An open letter to the Prime Minister of Malaysia

To: YAB Dato’ Seri Anwar Ibrahim Prime Minister of Malaysia

This letter is written with respect for your office and with a deep sense of national responsibility. Malaysia’s relationship with the United States has long been grounded in engagement without subordination, cooperation without the erosion of principle. It is precisely because this relationship matters — and because Malaysia has historically navigated great-power relations with care and dignity — that the ART Agreement signed on 26 October 2025 merits urgent and careful reconsideration.

The Agreement, while framed as “reciprocal”, extends far beyond conventional trade facilitation. Its provisions reach deeply into Malaysia’s regulatory, fiscal, digital, industrial, and security architecture. Clause by clause, the Agreement introduces obligations that, if left unamended, risk constraining Parliament’s constitutional authority and Malaysia’s freedom to shape policy in accordance with its own laws, institutions, and development priorities.

The most troubling elements arise where trade commitments intersect with national security. Article 5.1 binds Malaysia, upon notification, to adopt “equivalent” restrictive measures taken by the United States against third countries. Article 5.2 further entrenches this alignment by extending cooperation into security-sensitive technologies, unilateral export controls, and restrictions linked to foreign sanctions lists. Taken together, these clauses risk subordinating Malaysia’s foreign-economic policy to decisions taken outside our constitutional and institutional framework, replacing independent strategic judgement with compliance by default.

Such alignment, even if unintended, sits uneasily with Malaysia’s long-standing doctrine of active neutrality and ASEAN centrality. It also raises serious constitutional concerns. Decisions on sanctions, export controls, and national security posture fall squarely within Malaysia’s sovereign jurisdiction and must remain subject to domestic law, parliamentary oversight, and multilateral legitimacy — particularly where United Nations mandates are concerned.

Malaysia’s economic and industrial sovereignty is also materially affected. Articles 6.1 to 6.3 require Malaysia to promote U.S. investment in strategic sectors such as energy, telecommunications, and infrastructure, while simultaneously committing Malaysia to facilitate approximately USD 70 billion of outbound investment into the United States over the next decade. For a capital-importing economy still focused on industrial upgrading and domestic innovation, this represents an inversion of developmental logic.

Compounding this, the Agreement allows for scrutiny of Malaysian subsidies and the possibility of “corrective” action if they are deemed distortive. These provisions weaken Malaysia’s ability to pursue state-led industrial policy — a tool historically used by every successful late industrialiser — and risk crowding out domestic investment and credit essential for innovation, resilience, and value-chain upgrading. Over time, this shifts development strategy away from national priorities toward external validation.

In the technological and digital domain, the erosion of policy space is even more pronounced. Articles 3.1 to 3.5 prohibit Malaysia from imposing a digital-services tax on U.S. firms, constraining a fiscal instrument established under our own domestic law. They also restrict Malaysia’s ability to regulate cross-border data flows, require consultations before entering new digital trade agreements, and prohibit technology-transfer or localisation requirements under Article 3.4. Collectively, these provisions remove essential tools for building national digital capability at a time when technological sovereignty is becoming a core determinant of competitiveness.

Fiscal and trade policy flexibility is further curtailed under Article 2.12, which obliges Malaysia to coordinate and endeavour to align its border measures with future U.S. border-adjusted taxes, while prohibiting tax distinctions that disadvantage American firms. When combined with a pledge not to challenge certain U.S. export rebates at the WTO, these clauses narrow Malaysia’s ability to deploy tariffs, incentives, and counter-cyclical tools responsive to local economic conditions.

Beyond substance, the manner in which the Agreement was concluded raises legitimate governance concerns. Agreements of this magnitude and permanence demand the highest level of inter-ministerial coordination, legal scrutiny, economic impact assessment, and parliamentary oversight. The very fact that these issues are now being examined underscores the need for a structured and transparent corrective process.

None of this should be read as a rejection of cooperation with the United States. Nor is it an argument for confrontation or withdrawal. Termination of the Agreement would neither be prudent nor constructive when engaging a major power. The issue is not whether Malaysia should engage, but on what terms, and with what safeguards.

Crucially, the Agreement itself provides a lawful and time-bound remedy. Clause 7.3 allows for amendments through written notification within a defined period following signature. With the Agreement signed on 26 October, Malaysia is now approaching the outer edge of that window. This is not an abstract concern. It is a matter of timing, legality, and institutional responsibility.

Invoking Clause 7.3 to introduce sovereign safeguards — affirming the primacy of the Federal Constitution, domestic law, parliamentary authority, and Malaysia’s independent foreign-policy doctrine — would not weaken Malaysia’s partnership with the United States. On the contrary, it would strengthen that partnership by placing it on clearer, more sustainable foundations. Durable cooperation is built not on asymmetry, but on mutual confidence in each other’s institutional integrity. This is about recognising, in time, that agreements of this scope require recalibration where national interests are at risk. Acting now would demonstrate foresight and institutional maturity, not retreat.

Above all, this matter must remain above politics. It concerns Malaysia’s long-term sovereignty, development trajectory, and strategic posture — issues that transcend electoral cycles and partisan lines.

Herewith are our suggested amendments and/or modifications for your urgent consideration and attention. These are presented in a structured and practical format:

• The relevant Article and/or Clause as it appears in the current Agreement;

• The issues and consequences arising from retaining or maintaining such provisions in their present form, with specific reference to implications for the nation;

• Suggested amendments, modifications and/or additions, formulated in accordance with Article 7.3 of the Agreement; and

• The anticipated impact and outcomes of such amendments, including the protections and safeguards they would afford Malaysia.

