GENERAL THEORY OF TRANSPORT AND TRADE
Overview of trade facilitation
In recent decades, the global reduction of tariffs and elimination of trade quotas have significantly contributed to the trend of globalization, particularly in international commerce This has resulted in expanded and strengthened connections within international supply and value chains among developed and developing countries, driving greater demand for global supply sources and enhancing the distribution of goods Alongside the rise of e-commerce, these developments have pressured governments to adapt regulations to align with the evolving global economy and improve operational efficiency The primary challenges in international business now stem from a lack of transparency in regulations and customs rules, rather than tariffs or quotas, leading to increased transaction times and costs, ultimately hindering economic effectiveness.
The World Bank (2005) emphasized that trade facilitation is crucial for development, as investments in trade-enhancing activities are vital for sustainable growth Effective trade facilitation significantly contributes to the economic development of individual countries and the global economy by ensuring timely and cost-effective delivery of goods and services, thereby enhancing competitiveness To capitalize on the benefits of trade liberalization, it is essential for countries, particularly developing ones, to invest in port and road infrastructure and improve customs management Without these strategic investments, they risk missing out on valuable opportunities for economic advancement.
At the beginning of the 20th century, WTO members recognized the importance of trade facilitation and agreed to prioritize it as a key issue This led to a detailed analysis of trade facilitation, highlighting its critical role in enhancing global trade efficiency.
The 1996 Ministerial Conference in Singapore marked the beginning of increasing global concern over trade facilitation among both authorities and entrepreneurs Subsequent agreements, including ACV, PSI, ROO, ILP, TBT, and SPS, introduced terms aimed at simplifying trade procedures, reflecting the initial spirit of trade facilitation However, these measures primarily focused on reducing bureaucratic hurdles that historically protected domestic industries from foreign competition It wasn't until December 2013 that WTO members finalized "The Agreement on Trade Facilitation" as part of the broader Bali package, resulting from the Ministerial Conference held in Bali, Indonesia.
According to ITC (2013): “There is no commonly – used definition of trade facilitation” In other words, it is easy to find a lot of ways to approach to this term
Some originated from trustful sources could be as follows
The World Trade Organization (WTO) defines trade facilitation in the 2003 “Agreement on Trade Facilitation” as the simplification and harmonization of international trade procedures This includes the various activities, practices, and formalities necessary for collecting, presenting, communicating, and processing data essential for the movement of goods in international trade.
A Facilitation Agreement includes essential provisions aimed at speeding up the movement, release, and clearance of goods, including those in transit It emphasizes the importance of fostering effective collaboration between customs authorities and relevant government entities to address trade facilitation and customs compliance issues Additionally, the agreement outlines measures for providing technical support and capacity building in this area.
The United Nations Economic Commission for Europe (UNECE) and its UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT) define trade facilitation as the simplification, standardization, and harmonization of procedures and information flows essential for the movement of goods from sellers to buyers and for facilitating payments Simplification involves streamlining processes to enhance efficiency in trade operations.
Standardization in trade involves the elimination of unnecessary elements and duplications in formalities, processes, and procedures, aligning national operations and documents with international conventions and standards This approach emphasizes the importance of both the physical transit of goods and the accompanying information flows It encompasses all governmental agencies involved in the movement of goods, as well as various commercial entities engaged in trade These discussions are in line with ongoing dialogues at the WTO regarding trade efficiency and cooperation.
The World Bank (2006) highlighted that the initial phase of trade reforms, known as trade facilitation, primarily focuses on reducing border restrictions and liberalizing foreign exchange markets, with many developing countries actively implementing these changes However, successful integration into the global economy now hinges on the execution of complex behind-border measures categorized as trade facilitation These measures encompass a wide range of initiatives, including institutional and regulatory reforms as well as improvements in customs and port efficiency, which are inherently more intricate and costly to implement.
Various international organizations, including UNCTAD and APEC, have contributed to the understanding of trade facilitation While the WTO's definition has served as a foundation for its subsequent negotiations, APEC's definition is broader, covering aspects such as customs, transportation, goods transit, banking, insurance, business, and telecommunications Despite differing definitions, all emphasize the need for greater simplification and harmonization in import-export processes, as well as increased transparency in trade regulations The ultimate goal is to minimize complexity and reduce costs in business operations through various methods.
Trade facilitation involves policy and procedural adjustments aimed at reducing the costs and time associated with transporting goods both domestically and internationally This concept excludes considerations of tariffs, non-trade barriers, and import quotas.
Favorable trade facilitation benefits all parties involved, as simpler transaction processes lead to increased trade volume and higher tax revenues for governments Enhanced effectiveness and transparency in public services foster greater confidence and reduce fraud, ensuring that government income is protected Additionally, improved trade facilitation strengthens economic competitiveness, particularly in exports, driving economic growth and attracting foreign investment For businesses, streamlined processes result in faster delivery times, significantly reducing inventory and transportation costs, thereby enhancing competitive advantages Furthermore, consistent and efficient public services, such as customs and border management, minimize paperwork for enterprises Customers also benefit from reduced costs and timely deliveries, thanks to the elimination of cumbersome procedures.
Trade facilitation offers significant benefits at both national and international levels, particularly in attracting foreign investment and boosting economic growth by reducing delays and costs The World Bank (2012) highlights that exporting goods from developing countries takes three times longer than from developed nations, largely due to the excessive number of steps and required signatures involved in the process According to the OECD (2011), addressing these inefficiencies is crucial for enhancing trade competitiveness and creating job opportunities.
Reducing the time spent at sea can boost trade by approximately 4.5% for each country, highlighting the importance of efficient maritime operations This improvement in trade logistics offers four key benefits, particularly for developing nations, by facilitating easier access to global markets, enhancing economic growth, creating job opportunities, and promoting sustainable development.
- Enhance competitive advantages in trade
- Invite foreign direct investment (FDI)
- Encourage small and medium enterprises to join international trade
Trade facilitation significantly accelerates economic growth, as evidenced by a World Bank study indicating that every dollar invested in trade facilitation yields 70 dollars in exports for recipient countries Additionally, reforms in underperforming nations within the APEC region could boost intra-APEC trade by an impressive USD 245 billion, highlighting the substantial benefits of enhancing trade processes.
