INTRODUCTION

Progressive and selective trade liberalization over time has enabled international trade to become a key component of the Malaysian economy. Malaysia in fact took advantage of economic globalization in the electrical and electronics sector by creating free trade zones in the early 1970s. This provided a liberal environment for multinational companies and gave Malaysia a headstart in the region's integration into the production networks that subsequently evolved with a high degree of multinational participation in the ASEAN economies. Exports and imports as a percentage of Gross Domestic Product (GDP) of Malaysia thus grew from 55 per cent and 42 per cent in 1960 to 107.9 per cent and 87.8 per cent respectively in 2005.

Malaysia's relatively open and outward looking trade and investment policies coincided with the global trend in trade liberalization, beginning with tariff reduction following the establishment of the General Agreement of Tariffs and Trade (GATT) in 1957. The conclusion of the Uruguay Round negotiations in 1994 and the establishment of the World Trade Organization (WTO) in January 1995 introduced three new dimensions at the multilateral level. First, unlike the GATT, the WTO is a full-fledged international organization with a binding dispute settlement mechanism. Second, WTO has an expanded mandate and membership, of which the majority is the developing and transition economies. Third, WTO agreements provide for review within five years of ratification, thereby introducing a dynamic element in the construction and enforcement of rules for the conduct of international trade.

The expanded mandate has led to major agreements ratified during the Uruguay Round that address non-tariff barriers, dumping and subsidies, trade related investment measures, intellectual property rights and government procurement. The inclusion of economic rules in the WTO agreements has changed the face of trade liberalization from the mere removal of cross border trade barriers alone.