6:30 AM Jan 15, 1996

MALAYSIA: WTO INVESTMENT RULES CAN HINDER BOP MEASURES

Kuala Lumpur, 13 Jan (TWN/Martin Khor) -- Concern is growing in Malaysia that new WTO trading rules and the proposed international investment rules could impose constraints on national efforts to increase the export capability of local enterprises.

Participants at a recent high-level forum to consider ways to reduce the country's high balance of payments deficit expressed worries that several measures they proposed could run foul of new trading rules in the World Trade Organisation.

They also feared that the obstacles may increase further should the WTO introduce a new multilateral agreement on foreign investment which is being pushed by some industrialised countries.

Attended by 150 leading policy-makers, businessmen and economists, the meeting was organised by a local think-tank, the Asian Strategy and Leadership Institute, to analyze the widening deficit in the current account of the balance of payments.

In 1995, this deficit stood at US$7 billion, or a high 9 percent of the country's Gross National Product.

Opening the meeting, the Prime Minister Dr Mahathir Mohamad outlined a strategy to overcome the deficit, which included boosting the exports of Malaysian-owned industries, increasing the use of Malaysian ships and ports, and reducing imports.

He however cautioned that new trade rules proposed by rich countries in the WTO could make it more difficult for developing countries like Malaysia to compete in world trade.

In particular, he criticised the foreign investment treaty proposed by the European Commission in the WTO. The treaty which would grant foreign companies the right to establish themselves in all member countries of the WTO, and to get "national treatment", could take away the business of local firms and banks and cause them to close, according to Dr Mahathir.

This issue emerged again in later discussions.

One of the speakers pointed out that many of the forum's practical suggestions to reduce the current account deficit could not be implemented out should the restrictions imposed by the foreign investment treaty be applied. Several speakers made proposals to increase the capacity and use of Malaysian-owned cargo ships and save foreign exchange, since a significant part of the deficit is caused by huge freight payments paid to foreign shipping lines to carry the country's traded products.

Director-General of the Economic Planning Unit, Mr Ali Abul Hassan Sulaiman, said the government aimed to double the share of cargo handled by Malaysian-owned shipping lines from the present 20 percent of the country's total trade to 40 percent.

He added that private companies would also be encouraged to channel their cargo through local ports and to use support services in transportation provided by local firms.

Managing director of the state-owned Malaysian International Shipping Corporation, Mr Ariffin Alias, proposed that the government persuade palm oil exporters to include in their sale contracts with importing countries that the commodity should be carried on Malaysian vessels.

"The government should also ensure that in future sales contracts a certain percentage of Malaysian petroleum exports be carried by Malaysian lines," he added.

However, another speaker pointed out that these suggestions would be impossible to implement should the proposed multilateral investment treaty be introduced in the WTO, as they would be construed to be discriminating against foreign shipping lines.

The meeting was referred to a recent report in a locally- published trade journal, "Straits Shipper", that foreign countries are already protesting over the Malaysian government's recent introduction of fiscal incentives to shippers to claim tax relief on freight charges paid to Malaysian shipping lines. Shippers using foreign ships are not entitled to the incentives.

According to the report, the European Commission raised an objection at a recent United Nations meeting on trade and transport in Geneva that the Malaysian tax measure went against the rules of liberalisation of trade and services in the WTO and its General Agreement on Trade in Services.

Malaysia defended its position by stating that the measure was needed to raise the share of tonnage of its nationally-owned shipping lines, which presently account for only 15 percent of the volume of goods in the country's international trade.

However, the EC as well as the United States are viewing the incentive as a discriminatory measure as it works in favour of national flag ships.

The report quoted a source as saying that since the tax incentive was not available to other flag vessels, it constituted a discrimination and violated the new trading regime.

Reacting to this report, speakers at the forum said that this kind of obstacle to aiding local firms would be drastically increased in the event a multilateral investment treaty of the type being proposed by the EC is signed.

"It would then be very difficult for countries that face balance of payments deficits to give a boost to local firms to reduce the use of foreign services or products," said an economist.

"The deficits would then persist, and plunge these countries into worse economic straits."

In a concluding speech, the Institute's president, Mr Mirzan Mahathir, remarked that Malaysians should be concerned about the implications of the proposed investment treaty in the WTO.

"For, if it were to be pushed through, then most of the proposals we have discussed today to reduce the balance of payments deficit would be rendered irrelevant," he remarked.