Regional and international policies on trade facilitation
The previous section identified three key elements that enhance trade facilitation: efficient transportation systems and logistics services, streamlined trade procedures, and the restructuring of supply chains However, there remains a pressing need for a comprehensive policy framework to guide and regulate these components effectively.
A policy framework encompasses both regional and international policies that serve as essential soft infrastructure, playing a crucial role in the coordination of trade, transportation of goods, and logistics services.
Figure 1.2: Structure of policy framework for trade facilitation
Source: National Committee for International Economic Cooperation, 2011 cited in WB, 2013, p.36
The upper figure illustrates the components of a policy framework
At the apex of the triangle are macroeconomic policies and strategies aimed at enhancing trade facilitation, aligned with international trade promotion agreements that the nation is part of These policies and agreements are essential in guiding national trade facilitation strategies Additionally, there are region-specific policies that support the development of targeted programs and projects to boost the local economy.
At the center of the triangle are various institutions, encompassing both organizational structures such as government agencies and official associations, as well as the legal framework that includes laws and legislation These entities aim to promote fair competition in trade by supporting economic activities and executing the policies and strategies outlined in the upper section.
- Organizational structure refers to a collection of management agencies in charge of trade facilitation at a high level and organizations which are due to adhere the regulations mentioned in legal framework
- Legal framework refers to law and legislation governing trade, business activities, transport management, logistics development and building up infrastructure
At the foundation of the triangle are trade competitiveness and transportation activities, which encompass transport and logistics services, trade regulatory procedures, and supply chain development.
The synchronized collaboration among the three components of the trade triangle is essential for enhancing a nation's trade competitiveness To achieve this, trade competitiveness and facilitation activities must operate within a legal framework and organizational structure that align with national policies and strategies, while also adhering to international agreements.
Smooth operation could be achieved as long as there is coordination between government and private sector
1.2.2 Regional and international organizations working on trade facilitation
For a country aiming to enhance its trade logistics and facilitation, establishing a well-structured organizational framework and a robust legal foundation is essential This groundwork serves as the cornerstone for effectively implementing policies and strategies, which are crucial for achieving the desired development in trade logistics.
The organizational structure and legal framework must align with international agreements established by regional or global organizations to avoid conflicts.
- Developing and administering international conventions and agreements on trade facilitation
- Developing relevant recommendations, guidelines, standards and other instruments
- Providing relevant technical assistance and capacity building to developing and transition economies
- Providing a platform for discussion of trade facilitation matters
Some organizations play key role all over the world on this issue They are:
While there was no single agreement specifically focusing on a legal framework for measures relating to trade facilitation, WTO agreements covered some aspects of it
The Customs Valuation Agreement and the Agreement on Rules of Origin are key components of the General Agreement on Tariffs and Trade (GATT), focusing on the classification and valuation of goods for shipping Additionally, the Agreement on Pre-shipment Inspection, established in 1994 by the WTO, outlines regulations for conducting inspections prior to shipment Furthermore, some experts suggest that the Agreement on Technical Barriers to Trade (TBT) also plays a significant role in these processes.
The 1994 WTO Agreement significantly influenced trade facilitation by introducing regulations for technical standards and conformity assessments, ensuring these do not hinder trade This approach was mirrored in the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) Additionally, GATT 1994 Articles V, VIII, and X outline further trade facilitation regulations At the 1996 WTO Ministerial Meeting in Singapore, trade facilitation was officially added to the agenda for the upcoming trade negotiations, which commenced in Doha in 2001 as part of the Doha Development Agenda and continues to this day.
In negotiations WCO trade facilitation, WTO members seek to draft a new legal framework for trade facilitation
The crucial foundation for trade facilitation agreement was believed to lie in Articles V, VIII and X GATT 1994 These articles provided written rules that had arisen since 1947 and covering:
- Article VIII - Fees and formalities connected with importation and exportation
Article X focuses on the publication and administration of trade regulations, highlighting the significance of trade facilitation The Negotiating Group on Trade Facilitation (NGTF) has evaluated whether existing articles adequately promote efficient border management and effective domestic procedures This review has led to necessary clarifications and improvements based on proposals from WTO Member States.
1.2.2.2 United Nation Economic Commission for Europe, with United Nations Centre for Trade Facilitation and Electronic Business (UNECE with UN/CEFACT)
The UNECE prioritizes trade facilitation and e-commerce, serving as a key focal point within the UN system Established in 1960, its original team, Working Party No 4, evolved into the United Nations Center for Trade Facilitation and Electronic Business (UN/CEFACT), promoting “Simple, Transparent and Effective Processes for Global Commerce.” A notable recommendation from UN/CEFACT is UNECE Rec.33, which advocates for Single Windows for streamlined export and import information submission Additionally, UNECE is a co-founder of the United Nations Network of Experts for Paperless Trade in Asia and the Pacific (UNNExT).
The UNECE aims to enhance trade facilitation and e-commerce by helping countries and institutions improve their understanding of national and international transactions Its goal is to boost national competitiveness and participation in global markets through the simplification and harmonization of processes, procedures, and information flows.
- Support and strengthen the capacity of national institutions for trade facilitation through advisory services and workshops
- Help set up national single windows for exportation - importation and information and its operation
- Analyze and streamline business processes to eliminate barriers and enhance business efficiency
- Support the replacement of electronic alternatives to paper documents of the international supply chain
- Support business transactions without paper work
UN/CEFACT, a subsidiary of the UNECE's Intergovernmental Commission for Trade, is managed by a bureau that includes a President and Vice-Presidents This organization brings together a diverse global representation of experts from intergovernmental organizations, national authorities, and the business community to enhance trade facilitation and collaboration.
Up until now, UN/CEFACT has published:
- Technical standards, such as specifications illustrating how to develop one or more commercial standards and / or recommendations
- Commercial standards, such as specifications that provide relevant regulations, guidelines and/or principles within the framework of trade facilitation and e – commerce
- Recommendations on trade facilitation that formally guide public authorities, the private sector and the business community
The World Bank's trade facilitation efforts focus on minimizing the costs linked to the transportation of goods and services within the international supply chain, addressing aspects such as financial expenditure, time efficiency, and reliability By lowering trade costs, these initiatives link impoverished communities to global markets, enhancing their employment, income, and consumption opportunities, and ultimately supporting the World Bank Group's primary goal of poverty reduction.
