Among the major US trading partners, Malaysia tariffs are relatively low. According to WTO, its average Most-Favoured-Nation (MFN) weighted tariff rate was 3.3% in 2023. The MFN tariff rate was higher for agricultural products at 7.2%, and 2.9% for non-agricultural products.
In general, higher tariffs were recorded in sectors that have significant local production. This includes sectors such as rubber products, cocoa, and vehicles. That said, mature and competitive industries such as palm oil, machineries, and electricals are accorded low tariffs. Malaysia also imposes high tariffs on sin products particularly alcohol and tobacco, with the latter recording an effective tariff of nearly 670% in 2023. Tobacco in particular has a combination of advalorem and non ad-valorem tariff (i.e. 5% plus RM40 per kg).
Apart from import tariffs, Malaysia also imposes excise duties which adds to the import cost. Goods that are subject to the duty include sweetened beverages, alcoholic drinks, un-denatured ethyl alcohol, cigarettes, motor vehicles, playing cards, and mahjong tiles. Of interest, the excise duty for cigarette is RM0.40 per stick
Potential trade issues
Malaysia’s low tariffs reflect its export-oriented development approach. However, there are non-tariff and technical barriers imposed to protect the growth of domestic industries.
Several of the key barriers include:
Import restrictions on motor vehicles – The system of approved permits (AP) implements a cap on the total number of vehicles that can be imported. USTR argues that the system is stifling competition with little benefit to consumers. That said, exemptions were made, for instance in 2023, Tesla Motors was allowed to sell its vehicles without the AP rules under the Malaysia’s BEV Global Leaders initiative.
Intellectual property protection – Especially the continued occurrence of the selling of counterfeit goods. A review by the US Trade Representative highlighted Petaling Street in Kuala Lumpur as one of the locations notorious for counterfeit and pirated goods.
Government procurement – Foreign companies bidding for government tenders do not have the same opportunities as some local companies to compete for contracts. USTR argues that Malaysia is not a signatory to the WTO Agreement on Government Procurement which ensures open, fair and transparent conditions of competition in procurement.
Limits to ownership – Although Malaysia has taken steps to liberalise foreign investment policies, requirements for local equity participation remain for selected sectors which only allow foreign ownership of up to 70% (30% local partner).
Higher taxation – Cigarettes in particular have been subject to a 10% Sales and Services Tax (SST) since Sep 2018, higher than the 6-8% accorded for other goods. This tax increase was implemented after the Goods and Services Tax (GST) was replaced by SST.
Labour rights – Malaysia has set a target to eliminate forced labour practices by 2030. However, there are allegations of migrant worker abuse. Migrant workers are employed widely in Malaysia’s manufacturing and plantation industries.