These proposals are intended to serve as a constructive tool for engagement and negotiation following the invocation of Article 7.3. To reiterate, this exercise is not driven by political positioning, nor by semantic or procedural contention. It is undertaken solely in the national interest, with the objective of protecting and preserving Malaysia’s sovereignty, constitutional integrity, and long-term policy space.

YAB Dato’ Seri, Malaysia’s credibility has always rested on its ability to engage the world without surrendering its centre of gravity. The opportunity before us is to amend what can be amended, protect what must be protected, and ensure that cooperation with all partners, including the United States, remains consistent with our Constitution, our laws, and our national interest.

With respect, and with urgency, we therefore urge that Clause 7.3 be invoked without delay, and that structured negotiations be undertaken to realign this Agreement with Malaysia’s sovereign and developmental priorities.

This is a moment for decisive stewardship — one that future Malaysians will recognise not as a rupture, but as a correction made in time.

Thank you.

Sincerely, Dr Rais Hussin bin Mohamed Ariff President/CEO EMIR Research

Proposed Amendment Sheet

The Government of the United States of America ("United States") and the Government of Malaysia ("Malaysia") (hereinafter referred to individually as "a Party" and collectively as "the Parties"),

EMPHASIZING their shared values, including their shared commitment to sovereignty, economic prosperity, and resilient supply chains;

RECOGNIZING the bonds of friendship and cooperation between them, in particular in their trade and investment relations, as reflected in the _Trade and Investment Framework Agreement between the Government of the United States and the Government of Malaysia_;

INTENDING to enhance reciprocity in their bilateral trade relationship by addressing tariff and non-tariff barriers; and

SEEKING to strengthen their commercial relationship through increased alignment on national and regional economic security matters,

HAVE AGREED as follows:

- Vague and Binding "Alignment": The phrase “increased alignment on national and regional economic security matters” is a gateway clause. Without guardrails, it can be used to justify the automatic adoption of U.S. unilateral measures under Section 5, directly compromising Malaysia's neutral foreign policy and sovereign decision-making.

- Constitutional Supremacy and Dualism Not Acknowledged: The Preamble completely ignores the foundational principle of Malaysian law: the supremacy of the Federal Constitution (Article 4(1)) and the dualist system where international treaties have no direct effect until domesticated by Parliament. This omission creates immense legal risk, suggesting the executive branch can bypass Parliament on matters requiring legislation.

- Unclear Allocation of Powers: The text fails to recognize that while treatymaking is an executive function (Article 39), implementation often falls under Parliament's legislative domain (Ninth Schedule, Federal List). This silence risks the agreement being used to encroach upon the legislative authority of Parliament.

- Omission of Foundational State Principles: The Preamble is silent on Malaysia's core foreign policy tenets: active neutrality, ASEAN centrality, and WTO-consistent non-discrimination. This silence allows for interpretations that could pull Malaysia away from its ASEAN commitments and into a bilateral alignment that contradicts its multilateral and neutral stance.

Suggested Amendments:

The goal is to insert protective, interpretive language with minimal textual change for higher acceptability, while adding crucial safeguarding clauses.

"The Government of the United States of America ("United States") and the Government of Malaysia ("Malaysia") (hereinafter referred to individually as "a Party" and collectively as "the Parties");

REAFFIRMING their commitment to the principles of the United Nations Charter and international law;

EMPHASIZING their shared commitment to sovereign equality, economic prosperity, and resilient supply chains;

RECOGNIZING the bonds of friendship and cooperation between them, in particular in their trade and investment relations, as reflected in the Trade and Investment Framework Agreement between the Government of the United States and the Government of Malaysia;

INTENDING to enhance reciprocity in their bilateral trade relationship by addressing tariff and non-tariff barriers; and

SEEKING to strengthen their commercial relationship while fully respecting each Party’s sovereignty, constitutional order, and legislative processes, and while safeguarding Malaysia’s principles of active neutrality, ASEAN centrality, and commitments under the WTO;

RECOGNISING that, in Malaysia, this Agreement is to be given effect in accordance with the Federal Constitution and applicable domestic laws, and that any obligation requiring legislative implementation shall take effect only upon the enactment of such legislation by Parliament;

AFFIRMING that cooperation on economic and national security matters shall be pursued on a case-by-case basis through consultations, consistent with each Party’s domestic law, due process, and international obligations, and shall not entail automatic alignment with measures of the other Party;

ACKNOWLEDGING that nothing in this Agreement requires either Party to give extraterritorial effect to the other Party’s domestic laws, nor to compromise constitutionally-protected legislative competence, judicial independence, or regulatory discretion."

- 1. Sovereignty & Neutrality Anchor: Replaces the dangerous "alignment" objective with a commitment to respect Malaysia's "constitutional order" and "principles of active neutrality and ASEAN centrality."

- 2. Dualist Shield: Explicitly states that the agreement is subject to the Federal Constitution and requires parliamentary legislation for implementation, neutralizing any claim of direct effect.

- 3. Anti-Automaticity Clause: Mandates that security cooperation is "case-bycase" and "shall not entail automatic alignment," directly countering Articles 5.1 and 5.2.

- 4. Non-Extraterritoriality Principle: Preempts U.S. attempts to force the application of its sanctions lists (e.g., SDN List) and export controls onto Malaysia by default.