Priorities for trade facilitation and logistics include:
- Improving trade corridors and regional trade facilitation frameworks
- Enhancing the effectiveness of border management, including customs, police, health, quarantine, agriculture, immigration and standards agencies
- Promoting markets for logistics services
Key performance indicators of trade facilitations
It is extremely important to analyze key performance indicators in assessing trade facilitation experiences in a particular country and giving recommendations
This section will go into detail 4 key indicators related to trade facilitation activities and brief on some other ones
The Logistics Performance Index (LPI) is a valuable interactive tool designed to assist countries in understanding their trade logistics performance, highlighting both challenges and opportunities for improvement Since its inception, the LPI has enabled over 150 nations to make meaningful comparisons in their logistics capabilities up to 2014.
The LРI is based on a worldwide survey of oрerators on the ground, including exрress carriers and global freight forwarders, рroviding assessment of the logistics
“friendliness” of the countries in which they run business and their counterрarts
They conduct thorough research on the countries they operate in, alongside a qualitative assessment of other nations involved in their business activities This approach is enriched by insights from the global logistics environment Additionally, quantitative data enhances feedback from operators regarding the effectiveness of crucial elements within the logistics chain in partner countries.
The Logistics Performance Index (LPI) combines quantitative and qualitative metrics to enhance logistics efficiency in various countries It evaluates performance across the logistics supply chain, providing insights from both domestic and international perspectives.
Domestic LPI offers comprehensive evaluations of a country's logistics through insights from local experts It encompasses in-depth information about institutions, essential logistics processes, as well as performance metrics related to cost and time, providing a thorough overview of the logistics environment.
The International Logistics Performance Index (LPI) evaluates countries based on six key dimensions, presenting an overall LPI score that enables benchmarking against global leaders and specific income or regional groups This scorecard highlights the best performers in both the world and selected categories, facilitating a comprehensive comparison of logistics performance across different nations.
- Custоms: Efficiency оf the clearance рrоcess by bоrder cоntrоl agencies (i.e., sрeed, simрlicity and рredictability оf fоrmalities), including custоms
- Infrastructure: Quality оf trade and transроrt related infrastructure (e.g.: infоrmatiоn technоlоgy, роrts, rоads, railrоads)
- Shiрments: Ease оf рreрaring cоmрetitive shiрments in terms оf рrice
- Cоmрetence and quality оf lоgistics services
- Tracking and tracing: Ability tо trace and track cоnsignments
- Timeliness: Whether shiрments reach роrt оf discharge at the schedule time оf destinatiоn оr nоt
Figure 1.3: Six key dimensions of LPI
Source: WB, Connecting to compete, 2014, p.7
The scorecards illustrate comparative performance—the dimensions demonstrate a scale from 1 (the lowest) to 5 (the highest), relevant to the possible comparison groups—of all countries (world), region and income groups
The Global Competitiveness Index, a key component of the World Economic Forum's Global Competitiveness Report since its inaugural edition in 2004, effectively integrates both macroeconomic and microeconomic factors into a single indicator, building on the foundations of the Growth Development Index and Business Competitiveness Index.
The 2014 report assessed the competitiveness of nearly 150 countries, focusing on the factors that drive their productivity and wealth It defined "competitiveness" as the combination of institutions, policies, and elements that influence a nation's productivity (WEF, 2014) Serving as a critical benchmark for evaluating national competitiveness, the report fosters dialogue among governments, businesses, and citizens on actions necessary for enhancing national wealth It highlighted that higher levels of innovation and vocational skills among citizens significantly contribute to economic growth Furthermore, the report emphasized the need for collaboration among government leaders, enterprises, and society to overcome economic challenges and achieve sustainable growth.
The different aspects of GCI are captured in 4 pillars: inflation rate, corruption labor skills and infrastructure
The Enabling Trade Index, a key component of the "Global Enabling Trade Report" by the World Economic Forum, evaluates trade facilitation in over 100 emerging countries First published in 2008, the report relies on reliable data from esteemed international organizations such as the WTO, World Bank, and UN It assesses essential services, policies, and factors that enhance cross-border trade through four main areas: business environment, border administration, communications infrastructure, and transport market access.
1.3.4 Global Connectedness Index (GCI – DHL)
The DHL Global Connectedness Index, developed by Steven Altman and Pankaj Ghemawat in 2011, analyzes global trends in information, capital, trade, and people flows across borders, providing a detailed assessment of the state of globalization worldwide Published annually, the report evaluates three key dimensions: depth, which measures the frequency and volume of trade; breadth, indicating the number of trading partners; and directionality, reflecting the ease of doing business with other countries The latest edition, released in 2014, highlights the swift economic recovery following the crises of 2007.
In 2010, global trade depth continued to pose challenges for connectivity, with Holland and Europe recognized as the most connected regions The Global Connectivity Index (GCI) highlights the importance of DHL as a valuable resource for researchers and investors, providing insights into potential economies and aiding in informed investment decisions Additionally, authorities can utilize this tool to identify their economic strengths and weaknesses in connectivity.
After thorough investigation, the four identified indexes have proven effective in evaluating trade facilitation across countries However, to pinpoint specific issues related to trade facilitation, particularly in transport infrastructure and logistics services, incorporating additional specialized indicators would be beneficial.
- Liner Shipping Connectivity Index (LSCI): was first published in 2003 by UNCTAD
- Air Connectivity Index (AIC): was first published in 2007 by WB to assess the integration of air transportation worldwide network
Studying transportation development and trade facilitation in a specific country is a complex endeavor that requires a multidisciplinary approach An essential starting point is a comprehensive overview of the country's economy, which encompasses its geographic positioning, recent economic trends, short-term potential, and the prospects for foreign direct investment (FDI) due to the significant capital required for transportation projects Additionally, understanding the organizational structure of relevant government agencies and their management practices is crucial, as these elements greatly influence governance in transport and trade sectors Utilizing trade and transport capability indicators will provide valuable insights for researchers, guiding them toward accurate conclusions in subsequent sections of this thesis.
