KUALA LUMPUR: The US sanctions on Jatronics Sdn Bhd will not have a significant impact on Malaysia's semiconductor industry due to its minimal dealings with other local firms, economists say.
They, however, noted that a more important impact is that a warning has been shot at firms in the country to not breach the US sanctions.
Sunway University economics professor Dr Yeah Kim Leng said given that the sanctioned firm accounts for a very small share of total industry output, the direct impact on the country's semiconductor production and exports is insignificant.
"A more important impact is that a warning has been shot over the bow for electronics firms in Malaysia not to breach the US sanctions. The firms are likely to review their know your customers (KYC) protocols and ensure their clients are not in the sanctions list.
"Overall, Malaysia's current favourable electronics outlook is not expected to be dampened by unilateral US government action unless the sanction list is expanded to cover more widely Malaysia's export markets and purchasers," Yeah told Business Times.
Tradeview Capital fund manager Neoh Jia Man expects limited direct impact on the country's semiconductor industry from the sanctions on Jatronics due to its minimal dealings with other local semiconductor firms.
He added that Jatronics can still conduct transactions via non-US financial accounts since this is a unilateral sanction by the country.
Additionally, Neoh said this is not the first instance of US sanctions on Malaysian firms.
He noted that in December 2023, four firms were sanctioned for their involvement in Iran's drone programme.
"In our view, the sanctions on Jatronics highlight that Malaysian firms remain on the US sanctions radar.
"While Malaysia's neutral political stance and strong ties with various trading partners provide local firms with opportunities to circumvent trade barriers, the associated risks can be significant.
"There is a possibility of further sanctions or even import tariffs being imposed on Malaysian firms if such activities continue unchecked by Malaysian authorities. These measures could materially impact Malaysia's economy, particularly in terms of exports to the US," he said.
Neoh further stated that the US sanctions, targeting individual firms rather than the entire country, are unlikely to have a significant impact on Malaysia's diplomatic and economic ties with either the US or Russia.
It is also unlikely to disrupt any global trade dynamics significantly.
He believes that Malaysia will strive to maintain its neutral stance to continue reaping the economic benefits of such a position.
Meanwhile, Finance Minister II Datuk Seri Amir Hamzah Azizan said the Investment, Trade and Industry Ministry (Miti) will look into the issue.
He said the matter is under the purview of Miti and that it should be given time to investigate the matter thoroughly before presenting its findings.
"If we look at the sanctions imposed, it is not just on one company but over 300 companies worldwide... let Miti take the time to thoroughly investigate the issue," Amir Hamzah told reporters on the sidelines of the International Social Wellbeing Conference 2024 today.
"What is important is that Malaysia will not compromise if anything untoward is found," he added.
Business Times had reached out to Miti and Jatronics.
On Tuesday, Al Jazeera reported that Kuala Lumpur-based Jatronics was among 300 entities on the US sanctions list over their links to Russia's military suppliers.
According to the report, a US State Department spokesman stated that some of the materials shipped by the company to Russia included Tier 1 items on the US Department of Commerce's List of Common High-Priority Items.
The report said Tier 1 items, refer to those "of the highest concern due to their critical role in the production of advanced Russian precision-guided weapons systems, Russia's lack of domestic production, and limited global manufacturers.
The spokesman noted that Jatronics supplied these components to companies based in Russia that are supplying Russia's military-industrial complex.
The report also highlighted that US officials did not confirm if components produced by Jatronics were used in Russia's military equipment.
According to the Centre for Advanced Defense Studies (C4ADS), a Washington-based think tank, Jatronics made more than 50 deliveries to companies in Russia worth more than US$3 million between April 2022 and September last year.
The report stated that the materials included microchips, semiconductors, and silicon wafers, which are the raw materials for making semiconductors.
Jatronics made deliveries to eight different companies in Russia, including OOO Planar, which was sanctioned by the US in March 2022, based on the C4ADS data.