indigenous ethnic Malay) qualified partner before their tenders will be considered. 

Pharmaceutical procurement requirements 

The Malaysian Government has procurement preferences for locally manufactured pharmaceutical products, which discourage the use of imported pharmaceuticals. The Malaysian Government also provides incentives for local production. For example, the Government announced that it will grant three-year procurement contracts to companies that shift production of imported pharmaceutical products to Malaysia, with the potential for a two-year extension if those locally-produced products are exported. 

Malaysia is not a party to the WTO Agreement on Government Procurement, but has been an observer to the WTO Committee on Government Procurement since July 2012. 

Malaysia has been in the process of reforming its intellectual property (IP) laws, including laws governing copyrights, patents, and trademarks. Malaysia has adopted the Copyright (Amendment) Act of 2022, which contains provisions that create a new criminal offense for committing copyright infringement with streaming. The amendment entered into force on March 18, 2022. Malaysia also continues to take steps to enhance its IP enforcement regime. 

However, concerns remain in several areas. Counterfeit goods are widely available, as highlighted by the continued inclusion of Petaling Street Market in Kuala Lumpur in the 2024 Review of Notorious Markets for Counterfeiting and Piracy (Notorious Markets List). In addition, online, book, and journal piracy remain as challenges for right holders. The US urges Malaysia to continue its efforts to improve protection against unfair commercial use, as well as unauthorised disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products, and to enhance criminal sanctions for trade secret theft and misappropriation. 

Financial Services 

Best interest test 

Under the Financial Services Act, Bank Negara Malaysia (Malaysia’s central bank) evaluates potential investments in financial institutions based on whether the investment serves the “best interests of Malaysia”, the criteria for which include evaluating the level of Malaysian participation in the sector. Bank Negara Malaysia limits foreign ownership to a maximum of 70% in domestic Islamic banks, investment banks, and insurance companies, and to a maximum of 30% in commercial banks. 

Bank Negara Malaysia continues to limit foreign banks to eight physical branches in Malaysia and imposes certain other restrictions. For example, foreign banks cannot set up new branches within 1.5km of an existing local bank, and Bank Negara Malaysia considers ATMs as equivalent to separate branches. In addition, Bank Negara Malaysia has conditioned foreign banks’ ability to offer some services on commitments to undertake certain back-office activities in Malaysia. 

Malaysia maintains some restrictions on the business of reinsurance, requiring that Malaysian insurers first seek reinsurance from local reinsurers, and then from reinsurers based in the Labuan territory, before obtaining cross-border reinsurance. Also, primary insurers must offer MalaysianRe, the national reinsurer, up to 15% of certain lines of both proportional and non-proportional treaty reinsurance, and for facultative and engineering reinsurance up to a certain amount. 

Telecommunications Services 

Cabotage policy on undersea cable repairs 

In 2019, the Malaysian Ministry of Transport issued an exemption to the Merchant Shipping Ordinance of 1952 that allowed non-Malaysian ships to conduct submarine cable repairs in Malaysian waters. The exemption reduced the time required to conduct submarine cable repairs critical for continued Internet, voice, and data traffic. In November 2020, the new Minister of Transport revoked the exemption. On June 1, 2024, the government reinstated the exemption, though this exemption can be rescinded at any time without notice. US stakeholders continue to raise concerns about the non-permanent nature of the exemption, which raises uncertainty about the timeliness of future critical submarine cable repairs. 

Broadcast and screen quota 

Malaysia requires that broadcast stations, through broadcast licensing agreements, devote 80% of terrestrial airtime to local Malaysian programming. Broadcast stations are also banned from broadcasting foreign programming during prime time. 

Shutdowns and other threats to the open internet 

On September 6, 2024, the Malaysian Communications and Multimedia Commission (MCMC) directed Internet Service Providers in Malaysia to redirect all Domain Name System (DNS) traffic to local DNS services, which prevented anyone in Malaysia from using a non-Malaysian DNS resolver service. This directive could restrict access to information and services, disrupting commercial operations, and thereby undermining a free and open Internet and impeding digital trade. The MCMC has suspended its directive, but it is unclear if that is a temporary or permanent action. The US continues to monitor the situation and any impact on US trade and investment, including services exports. 

Limitations on foreign ownership 

Foreign investment in certain sectors is subject to local participation requirements that take the form of joint ventures with mandated minimum ownership interests held by ethnic Malaysian individuals or entities. When applying for certain operating licenses, registrations, permits, and approvals, entities with foreign ownership most commonly comply with the local participation requirements through a 70-30 equity split between the foreign investors (who are limited to a maximum of 70% ownership) and ethnic Malaysian individuals or entities (which must have a minimum 30% stake). Sector-specific regulators set the applicable local participation requirements, including in banking and insurance, education, freight forwarding and logistics, power generation, water, media and entertainment, and cable and satellite telecommunications. In the oil and gas industry, non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to the maximum of 49% equity stake if the foreign partner is the principal shareholder. Foreign investments are also prohibited in terrestrial broadcast networks. 

Export subsidies 

Malaysia maintains several programs relating to exports, distinct from the pioneer status and investment tax allowance programs listed in Malaysia’s subsidies notifications to the WTO. For example, the normal and enhanced allowance for increased exports programs provide for tax deductions of up to 70% of statutory income for increased exports. Malaysia has not included these measures in its WTO subsidies notifications. 

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