CMS Law-Now | 30 June 2025
EFTA states and Malaysia sign economic partnership agreement with investment promotion chapter
On 23 June 2025, the European Free Trade Association (EFTA) – of which Switzerland is a member state – signed an Economic Partnership Agreement (EPA) with Malaysia.
Negotiations for the EPA began in 2012. Compared to EFTA’s recently signed FTAs with Thailand and Ukraine (see our articles here and here), the EPA is broader and more comprehensive. The EPA consists of 16 chapters and covers trade in goods and services, intellectual property rights, competition, investment, and sustainable development, including rules on human rights, labour, and environmental protection. Notably, for the first time with an Asian country, the EFTA states have agreed on commitments allowing mutual access to government procurement markets.
From the perspective of international investment law, it is noteworthy that the EPA includes an Investment Chapter aimed at promoting mutual foreign investment flows between the EFTA states and Malaysia. This article provides economic background and insights into the Investment Chapter, and its relationship with other investment-related agreements between the parties to the EPA.
Economic Background
Malaysia is Switzerland’s fourth-largest trading partner in Southeast Asia and its second-largest destination for foreign investments.
In 2024, bilateral trade in goods between the two countries surpassed CHF 1.4 billion. Switzerland exported goods worth nearly CHF 806 million to Malaysia with the majority of these exports (58%) originating from the chemical and pharmaceutical sectors. Machinery, equipment, and electronics accounted for a further 29%. Imports from Malaysia to Switzerland totaled approximately CHF 640 million in 2024. More than 58% of these imports came from the machinery, equipment, and electronics sector, followed by precision instruments and watchmaking products, which made up 13%.
Malaysia’s economy is largely driven by its industrial sector, with semiconductor manufacturing playing a central role. The EPA opens new export opportunities for Swiss companies, particularly in high-tech industries. According to the Swiss government, Malaysia also provides a favourable environment for new foreign investment, supported by modern infrastructure, a well-educated and English-speaking workforce, and abundant mineral resources such as tin, bauxite, copper, and iron.
Investment Promotion Chapter
According to Art. 8.1 and Art. 8.2.1(d) of the EPA, the Investment Chapter applies to legal entities or individuals from EFTA states that have a commercial presence in Malaysia, and vice versa (e.g. through company incorporation, acquisitions, branches, or representative offices).
Regarding substantive guarantees, Art. 8.3 of the EPA establishes a "national treatment (NT) rule" for foreign investors. Subject to certain reservations outlined in an Annex to the EPA, the NT rule mandates that foreign investors and their commercial presence must be treated no less favourably than domestic investors and their commercial presence in similar circumstances.
As another standard in international investment law, Art. 8.9 of the EPA includes an obligation for the contracting states regarding "payments and transfer". Under this provision, subject only to certain public policy reservations, no state party to the EPA can apply restrictions on international transfers and payments for current transactions relating to commercial presence activities.
Finally, pursuant to Art. 8.6 of the EPA, consistent with current practices in international investment law, the Investment Chapter reaffirms the contracting states’ commitment to protecting public health, safety, and the environment. The EPA states also agree not to waive or derogate from measures addressing health, safety, or environmental concerns to attract foreign investment.
Relationship with the Switzerland-Malaysia Bilateral Investment Treaty
Article 8.1.2 of the EPA clarifies that its Investment Chapter "does not include investment protection" and that it "shall be without prejudice to the interpretation or application of other international agreements relating to investment or taxation to which one or several EFTA States and Malaysia are parties."
This applies to Switzerland’s 1978 Bilateral Investment Treaty with Malaysia (Switzerland-Malaysia BIT), which guarantees that Swiss individuals or companies with investments in Malysia will be treated in accordance with the protection standards of international investment law. This includes protection against "unlawful expropriation", the non-discrimination guarantees of NT and "most-favoured-nation treatment", a "free transfer of funds" guarantee, and an obligation for Malaysia to grant Swiss investors "fair and equitable treatment".
As is typical for early investment treaties, however, the Switzerland-Malaysia BIT does not include an arbitration clause that entitles Swiss investors to initiate international arbitration against Malaysia for a breach of the treaty. Instead, under Article 9 of the BIT, disputes must be settled through state-to-state arbitration.
None of the other EFTA member states have concluded bilateral investment treaties with Malaysia.
Comment
The entry into force of the EFTA-Malaysia EPA is still pending. At a time when the international trading system is increasingly under pressure, the EPA represents a welcome development. The new agreement forms part of a broader initiative by the EFTA member states to strengthen their global trade and investment relationships. Malaysia is part of an emerging and dynamic economic region.
The EPA preserves the Switzerland-Malaysia BIT, thereby maintaining key protections for Swiss investors after an investment has been made. Neither the BIT nor the EPA, however, provides for a right to initiate investor-state arbitration in the event of treaty breaches. This gap will need to be addressed by negotiating updated bilateral investment treaties with Malaysia.
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