This fortified Preamble now provides a powerful legal foundation to interpret every subsequent article in a manner that protects Malaysia's sovereignty. It turns the Preamble from a statement of intent into a shield.

Section 1. Tariffs and Quotas

1. Malaysia shall apply a rate of customs duty [\[1\]](https://www.whitehouse.gov/briefings-statements/2025/10/agreement-between-the-united-states-of-america-and-malaysia-on-reciprocal-trade/#_ftn1) on originating goods of the United States as set out in Schedule 1 to Annex I.

2. The United States shall apply a revised reciprocal tariff rate on originating goods of Malaysia as set out in Schedule 2 of Annex I.

- Unconstitutional Surrender of Parliamentary Power: The power to impose and vary taxes and duties is a core legislative function of Parliament under Article 96(1) of the Federal Constitution and is operationalized through the Customs Act 1967 and Financial Procedures Act 1957. By mandating that "Malaysia shall apply" set tariffs, this clause attempts to bind future Parliaments, effectively bypassing the required tabling and legislative process. This is an unconstitutional fettering of sovereign legislative power.

- Asymmetric and Non-Reciprocal Concessions: The structure of the commitment is imbalanced. Malaysia commits to eliminate or reduce tariffs, while the U.S. maintains a residual 19% rate with executive carve-outs. This violates the principle of mutual and balanced concessions fundamental to WTO rules and equitable trade partnerships.

- Conflict with WTO Obligations: Malaysia's tariff "bindings" (maximum rates) are scheduled with the WTO under GATT Article II. Any permanent reduction of a tariff below a bound rate, as part of a Free Trade Agreement (FTA), must be notified under GATT Article XXIV. This agreement's process lacks this safeguard, creating a risk of conflict with Malaysia's multilateral obligations.

- Potential Breach of ASEAN Commitments (ATIGA): Granting preferential treatment to a non-ASEAN partner without corresponding adjustments could breach the ASEAN Trade in Goods Agreement (ATIGA Article 4), unless this agreement is properly structured and notified as an FTA under WTO rules.

Suggested Amendments:

1. The Parties affirm that the tariff treatment accorded under this Agreement shall be reciprocal, transparent, and consistent with their respective obligations under the WTO Agreements.

2. Any modification of import duties, exemptions, or preferential rates under this Agreement for Malaysia shall:

(a) be made pursuant to the Customs Act 1967 and the **Financial Procedures Act 1957**, subject to tabling before Parliament; and

(b) not require Malaysia to reduce or eliminate a tariff below its WTO-bound rate unless such modification has been approved through Malaysia’s domestic process and notified under GATT Article XXIV.

3. The specific tariff commitments of each Party are set out in Annex I. Any amendments to these commitments require mutual written consent and, for Malaysia, shall be subject to parliamentary notification.

4. Consistent with Article 7.4, a Party may suspend equivalent concessions if it determines that the other Party has adopted measures inconsistent with this Agreement or WTO rules, following good-faith consultations.

Article 1.2: Quantitative Restrictions

Malaysia shall not impose quantitative restrictions on imports of originating goods of the United States except in accordance with the _General Agreement on Tariffs and Trade _1994 (GATT 1994).

Issues:

- One-Way Prohibition Creates Unconstitutional Inequality: The clause imposes a one-sided obligation only on Malaysia, which violates the spirit of Article 8 of the Federal Constitution (Equality) by creating a discriminatory legal obligation. It undermines the fundamental principle of reciprocity in international agreements.

- Omission of Critical WTO and Domestic Safeguards: The exception only referencing the GATT 1994 is dangerously narrow. It fails to preserve Malaysia's right to use measures explicitly allowed under:

- GATT Articles XI, XII, XIX, XX, and XXI (safeguards, balance-of-payments, general exceptions, security exceptions).

- Domestic laws such as the Control of Supplies Act 1961 (for essential goods) and the **Strategic Trade Act 2010 **(for security and strategic items).

- Erosion of Public Policy Space: The current text could be used to challenge Malaysia's right to impose restrictions for public morals (e.g., halal integrity), environmental protection, public health, or national security.

Article 1.2 – Quantitative Restrictions and Safeguards

1. Except as otherwise provided in this Agreement, neither Party shall maintain prohibitions or restrictions on the importation of goods of the other Party.

2. Nothing in this Agreement shall prevent a Party from adopting or maintaining measures:

(a) consistent with Articles XI, XII, XIX, XX, and XXI of the GATT 1994;

(b) necessary to protect its essential security interests; or

(c) pursuant to its domestic laws and regulations, including those for public health, safety, environment, and public morals.

3. For Malaysia, the measures referenced in paragraph 2 include, but are not limited to, those taken under the Control of Supplies Act 1961, the Strategic Trade Act 2010, and the Customs Act 1967.

** Summary of Key Legal Protections for Section 1: **

- Constitutional Compliance Achieved: The amendments explicitly subordinate tariff changes to the Customs Act 1967 and parliamentary oversight, resolving the conflict with Article 96 of the Federal Constitution.

- Reciprocity Restored: Obligations are mirrored onto both parties, and a suspension mechanism is included.

- Sovereign Safeguards Preserved: Malaysia's full rights under WTO agreements and its critical domestic laws are explicitly carved out and protected.

- Legal Certainty Established: The amendments prevent future disputes by clearly stating the legal framework governing these trade measures.

This consolidated approach provides a watertight legal defense for Malaysia's interests in Section 1.

