World Trade Organisation (WTO)

INTRODUCTION
· In 2005, Malaysia's total trade increased by 9.9 per cent to reach RM967.82 billion, the second highest growth over the last five years. Malaysia's exports in 2005 expanded by 11 per cent to reach RM533.79 billion from RM480.74 billion in 2004, while imports grew 8.5 per cent to RM434.03 billion from RM400.08 billion in 2004.
· Malaysia’s trade policy is to pursue trade liberalisation through the rule-based multilateral trading system under the World Trade Organisation (WTO). To complement the multilateral liberalisation approach, Malaysia has also chosen to pursue regional and bilateral trading arrangements.
The WTO allows for free trade agreements (FTAs) provided that tariffs are eliminated substantially on all trade. One of the important principles of a WTO consistent FTA is that all parties to the agreement must eliminate duties according to mutually agreed rules and timeframes. Further, it must not be more trade restrictive to non-members of the FTA concerned.
FTAs have traditionally been confined to trade in goods. However, after the establishment of the WTO, trade in services has been included in many FTAs. FTAs provide the means to achieve quicker and higher levels of liberalisation that would create effective market access.
Recent trends indicate that countries prefer Closer Economic Partnership (CEP) agreements that are more comprehensive in scope and coverage. Consequently, CEP agreements cover not only liberalisation of the goods and services sector but also include investment, trade facilitation and economic and technical cooperation. FTAs essentially grant preferential treatment to participants of the FTA. In order to ensure tariff preferences (i.e. elimination of import duties) are enjoyed only by members of the FTA, specific rules and disciplines are incorporated in such agreements. One such discipline is Rules of Origin (ROO). The ROO stipulate the conditions under which only products originating from parties to the FTAs benefit from preferential market access.


MALAYSIA 'S OBJECTIVE
Malaysia 's objectives in negotiating FTAs are to:
seek better market access by addressing tariffs and non-tariff measures;
further facilitate and promote trade, investment and economic development;
enhance the competitiveness of Malaysian exporters; and
build capacity in specific targeted areas through technical cooperation and collaboration.
The FTAs or CEP agreements currently pursued with selected countries are not confined to liberalisation and market opening measures alone. They are comprehensive and include investment, trade facilitation, intellectual property rights (IPR) as well as economic cooperation in areas such as:
competition policy;
standards and conformity assessment;
information and communication technology;
science and technology;
education and training;
research and development;
financial cooperation;
Small and Medium Enterprises (SMEs) development; and paperless trading.

ASEAN Economic Community (AEC)
Intra ASEAN trade has expanded from US$82.4 billion in 1993 to US$174.2 billion in 2003. Intra-ASEAN trade in 1993 accounted for 19.17 per cent of ASEAN’s global trade and has increased to 22.06 per cent in 2003. Malaysia has benefited as an international production base from intra-ASEAN trade. Trade with ASEAN countries accounts for 25 per cent of Malaysia’s global trade in 2003.
Trade liberalisation in ASEAN has been implemented through AFTA. The AFTA has as its target elimination of import duties on all products traded within the region. This is undertaken through the Common Effective Preferential Tariff Scheme (CEPT). Currently, Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand (ASEAN-6) have already reduced duties on 98.9 per cent of their products. Out of this, 99.6 per cent are at tariff rates of zero to 5 per cent. Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) have transferred 72.2 per cent of their products into the Scheme, of which 55.7 per cent are at zero to 5 per cent duties. With the realisation of AFTA, ASEAN is now moving towards deeper economic integration of the region.
The ASEAN Leaders agreed in October 2003 in Bali to establish the ASEAN Economic Community (AEC) by 2020. The AEC is envisaged as a single market and production base with free flow of goods, services, investment, skilled labour and freer flow of capital.
To realise the AEC, ASEAN Leaders agreed, during the 10th ASEAN Summit (29-30 November 2004) in Vientiane, Lao PDR to accelerate the integration of 11 priority sectors within the Framework Agreement for the Integration of Priority Sectors. This is aimed at fasttracking the realisation of AEC.
The 11 priority sectors are:
electronics;
e-ASEAN;
healthcare;
wood-based products;
automotive;
rubber-based products;
textiles and apparels;
agro-based products;
fisheries;
air travel;
and
tourism.
In 2003, the priority sector contributed US$48.4 billion and US$43.4 billion of intra-ASEAN exports and imports, respectively, or accounted for more than 50 per cent of intra-ASEAN trade.
The Roadmaps for the integration of the 11 priority sectors identified measures to accelerate tariff elimination and facilitate trade and investment. These measures have been developed with the participation of private sector. Timeline for the implementation of the measures contained in the Roadmaps range from 2005 to 2010.
According to the Roadmaps, import duties for 85 per cent of the products under the priority sectors will be fully eliminated by 2007 for ASEAN-6, and 2012 for CLMV. On its part, Malaysia will eliminate import duty on 3,650 products in the priority sectors by 2007.
Apart from tariff elimination, the roadmaps will also focus on trade and investment facilitation measures. These include:
the creation of an ASEAN Single Window, including the electronic processing of trade documents at national and regional levels;
harmonisation of product standards and technical regulations;
establishment of mutual recognition of test reports and certification;
and
facilitation of movement of business people, experts, professionals and talents within the region.

RULES OF ORIGIN (ROO)
Rules of Origin ( ROO ) are the criteria used to determine where a good has been made, for the purpose of ensuring that only the products of countries which are party to the FTA, enjoy tariff preferences (elimination/reduction of import duties).
There is no internationally recognised agreement on the form of ROO in FTAs because:
each agreement has its own rules which are subject to detailed negotiations during its formation; and
rules vary in their nature and complexity, and depending on their formulation, can increase the level of protection especially for sensitive sectors.
In determining the origin, a product is deemed as originating from a particular country if:
it contains no materials or processing from outside that country, i.e., the product is “wholly obtained”; or
“sufficient working or processing” or substantial transformation has taken place.
Some of the common provisions for determining origin are:
Originating status
Products must have originating status to get preferential treatment.
General tolerance rule
This permits manufacturers to use non-originating materials up to a specific percentage.
Principle of territoriality
The working or processing of products must be carried out in the territories of the parties.
Direct transport rule
To ensure that the goods arriving in the country of import are the same as those which left the country of export.
Proof of origin
Goods which are claimed to have a particular preferential origin, must be certified by a proof of that origin .

ROO in ASEAN CEPT
ASEAN maintains one of the simplest and least complicated ROOs in any FTA. One reason is that within ASEAN, about 66 per cent of tariff lines have the same MFN and CEPT rates. For the remaining one third, since ASEAN member countries have autonomously reduced their tariffs in the 1990s, the difference between MFN and CEPT rates (or the margin of preference) is small.
ASEAN stipulates 40 per cent regional/ local content threshold as the basic principle for granting origin status to a product.