Why Malaysia’s RM1tn US trade deal raises serious governance concerns

During the recent Asean summit, Malaysia and the United States signed a ‘Trade and Investment Framework Agreement’.

Among the terms of the agreement was the commitment by Malaysia that local government-linked companies would procure various goods and services from the US amounting to about RM1tn.

The Center to Combat Corruption and Cronyism (C4 Center) is gravely concerned about these commitments. We call into question whether governance frameworks such as the soon to be gazetted Government Procurement Act (GPA) will apply to these procurements.

Investment, Trade and Industry Minister Tengku Zafrul Aziz said in Parliament that both Malaysian multinational companies and government-linked firms would be involved in these investment obligations.

Details of Malaysia’s procurement obligations to the US are listed in Annex IV (Purchases and investments) of the agreement. These include:

• 30 Boeing aircraft by Malaysian Aviation Group
• 3 million tonnes of liquified natural gas a year by Petronas valued at $2.0bn (RM8.6bn) a year
• Various other goods, such as semiconductors, aerospace components and data centre equipment
• Potential investment into the US’ manufacturing sector valued at $66m (RM277m)
• Capital investment of $70bn (RM294bn) over the next 10 years

There are major concerns regarding the governance of Malaysia’s procurement practices and investment decision-making in relation to its obligations under the agreement.

The agreement requires that Malaysia invest heavily in certain US industries, which raises alarm bells over the possibility that these may be bad investments that Malaysia may not be able to opt out of. In such a case, how will the government and government-linked companies be held accountable?

More importantly, while the agreement itself does not seem to prescribe any changes to Malaysia’s procurement regulations, it remains pertinent to question if the government-linked firms will be bound by the regulations set out in the GPA.

The act does consider certain government-linked firms to be under its purview – Section 5 extends the definition of ‘Federal Government entity’ to include companies where more than 50% of shares are owned by the Minister of Finance Incorporated (MoF Inc) or any federal statutory bodies.

However, it remains unclear how this applies to companies where MoF Inc only exercises indirect ownership, even if they are still majority shareholders through their holding companies such as Khazanah Nasional Berhad.

The status of the trade and investment agreement occupies an uncomfortable grey area in how the application of the GPA would play out:

• Are US-based companies still bound to adhere to the protocols of government procurement set out in the GPA and its related subsidiary legislation, ie tender bidding and registration requirements?
• Does the existence of these obligations create biases within procuring entities to favour bids by US-based companies for the purposes of achieving the obligations under the trade agreement?
• Alternatively, will the procuring divisions of government entities and government-linked companies receive explicit instructions to greenlight tender bids by US companies even when there are better, more qualified or economically sound bidders?

Such government-to-government agreements are in essence agreements in principle, and involve the promise of a procurement contract in the future.

However, the existence of a pre-determined target of meeting procurement and investment obligations possibly defeats the scrutinising function of procurement regulations. This is especially pertinent in procuring national infrastructure where quality and value for money should be the primary objective.

In this regard, government-to-government agreements are highly dangerous, allowing the government to unilaterally sign away huge amounts of public funds with virtually no checks and balances.

Additionally, even where applicable, Malaysia’s GPA remains a shoddy piece of legislation. C4 Center’s analysis of the act revealed that unfettered decision-making and administrative powers concerning government procurements are placed under the Finance Minister, Anwar Ibrahim.

This presents a two-fold problem – that government-to-government agreements exploit loopholes for public funds to be promised away by the government without any form of accountability, and that even if enforced, the weaknesses of the GPA and its unclear ambit in this context render it an ineffective instrument of checks and balances.

Good governance principles should not be made subordinate to geopolitical concerns or on the basis that it ‘potentially’ may result in better economic outcomes, especially when the livelihoods of the people of Malaysia are involved. The notion that a government can promise away more than double Budget 2026 to a foreign government without scrutiny is ludicrous.

Hence C4 Center strongly calls for the government to:

• Establish clear guidelines and legally binding policies on how decision-making processes will be conducted throughout the life cycle of the agreement, mandatory public consultations, and published obligations of procurement and investment information for public scrutiny of the health of these investments
• Exercise its rights to amend the terms of the agreement under Article 7.3 if it is found that they are no longer favourable to Malaysia
• Establish a moratorium on the application of the GPA until its problematic provisions are amended, following meaningful consultations with civil society organisations and academics
• Ensure that future subsidiary legislation arising from the GPA adheres to international standards of good governance and transparency

– C4 Center

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