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KUALA LUMPUR: THE World Bank has ranked Malaysia 18th out of 189 economies for ease of doing business, up two notches from last year, and ahead of countries such as Taiwan (19th), Switzerland (20th) and Japan (29th).

The World Bank’s Doing Business 2015 Report, released yesterday, showed the top three performers were Singapore, New Zealand and Hong Kong. Bernama reports that Malaysia ranked first among emerging east Asian economies.

A new method was used for the ranking because of limitations in the previous mechanism, such as loss of information, inability to track progress and inequality in business friendliness measured in larger countries.

The ranking is now based on the distance to frontier (DTF) score — score of country that is ranked No. 1 — rather than the percentile rank. Malaysia’s score edged up to 78.83 points from last year’s 76.84 points.

The report looked at 10 areas: starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts; and, resolving insolvency.

Three areas that Malaysia ranked highly were fifth for protecting minority investors, 11th for trading across borders and 13th for ease of starting a business.

Some of the areas that the country needs to improve on will be addressed at the next Special Task Force to Facilitate Business meeting next month. They are in registering property, getting credit and enforcing contracts.

“There will be a decision made on how we are going to come up with measures and solutions to address the issues,” said Malaysia Productivity Corporation director-general Datuk Mohd Razali Hussain as he chaired a video conference with the Washington-based World Bank here yesterday.

While some areas scored lower using the new DTF method, World Bank senior country economist for Malaysia, Frederico Gil Sander, said the lower scores did not mean a sudden decline in performance.

“There is no deterioration in some of the areas’ performances, for example, in getting credit. It is the case that different things are being added to the evaluation, now,” Sander said after the video conference.

Support from local industry players was encouraging, as many view the new method positively for its holistic approach, which enables improvements to the regulatory environment.

“Our target is to reduce the approval period for construction permits to just 30 days in the near future,” said Federation of Malaysian Manufacturers president Datuk Saw Choo Boon.

Currently, obtaining construction permits takes 74 days, down from the previous 130 days.

In the 2015 report, Malaysia has improved in five of the 10 areas surveyed by the World Bank.

For starting a business, Malaysia recorded the closest DTF for starting a business indicator, with a score of 94.90, against New Zealand’s 99.96.

The time required to start a business in Malaysia has been reduced to 5.5 days, from six days previously, while on cost, which refers to percentage of income per capita, it has been reduced to 7.2 per cent from 7.6 previously.

On dealing with construction permits, the number of procedures was reduced to 13 from 15.

On getting electricity, cost (percentage of income per capita) in Malaysia reduced from 49.1 per cent to 46.3 per cent.

On registering property, it now takes 13.5 days from the previous 14 days, and on resolving insolvency, it now takes one year from 1.5 years previously, while recovery rate (cents on the dollar) improved to 81.3 from 48.9.

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MALAYSIA

More considerations will show a better perspective of TPPA impact on Malaysia’s domestic value-add

• A research paper by an UNCTAD staff on the implications of Trans Pacific Partnership Agreement (TPPA) on Malaysia using domestic value-added (DVA) exports analysis contends that Malaysia will experience a deterioration in its balance of trade with TPPA partner countries.

• However, other studies on TPPA making use of computable general equilibrium (CGE) models have shown that while there will be losers post-TPPA, Malaysia has always been cited as one of those standing to gain.

• It is worth noting that the study used dated dataset which may have distorted the findings. The study could have been expanded to include an obverse scenario of the repercussions if Malaysia chose not to sign the TPPA, which in our opinion would lead to a bigger net loss to the nation.

• We would balance the DVA study by highlighting the positive impact of the TPPA on the growth potential of services export, which by nature, has high DVA. Malaysia’s ICT industry for example is regionally competitive, as reflected by the recent listing on Nasdaq of MOL Global, the biggest payment service provider in South East Asia.

• That the DVA study be updated in due course to reflect different assumptions and changing structure of the economy. It should evolve over time, much like CGE models have.

• MIDF Research’s view is that amid the secrecy surrounding the negotiations and the fact that discussions are still on-going, it is hard to make a complete and fair impact assessment of the TPPA.

STUDY ON TPPA

Contentious view, misleading in terms of authority. In a working paper by a staff of UNCTAD titled “Trans Pacific Partnership Agreement: Implications for Malaysia’s Domestic Value-Added (DVA) Trade”, the author Rashmi Banga raises pertinent issues pertaining to the implications of joining the TPPA. The conclusion is rather contentious, with the author arguing that Malaysia will experience a decline in its DVA exports of USD17b on average per annum, and that this will lead to deterioration in its balance of trade with TPPA partner countries.

