The implementation of the Strategic Trade Act of 2010 (STA) marked a major milestone for Malaysia in fulfilling its obligations under UNSCR 1540. Since it entered force in 2011, the STA has been pivotal in addressing several major areas of concern in regional and global trade security.
In 2003, eight years before the adoption of the STA, Malaysia was unwittingly implicated in a case related to the A. Q. Khan network for allegedly supplying aluminum centrifuge components to Libya’s nuclear-weapons program. This case later became a major catalyst for the drafting and passing of the STA 2010. Malaysia was seen in some ways as a key point for the illicit trade of strategic items, due largely to the nation’s strategic location, which makes its ports major hubs for transit and transshipment activities.
Bearing that in mind, the STA 2010 was established as a mechanism to address the issues of a lack of monitoring and control of exports, imports, transshipment, and brokering of strategic items. The STA specifically addresses re-exports and transshipments of munitions and dual-use controlled items.
Malaysia has been commended by the United States, the European Union, Japan, Australia, and others for implementing this strategic trade control in record time. Malaysia is currently the model for strategic trade management in the region. As a result, representatives of Malaysia’s Strategic Trade Secretariat are often invited to speak in regional seminars, where they recount Malaysia’s experience in implementing the STA for the benefit of other ASEAN member countries such as Thailand, Vietnam, the Philippines, and Indonesia.
From the outset it was clear that implementation of the STA had to have a trade-facilitation slant if it was to be successful. Focus therefore has gone to incorporating trade-facilitating measures throughout the implementation process, under the tagline “Facilitating Trade in a Secure Trading Environment,” in order to balance between the need for additional controls required by the new legislation and the need to promote legitimate trade.
Some of the trade-facilitating measures taken include:
The adoption of the EU list as the Strategic Items List
The EU list is a list commonly used in the region, for example in Hong Kong and Singapore. Malaysia’s decision to adopt this list was aimed at helping the region converge on a common list and to avoid the need to reinvent the wheel where control lists are concerned. Using a common list reduces the hassle for industry, as industry requires a predictable, familiar, and easy-to-implement list to effectively manage international business networks and supply-chain controls.
Exemption provided under Regulation 25 for transshipment
As is the norm, high throughput at ports makes it infeasible to examine all transshipment cargo. There is therefore a need for a targeted approach, setting priorities according to risk assessments. Regulation 25 of the Strategic Trade Regulations of 2010 has therefore provided exemptions to enable implementation of the STA without unduly hindering legitimate trade. Under the STA, only transshipment of highly strategic items and items that involve restricted end-user countries requires transshipment permits.
Amendments to the Regulations based on feedback received from industries
Effective December 1, 2011, ECCN 5A2 (systems, equipment, and components) and 5B2 (test, inspection, and production equipment) items no longer require a transshipment permit as long as no restricted end-user countries are involved. This is an expedient measure undertaken based on the latest developments observed globally.
Flexible export permit for companies with internal compliance programs
Companies that have established internal compliance programs can apply to be approved as ICP-compliant companies. Such firms are eligible to apply for multiple-use or bulk permits valid for two years. This eliminates the necessity for competent and compliant companies to apply for export permits each time they undertake a transfer of strategic items to customers or importers who have already been preapproved by the authorities. ICP-approved companies are audited for compliance at least once every two years or when the necessity arises.
Online permit application system
A web-based system for application for and approval of permits has been operational since July 1, 2011. Details about approved permits are transmitted to the Customs Information System for cross-referencing against the customs declaration. The use of the online application system for enables companies to apply for their permits and view their approved permits from wherever their offices are located. Since there is no need for physical submissions, the cost of doing business is kept to a minimum, costing less than US$1 per successful transaction.
Mandatory self-declaration at exit points
Since 2011, exporters have been required to make a mandatory declaration on their customs forms at the time of export, regardless of whether their products are strategic or non-strategic items. If declared as strategic items, the system prompts the exporter to enter the STA permit number. The STA permit number, which is verified in parallel through the Customs Information System, allows the exporter to proceed with filling in the customs forms and release the items for export. If a valid permit number is not provided, the system will not allow the exporter to proceed with the transaction. This ensures that companies are made aware of their obligation to the STA right up to the final point of exit. Instituting this very practical measure has rendered enforcement highly effective.
