Balancing export controls and facilitating trade of strategic goods

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KUALA LUMPUR: With about eight months to go before Malaysia’s Strategic Trade Act 2010 (STA) is enforced, regulators and some exporters are gearing up to ensure that the new export controls will serve to facilitate the trade of strategic goods and not hamper businesses.

The STA will control the export and transfer of strategic goods, which refers to goods and technology that could be used to design, develop and produce weapons of mass destruction (WMD).

However, a large number of items which fall under the purview of the STA are dual-use products, which will have military and civilian applications.

According to Strategic Trade Controller Mohamed Shahabar Abdul Kareem, there are about 1,600 items currently listed as dual-use products, ranging from electronics and telecommunication products, nuclear-related products and certain products derived from plants, animals or bacteria.

Shahabar said examples of ordinary items could have dual application include mobile phones and urea. A mobile phone could potentially be used to remotely detonate explosive devices, while urea, commonly used as fertiliser could be turned into explosives.

However, Shahabar stressed that regulators would be looking at how the products could be used in the design and development of weapons rather than on the product in itself.

The Strategic Trade Secretariat (STS), under the Ministry of International Trade and Industry, is now in the early stages of putting together the necessary procedures and infrastructure for the STA.

The STA will be fully enforced on July 1, 2011 after parliament passed it into law in June this year.

Manufacturers and exporters of strategic products are required to register with the STS’ for export licences to enable regulators to monitor and determine which items are for legitimate use and which could be procured for the purposes of creating WMD.

Those who are not regular exporters can apply for single-use licences, valid for six months, to export single products while regular and large exporters would have to seek multiple-use licences which are valid for a period of two years, Shahabar said.The STS would issue special permits for export of certain strategic goods to restricted countries after a thorough process of scrutiny.

Shahabar said the restricted and embargoed countries would be based on the UN Security Council’s list which had been multilaterally agreed upon by many countries.

Although the STA contains provisions to control transshipment of strategic goods transiting in Malaysia, the STS is considering ways to provide certain flexibilities to facilitate trade.

“Essentially, we are going to be interested in a product if it is going to be in Malaysia for more than a specified time, perhaps a month or so or else it may be difficult given that Malaysia is an international hub for transshipment,” he told The Edge Financial Daily in a recent interview.

Apart from exporters, logistics companies will also be required to pre-register their interests as brokers and are legally obliged to report any product, which to their knowledge is of dual use and is to be transported to restricted or prohibited countries, Shahabar said.

Shahabar said the STS has since intensified its corporate outreach programme, which began some seven months ago, with particular focus on multinational companies (MNCs) with large export operations.

This is to help companies prepare for the eventual implementation of the law and for regulators to understand the specific requirements from the private sector.

Shahabar added that many large MNCs, particularly those from developed countries, already had their internal compliance systems in place with about eight companies already pre-registering with the STS and attending training programmes.

However, many Malaysian companies may need to get acquainted with strategic trade legislation and be aware of their responsibilities as an international exporter, Shahabar added.

“Malaysian companies should take cognisance of the fact that we are entering a group of countries that want to ensure that proper controls are in place.

“We want Malaysian companies to adopt best practices in internal compliance so they’ll have fewer problems exporting their goods. We are sure this will open up new markets in developed countries that are very strict on ensuring companies follow certain export controls,” Shahabar said.

Shahabar said having the export controls would enhance Malaysia’s attractiveness as an investment destination for high-technology products in line with the government’s New Economic Model.

The STA will be enforced after a three-month “simulation period” or grace period from April 1, allocated to test the system and prevent bottlenecks in the processes.

The coming months will prove critical for both the ministry to prepare its infrastructure for the implementation of the law and for companies to get ready for the new export controls.

Shahabar emphasised that the ministry wants to make sure that the export controls will be implemented based on “real requirements” so that it facilitates and not hinder exports.

When asked, Shahabar said he expected about 700 to 800 companies to be registered as exporters with the STS.

With the STA, Malaysia is fulfilling its international obligations under the UN Security Council’s Resolution 1540 which requires all member countries to establish legal and regulatory export controls on strategic items and technologies.

Malaysia is the second country in Asean to implement the regulations, after Singapore, which implemented them in 2008.

Shahabar also urged companies to get in touch with the STS for preparatory briefing programmes to ensure a smooth transition to the adaptation of the STA next year.

This article appeared in The Edge Financial Daily, November 8, 2010.