The Latest on Safeguards in Malaysia

Introduction

The General Agreement on Tariffs and Trade (GATT) was signed in 1947 with the aim to liberalise international trade amongst member states by reducing trade barriers. While import surges are a natural effect of trade liberalisation, it is commonly accepted that under certain circumstances, such liberalisation may disrupt the domestic industries of the member states. To alleviate this concern, the GATT established rules and procedures for the use of safeguards by member states to protect their domestic industries against sudden and unforeseen import surges.

Malaysia has been a member of GATT since 24 October 1957, and a member of the World Trade Organization (WTO), the successor to the GATT, since 1 January 1995.

As part of its commitment as a WTO member, Malaysia has enacted its own domestic legislation to adopt and implement the provisions of the WTO Agreement on Safeguards (“Agreement on Safeguards”). This domestic legislation, known as the Safeguards Act 2006 (“Safeguards Act”), provides for a specific trade remedy known as a safeguard measure. Since the coming into force of the Safeguards Act on 22 November 2007, Malaysia has initiated six safeguard investigations on behalf of its domestic producers, with mixed results.

Safeguards

A safeguard measure is an emergency action that can be imposed by the government of Malaysia (“Malaysian government”) under the Safeguards Act in the event of increased imports of a particular product. An increase in imports can be assessed either in absolute terms or relative terms.

• Absolute terms – an actual numerical increase in the quantity of imported products.
• Relative terms – an increase in the quantity of imported products relative to the domestic production of like/directly competitive products.

Only one form of increase is required to satisfy the requirement of “increased imports”. However, the mere existence of increased imports alone does not automatically warrant the imposition of a safeguard measure. Instead, it must be demonstrated that the increased imports of the products have caused serious injury to the domestic industry as a whole.

Additionally, it is necessary to demonstrate that the increased imports are a consequence of unforeseen developments. While the requirement of “unforeseen developments” is not further defined or illustrated either in the Agreement on Safeguards or the Safeguards Act itself, its broad language is presumably intended to cover a wide range of unexpected circumstances.

Initiating a safeguard investigation

An investigation may be initiated by the filing of a petition to the Malaysian government requesting for the initiation of a safeguard investigation. In Malaysia, the Ministry of Investment, Trade and Industry (MITI) is directly responsible for overseeing and determining safeguard measures under the Safeguards Act. As such, any application for safeguard measures ought to be made to MITI.

A petition for the initiation of a safeguard investigation cannot be submitted by a company on its own (unless the company has sufficient market share). Instead, the petition must be submitted on behalf of the domestic industry, and must present sufficient evidence to satisfy, inter alia, the following key elements.

• First, the petitioning company must represent a major proportion of the total domestic production of the like products or products directly competitive to those which would be subjected to the investigation.
• Second, there must be an increase in imports of the products concerned, either in absolute or relative terms. MITI will typically examine the volume of imported products during the most recent three-year period for this element, unless a more representative alternative period is suggested by the petitioning company.
• Third, the increased imports must have caused serious injury to the domestic industry as a whole. While there are many factors which may be considered to establish injury, a few common examples include a decline in domestic sales, reduction in domestic market share and a fall in production.
• Fourth, there must have been unforeseen developments that have resulted in increased imports of the products concerned, causing serious injury to the domestic industry.

Upon receipt of the petition, MITI will have one month to evaluate the data provided and to decide whether to launch a full safeguard investigation. In situations where MITI has determined that there is sufficient evidence of serious injury caused by increased imports of the products, the WTO must be notified that an investigation is to be initiated by the Malaysian government.

Conducting a safeguard investigation

Once the investigation is initiated, all interested parties may submit their views to MITI as part of the investigation process. These interested parties include importers of the products, foreign producers of the products, local domestic producers and trade/business associations. Where necessary, a public hearing may be conducted by MITI for all interested parties to present their views on the investigation.

From the time of initiation, a safeguard investigation may last from three months to slightly less than one year.

Within three to four months from the time the investigation is initiated, MITI may make an affirmative preliminary determination and impose a provisional safeguard measure on imports of the products. Thereafter, within ten to 11 months from the time the investigation is initiated, MITI may make an affirmative final determination and impose a definitive safeguard measure on imports of the products.

Remedy

If the Malaysian government is satisfied that the increased imports have caused serious injury to the domestic industry, it will impose a safeguard measure on the imported products either in the form of safeguard duties, a quota on imports, or both. Such a measure will be applied to the extent necessary to prevent or remedy the serious injury, and to facilitate adjustment of the domestic industry.

Safeguard measures must be applied on a non-selective basis; ie, applied to all imports of the products irrespective of their countries of origin. Therefore, the percentage of safeguard duties imposed will be the same for all supplying countries. However, in a situation where a quota on imports is imposed, the Malaysian government will determine an appropriate allocation of quotas amongst the supplying countries based on their respective market shares during the period of investigation.

Any safeguard measures imposed by the government must be progressively liberalised at regular intervals during the period of application. For instance, any safeguard duties imposed will typically be reduced on a yearly basis until its expiry.

Safeguard measures have a lifespan of four years and may be extended upon expiry of that period if there is evidence that the domestic industry is adjusting, and that the safeguard measure is necessary to prevent or remedy serious injury to the domestic industry.

The maximum lifespan of a safeguard measure is ten years from the time the provisional safeguard measure was first imposed.

Recent developments in Malaysia

As compared to other Asian and ASEAN countries, Malaysia is still taking baby steps into the safeguard scene, having initiated a total of six safeguard investigations since its first in 2011. This can be clearly contrasted with other jurisdictions such as India, which has commonly been regarded as the world’s most proactive jurisdiction in trade protectionism. As of June 2023, India has initiated a total of 48 safeguard investigations since its first investigation in 1997. Indonesia is not far behind, having initiated a total of 38 safeguard investigations since its first in 2004.

The most recent safeguard investigation in Malaysia was initiated by MITI in September 2022, concerning imports of ceramic floor and wall tile products. In this investigation, it was alleged by the petitioner that there was an increase in imports of ceramic floor and wall tile products which has caused serious injury to the domestic industry in Malaysia producing like products, in terms of declining market shares, sales, profitability, production volume, productivity rate and reduction in employment and wages. However, this investigation was ultimately terminated at the preliminary stage, as MITI found that there was no evidence of an absolute or relative increase in imports, nor a causal link between the alleged increase in imports and the alleged serious injury suffered by the domestic industry.

In 2016, however, the Malaysian government issued affirmative final determinations for two safeguard investigations initiated in relation to imports of steel concrete reinforcing bar products and steel wire rod products, respectively. In both investigations, MITI found that there was an increase in imports of the products which caused serious injury to the domestic industry. As a consequence, definitive safeguard duties were imposed on numerous countries for a period of three years, at the starting rate of approximately 14%.

With growing awareness amongst the local industries as to the potential that safeguard measures can offer, an increase in the number of safeguard investigations being initiated may well be seen in the years to come.