Frequent outreach programs
Since July 2010, nearly 200 outreach programs have been held with over 4,000 participants from trade/industry associations and companies. Besides the outreach program, “meet the client” sessions are held every month, and the number of participants who have attended these sessions is over 1,200. These programs and sessions will be ongoing as we reach out to a wider number of stakeholders in industry as well as the government.
Dedicated information source
The Strategic Trade Secretariat (STS) has also established a dedicated webpage, hotline number, and email address for companies to reach the authorities for information and advice.
Challenges are ever-present, however. After joining the race, it is now important to ensure that we keep up the pace, or risk becoming outdated and ineffective.
As is often the case, cooperation is one of the greatest challenges. Although the focal point for implementation is the STS (Ministry of International Trade and Industry), implementation and enforcement are only possible through a multiagency approach. There are constraints and limitations on the degree of interagency cooperation, as well as on aid extended to industry. The focus of the agencies differs slightly according to their respective priorities, available resources, and the sensitivity of the items that are being controlled. This creates some issues in relation to the uniformity of and time taken for assessment. Nevertheless, this can be overcome with frequent communication. To enable a whole-of-government approach, an interagency coordination committee has been established. This committee meets every other month, or when the need arises.
Additionally, updating strategic items according to changes to the EU control lists has been a challenge. There are instances when, due to practical reasons, we are unable to update our list at the same time that the EU updates its control lists. This delay has implications for multinational corporations, which are left in a bind—causing some hiccups in their regional logistics operations—when their products remain controlled in this region while already de-controlled in the European Union.
Enforcement of transit controls is particularly challenging. Information received may be too little to allow action to be taken. In addition, intelligence received must be carefully evaluated before acting to avoid unduly hindering legitimate trade. Apart from hampering trade, there is the issue of trade diplomacy to contend with. The sheer subjectivity of catch-all controls gives rise to various different interpretations of alleged violations. Different economies with different priorities and concerns wear different lenses to view a case. Reaching a compromise requires every state involved to be judicious enough to not undercut policy decisions taken by others.
Although considered to be very comprehensive, the STA does not sufficiently cover certain areas, such as those related to financing of WMD, and furthermore overlaps with existing regulations that provide for controls on nuclear equipment, chemicals, and biological materials. Such overlaps can create a maze for companies to navigate. We are presently in discussions with the relevant authorities to address this.
A final major challenge is the need for awareness-raising. Awareness of the STA in the private sector needs to be enhanced. Although more than 200 outreach sessions have been held, the awareness level is still not satisfactory. This is of particular concern, as we do not want unscrupulous traders to exploit genuine Malaysian companies for illicit trade. Awareness of the STA in the government agencies, especially enforcement, also needs to be heightened. The high turnover rate of front-liners and their high numbers are challenges as well. Continuous engagement by the STS is required so that not too many fall through the cracks.
Malaysia continues to move forward by enhancing its procedures through improved standard operating procedures for investigations and enforcement, targeted outreach programs, and continued cooperation with donor countries such as the United States, the European Union, Australia, and Japan. Engagements with academia and research institutions are in the cards for increasing human resources with expertise and experience, especially in gray areas such as intangible technology transfers and brokering. Consultation and education efforts are underway to increase Malaysian companies’ capacity.
Work continues outside of the country as well. Recently we hosted and co-organized, with APEC, the APEC Conference on Facilitating Trade in a Secure Trading Environment in Kuala Lumpur. Held on October 28-29, 2013, the conference brought together a meeting of minds from the Asia-Pacific region to deliberate on best practices for the effective implementation of strategic trade management. We are confident of forging ahead—ensuring Malaysia’s contribution to trade security in the region while assisting our neighbors who are themselves at the brink of initiating comprehensive strategic trade management in their respective economies.