Illegal Trans-shipments: A Heavy Cloud Over Malaysia’s Trade Integrity

Every Cloud Has a Silver Lining, But This One’s Heavy

US Liberation Day tariff brought more than anticipated. While it aimed to assert our trade sovereignty, it inadvertently unveiled a long-standing issue, illegal trans-shipments. These are tactics used by exporters to avoid tariffs by routing goods through a third country to disguise their true origin. And it seems the storm is far from over.

Tightening the Loophole

In response, the Ministry of Investment, Trade and Industry (MITI) has taken a firm stance. MITI will now be the sole issuer of non-preferential certificates of origin (NPCOs) for exports to the United States. This decision ends the previous practice of allowing business councils, chambers, or associations to issue these documents on its behalf.

This move is meant to curb illegal trans-shipments, an issue known since 2018. Unfortunately, enforcement has been lacking. We are notorious for our delays in taking action, and this is no exception.

A Serious Offence Under Malaysian Law

According to MITI, trans-shipment fraud is a serious offence under the Customs Act 1967. Offenders can face up to RM500,000 in fines, a maximum of seven years in prison, or both. This underscores the severity of falsifying trade documents and misrepresenting the origin of goods.

Is Enforcement Enough?

While MITI plans to increase audits and verifications of NPCO applicants, one must ask, will this be enough? Without police reports and formal investigations, mere internal checks by the ministry won’t suffice. There must be legal action to reinforce good governance and restore credibility.

Integrity and Action

Deputy minister have expressed firm opposition to trans-shipment fraud, emphasising Malaysia’s commitment to maintaining the integrity of its export system. That said, statements must be matched by action. Filing police reports and implementing transparent systems are key steps.

What the Industry is Saying

One industry veteran, speaking anonymously, exposed an alarming practice, some perpetrators obtained fraudulent certificates for as little as RM100. Malaysia, he said, has received numerous complaints about goods falsely labeled as Malaysian exports. This damages our global credibility.

AFAM’s Advisory

The Airfreight Forwarders Association of Malaysia (AFAM) has issued a strong advisory to members, warning against misrepresentation and evasion of tariffs. But AFAM must go further. As a stakeholder, it should also act as a watchdog and report such practices when they occur.

FTA and the RCEP Dilemma

Malaysia’s role as a preferred intermediary is partly due to our participation in free trade agreements like the Regional Comprehensive Economic Partnership (RCEP), which includes China. While these agreements provide opportunities, they also open doors for exploitation. We are quick to sign MOUs and FTAs, but let this be a lesson in negotiation and enforcement.

Walk the Talk

The Madani government must act swiftly. It’s not just about announcements or guidelines, it’s about real enforcement. Illegal trans-shipments tarnish Malaysia’s trade integrity and undermine fair global trade. This is a test of our governance and credibility. We must not fail.

What say you?