What are the poison pill clauses in the bilateral trade agreement between the United States and Malaysia?

On October 26 this year, during the ASEAN Summit in Kuala Lumpur, the United States signed trade agreements with Malaysia and Cambodia, while agreements were reached with Vietnam and Thailand on a framework but the text of the agreements has not yet been announced. The trade agreements between the United States and Malaysia, as well as Cambodia, contain many so-called poison pill clauses that exclude cooperation with third parties and harm the interests of third parties. Although these clauses do not name China explicitly, they are clearly aimed at China. The poison pill clauses targeting China tend to be templated, posing a risk of further proliferation. This article outlines the poison pill clauses that may harm China's interests. Poison pill clauses are a concept in investment and merger activities, also known as "anti-takeover measures for equity dilution," aimed at increasing the acquisition costs for external acquirers. The "United States-Mexico-Canada Agreement" (USMCA) "creatively" inserted clauses restricting one party from entering into free trade agreements with non-parties, leading many to refer to such clauses in international economic and trade agreements as poison pill clauses. In this narrow sense, poison pill clauses are defined as such. Broadly speaking, any clause in international economic and trade agreements that specifically harms the interests of non-parties can be referred to as a poison pill clause. Background Since the beginning of this year, starting with the so-called "Economic Prosperity Agreement" signed between the United States and the United Kingdom, the U.S. has been continuously inserting some poison pill clauses targeting China. These clauses generally do not explicitly name China, but their direction is quite clear. For example, in the section "Strengthening Coordination and Cooperation on Economic Security" of the US-UK Economic Prosperity Agreement, there are four subsections addressing 1) responding to so-called non-market policies of third countries; 2) coordination of investment security, export controls, and information and communication technology equipment security policies; 3) coordination of government procurement policies, including not granting non-discriminatory treatment to non-parties; 4) preventing transshipment and tax evasion. Most of these contents are targeted at China. The "U.S.-Malaysia Reciprocal Trade Agreement" (hereinafter referred to as "US-Malaysia Agreement") signed during the ASEAN Summit in Kuala Lumpur on October 26 has a structure completely identical to that of the "U.S.-Cambodia Reciprocal Trade Agreement," with slight differences in content. These two agreements contain a large number of poison pill clauses. The structure of these two agreements is also very similar to that of the US-UK Economic Prosperity Agreement, except that the issue of origin is listed separately, but the number of poison pill clauses has significantly increased. Meanwhile, the United States and Vietnam, Thailand have reached a framework agreement, and the final agreement may also include these poison pill clauses. Currently, there is a tendency in the U.S. to template, standardize, and widely promote relevant poison pill clauses. Below, we will analyze the poison pill clauses in the US-Malaysia Agreement that may harm China's interests. It should be noted that a considerable amount of content in the entire agreement may harm China's interests. The preferential tariffs and other favorable treatments that Malaysia and Cambodia grant to the United States are even higher than the treatment they provide to China under the Regional Comprehensive Economic Partnership (RCEP), the China-ASEAN Free Trade Agreement, and the China-Cambodia Free Trade Agreement, which clearly violates the World Trade Organization's most-favored-nation principle. This effectively harms the interests of almost all WTO members outside the agreement. In addition, we will mainly analyze the clauses that are strongly discriminatory against China and may have a significant negative impact on China "U.S. - Malaysia Equitable Trade Agreement" Poison Pill Clause (1) Agriculture Article 2.3 (b) states: "Malaysia shall not enter into agreements or understandings with third countries that include non-scientific, discriminatory, or preferential technical standards or third country sanitary and phytosanitary (SPS) measures that are inconsistent with U.S. or international standards; or otherwise disadvantage U.S. exports." This clause may pose obstacles to the cooperation on standards and sanitary and phytosanitary measures between our country and Malaysia. (2) Labor Article 2.9 states: "Malaysia shall adopt and implement provisions prohibiting the importation of goods that are wholly or partially mined, produced, or manufactured by forced or compulsory labor. Malaysia may recognize the determinations made by the U.S. government under Section 307 of the Tariff Act of 1930 regarding entities and shall take appropriate action to prohibit the importation of goods from such companies. The parties shall cooperate as appropriate to share best practices regarding the development and enforcement of prohibitions on the importation of goods produced by forced labor. Malaysia shall implement the obligations of this paragraph within two years from the date of entry into force of this agreement." (3) Border Adjustment Mechanism Article 2.12 states: "Malaysia shall coordinate and strive to align its border measures applicable to imports from third countries with relevant border measures that the U.S. may adopt in the future, such as border adjustment tax measures or other border measures to combat regulatory arbitrage that harms U.S. workers and businesses." It remains unclear whether the U.S. will implement a carbon border adjustment mechanism similar to that of the European Union. If implemented, Malaysia has a coordination obligation, which may potentially impact China. (4) Digital Trade Agreement Article 3.3 states: "Malaysia shall consult with the United States before entering into a new digital trade agreement with another country that threatens the fundamental interests of the United States." This clause may hinder Malaysia from