However, it is the personal view of the author and does not reflect the view of UNCTAD or its member states. Indeed, the paper was actually authored under the aegis of the Centre for WTO Studies, which is based at the Indian Institute of Foreign Trade and has no affiliation whatsoever with the WTO. It certainly does not reflect the view of the WTO.

DVA analysis proclaims smaller value added contribution. The study by Ms Banga highlighted that Malaysia’s DVA has been declining against all major TPPA members, with the maximum decline recorded with the US. The study suggests that post tariff liberalization, Malaysia’s exports will increase from US$93.7 billion to US$95.2 billion but imports will rise much faster from US$73.8 billion to US$76.8 billion, causing the balance of trade (BOT) to remain in surplus but deteriorate by about US$1.4 billion per annum. In DVA terms the decline is expected to be more severe, with DVA exports falling US$17b p.a and potentially swinging BOT with TPPA partners into deficit. Nonetheless, the study made a point that Malaysia is not the only losing partner from the DVA angle. It appears that only the U.S, Japan and New Zealand stand to gain under this analysis (the study excluded Peru and Brunei due to significant data gaps).

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Departure from the common CGE models: Ms Banga’s DVA analysis is a departure from the CGE-based analysis commonly employed in the studies of trade agreements. Most CGE-based analysis converge on the idea that smaller countries like Vietnam, Peru and Malaysia stand to benefit the most from the TPPA [see Petri et al (2011), Petri and Plummer (2012) and Cheong (2013)].

Petri and Plummer (2012) of Peterson Institute for International Economics, using CGE modelling in their study, show that the TPP (at that time involved only 9 countries) can generate annual global income gains of $295 billion, with Vietnam projected to enjoy the largest percentage gains at around 14% as it would likely expand as a manufacturing hub. By 2025, if fully realized, the TPP could mean a 0.53% increase in global GDP with that of Malaysia expected to rise by 4.7%.

Meanwhile, a study by Cheong (2013) published by the Asian Development Bank (ADB) has estimated the impact of the TPPA on gross domestic product and found that most member countries would experience moderate economic gains from joining the free-trade bloc. New Zealand, Mexico and Malaysia would likely benefit the most from a successful agreement involving all 12 members, with GDP projected to rise by 0.97%, 0.9% and 0.7% respectively.

Banga argues that CGE modelling overlook the impact of Global Value Chains (GVCs) and the resultant effect on intermediate goods imports. Ms Banga has argued that the CGE-based studies overlook the fact that with greater trade integration, more so under the TPPA, exports of one member country may be part of the whole supply chain involving exports of another, Hence, the rise in exports estimated by a typical CGE model under trade liberalization may not be fully translated into rise in output and employment but may actually be smaller due to greater “leakages” i.e. imports from partner countries. A rise in DVA exports is important for a country in order to get the commensurate production-linked gains of exports on sectoral, employment and in turn, GDP.

WIDENING THE PERSPECTIVE OF THE DVA ANALYSIS

Ratio of imported to total intermediate input in the I-O table declining: We note that Ms Banga’s analysis made use of data up to 2009 to simulate the 2013 results, which she used as the main finding based on the coefficients and multipliers derived from the Input-Output (I-O) table for the year 2000 extracted from Beckhet (2011). However, the Department of Statistics has already made available the I-O table for year 2005. The 2005 IO table shows that the ratio of imported intermediate inputs to total inputs for the overall economy had actually fallen from 50.5 in 2000 to 32.65 in 2005. Indeed, the ratio for Manufacturing had indeed declined significantly from 55.8% in 2000 to 39.6% in 2005. On this note, we believe Ms Banga may derive a different conclusion in her analysis had she used the I-O table for 2005.

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Latest trade statistics also show further decline in intermediate imports: The latest Malaysian trade data shows that imports for intermediate goods as a percentage of total exports of goods and services had declined from 50.8% in 2007 to 47.1% in 2013 (see table).

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DVA analysis on the impact of trade liberalization is not new, and will evolve in time. Although Ms Banga claimed that her paper is the first to use the Trade in Value-Added Gravity model, the concept of separating the DVA from total exports is not new. An earlier study done by Gonzalez (2012) with the Swiss National Centre of Competence in Research had employed this approach in his analysis of intermediate imports. The important point to appreciate is that the availability of updated data, different assumptions and changing structure of the economy may yield different result using the same model. That has been the case with CGE model-based analysis over the years, which have differed greatly in assumptions, estimates and findings. Thus, we can expect more studies in the future using the same DVA-based approach as that in Banga (2014), but with different views and findings.

