PETALING JAYA: Malaysia has been placed 45th out of 88 countries in an index that measures international trade barriers.
Singapore, New Zealand and Japan are the top three countries with the lowest trade barriers in the International Trade Barrier Index (TBI) 2023 released by the US-based Tholos Foundation.
Think tank Centre for Market Education (CME) chief executive officer Dr Carmelo Ferlito described Malaysia’s rank in the TBI as “bittersweet news”.
“While at a regional level Malaysia is overcome only by Singapore, globally it reached only 45th position out of 88 countries under observation, while Singapore is first in the rankings.
“Therefore, despite the second position at a regional level, the distance between Malaysia and Singapore is still very big.
“Globally, Vietnam, the Philippines, Thailand and Indonesia respectively occupy the 77th, 81st, 85th and 86th positions, signalling that South-East Asia needs to work more at an Asean level to improve regional trade conditions,” he said in a statement yesterday.
The CME is the Malaysian partner for the Tholos Foundation and hosted the Innovation Summit South-East Asia 2023 where the new index was released for the first time ever.
The 88 countries included in the 2023 TBI represented 76% of the world’s population and 96% of global gross domestic product (GDP).
The TBI scores countries on a 1-10 scale in four different pillars describing the most direct forms of trade barriers: tariffs, non-tariff barriers, services restrictions, and a facilitation score capturing the “behind the border” measures necessary to allow trade to occur.
Scores closer to one indicate fewer trade barriers, scores closer to 10 indicate the heaviest use of trade barriers.
According to the index, Malaysia scored 3.88 overall, slightly better than the global average of 3.95, East Asia and Pacific regional group at 4.0, and even better than its upper-middle income group which scored 4.22 overall.
Singapore’s score is 2.57.
Economist and CME first research fellow Christopher Lingle said TBI was a foundational inspiration reflecting the agreement among most economists that “free trade tends to yield net benefits for the human condition”.
“It is also noteworthy that openness to trading with one’s neighbours is positively correlated to civic freedom and greater accountability for political governance,” he said.
According to the index, Malaysia’s Services Restriction scores for construction, retail, and professional services are relatively high while the country’s facilitation score at 4.5 is slightly worse than its regional group average, which is 4.42, but much better than the world average which is 5.48.
The component considers property rights protection, logistics performance, digital trade barriers, and membership in regional trade agreements.
For Malaysia, the main barrier is logistics performance, which is 5.12, or 39% greater than the regional average.
CME added that Malaysia had a comparative advantage in electronic circuits and semiconductor chip production while the country was also high in the global supply chain for telecom equipment production.
It, however, cautioned that while logistics performance remains weak, Malaysia is vulnerable to exploitation from international criminal syndicates taking advantage of the customs environment and also access to other large markets in the region.
“If Malaysia can improve its customs monitoring and trade enforcement to achieve an efficient port system, it will go a long way in curbing illegal trade,” said the CME.
Philip Thompson, the author of the TBI and analyst for trade and intellectual property at the Tholos Foundation, said if Malaysia can demonstrate its market is open, property rights are protected, and supply chains resilient, then perhaps it will not only be able to retain its current foreign investors, but might be able to turn its negotiations in the Indo-Pacific Economic Partnership into a real enforceable trade agreement.
