International trade with WTO and AFTA
International trade with WTO and AFTA
Participation in WTO, APEC and ASEAN, free trade arrangements, multilateral and bilateral negotiations and export promotion and strategies have been used as Malaysia's international trade policy mechanism to develop and promote trade. WTO is the sole international organization dealing with multilaterally agreed rules on trade among its member countries. Through WTO agreements, which spell out rights and obligations, member countries operate a nondiscriminatory multilateral trading system that has allowed world trade to grow. The goal is to help producers of goods and services, and exporters and importers, conduct their business in a manner that ensures predictability and stability. The WTO is also a forum for continuous negotiations to create a fairer, transparent, predictable, and liberal global trading environment. WTO agreements for trade in goods, agriculture and services spell out rules for member countries. Malaysia's commitment on goods includes binding of tariffs on 7,197 tariff lines, reduction of import duties, reduction of tariffs on agriculture products and elimination of duties for information technology products. Malaysia's commitments on services include allowing foreign participation in the services industry.
AFTA, established in 1992, aims to increase ASEAN's competitive advantage as a production base geared for the world market by promoting intra ASEAN trade and industrial linkages, specialization and economies of scale; and attract more foreign direct investment (FDI) to ASEAN. Common Effective Preferential Tariff (CEPT) is a mechanism to achieve AFTA i.e. free and non discriminatory trade by reducing tariffs and removing non tariff barriers and quantitative restrictions. Opportunities provided by AFTA includes bigger market access, bigger base for competitive sourcing of raw materials, collaboration with ASEAN partners to tap both global and regional market and wider variety of quality goods at lower prices. Challenges include decline in the level of competitiveness in traditional export industries and risk of losing market position to foreign competitors.
Competitiveness
National competitiveness is about creating the environment encompassing enterprise competitiveness. Essentially, national competitiveness results in improvements in life in a country. Approaches for any country to increase its own competitiveness include using scarce resources with efficiency, raising productivity and reducing cost of production. Rules of competitiveness are changed by globalization, information or knowledge intensity, networking and connectivity and technological competition.
Malaysia's Current Position
Malaysia's competitiveness is currently ranked 16th in the Competitiveness Scorecard. AT Kearney's assessment of Malaysia's competitiveness position in 2002 found that Malaysia is ahead of all ASEAN countries except Singapore in terms of export competitiveness, attractiveness as an investment location, human resource capability and ICT capability and preparedness. The four key constraints to long run growth and competitiveness are 1) investment climate is weakened by regulatory burden, 2) services sector is highly regulated, 3) skills shortage and 4) firms are weak innovators although adequately adaptive to technological capabilities. Forces that drive competitiveness include skilled ...
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Malaysia's Current Position
Malaysia's competitiveness is currently ranked 16th in the Competitiveness Scorecard. AT Kearney's assessment of Malaysia's competitiveness position in 2002 found that Malaysia is ahead of all ASEAN countries except Singapore in terms of export competitiveness, attractiveness as an investment location, human resource capability and ICT capability and preparedness. The four key constraints to long run growth and competitiveness are 1) investment climate is weakened by regulatory burden, 2) services sector is highly regulated, 3) skills shortage and 4) firms are weak innovators although adequately adaptive to technological capabilities. Forces that drive competitiveness include skilled resource pool, R&D innovation and creativity, robust foreign investment, physical and ICT infrastructure, high export levels and sustained economic growth.
Malaysia has made great progress over the past three decades, transforming its economy from primarily agriculture based to manufacturing based. Malaysia has been one of the fastest growing economies in the world. However, future challenges remain significant. Among them are below global standard productivity, skill level and service sector competitiveness; investor confidence; susceptibility to global cycles; and China's attractiveness for FDI. In fast forwarding competitiveness, there is a need to move into K-economy and increase quality of human resource to meet the need of a competitive economy. On the value chain, Malaysia needs to increase downstream activities (R&D and technology and process creation) and upstream activities (distribution and after sales support) to position itself into K-economy. On business environment, there is a need to lower the cost of doing business, increase efficiency of service activities, improve bureaucracy and compete on quality and service.
In terms of economic development, Malaysia is currently implementing the National Vision Policy which aims to establish a progressive and prosperous Bangsa Malaysia. Some of its strategies are to develop Malaysia into a knowledge based economy, endogenously driven growth and reorientation of human resource to support knowledge based society. In line with industrialization efforts, manufacturing export has increased from 11.9% of total exports in 1970 to 81.2% in 2003.