signing digital trade agreements and engaging in digital trade cooperation with China. Although Malaysia is not a member of the Digital Economy Partnership Agreement (DEPA), there is currently a significant demand for digital economy cooperation between various regions in China and Malaysia. Meanwhile, if the U.S. extends this clause to countries like Singapore, it may obstruct China's process of joining DEPA. (5) Origin Article 4.1 states: "The parties aim to ensure that the benefits of this agreement primarily accrue to them and their nationals. If the benefits of this agreement primarily accrue to a third country or its nationals, a party may establish necessary origin rules to achieve the parties' intent regarding this agreement." This clause may make it more difficult for products processed in Malaysia by China to obtain Malaysian origin status by modifying origin rules, potentially resulting in higher tariffs for products exported to the U.S. after processing in Malaysia. This clause indicates that the relevant origin rules are still under development and research. (6) Coordinated Import Restriction Measures The first paragraph of Article 5.1 states: "If the United States imposes customs duties, quotas, prohibitions, fees, charges, or other import restrictions on goods or services from third countries and believes that such measures are related to the protection of the U.S. economy or national security, the United States intends to notify Malaysia of such measures to achieve economic and national security consistency. Upon receiving such notification from the United States, Malaysia shall adopt or maintain measures that have an equivalent restrictive effect to those taken by the United States, or agree to a mutually acceptable implementation timetable to address shared economic or national security concerns, guided by good faith principles and a commitment to strengthening U.S.-Malaysia bilateral relations The United States' intention to pressure other countries to impose tariffs on China is evident. Previously, it mainly pushed Canada and Mexico to impose tariffs on China, which U.S. Treasury Secretary Janet Yellen referred to as the "North American fortress." The likelihood of ASEAN countries imposing tariffs on China is very low. However, the U.S. still included this clause in the agreement. The provisions of this clause are not particularly clear, and Malaysia seems to be taking a wait-and-see approach. (7) Measures for Foreign Enterprises in Malaysia The second paragraph of Article 5.1 states: "Malaysia shall adopt and implement measures through its domestic laws and regulations to address unfair practices by companies owned or controlled by third countries within Malaysia's jurisdiction, resulting in—(a) the export of goods to the United States at prices below market value; (b) an increase in the export of such goods to the United States; (c) a decrease in U.S. exports to Malaysia; or (d) a decrease in U.S. exports to third country markets." This clause may not only allow the U.S. to extend anti-dumping and countervailing measures against China to Malaysia but may also be used to target Chinese enterprises in Malaysia that compete with the U.S. (8) Restrictions on China's Shipbuilding and Shipping Industries The third paragraph of Article 5.1 states: "Malaysia shall adopt measures through its domestic regulatory procedures that are similar to those taken by the United States, with equivalent restrictive effects, to encourage shipbuilding and shipping by market economy countries. The parties shall discuss the structure and effects of such measures, acknowledging their commitment to addressing common economic or national security concerns in the shipbuilding and shipping sectors." This clause is clearly related to the U.S. 301 investigations into China's shipping, logistics, and shipbuilding. Although the U.S. has agreed to suspend the implementation of port usage fees on Chinese enterprises and vessels for one year following the U.S.-China Kuala Lumpur talks, its attempts to curb China's shipping and shipbuilding industries remain unchanged. Malaysia actually recognized China's market economy status back in 2004. The "market economy countries" mentioned in the above clause may be based on U.S. standards. According to this clause, even if Malaysia cannot buy ships from the U.S., it may prioritize purchasing ships from Japan and South Korea, thereby discriminating against Chinese vessels. (9) Export Controls, Sanctions, Investment Security, and Related Matters Article 5.2 states: "1. Malaysia shall cooperate with the United States through its domestic regulatory procedures to regulate the trade of national security-sensitive technologies and goods through existing multilateral export control systems, consistent with all current unilateral export controls of the United States, and ensure that its companies do not fill or undermine these controls. Malaysia shall cooperate with the United States to comply with applicable domestic laws and regulations to restrict its nationals from engaging in transactions with individuals and entities listed on the U.S. Department of Commerce Bureau of Industry and Security Entity List (Supplement 4 to Part 744 of the Export Administration Regulations), the U.S. Department of the Treasury Office of Foreign Assets Control Specially Designated Nationals and Blocked Persons List (SDN List), and the Non-SDN Comprehensive Sanctions List. Malaysia shall explore establishing a mechanism to review national security risks associated with inbound investments, including risks related to critical minerals and critical infrastructure, in accordance with widely accepted international best practices, and cooperate with the United States on investment security-related matters If the United States determines that Malaysia cooperates in addressing common national security and economic security issues, the U.S. may consider such cooperation when managing its domestic laws and regulations, including export controls, investment reviews, and other measures. This provision not only extends U.S. export controls and economic sanctions against third parties to Malaysia with extraterritorial jurisdiction but also requires Malaysia to take measures to effectively implement U.S. relevant controls and sanctions, and to