Malaysia committed to implementing Trade Facilitation Agreement

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Malaysia is committed to implementing the Trade Facilitation Agreement (TFA) and is ready to commit almost 100 per cent of the provisions under Category A in the Agreement, which will be notified by July 31, 2014, says Datuk Seri Mustapa Mohamed.

The International Trade and Industry Minister said Malaysia has always been a strong advocate of trade facilitation, pointing out that it benefits both the business community and governments in developed and developing economies as well as create jobs and contribute towards economic growth.

"The global economy requires certainty and predictability and this requires the World Trade Organisation (WTO) and APEC to play a leading role in monitoring trade-distorting and protectionist measures that will have adverse impacts on global economic recovery," he said in a statement Sunday.

Mustapa also emphasised the need to remain vigilant to prevent the proliferation of protectionist and trade-distorting measures, while calling on economies to firmly resist any protectionist measures and refrain from raising barriers to international trade.

"Instead, they should continue efforts towards the establishment of a more liberalised and fair global trading environment.

"In addition, Malaysia supports the proposal to extend the APEC standstill commitment as well as the rollback of protectionist and trade-distorting measures through the end of 2018," he said.

Malaysia is concerned at the lack of progress in concluding WTO's Information Technology Agreement, and urges all parties to move away from their entrenched positions and be pragmatic, he said.

"Malaysia will be actively involved in the negotiations and we hope that all economies can work extra hard for the swift conclusion of the ITA expansion," Mustapa said.

Malaysia supports the new initiative on APEC Strategic Blueprint for Promoting Global Value Chains (GVC), he said, adding the blueprint should be designed to facilitate GVC development through a systematic approach.

The enhanced collaboration among economies will help small and medium enterprises (SMEs) to enhance their capacity and capabilities and encourage investment in value-added activities including manufacturing related services among others, he pointed out.

"In addition, GVC should provide the gateway for SMEs to be integrated into the global network which should be a priority for APEC economies in the years ahead," Mustapa added.

Tough times for trustees in Malaysia

The recent Federal Court decision in the Pesaka Astana bonds case is said to have "rattled the bond market" in Malaysia.

The case involved many issues centering about the duties and responsibilities of the lead arrangers for bond issuances and, equally importantly, the role of trustees in relation to the protection or, "ring fencing" of assets used to secure the bond issuance.

One of the important issues in the case involved the apportionment of liability between the lead arranger and the trustee in relation to the losses suffered by bondholders.

Lead arrangers are off the hook?

The Federal Court decision gave much weight to the cautionary notice contained in information memoranda (IM) and prospectuses. The Federal Court ruling appears to absolve and release lead arrangers from further responsibilities in bond issuances for so long as the cautionary notices are set out and highlighted in IM and prospectuses.

The implication of that ruling appears to put an onerous burden on bondholders to make their own detailed due diligence inquiries on every prospective bond issue.

In the complex and high-speed world of debt markets and capital markets the Federal Court ruling is well and truly a possible "spanner in the works" for the Malaysian debt and capital market.

How much weight to give IM?

Prior to the Federal Court ruling, the debt market practice would be for most bondholders to rely on the representations and advisory contained in IM issued by the issuing company but put together by the lead arranger and advisers.

The dilemma of prospective bondholders in the wake of the Federal Court ruling is, "How much weight do we give representations in the IM?"

This takes the contract principle of caveat emptor to a whole different level in the context of debt markets, in the form of IM and, with possible shockwaves to the capital markets, in the form of prospectuses.

Trustees bear the whole brunt of liability?

That said, what about the plight of the hapless trustee companies who are meant to be the custodians of secured assets in debt instrument issuances?

The risk profile for trustees to act as custodians for debt instruments just went to a completely different level; not in a good way. Actuaries will have their work cut out for them to calculate new liability levels of trustees.

In the matter of apportionment of liability here's the possible score at different stages of the Pesaka Astana bonds case-

Court                    Lead Arranger's liability  Trustee's liability

High Court                60%                                     40%

Court of Appeal        50%                                     50%

Federal Court              0%                                   100%