CURRENT STATUS OF THE DEVELOPMENT OF
Overview of Malaysia’s economy
2.1.1 Geographic location and political situation of Malaysia 2.1.1.1 History and geographic location of Malaysia
From the late 18th century to the early 20th century, the United Kingdom established colonies in Southeast Asia, which were later invaded by Japan during World War II In 1948, the territories on the Malay Peninsula formed the Federation of Malaya, which gained independence in 1957 The Federation expanded in 1963 to include the East Malaysian states of Sarawak and Sabah, as well as the former British colony of Singapore, marking the birth of Malaysia However, the new nation faced challenges, including Indonesia's attempts at dominance, the Philippines' claim over Sabah, and Singapore's eventual separation from the Federation.
Malaysia, situated in the heart of Southeast Asia, shares its borders with Singapore to the south, Thailand to the north, and Indonesia to the south and west The country consists of two primary regions: Peninsular Malaysia and the states of East Malaysia.
Sabah and Sarawak to the north of the island of Borneo, which lie across the
The South China Sea features a diverse landscape characterized by forested mountain ranges that extend from north to south, flanked by low-lying coastal plains With a coastline stretching approximately 1,900 kilometers, this region showcases a unique geographical blend of mountains and plains.
The western coast of Malaysia features mudflats and mangrove swamps that create a network of bays and inlets, while the east coast boasts serene beaches surrounded by lush jungles, with cleared and cultivated plains nearby Key islands include Langkawi, an archipelago of 99 sub-islands, along with Penang and Pangkor on the west coast, and Tioman, Redang, Kapas, Perhentian, and Rawa on the east coast In Malaysian Borneo, Sarawak is characterized by alluvial and swampy coastal plains, with rivers flowing through the jungle-covered hills and mountains of the interior.
Sabah has a narrow coastal plain which gives way to mountains and jungle Mount Kinabalu whose height is 4,094m, has been acknowledged as the top of Malaysia
2.1.1.2 Political situation and foreign relations of Malaysia
Malaysia operates under a constitutional monarchy and employs a federal election system, closely resembling the Westminster parliamentary model inherited from British colonial rule The head of state is known as the Yang di-Pertuan Agong.
The King of the Malay states is elected for a five-year term from a rotation among nine monarchies, while four other states have nominal governors who do not participate in the selection process Following an unofficial agreement, the Sultan's role has become largely ceremonial due to constitutional changes made in 1994, with legislative powers divided between state and federal legislatures.
Executive authority is given to the Cabinet headed by Prime Minister
Malaysia is a one of the founders of the ASEAN, Organization of Islamic Cooperation (OIC), and also participates in many international organizations such as the
The UN Economic Cooperation Forum for the Asia-Pacific and the Non-Aligned Movement (NAM) highlight Malaysia's significant role in regional diplomacy Malaysia has previously held the chairmanship of key organizations such as ASEAN, the Organization of Islamic Cooperation (OIC), and NAM multiple times Notably, Kuala Lumpur hosted the East Asia Summit in 2005, further establishing its prominence in fostering international collaboration.
Malaysia has effectively fostered diplomatic relations with fellow ASEAN members, including Vietnam, Indonesia, the Philippines, Singapore, Laos, Cambodia, Myanmar, Brunei, and Thailand Currently, Malaysian embassies are established in all ASEAN countries and beyond, facilitating positive interactions with neighboring nations Furthermore, Malaysia's relationships with key partners such as the European Union, United States, and Japan have also seen significant growth.
It could be generally concluded that Malaysia is a country of stable politics
The nation is governed by a democratically-elected coalition committed to its economic development plan Key initiatives, such as the Economic Transformation Program (ETP), have been implemented to ensure the government adheres to effective policies and fosters a conducive environment for investment and business growth.
This is to guarantee the investors that Malaysian government firm yet flexible enough to address their needs
Malaysia features a state-oriented and open market economy that is relatively new to industrialization, with the government playing a key but diminishing role in economic activities through macroeconomic policies In the financial year 2014-2015, Malaysia's economy was recognized as one of the most competitive in Asia, ranking 6th regionally and 20th globally, surpassing countries like South Korea, France, and Australia In 2014, Malaysia's GDP (PPP) was USD 746.821 billion, trailing behind only Indonesia and Thailand among ASEAN members A comparison reveals significant growth, as the PPP GDP was USD 383.6 billion just a few years prior, and the PPP per capita GDP was USD 8,100, approximately one-third of the figure in 2014.
Figure 2.1: Malaysia’s GDP growth from 1995 to 2014 (%)
Source: Author (based on WB, Malaysia overview, 2015, available at: http://www.worldbank.org/en/country/malaysia/overview)
Since the late 1960s, Malaysia has evolved from a raw materials supplier of tin and rubber to a diversified economy, leading in the export of electrical appliances, natural gas, and palm oil Despite facing significant challenges during the Asian financial crisis of 1997/98, Malaysia swiftly recovered and has consistently achieved a growth rate exceeding 5.5%.
2000 to 2008 Once again, the nation was affected by the global financial crisis in
Year the following year but had an immediate recovery right then In 2014, GDP growth was measured at 6%
Malaysia has experienced significant economic growth, with poverty rates dropping from 49.3% in 1970 to just 1.0% in 2014 However, income inequality remains a concern, as evidenced by a Gini coefficient of 0.4 in 2014, compared to 0.31 in South Korea and 0.33 in Japan To ensure medium-term financial stability, Malaysia must implement structural reforms that enhance competitiveness and improve human capital By focusing on profit-boosting changes and adapting to global trends in oil and gas markets, Malaysia aims to secure its position among high-income economies while addressing existing challenges.
The New Economic Model (NEM), initiated in 2010, aims to elevate Malaysia to a high-income nation by 2020 while ensuring inclusive and sustainable growth This model introduces significant changes to drive economic development, primarily led by the private sector, and seeks to advance Malaysia's economy to a higher level.
In the past decade, Malaysia has seen a significant surge in its international trade value, escalating from RM 969 billion in 2005—comprising RM 536 billion in exports and RM 433 billion in imports—to over RM 1.45 trillion in 2014.
Malaysia's trade performance remains robust, with exports valued at RM 766 billion and imports at RM 683 billion, resulting in a notable trade surplus The country has consistently outperformed in exports, maintaining a positive trade balance, which reached RM 83 billion last year This figure is significant, representing half of the trade surplus recorded just before the global crisis in 2008.
