JS-SEZ – pushing forward Malaysia-Singapore bilateral relations

The JS-SEZ embodies the best of Malaysia-Singapore bilateral relations.

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Published by malaymail, BusinessToday & AstroAwani, image by AstroAwani.

In his press conference on May 13, then Prime Minister-designate Lawrence Wong stated unequivocally that he will seek to maintain stability and continuity in terms of policy thinking and policy-making as a matter of critical priority. Renewal then is understood in terms of the policy-makers, i.e., bringing on board new faces into government (from among the ranks of the Members of Parliament). 

We can expect the now just-appointed Prime Minister (PM) Lawrence Wong to maintain his predecessor’s style and approach towards bilateral relations with Malaysia – as Singapore’s closest neighbour. 

Hence, it’s not expected for there to be any shift, at least not of any marked significance, in Singapore’s bilateral relations with Malaysia. 

Not least, as former PM Lee Hsien Loong has highlighted before in his joint-press conference with PM Anwar Ibrahim late last year (“Singapore, Malaysia determined to work together on outstanding bilateral issues: PM Lee”, New Straits Times, October 30, 2023), there still remains outstanding issues to be resolved such as Pulau Batu Puteh or Pedra Branca (for Singapore), water supply, airspace, HSR (the proposed high-speed rail from Kuala Lumpur to Singapore), and maritime boundary delimitation vis-à-vis Port of Johor and Port of Tuas. 

The controversy over the maritime boundary delimitation vis-à-vis Port of Johor and Port of Tuas shouldn’t lead to conflict in bilateral relations, i.e., at the macro-level. Micro-level disputes/hostilities between Malaysian and Singaporean patrol vessels remains manageable and contained. 

On our part, Malaysia is also not expected to adjust or modify its attitude and conduct in bilateral relations towards Singapore – as PM Anwar Ibrahim also maintains continuity with previous administrations. As it is, Singapore is integral and indispensable to the eponymous Johor-Singapore Special Economic Zone (JS-SEZ) covering a total area of 3,505sq km, with about 2,300sq km in Iskandar Malaysia and 1,200sq km in Pengerang.

In fact, EMIR Research had already proposed what could well be the “seed idea” back in the article, “It’s not the end of the world yet for Harapan” (November 19, 2019). 

To quote from the article: “… Singapore is a factor in both Malaysia’s foreign and domestic policy. … Economic integration must continue to develop further [towards] a Common Market or Economic Area 2.0 post-Separation. The purpose is also to ensure that the burden of economic development is to an extent visibly shared by Singapore in a mutually reciprocal and co-dependent relationship, thus reinforcing the tangible benefits of a Singaporean presence in the local economy”.

The existence of the JS-SEZ will only reinforce the already limited scope for drastic shifts in foreign policy priorities in the context of bilateral relations. 

Both sides recognise the fundamental and critical importance of maintaining good and close bilateral relations as premised on inter-dependency (which simply recalls the fundamental premise of the Merger between Malaysia and Singapore in the first place, as so memorably articulated by the late Lee Kuan Yew). 

This inter-dependency, unlike that found in the context of the European Union (EU) as an example, is driven by a partnership of equals. 

In the case of the EU, the role played by the European Commission as the de facto centre of power and the de jure executive body of the EU is akin to that of an imperial and colonial master. This dynamic was vividly illustrated in the relationship between the European Commission and Greece when the latter fell into a sovereign debt crisis in 2009 onwards, and had to be bailed out under the various funding mechanisms (e.g., the European Financial Stability Facility/EFSF) as co-financed directly and indirectly by the international Monetary Fund (IMF).

Back to the inter-dependency between Malaysia and Singapore. 

Singapore depends on Malaysia for much of its fresh food (poultry, vegetables, fruits) imports and, to an extent, water. In turn, Malaysia needs Singaporean investments (particularly in the context of the southern Johor region). 

And both sides recognise that each has a distinct role to play. 

The oft-cited analogy for this strategic and (mutually) complementary synergy is Johor as Shenzhen (providing land and labour) and Singapore as Hong Kong (providing financial services and the investments). 

Singapore recognises that even post-Separation, Johor, at least, still plays a vital role as a “hinterland” not only on the economic (industrial) front but social and socio-economic (e.g., “care economy” in the form of old folks nursing homes where costs are lower, comparatively) front as well. 

Indirectly, we also rely on Singapore to provide higher incomes to our workers (than they could earn in Malaysia) and, by extension, stronger purchasing power. 

At least half a million Malaysians work or rely on employment sources in Singapore. Since 2003, foreigners (including Malaysians) no longer contribute to the Central Provident Fund (CPF) – Singapore’s equivalent to our Employees Provident Fund (EPF). The remaining accounts were closed in April 2024. 

This offsets further opportunity costs for the EPF in terms of loss of additional contributions – which never had a significant impact on its investment performance anyway. 

There’s now space for the government to make it compulsory/mandatory for those working in Singapore to open an EPF account or otherwise contribute to the pre-existing account (minus employers’ contribution – with the “trade-off” partially offset by the higher earnings in SGD re conversion).  

These contributions can potentially serve as part-funding for and be recycled back into the EPF’s investments in Singapore (stock market, bond market). 

The value of inter-dependency will continue to shape and determine the tone of bilateral relations. 

This can be seen in the potential for both sides to explore new bilateral economic ties and opportunities. 

Malaysia and Singapore can also explore collaboration in defence, as suggested by EMIR Research back in 2019 (“Case for a win-win defence pact between Malaysia and Singapore”, November 14, 2019). 

