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WTO - Inconsistent to Regulate the Local Content in Foreign-led Projects, says MITI

FMM in the News, The Edge Financial Daily, April 20, 2018.

KUALA LUMPUR: Malaysia cannot set thresholds on the localisation of Chinese projects in the country as this would run counter to World Trade Organization (WTO) rules, a senior trade official said yesterday amid the implementation of a slew of such developments including the mega RM55 billion East Coast Rail Link (ECRL).

Datuk Isham Ishak, Deputy Secretary-General (Trade) of the Ministry of International Trade and Industry (MITI) cautioned that WTO regulations did not allow for the setting up of such limits although local manufacturers have been strongly encouraged to participate in these projects.

“We encourage companies to try as best as possible to use our local inputs and expertise. But we can’t force Chinese investors to take all the supplies from our local suppliers, as some are able to fulfil the demand, but some might not.

“It will also be WTO-inconsistent for Malaysia to spell out outright that companies must invest a certain amount or [comply to a] threshold in terms of projects, labour, or input,” Isham added at a press conference on the side lines of the Belt and Road Initiative (BRI) Supply Chain Conference 2018 by the Federation of Malaysian Manufacturers (FMM) yesterday.

Although the Chinese are involved in numerous projects in the country — a number of which are secured from the Malaysian government — local businesses have been disappointed at the low percentage of domestic labour and inputs, complaining that the Chinese have brought most of them wholesale from China.

Earlier, FMM President Datuk Soh Thian Lai used the platform to urge the authorities to set a policy of 30% Malaysian content in BRI projects so that local manufacturers can also benefit from the China-led initiative.

“Infrastructural connectivity remains the key focal point of the BRI. And in view of the sizeable number of projects that could arise from the BRI, local manufacturers hope to benefit from supplying to local and if possible, international BRI projects as well.

“So a government policy of 30% local (Malaysian) content for BRI projects would help realise this benefit. FMM intends to follow up on this proposal with the relevant government agencies,” he said.

Soh said the organisation representing over 3,000 manufacturing and industrial service companies is also proposing the government set up a central monitoring unit so as to ease product-matching for upcoming projects.

“The private sector operates on a ‘willing investor, willing supplier’ basis. For us, it is not a problem at all to supply to BRI initiative projects in Malaysia because we are able to meet all the requirements. It is not necessarily [true] that our products are not competitive,” he added.

Isham said the government had been working closely with the Construction Industry Development Board in producing a directory published under the Malaysian Investment Development Authority to identify local suppliers who are able to provide local inputs, raw materials and professional services to Chinese investors.

There are 10 indicative Chinese-related investment projects in Malaysia valued at approximately US$42.7 billion(RM166.08 billion) to US$45 billion in aggregate, Soh said, naming the Melaka gateway and Kuantan port expansion projects as examples. 

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