143 billion) In general, both import and export value tends to go up in the future
Figure 2.2 describes the changes in foreign trade value in the recent decade
Figure 2.2: Malaysia’s foreign trade value and trade balance (2005 - 2014)
Source: Author (based on data of Department of Statistics Malaysia, 2015)
Overview of Malaysia government’s operation of transport and trade facilitation
2.2.1 Management of trade sector 2.2.1.1 Ministry of Domestic trade, Co-operatives and Consumerism
To achieve developed nation status by 2020, Malaysia envisions a vibrant local exchange sector supported by an empowered consumer base The Ministry aims to create a tripartite collaboration that benefits consumers, investors, and businesses alike Acting as the champion of consumerism, the ministry will drive domestic trade while ensuring key sectors remain sustainable, progressive, and competitive By employing innovative strategies and promoting fair competition, the ministry seeks to enhance the domestic economy and establish a consumer-focused ecosystem grounded in ethics.
2.2.1.2 Ministry of International Trade and Industry
The Ministry of International Trade and Industry aims to position Malaysia as an attractive investment destination and enhance its competitiveness in the global economy by 2020 It accomplishes this by formulating strategic plans that promote high value-added goods and services, while also fostering industrial development to accelerate economic growth Key responsibilities include encouraging investment and improving Malaysia's international market standing.
- To plan, detail and actualize strategies on modern advancement, worldwide exchange and venture
- To promote internal and external investment
- To encourage Malaysia’s exports of producing products and providing services by contracting bilateral, multilateral and regional trade agreements and cooperation
- To boost national productivity and competitiveness in manufacturing sector
2.2.2 Customs and other border agencies
The Royal Malaysian Customs Department, a government agency, plays a vital role in levying taxes and facilitating trade while ensuring compliance with laws to promote economic growth and safeguard national security and public wealth Its core values, encapsulated in the acronym "i-speed," highlight its commitment to Integrity, Speed, Professionalism, Efficiency, Effectiveness, and Dynamism.
The Ministry of Transport is a governmental agency responsible for overseeing transport infrastructure and systems It develops an integrated network of transport infrastructure and implements advanced, efficient transport systems to ensure safe and accessible public transportation for society The ministry fosters a competitive environment in the transport industry while maintaining effective nationwide monitoring Achieving these goals involves fulfilling specific functions that enhance the overall transportation landscape.
- Plan, devise and execute approaches concerning rail, sea, avionics transportation and ports
- Implement physical improvement projects which comprise rail, sea, port and common aeronautics foundation
- Manage the joining of intermodal transportation to attain consistent travel
- Registration of all modes of vehicle
- Determine the valuing strategy (apart from area business vehicles)
- Governing strategies and concessionaire connected organizations
- Identify and observe legitimate issues and security guidelines
2.2.4 Malaysia’s plans on investing in transport and logistics
Recognizing the vital role of transportation and logistics in economic growth, the Malaysian government prioritizes these sectors in its development plans A comprehensive and efficient public transport network is essential for sustained economic prosperity, making urban areas more attractive for living and working This is particularly crucial in cities serving as economic hubs, where public transport facilitates the daily mobility of thousands In the absence of a well-functioning public transport system, cities may face congestion, decreased productivity, and diminished living standards, ultimately undermining their competitiveness.
In response to the urgent need for improvement, the Government initiated a significant restructuring of the public transport sector, leading to the establishment of the Land Public Transport Commission (SPAD) and the introduction of the Land Public Transport Bill in 2010 Enhancing urban public transport was designated as one of the six National Key Result Areas (NKRAs) under the Government Transformation Program (GTP), highlighting its importance as a national priority An investment of approximately [insert amount] was allocated to support these initiatives.
RM2.8 billion has been spent on the NKRA initiatives to be completed in the first two years of the plan period (The Economic Planning Unit, Malaysia Prime Minister’s Department, 2010)
The government aims to enhance public transport usage in urban areas, specifically targeting Greater Kuala Lumpur (KL) The objective is to boost the public transport modal share from 12% in 2012 to 30% by the set deadline.
2016 During the Plan period, strategies to position public transport as the mode of choice for all commuters will focus on:
- Enhancing investments in transport capacity to keep pace with urban transformation
- Driving regulatory and industry reform
- Setting up a robust monitoring and enforcement management system
- Promoting a ceaseless system across modes and operators
2.2.5 Malaysia’s participation in international transport conventions and agreements
Since 1971, Malaysia has been a member of the International Maritime Organization (IMO), a United Nations agency dedicated to enhancing the safety and security of international shipping while preventing environmental damage from ships The IMO also plays a crucial role in legal matters related to maritime disputes and indemnity issues, facilitating international maritime transport Additionally, Malaysia has been a member of the International Civil Aviation Organization (ICAO) since 1958, which serves as a platform for global discussions on civil aviation ICAO establishes standards, conducts assessments, and provides support to enhance aviation capabilities among its members and partners.
Malaysia was first chosen to attend ICAO council in 2007 and successfully saved its seat for another term (2013 – 2016) despite the accident of flight coded MH370
As a founding member of ASEAN in 1961, alongside Thailand and the Philippines, Malaysia has consistently adhered to all agreements established within the organization The ASEAN Trade in Goods Agreement (ATIGA) has garnered significant attention from Malaysia and other ASEAN countries, highlighting its importance in regional trade relations.
Malaysia’s indicators of trade facilitation
Malaysia exhibits notable similarities with its ASEAN neighbors, including Thailand, Vietnam, and Singapore, in aspects such as nature, geography, demographics, and economy However, the data presented in the table and figure demonstrate that Malaysia excels in utilizing logistics services to enhance trade efficiency compared to these other countries.
From 2007 to 2014, Malaysia consistently ranked among the top 30 countries in the Logistics Performance Index (LPI) In the latest report, Malaysia achieved an LPI score of 3.59, placing 25th out of 160 countries In 2014, Malaysia was the runner-up in five LPI dimensions within the Southeast Asia region, excluding timeliness, while Singapore was the only ASEAN member in the top five Malaysia's strong performance in 2007 and 2012 was notable, although LPI scores for several nations, including Malaysia, declined in 2010, likely due to the global financial crisis of 2008-2009.
