Us Tariffs On Malaysia How To Negotiate A Deal

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From Jason Chuah
The media has been bewailing and deploring in equal measure the recently introduced Trumpian tariffs on US imports.
Malaysia has stated that no retaliatory tariffs will be imposed but will commence negotiations to seek a reduction.
That sounds like a typical Malaysian approach, preferring to settle and avoid escalation. The question is what would and should form the basis of those negotiations.
Trade negotiations should start with what is broadly provided for in our legal relationship with the US — this is usually governed by the rules or principles of the World Trade Organization (WTO) and/or special trade agreement between Malaysia and the US.
Thus, it is important first to understand that in international trade law, tariffs in themselves are not unlawful unless they are beyond earlier agreed-upon limits (called “bound rates”).
When a country joins the WTO, it agrees to maximum tariff rates on thousands of products — these are called bound rates.
For example, if the US declared its bound rate on imported cars as 2.5%, it can’t suddenly raise it to 20% without violating WTO rules.
This, it would seem, is one of the arguments China is relying on in its planned WTO case against the US. However, by law the US can attempt to justify its breach of the bound rate on the grounds of national security or as countermeasures to unfair trade practices, for example.
Given the plausibility of a number of its allegations concerning unfair trade practices in China, its defence in law is not entirely without foundation.
Additionally, under the WTO’s most-favoured nation principle, a key rule of the organisation’s system, a tariff is only lawful if it is applied equally to all members. This rule might prove more problematic for the US since its tariff impositions are not necessarily equally applied.
These are legal issues that must play out in the WTO arena if the China case against the US progresses.
What we charge
Let’s try and understand Malaysia’s own obligations under WTO law.
Based on data available in 2023, Malaysia charged an average import tax (tariff) of 5.6% on goods coming into the country:
For food and farm products (like rice or fruits), the average tax was 7.4%.For everything else (like clothes, electronics, etc), the average was 5.3%.Malaysia too has made promises to the WTO about the maximum tariffs it will charge:
Malaysia has made these promises (or “bound tariffs”) on about 84% of all products.On average, Malaysia’s maximum promised tariff is 21.1%.But the maximum allowed tariff can vary a lot depending on the product:
For petroleum, the top rate is just 5%.For dairy products, it can go as high as 251%.Any retaliatory measures must thus not breach our own bound rates, Anyway, retaliation per se is no defence.
Understanding Malaysia’s own WTO legal obligations helps us better appreciate the complaints of unfairness from the US corner.
An immediate area of attention is that Malaysia has not submitted notifications on all our export subsidies to the WTO. The transparency duty is important in enabling better trust among WTO members and better commercial planning for foreign traders.
The US “case” for imposing the additional tariffs on Malaysia is published in the 2025 US National Trade Estimate Report. It is not for me to interrogate the accuracy of the report, but we should understand the complaints at least from their perspective against the legal backdrop.
The case against Malaysia
First, on tariff barriers, the US report states the obvious — Malaysia continues to assess a higher excise tax on imported distilled spirits than on locally produced spirits. Malaysia maintains very high excise taxes on motor vehicles, ranging from 60% to 105%.
Truly, the types of US alcoholic and vehicle imports would not be such a huge concession to give.
However, it is also clear from the report that the main complaints relate to non-tariff barriers and other protective measures (this is a technical term that refers to actions taken by a country to protect its domestic industry and services). Let’s list them, again noting that this is to understand our trading partner’s concerns, not about testing their legitimacy:
a) Malaysia’s import restrictions on motorised vehicles, and those introduced in our 2024 budget on electric vehicles: The US complains about our non-transparent system of conferring rights to certain permit holders to import and distribute cars and motorcycles. It claims that this system is used to implement an annual cap on imported vehicles.
b) Malaysia’s import of halal meat and meat products is largely regulated by the Islamic development department’s (Jakim) rules that the US claims are much harsher than internationally recognised halal certification standards. The sudden suspension of imports from the sole halal-approved US beef plant by Malaysia in October 2023 was one of the complaints. The report states that Jakim did not accept any input or corrective actions from the plant.
c) The US is seeking to expand its entry into the new alcoholic beverages market — these are malt-based or spirit-based beverages made for the ready-to-drink market. The market for pre-mixed cocktails has been growing apace. It is alleged that our Food Regulations 1985 are unclear about such types of beverages and this legal vacuum has caused difficulties for US producers seeking market access here.
d) In June 2022, Malaysia banned all poultry products from the US due to avian influenza concerns. Less than six months later, the US department of agriculture urgently proposed a regionalisation arrangement to better manage the avian flu risk. To date, Malaysia has not commenced discussions on this arrangement to bring about trade resumption.
The US also complains about Malaysia not signing up to the WTO Agreement on Government Procurement. This agreement is likely to conflate with our economic policies and might thus be a red line in any negotiations.
The now trite complaint over intellectual property rights continues to feature … again with our Petaling Street market explicitly cited. Is there more we can do to allay those concerns, whether real or perceived?
A final complaint is not insignificant. It focuses on Malaysian protectionism in services. Banking and insurance services are the usual suspects but more interestingly, it is maritime cabotage.
In 2019, the Malaysian transport minister issued an exemption under the Merchant Shipping Ordinance 1952 which permitted non-Malaysian ships to conduct submarine cable repairs in Malaysian waters.
In November 2020, the subsequent minister revoked the exemption. On June 1, 2024, Loke Siew Fook, the new minister, reinstated the exemption. The US, while lauding this move, expresses concerns that this exemption can be rescinded at any time.
US providers fret about the timeliness of future critical submarine cable repairs given this lack of legal certainty. There are clearly legal and political challenges for the minister in making this exemption more permanent.
Much of this shows that we need a multi-ministry negotiating team as the issues raised cut across so many different ministerial jurisdictions.
Moreover, negotiations must be made from an informed position — and that must necessarily entail seeing the interests from our counter-party’s perspective. And, crucially, those interests should be seen not merely through economic lenses however important economic considerations are, but also the legal considerations. - FMT
Jason Chuah is dean of law at Universiti Malaya and the chief editor of International Trade Law and Regulation journal.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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