Do we need all of the approved permits?

WHAT more can we do to tackle rising prices?

Continuing to phase out import controls, such as approved permits (APs), could help to bring costs down by up to 20%, according to some industry players.

A general manager claims his company’s ready-to-eat meals could cost 10%-20% less if they could source dairy products and meat directly from abroad, rather than being forced to buy from local suppliers with APs.

A major property developer says if his company could buy steel directly from overseas millers, his projects could be about 15% cheaper.

The International Trade and Industry Ministry (Miti) has already drastically reduced the number of APs. It conducted a months-long review of APs, with feedback from all the ministries, back in 2010.

 

Saw: 'The Government has done a lot but there's room for improvement.'

“It was a general clean-up,” recalls Miti secretary-general Datuk Dr Rebecca Fatima Sta Maria. “The whole exercise asked, about each AP, ‘Do we need this?’ Every AP retained had to be explained and justified and linked to a law or commitment.”

In January 2011, Miti sent a paper to the Cabinet, recommending about half of over 10,000 tariff lines subject to licence should be scrapped, and this was done.

“We have to recognise that the Government has done a lot,” stresses Datuk Saw Choo Boon, who is president of the Federation of Malaysian Manufacturers (FMM) and co-chairman of the Special Task Force to Facilitate Business (Pemudah). “But there is still a need for some improvement. Import and export restrictions should be further minimised.”

APs originally served as import controls when the country’s economic development was based on import substitution. The goal was to protect local industries and agriculture. By the time of Miti’s review in 2010, they covered almost every type of manufacture.

The Second Schedule of the Customs (Prohibition of Imports) Order 2012 lists items which can be brought in with an import licence. Some of these are controlled in line with Malaysia’s international commitments, such as the Montreal Protocol on Substances that Deplete the Ozone Layer. But the Schedule also includes sugar and wheat flour.

The Third Schedule covers goods which require an import permit and most of them also require inspection and approval by the relevant authority, such as Malaysian Quarantine and Inspection Services. Milk and dairy products, meat, rice and rice flour, vegetables, fruit and nuts are on the list.

Sta Maria explains that APs were retained if they were in line with international obligations such as the Chemical Weapons Convention, to meet quality and safety requirements, for industrial development and to protect local industries (traditional batik sarongs come under the Second Schedule, for example), and to ensure domestic supply (such as sugar and rice).

FMM’s Saw acknowledges that the number of protected industries has been reduced significantly. “The Government has already liberalised a lot of services, for example, and reducing APs is in line with this.”

While those who had been protected by APs would have to adjust to greater competition and lower revenues, in the short term, others would benefit when the playing field was levelled, he predicts. “And consumers will enjoy products from a larger number of suppliers and at lower prices.”

For example, Flavour Innovation Sdn Bhd tries to source fresh local ingredients for its frozen meals as much as possible, says its general manager Choong Kin Peng. But it has to buy butter and cheese from suppliers with APs.

The company could have purchased chicken from China and beef from India at a lower price, if not for import restrictions. And suppliers who have an AP for dairy products and meat are very limited, he adds.

“Overall, APs are a burden for manufacturers in terms of cost. If anyone could import, competition and efficiency could bring the price down.”

In the construction sector, a property developer notes that steel is one of the largest components. Technically anyone can apply for an AP, he says, but the process is “fairly restrictive. We rely on suppliers and we know of suppliers who were unable to get APs.”

When his company tried to buy a large volume of steel to meet the next two year’s requirements, he says, the local millers didn’t want to stockpile or produce that much. They can’t beat the prices of overseas millers in India, Turkey and China – and he can’t buy directly from companies there.

Sta Maria counters that APs cannot be used as an excuse for prices. “We studied the whole chain of imports and exports,” she says.

If the APs for rice and sugar were removed, she argues, there would not necessarily be lower prices. “Free marketers think market forces will be fair but that is not necessarily true,” says Sta Maria.

“When it impacts on people’s welfare, some intervention is necessary. We have to be balanced and fair and ensure the objective is met.”