Table 2.4: LPI score and rank of some ASEAN nations (2007 - 2014)
LPI Rank LPI Rank LPI Rank LPI Rank
Source: Author (based on WB, Connecting to compete, 2014, pp 13 – 25)
Figure 2.3: LPI dimensions of Malaysia and some other ASEAN nations (2014)
Source: Author (based on WB, Connecting to compete, 2014, pp 36 – 42)
Figure 2.4 illustrates the correlation between national income, indicated by the logarithm of GDP per capita, and the LPI score Notably, Malaysia, along with Vietnam and Thailand, emerges as an LPI overperformer, with Malaysia leading in both LPI score and GDP among the trio.
Figure 2.4: LPI overperformers and underperformers
Source: WB, Connecting to Compete, 2014, p.13
Singapore Malaysia Thailand Vietnam Philippines
Besides LPI, ETI is another indicator of trade facilitation deserving attention of researchers
Table 2.5: ETI score and rank of some ASEAN nations (2010 - 2014) Country
Score Rank Score Rank Score Rank
Source: Author (based on WEF, Global Enabling Trade report, 2014, pp 9 - 19)
The data highlights a notable correlation between the ETI and LPI rankings from 2010 to 2014, with Singapore consistently holding the top position, followed by Malaysia, Thailand, Vietnam, and the Philippines Notably, the ETI scores for these countries peaked in 2012.
Transport infrastructure in Malaysia
Malaysia boasts a robust infrastructure system, providing its population with excellent access to essential transportation networks, including roads and railways Recognizing the significance of infrastructure for economic growth, the government has consistently prioritized funding for this sector in its national development plans since 1966 Additionally, the private sector has significantly contributed to infrastructure development, investing billions of USD between 2000 and 2011, further stimulated by government initiatives to liberalize transport sectors However, there remains a need for the government to enhance the quality of infrastructure in Sabah and Sarawak to match that of Peninsular Malaysia, as detailed in the accompanying transport system maps.
Malaysia boasts an extensive road network spanning 98,721 km, predominantly paved for optimal travel The country offers high-quality local and long-distance transportation options, including buses, taxis, and tourist coaches Key highways in Peninsula Malaysia include the Federal Highway Route 2 (FHR2), the interurban North-South Expressway, and the New Klang Valley Expressway (NKVE).
Expressways spanning over 1,000 km connect key urban centers and industrial hubs, extending from Johor Bahru in Johor to Bukit Kayu Hitam in northern Kedah.
The East-West Highway is a vital part of the Asian Highway System, linking Malaysia and Thailand Enhanced road infrastructure and an extensive road network, coupled with population growth and increasing income levels, have led to a surge in vehicle ownership This rise has intensified concerns over road accidents and traffic congestion, highlighting the urgent need for a comprehensive urban transport system.
The Government is committed to developing an integrated public transport system that encompasses trains, airplanes, buses, and cabs To enhance the quality, efficiency, and reliability of public transport, significant measures have been implemented, including the consolidation of transport corporations and the provision of additional amenities such as route information systems, terminals, depots, and improved signage.
The Federal Roads Act of 1984 governs the construction, usage, and maintenance of expressways, which are designated as high-speed routes featuring a minimum of two lanes in each direction Predominantly, these expressways are categorized as limited-access roadways, ensuring efficient traffic flow.
Since 2004, the Smart TAG and Touch ‘n Go electronic toll collection systems have been mandatory on all expressways, leading to the discontinuation of previous electronic payment methods used by other highway operators in favor of a standardized approach.
Malaysia's railway system features various modes of transport, including light rail transit (LRT), heavy rail, monorail, and a unique funicular railway LRTs are predominantly found in urban areas, while heavy rail is favored for freight transport and intercity passenger services Notably, there is an express railway line with two express train services connecting Kuala Lumpur's inner city to Kuala Lumpur International Airport Additionally, the only funicular railway line in the country is located in Penang.
Most states in Рeninsular Malaysia are covered by the network of railways
Sabah stands out as the only state in East Malaysia with a well-developed railway system Additionally, Singapore, while not part of Malaysia, utilizes Malaysia's extensive railway network for transportation.
Peninsular Malaysia features an extensive intercity railway system comprising two primary lines: the West Coast Line and the East Coast Line This network spans approximately 1,700 km and connects with the Thai railway system Additionally, Malaysia's national petroleum company, Petronas, operates a railway line that links its oil refinery complex in Kerteh to the petrochemical complex in Gebeng, Kuantan, and Pahang The only express railway in the region is a 57 km standard gauge line that connects Kuala Lumpur's inner city to its international airport.
In Kuala Lumpur, three systems are recognized as light rail transits, with two serving the city's residents and one operating at the international airport to transport passengers between the satellite building and the main terminal.
Malaysia's sole monorail system, spanning 8.6 km, serves as a vital public transport link in Kuala Lumpur, connecting Titiwangsa in the north to the city center.
KL Sentral, located in the south, features an elevated network utilizing two-car trains The Penang Hill Railway, the only funicular railway system in Malaysia, primarily serves tourists traveling to Penang Hill but is also used by local residents This railway consists of two independent sections with a total length of 1.2 km Alongside the Peak Tram in Hong Kong, it stands out as one of the few funicular railways in East Asia employing gauge track.
2.4.3 Maritime and ports infrastructure and network
Malaysia's primary ports, Port Klang and Port of Tanjung Pelepas, play a crucial role in maritime trade Port Klang, formerly known as Port Swettenham, is the largest and busiest port in the country, located in the Klang district of Selangor It is well-connected to Kuala Lumpur, Shah Alam, Petaling Jaya, and other areas in the Klang Valley through various Komuter stations The Port Klang Free Zone serves as an integrated free zone and regional industrial park, facilitating product fabrication and international cargo distribution along the Straits of Malacca This industrial park offers incentives for investors, including research and development commissions, tax exemptions on most products, and industrial allowances, making it an attractive location for business startups and manufacturing Additionally, Port Klang is easily accessible from KL International Airport and is linked to Northport and Westport.
The Port of Tanjung Pelepas, located on the eastern side of the Pulai River in southwest Johor, has been a significant player in container shipping since its launch in 2000, experiencing remarkable growth due to its proximity to busy sea lanes and serving as an alternative to Singapore's terminals The port's sustained development was bolstered when Maersk Sealand, the world's largest container ship operator, acquired a nearly one-third equity stake in its holding company With 10 berths totaling 3.6 km of linear wharf length and a container yard spanning 1.32 million square meters, the port boasts a storage capacity exceeding 156,000 twenty-foot equivalent units (TEU) and a total capacity of over 8 million TEU per annum.