Article 2.1: Import Licensing

Malaysia shall not apply import licensing [2] to U.S. originating goods in a manner that restricts the importation of such goods. Malaysia shall ensure that any non-automatic import licensing that it applies is applied only to administer an underlying measure, and in a manner that is transparent, nondiscriminatory, and not unduly burdensome, and that does not reduce the competitiveness of U.S. exports.

Issues:

- One-Sided Obligation & Constitutional Breach: The clause applies only to Malaysia, violating Article 8 (Equality) of the Federal Constitution and the principle of reciprocity.

- Erosion of Administrative Discretion: It curtails the lawful discretion of Malaysian authorities under the Customs (Prohibition of Imports) Order 2017, Food Act 1983, and Strategic Trade Act 2010 to license goods for safety, environmental, or security reasons.

Article 2.1 – Import Licensing

1. Each Party shall administer import-licensing procedures in a transparent and nondiscriminatory manner, consistent with the WTO Agreement on Import Licensing Procedures.

2. Malaysia retains the right to maintain or introduce licensing requirements for reasons of public morals, health, safety, environmental protection, national security, or compliance with halal and consumer-protection laws, pursuant to domestic legislation including the Customs Act 1967, Strategic Trade Act 2010, and Food Act 1983.

3. Reciprocal treatment shall apply to U.S. licensing of Malaysian exports.

Article 2.2: Technical Regulations, Standards, and Conformity Assessment

1. The Parties recognize their existing rights and obligations with respect to each other under the World Trade Organization (WTO) _Agreement on Technical Barriers to Trade_. Malaysia shall allow U.S. originating goods that comply with applicable U.S. or international standards, U.S. technical regulations, or U.S. or international conformity assessment procedures to enter its territory without additional conformity assessment requirements. In doing so─

(a) Malaysia shall accord to the conformity assessment bodies of the United States treatment no less favorable than that it accords to its own bodies; and

(b) Malaysia shall facilitate the acceptance of U.S. compliance procedures for goods that are not subject to third-party conformity assessment in the U.S. regulatory framework.

2. Malaysia shall ensure that technical regulations, standards, and conformity assessment procedures are applied in a non-discriminatory manner and do not operate as disguised restrictions on bilateral trade, and shall remove existing technical barriers to trade in areas that undermine reciprocity, including requirements for duplicative or unnecessary testing or conformity assessment.

Issues: - Regulatory Surrender: Automatic acceptance of U.S. standards would displace the authority of SIRIM, the Energy Commission, and the Medical Device Authority, contrary to the Standards of Malaysia Act 1996.

- Extraterritorial Application: Granting national treatment to U.S. conformity assessment bodies effectively gives extraterritorial status to U.S. certifications.

Suggested Amendments:

1. The Parties shall base technical regulations and standards on international norms where appropriate, consistent with the WTO TBT Agreement.

2. Mutual recognition of conformity assessment results may be granted only where equivalence is demonstrated and domestic safety, health, environmental, and halal requirements are satisfied.

3. Malaysia reserves the right to require local testing and certification for goods regulated under Malaysian law, including the Standards of Malaysia Act 1996.

Malaysia shall provide non-discriminatory or preferential market access for U.S. agricultural goods as set forth in this Agreement. In doing so─

(a) Malaysia shall ensure that its sanitary and phytosanitary (SPS) measures are science- and risk-based and do not operate as disguised restrictions on bilateral trade, and shall remove unjustified SPS barriers in areas that undermine reciprocity.

(b) Malaysia shall not enter into agreements or understandings with third countries that include non-scientific, discriminatory, or preferential technical standards or third-country SPS measures that are incompatible with U.S. or international standards; or otherwise disadvantage U.S. exports.

Issues:

- Sovereignty Infringement: The clause restricts Malaysia's right to enter into SPS agreements with third countries, undermining ASEAN and OIC cooperation.

- Conflict with Domestic Laws: Automatic recognition of U.S. SPS decisions conflicts with the Food Act 1983, Veterinary Public Health Ordinance 1999, and Halal Certification Procedures (JAKIM).

Suggested Amendments:

1. Measures shall be science-based and consistent with the WTO SPS Agreement, Codex Alimentarius, OIE, and IPPC standards.

2. Malaysia retains the sovereign right to apply SPS and halal measures under domestic laws and religious authorities.

3. Each Party may cooperate with any third country on SPS matters without prejudice to this Agreement.

Article 2.4: Geographical Indications

Malaysia shall ensure transparency and fairness with respect to the protection or recognition [3] of geographical indications, including pursuant to an international agreement to which Malaysia is a party. Malaysia shall only protect or recognize a term that identifies a good as a geographical indication where there is a given quality, reputation, or other characteristic of the good that is essentially attributable to its geographical origin.

- Dilution of Domestic Law: The text could undermine protections under the Geographical Indications Act 2022 and conflict with existing registrations (e.g., from the EU).

Article 2.4 – Geographical Indications

Geographical Indications shall be examined and protected in accordance with Malaysia’s Geographical Indications Act 2022 and related regulations. Nothing herein prejudices existing or future registrations recognised under Malaysian law.

Malaysia shall not restrict U.S. market access due to the mere use of the individual cheese and meat terms listed in Annex II.

Issues: - Consumer Protection & Halal Integrity: Permitting U.S. use of protected names may contravene the Trade Descriptions Act 2011 and Halal certification rules.

Suggested Amendments:

Use of Annex II terms shall not mislead consumers and must comply with the Trade Descriptions Act 2011, Food Regulations 1985, and halal labelling requirements administered by JAKIM.