TPPA should expand the growth potential of services export: Export of services, by nature, has high DVA content. Although the services account in Malaysia’s balance of payment is still in the deficit, the growth of services export has been strong and is outpacing services import. Services export grew 8.4% in 2013 compared with 7.8% growth for services import. In 1H14, the corresponding growth was 5.5%yoy vs 2.8%yoy respectively. We believe that services export can continue to grow, driven by for example the ICT industry. Malaysia’s ICT players are regionally competitive. Technology IPOs in South East Asia are dominated by companies from Malaysia and Singapore. In October, a Malaysian company, MOL Global, one of the biggest internet companies in South East Asia was listed on Nasdaq in October. Malaysia is recognized as having an established technology ecosystem which owes its growth to the Multimedia Super Corridor introduced in 1996. There is a vibrant start-up scene in Malaysia with generous government incentives for tech entrepreneurs. Much of this is due to the fact that mobile penetration rate is very high in Malaysia. In 2013, it was the third highest in East Asia, behind only the city states of Hong Kong and Singapore, and was even higher than that in the U.S, U.K and Japan (Source: World Bank World Development Indicators 2014).

What is the impact of Malaysia being a non-party to TPPA? It would be interesting if Ms Banga were to extend her DVA analysis to address the obverse scenario. This would be an analysis of the impact on Malaysia’s trade and production if it decided NOT to participate in the TPPA. According to Petri et al (2012), “preference erosion” and “trade diversion” are likely side effects of deals like these on non-participating countries. They have estimated that by 2025, the TPP could mean losses of US$46.8 billion for China, and roughly $4 billion for India, Indonesia, and Thailand. Cheong (2013) argued that the non-TPP ASEAN, namely Cambodia, Lao PDR, Myanmar, Indonesia, Thailand and Philippines are likely to face increased competition with non-ASEAN TPP members and may face losses from implementation of the TPP.

The reality is that the impact of TPPA on trade and in turn, growth on specific countries is actually hard to predict as acknowledged by the EU Directorate-General for External Policies and many others when they attempted to derive the findings from their analysis. TPPA negotiators are governed by confidentiality; as such, estimating the full potential impact on member countries is rather difficult as negotiations are still ongoing.

We believe policymakers are taking heed of both positive and negative findings to assist them in making a more informed decisions. As the negotiations are still ongoing and there will be more and more studies on the impact of TPPA is likely to emerge (although not necessarily focusing on Malaysia), we believe that the government is treading carefully and weighing the risks from every possible angle when negotiating the terms. Prime Minister Datuk Seri Najib Tun Razak last month reiterated the government’s stance on the TPPA issue that “.. Malaysia wants to be part of it, provided our concerns can be accommodated in the final outcome”

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SPANISH businesses are keen to invest in Malaysia and have expressed keen interest in broad sectors, including the high-speed rail project linking Kuala Lumpur and Singapore.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said Spain’s investments in Malaysia, although small, still totalled a significant US$2.5 billion (RM8.2 billion) through Acerinox and Tecnicas Reunidas.

This, he said, had lifted Spain’s profile in Malaysia.

“The flow of investments from Spain marks a diversification in the volume of quality investments we are targeting for in Europe,” he said at a forum on investment opportunities, here, yesterday.

Germany, Britain and France are traditionally the main sources of foreign direct investments to Malaysia.

For the first half of this year, the Malaysian Investment Development Authority has approved US$64.8 million in investments from manufacturing projects.

Mustapa is leading the biggest high-powered delegation to Spain, which included state investment
officials as well as senior officials from DRB-HICOM Bhd and Mara Aerospace & Technologies Sdn Bhd.

Mustapa, who co-chaired the forum that was attended by captains of industry, including in automotive, renewable energy, steel industry and biotechnology, said the Spanish presence was in the engineering, stainless steel and IT solutions sectors.

The flow of Spanish investments into Malaysia was started by Tecnidas Reunidas when it won a US$1.5 billion contract from Petronas for the Refinery and Petrochemical Integrated Development project in Pengerang, Johor, while Acerinox’s Bahru Stainless Steel Sdn Bhd in Johor involved an investment of US$852 million.

There are 18 Spanish regional establishments located in Malaysia, including Scytl and Elevadores Goian.

Meanwhile, Spanish firms are keen to participate in the US$14 billion 350km high-speed rail project.

Officials briefed Mustapa on the Spanish experience when he visited the Madrid Atocha Station.