Transport corridors and international supply chains in Malaysia
Since 2014, the Malaysian government has focused on developing key transport corridors, encompassing railway, airway, and maritime transport Notable projects include the High-Speed Rail Link connecting Kuala Lumpur and Johor Bahru, along with advancements in the Senai area.
The airport is being developed as a regional freight center, complemented by a direct rail connection to Kuala Lumpur from the East Coast line Furthermore, Pelabuhan Tanjung Pelepas is being promoted as a key regional hub Significant investments are being made in the railway corridor between Malaysia and Singapore, enhancing regional integration and connectivity.
Malaysia has actively engaged in regional organizations focused on transport and trade facilitation, particularly within ASEAN The country has signed and effectively implemented numerous agreements to enhance its integration into international supply chains, including the ASEAN Framework Agreement on Facilitation of Inter-State Transport (2009), the Cross-Border Transport Facilitation Agreement, and the Master Plan on ASEAN Connectivity.
Malaysia plays an active role in the Asia-Europe Meeting (ASEM), where nations collaborate to address shared challenges, including trade facilitation Through these policy dialogues, Malaysia contributed to the development of the ASEM Trade Facilitation Action Plan (TFAP) in 2008, which outlines comprehensive guidelines for fostering a conducive environment for international trade Additionally, Malaysia, as a member of the APEC, has engaged in two iterations of the APEC Trade Facilitation Action Plan, committing to undertake essential measures focused on taxation and enhancing transportation capacity.
Transport and logistics services in Malaysia
Road transport plays a vital role in Malaysia due to its extensive network and high-quality roads, enabling efficient delivery of goods across the country This has allowed road freight transport companies to thrive, offering a diverse array of services such as groupage, part load, and full load shipments These companies are equipped to handle various types of cargo, including delicate items like hanging garments and temperature-sensitive freight, as well as oversized goods Additionally, a wide selection of trailers, including box, curtain, mega, open, and reefer trailers, is available to meet customer needs.
Malaysian railroads account for only about 5% of the country's total freight traffic, primarily due to shorter distances and lower shipment volumes compared to other nations The average freight railway journey in Malaysia is less than 300 km, making trucking a more competitive option for transportation within this range Additionally, bulk commodity shipments, such as minerals, have been largely overlooked in the rail freight sector.
Consequentlу, the majoritу of freight moved on Keretapi Tanah Melaуu Berhad (KTMB), the largest railroad in Malaуsia, is common goods
KTMB operates a total fleet capacity of 3,500 TEUs (Twenty Foot Equivalent Units) for cargo, utilizing ISO standard containers that measure 40 feet in length, 8 feet in width, and 9 feet 6 inches in height, with a capacity of 60.3 cubic meters The company facilitates the transportation of containers between four rail-connected ports—Butterworth, Port Klang, Pasir Gudang, and Tanjung Pelepas—as well as various inland stations and clearance depots Notably, services are provided between Port Klang and Butterworth to Ipoh, Malaysia's first inland dry port KTMB offers a range of high-speed train services, including four daytime trains (Ekspres Kenali, Ekspres Sinaran, Ekspres Tebrau, and Ekspres Rakyat) and four late evening trains (Ekspres Timuran, Senandung Malam, Ekspres Wau, and Senandung Langkawi).
The Kuala Lumpur region provides efficient transportation options for visitors through its Commuter Rail and Light Rail Transit (LRT) services Key interconnection points between the LRT and Commuter Rail include Sentral Kuala Lumpur, Bank Negara, and Banda Taski Selatan stations Additionally, Sentral Kuala Lumpur and Nilai stations offer convenient access to the KL International Airport, enhancing connectivity for travelers.
2.6.3 Maritime transport and port services
Containerized shipping accounts for 70% of Malaysia's manufactured trade, with total container movements increasing by at least 10% annually, particularly in Malaysian ports This significant growth in container usage is largely driven by advancements in maritime technology and key logistics challenges impacting the region's economy.
Despite improvements in efficiency at regional container ports, Malaysia struggles to meet the rapidly growing demand for berth and storage space Additionally, the capacity for container fleets on the Southeast Asia to East Asia routes has increased by over 20% annually.
Between 2000 and 2010, container berth capacity increased by at least 8% annually, as noted by Mohd Hafizzuddin Md Damiri (2014, p.5) To address the growing demand, countries in the region, particularly Malaysia, constructed new berths and converted general cargo berths to accommodate container handling Despite these expansions, the increased capacity necessitated larger land areas for container storage and yards, which still struggled to meet the rising demands.
The potential for further cost reduction through larger vessels is limited, prompting a shift towards more direct services from feeder ports By utilizing more efficient smaller vessels to handle greater volumes, the cost penalties associated with transfers at hub ports can be mitigated This emerging trend is already reflected in the slower growth rates observed at Port Klang.
In Malaysia, air freight accounts for nearly one-third of international trade by volume and over half by value, highlighting its significance to the economy The long distances to key export markets like the US and EU render sea freight impractical for timely deliveries Additionally, the strict timeliness required for most exported products further emphasizes the need for air transport Lastly, the relatively low ad valorem cost of air freight is advantageous for manufacturers, as their products typically have a high value-to-weight ratio.
Adequate air freight facilities are crucial for attracting rapidly growing, high-value industries, leading to intensified competition among airports in Southeast Asia to become key logistics hubs Smaller, recently constructed airports are outpacing larger ones by providing superior services, which benefits low-cost carriers by offering alternatives to traditional airlines in the Southeast Asian air travel market.
Until recently, the extensive network of navigable rivers served as the primary transportation method connecting major urban centers like Kuching, Sibu, Bintulu, and Miri, as well as providing access for residents in numerous interior districts and villages Traditionally, small ships and barges have facilitated freight transport between these inland areas and the main river and sea ports Currently, between 300 and 500 vessels operate daily on these rivers, with approximately half dedicated to passenger transport and the rest focused on moving bulk and break-of-bulk freight (UNDP, 2013, p.11).
