KUALA LUMPUR: The United States’ latest proposal to impose 10% tariff on Malaysian goods stems from gaps in the monitoring of forced labour risks across global supply chains, despite the country’s compliance with international labour standards, Investment, Trade and Industry Minister Johari Abdul Ghani said.
Malaysia, he emphasised, does not practise forced labour and complies with international labour standards, including those under the International Labour Organization.
However, he said, the country does not have a specific law to restrict the import of raw materials, feedstock or semi-finished products produced using forced labour, which has contributed to the issue under the US assessment.
“When we import raw materials or semi-finished products from other countries, we do not have a mechanism to evaluate whether those inputs are linked to forced labour. That is the gap,“ Johari told reporters at the American Malaysian Chamber of Commerce (AmCham Malaysia) 49th annual general meeting luncheon today.
On Tuesday, the Office of the US Trade Representative (USTR) published its findings from investigations into alleged forced labour in Malaysia.
Under Section 301 of the US Trade Act of 1974, the USTR is empowered to initiate investigations into trade-related concerns across four key areas – forced labour, excess industrial capacity, state subsidies and environmental practices.
Earlier this year, two separate investigations involving Malaysia were launched on March 11 and 12, focusing respectively on alleged excess capacity and on gaps in addressing the importation of goods linked to forced labour content.
Malaysia submitted its formal written response on April 15 and subsequently participated in a hearing before the USTR on May 12.
The US’s assessment under its latest Section 301 tariff framework extends beyond domestic practices to include upstream and third-country supply chains, particularly where Malaysia lacks mechanisms to verify whether imported inputs are linked to forced labour.
Johari clarified that the proposed tariff is separate from the current 10% levy under Section 122 and would only take effect after the temporary measure expires and upon formal notification by the US administration.
He said the evaluation under Section 301 includes third-country exposure, where Malaysia may import inputs from other countries that could be linked to forced labour, even if such practices do not occur domestically. “But if someone else’s country has excess capacity or uses forced labour, and the product comes to us and we process it and export it to the US, that may be the issue.”
Johari said Malaysia has presented and defended its position to the US against allegations of forced labour and excess capacity. “We have done our session. We presented and argued our case but, ultimately, it is up to them. The tariff process is unilateral and determined entirely by the US.”
There are currently no preliminary talks with Washington to accelerate the process, and Malaysia will wait for the US to complete its investigations and issue formal decisions, the minister said.
Malaysia, Johari said, has no control over the timeline or direction of the investigations, given that the process is unilateral and conducted by the US across multiple jurisdictions simultaneously.
Investigations into excess capacity are still ongoing, with Malaysia maintaining that it does not have such issues domestically.
“As far as we are concerned, there is no excess capacity in this country, although risks may arise from global supply chain linkages,“ Johari said.
The current 10% tariff will remain in place until July 24, after which any new Section 301 tariff will take effect only if formally endorsed and communicated by the US administration.
Johari explained that the current tariff situation stems from the earlier 19% tariff framework, which a US court declared null and void, prompting Washington to introduce a temporary measure under Section 122 of the US Trade Act.
“Under Section 122, a 10% tariff was imposed, but this is only valid for 150 days and will expire on July 24, 2026,“ he said.
Section 122 can be imposed without specific justification but is temporary in nature, and cannot be extended beyond the 150-day period. Following the imposition of Section 122, the US initiated a new tariff framework under Section 301, which covers forced labour, excess capacity, environmental standards and subsidies.
Johari said, “For Malaysia, the US is applying only two elements under its Section 301 framework, which are forced labour and excess capacity, both of which extend beyond domestic conditions to include risks arising from global supply chains and third-country inputs.”
The US has completed its assessment on forced labour, with Malaysia placed in the lower band of proposed tariffs ranging from 10% to 12.5%.
“We got 10%. These are proposed tariffs and have not been officially signed yet. The decision is still pending approval by the US President,“ Johari said.
Meanwhile, the Ministry of Investment, Trade and Industry (Miti), said in a statement Malaysia will continue to engage USTR actively throughout the process, including at hearings, to present its case and protect Malaysian trade interests.
Regarding excess capacity, Miti said Malaysia reiterated that it does not have excess industrial capacity that distorts or disrupts global markets.
“Malaysia’s industrial output reflects genuine demand. Malaysia has submitted detailed evidence to this effect and will defend this position before USTR. USTR has yet to come out with any findings and propose actions with regard to this investigation,“ it added.
Miti pointed out that Malaysia is a responsible trading nation with strong worker protections and a firm commitment to fair trade.
The ministry said Malaysia has consistently abided by and upheld the rules-based international trading system, honouring its obligations under bilateral, regional, and multilateral trade agreements.
“The government will continue to engage the US at all levels and will provide further updates as the process progresses,“ it said.