Article 2.6: Intellectual Property

Malaysia shall provide a robust standard of protection for intellectual property.[4] Malaysia shall provide effective systems for civil, criminal, and border enforcement of intellectual property rights and shall ensure that such systems combat and deter the infringement or misappropriation of intellectual property, including in the online environment. Malaysia shall prioritize and shall take effective criminal and border enforcement actions against copyright and trademark infringements.

- "TRIPS-Plus" Obligations: "Robust enforcement" implies obligations beyond the WTO TRIPS Agreement and Malaysia's Copyright Act 1987, Patents Act 1983, and Trade Marks Act 2019.

- Interference with Judiciary: Mandated prioritization of enforcement could interfere with judicial discretion and prosecutorial independence (Article 145 Federal Constitution).

Suggested Amendments:

Each Party shall ensure effective IP protection consistent with the WTO TRIPS Agreement and its domestic laws. Implementation and enforcement shall remain subject to each Party’s legal system and prosecutorial discretion.

Article 2.7: Services

This Agreement incorporates, _mutatis mutandis_, any commitment concerning trade in services that Malaysia has made or hereafter makes in a trade agreement to any third country, jurisdiction, or economy. This Article shall not apply to any commitment to the Association of Southeast Asian Nations (ASEAN) under any ASEAN trade or investment agreement.

Issues:

- Extreme "MFN" Clause: Automatically importing any services liberalization granted elsewhere destroys Malaysia's regulatory space in sensitive sectors like education (Private Higher Educational Institutions Act 1996), finance (Financial Services Act 2013), and health, and conflicts with Bumiputera policy.

Article 2.7 – Services

Services commitments apply only to the sectors listed in Annex III and are subject to Malaysia’s horizontal and sectoral reservations, including for public health, education, finance, and Bumiputera empowerment policies. The 'Most-Favoured-Nation' treatment clause in this Article is deleted.

Malaysia shall adopt and implement good regulatory practices as set out in Article 2.21 of Annex III that ensure greater transparency, predictability, and participation throughout the regulatory lifecycle.

Issues:

- Encroachment on Legislature: Could create litigation-style obligations that bind Parliament or the Cabinet beyond the Constitutional framework.

Suggested Amendments:

Good regulatory practices represent co-operation guidelines and do not create private rights of action or limit legislative discretion under the Federal Constitution.

Article 2.9: Labor

1. Malaysia shall adopt and implement a prohibition on the importation of goods mined, produced, or manufactured wholly or in part by forced or compulsory labor. Malaysia may acknowledge U.S. government determinations on entities under Section 307 of the Tariff Act of 1930 and shall take appropriate action to prohibit importation of goods from those companies. The Parties shall cooperate by sharing best practices on the development and enforcement of forced labor import prohibitions, as appropriate. Malaysia shall implement the obligations in this paragraph within two years of the date of entry into force of this Agreement.

2. Malaysia shall protect internationally recognized labor rights.[5] This includes by adopting or maintaining such rights in its domestic law and practice, and effectively enforcing its labor laws, including by creating or maintaining necessary institutions to protect labor rights. Malaysia shall establish and effectively apply appropriate legal sanctions for violations of those laws. Malaysia shall not weaken or reduce the protections in its labor laws and shall address any such weakening or reduction that has been made to encourage trade or investment to date.[6] In addition, Malaysia shall address issues related to labor rights that contribute to non-reciprocal trade.

- Extraterritorial Application of U.S. Law: Requiring Malaysia to "recognise U.S. forced-labour determinations" imports foreign blacklists, inconsistent with the Employment Act 1955, ATIPSOM Act 2007, and Article 8 (Equality).

Suggested Amendments:

Malaysia shall combat forced labour through its own laws and institutions, taking into account credible international information but is not bound by foreign determinations. Actions shall respect due process and the ILO conventions ratified by Malaysia.

Malaysia shall adopt and maintain environmental protections, effectively enforce its environmental laws, uphold or institute, as necessary, strong environmental governance structures, and address environment-related issues that contribute to non-reciprocal trade.

- Vague, Weaponizable Commitments: Could be used to challenge sovereign decisions on palm oil and land use under the guise of being "disguised restrictions on trade."

Environmental measures shall not constitute disguised restrictions on trade. Malaysia retains the right to adopt and enforce measures under the Environmental Quality Act 1974 and related laws to pursue sustainable development.

Malaysia shall facilitate technology solutions that allow for full pre-arrival processing, paperless trade, and digitalized procedures for the cross-border movement of goods.

- Data Security Risks: Mandated digitalization without safeguards may breach the Personal Data Protection Act 2010 and Customs Act 1967 s. 138 (secrecy).

Article 2.11 – Customs and Trade Facilitation

Digital trade facilitation shall respect Malaysia’s PDPA 2010, Customs Act 1967, and critical-infrastructure security rules. Cross-border data access requires a lawful basis and regulatory approval.

Article 2.12: Border Measures and Taxes

1. Malaysia shall coordinate and endeavor to align its border measures applicable to third-country imports with relevant border measures that the United States may adopt in the future, such as border-adjusted tax measures or other border measures, to combat regulatory arbitrage that would disadvantage U.S. workers and businesses.

2. No Party shall contest at the WTO a measure adopted by the other Party to rebate or to refrain from imposing direct taxes in relation to exports from that Party.

3. Malaysia shall not impose value-added taxes that discriminate against U.S. companies in law or in fact.

- Fiscal Policy Lock-In: "Alignment with future U.S. border tax adjustments" could lock Malaysia into a foreign fiscal regime, contrary to Articles 96–97 Federal Constitution and the Income Tax Act 1967.