Other than a defence pact, benefits include boosting the technological capacity of our own domestic defence sector via knowledge and technical transfer and sharing. This in turn would help to reduce our overall balance of payments (BOP) expenditure for defence. It’ll also create spillovers (investments, employment opportunities, new areas of uses for resources for industrial and end-product purposes) for our military and non-military industries (procurement of raw materials, for example) and hence contribute to economic benefits for both countries. 

At the same time, defence cooperation could result in burden-sharing (personnel and assets) which is vital for the security of the Straits of Malacca and the South China Sea (SCS). 

It’s envisaged that any new bilateral synergy would be anchored in the SEZ, even when it comes to defence cooperation. 

A command and control (C&C) centre of operations for joint-patrols of the Straits of Malacca and the SCS would be based in the SEZ as the logical choice. The SEZ can be a hub for our defence industries to develop and test weaponry, gadgets and vehicles in collaboration with Singaporean partners (Defence Technology Collaboration Office/DTCO, Defence Science and Technology Agency/DSTA, Industry and Resources Policy Office/IRPO). 

More widely, it’s anticipated that initiatives such as a passport-free travel policy based on QR-code clearance practice would lead to free movement of people. It’ll be a game-changer and would require a high-level agreement between both sides because the specifics will have to be determined, e.g., the geographical extent of the passport-free movement. 

In the short- to medium-term, both sides would concentrate on current joint-venture (JV) developments such as between sovereign wealth funds (SWFs) Khazanah (60%) and Temasek (40%) in the form of the special purpose vehicle (SPV) M+S Pte Ltd in the Marina South and Ophir-Rochor regions of the Central Business District (CBD) of the island republic. 

Over the longer-term, new policy ideas and areas of cooperation could include the dual-use/circulation of bilateral currencies (both RM and SGD) which extends to the opening of dual-currency accounts (and building on the pre-existing multi-currency accounts, i.e., conversion to or deposits of foreign currencies in a savings cum investment account). A dual-currency use/circulation will promote the free movement of capital – on the capital account side of bilateral economic ties and cooperation. 

In line with envisioning SEZ as a financial hub, we could also set up a “secondary” stock market for the secondary board listings (i.e., LEAP and ACE). 

This secondary stock market could allow for limited dual-listings/cross border listings at a later stage and partial (re)integration between Bursa Malaysia and Singapore Exchange (SGX). It’d also help to promote and support the start-up ecosystem in Malaysia, particularly within the JS-SEZ. 

It’d allow both countries to move forward from the central limit order book (CLOB) saga in the aftermath of the Asian Financial Crisis (1997/98) as well as our unilateral de-listing from the then Stock Exchange of Singapore/SES (now SGX) in 1989 (following decades of an integrated/joint stock market).

Even though the JS-SEZ is geographically limited to (the demarcated areas in southern) Johor (only), it could still be conceptualised as both a “common market” and “customs union” (with Singapore) – thus, deepening and enhancing the pre-existing free movement of goods under the ASEAN Free Trade Area (AFTA) and ASEAN Trade in Goods Agreement (ATIGA). 

The focus now should be on non-tariff measures (NTMS) – the physical and operational aspects.

Tracking and tracing of goods can be done via the deployment of (end-to-end) blockchain and distributed ledger technology (DLT), utilising e-ROO (electronic rules of origin) and driven by other forms of e-documentation under trade facilitation procedures, thus minimising customs inspection procedures. The pre-existing ASEAN Customs Transit System (ACTS) can be used as template. 

Over the next 10-20 years, digitalisation of the supply chain management (SCM) in the JS-SEZ should be accompanied by the construction of an integrated and multi-modal network of distribution channels revolving around underground tunnel technology as the centrepiece. The underground tunnel technology could be operationalised by near-synchronous magnetic motors to speed up the supply chain process – cutting delivery times and, if need be, obviating peak hours in the Causeway and Tuas Second Link. 

As part of the free movement of services, data and call roaming rates could be charged in domestic terms, for example. 

There should be strategic collaboration in terms of asset sharing for 5G services with Singaporean mobile network operators (MNOs) – the radio access network (RAN) architecture due to the necessity for extensive/expansive network of macro and micro cells (unlike 4G/LTE). 

5G is essential to attracting industries that deploy the Internet-of-Things (IOT), artificial intelligence (AI) and cyber-physical systems as driven by enhanced mobile broadband (eMBB) massive machine type communications (mMTC) and ultra-reliable low latency communications (URLLC). mMTC and URLLC will heighten the need for “network slicing” (a type of multiplexing), i.e., the creation of multiple sub-networks within the same infrastructural domain that is dedicated to a particular service. 

Plans should be afoot in identifying and earmarking sites (by e.g., the Digital Investment Office/DIO, Malaysian Investment Development Authority/MIDA) for data centres and cloud infrastructure for co-location and outsourcing services, especially for cloud service providers (CSPs) based in Singapore seeking to benefit from the lower cost of doing business in the JS-SEZ. In this, we should be leveraging on the reintroduction of the cabotage policy exemption by Minister of Transport Anthony Loke – which allows for quicker turnaround/turnover time for the repair of submarine cables – essential for data connectivity. 

The JS-SEZ can later expand into a wider growth corridor to include central and northern Johor. 

The JS-SEZ can also serve as the anchor and core centre or “circle” for a wider growth radius encompassing e.g., the Riau Islands, Sarawak (which helps to off-set and cushion against the impact of reinstatement of the cabotage policy by the East Malaysian territory), and West Kalimantan.

In the final analysis, the JS-SEZ in embodying the best of Malaysia-Singapore bilateral relations can also serve as a template for deeper regional integration in the context of ASEAN. 

Jason Loh Seong Wei is Head of Social, Law & Human Rights at EMIR Research, an independent think tank focussed on strategic policy recommendations based on rigorous research

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