CME: Malaysia reaches 45th position out of 88 on new International Trade Barrier Index
WEDNESDAY, 10 May 2023: Malaysia ranks 45th out of 88 countries in the International Trade Barrier Index (TBI) 2023, released by the Tholos Foundation in Washington D.C. The Center for Market Education (CME) is the Malaysian partner for the Tholos Foundation and hosted the Innovation Summit Southeast Asia 2023 where the new Index was released – for the first time in the world – at the Asia School of Business.
The three countries that achieved the scores for lowest trade barriers are Singapore, New Zealand, and Japan according to the TBI. The 88 countries included in the 2023 TBI represent 76 percent of the world’s population and 96 percent of global GDP.
Christopher Lingle, renowned economist, visiting professor at Universidad Francisco Marroquin and the first research fellow of CME, wrote the TBI is «a foundational inspiration reflect[ing] 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 ones’ neighbors is positively correlated to civic freedom and greater accountability for political governance».
Philip Thompson, the author of the TBI and analyst for trade and intellectual property at the Tholos Foundation remarked that «the index is designed to move the discourse away from populist rhetoric and focus on the real issues: countries don’t trade people and businesses do. They want to freely exchange their goods and services across borders and the TBI draws our attention to what gets in the way».
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.
«Bittersweet news for Malaysia», pointed out Dr Carmelo Ferlito, CEO of CME: «while at a regional level Malaysia is overcome only by Singapore, globally it reached only the 45th position out of 88 countries under observation, while Singapore is fist in the rank; therefore, despite the second position at regional level, the distance between Malaysia and Singapore is still very big. Globally, Vietnam, Philippines, Thailand and Indonesia occupy respectively the 77th, 81st, 85th and 86th positions, signaling that Southeast Asia needs to work more at ASEAN level to improve the regional trade conditions».
Malaysia scored 3.88 overall, a tad better than the global average of 3.95, its East Asia & 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.
The new index utilized updated data sources from the WTO and OECD measuring non-tariff barriers and services restrictions making full comparisons to the last edition published in 2021 difficult. However, comparing the Tariff and Facilitation components are possible, Malaysia’s tariff score worsened in 2023 relative to other countries by only 2 percent and improved in Facilitation by 2.5 percent.
One area stands out for Malaysia where its score is worse than its regional group and upper-middle income group: Services Restrictions. These come in different forms regulating foreign-direct investment, foreign business ownership, or other interventions restricting foreign business operations in the market. Generally, Malaysia avoids the worst of these, however, its Services Restriction scores for construction, retail, and professional services are relatively high.
Malaysia’s Facilitation score at 4.5 is slightly worse that 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 here is logistics performance, which is 5.12, or 39 percent greater than the regional average. Malaysia could also improve its protection of private and intellectual property rights which scores at 3.7, slightly more than the regional average of 3.66.
The East Asia & Pacific region has the most variation in scores containing some of the freest countries: Singapore, New Zealand, and Japan. And some of the most restrictive: the Philippines, Thailand, and Indonesia. This provides Malaysia opportunities and challenges.
For instance, Malaysia has a comparative advantage in electronic circuits and semiconductor chip production. It is also high in the global supply chain for telecom equipment production. By improving property rights, logistics performance, and making needed improvement to allow foreign services Malaysia can demonstrate to its trade partners that its supply chain is reliable and can quickly adjust to foreign shocks.
On the other hand, 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. The measure is highly correlated with illicit trade. 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.
According to Thompson «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 it might be able to turn its negotiations in the Indo-Pacific Economic Partnership into a real enforceable trade agreement».
About CME: The Center for Market Education (CME) is a boutique think-tank based in Kuala Lumpur, Malaysia, and Jakarta, Indonesia.
As an academic and educational institution, CME aims to promote a more pluralistic and multidisciplinary approach to economics and to spread the knowledge of a sounder economics, grounded in the understanding of market forces.
In order to do so, CME is not only involved in academic initiatives, but it organizes seminars, webinars and tailor-made economics classes for students, journalists, businesspeople and professionals who wish to better understand the relevance of economics for their daily lives and activities.
Economics matters and needs to be presented in a fashion in which the link with reality is clearly visible. In this sense, we look not only at theoretical economics but also at policy making, with an emphasis on the unintended consequences generated by political actions. Visit https://marketedu.me/.