- Surrender of WTO Rights: Waiving the right to challenge U.S. export rebates at the WTO violates Malaysia's sovereign right to dispute settlement.

Article 2.12 – Border Measures and Taxes

1. Malaysia shall retain full autonomy over its taxation and customs policy under Articles 96 and 97 of the Federal Constitution.

2. Nothing in this Agreement limits Malaysia’s rights to consultations or dispute settlement under the WTO.

3. No Party shall impose value-added taxes that discriminate against companies of the other Party in law or in fact.

- Reciprocity Achieved: Obligations are mirrored, and one-sided language is removed.

- Constitutional and Statutory Supremacy Upheld: Every amendment explicitly reserves Malaysia's right to act under its own legal framework, citing specific key statutes.

- Sovereign Regulatory Space Preserved: Malaysia's right to regulate for public health, safety, environment, security, and religious (halal) compliance is firmly protected.

- Extraterritoriality Blocked: The amendments prevent the U.S. from imposing its domestic standards, sanctions, and blacklists on Malaysia.

Section 3. Digital Trade and Technology

Malaysia shall not impose digital services taxes, or similar taxes, that discriminate against U.S. companies in law or in fact.

Issues:

- Unconstitutional Fiscal Surrender: A blanket prohibition on Digital Services Taxes (DST) directly infringes upon Parliament's exclusive power to authorize taxation under Articles 96–97 of the Federal Constitution. It would block adjustments to the Service Tax (Digital Services) Regulations 2019 under the Service Tax Act 2018, rendering the clause _ultra vires _the Constitution.

- Conflict with Global Tax Reforms: A fixed ban prevents Malaysia from aligning with evolving international standards, such as the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Suggested Amendments:

Article 3.1 – Digital Services Tax

1. Nothing in this Agreement shall prevent either Party from introducing or maintaining non-discriminatory taxation measures consistent with its Constitution, domestic laws and international commitments, including the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

2. Any fiscal measure relating to digital services in Malaysia shall be enacted only by Parliament pursuant to Articles 96–97 of the Federal Constitution.

** Article 3.2: Facilitation of Digital Trade **

Malaysia shall facilitate digital trade with the United States, including by─

(a) refraining from measures that discriminate against U.S. digital services or U.S. products distributed digitally; [7]

(b) ensuring the cross-border transfer of data by electronic means across trusted borders, with appropriate protections, for the conduct of business; and

(c) endeavoring to collaborate with the United States to address cybersecurity challenges and matters of mutual interest, which may include exchanging information on threats and best practices, promoting the use of relevant international standards, and understanding capacity-building activities.

Issues:

- Forced Data Free-Flow Violates Multiple Laws: The obligation to "ensure" cross-border data transfers and refrain from data localization is incompatible with:

- PDPA 2010 s. 129(1): Restricts transfer of personal data to countries without adequate protection.

- Communications and Multimedia Act 1998 (CMA) s. 234: Mandates confidentiality of communications.

- Bank Negara’s Risk Management in Technology Policy Document (2020): Requires local data storage for critical financial systems.

- The Official Secrets Act 1972: Protects state secrets from unauthorized disclosure.

- Regulatory Capture: The undefined concept of "trusted borders" could be unilaterally defined by U.S. standards, overriding Malaysian regulatory judgment.

Suggested Amendments:

1. Each Party shall facilitate the secure flow of data for legitimate commercial purposes, subject to its domestic laws on privacy, security, financial supervision and national interest.

2. Malaysia retains the right to require local storage or processing of data where necessary to safeguard public order, national security, critical infrastructure, or to ensure compliance with the Personal Data Protection Act 2010, the Communications and Multimedia Act 1998, and sectoral legislation.

3. Any determination of “trusted borders” or adequacy for data transfers shall be a sovereign decision of each Party, based on its own legal standards.

Malaysia shall consult with the United States before entering into a new digital trade agreement with another country that jeopardizes essential U.S. interests.

Issues:

- Volation of Treaty-Making Power: The requirement for mandatory consultation grants the U.S. a soft veto, intruding on the Cabinet’s treatymaking power under Article 39 of the Federal Constitution.

- Undermines ASEAN Centrality: It directly threatens Malaysia's ability to fully participate in and uphold regional frameworks like the ASEAN Digital Economy Framework Agreement (DEFA).

Suggested Amendments

Each Party may consult the other regarding prospective digital trade agreements that may materially affect the implementation of this Agreement. Such consultations shall not prejudice either Party’s sovereign right to negotiate, conclude, or accede to any international agreement, including regional or ASEAN frameworks.

1. Malaysia shall not impose any condition or enforce any undertaking requiring U.S. persons to transfer or provide access to a particular technology, production process, source code, or other proprietary knowledge, or to purchase, utilize, or accord a preference to a particular technology, as a condition for doing business in its territory.

2. Nothing in this Article shall─

(a) preclude the inclusion or implementation of terms and conditions related to the provision of source code in commercially negotiated contracts;

(b) preclude a Party from requiring that access be provided to software used for critical infrastructure, to the extent required to ensure the effective functioning of critical infrastructure, subject to safeguards against unauthorized disclosure;

(c) preclude a Party from requiring the modification of source code of software necessary for that software to comply with laws or regulations which are not inconsistent with this Agreement;

(d) apply to government procurement;

(e) preclude a regulatory body or judicial authority of a Party from requiring a person of another Party to preserve and make available the source code of software, or an algorithm expressed in that source code, to the regulatory body for a specific investigation, inspection, examination, enforcement action, or judicial proceeding, subject to safeguards against unauthorized disclosure; or

(f) apply to a Party’s measures adopted or maintained for prudential reasons.[8]

- Prevents Critical Regulatory Oversight: A blanket prohibition on source code and algorithm disclosure ties the hands of Malaysian regulators, conflicting with:

- CMA 1998 s. 186 (security compliance).

