Malaysia has largely shielded its Bumiputera — ethnic Malays who comprise a majority of its population — from the impact of the Trans-Pacific Partnership (TPP). That is the conclusion of two 2015 cost-benefit studies, which were commissioned by the Government of Malaysia. The studies concluded that Malaysia has mitigated the impact of the TPP on its Bumiputera and small and medium enterprises (SMEs) through concessions secured in the TPP negotiations, including with respect to government procurement, state-owned enterprises, service and investment, and tariffs. This post highlights the concessions.
Government procurement of construction services: Under the TPP, Malaysia will maintain its practice of using government procurement as a tool for Bumiputera and SME development, in particular in the construction sector through several measures:
- Its initial high threshold (63 million Special Drawing Rights (SDRs) (Ringgit Malaysia (RM) 315) will affect only a small number of construction contracts. In 2014, only 0.7% of government contracts for construction services was above RM300 million. Even when that threshold is reduced to 14 million SDRs after a 20-year transition period, it is likely to cover only a small number of contracts. In 2014, less than 3% of Malaysia’s construction service contracts exceeded that level. For construction services above the threshold, Malaysia will be able to set aside 30% annually for Bumiputera firms.
- Malaysia’s exclusion of public-private partnerships from the TPP allows it to provide carve-outs for Bumiputera businesses in such projects.
- Malaysia’s TPP-exclusion of economic stimulus packages for 25 years will permit it to channel procurement to Bumiputera construction companies.
Goods and services procurement: The TPP will permit Malaysia to apply high initial thresholds for the procurement of goods (1.5 million SDRs) and services (2.0 million SDRs), which will be reduced over seven years and nine years, respectively. Malaysia may also apply price preferences for Bumiputera firms, with the higher margins applied to lower thresholds.
State-owned enterprises (SOEs): Under the TPP, Malaysia’s SOEs, with a turnover above 500 million SDRs for the first five years after the Agreement enters into force and then 200 million SDRs, are allowed to reserve 40% of their annual purchases for Bumiputera enterprises, SMEs and enterprises from Sabah and Sarawak. Other SOEs may pursue social and economic development programs without restrictions.
Petroliam Nasional Berhad (PETRONAS): The TPP will allow PETRONAS, Malaysia’s national oil company, to retain its role as the exclusive owner of the petroleum resources and continue to award contracts to Bumiputera companies, subject to certain constraints. It can reserve up to 70% collectively of its upstream purchases for Bumiputera enterprises, SMEs and Sabah and Sarawak enterprises, except for 12 types of upstream goods and services, which Malaysia agreed to open to competition under the TPP. The 70% threshold will be reduced over five years to 40%. For downstream and non-oil and gas activities, PETRONAS’ domestic preferences are capped at 40% of its annual budget.
Services and investment: Under the TPP, Malaysia may maintain performance and national requirements, as well as foreign equity limits, for certain sectors for the benefit of Bumiputera:
- Malaysia is able to largely preserve its prevailing regulations to develop Bumiputera and SME capabilities in the retail sector. For example, the minimum 30% Bumiputera equity requirement will continue to apply to hypermarkets, superstores, convenience stores and department stores, as will the requirement to allocate 30% of stock-keeping units displayed on the shelf space in stores for goods manufactured by Bumiputera-owned SMEs. In addition, firms with foreign equity ownership will be required to appoint Bumiputera directors and formulate plans for human resource development, such as capacity building and transfer of knowledge, to assist Bumiputera participation in the retail and wholesale sectors.
- Foreigners are not allowed to provide wholesale and retail services in areas that have significant Bumiputera participation, such as fabrics and apparels of batik, passenger cars and commercial vehicles. It is estimated that 88% of the micro-sized establishments in the wholesale and retail trade, food and beverage services, and repair of motor vehicles and motorcycles are Bumiputera-owned businesses.
- Bumiputera shipping companies will not face competition from TPP parties because foreign shipping vessels are not permitted to provide and supply domestic shipping services, maritime cabotage services and government cargo. Permission will only be granted to a joint venture corporation with Malaysian individuals or Malaysian-controlled companies or both, provided that the aggregate foreign shareholding in the joint venture is less than 51%.
Exclusion of entities supporting Bumiputera: Malaysia excludes from its TPP obligations certain entities that are involved in supporting its social and economic development initiatives, in particular relating to Bumiputera, such as: Unit Peneraju Agenda Bumiputera (TERAJU), Ekuiti Nasional Berhad (EKUINAS) and Majlis Amanah Rakyat (MARA).
Tariffs: Under the TPP, Malaysia may apply longer periods to the elimination of tariffs on sensitive goods.
Through these exclusions and special measures, Malaysia has largely preserved its policies aimed at supporting Bumiputera.
The cost-benefit studies are available on Malaysia’s Ministry of International Trade and Industry (MITI)’s website at:
- “National Interest Analysis of Malaysia’s Participation in the Trans-Pacific Partnership”, Institute of Strategic and International Studies, Malaysia
- “Study on Potential Economic Impact of TPPA on the Malaysian Economy and Selected Key Economic Sectors“, PwC
Jean Heilman Grier
June 21, 2016