Spain is currently working closely with Singapore’s local transportation authorities on engineering collaboration and has offered to do the same with Malaysia.

Its Secretary of State for Trade, Jaime Garcia-Legaz, also highlighted the success of a Spanish consortium in undertaking a high-speed rail project linking Mecca and Medina in Saudi Arabia.

Garcia-Legaz, in his bilateral meeting with Mustapa, said the current US$1.05 billion trade volume between Spain and Malaysia was low, necessitating the need to remove obstacles by way of the Malaysia-European Union Free Trade Agreement.

26 June 2014, Kuala Lumpur - YB Dato’ Sri Mustapa Mohamed, Minister of International Trade and Industry (MITI) led a dialogue session with 16 companies in Perlis, organised by the Malaysian Investment Development Authority (MIDA), today.  YB Minister was accompanied by YBhg. Dato’ Azman Mahmud, Chief Executive Officer of MIDA, and other officials from MITI and MIDA.
According to Dato’ Sri Mustapa, “There are many opportunities in Perlis that investors should be made to be aware of. All that we need to do is to position Perlis as a state of opportunity.  The State is mainly driven by the agriculture sector.  Notwithstanding this, it is heartening to note that approved investments in the manufacturing sector for 2013 in Perlis have increased substantially by nine times the figures achieved in the year of 2011, a testimony that this state is becoming an increasingly competitive destination for investments.”

“We are actively working with all stakeholders including the private sector to create a more conducive business environment for all states including Perlis.  We need to get the population on board so that necessary adjustments can be made with as wide-spread a level of support as possible,” said Dato’ Sri Mustapa.

As at 31 December 2013, a total of 48 projects have been implemented in Perlis with investments amounting to RM1.0 billion. Domestic investments amounted to RM674.3 million or 70.0 per cent while foreign investments totalled RM368.9 million or 30.0 per cent. These projects have generated 6,054 employment opportunities to the State. The manufacturing investments in Perlis were concentrated in the industries of non-metallic mineral, plastic, rubber, electronics & electrical, transport equipment, cement and clinker, and food-based products.

Earlier in the day, YB Minister visited Universiti Malaysia Perlis, (UniMAP), Malaysia’s 17th public institution of higher learning in the country.

INITIATION OF ANTI-DUMPING INVESTIGATION CONCERNING IMPORTS OF HOT-ROLLED COILS (HRC), CHEQUERED COILS AND PICKLED & OILED COILS (P&O COILS) ORIGINATING IN OR EXPORTED FROM THE PEOPLE’S REPUBLIC OF CHINA, THE REPUBLIC OF INDONESIA AND THE REPUBLIC OF KOREA

On 20 May 2014, the Government of Malaysia received a petition from a domestic producer requesting an imposition of anti-dumping duty on imports of HRC, Chequered Coils and P&O Coils. The petitioner alleges that imports of HRC, Chequered Coils and P&O Coils originating in or exported from the People’s Republic of China, the Republic of Indonesia and the Republic of Korea are being dumped into Malaysia at a price much lower than the price in the domestic market of the alleged countries. The petitioner claims that this has caused material injury to the domestic industry in Malaysia.

The petitioner further claims that the imports from the alleged countries have increased in terms of absolute quantity.  As a result, the petitioner had suffered material injury, among others, price depression, price suppression, loss of market share, reduction in domestic sales, decline in profitability and low return on investment.

Based on the official petition received, the Government has therefore decided to initiate an investigation on imports of HRC, Chequered Coils and P&O Coils from the People’s Republic of China, the Republic of Indonesia and the Republic of Korea.

In accordance with the Countervailing and Anti-Dumping Duties Act 1993 and its related Regulations, a preliminary determination will be made within 120 days from the date of initiation. If the preliminary determination is affirmative, the Government may impose a preliminary anti-dumping duty at the rate that is necessary to prevent further injury.

MITI has provided a set of questionnaires in relation to this investigation. All interested parties (importers, foreign producers, exporters and associations) may request for the questionnaires no later than 2 July 2014. Interested parties are also invited to make their views known in writing, in particular by replying to the questionnaires with supporting evidence to MITI on or before 27 July 2014. In the event of no additional information is received within the specified period, the Government may make its preliminary findings based on the available facts.

Further enquiries regarding this investigation can be directed to:

Director

Trade Practices Section

Ministry of International Trade and Industry (MITI)

Level 14, Block 8, Government Offices Complex

Jalan Duta

50622 Kuala Lumpur

MALAYSIA

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