Malaysia, Cambodia Sign Deals Leaving Double-Digit US Tariffs in Place
President Donald Trump signed trade deals with Cambodia and Malaysia, leaving 19% tariffs on both Cambodian and Malaysian goods, with some carve-outs for tropical fruits and woods, minerals, and some goods covered by pending Section 232 investigations, such as aviation parts and chemicals used to make pharmaceuticals. The 19% tariffs layer on top of most-favored nation rates, which, in the case of apparel and shoes that dominate Cambodia's top exports, are already quite high.
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Sidley Austin trade co-lead Ted Murphy wrote that these agreements are noteworthy because they appear to be what he called "true trade agreements... with provisions for tariffs, non-tariff barriers, agriculture, geographical indicators, electronic transmissions, IP, services, labor issues, etc."
He wondered if Congress would get a vote on them, and if not, how they would be affected if the International Emergency Economic Powers Act tariffs are overturned by the Supreme Court.
The White House said Cambodia would eliminate tariffs on all U.S. industrial goods and U.S. ag exports, and has already implemented the change.
The agreement included a lengthy annex with Cambodian goods that will face no reciprocal tariffs.
Only a subset of Cambodia's top five exports to the U.S. are on that list; its top exports are handbags/wallets, sweaters, lamp and light parts, rubber tires and leather shoes. Aviation tires are allowed in duty-free while the Section 232 investigation on aviation continues.
The Cambodian agreement also says that Cambodia, within five years, will implement paperless trade and pre-arrival processing for U.S. goods. It also promises to apply advance rulings uniformly and "improve the mechanism for resolution of disputes regarding the tariff classification of imports."
The agreement says that if the benefits of the 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."
It also says: "At the request of the United States, Cambodia shall, consistent with its sovereign interests, adopt and implement measures to address unfair practices of companies owned or controlled by third countries operating in Cambodia’s jurisdiction, including those that result in: (1) the export of below-market price goods to the United States; (2) increased exports of such goods to the United States; (3) a reduction in U.S. exports to Cambodia; or (4) a reduction in U.S. exports to third-country markets."
The Malaysia agreement is similar to the Cambodian one, though, since Malaysia is a richer country, the trade facilitation commitments don't have a phase-in period, and it includes a number of purchase agreements, including $150 billion worth of semiconductors, aerospace parts and data center equipment. It also offers $70 billion in "capital fund investments" in the U.S.
In terms of trade facilitation, Malaysia will allow pre-arrival data for express shipments, "and require all border agencies to conclude their processing of such data prior to arrival, in order to allow for the immediate release of low-risk shipments without transfer to a customs bonded area or warehouse. Within five years of the date of entry into force of this Agreement, Malaysia shall endeavor to implement periodic payment for express shipments." It also pledges to limit the fees on these shipments.
In terms of trade enforcement, the agreement says that if the U.S. requests it, Malaysia will provide non-confidential information on its manufacturing subsidies "and shall take action to address the distortive impacts of those subsidies and support mechanisms that may materially affect bilateral trade and investment with the United States."
A joint statement on the agreement said, "Malaysia has committed to provide significant preferential market access for U.S. industrial goods exports, including chemicals, machinery and electrical equipment, metals, and passenger vehicles, and for U.S. agricultural exports including dairy, horticultural products, poultry, processed products, beverages, pork, rice, and fuel ethanol."
Both agreements say the U.S. may take them into consideration when taking future Section 232 actions.
Malaysia is not eliminating tariffs on U.S. goods; it is leaving some goods at 2%, 3% and 5%, reducing others to 10% or 15%, offering duty-free status for some goods at entry into force, and phasing other tariffs down to zero over five or nine years. Others are staying at Malaysia's MFN rate.