establish an investment security review mechanism in coordination with the U.S. These measures may worsen the business environment for Chinese enterprises in Malaysia. (10) Assist the U.S. in combating transshipment and tax evasion The second paragraph of Article 5.3 states: "Malaysia shall adopt and effectively implement measures to combat transshipment and other practices that evade or circumvent U.S. tariffs in accordance with its domestic laws and regulations. Malaysia shall sign a cooperation agreement with the U.S. on tariff evasion." The purpose of this provision is to have Malaysia assist the U.S. in combating transshipment and evasion of U.S. tariffs. Countries have the right to regulate trade. It remains to be seen whether the relevant regulatory measures will be discriminatory and whether they will affect normal trade. (11) Restrict Malaysia from signing free trade agreements with foreign countries The third paragraph of Article 5.3 states: "If Malaysia signs new bilateral free trade agreements or preferential economic agreements with countries that threaten the fundamental interests of the U.S., the U.S. may terminate this agreement and reinstate the applicable equivalent tariff rates specified in Executive Order No. 14257 dated April 2, 2025, if consultations with Malaysia fail to address its concerns." This provision is a typical poison pill clause. Although Malaysia has effectively established free trade relations through RCEP, the China-ASEAN Free Trade Agreement, and with China, this clause creates obstacles for signing higher-level free trade agreements between China and Malaysia. Even if there is no need for a bilateral free trade agreement between China and Malaysia, there is some uncertainty about whether this clause will hinder China's accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Another possibility is that the U.S. has included this clause as a standard provision in its planned trade agreements without considering the existing free trade relations between China and Malaysia. (12) Restrict Malaysia's cooperation with other countries in nuclear energy The fourth paragraph of Article 5.3 states: "Malaysia shall not purchase any nuclear reactors, fuel rods, or enriched uranium from certain countries unless there are no comparable terms and conditions from alternative suppliers." The term "certain" countries in this provision likely includes China. The U.S. has been importing uranium from Russia but interferes with relevant cooperation between other countries. (13) Others There are also some provisions, such as strengthening arms trade between the U.S. and Malaysia, and Malaysia's commitment to ensure fair treatment for U.S. companies compared to state-owned enterprises from third countries. These provisions do not appear to have obvious exclusivity or discrimination from the text itself, but in implementation, they may still have discriminatory or restrictive effects on Chinese enterprises and products Progress and Summary In the "US-Ma Agreement," the relevant poison pill clauses are not explicitly stated to target China, but based on their content, they can be said to be aimed at China in every aspect. According to the Ministry of Commerce of China, on November 18, the second meeting of the China-Cambodia Free Trade Agreement Joint Committee was held in Beijing. Li Chenggang, the international trade negotiation representative and vice minister, met with the Cambodian delegation. Li Chenggang stated that China welcomes Cambodia's discussions with other countries, including the US, on economic and trade agreements, but any agreement should not affect global trade development and regional cooperation, nor harm China's interests. He hopes that Cambodia will fully consider and properly address various concerns from the perspective of its long-term interests. The meeting summarized and evaluated the implementation of the China-Cambodia Free Trade Agreement, exchanged in-depth opinions on issues of common concern, and made arrangements for future work. In addition, both sides exchanged information on their recent economic and trade agreements with trading partners, with Cambodia providing explanations and clarifications on issues of concern to China. According to the Ministry of Commerce of China, on November 25, relevant departments of the Ministry of Commerce of China and responsible officials from the Ministry of Trade and Industry of Malaysia conducted bilateral communication in Beijing regarding issues related to the "Malaysia-US Reciprocal Trade Agreement." The Chinese side expressed that it welcomes Malaysia's resolution of differences through economic and trade agreements with other countries. However, any agreement should not affect global trade development and regional cooperation, nor harm China's interests. The Chinese side has serious concerns about certain contents of the "Malaysia-US Reciprocal Trade Agreement." It hopes that Malaysia will fully consider and properly address these issues from the perspective of its long-term interests. The Malaysian side provided explanations and clarifications on the concerns raised by China and expressed that Malaysia values the long-term partnership with China and is willing to continue deepening economic and trade cooperation between the two sides. According to a report by the Financial Times on November 28, Indonesia rejected the "poison pill" clause proposed by the Trump administration during trade negotiations with the US, arguing that the clause excessively infringes on Indonesia's freedom of action. Insiders stated that the "poison pill" clause involves issues of economic sovereignty, and the Indonesian government does not accept these overly "one-sided" clauses. The US has inserted numerous clauses that discriminate against third parties in bilateral trade agreements, harming the sovereignty of the counterpart and undermining the non-discrimination principle of the multilateral trading system. The specific impacts of these clauses and whether they will be implemented in the future need to be closely monitored. China will closely observe all actions that undermine the World Trade Organization's non-discrimination principle and harm China's interests, and will respond accordingly when necessary. Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk