The Proposed U.S.-Malaysia Free Trade Agreement

Publication Date: January 2009

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Abstract:

This report addresses the proposed U.S.-Malaysia free trade agreement (FTA). It provides a brief overview of the Malaysian economy, a review of U.S. interests in the proposed agreement, an examination of possible issues likely to arise during the negotiations, a comparison of tariff rates between the two countries, legislative procedures, and an appendix with a brief chronology and trade data -- including U.S. exports and imports to Malaysia by sector and exports to Malaysia by state.

The U.S. Trade Representative, on March 8, 2006, announced the Administration's intent to negotiate a free trade agreement with Malaysia. The goal of the proposed FTA is to remove tariffs and non-tariff barriers and expand trade between the two nations. Beginning in June 2006, five rounds of negotiations (alternating between the two countries) were scheduled. The fourth round was held in San Francisco on January 8- 12, 2007. The negotiating goal is to complete the talks by March 31, 2007, in order for Congress consider it before the Administration's Trade Promotion Authority expires on July 1, 2007.

The proposed U.S.-Malaysia FTA is of interest to Congress because (1) it requires congressional approval under expedited legislative procedures; (2) it continues the trend toward greater trade liberalization and globalization; (3) it may include controversial provisions; and (4) it would affect certain trade flows that would, in turn, affect U.S. businesses or farmers, particularly import-competing industries and those exporting to Malaysia.

Malaysia is a rapidly industrializing country with a gross domestic product of $131 billion and a majority Muslim population of 25.6 million people. It is a democratic secular Muslim state; a member of ASEAN, Asia Pacific Economic Cooperation, and other multilateral fora, and shares an interest with the United States in dealing with a rising China and in securing a safe shipping channel through the Strait of Malacca. Malaysia is not a member of the Arab League.

On a most favored nation basis, Malaysia's average tariff rate is 8.1% -- nearly twice the 4.9% of the United States. Under an FTA, exporters in each country would face the same tariff rates -- most of which to be phased out over time -- and a more level playing field for U.S. businesses shipping merchandise to Malaysia.

Areas of particular interest to U.S. exporters include a reduction of Malaysian barriers to exports of automobiles (Malaysia protects its automobile industry with tariffs of 30% on fully assembled vehicles and excise taxes ranging from 80% to 200%) and certain agricultural products, stricter enforcement of intellectual property rights, and broader access in sectors such as financial services, government procurement, telecommunications, and professional services.

Malaysia is the tenth largest trading partner of the United States with U.S. exports of $10.4 billion and imports of $33.7 billion for a U.S. bilateral deficit of $23.3 billion in 2005. The United States is Malaysia's top export market and second to Japan for Malaysia's imports. This report will be updated periodically.