Sarawak offers a comprehensive express boat service that connects coastal towns with remote rural areas typically unreachable by road These scheduled services are managed by private companies holding authorized river transport permits from the Sarawak Rivers Board, which also oversees the agreement on timetables and fares Currently, there is no established pricing methodology; instead, fares are based on historical rates adjusted for inflation and equity considerations.
Similarlу, there are no “through” multimodal fares
Freight transport encompasses various services for bulk shipments, including logs, coal, and gravel, utilizing methods like towing floating logs, small bulk carriers, and tug-barge systems These goods are delivered to riverine and coastal ports for further domestic or export transhipment General cargoes and provisions are handled using a variety of vessels, loaded and unloaded at both private and government wharves with the assistance of cranes Services are offered by shippers or privately owned common carriers, often at negotiated freight rates However, outside major ports, modern cargo-handling and unitized shipment methods are rarely employed.
2.6.6 Freight forwarding and warehousing services
The freight forwarding industry in Malaysia is marked by numerous individual companies, including agents and customs brokers, operating in a highly competitive landscape Key challenges facing the sector include a fragmented structure, ineffective related services, high operating costs, and low volumes, which collectively hinder growth potential Factors contributing to this low growth include national freight forwarders' reliance on external services, significant foreign exchange expenditures for service procurement, a lack of professionalism among competitors, a non-uniform tariff structure, high staff turnover, subpar transportation service quality, inadequate use of information technology, and additional costs arising from administrative and customs procedures.
The warehousing industry in Malaysia is experiencing significant growth, bolstered by substantial investments from international logistics corporations A notable example is the opening of DHL's largest warehouse in November 2014, located in Shah Alam and spanning over 1 million square meters This RM 100 million multi-user facility offers storage and value-added services, catering to a diverse range of industries By enabling resource sharing, it creates synergies that benefit customers across various sectors.
2.6.7 Express freight and postal services
Lessons learnt from transport and trade facilitation in Malaysia
Lesson 1: Well-planned budget for upgrading physical infrastructure to enhance access and connectivity
To enhance trade efficiency and logistics systems, Malaysia will invest RM 2.7 billion in developing a multimodal transportation network This investment will focus on constructing roads and railways connecting key ports and airports, while also improving logistics management to optimize cargo transportation across these modes This initiative aligns with the objectives outlined in the Tenth Malaysian Plan (2011-2015) by the Malaysia Economic Planning Unit.
- Road: With the completion of the double-track project from Johor
The rail project from Bahru in the south to Padang Besar, Perlis in the north, is projected to cost RM16.5 billion This initiative aims to boost the share of freight volume transported by rail to 10%.
2015 from the current 1.3%, resulting in a reduction of transportation costs (Malaysia Economic Planning Unit, 2010, p.111)
Malaysia is set to enhance its maritime infrastructure with an investment of approximately RM1 billion aimed at upgrading port facilities This initiative includes capital dredging of port channels to accommodate larger vessels and improvements at key ports such as Westport in Port Klang, Selangor, and Port of Tanjung Pelepas in Johor These upgrades are designed to increase capacity for the import and export of goods, thereby boosting the competitiveness of Malaysian ports.
Airline passenger arrivals at the airport are projected to increase from 47 million in 2008 to 62 million by 2015, necessitating an expansion of airport capacity at an estimated cost of RM 3.3 billion, according to the Malaysia Economic Planning Unit (2010, p.112).
Lesson 2: Adopting total supply chain management to enhance trade competitiveness
To boost trade competitiveness, Malaysia is focused on developing an efficient trade facilitation network and robust transport links, supported by adequate infrastructure and services A well-functioning trade transport system is crucial for effective total supply chain management Malaysia has successfully enhanced the capacity and service quality of its logistics sector, exemplified by the establishment of the Malaysian Logistics Council, which addresses the challenges faced by this vital sector Additionally, logistics companies like Century Logistics Bhd and Konsortium Logistics Bhd are advancing up the value chain, providing value-added services internationally, and increasingly integrating local supply chains with global trade networks.
Lesson 3: Integrating the national and urban transportation network
Many urban centers struggle with unbalanced and unsustainable transportation systems, necessitating the development of a more effective and convenient public transport network to encourage a shift from private car usage For instance, Kuala Lumpur currently experiences a modal split of approximately 20:80 in favor of private transport, highlighting a significant disparity between public and private vehicle use Without a shift towards public transport, the increasing number of cars will require additional road infrastructure However, initiatives like the National Key Result Areas (NKRA) have successfully improved the modal split in the Klang Valley to 25:75, demonstrating the potential for positive change in urban transportation dynamics.
By 2020, a national strategy aims for a modal split of 30:70 in major urban centers, with a future goal of 50:50 In the short term, road transport will remain the primary mode for transporting people and goods While the expressway network effectively facilitates interstate travel along the West Coast, older federal and state roads continue to support significant interstate and local movements.
Lesson 4: Attracting FDI and encouraging the participation of private sector in transport facilitation and management
A new wave of privatization aims to boost private investment in the economy, enhance service delivery efficiency, and alleviate the government's financial burden The upcoming plan will significantly intensify privatization efforts and Public-Private Partnerships (PPP).
52 projects with an estimated value of RM 62.7 billion already under consideration
Public-Private Partnerships (PPP) involve transferring the responsibility of financing and managing capital investments and services from the public to the private sector, creating independent business opportunities This approach emphasizes a more equitable distribution of risks and returns between the government and private entities Given the significant investment required for transport infrastructure, PPPs help alleviate financial pressures on the government while addressing the urgent need for timely public facility improvements Typical PPP projects from 2011 to 2015 are illustrated in Table 2.6.
Table 2.6: Recent and upcoming PPP projects in Malaysia (2011 - 2015)
7 highway projects amounting to an estimated RM 19 billion, including:
• Ampang-Cheras-Pandan Elevated Highway
Integrated Transport Terminal in Gombak, Selangor
• Mass Rapid Transit (MRT) project in Greater Kuala Lumpur (RM 40 billion)
• Kuala Lumpur – Singapore High Speed Rail of 400km (RM 18.6 billion – currently in feasibility stage)
• East Coast Rail Route (RM 29 billion – currently in feasibility stage)
Port Privatisation of Penang Port Sdn Bhd