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Crucial to support trade-related services

By February 2, 2023November 2nd, 2023No Comments

Malaysia is an export-oriented economy. It is, therefore, necessary that we ensure trade levels are at least maintained, although it would certainly be better if we work towards improving trade.
– NSTP file pic

MALAYSIA is an export-oriented economy. It is, therefore, necessary that we ensure trade levels are at least maintained, although it would certainly be better if we work towards improving trade.

During the pandemic our total trade dropped, particularly during the period ranging from Q1 2019 to Q4 2020.

Total trade averaged about 118 per cent of GDP over this period. Pre-Covid total trade was about 130 per cent of GDP, rising to 141 per cent in Q2 2022.

2022 was a good year for trade. Now, the task at hand is to ensure that this momentum is maintained. Surely, we have to improve factors that will facilitate trade. This can be done in many ways. Entering into more Free Trade Agreements is one strategy.

We do not always have to sign FTAs to boost trade. We could also unilaterally improve on factors that will encourage trade. It is possible to remove or reduce barriers such as tariffs without entering into an FTA.

Yet another way is to lower non-trade barriers. But, during these difficult times when we seem to have exhausted all possible strategies for boosting trade, we have to think laterally.

Instead of trying to address those factors directly related to trade, it would be best at this juncture to encourage trade-related services.

It should be kept in mind that just as reducing tariffs is a good way of increasing trade, so would it be useful to improve upon services that support trade, or make trade easier to be conducted.

What are these supporting services that can be called trade-related services?

Perhaps, the most important of them are logistics services. And this, by itself, would include warehousing, storage and inventory management services, transportation services, and freight forwarding. Obviously, this covers a comprehensive range of services.

Trade will be most efficiently carried out when there is seamless transport. This requires more and better physical infrastructure (seaports, airports, railways) as well as transport and trade facilitation.

Trade facilitation can be viewed as the soft component of infrastructure, involving easier customs procedures, and lightening the bureaucracy involved in trade and the movement of goods.

In order to make possible improvements in logistics and infrastructure it is necessary to provide financial support. In other words, ease of access to credit will be a required supporting component.

Companies that choose to invest in trade enhancing logistics and infrastructure should be supported when they apply for loans.

Finance plays a big role in improving these services at many levels. Obviously, improving connectivity and railway lines, or the upgrading of ports, requires credit. But, that is also the case with warehousing.

Warehousing and inventory management is not what it used to be 20 years ago. Warehousing these days is digitized and it involves advanced management systems, robots, drones and even the internet of things.

To keep up with these advancements, easier access to credit is necessary.

Of course, tax incentives would also help. As another example, freight forwarders were badly affected by the pandemic. We need to look into their concerns so that they are in better shape to face the challenges of the future.

It is necessary for us to keep ahead in regard to our trade potential. The focus has primarily been on issues such as lowering tariffs, gaining more market access and the like. There has traditionally been a lot of attention, and correctly so, to promoting exports.

We have to re-orient our focus and take a closer look at improving our capabilities with regard to trade-related services. Without an adequate environment that encourages efficient trade-related services trade cannot grow.

There are at least two aspects to this problem.

First, companies, especially the SMEs, have to be acquainted with developments in technology relevant to specific areas. Second, financing must be made more easily available. Third, tax incentives should also be considered.

Finally, it will help to have a roadmap which can inform the stakeholders what is available and how they can gain access to facilities (loans and technology matching, for instance).

It is of utmost importance to ensure there is active interaction between industry players, policy makers and government agencies to make sure that a more robust trade-related services sector is developed.

This will be the key to greater trade for this year.

The writer is a visiting fellow at the Crawford School of Public Policy, Australian National University and a member of the Academic Advisory Board, Economic Research Institute for Asean and East Asia (ERIA)