- Financial Services Act 2013 s. 143 (inspection powers).

- National Cyber Security Policy (NCSP) and Digital Signature Act 1997 (audit requirements).

- Risks of Unaccountable AI: Prevents necessary auditing for algorithmic bias, public safety, and AI accountability.

Nothing in this Agreement shall prevent Malaysia from requiring disclosure, escrow, or inspection of source code, algorithms or encryption keys where necessary for: (a) safety or cybersecurity testing of critical infrastructure; (b) prudential supervision of financial institutions; (c) enforcement of competition, consumer protection, or data-protection laws; or (d) certification of AI systems for transparency and accountability. Confidentiality of disclosed information shall be protected in accordance with Malaysian law.

Each Party shall not impose customs duties on electronic transmissions, including content transmitted electronically, and shall support multilateral adoption of a permanent moratorium on customs duties on electronic transmissions at the WTO. For greater certainty, this Article does not preclude a Party from imposing internal taxes, fees, or other charges on electronic transmissions, including content transmitted electronically, provided that those taxes, fees, or charges are imposed in a manner consistent with Articles I and III of the GATT 1994 or Articles II and XVII of the WTO _General Agreement on Trade in Services _(GATS).

- Permanent Fiscal Limitation: A permanent moratorium limits Parliament’s future fiscal powers under Articles 96–97 and the Customs Act 1967 s. 11(1), pre-empting a sovereign decision on a potential future revenue tool.

Suggested Amendments:

Article 3.5 – Customs Duties on Electronic Transmissions

The Parties reaffirm their current practice of not imposing customs duties on electronic transmissions, consistent with decisions of the WTO Ministerial Conference. This commitment shall be subject to future WTO outcomes. Either Party may review or withdraw this moratorium following a WTO decision or after conducting a public impact assessment and notifying the other Party 120 days in advance.

Rationale: To explicitly anchor the entire digital section in the principle of sovereignty and provide a clear interpretive framework.

Article 3.6 – Digital Sovereignty and Data Governance

1. The Parties recognise that data generated within their territories are subject to their respective laws and oversight by domestic regulators.

2. Malaysia retains the right to classify and protect data critical to national security, government functions, and public interest.

3. The Parties shall cooperate to enhance cybersecurity capacity, privacy protection, and mutual recognition of data-protection adequacy without compromising sovereign jurisdiction.

- Constitutional Fiscal Power Preserved: Amendments ensure Parliament's exclusive right to tax digital services is unchallenged.

- Regulatory Control Restored: Malaysia's right to enforce data localization under the PDPA, CMA, and financial sector laws is explicitly protected.

- Oversight of Critical Technology Enabled: The ability to audit source code and algorithms for safety, security, and fairness is firmly carved out.

- Foreign Policy Autonomy Secured: The amended consultation clause removes any U.S. veto power, safeguarding Malaysia's participation in ASEAN DEFA and other multilateral frameworks.

- Sovereign Data Control Asserted: The new article establishes the principle of data sovereignty as a foundation for all digital trade obligations.

The Parties intend for the benefits of this Agreement to accrue substantially to them and their nationals. If benefits of this Agreement are accruing substantially to third countries or third-country nationals, a Party may establish rules of origin necessary to achieve the Parties’ intention for this Agreement.

- Unilateral U.S. Discretion: The article grants effectively unilateral power to the U.S. to "establish or modify" Rules of Origin (ROO) based on subjective assessments. This conflicts with:

- Article 39 & 74(1) Federal Constitution: While external affairs are a federal matter, Parliament retains legislative power over trade.

- Customs Act 1967 ss. 11 & 31: Rules of origin for preferential tariffs must be prescribed by regulation, requiring domestic legal process.

- Strategic Trade Act 2010 Part III: Export-control licensing is tied to domestic certification processes. - • **Conflict with ASEAN Integration: **Unilateral ROO modification could violate Malaysia's obligations under the ASEAN Trade in Goods Agreement

- (ATIGA) and its Operational Certification Procedures, fragmenting regional supply chains and undermining the "Made in ASEAN" strategy.

- Violation of Due Process: The text provides no requirement for notification, consultation, or appeal, breaching principles of natural justice under Articles 5 & 8 of the Federal Constitution (right to be heard and equal treatment).

1. The Parties shall apply rules of origin that are reciprocal, transparent and consistent with the WTO Agreement on Rules of Origin and Malaysia's domestic legislation.

2. Any modification or establishment of new rules of origin affecting the operation of this Agreement shall:

(a) be undertaken only through mutual written consent of both Parties;

(b) be subject, in Malaysia, to publication in the Federal Gazette under the Customs Act 1967 and tabled before Parliament; and

(c) include a transition period of not less than 180 days to allow affected exporters and importers to adjust.

3. The Parties shall create a Joint Committee on Rules of Origin, co-chaired by MITI and the Office of the U.S. Trade Representative, to:

(a) verify origin determinations;

(b) hear appeals from exporters whose goods lose preferential status; and

(c) conduct annual reviews ensuring compatibility with ASEAN and WTO obligations.

