In a strategic move to enhance foreign investment and attract international law firms, Malaysia and Singapore are collaborating on a special economic zone (SEZ) in Johor. This initiative, announced by Malaysian Minister of Law and Institutional Reform Azalina Othman Said in an exclusive interview with Law.com International, aims to position Kuala Lumpur as a competitive hub for legal services, particularly in the tech and data sectors.
Azalina emphasized that the establishment of this economic zone, alongside reforms to Malaysia’s 2005 commercial arbitration law, is designed to create a conducive environment for businesses that will subsequently draw legal firms. “Businesses bring law firms; it’s not that law firms bring business,” she stated, highlighting the importance of a robust economic ecosystem.
As Malaysia prepares to assume the chairmanship of ASEAN in 2025, this initiative could significantly elevate its status within Southeast Asia. The plans for the SEZ are expected to be finalized by autumn, drawing inspiration from China’s successful Shenzhen economic zone, which transformed from a fishing village into a major technology hub since its inception in the early 1980s.
The Johor-Singapore SEZ seeks to replicate Shenzhen’s success by leveraging the geographical proximity of Malaysia and Singapore, connected by a causeway across the Johor Strait. However, attracting international law firms has proven challenging for Malaysia, with many opting for Singapore instead. To counter this trend, Malaysia is extending licenses for British law firms from three years to five years, aiming to enhance its appeal as a legal hub.
U.K. Justice Minister Heidi Alexander supports this extension, asserting that it will bolster Malaysia’s legal market. Yet, skepticism remains. Peter Godwin, former managing partner at Herbert Smith Freehills in Malaysia, noted that while the SEZ might attract foreign companies needing legal advice, it remains uncertain whether this demand will be met locally or serviced from abroad.
Azalina’s recent visit to Paris coincided with ongoing legal proceedings involving Malaysia and alleged descendants of the Sultan of Sulu. The high-stakes case, which includes a $15 billion lawsuit funded by third-party litigants, has prompted significant legal reforms within Malaysia. The government is reforming its Arbitration Act to align with global standards and establish a dedicated court of arbitration under the Asian International Arbitration Centre in Kuala Lumpur.
These reforms will introduce measures such as legalizing third-party funding for arbitration cases and mandating full disclosure of funding agreements. “We understand that going to court is expensive,” Azalina remarked. “But we want full transparency regarding why certain matters cannot be settled.”
Azalina highlighted that secure legal frameworks are crucial for attracting foreign investment. Many international firms currently favor Singapore due to its reputation as a strong center for international arbitration.
Since Malaysia reformed its legal services market in 2014, only two international firms—Trowers & Hamlins and Herbert Smith Freehills—have established offices there. Herbert Smith Freehills closed its Kuala Lumpur office last year due to changing client needs that were better served from other Southeast Asian locations.
In contrast, firms like Baker McKenzie and Dentons collaborate with local Malaysian partners while others operate from Singapore where regulations are less stringent but costs are higher. Unlike Singapore, Malaysia requires foreign firms seeking Qualified Foreign Law Firm licenses (QFLFs) to maintain a significant international Islamic finance practice with a resident partner in Kuala Lumpur—a requirement that has deterred potential entrants into the market.
Godwin noted that without removing the Islamic finance stipulation, it remains prohibitively expensive for foreign firms to establish themselves in Malaysia.
Azalina affirmed that Malaysia is actively seeking ways to attract international businesses and law firms. By fostering a complementary partnership with Singapore, she believes the country can enhance investor confidence in its arbitration platform and broaden its appeal as an economic destination.
“Providing international companies with confidence in our arbitration framework and offering them choices is essential for any country’s development,” she concluded.
As negotiations continue over the establishment of the Johor-Singapore SEZ, both countries aim to create an environment conducive to business growth that benefits their economies while solidifying their positions as key players in Southeast Asia’s legal landscape.