Strategies for Growth and Competitiveness
Challenges for Malaysia include enhancing value creation through innovation and R&D, intensifying the use of ICT, raising the capability of small and medium-scale enterprises, strengthening domestic investment in high value-added activities and enhancing administrative and bureaucratic procedures to support the business environment. The following are important to enhance economic competitiveness:
. Diversified and balanced economy
2. Ability to adapt rapidly to changes in production patterns, demand and competition
3. Technology capability - ability to adapt, innovate and invest
4. Strong and close industrial linkages, moved by productivity and skills
To enhance and diversify the export market, it is imperative to tap export opportunities from FTA initiatives in ASEAN and other countries, collaborate with private sector in export of goods and services, research market and train and nurture exporters. The opportunities to increase growth and competitiveness include strengthening domestic capacity to improve services account, build up subsectors with increasing growth potential, intensify services export opportunities and create competitive service industries. While private sector is the prime mover, the government plays an important role to provide more conducive business environment. These include enhancing delivery system, minimize regulatory burden, providing incentives and tax exemption to reduce cost of doing business, addressing skill gaps and providing world class infrastructure. Regular dialogue between public and private sector is necessary to enhance understanding and cooperation. Strategies and policies of liberalization and active participation in international fora i.e. WTO and AFTA are aimed at improving the country's competitiveness. Private sector should be prepared for liberalization, venture into new growth areas and enhance competitiveness and resilience through R&D, ICT, human capital and knowledge.
Insights
In this information age where economic borders are fast disappearing both through multilateral agreements committed to lowering trade barriers, and through the unfettered information highways of cyberspace, increasing national competitiveness is indeed an important agenda for any country. In enhancing competitiveness, Malaysia have introduced and undertaken many initiatives to move into knowledge economy. Multimedia Super Corridor (MSC) is one of the vehicles for Malaysia's quantum leap into knowledge economy. Initiated in 1996, the MSC as reported during the MSC-International Advisory Panel meeting recently, has created more than 1,000 MSC status companies, 19,000 knowledge based jobs, RM5 billion in ICT sales (of which RM1.2 billion went towards exports) and RM419 million in research and development expenditure.
The largest sector in MSC is the outsourcing industry. Outsourcing accounts for more than 7,000 jobs and more than RM1 billion in investments. Malaysia is ranked by A.T. Kearney, an international consulting firm, in its Offshore Location Attractiveness Index, as the third most attractive country for outsourcing services after India and China. How would Malaysia increase its competitiveness against that of India and China? India and China have advantages in terms of costs and manpower. In term of population, Malaysia's 25 million is no match for those of India and China of over one billion. Although size does matter, it is not applicable to all aspects. 10 low skilled workers cannot match the productivity output of 1 skilled knowledge worker. It is the quality of the workforce. Low population size does not necessarily produce comparatively low number of quality workers. For example, Australia's population is about 20 million but has as many information technology experts as India.1 In A.T. Kearney's report, Malaysia ranked bottom five in terms of the availability of skilled workforce out of 25 countries surveyed, only surpassing nations like Vietnam and Costa Rica in that category. Thus, it is all the more important for Malaysia to intensify efforts to increase the number and quality of knowledge workers. This is crucial to meet the challenges of increasing national growth and competitiveness where value creation and innovation is becoming increasingly important factors.
A lot is required to be done before the nation has enough creative and innovative knowledge workers. Learning is one of the important elements of a knowledge society. As emphasized by Peter Drucker, innovation is hard work and we can learn to be innovative. Innovation has very little to do with genius and inspiration. It is the result of hard and systematic work. "The myth is that an owner-entrepreneur can depend on the flash of genius. I have been working with entrepreneurs for 40 years; the ones who depend on the flash of genius also go out like one...To survive and be useful, they (government institutions, firms and every other field of endeavour) must learn to innovate."2 As such, we must do away with the current lepak culture and instill industrious culture among teenagers. For sure, the development of mindware should be high on Malaysia agenda list.
Apart from skilled workers, market niche and branding is also important to provide competitive edge over other nations. Malaysia need not compete head on with India and China. Rather, Malaysia can focus on market niche by concentrating on value added services such as finance, supply chain management and human resources management. Branding is important to portray Malaysia as a safe investment haven, free of terrorists treat, accommodative host and efficient system.
Indeed, a lot needs to be done before Malaysia could take the pole position in the outsourcing industry. With the right guidance and implementation, it is not impossible to achieve. Securing more outsourcing business is good for the Malaysian economy as the industry is estimated to have generated US$405 billion in 2003 and expected to balloon to US$500 billion in 2008.3
Chow, Kum Hor, 2004, The outsourcing bonanza, New Straits Times: 16 September.
2 Drucker, Peter F., Managing for the Future, Penguin Books, NY
3 Chow, Kum Hor, 2004, The outsourcing bonanza, New Straits Times: 16 September.
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