4. Malaysia may continue to apply its existing rules of origin and cumulation arrangements under the ASEAN Trade in Goods Agreement (ATIGA) and related ASEAN FTAs.

5. Where goods incorporate materials or processing from third countries, origin shall be conferred according to substantial-transformation criteria defined by domestic law and international best practice, ensuring that Malaysian manufacturing inputs retain preferential access.

- Sovereign Equality Restored: Replaces unilateral discretion with **mutual written consent**, ensuring Malaysia has equal decision-making power.

- Constitutional Compliance: Explicitly requires ROO changes to follow Malaysia's domestic legal process, including publication in the Federal Gazette and tabling before Parliament, in accordance with the Customs Act 1967.

- ASEAN Integration Protected: Carves out Malaysia's continued application of ATIGA rules, preserving regional supply chains and the "Made in ASEAN" strategy.

- Due Process Guaranteed: Establishes a joint committee with appeal mechanisms, protecting Malaysian exporters from arbitrary decisions and ensuring natural justice.

- Predictability for Business: The 180-day transition period provides stability and allows businesses to adjust to new requirements.

This amendment transforms Article 4.1 from a potential tool of unilateral coercion into a cooperative, transparent, and legally sound mechanism that respects Malaysia's constitutional processes and international commitments.

1. If the United States imposes a customs duty, quota, prohibition, fee, charge, or other import restriction on a good or service of a third country and considers that such measure is relevant to protecting the economic or national security of the United States, the United States intends to notify such measure to Malaysia for the purpose of economic and national security alignment. Upon receiving such notification from the United States, Malaysia shall adopt or maintain a measure with equivalent restrictive effect as the measure adopted by the United States or agree to a timeline for implementation that is acceptable to both Parties, to address a shared economic or national security concern, guided by principles of goodwill and a shared commitment to enhancing bilateral relations between the United States and Malaysia.

2. Malaysia shalladopt and implement measures, in accordance with its domestic laws and regulations, to address unfair practices of companies owned or controlled by third countries operating in Malaysia’s jurisdiction that result in─

(a) the export of below-market price goods to the United States; (b) increased exports of such goods to the United States; (c) a reduction in U.S. exports to Malaysia; or (d) a reduction in U.S. exports to third-country markets.

3. Malaysia shall adopt, through its domestic regulatory process, similar measures of equivalent restrictive effect as those adopted by the United States to encourage shipbuilding and shipping by market economy countries. The Parties shall discuss the structure and effect of such measures, recognizing the Parties’ commitment to address shared economic or national security concerns in the shipbuilding and shipping sector.

Issues:

- Unconstitutional Automatic Alignment: The clause forcing Malaysia to "adopt measures with equivalent restrictive effect" is a fundamental surrender of sovereignty. It conflicts with:

- Article 39 Federal Constitution: Executive power in foreign affairs must be exercised independently by the Cabinet.

- Article 4(1): The Constitution is supreme; no international obligation can self-execute domestically.

- Article 74 (Federal List, item 11): Implementation of external affairs must pass through legislation, not treaty incorporation.

- Violation of International Law: It forces Malaysia to implement unilateral U.S. sanctions, contradicting its obligation to implement only UN Security Councilmandated sanctions (Article 25 UN Charter) and its commitments under the ASEAN Charter (Articles 2 and 41).

Article 5.1 – Complementary Actions

1. The Parties recognise their respective sovereign rights to adopt measures necessary to protect their essential security interests, consistent with their Constitutions, domestic laws, and international obligations.

2. Malaysia may, following an independent national-interest assessment and Cabinet approval, adopt measures complementary to those of the United States only where such measures are:

(a) consistent with Malaysia’s domestic legislation, including the Strategic Trade Act 2010, Defence Services Act 1972, and related regulations;

(b) consistent with obligations under the United Nations Charter and ASEAN Charter; and

(c) not in conflict with Malaysia’s policy of neutrality and non-alignment.

3. Any such measure shall be published in the Federal Gazette and, where it affects trade or investment, tabled before Parliament for scrutiny.

4. Cooperation under this Article shall prioritise multilateral coordination through the United Nations, ASEAN, or other international mechanisms recognised by both Parties.

5. There shall be no obligation for automatic alignment.

1. Malaysia shall, through its domestic regulatory process, cooperate with the United States to regulate the trade in national security-sensitive technologies and goods through existing multilateral export control regimes, align with all unilateral export controls in force by the United States, and ensure that its companies do not backfill or undermine these controls.

2. Malaysia shall cooperate with the United States, in a manner consistent with applicable requirements of domestic laws and regulations, with a view to restricting transactions of its nationals with individuals and entities included in the U.S. Department of Commerce Bureau of Industry and Security Entity List (Supplement 4 of Part 744 of the Export Administration Regulations), as well as the U.S. Department of the Treasury Office of Foreign Assets Control Lists of Specially Designated Nationals and Blocked Persons List (SDN List) and the Non-SDN Consolidated Sanctions List.

3. Malaysia shall explore the establishment of a mechanism to review inbound investment for national security risks, including in connection with critical minerals and critical infrastructure, consistent with widely accepted international best practices, and shall cooperate with the United States on matters related to investment security.

4. If the United States determines that Malaysia is cooperating to address shared national and economic security issues, the United States may take such cooperation into account in administering its domestic laws and regulations pertaining to export controls, investment reviews, and other measures.

Issues: