WT/TPR/S/31
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III. TRADE POLICIES AND PRACTICES BYMEASURE
(1) Overview
1. Trade andtrade-related policy instruments aremajor features oftheMalaysian Government 's
pro-active industrial policy. These instruments maybeusedattheborder, asinthecaseoftariffs,
quantitative restrictions, non-automatic licensing procedures andanti-dumping actions. Alternatively,
theymaybeapplied internally, through incentives, standards, lawsandregulations aswellaspreferential
government procurement practices. Allthese measures canentail elements ofdirect orindirect
governmentassistancetodomesticproducersofgoodsandservices,ortoinvestors.Tariffsandnon-tariff
border measures provide assistance bytending toraiseprices ofcompeting imports, thereby protecting
domestic producers fromforeign competitors. While some internal measures, including preferential
government procurement practices usedtofurther social oreconomic objectives, alsoenable domestic
orother favoured suppliers tocharge higher prices, others, suchasthose intheform ofincentives,
permit domestic producers tocharge lower prices, while maintaining profitability. Again, internal
measures shelter domestic producers fromforeign competitors. Consequently, bothborder andinternal
measures constitute potential distortions tocompetition.
2. Border measures directly affecting imported goods havebeenliberalized substantially since
thefirstreview ofMalaysia 'strade policies in1993 (Table III.1). AspartofMalaysia 'sWTO
commitments under theUruguay Round, thecoverage oftariffbindings increased fromunder 1percent
toalmost twothirds oftarifflines. Atthesametime, theaverage applied MFN tariffratehasdeclined
from 15.2percentin1993 to10.2percent(8.1percentifadvalorem equivalents ofspecific and
mixed duties areexcluded) in1997.1Furthermore, whereas only13percentoftarifflineswereexempt
from import dutyin1993, more thanhalfofalllinesarecurrently dutyfree. While potential and
actual tariff protection hasdeclined overall, tariff dispersion haswidened substantially asduties on
rawmaterials andintermediate imports havefallen faster thanthose onfullyprocessed products, thus
possibly accentuating distortions todomestic resource allocation (section (2)(ii)).
3. Import licensing affects lessthanaquarter oftariff lines, except inthewood sector; licences
aregenerally granted within three days, according totheauthorities (section (2)(iii)). Since theentry
intoforce ofananti-dumping andcountervailing lawin1993, justtwoanti-dumping cases havebeen
investigated resulting incountermeasures (section (2)(iv)). Malaysia doesnothaveanylaws, regulations
oradministrative procedures relating tosafeguard measures2.
4. Export promotion measures andexport levies arealsoanintegral partofMalaysia 'sindustrial
policy. Exports areencouraged by,among other things, exemptions/drawbacks forbothimport duties
andotherindirecttaxes,incentives,andgovernment-sponsoredtradeinformationinitiatives(section(3)).
Suchpromotional measures aredesigned tocreate export awareness; however, theyalsohelptooffset
export disincentives arising from measures suchasimport duties oninputs usedingoods forexport
and"cascading" salestaxes, which, unlike aVAT, tendtodiscriminate against exports. Atthesame
time, taxes andlicensing arrangements areapplied tocertain exports, thustending todiscourage the
exportofthegoodsaffectedandreducingtheirdomesticprices(section(3)(ii)).Althoughthisconstitutes
1Theaverage for1993 doesnotinclude estimates oftheadvalorem equivalents (AVEs) ofeither specific,
mixed oralternative duties. The1997 figures include suchestimates for315ofthe523tariff lines subject to
these duties.
2WTO document G/SG/1/MYS/1, 17November 1995; andTable AII.3.Malaysia WT/TPR/S/31
Page 37
anindirect subsidy todomestic users ofsuchgoods, theaim,according totheauthorities, istoassist
thedevelopment ofdownstream industries which provide value-added content.3
5. Non-border measures mayalsoinvolve elements ofgovernment assistance; liketariff and
non-tariff border measures, which directly affect imports andexports, theycanhaveasignificant impact
ontradeingoods.Non-bordermeasuresareparticularlyimportantobstaclestothecross-borderprovision
ofservices, however. While services maybeembodied ingoods, theprovision ofservices ismore
likely torequire producers ofservices tobelocated close toconsumers. Consequently, restrictions
onforeign direct investment (FDI) tendtoimpede theestablishment offoreign firms providing these
services.
6. Among themainnon-border, orinternal, measures usedtoinfluence tradeingoods andservices
areregulations andlicensing requirements, which aredesigned toencourage ordiscourage certain types
ofactivity (section (4)(i)), andincentives, mainly intheform oftaxrelief, which areaimed at
encouraging, interalia,investment andtechnological progress (section (4)(ii)). These measures appear
toapply todomestic andforeign investors alike. TheMalaysian authorities arereviewing theuseof
incentives withaviewtomaking themmore selective by,among other things, encouraging automation
inlabour-intensive industries (toalleviate theshortage oflow-skilled labour), training ofemployees
andtechnological development.
7. Inlinewithitscommitments under theTRIPS Agreement, andgiven itsdesire toencourage
theinflowofcapital,particularlyintheformofintellectualproperty,theMalaysianGovernmentprovides
protection forpatents, copyrights andtrademarks. Newlegislation covering industrial designs isdue
tocome intoforce, andneworamended Actsaretobeintroduced inother fields ofintellectual property
(section (4)(iii)).
8. Tradeingoodsandservicesmaybeaffectednotjustbygovernmentpoliciesdesignedtoinfluence
private behaviour, butalsobytheGovernment undertaking certain activities itself (section (4)(v)).
Procurement practices seemingly favour domestic suppliers ofgoods andservices; Malaysia isnot
apartytotheWTO 'sPlurilateral Agreement onGovernment Procurement. TheGovernment alsoaffects
procurement andsupply ofgoods andservices through stateownership ofenterprises.
9. Notwithstanding theprivatization ofmany state-owned enterprises inrecent years, andthe
resulting diminished roleoftheGovernment inbusiness decisions, theabsence ofcompetition laws
(section (4)(vi)) mayleadtodistortion oftradeandproduction patterns through inability toactagainst
anti-competitive practices. Asaconsequence, higher prices mayprevail, including forinputs. While
freedom toraiseprices forcertain essential products issomewhat limited bytheexistence ofprice
controls, these controls constitute afurther potential distortion tocompetition inmarkets thatcould
otherwise becompetitive.
10. Malaysia 'sexporters toofacetariffandnon-tariff border measures applied byitstradepartners.
Some ofthese measures, notably anti-dumping andcountervailing actions, arisefromallegations that
some forms ofgovernment assistance, particularly subsidies/incentives oralackofcompetition in
Malaysia 'sdomestic market, confer an"unfair" advantage onMalaysia 'sexporters, enabling them
toselltheirproducts abroad atunduly lowprices (possibly asaconsequence ofcross-subsidization).
3Although themain rationale behind export duties/taxes istoencourage down-stream processing, some export
taxes andlevies, including those onlogs, alsoappear tobejustified onthegrounds thattheytakeintoaccount
thesocialcostsassociatedwiththeenvironmentaldamagecausedbytheproduction/harvestingofspecificproducts,
suchastrees. However, astheenvironment damage istheconsequence oftheproduction ofthetimber rather
thanitsexport, production levies would beamore efficient wayofcorrecting theenvironmental externality than
export duties.WT/TPR/S/31
Page 38Trade Policy Review
Table III.1
Structure ofMalaysia 'sMFN andAFTA tariffs, selected years
(Percentoftotalnumber oftariff linesunless otherwise indicated)
Indicator MFN tariffs AFTA tariffsa
Excluding estimates ofAVEs for
specific dutiesIncluding
AVE estimates for
some specific dutiesb
1988 1993c1997 1997 1997 2003
Tariffs:
Number oftariff linesd12,183 11,875 10,372 10,372 10,372 10,372
Bound tariff lines 0.8 0.8 65.4f65.4fn.a. n.a.
Duty-free tariff lines 10.3 13.4 57.6 57.6 59.1 59.2
Specific andmixed tariffs 22.2 12.0 5.0 5.0 4.8 2.2
Tariffs withnoadvalorem
equivalent (AVE)7.4 5.9 1.5 0.5 0.5 0.5
Simple average applied rate
(percent)17.5 15.2 8.1 10.2 6.9 3.5
Tariff range (percent) 0-207.5 0-140.0 0-200 0-1772 0-1772 0-1772
Import-weighted averageg
(percent)15.5 11.9 9.9 12.1 9.2 3.5
Domestic tariff peaksh
(percent)0.8 2.2 15.8 2.4 7.2 0.9
International tariff peaksi
(percent)51.3 49.1 25.9 27.1 11.6 0.8
Overall standard deviation
(percentage points)16.0 13.1 13.9 41.5 33.9 31.6
Non-tariff barriers:
Percentage oftariff lines
subject tonon-automatic
licensing (1995)j... ... 17.0 17.0 ... ...
n.a. Notapplicable.
... Notavailable.
a NoAVEs arecalculated directly forAFTA ratesexpressed asspecific, mixed oralternative duties. However, some products
ontheGeneral Exclusion Listwereexpressed asamargin ofpreference overspecific MFN duties forwhich AVEs wereavailable.
Forthese products aswellasfor"sensitive" and"highly sensitive" unprocessed rawmaterials which arenotyetincluded inthe
AFTA schedules, AVE estimates were included.
b Estimates ofadvalorem equivalents of96specific duties, 157mixed duties and62alternative duties wereprovided bytheMalaysian
authorities totheWTO Secretariat (Section (2)(ii)(a)).
c Tariff averages exclude asmall number oflineswithratesabove 105percent.
d Excluding HSChapters 98and99.
e AFTA preferences areanalyzed onthebasis oftheMFN tariff schedule andtherefore contain bydefinition thesame number
oftarifflines; inpractice, aslightly different classification isusedtoadminister tariffpreferences (Customs Duties Order (Common
Effective Preferential Tariff) 1995 andCustoms Duties Order (Common Effective Preferential Tariff)(Amendment) 1997 follow
adifferent classification ascompared toCustoms Duties Order 1996 asamended byCustoms Duties (Amendment) (No.3)
Order 1996).
f According tothe1995 Harmonized System oftariff classification. Thechange tothe1996 Harmonized System classification
onbalance aggregated some bound lines, while some unbound linesweresplit. Asaresult, under the1996HStariffclassification
58.9linesarebound. Theactual imports forwhich tariff linesarebound remain generally unchanged.
g Using APEC 1995 import weights, excluding Brunei andthePhilippines, while 1994 dataareusedforAustralia.
h Tariffs higher thanthree times thesimple average.
i Tariffs above 15percent.
j Based onthe1995 tariff nomenclature. Since 1995, import licensing forsome cigarettes andephedrine havebeenadded while
suchlicensing fordiamond anddiamond jewellery hasbeenabolished.
Source: Calculated bytheWTO Secretariat andUNCTAD from dataprovided bytheMalaysian authorities totheWTO Secretariat;
andComtrade data.Malaysia WT/TPR/S/31
Page 39
(2) Measures Directly Affecting Imports
(i) Registration, customs valuation andprocedures
11. Foreign tradeassuchisnotsubject toaspecific permit orregistration requirement inMalaysia.
However, importers (andexporters) ofcertain products thataresubject toimport andexport licensing
arerequired toregister withthelicence issuing agency (Table III.2). Theauthorities statethatthese
requirements aremerely usedformonitoring purposes.
Table III.2
Import andexport registration requirements inMalaysia, 1997
Product Activity Requirement
Palm oil,palm kernel, palm
kernel cake, palm fattyacid
andpalm oilplanting
material.Import andexport Under thePalm OilIndustry (Licensing) Regulations, 1979 the
applicant fortheimport andexport ofthese products must forward
twosupporting letters from thesuppliers aswellasthebuyers inthe
application tothePalm OilRegistration andLicensing Authority
(PORLA). Anannual feeofRM100ispayable forthelicence.
Natural rubber Export Under theRubber Shipping andPacking Control Act1949, exporters
arerequired toberegistered withtheMalaysian Rubber Exchange
andLicensing Board (MRELB). Anannual feeofRM200ispayable
forsuchregistration. Further, under theRubber Export Registration
Act1966, theexported rubber istobecovered byacertificate issued
bytheMRELB.
Pepper Export Under thePepper Marketing Regulations 1971 anannual licence is
required tobuyandstore forthepurpose ofsalemore than650kg.
ofpepper. Theannual licence feeisRM10.Inaddition exports are
subject topreshipment inspection which involves agrading test. The
costs ofthegrading testsareoneRinggit perhundred kg.
Pineapple Export Under thePineapple Industry Act1957 (revised 1990) exporters are
required toregister withthePineapple Board.
Timber Export Exports arerequired toberegistered withtheMalaysian Timber
Industry Board.
Source: Information provided bytheMalaysian authorities.
12. Malaysia usestheBrussels Definition ofValue todefine customs value.4Asadeveloping
country, ithasinvoked theright todelay theimplementation oftheWTO Agreement onthe
Implementation ofArticle VIIofGATT 1994 (Customs Valuation) foraperiod offiveyears
(Table AII.2). Nonetheless, ASEAN members decided in1995attheSeventh AFTA Council Meeting
inBrunei Darussalam toaimtoaccelerate thetimetable forimplementation oftheWTO Agreement
inthisregard to1997.5
13. Exporters andimporters maysubmit andclaim theirmerchandise themselves orappoint an
agent toactontheirbehalf. Inaccordance withSection 90oftheCustoms Act1967suchagents must
beapproved bytheCustoms Department. Allapplications mustbemade inwriting totherespective
Director ofCustoms oftheState where suchactivity isintended withrelevant documents suchas
4Section 2oftheCustoms Actdefines therelevant price "...which animporter would giveforthegoods
onapurchase intheopenmarket ifthegoods were delivered tohimattheplace ofpayment ofdutyandiffreight,
insurance, commission andallother costs, charges andexpenses (except anycustoms duties) incidental tothe
purchase anddelivery atsuch place hadbeen paid."
5ASEAN Secretariat (1995) p.22.WT/TPR/S/31
Page 40Trade Policy Review
incorporation ofcompany, etc.Applications from non-citizens toactasagents needprior approval
fromtheForeignInvestmentCommitteebeforeanyconsiderationbytheCustomsDepartment;however,
those withashare allocation oflessthanRM50,000.00 areexempted.
14. Asurvey bytheCentral Bank ofMalaysia found thelevelofsatisfaction withtheCustoms
Department thelowest ofallpublic services provided. Themain point ofconcern cited wasslow
clearance ofgoods. Whereas clearance inSingapore takesonaverage aday,42percentofrespondents
claimed thatittooktwodaysormore inMalaysia (Table III.3). Other complaints raised were too
much bureaucratic redtape, inconsistency incoding classification bytheCustoms Department and
ashortage ofexperienced officers.6
Table III.3
Clearance timebytheCustoms Department
Clearance time Lessthan4
hours4-8hours 8-24hours 2-3days More than3
days
Percentage ofrespondents 19 18 21 30 12
Source: BankNegara Malaysia (1997), Survey ofManufacturing Companies 1996, Economics Department, Kuala Lumpur (mimeo), p.65.
(ii) Tariffs
15. Thecustoms tariff isthemain border instrument influencing import flows. Malaysia does
notusetariff quotas orvariable import levies. MFN treatment isoffered toallcountries (including
thosethatarenotWTOMembers),whileASEANcountriesreceivetariffpreferences.7Almosttwothirds
ofMalaysia 'simport tariffs arebound initsWTO schedule ascompared tolessthan1percentprior
totheconclusion oftheUruguay Round (Table III.1). Judging from thesimple average ofapplied
MFN tariffrates(excluding advalorem equivalents ofspecific ratesandspecific components ofmixed
andalternative duties), overall average nominal tariff protection dropped from 15.2percentto
8.1percent.8
6Bank Negara Malaysia (1997), p.xii.
7AlimitednumberoftariffpreferencesforimportsfromAustraliaandNewZealandstillexistbutareexpected
tobephased outasof1January 1998 (section (c)).
8Although thedropismuch lessmarked according totheimport-weighted tariff average, thelatter canbe
amisleading indicator ofoverall tariff protection. While thesimple (unweighted) arithmetic average ofthetariff
rates isnotentirely asatisfactory indicator oftariff protection either, because ittakes noaccount oftherelative
importance ofvarious imported products, amajor drawback ofusing either acountry 'sownimport-weighted
tariff average involves thefactthatittends toassign asmall weight tothehighly protected products, withno
weight atallbeing given toaprohibitive tariff, thustending tounderestimate thedegree ofprotection. Inaddition,
useofvariable import weights canresult inspurious movements inweighted averages overtimeastheweights
themselves would tendtobeinversely related toacountry 'stariff rates.
Asapragmatic compromise, therefore, constant import-share-weighted averages areusedtoremove the
possibility ofspurious movements inweighted averages. Moreover, instead ofMalaysia 'sownimport weights,
theshares ofoverall APEC import values in1995 areusedtomitigate thedownward biasinherent inMalaysia 's
ownimport weights (APEC 1995 dataareusedexcluding Brunei andthePhilippines while 1994 dataareused
forAustralia). Needless tosay,itisunlikely thatthecomposition ofMalaysia 'simports intheabsence oftariffs
(orNTBs) would resemble theaverage forAPEC (which alsoreflects trade distortions). Furthermore, although
useofAPEC import weights tosome extent avoids thedownward biasinherent inMalaysia 'sownimport weights,
some biasremains insofarasthelevels andstructure ofAPEC countries 'tariffs aresimilar. Thus, evenweighted
(continued...)Malaysia WT/TPR/S/31
Page 41
(a) Forms oftariffs
16. TheMalaysiancustomstariffnomenclatureisbasedontheHarmonizedSystem(HS).Following
asubstantial revision ofitsHSnomenclature in1996, andminor revisions asof1January 1997, the
tariffschedule contains 10,372 linesatthe9-digit level.9Advalorem ratesarethemostcommon, with
95.0percentofalllinescurrently subject tosuchduties compared to88percentin1993. Thepresent
schedule includes 149specific, 244mixed and127alternative duties ascompared to,respectively,
222specific and1,166 mixed andalternative duties in1993.10Current estimates ofadvalorem
equivalents (AVEs) forsome ofthese duties wereprovided bytheMalaysian authorities totheWTO
Secretariat. Thesimple average oftheAVEs for96specific duties was145.5 percent, thatfor157
mixed duties 67.1percentandthatfor62alternative duties 45.1percent. These duties were thus
wellabove theaverage ofalladvalorem duties, which was8.1percentin1997. Specific, mixed
andalternative duties arestillimportant features ofMalaysia 'stariff schedule, particularly asfaras
certain agricultural products, prepared foodbeverages andtobacco areconcerned (Box III.1). However,
theMalaysian authorities have indicated thattheyaretaking steps toreplace specific duties with
advalorem duties.
BoxIII.1: Theimpact ofspecific duties compared toadvalorem duties
Ingeneral avariety oftariff forms exist. Themajor forms are:
Advalorem tariff: calculated asapercentage ofthevalue ofgoods cleared through customs.
Specific duty: expressed asafixed monetary amount perphysical unitorperunitofweight ofan
imported product.
Mixed duty: contains elements ofbothadvalorem andspecific duties.
Alternative duty: involves either anadvalorem oraspecific duty.
Tariff quota: tariff rateapplicable toaquota ofimports, withahigher ratecharged onimports in
excess ofthequota; thequota andtariff maybedefined interms ofquantity orvalue.
Specific andmixed duties areintrinsically more opaque thanadvalorem tariffs, andmayconceal highad
valorem equivalents (AVEs). Inaddition, imports ofcheaper products aretaxed relatively more heavily
byspecific duties, thereby encouraging domestic firms toproduce lessexpensive goods forwhich the
level ofprotection against imports isgreater andbiasing theimport structure infavour ofmore expensive
goods (which mayormaynotbeofhigher quality). Specific duties alsocounteract therelative price
effects ofexchange ratechanges. Insofarasincreased international competition results indeclining
prices fortraded goods, theuseofspecific duties willtendtoincrease realtariff protection inthefuture.
Ontheother hand, specific duties arerelatively simple toadminister andavoid problems relating to
customs valuation. They mayalsoreduce pressure toresort toanti-dumping orcountervailing (AD/CV)
measures forprotection both because cheaper goods aretaxed more heavily andbecause therevenue
raised isunaffected bydrops inprices forwhatever reason.
8(...continued)
tariff averages based onoverall APEC imports, which arealsoreported inTable III.1, need tobeinterpreted
cautiously.
9Aspublished inHisMajesty 'sGovernment Gazette, 11January 1996, andamended on25October 1996.
The1996 changes were notified totheWTO inOctober 1996 asaconcordance between theproposed HStariff
items andexisting HStariff items listed initsSchedule XXXIX. Furthermore, since theinception oftheCommon
ExternalPreferentialTariffsinJanuary1992,ASEANcountriesarealsoharmonizingtarifflinesandconsolidating
severaltarifflinesintheprocess.MalaysiawillimplementasimplifiedASEANHarmonizedTariffNomenclature
consisting ofabout 7,000-8,000 tariff lines bytheyear2000.
10The1993 Trade Policy Review noted thatMalaysia wasintheprocess ofconverting specific duties to
advalorem duties (GATT, 1993), p.58.WT/TPR/S/31
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17. While Malaysia doesnotcurrently apply anytariff quotas, ithasincluded suchmeasures in
itsWTO Schedule XXXIX forselected agricultural products forwhich quantitative restrictions were
tariffied inaccordance withtheWTO Agreement onAgriculture (Table AIII.2).
(b) Tariff levels anddispersion
18. Judging fromtheproportion ofduty-free tarifflines, tariffprotection inMalaysia hasdeclined
markedly since 1993. Whereas only13percentoftariff lineswereexempt fromdutyin1993, now
more thanhalfofalltarifflinesaredutyfree. Furthermore, thenumber oftarifflineshasbeenreduced
substantially, thereby reducing thescope forvariation intariff rates aswellasthecomplexity of
Malaysia 'stariff schedule (Table III.1).
Tariff dispersion
19. Textiles, clothing, leather products, andnon-metallic mineral products aretheproduct groups
currently mostprotected byadvalorem tariffs (Chart III.1)). Ifadvalorem equivalents ofspecific,
mixed andalternative duties areincluded, tariffs forfood, beverages andtobacco products arealso
wellabove average (Table AIII.1). Bycontrast, among theleastprotected products arechemicals and
chemicalproducts,mineralproducts,woodandwoodproducts,preciousstonesandprecisioninstruments.
20. Theoverallstandarddeviation(SD)indicateslittlechangeinthedispersionoftariffratesbetween
1993and1997. Bycontrast, asaproportion ofalltariffs, "domestic tariffpeaks" (thatis,those tariffs
exceeding three times thesimple overall average rate)increased sevenfold during thesame periodMalaysia WT/TPR/S/31
Page 43
(Table III.1). Although theproportion oftariffs exceeding 15percenthasnearly halved since 1993,
such"international tariff peaks" stillaccount formore thanonequarter ofalltariffs. Themagnitudes
ofthese indicators oftariff dispersion suggest thatpotentially highdegrees ofdistortion stillremain
within many broad sub-groups ofsimilar, andthushighly substitutable, products. AsfarasMalaysia
isconcerned, alower leveloftariff protection hasnotnecessarily resulted inalessdistorting tariff
schedule.
Tariff escalation
21. Thesimple average ofapplied MFN tariffs (taking intoaccount those specific duties forwhich
estimates ofAVEs wereavailable), iscurrently more thandouble thatonsemi-finished goods, astariffs
onthelatter declined faster thanthose onfullyprocessed products. Thisisaconsiderably larger
discrepancy thanin1993(Table III.4). Likewise, average tariffs onsemi-finished manufactured goods
aremore thandouble those onrawmaterials (including agricultural products). Suchtariff escalation
means, generally, thatthelevelofeffective protection inMalaysia increases asgoods undergo further
processing. Tariff escalation willcontinue, albeit atasomewhat lower level, astariffpreferences under
theAsean FreeTrade Area(AFTA) Agreement arephased in.OnceAFTA tariffs arefullyimplemented
in2003 (forallproducts other thanitems included onthepermanent exclusion listand"sensitive"
unprocessed agricultural products), tariffs forsemi-processed products willbelower thanthose for
rawmaterials.Thissuggeststhatsectorsproducingsemi-processedproductsmightbesubjecttonegative
effective ratesofprotection bythattime.
Table III.4
Simple MFN andAFTA tariff averages bystage ofprocessing, selected years
Indicator MFN tariffs AFTA tariffsa
Excluding estimates ofAVEs for
specific dutiesIncluding
AVE estimates for
some specific dutiesb
1988 1993 1997 1997 1997 2003
Rawmaterials 14.6 14.3 1.0 2.8 2.0 1.8
Agricultural products 16.9 16.5 0.6 2.9 2.1 2.0
Mining products 3.6 3.8 1.0 1.0 0.3 0.2
Manufactured products 5.9 5.8 3.2 3.2 2.1 0.9
Semi-processed products 18.3 15.3 7.0 7.4 4.9 1.9
Fully processed products 18.1 15.4 11.9 15.4 10.4 5.3
a NoAVEs arecalculated forAFTA ratesexpressed asspecific, mixed oralternative duties. However, some products ontheGeneral
Exclusion Listwereexpressed asamargin ofpreference overspecific MFN duties forwhich AVEs wereavailable. Forthese
products aswellasfor"sensitive" and"highly sensitive" unprocessed rawmaterials which arenotyetincluded intheAFTA
schedules, estimates forAVEs were included.
b Estimates ofadvalorem equivalents of96specific duties, 157mixed duties and62alternative duties wereprovided bytheMalaysian
authorities totheWTO Secretariat (section (2)(ii)(a)).
Source: Calculated bytheWTO Secretariat from dataprovided bytheMalaysian authorities andfrom Comtrade data.WT/TPR/S/31
Page 44Trade Policy Review
Tariff reform
22. Import andexport duties arereviewed annually aschanges areproposed inthefederal budget.11
Intheimplementation oftheUruguay Round market access commitments, tariffs on36tariff lines
were reduced inthe1996 budget.12Thesame budget alsocontained several hundreds ofunilateral
tariffreductions.The1997budgetincluded64importdutyandoneexportdutyreductionsand26import
dutyincreases.13
23. Malaysia hasbound almost twothirds ofitstariff linesinitsWTO Schedule. Bindings are
mostwidespread foragriculture, food, andtextile andclothing products. Applied ratesaregenerally
wellbelow bound rates, thusgiving Malaysia significant freedom tounilaterally increase itsimport
tariffs (Chart III.2). For1997tariffs, 5,628 tariffbindings could bedirectly compared toapplied rates
asbothwereexpressed asadvalorem tariffs. Inthecaseofthese rates, theaverage bound ratewas
15.8percentascompared toanaverage applied rateof9.6percent. Foragriculture, forwhich
872tariffs wereexpressed asadvalorem duties (inMalaysia 'sWTO Schedule andinitsapplied rates),
theaverage bound ratewas12.8percentascompared toanaverage applied rateof4.5percent.
Comparable bound andapplied tariff ratesforindustrial products wereonaverage 16.4percentand
10.5percent,respectively. Atthisstage, applied ratesforonly98tariff linescurrently exceed final
bound ratesagreed under theUruguay Round.
24. Malaysia hasagreed tofurther tariff cutsaspartoftheInformation Technology Agreement
(ITA) (Chapter II(3)). Applied tariffs onthe237tariff linesofMalaysia 'stariff schedule subject to
theAgreement already declined from11.1percentin1988, to7.6percentin1993 and4.4percent
in1997. Under theITA, average bound tariff rateswillcome down from 7.5percentin1997 to
2.2percentin2000, 1.1percentin2003 andzeroin2005.14Inthecontext ofitsparticipation in
theongoing GSTP Negotiations, Malaysia submitted inApril 1997apackage involving 15tariff lines
totheSecond Round ofGSTP Negotiations.
11Themain rules andprinciples ofthecustoms system arelaiddown intheCustoms Act,1967. Customs
matters aremanaged byCustoms andExcise Department, headed bytheChief Officer ofCustoms. According
toArticle 11oftheCustoms Act,theMinister ofFinance, byorder published intheOfficial Gazette, hasthe
authority to"fixcustoms duties tobelevied onanygoods imported orexported from Malaysia". Such ministerial
orders aresubject toconfirmation byParliament.
12Thesmall number oftariff linestobereduced inthisbudget reflects theprevious unilateral tariff reductions.
Accordingtotheauthorities,tariffsonatotalof3,426itemswerereducedundertheimplementationoftheUruguay
Round market access agreements.
13Government ofMalaysia (1996).
14Calculated from Malaysia 'stariff schedules andWTO (1997).Malaysia WT/TPR/S/31
Page 45
WT/TPR/S/31
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25. Tariffprotectionfor"deservinginfantindustries"mayalsooriginatefromapplicationsbyexisting
andpotential manufacturers totheMalaysian Industrial Development Authority (MIDA)
(Chapter II(2)(i)).15ASpecial Advisory Committee onTariffs (SACT) within theMIDA thenevaluates
theapplication andforwards itsrecommendations totheMinister ofFinance andtheMinister of
International Trade andIndustry fortheirapproval.16Changes tothetariff structure aregazetted and
takeeffect fromaspecified date. Following thisprocedure, import tariffs havebeenincreased onsix
items since 1January 1993 (Table III.5)
Table III.5
Products granted tariff protection upon recommendation bytheSpecial Advisory Committee onTariffs, 1993-96
Year Product Rate ofimport duty
1993 Corrugated medium, testliner/kraftliner paper 20percentin1994, reduced to15percentin1996.
1993 Polypropylene multifilament yarn 15percentunder anewly created tariff code5402.69.100.
1993 PVC floor covering 30percentadvalorem orRM1.00 permetre effective
6May1993.
1993 High density polyethylene resin (HDPE) andlow
density resin (LDPE)30percenteffective 9December 1993.
1994 Titanium dioxide pigments 15percenteffective 22December 1994.
1994 Buffer tyres 30percentorRM2.50 perkg.effective
22February 1994.
Source: Dataprovided bytheMalaysian authorities.
(c) Tariff preferences
26. Malaysia grants tariffpreferences toimports fromASEAN, aspartoftheASEAN FreeTrade
Area(AFTA) Agreement, aswellastoAustralia andNewZealand, under bilateral agreements signed
in1958 and1961, respectively. Preferences under AFTA arebeing gradually phased in,while
preferences forimports from Australia andNewZealand arebeing phased out(Chapter II(3)(iii)).17
27. Over time, thenumber oftariff linessubject toAFTA preferences willbeincreased andthe
tariffs applied tothese linesreduced. Thesimple average ofAFTA tariff in1997 wascalculated by
15Malaysian Industrial Development Authority (1996), p.17.
16TheSACT originated from theAdvisory Board, established under theTariff Advisory Board Act,1963.
TheBoardwasdissolvedin1970anditsfunctionsweretransferredtoMIDA.TheSACTfunctionisnowprovided
under theMIDA (Incorporation) Act,1965.
17AFTA tariffs areexpected toaffect almost allMalaysia 'strade withitsASEAN partners (products covered
byMalaysia 'snotification under Article IX,permanent exclusions, oftheASEAN Agreement ontheCommon
Effective Preferential Tariff (CEPT) Scheme include sugar, beverages, spirits, vinegar, arms andammunitions).
Intra-ASEAN trade accounted in1995 for27.2percentofMalaysia 'sexports and17.4percentofitsimports
(Chapter I(4)). TheBilateral Trade Agreement withAustralia wasrenegotiated in1996 andpreferential tariff
treatment accorded bybothparties willbephased outby1January 1998. TheBilateral Trade Agreement with
NewZealand isunder review andpreferential tariff treatment isexpected tobephased outeffectively 1January
1998 (Chapter II(3)(iii)).Malaysia WT/TPR/S/31
Page 47
theSecretariat as6.9percent,ascompared theaverage applied MFN tariff of10.2percent.18Tariff
preferencesareparticularlyimportantforplastics,rubber,leather,straw,paper,cotton,textiles,clothing
andmetal products (Chart III.3andTable AIII.1). By2003, allAFTA tariffs willbereduced tobetween
zeroand5percent,except forthose products contained inthepermanent exclusion listand"sensitive"
unprocessed agricultural products. Inthecaseofthelatter, itisenvisaged thatAFTA tariffs willdecline
tobetween zeroand5percentby2010. Thebeginning ofthephase-in ofthese reductions isbetween
2001 and2003. MFN rateswillapply untilsuchtimeasthese products arephased intotheCEPT.
28. IfMFN tariffs remain unchanged andAFTA tariffs doindeed come down by2003asenvisaged,
theaverage difference between MFN andAFTA tariffs willdouble from3.3toalmost 6.7percentage
points (Table III.1). Itwould besurprising ifsuchanincrease intheaverage margin ofpreference
didnotresult insignificant diversion oftrade fromMalaysia 'snon-AFTA trading partners toAFTA
members, some ofwhose exporters arelessefficient thanthose ofnon-members. Ontheother hand,
ifMalaysia weretoextend lower AFTA tariffs tonon-members onaMFN basis, theoutcome would
obviously beaconsiderable dropinitsimport tariffs overthenextsixyears without anysuchtrade
diversion asfarasMalaysia isconcerned. Theauthorities notethatintra-ASEAN trade islikely to
18Accordingtotheauthorities,theaverageMalaysianAFTAtarifffor1997is4.04percentandwillbereduced
to2.58 percentin2000 and1.97 percentin2003. (Forsensitive agricultural products, thelastyearforphasing
inis2010 andthefinalrates are0-5percent.) TheWTO Secretariat 'sestimates arebased onthe9-digit HS
nomenclature used forMalaysia 'sMFN Schedule andincludes MFN tariffs (ontheir advalorem equivalents
inthecaseofspecific, mixed oralternative duties) forlineswhich areasyetnotcovered byanAFTA reduction
schedule. Therefore, MFN duties areusedforsome lineswhich arecovered byMalaysia 'scommitment toreduce
tariffs toamaximum of5percentby2003.WT/TPR/S/31
Page 48Trade Policy Review
remain below 30percentoftotaltrade as56.26 percentofMalaysia 'sAFTA commitments areset
atMFN levels. They expect theleveloftrade diversion tobeinsignificant asMalaysia willcontinue
torelyonnon-ASEAN sources forimports.
29. Products areregarded tobeofASEAN origin ifatleast40percentoftheircontents originate
inoneormore oftheASEAN member states. ASEAN member countries haveagreed that"substantial
transformation" maybeusedasanadditional criterion indetermining product origin forASEAN textile
andclothing products.19Theobjective ofthechange intherulesoforigin istoincrease intra-ASEAN
trade intextiles andtextile products aswellastomake ASEAN textile products more competitive in
theglobal market.20Products produced under theASEAN Industrial Complementation (AICO) scheme
willreceive the"final 2003" CEPT rateranging from zeroto5percentimmediately upon approval
ofthearrangement (Chapter II(3)(ii)(a)).
(d) Tariff concessions
30. Under Article 14oftheCustoms Act,theMinister ofFinance mayexempt anyclassofgoods
orpersons fromthepayment ofacustoms dutyoranyprescribed feeorcharge. Apartial exemption
isgranted upon request forimport duties inexcess of3percentonrawmaterials andcomponents
imported forthemanufacture ofconsumer goods forthedomestic markets, provided thatthese goods
areuseddirectly inthemanufacturing process andarenotproduced locally orsubstitutable forlocally
produced goods.21Afullexemption ofimport duties maybeconsidered forrawmaterials and
componentswhichareusedtomanufactureagoodwhoseimportationisdutyfree.Furthermore,imports
ofallmulti-media equipment foruseintheMulti-media Super Corridor aredutyfree.
31. Exemptions from payment ofcustoms dutyarealsogranted forimported machinery and
equipment thatisdirectly usedinthemanufacturing process forthestartofanewfactory orthe
expansion ofanexisting one,provided nosuchmachinery orequipment isproduced inMalaysia.
Effective26October1996,importdutyandsalestaxexemptionsonsparepartsandconsumableproducts
usedinthemanufacturing sector werewithdrawn, except forspare parts which areimported within
oneyearofthedateofcommissioningofaplantfornew/expansion/diversificationprojects.Applications
forsuchexemptions arereviewed byMIDA, which assesses themerits oftheproject (section (4)(ii)).22
During 1993-96, MIDA received 8,755 applications forexemption ofimport duties formachinery and
equipment, forwhich atotalofRM1.45billion indutyexemptions wasapproved. During thesame
period, atotalof10,516 applications fordutyconcessions forrawmaterials andcomponents were
received; noestimates offorgone taxrevenue were available forthese dutyconcessions.
32. Federal andState Government Departments areexempted from paying customs duties (and
taxes) onimported items, other thanpassenger cars,provided thatthese items areforthesolepurpose
19WTO (1995), p.42.
20Ministry ofFinance (1996), p.52.
21Imports ofsuchgoods withtariffs lessthanthree percentaregenerally notconsidered fordutyexemption
although such aconcession maybegranted ifthegoods areimported bya"Bumiputra" company.
22Bank Negara Malaysia (1997a), p.xiii.Malaysia WT/TPR/S/31
Page 49
ofgovernment use,cannot besoldorwritten offexcept withtherelevant authority concerned23,and
procurement ismade under thebudgetary means ofthedepartment concerned (section (4)(v)). Claims
forexemption must bemade through theCustoms authority atthepoint ofentry intoMalaysia.
(e) Tariff revenue
33. In1995 and1996, import duties collected amounted toRM5.6billion andRM6.2billion,
respectively.24Collected import duties oncompletely built-up carsincreased particularly rapidly from
RM520million in1995 toRM838million in1996 (Table AIII.3). Revenue from import duties
contributes astable 11.5percentoffederal revenue (Chapter I).25However, protection ofdomestic
manufacturers and,toalesser extent, agricultural producers rather thanrevenue collection, appears
tobethemainmotivation fortheimposition ofimport duties (Chapter IV(2) and(3)).Protection through
import tariffs is,inanycase, preferable toquantitative restrictions, astheassociated "rents" accrue
tothegovernment budget instead oftoprivate agents.
(iii) Import prohibitions andimport licensing
34. Goods whose entry intoMalaysia isprohibited orsubject tolicensing arelisted intheCustoms
Act1967,Customs(ProhibitionofImports)Order1988(TableAIII.4).Productssubjecttodiscretionary
import licensing include: agricultural products other thanfish;chemical andphotographic supplies;
transport equipment; electric machinery; mineral products, precious stones andmetals; and
manufactured articles n.e.s.26Import prohibitions andlicensing areusedtorestrict ormonitor entry
intoMalaysiaofgoods,onnationalsecurity,environmentalandsocialgrounds,ortoenforcequantitative
restrictions (QRs).
(a) Outstanding prohibitions andlicensing requirements
35. Goods subject toabsolute import prohibitions arelisted intheFirstSchedule oftheCustoms
Prohibition ofImports Order 1988. Thelistsinclude, interalia,items prohibited onreligious and
environmentalgrounds.27Importsofcertainpublicationsarealsoprohibited.28Conditionallyprohibited
23TheapprovaloftheFederalMinisterofFinanceisgiveninthecaseoffederalpropertyandtheChiefMinister
inthecaseofstate property. Where andwhen necessary, such powers have been delegated.
24In1996collected import duties represented 4percentofmerchandise imports. Duty exemptions forimports
which areused inexport processing (section (3)(iv)). Thelarge quantities andvalues ofimports forexport
processing significantly reduce theratio ofcollected import duties over merchandise imports.
25Import duties were budgeted tobe11.3percentofFederal revenue in1997, ascompared to11.4percent
in1993 and11.7 percentin1996 (Government ofMalaysia (1992, 1995 and1996a)). Theshare ofimport
duties tototalindirect taxation isexpected todecline further from 29.6 percentin1995 to23.7 percentin2000.
Thedeclining share ispartly duetolower tariffs asaresult oftheAFTA Agreement aswellasother international
agreements. (Government ofMalaysia (1996b), p.195).
26APEC (1996), p.B1.
27Prohibited goods are:articles bearing theimprint orreproduction ofanycurrency note, bank noteorcoin;
emblems anddevices forwhich there might beareasonable presumption thattheywillbeused inamanner
prejudicial toorincompatible withpeace, welfare orgood order inMalaysia; indecent orobscene articles;
cloth bearing theimprint orreproduction ofanyverses oftheKoran; daggers andflickknives; certain broadcast
(continued...)WT/TPR/S/31
Page 50Trade Policy Review
imports arelisted intheSecond, Third andFourth Schedules oftheCustoms Order 1988. Those in
theThird Schedule areaimed at"affording protection ofatemporary nature tolocalmanufacturers".
Inthiscase, import licences areissued bytheMinistry ofInternational Trade andIndustry (MITI).
Bycontrast, those goods listed intheSecond Schedule areprohibited onsecurity andenvironmental
grounds, except ifanimport licence hasbeen issued bytherelevant authority involved inthe
administration ofsecurity orenvironmental measures; products listed intheFourth Schedule require
additional approval toallow importation, suchasahealth permit orsecurity approval andinspection
(Table AIII.4). Asnoted inMalaysia 's1993 Review, itisnotclearwhysome oftheitems included
intheFourth Schedule arenotincluded intheThird.29Forexample, milkandmilkproducts arein
general included intheFourth Schedule (tobelicensed bytheDirector General ofVeterinary Services),
while some tarifflinescontaining liquid milk(0401.10.900; 0401.20.900; and0401.30.190) arelisted
intheThird Schedule (tobelicensed bytheMinistry ofInternational Trade andIndustry).
36. Around 17.0percentofMalaysia 'stariff lines arecurrently subject toimport licensing
(Table III.1). Theproduct coverage ofimport licensing hasremained unchanged sincethe1993Review.
Licensing requirements weremostpervasive inthecasesofforestry andlogging, agricultural andmining
products, transportation equipment, notably automobiles, andnegligible ornon-existent forseveral
broad categories ofproducts (Chart III.4).
37. Import licensing requirements areusedbothassubstitutes for,andcomplements for,tariffs
inMalaysia. Forinstance, whereas licensing requirements areespecially pervasive forforestry and
logging, tariffs onthese products arerelatively low(Chart III.4). Bycontrast, import licensing and
tariffs overlap toprovide highdegrees ofprotection forcertain sectors, suchastransportation equipment,
notably automobiles.30However, declines intariff levels donotappear tohavebeenaccompanied
byincreases inthecoverage ofimport licensing.
27(...continued)
receivers; certain liquors containing lead; sodium arsenite; allgenus ofPiranha fish; turtle eggs; cocoa pods,
rambutan, pulasan, longan andnamam fruits produced inthePhilippines andIndonesia; pens, pencils andother
articles resembling syringes; certain poisonous chemicals; andallgoods originating from Haiti. (Customs
Act1967, Customs (Prohibition ofImports) order 1988 (P.U.(A)408/1987), First Schedule).
28ThePrintingPressesandPublicationsAct1984allowstheMinisterofHomeAffairstorefusetheimportation
intoMalaysia orwithhold delivery orreturn tosender thereof outside Malaysia ofanypublication. According
totheauthorities thisActhasonlybeen invoked inclear-cut cases which areprejudicial tomorality andhas,
inanyevent, notbeen invoked since 1January 1993, other thantobanimports ofpublications from Singapore
which donothave apublication permit forsales inMalaysia. Publications delivered through theInternet do
notrequire apublications permit.
29GATT (1993), p.85.
30Theuseofatariff inaddition toaquantitative restriction enables theGovernment toobtain some ofthe
quota rentthatwould otherwise accrue toforeign exporters ordomestic importers ofthegoods concerned.Malaysia WT/TPR/S/31
Page 51
(b) Allocation ofimport licences
Automatic andnon-automatic licences
38. Import licences areenforced bytheCustoms Department, butallocated byavariety ofother
MinistriesandAgencies"automatically"or"non-automatically"dependingonthelicence(TableAIII.4).
Asubstantial share ofimport licences allocated bytheMinistry ofInternational Trade andIndustry
are"automatic"; automatic licensing isimplemented formonitoring anddatacollection purposes.
However, import licences required forbillets ofironandsteel, barsandrods, non-electric cables and
other items areclassified as"non-automatic". "Automatic" licences allocated bytheMinistry of
International Trade andIndustry arenormally granted within three daystoapplicants whofulfil the
published requirements. Allapplications fornon-automatic licensing areapproved, provided they
conform withcriteria setbytheauthorities. These relate mainly tocompliance withpublic safety,
environmental considerations, quarantine standards, sanitary andphytosanitary (SPS) regulations and
human safety.
39. ImportlicencesfortelecommunicationsequipmentareadministeredbyJabatanTelekomMalaysia
(JTM), aregulatory authority. TheCustomer 'sCharter ofJTM notes thatallimport licences will
beprocessed within fourdaysandtheapplications fortypeapproval willbeprocessed within 45days
(Chapter IV(4)(iii)).31
31Jabatan Telekom Malaysia (1996), p.7.WT/TPR/S/31
Page 52Trade Policy Review
Eligibility forlicences
40. Limits existonimports ofround cabbages andcoffee beans.32Theaverage quantity ofround
cabbages forwhich licences areissued is2,500 tonnes (Table III.6). Forcoffee beans, thefigure depends
ontheproduction capacity ofdomestic manufacturing andprocessing companies (Chapter IV(2)).33
Table III.6
Allocation ofimport licences forproducts subject totariff quota
Product Allocation toimporters Period forwhich licences
arevalid
Products forwhich thecountry
allocation issubject toanimport
protocol based onSPSmeasures:
- Livechicken, eggs, meat and
products;
- Milk andmilkproducts;
- Swine andswine meatDepartment ofVeterinary Services under theMinistry of
AgricultureOnemonth effective from
thedateissued
Cabbage (round) Access toquota isgiven toimporters withApproved
Permits issued bytheFederal Agricultural Marketing
Authority (FAMA). Theselection andaward ofthe
Approved Permits isbyaspecial committee under the
Ministry ofAgriculture MalaysiaOnemonth from thedateof
issue
Coffee notroasted Access toquota isgiven toimporters withApproved
Permits issued byFAMA. Anapplicant foran
Approved Permit must ownacoffee powder factory and
must beinvolved incoffee powder manufacturingForthree months dependent
ontheamount processed in
thepreceding three months
Wheat Imports aresubject toimport licences issued bythe
Ministry ofInternational Trade andIndustryThree months effective from
thedateofissue
Sugar Imports aresubject toimport licences issued bythe
Ministry ofInternational Trade andIndustryThree months effective from
thedateofissue
Unmanufactured tobacco, tobacco
refuseMinistry ofPrimary Industries
Source: WTO document G/AG/N/MYS/1, 1June1995.
41. Importation ofrawsugar isalsosubject toquotas, withimport licences being granted only
tosugar millers andrefiners. There aretwolong-term contracts fortheimportation ofrawsugar
negotiated byMITI onbehalf oftheMalaysian private sector: acontract withFijicovering theperiod
1995-97, which allows fortheimportation of90,000 tonnes perannum, andacontract withAustralia
covering thesame period forimportation of300,000 tonnes perannum. These contracts, cover
approximately 40percentofdomestic sugar consumption.
42. Import licences forcompletely knocked-down (CKD) motor vehicles areallocated onlytomotor
vehicle assemblers. Licences forimports ofcompletely built-up (CBU) unitsaremainly allocated to
franchise holders (Chapter IV(3)(iii)).
32Theauthorities indicate thatalicensing procedure isimplemented toenable Malaysia toadminister itsWTO
minimum market access obligations.
33Prior totheimplementation ofMalaysia 'sWTO commitments, phytosanitary certificates were notissued
forchicken (whole andinparts), pork, liquid milk, ducks andhenseggs. Thedenial ofphytosanitary certificates
hadtheeffectofanimportprohibition.Malaysia'sWTOScheduleXXXIXincludestariffquotasfortheseproducts.
However, applied tariffs aresubstantially lower thanin-quota tariffs listed intheSchedule (section (2)(iii)).Malaysia WT/TPR/S/31
Page 53
(iv) Anti-dumping andcountervailing legislation andmeasures
43. Theonlynoteworthy non-tariff border measures other thanimport licensing areanti-dumping
andcountervailing actions. Malaysia revised itsanti-dumping andcountervailing legislation when it
adopted theCountervailing andAnti-Dumping Duties Act1993. Thelatter replaced theCustoms
(Dumping andSubsidies) Actof1959, which hadnever beenapplied. The1993 Actauthorizes the
Minister ofInternational Trade andIndustry tomake suchregulations asmaybenecessary orexpedient
togivefulleffect totheprovisions oftheAct.34TheActandrelated Regulations came intoforce on
15July1993and28April 1994, respectively.35Asinmany other countries, theActandRegulations
define specific timeframes forinvestigations andrequire theauthorities topublish theirdecisions
(Annex III.1).
44. Malaysia 'santi-dumping andcountervailing duties legislation andregulations werereviewed
intheWTO Committees onAnti-Dumping Practices andonSubsidies andCountervailing Measures
inDecember 1995. Aspartofthisreview process Malaysia responded toquestions fromother WTO
Members, some ofwhom asserted thatMalaysia 'slegislation andregulations donotfullyandaccurately
reflect therequirements oftheWTO Agreements onAnti-Dumping Practices andonSubsidies and
Countervailing Measures. Forexample, Members noted thatthelegislation and/or regulations36:
-donotfullyreflect WTO provisions regarding standing;
-appear toauthorize theacceptance ofundertakings priortothedateofanaffirmative preliminary
determination;
-donotinclude avariety ofWTO requirements regarding dumping calculation
methodology, e.g.,rulesregarding treatment ofstart-up costs, exchange ratefluctuations, and
comparison methodology;
-donotinclude provisions regarding non-actionable subsidies;
-donotfullyincorporate WTO provisions regarding deminimis dumping margins andnegligible
import volumes;
-donotprovide fornewshipper reviews; and
-contain anti-circumvention provisions.37
45. Inresponse, theMalaysian authorities recalled thattheexisting legislation andregulations were
adopted before theWTO Agreement entered intoforce. Asaresult, theydonotreflect allrelevant
WTO provisions orinsome cases maybeinconsistent withWTO requirements. TheMalaysian
34Countervailing andAnti-Dumping Act1993, Article 50.
35TheCountervailingandAnti-DumpingAct1993andtheCountervailingandAnti-DumpingDutiesRegulations
1994 have been notified totheWTO Committee onAnti-Dumping Practices andtheCommittee onSubsidies
andCountervailing Measures (WTO documents G/ADP/N/1/MYS/1 andG/SCM/1/MYS/1, 5April 1995). The
Malaysian authorities have responded inwriting toquestions from itstrading partners (WTO documents
G/ADP/W/304 andG/SCM/W/312, 18March 1996 andCorr. 1,11June 1996).
36WTO documents G/ADP/W/304 andG/SCM/W/312, 18March 1996.
37TheCountervailing andAnti-dumping Duties Act1993 provides alegal basis forassessing theeffects of
subsidizedanddumpedmerchandiseorbothonthedomesticindustry(Section35).Furthermore,theActauthorizes
theGovernment totakemeasures toprevent circumvention oftheapplication ofcountervailing andanti-dumping
duties asmaybeprescribed (Section 37); however, these measures arenotincorporated intheimplementing
regulations and,according totheauthorities, therefore cannot beused.WT/TPR/S/31
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authorities informed theCommittees thattheyareintheprocess ofreviewing thelegislation and
regulations toensure conformity withWTO requirements; intheinterim, Malaysia isapplying the
relevant WTO provisions administratively.38AsofSeptember 1997, however, noamendments tothe
current legislation havebeentabled inParliament andnorevisions totheimplementing regulations
havebeen published ornotified totheWTO (Table AII.2).
46. Further, pending thisdomestic review, anti-dumping investigations arebeing conducted on
thebasis ofthecurrent legislation. Inafinaldetermination on16March 1996, Malaysia imposed
anti-dumping duties onimports ofPVCfloorcovering inrollsimported fromtheRepublic ofKorea
andThailand. Atthesametime, apetition concerning allegedly dumped imports ofthesameproducts
from Singapore wasrejected. Inapreliminary determination on19November 1996, anti-dumping
dutieswereimposedonself-copypaperimportedfromtheEuropeanUnionandIndonesia.Themeasures
onPVC floor covering rollswerebased onconstructed values, while those onself-copy paper were
based onthehome-market value (Table III.7).
Table III.7
Anti-dumping andcountervailing investigations andmeasures taken byMalaysia, 1January 1990-31 December 1996
Country
oforiginProduct Initiation
dateProvisional
measures date
anddumping
marginDefinitive
dutydate
and
dumping
marginTrade
volumeDumped
imports as%
ofdomestic
consumptionShare of
exports of
thecountry
oforigin
investigatedBasis of
determination
Thailand PVC floor
covering22.06.95 10.09.95
191%16.03.96
58-114%1.7m.kg. 9.8% 38.5% Constructed
value, facts
available
Korea,
Rep. ofPVC floor
covering22.06.95 19.09.95
38%16.03.96
69%0.9m.kg. 5.4% 20.2% Constructed
value, facts
available
Singapore PVC floor
covering22.06.95 Negative
determinationNFD 0.03m.kg. 0.1% ... Constructed
value, facts
available
European
UnionSelf-copy
paper22.08.96 19.11.96
9-26%NFDY 5,530 mt 15.0% 49.0%
4firmsHome market
value andfacts
available
Indonesia Self-copy
paper22.08.96 19.11.96
23-39%NFDY 867mt 2.0% 35.0%
1firmHome market
value andfacts
available
... Notavailable.
NFD Nofinaldetermination willbemade.
NFDY Thefinaldetermination hasnotyetbeenmade.
Source: WTO documents G/ADP/N/16/MYS, 22October 1996andSuppl. 1,29October 1996; andG/ADP/N/22/MYS, 10June1997.
47. Notwithstanding thefactthatanti-dumping duties havebeenimposed inonlytwoinstances,
theirimpact maybefar-reaching. Even ifanti-dumping andcountervailing measures legislation is,
38TheWTO Agreements donothave anylegal status inMalaysia nordotheyenjoy anyforce oflawper
se(Chapter II(2)). Inorder fortheAgreements tobeenforceable, Parliament hastopromulgate implementing
legislation, tosuchanextent thattheywillnotcontradict anyoftheprovisions oftheWTO Agreements. In
theeventofanyinconsistenciesthatmayarisebetweentheprovisionofWTOAgreemen tsanddomesticlegislation,
theprovisions ofthedomestic legislation willprevail. (Malaysia 'sresponse toaquestion from Hong Kong, WTO
document documents G/ADP/W/304 andG/SCM/W/312, 18March 1996).Malaysia WT/TPR/S/31
Page 55
asclaimed bytheauthorities, administered inamanner compatible withWTO rules, themere threat
ofsuchcountermeasures maywellhavea"chilling effect" onsome exporters, whoreactbyraising
theirsupplies and/or curtailing supplies. Moreover, anincreasing number ofcompanies mayfulfil
therequirements oftheinjury testifandwhen thegrowth rateslows down fromitsrecent performance
of8to9percentperyear. Furthermore, twoofthefouroutstanding duties, andthreeoffiveconducted
investigations, aredirected atMalaysia 'sAFTA partners whoreceive tariff preferences inMalaysia
(Chapter III(2)(ii)).
(v) Other measures
(a) State trading
48. Theonlystate-trading enterprise within themeaning ofArticle XVII:4(a) ofGATT 1994, the
National Paddy andRiceBoard, wascorporatized on7July1994. Following thiscorporatization,
theBoard wasdissolved andallitsregulatory functions andactivities weretransferred totheMinistry
ofAgriculture. Itscommercial activities, ontheother hand, weretaken overbythePadiberas Nasional
Berhad (BERNAS), anewcompany registered under theCompanies Act1965.39BERNAS wasthen
partly privatized in1995through asaleofequity. Thecommercial activities ofBERNAS include paddy
procurement, rice-milling andrice-trading. BERNAS operates strictly asabusiness concern except
forthearrangement tocarry outcertain non-commercial activities onbehalf oftheGovernment, namely
themanagement ofthenational ricestockpile, thedisbursement ofthepaddy subsidy payments and
theprocurement ofpaddy from farmers. Inconsideration ofitsagreement toperform theabove
non-commercial activities onbehalf oftheGovernment, BERNAS hasbeengiven theexclusive right
toimport riceintoMalaysia foraperiod of15years following thesigning oftheagreement in1996
(Chapter IV(2)).
(b) Local-content requirements andthevendor programme
49. Under Article 5.1oftheWTO Agreement onTrade-Related Investment Measures, Malaysia
notified theCommittee onTrade-Related Investment Measures on31March 1995that"Malaysia has
nolocalcontent lawsorregulations. However, theGovernment encourages theuseoflocalmaterials
inthemanufacturing sector andtheuseoflocalcontent istaken intoaccount inthegranting ofinvestment
incentives provided bytheGovernment".40Inparticular, thereisalocal-content programme formotor
vehicles which isencouraged through administrative measures (Chapter IV(3)(iii)(b)).
50. TheMalaysian authorities 'intent istopromote theestablishment ofbackward linkages with
aviewtodeveloping supporting andancillary industries andthusstrengthen themanufacturing sector.
ThisisaddressedthroughtheIndustrialLinkageProgramme(ILP)undertheSmallandMediumIndustrial
Development Corporation (SMIDEC) andtheVendor Development Programmes under theMinistry
ofEntrepreneur Development (MED). Theobjective oftheprogrammes istodevelop Malaysian small
andmedium-sized enterprises (SMEs) asmanufacturers andsuppliers ofcomponents required bylarge
industries andmultinational corporations. Although these programmes donotrequire theuseoflocal
materials andservices, theynevertheless promote theuseofsuchintermediate inputs through financial,
technical andother related assistance.
39Thecorporatization oftheNational Paddy andRiceBoard wascarried outunder thecountry 'sprivatization
programme withtheobjectiveofreducingtheGovernment'sinvolvementincommer cialactivities(section(4)(iii)).
40WTO document G/TRIMS/N/1/MYS/1, 12April 1995.WT/TPR/S/31
Page 56Trade Policy Review
51. TheILPisacluster-based industrial development programme intandem withtheSecond
Industrial Master Plan(IMP). TheILPserves twoimportant objectives, i.e.deepening anddiversifying
thecountry 'sindustrial basetowards highvalue-added activities andreducing thecountry 'sdependence
onimports ofintermediate products andinputs, thus,improving thebalance-of-payment position. To
beeligible toparticipate intheILP,thelinkage companies mustbeincorporated under theCompanies
Act1965, withpaid-up capital ofnotlessthanRM250,000, andatleast70percentoftheequity
mustbeMalaysian ofwhich 60percentmustbedirectly heldbythelinkage companies. TheVendor
Programme istargeted atthedevelopment ofbackward linkages inselected sectors.41Qualifying
conditions are,among others, registration under theCompanies ActandwiththeVendor Unitofthe
MED, having paid-up capital ofbetween RM100,000 andRM2.5million, aminimum equity
shareholding byMalaysians of70percent, andhaving skilled workers withrelevant experience.42
In1997,75companiesparticipatedintheprogrammein14sectors.43Inthecontextoftheirprivatization,
formerstate-ownedcompanieshavebeenrequiredtoundertakevendorprogrammestofacilitatebackward
linkages toother Malaysian companies (Table III.8).
Table III.8
Vendor programmes undertaken byselected privatized companies, 1991-95
Company Contract value
(RM million)Programme
Perusahaan Otomobil Nasional Berhad 569.06 Component Scheme Promotion
Telekom Malaysia Berhad 452.62 Entrepreneurs Development Programme
Credible Suppliera
Tenaga Nasional Berhad 337.11 Entrepreneurs Development Programme
Umbrella Scheme
Credible Contractorb
Strategic Joint-venture
Indah Water Konsortium Sdn.Berhad 6.27 Construction ofTreatment Plant andPumping Station Sewerage
System andPumping Station Network
a Credible supplier refers totheoutsourcing ofcomponents tosuppliers which haveasound track record.
b Credible contractor refers tocontractors engaged incarrying outworks/services, suchastheconstruction ofsub-stations.
Source: Government ofMalaysia (1996), Seventh Development Plan, Kuala Lumpur, p.211.
(3) Measures Directly Affecting Exports
(i) Registration, customs valuation andconversion ofexport receipt requirements
52. Exporters ofpalmoil,palmkernel, palmfattyacid,palmoilplanting material, natural rubber,
pepper, pineapple andtimber aresubject toanexport registration requirement (Table III.2). Export
41Theautomotive sector, electrical andelectronics, plastics, rubber-based, wood-based, telecommunications,
film-production, ceramics, shipbuilding andexport ingeneral.
42Other requirements include being "receptive toadvisory, guidance andconsultancy services" aswellas
having 3-5years projections oncashflows, asset acquisitions, technology upgrading andmanagement.
43Thesectors areelectrical andelectronics, furniture (wood), automotive, telecommunication, building
equipment, shipbuilding andrepair, filmproduction, ceramics, engineering, trade andexport, motorcycles, food,
textiles, andservices.Malaysia WT/TPR/S/31
Page 57
prices forcrude petroleum, palm oil,andpalm kernel aredetermined bymarket forces. However,
theCustoms Department willcompute a"gazetted price" forthepurpose ofexport dutydetermination.44
53. Prior to1December 1994, exporters were required toconvert allproceeds intoMalaysian
Ringgit assoonastheywerereceived, orinanycasenotlaterthansixmonths fromthedateofshipment.
Since then,exporters havebeenpermitted toretain aportion oftheirexport proceeds inforeign currency
accounts inMalaysia. Theovernight limits onbalances inthese accounts arebased ontheaverage
monthly export proceeds oftheexporting firms: firms withaverage monthly export earnings ofless
thanRM5million haveanovernight limitofUS$1 million; thosewithaverage monthly export earnings
between RM5andRM10million haveanovernight limitofUS$3 million; firms withlarger average
monthly export earnings haveanovernight limitofUS$5 million. On15November 1996, themaximum
limit wasraised toUS$10 million forexporters with average monthly export earnings above
RM20million (Chapter IV(4)(ii)).
(ii) Export prohibitions andlicensing requirements
54. Export licensing requirements arelisted inthreeschedules issued intheCustoms (Prohibition
ofExports) Order 1988. Prohibited exports, listed intheFirstSchedule, areturtle eggs, rattan from
Peninsular Malaysia (except rattan classified under tariff lines1401.20.910 and14.20.920) andsome
exports toHaiti(petroleum andpetroleum products aswellasarmsandrelated materials). TheSecond
Schedule listsgoods which maynotbeexported tosome destinations, while theThird Schedule lists
goods which maybeexported inaprescribed manner (Table AIII.5). Changes since the1993Review
include alifting ofallprohibitions ontradewithSouth Africa.45TheMalaysian authorities acknowledge
intheirAPEC Individual Action Planthattextiles andclothing, andwood, pulp, paper andfurniture
remain subject todiscretionary export licensing.46
55. Anycompany canapply foranexport licence andlicences areissued freeofcharge. Exporters
arerequired tosubmit anexport declaration formforMITI'sendorsement; endorsement documents
are,withthefollowing exceptions, regarded asexport licences. Export licences fortextile andclothing
products tocountries thatapply import quotas under theWTO Agreement onTextiles andClothing
areissued onlyuptothelimitallowed bytheimporting country (Chapter IV(3)(ii)). Export ofsand
44US$denominated export prices (f.o.b) ofthevarious types ofMalaysian crude petroleum aresupplied by
PETRONAS totheCustoms Department every twoweeks. These prices areconverted intoMalaysian Ringgit
using thecurrent exchange rate. Theresults aregazetted every fortnight asfixed values forcustoms valuation
forthevarious types ofcrude petroleum. Thevolume ofcrude palm oilexports anditstotalvalue arereported
bytheMalaysian Palm OilGrowers Council totheCustoms Department onamonthly basis. From these data
theaverage price pertonne isderived andgazetted asthefixed value forcrude palm oilforcustoms valuation
purposes. Data onthevolume ofprocessed palm oilanditsvalue arecollected bytheCustoms Department
andusedtocalculate anaverage monthly price pertonne. Thisprice isgazetted asthefixed price forcustoms
valuation forthefollowing month. Theaverage price ofpalm kernel iscalculated bytheCustoms Department
onthebasis ofdatasupplied bythePalm OilRegistration andLicensing Authority (PORLA). Atransport cost
ofRM37pertonne isadded totheaverage ex-mill price toarrive attheaverage price pertonne ex-port. The
average price pertonne ex-port isthenmultiplied byafactor of100/80. Theresult isgazetted astheprice fixed
forpalm kernel forthefollowing month.
45TheFederal Government alsoannounced abanontheexport ofround logsfrom Sabah from 1January
1993,whichreportedlydeprivedSabahofnearlyone-halfofitsbudgetedincomefor1993.Thebanwasrescinded
inMay ofthesame year. Europa Publications Limited (1996), p.2,065.
46APEC (1996), p.B1.WT/TPR/S/31
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issubject toexport licensing, butnosuchlicences areissued inviewofa"shortage" ofsandforthe
construction business. Exports ofrefined white sugar, wheat flour, rice,bread, chicken, steelbars,
ordinary Portland cement, andpetroleum products areusedtoenforce domestic pricecontrols onthese
products (section III(4)(vi)).
(iii) Export duties andother levies47
56. Outof10,372 tariff lines, 324aresubject toexport duties, ofwhich 17arespecific and307
areadvalorem .48Specific export duties onselected palm oilproducts arelevied atratesthatvary
directly withthevalue pertonne oftheexported products (Table III.9). Theoverall average ofthe
advalorem export duties is7.8percent. Products subject toexport duties include selected agricultural,
fishery andresource based products (Box III.2). TheMinister ofFinance temporarily exempted
processed palmoilfromexport duties from1November 1996to31October 1997. Seventy-five tariff
linesaresubject tobothimport andexport duties. Ofthese, twolinesweresubject tospecific import
duties andadvalorem export duties.49Four tariff linescovering palm oilproducts aresubject to
5percentadvalorem import duties andspecific export duties (Chapter IV(2)(iii)). Theremaining
69tariff linesaresubject toanaverage import dutyof13.8percentandanaverage export dutyof
5.4percent. Products subject tobothimport andexport duties include selected fishproducts, birds'
eggs, avocados andtropical fruits.
Table III.9
Export duties onMalaysian palm oil,1997
Perunitvalue Export duty
OnthefirstRM650.00 pertonne Nil
OnthenextRM50.00 pertonne 10percent
OnthenextRM50.00 pertonne 15percent
OnthenextRM50.00 pertonne 20percent
OnthenextRM50.00 pertonne 25percent
Onthebalance 30percent
Note: Asapplied totarifflines1511.10.000, 1511.90.990, 1516.20.130, 1516.20.149, 1517.90.524, 1517.90.529, 1518.00.231 and
1518.00.239.
Source: Government ofMalaysia (1996), 'Appendix "E"Palm Oil',HisMajesty 'sGovernment Gazette, Vol.40,No.1,p.769.
47Insofar asimport duties arelevied onrawmaterials andintermediate inputs usedintheproduction ofgoods
subject toexport duties, those exported goods aretaxed twice.
48Aspublished inHisMajesty 'sGovernment Gazette, 11January 1996 andamended on25October 1996.
Thetarifflineswithspecificexportdutiesare060290100(RM0.30each);060290200(RM0.15each);060290300
(RM2.19permetre);120799100(RM82.67pertonne);120999190(RM22.05perkg.);140120100(RM2,700.00
pertonne);140120910(RM1,000.00pertonne);140120920(RM1,000.00pertonne);140120990(RM2,700.00
pertonne); 151110000 (Table III.7); 151190990 (Table III.7); 151620130 (Table III.7); 151620149 (Table III.7);
151790524 (Table III.7); 151790529 (Table III.7); 151800231 (Table III.7); and151800239 (Table III.7).
49Tariff line7204.50.000 (remelting scrap ingots) issubject toanimport tariff of5percentandRM49.21
pertonne aswellasanexport dutyof10percent. Tariff line0805.90.000 (citrus fruit, fresh ordried other
thanmandarins, lemons orgrapefruit) issubject toanimport dutyof5percentandRM648pertonne aswell
asanexport dutyof5percent.Malaysia WT/TPR/S/31
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BoxIII.2: Theincidence ofexport taxes
Theextent towhich incidence ofanexport taxfallsonthedomestic producer ortheforeign consumer
depends onthedemand conditions facing theproduct intheworld market. Ifacountry is"small" inthe
sense thattheinternational demand forthecountry 'sexports ofthetaxed good isperfectly elastic, the
country hasnomarket power andisaprice taker intheworld market. Consequently, reduced export
volumes asaresult ofthetaxwillnotaffect theworld price -thecountry represents such asmall share
ofworld supply thatitcannot influence international prices. Inthiscase, domestic producers ofthe
taxed export must bearthefullincidence ofthetaxsince theyareunable topassthetaxforward onto
foreign consumers through higher world prices.
Ontheother hand, iftheworld demand fortheexport ishighly inelastic, thecountry maybeableto
influence itsterms oftrade andbetosome extent aprice setter ontheworld market. Ifsuch a"large"
country isasufficiently dominant supplier inworld terms, reducing itsexport volume bytaxation could
raise world prices somuch thatexport receipts increase rather thandecrease. Inthiscase, thedomestic
producers ofthetaxed export donotbearthefullincidence ofthetaxsince theyareabletopassashare
ofthetaxforward ontoforeign consumers through higher world prices.
Although essentially anempirical question, theexperience ofcountries thathave tried export taxes
indicates thatterms oftrade gains aredifficult tocapture. Thisisespecially sointhelonger term, when
theworld demand forexports islikely tobeelastic duetogreater product andcountry substitution.
Thus, efforts toextract greater export returns through taxing exports often failandruntherisk, in
practice, ofseverely penalising theexporting industry, aswellastheeconomy ingeneral, byencouraging
inefficient domestic processing ofthetaxed commodity.
57. Rubber produced inMalaysia issubject toacessofRM3.84perkg.tofinance research and
development bytheMalaysian Rubber Research andDevelopment Board andacessofRM9.92perkg.
tofinance rubber replanting activities. Bothcesses arecollected atthepoint ofexport bytheCustoms
Department. Exports oftimber, veneer andtimber products aresubject toexport levies andcesses
which varybyproduct andbetween Peninsular Malaysia, Sabah andSarawak.
Revenue
58. Revenue fromexport duties increased fromRM843million in1995toRM1,058 million in
1996. Thebulk ofthiswasderived from crude petroleum, revenue onwhich increased from
RM743million toRM1,013 million. From 1995to1996, revenue fromprocessed palmoildropped
fromRM66million toRM6.4million asexport duties onthese products weresuspended. Incontrast
toimport duties (section (2)(iii)(e)), thecontribution ofexport duties tothefederal revenues hasdeclined
substantially from 3.4percentoftotalrevenue budgeted for1993 to1.6percentin1996 and
1.7percentbudgeted for1997. Intheabsence oftheincrease inexport duties oncrude petroleum,
totalexport duties would havedeclined to1.2percentoffederal revenues in1997.50Although revenue
considerations areimportant insectors suchascrude petroleum, export taxesaremainly usedtopromote
down-stream industrial activities.
59. Asof1996, export cesses were more important from arevenue perspective thanregular
non-crude petroleum export duties. AtotalofRM105.7 million wascollected in1996, mainly from
arubber replanting cessandarubber research cess.
50Government ofMalaysia (1992, 1995 and1996a).WT/TPR/S/31
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(iv) Duty andtaxconcessions
(a) Duty drawback forexports
60. Adrawback isprovided forimport dutypaidonrawmaterials andpackaging offinished goods
aswellaswaste orrefuse resulting from themanufacture ofsuchgoods which aresubsequently
exported.51Theamounts refunded were RM91million in1993, RM71.5million in1994,
RM99.0million in1995 andRM157million in1996. Themain beneficiaries areforeign-owned
export-oriented companies producing, electronics, electrical products andtextiles andclothing.
(b) Export-processing zones
61. Amendments totheFreeZones Act1990 weremade in1993 and1995toincorporate several
terms usedintheCustoms Act1967. Several newareas weredesignated asfreezones forcommercial
activity. Amendments made in1996 were mainly toexclude retail trade from zones designated for
commercial activity, except withtheapproval oftheMinister. Factories located inzones designated
formanufacturing activity needsuchapproval toacquire goods useddirectly inthemanufacture of
other goods meant forretail trade orother activity. Imported goods meant fortheprincipal customs
areamayundergo processing, repacking etc.inthezones andneednolonger beintheiroriginal
packings. Administrative procedures covering licensed manufacturing warehouses were amended,
interalia,tocover farming outandsubcontracting. TheActandimplementing regulations donot
exemptcompanieslocatedinthezonesfromenvironmentaloranyotherstandardsapplicabletoeconomic
activity outside thezones. Asof31December 1996, therewere14FreeIndustrial Zones, 8Commercial
Zones, and1,887 Licensed Manufacturing Warehouses. Production inthezones hasahigher import
content (57percent) thanthatoutside thezones (34percent).52Thishighimport content appears
tobetheresult oftheconcentration ofelectronics firms (52percentoftotalfirms inthefreezones)
which tendtoobtain mostoftheirinputs fromaffiliated orparent companies outside Malaysia.53Since
1990, theshare ofexports from export processing zones intotalmerchandise exports hasgradually
increased from 21percenttoroughly 27percent(Table III.10).
Table III.10
Exports from EPZs, 1990-96
(RMbillion andpercent)
1990 1991 1992 1993 1994 1995 1996
Exports from EPZs (RMbillion) 16.3 19.9 21.7 25.7 32.3 45.8 50.0
Exports from EPZs asashare oftotal
merchandise exports (percent)21.0 21.6 21.5 21.7 21.7 25.5 26.7
Source: Dataprovided bytheMalaysian authorities andMinistry ofFinance (1996), Economic Report 1996/97, Kuala Lumpur.
51Section 99oftheCustoms Act,Section 19oftheExcise ActandSection 29oftheSales TaxAct. Further
drawback ofdutypaidongoods imported andsubsequently exported, subject tocertain conditions, isprovided
(Section 93oftheCustoms ActandSection 29oftheSales TaxAct)asisadrawback ofdutypaidongoods
which havesuffered damage ordeterioration anddestroyed (Section 95oftheCustoms Act)andselected other
cases, forexample, drawback onduty/deposits paidbytourists onpersonal items when leaving thecountry or
trade samples imported bycommercial travellers isavailable (Section 96oftheCustoms Act).
52Import content ismeasured asthevalue imports ofrawmaterials andintermediate inputs asashare ofthe
value ofoutput (Bank Negara Malaysia, 1997a, p.30).
53Bank Negara Malaysia (1997a), p.32.Malaysia WT/TPR/S/31
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(c) Other taxconcessions forexports
62. Anabatement Incentive forExport previously granted toresident manufacturing exporters was
terminated asof1January 1994. Whereas theamount oftheabatement onthestatutory income had
equalled 50percentoftheratioofexport sales tototalsales uptotheendof1992, theratewas
subsequently reduced to25percentprior toitstermination.
63. Manufacturers inSabah andSarawak thatexport rattan andwood-based products (excluding
sawn timber andveneer) continue tobeeligible foradouble deduction onfreight charges incurred.
Inaddition, theyenjoy fullexemption fromimport dutyonrawmaterials orcomponents usedinthe
manufacture ofallrattan andwood-based products (section (4)(ii)).
(v) Export finance andinsurance
(a) Export credits
64. Under theExport Credit Refinancing (ECR) Scheme, working capital isprovided todirect
andindirect exporters (thelatter being domestic suppliers ofinputs tofinalexporters). A"negative
list"notes thatsome products areineligible forthisloanscheme.54Access totheECRscheme issubject
totheexporter obtaining anECR loanwithanycommercial bank, withaminimum ofRM10,000
andamaximum ofRM30million perexporter. Themaximum period offinancing foralleligible
products isfourmonths forpreshipment andsixmonths forpost-shipment.55Forapreshipment
order-based method themaximum eligible amount is80percentofthevalue oftheexport order, while
forapreshipment certificate ofperformance method, themaximum is70percentofthevalue ofeligible
exports during thepreceding 12months. Forapost-shipment ECR loantheeligible amount is
100percentoftheinvoice value. TheCentral Bank (Bank Negara Malaysia) hasrevised theinterest
ratesonthese ECR loans several times tonarrow thedifference withother trade finance products,
especially theBanker 'sAcceptance Rate. Asaconsequence, thedifference narrowed fromoverone
percentage point inJuly1995to0.43ofapercentage point inMay1996. Theratesarebeing further
reviewed toensure consistency withmarket rates. Theauthorities donotconsider thisinstrument to
beasubsidy andtherefore havenointention ofphasing itout.56
65. TheExport-Import BankofMalaysia Berhad wasestablished inAugust 1995withtheobjectives
offinancing andpromoting international tradeandfacilitating theexport ofgoods andservices bymeans
ofexport credit, financing ofcapital investment, andprovision ofbusiness information andservices.57
AnyMalaysian exporting company orforeign buyer ofMalaysian goods andservices iseligible for
financing subject toaminimum 30percentMalaysian content oftheexported goods orservices.58
54Thenegative listcomprises mineral products, leather products, rawhides andskins, wood products, textile
andtextile articles, precious stones, natural andcultured stones, basemetals andarticles ofbasemetal, andall
items under work ofart,collectors 'pieces andantiques.
55WTO document G/SCM/N3/MYS, 12July1995.
56WTO document G/SCM/Q2/MYS/9, 27January 1997.
57Ministry ofFinance (1996), p.194.
58However,theBank'srequirementonMalaysianmaterialcontentmayvaryonacase-by-casebasis,depending
onthenature oftheexports oftheproject.WT/TPR/S/31
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Malaysian companies mayapply directly totheExim Bank, while foreign buyers mayapply through
theirMalaysian supplier. Loan ratesaresetatthecostoffunds plusamargin forloans denominated
inMalaysian Ringgit. Loans inother currencies aresetateither theLondon Interbank Offered Rate
(LIBOR) ortheSingapore Interbank Offered Rate(SIBOR) plusamargin. Onlyonebuyer credit was
granted in1995, rising toninein1996, compared tofoursupplier credits in1995 rising toeight in
1996.
(b) Export insurance
66. Exportinsuranceisprovidedthroughthestate-ownedMalaysianExportCreditInsuranceBerhad
(MECIB). Exports toAsian countries account forabout halfofallinsured exports (Table AIII.6).
Thefacevalue ofinsured exports peaked in1992 atoverRM2.8billion. Since thanithasdeclined
andstabilized ataround RM1billion during theperiod 1994-96. In1995 and1996, Asian countries
accounted foronehalformore oftheexports insured. Manufactures werethemainproducts covered.
67. Inaddition,forincometaxpurposesadoubledeductionisallowedforexportinsurancepremiums
paidbyMalaysian exporters toMECIB. Thisdouble deduction isdesigned asanincentive toMalaysia 's
exporters topenetrate non-traditional markets.59In1995, export credit insurance premiums amounting
toRM70.3million qualified forthisdeduction.60
(vi) Export promotion andmarketing assistance
68. Direct andindirect government assistance isprovided forexport marketing andpromotion.
Direct assistance isprovided mainly bythestate-owned Malaysia External Trade Development
Corporation (MATRADE) while indirect assistance isintheform ofataxincentive.61Asregards
direct assistance, theactivities ofMATRADE have recently focused onpromoting exports of
resource-based products and,inviewofthegeneral policy concern overbalance-of-payments deficits
(Chapter II(2)(ii)), promotional activities willbefocused oncountries withwhich Malaysia hadtrade
deficits. TheroleofGeneral Trading Companies willinclude thesourcing from overseas ofraw
materials notavailable inMalaysia forusebysmall andmedium-sized enterprises (SMEs). Between
1January 1996 and1May1997, Memoranda ofUnderstanding (MOU) weresigned withtrade and
business organizations fromArgentina, Canada, Ecuador, Egypt, Hungary, Mexico, PeruandTurkey.
MATRADE alsohasanetwork of25overseas-posted Trade Commissions andplans towiden this
network withanother seven offices. TheExecutive Information System wasdeveloped in1995 and
enhanced in1996; itprovides information onMalaysia 'sexternal tradestatistics, Malaysian exporters,
overseas importers, country factsheets, business contacts, andtrade fairs. AsofDecember 1996,
MATRADE had993subscribing members ofwhich almost 60percentaresmall andmedium-sized
enterprises. Themajority ofthemembers areinthefood, rubber andwood-based sectors; theyare
mainly located inKuala Lumpur, Penang, Perak andJohor.
59Thedouble deduction ofexport credit insurance premiums isprovided under Income Tax(Deduction of
Premium ofExport Credit Insurance) Rule 1985 made under Section 154oftheIncome TaxAct1967. The
double deduction ofexport credit insurance premium wasmade effective onyearofassessment 1986. There
isnoexpiry dateprovided therein. (WTO document G/SCM/N3/MYS, 12July1995).
60WTO document G/SCM/Q2/MYS/9, 27January 1997.
61Export promotion forinvestment abroad iscovered under investment incentives (section (4)(ii)).Malaysia WT/TPR/S/31
Page 63
69. Asregards indirect assistance, allcompanies resident inMalaysia areeligible foradouble
deduction forincome taxpurposes ofexpenses incurred inthepromotion ofexports.62TheMinistry
ofFinance isthefinalauthority responsible forthismeasure, while theInland Revenue Board is
responsible fortheadministration andprocessing oftheapplications. According totheauthorities,
theincentive, which isregarded asanindirect subsidy, hasnodistorting effect ontrade.63
70. Under theGSP(Chapter II(3)(iii)), Malaysia 'sexports alsoenjoy privileged access toseveral
ofitsmajor markets, notably theEU,Norway, Switzerland, Australia, Canada, Japan, NewZealand,
Bulgaria,theCzechRepublic,Slovakia,Hungary,PolandandtheRussianFederation.TheUnitedStates
"graduated" Malaysia fromitsGSPprogramme asof1January 1997(Chapter II(3)(iii)).64Malaysian
exports under GSPrepresented approximately 12.5percentofthetotal.65In1996, machinery and
transport equipment aswellaselectrical andelectronic products werethemainproduct groups benefiting
from GSPpreferences inmajor export markets (Table AIII.7).
71. Malaysia 'sauthorities areaware thatitstrading partners have taken anti-dumping and
countervailing actions against Malaysia 'sexports. Thelargest number ofanti-dumping measures has
been taken bytheEuropean Union. Countervailing measures have been taken byBrazil andthe
United States. Processed agricultural products, suchasrubber thread, andarange ofmanufactured
products havebeentargeted (Table III.11).
72. Income earned abroad andremitted toMalaysia byresident companies isexempt fromincome
tax,inlinewithaccepted international practice.66Income fromMalaysia 'sinvestment abroad increased
fromRM1.3billion in1992toRM6.6billion in1996.67While theMalaysian Government apparently
encourages overseas investment inorder toovercome market access barriers andutilize Malaysia 's
rawmaterials, parts and/or components, tosupply inputs required byMalaysia 'sindustry andto
contribute toSouth-South Cooperation, theSecretariat wasunable toidentify anyspecific incentives
inthisregard.
62ThisfacilityisofferedunderSection41ofthePromotionofInvestmentsAct1986andIncomeTax(Promotion
ofExports) Rules 1986, made under Section 41(3) ofthesame Act. Qualifying expenditure includes overseas
advertising; supply offreesamples abroad; export market research; preparation oftenders forthesupply of
goods overseas; exhibits and/or participation intrade orindustrial exhibitions heldoutside Malaysia; supply
oftechnical information abroad; public relation services topromote exports; fares inrespect oftravel overseas;
accommodation andsubsistence expenses incurred during overseas travel, subject toRM200perday; andcost
ofmaintaining sales offices overseas forthepromotion ofexports. (WTO document G/SCM/N/3/MYS,
12July1995).
63WTO document G/SCM/Q2/MYS/9, 27January 1997.
64WTO (1997).
65Ministry ofInternational Trade andIndustry (1996b), p.36.
66Theexemption does notapply tobusiness income from banking, insurance, andseaandairtransport.
67Bank Negara Malaysia (1997), p.226.WT/TPR/S/31
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Table III.11
Anti-dumping andcountervailing dutyactions taken against Malaysian exports
Importing country Subject merchandise Case type(AD/CVD) Range ofduties (%)
European Union Colour television receivers AD 2.3-23.4
European Union Microwave ovens AD 29.0
European Union Bicycles AD 23.1-39.4
European Union Microdisks 3.5" AD 12.8-46.4
European Union Polyester textured yarn AD 16.4-32.5
European Union Ring binders AD 10.5
United States Extruded rubber thread ADand
CVD1.9-10.7 (AD)
3.3(CVD)
Singapore Steel reinforcement barsand
rodsAD S$54 pertonne
Brazil Desiccated coconut CVD 196.5
Brazil Extruded rubber thread CVD 15.9
NewZealand Lead acidbattery AD 15.0
Australia Edible vegetable oil AD A$0.08-A$2.20 perbottle
Source: Information provided bytheMalaysian authorities .
(4) Internal Measures
(i) Registration andlicensing ofcompanies andprofessionals
73. Allcompanies, domestic andforeign alike, seeking toestablish themselves inMalaysia must
apply totheRegistrar ofCompanies forregistration. Furthermore, inaccordance withtheIndustrial
Co-ordination Act1975 (ICA), bothdomestic andforeign manufacturing companies arerequired to
obtain amanufacturing licence, unless shareholders 'funds oflessthanRM2.5million orfewer than
75full-time employees areinvolved. Iftheproject entails acapital-labour ratiooflessthanRM55,000,
suchalicence maybedenied unless value-added exceeds 30percent, ortheManagerial, Technical
andSupervisory (MTS) Index ismore than15percent,ortheproject involves activities orproducts
listed aspromoted activities andproducts ofhightechnology, ortheproject islocated inadesignated
less-developed region.
74. Licence applications forinvestment inthemanufacturing, agriculture andmining sectors are
submitted totheMalaysian Industrial Development Authority (MIDA) forevaluation bytherelevant
industrial division. Anevaluation report isprepared, andthentabled during theweekly meeting of
theGovernment Action Committee onIndustries. Recommendations aremade totheLicensing Officer
attheMinistry ofInternational Trade andIndustry (MITI). Themaximum period necessary toobtain
alicence isfourtosixweeks. Allmanufacturing companies licensed under theICAalsorequire approval
fromtheLicensing Officer foranytechnology transfer agreement concluded withaforeign company
orpartner (section (4)(iii)).
75. Thelicensing process isdesigned toensure thatinvestments are"consistent withthenational
andsocial objectives ofthecountry". Except inspecial circumstances, licensing isalsousedtopromote
aminimum of30percentBumiputra participation in,andownership of,manufacturing companies
(Chapter II,Annex II.1).68TheLicensing Officer mayprescribe conditions which he/she deems to
68Wherecompaniesarepartlyforeign-owned,thebalanceofequitymustbetakenupbyBumiputraMalaysians
iftheforeign share is70percentormore. Iftheforeign equity share islessthan70percent, aminimum of
30percentequity mustbereserved forBumiputra Malaysians. Intheevent thattheequity reserved forBumiputra
(continued...)Malaysia WT/TPR/S/31
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beexpedient andnecessary, suchas,equity structure andemployment structure aswellasdistributorship
andquality standards. Applicants formanufacturing licences canappeal arefusal toissue alicence
totheMinister ofInternational Trade andIndustry within 45daysfromthedateonwhich thedecision
wascommunicated.
76. Nomanufacturing sector isclosed toforeign investment. Nevertheless, there areguidelines
forforeign equity participation inthemanufacturing sector, which areoftentiedtoexport performance.
These guidelines areenforced through thelicensing process. Forexample, projects maybefully
foreign-owned iftheyinvolve exportation ofmore than80percentofoutput. Theextraction ormining
andprocessing ofmineral oresisalsoeligible for100percentforeign ownership, depending onthe
levelofinvestment, technology applied andavailability oflocalexpertise. These guidelines donot
apply tomanufacturing companies withshareholders 'funds oflessthanRM2.5million orlessthan
75full-time employees, which arenotsubject toanymanufacturing licensing requirement. Foreign
equity ownership isrestricted toaslittleas30percent,where lessthan20percentofproduction is
exported.69Foreign equity ownership ofupto100percentmaybeallowed forprojects involving
themanufacture ofhightechnology products orpriority products forthedomestic market asdetermined
bytheGovernment from timetotime.
77. Similarly, services companies require licences from therespective Ministries oragencies
responsible forthesector (Table II.1)prior totheirestablishment. Thespecific conditions attached
toestablishment varybysector, butgenerally involve alimitof30percentforeign ownership aslisted
inthehorizontal commitments made inMalaysia 'sGATS Schedule. Exceptions tothismaximum share
offoreign ownership aremade forexport-oriented investments, as,forexample, inthecases ofregional
headquarters, theoffshore banking sector ontheisland ofLabuan, andinvestments intheMulti-media
Super Corridor (Box III.3).
78. Acondition which isparticularly important fortheestablishment ofservices companies, is
theemployment offoreign professionals. Insome sectors, suchasfinancial services (Chapter IV(4)(ii)),
thenumber offoreign professionals thatforeign-owned companies areallowed toemploy isstipulated
bytheregulating authorities; inthemanufacturing sector, thenumber ismainly based ontheamount
ofpaid-up capital. Regarding employment byMalaysian companies oremployment inexport-oriented
services, theMalaysian Government adopts aliberal policy ontheemployment ofexpatriates andforeign
professionals70,although theseexpatriates andprofessionals arerequired toapply fortherelevant work
68(...continued)
Malaysians isnottaken up,MITI willallocate partofthebalance tonon-Bumiputra Malaysians. Forjoint-venture
projects withforeigners initiated bynon-Bumiputra Malaysians where 70percentormore oftheequity isheld
byforeigners,thebalanceoftheequitywillbeallocatedtothenon-BumiputraMalaysians.Iflessthan70percent
oftheequity isheldbyforeigners, 30percentwillbeallocated tothenon-Bumiputra Malaysians andthebalance
willbereserved forBumiputra Malaysians. Under special circumstances, non-Bumiputra Malaysians maybe
permitted totakeuptheentire balance oftheequity asdecided byMITI.
69Forprojects involving theexport ofbetween 51and79percentofproduction, foreign equity ownership
ofupto79percentmaybeallowed, depending onsuchcriteria asthelevel oftechnology, spin-off effects, size
ofinvestment, location, value added andtheutilization ofrawmaterials andcomponents. Forprojects involving
theexport ofbetween 20and50percentofproduction, foreign equity ownership ofbetween 30and51percent
isallowed, depending oncriteria similar tothose mentioned above.
70Issues pertaining toforeign labour andexpatriates areunder regular review bytheCabinet Committee on
Foreign Workers.WT/TPR/S/31
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permits withtheMalaysian Immigration Authorities before entering Malaysia. Forcompanies located
intheMulti-media Super Corridor, thereisnorestriction ontheemployment offoreign professionals.
Asinmany other WTO Members, support byafuture employer greatly facilitates thegranting ofa
work permit toaprospective foreign worker.
BoxIII.3: Malaysia 'sMulti-media Super Corridor
The authorities consider information technology asa"strategic" sector which warrants targeted
regulations andsignificant public investment. TheMulti-media Super Corridor (MSC) isexpected to
provide thecatalyst forinformation technology development inMalaysia bydemonstrating the
effectiveness ofmultimedia andcreating supply anddemand formultimedia. Theproject aims toattract
Malaysian andinternational multi-media companies withhightechnology tolocate their operations inthe
MSC, thusmaking thecountry aregional centre tochannel their services toother countries intheregion.
TheCorridor is50kilometres longand15kilometres wide stretching from Kuala Lumpur CityCentre in
thenorth tothenewKuala Lumpur International Airport atSepang intheSouth. TheMSC further
includes anewadministrative capital Putrajaya. Thedevelopment oftheMSC willbesupported byaset
ofenabling lawstoencourage electronic commerce andother multimedia initiatives. These lawswillaim
toprovide acomprehensive framework of"cyberlaws" covering copyright, digital signature, computer
crime, telemedicine andelectronic government. Within theCorridor, investors areeligible forduty-free
imports ofmultimedia equipment, income taxexemption andinvestment taxallowance uptotenyears,
100percentforeign ownership isallowed, fast-track processing ofvisas forforeign professionals apply,
andthere arenorestrictions onthenumber offoreign professionals tobeemployed percompany.
Moreover, there willbenocensorship ofinformation delivered through theInternet.
Development ofseven multimedia applications intheCorridor receive priority: electronic government,
smart schools, telemedicine, multi-purpose cards, research-and-development clusters, borderless
marketing andaworldwide manufacturing web.
Thetotalinvestment required intheMSC isestimated tobeapproximately RM50billion over20years.
Tofacilitate development intheMSC, theMulti-Media Development Corporation wasestablished in
1996. Telekom Malaysia Berhad istheprovider ofthebackbone fibre-optic telecommunications
infrastructure intheMSC.
79. Foreign orMalaysian professionals whowishtoprovide services are,under Malaysian law,
required inmostcasestoberegistered withtherelevant Malaysian bodies. Onlyselected foreign degrees
andregistrations from some foreign institutions arerecognized bytheregistering bodies
(Chapter IV(4)(vi)).
80. Aliberal policy towards theallocation ofwork permits forforeign workers hasundoubtedly
made animportant contribution tothedevelopment ofMalaysia 'smanufacturing sector assuchworkers
constitute approximately 10percentofthework force71,withtheshare varying bymanufacturing
sub-sector (Chapter IV(3)).72Estimates suggest that,in1991, immigrants further made up30percent
oftotalemployment inagriculture andforestry, 70percentinconstruction and10percentinother
71Thetotalnumberofbothlegalandillegalforeignworkersisestimatedtobealmosttwomillion(Government
ofMalaysia (1996a)). Foreign workers whoareemployed arerequired toregister; upon registration theyare
notallowed tochange employer andarerequired toleave thecountry when their work permits expire.
72Bank Negara Malaysia (1997a).Malaysia WT/TPR/S/31
Page 67
non-government services sectors, thusmaking animportant contribution tothedevelopment ofthese
sectors (Chapter IV(2) and(4)).73
81. However, inviewof"thenegative effects thatitwillhaveinthelong-run andthesocial problems
thatmayarise", theauthorities consider thedependence onforeign, particularly unskilled, labour to
beexcessive. Inorder toreduce dependence onlabour, onlymanufacturing projects withCapital
Investment PerEmployee (CIPE) ofmore thanRM55,000 willbeapproved formanufacturing licence
withtheexception ofthose projects located intheEastern Corridor ofPeninsular Malaysia, Sabah
andSarawak. Industries areencouraged toautomate andmove towards higher value-added activities
withemphasis onenhancing productivity. Furthermore, theMalaysian Government inits1996budget
doubled (with twoexceptions) itsexisting levies onunskilled andsemi-skilled foreign workers.74
(Domestic helpers andunskilled agricultural workers wereexempted fromthisincrease.) Atthesame
time, itimposed afreeze ontherecruitment offoreign unskilled workers (other thanmaids from
Indonesia, Philippines andCambodia).
(ii) Incentives75
82. Oneofthemoststriking features ofMalaysia 'sindustrial policy isthepervasiveness ofvarious
incentives, particularly taxincentives, aimed atthemanufacturing, agriculture andtourism sectors.
TheseincentivesarecontainedinthePromotionofInvestmentsAct1986,IncomeTaxAct1967,Customs
Act1967, Sales TaxAct1972, andtheExcise Act1976. Asimplied bythenature oftheforegoing
legislative acts,incentives areembodied notonlyindirect taxes, primarily income taxes, butalsoin
indirect taxes, thatis,sales andexcise taxes aswellascustoms duties. Inaddition, government-
sponsored loans areavailable topractically allsmall andmedium-sized enterprises.76These incentives
are,withonenotable exception concerning sales taxes oncars(Chapter IV(3)(iii)), granted ona
non-discriminatory basis todomestically andforeign-owned companies.
83. TheMinistry ofInternational Trade andIndustry plays akeyroleintheadministration ofthese
incentives. Allapplicants fortaxincentives applied tomanufacturing firms, aswellasthose applied
tosome agricultural activities arelodged through theMalaysian Industrial Development Authority.
73TheWorld Bank (1995). Thissource alsoreports estimates thatin1991 theshare ofimmigrants intotal
manufacturing employment wasaslowas3percent. Thisestimate issubstantially lower thantheestimates
of11percentfor1996 reported bytheBank Negara Malaysia (1997a). Such anincrease might, however have
occurredinthefaceofrapidgrowthinMalaysiaandsubstantialwagedifferencesbetweenMalaysiaandthecountry
oforigin.
74These levies varyaccording totheskills oftheworkers andthesector inwhich theyareemployed. For
themanufacturing andconstruction sectors, theannual levyonunskilled foreign workers wasincreased from
RM420toRM840andforsemi-skilled workers itwasincreased from RM600toRM1,200. (Government
ofMalaysia, 1995). Unskilled workers intheagricultural sector aresubject toanannual levyofRM420. On
theother hand, rebates areallowed forthose workers, including professionals, thataresubject toincome tax
.
75These incentives aredescribed inmore detail inMalaysian Industrial Development Authority (1996).
76Themain criteria toqualify forgovernment-sponsored loans forsmall andmedium-sized enterprises is
thatlessthan75people areemployed full-time andthatshareholder funds arelessthanRM2.5million. To
qualify fortaxincentives shareholder funds must belessthanRM500,000. Other criteria dealwithaspects
ofsoleproprietor andpartnerships.WT/TPR/S/31
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Although under thepurview ofMITI, MIDA recommends directly toMITI andtheMinistry ofFinance
onallissues related totheapproval ofapplications forinvestment andother incentives.
(a) Direct taxincentives
84. Among themain taxincentives arePioneer Status, Investment TaxAllowance (ITA) and
Reinvestment Allowance (RA). Whereas Pioneer Status entails aproduction incentive, boththeITA
andtheRAareincentives forinvestment. These threeincentives aremutually exclusive. Foreign-owned
firms are,byandlarge, accorded national treatment inrespect ofeligibility forthese taxincentives.
Asaconsequence, foreign-owned firms accounted formore thantwo-thirds ofthevalue ofinvestment
qualifying forPioneer Status andtheInvestment TaxAllowance during theperiod 1992-1996
(Table III.12).
Table III.12
Taxincentive indicators, 1992-96
1992 1993 1994a1995 1996
Number ofprojects approved
Pioneer status 173 147 196 184 150
ofwhich majority foreign owned firmsb(99) (79) (93) (94) (74)
Investment taxallowance 34 47 71 66 70
ofwhich majority foreign owned firmsb(26) (26) (37) (37) (46)
Without taxincentives 667 492 600 648 562
ofwhich majority foreign owned firmsb(300) (223) (302) (272) (254)
Total 874 686 870 898 782
ofwhich majority foreign owned firmsb(425) (328) (432) (403) (374)
Value ofapproved investment (RM billion)
Pioneer status 3.9 1.9 7.5 5.2 10.6
ofwhich majority foreign owned firmsb(3.1) (1.1) (5.6) (3.0) (8.3)
Investment taxallowance 7.9 5.4 5.9 6.1 9.2
ofwhich majority foreign owned firmsb(7.1) (2.8) (1.9) (2.3) (8.1)
Without taxincentives 15.9 6.5 9.5 9.6 14.5
ofwhich majority foreign owned firmsb(6.6) (2.0) (3.4) (3.3) (7.0)
Total 27.7 13.8 22.9 20.9 34.3
ofwhich majority foreign owned firmsb(16.8) (5.9) (10.9) (8.6) (20.4)
Indicators oftaxexpenditure (RM million)
Taxrevenue forgone duetoreinvestment
allowance granted during theprevious yearc291.0 372.7 547.6 1,452.6 648.4
Double deduction forresearch expenditure 48.3 18.6 100.2 42.2 37.8
a In1994 anindustrial Adjustment Allowance ofRM1.99million wasapproved forthree projects.
b Wholly foreign-owned andmajority foreign-owned companies.
c Refers totaxforgone duetoreinvestment allowance granted tocompanies during theprevious yearonly. Asthereinvestment
allowance could beusedduring anumber ofyears totaltaxforgone willbesubstantially larger. Larger taxrevenue forgone
reflects anincrease inapplications duetoatemporary change inregulations during 1994.
Source: Information provided bytheMalaysian authorities .
85. Acompany granted Pioneer Status paystaxononly30percentofitsstatutory income for
aperiod offiveyears (15percent, iflocated indesignated less-developed regions, namely thestates
ofSabah andSarawak together withthe"Eastern Corridor" ofPeninsular Malaysia). In1995 andMalaysia WT/TPR/S/31
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1996, Pioneer Status wasgranted tojustoveronefifthofallmanufacturing projects approved byMIDA,
down from almost onehalfofallapproved projects in1990 (Table III.12). Thevalue ofapproved
projects alsodeclined. Interestingly, projects withPioneer Status became more labour intensive. The
factthatprojects withPioneer Status involved asmaller investment peremployee thanprojects not
qualifying fortaxincentives suggests thatincentives mayhavebeendirected inadvertently atlabour-
intensive projects. Theminimal evaluation forsmall-scale projects might havecontributed tothisbias.
86. TheITAinvolves anallowance of60percent(80percentinthecaseofadesignated
less-developed region) inrespect ofqualifying capital expenditure during afive-year period. The
allowance canbeoffset against 70percent(85percentinthecaseofadesignated region) ofstatutory
income andanyunused amounts carried forward (without interest) tosubsequent years untilthefull
amount oftheallowance isexhausted. Although theITAwasgranted tolessthan10percentofall
projects approved byMIDA during the1992-96 period, thecapital-intensive nature oftheprojects
wassuchthattheyrepresented welloveronequarter ofthetotalvalue ofapproved investments
(Table AIII.8).
87. TheRAoffers anallowance of60percentofcapital expenditures incurred bycompanies in
expanding, modernizing orupgrading production facilities, orindiversifying intorelated activities.
Theallowance canbeoffset against 70percent(100percentinthecaseofadesignated region) of
statutory income andanyunused amounts carried forward (without interest) tosubsequent years until
thefullamount isusedup.
88. High technology companies maybegranted either Pioneer Status involving afive-year tax
holiday ora60percentITAthatcanbefullyoffset against statutory income. "Strategic projects"
qualify foreither Pioneer Status withatenyeartaxholiday ora100percentITAthatcanbefully
offset against statutory income. Strategic projects arethose involving heavy capital investment and
hightechnology, andwhich cangenerate extensive linkages andhave asignificant impact onthe
Malaysian economy. AnR&D company (i.e.acompany which provides R&D services toitsrelated
companies ortoanyother company) iseligible toapply foranITAof100percentonqualifying capital
expenditure incurred within tenyears. Acontract R&D company (i.e.acompany which provides R&D
services tocompanies other thanitsrelated companies) iseligible toapply forPioneer Status withfull
incometaxexemptionsforfiveyearsoranITAof100percentonqualifyingcapitalexpenditureincurred
within tenyears. TheITAcanbeutilized tooffset against 70percentofthestatutory income. Among
theother incentives forR&D areanIndustrial Building Allowance (IBA) intheform ofaninitial
allowance of10percentandanannual allowance of2percentforbuildings usedforpurposes of
approved R&D, anddouble deduction forR&D-related expenditure. Qualifying capital expenditure
incurred bycompanies forestablishing orupgrading technical orvocational training institutions are
alsoeligible fortheITAof100percentforaperiod oftenyears andIBAintheform ofanannual
rateof10percent. AnIBAisalsogranted inrespect ofbuildings usedaswarehouses forstoring
goods forexport.
89. Expenses incurred bycompanies establishing orupgrading technical orvocational training
institutions orforapproved training arealsoeligible fortheITA,IBAoradouble deduction. Moreover,
anIBAisgrantedinrespectofbuildingsusedaswarehousesforstoringgoodsforexport.77Furthermore,
inamovetopromoteexportsofservicesfromMalaysiathroughthefacilitationofaregionalheadquarters
function, "approved operational headquarters" (OHQs) aresubject toastatutory corporate taxrate
of10percentinstead ofthenormal rateof30percent(Chapter IV(4)).
77Inaddition some taxincentives areavailable forexport insurance (section (3)).WT/TPR/S/31
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90. Estimates ofthetotalannual costsofthese various taxincentives interms ofrevenue forgone
werenotavailable. However, judging from information provided bytheMalaysian authorities ona
fewofthese incentives, large amounts offorgone taxrevenues areinvolved. Forexample, during
thetwo-year period 1995-1996, theReinvestment Allowance alone costthegovernment anaverage
annual amount ofroughly RM1billion inforgone taxrevenues. Onemight expect costs ofsimilar
magnitudes tobeassociated withthegranting ofPioneer Status andtheInvestment taxAllowance.
Theannual costassociated withthedouble deduction forR&D-related expenditure wasestimated to
bearound RM40million during thesame two-year period.
BoxIII.4: Evaluation oftheeffectiveness ofincentives
Incentives forinvestment andproduction arewidespread inMalaysia, asinmany other developing and
developed economies. Their aimistodevelop local industry andattract foreign investment -inwhich
Malaysia hashadconsiderable success. However, there aregrounds fordoubting theeffectiveness ofsuch
incentives, based onevidence from other economies: indeed, insome instances theuseofincentives may
even becounterproductive.
Inthefirstplace, incentives areseldom among themain determinants ofbusiness decisions. Theexperience
with evaluation oftaxincentives inother countries suggests thatthecostofaninvestment incentive tothe
Government (interms ofexpenditure ortaxrevenue forgone) mayexceed theinvestment generated. Their
highcostisrelated tothedifficulty inidentifying incremental investment; thatis,investment thatwould not
have been undertaken without theincentive.
Taxcutsforforeign multinational enterprises (MNEs) thataretaxed intheir home countries purely ona
residence basis (that is,which receive afullcredit fortaxes paidabroad) mayhave little ornoeffect onthe
incentive forthose firms toinvest inthecountry offering such relief. Such cutswould provide aneffective
incentive onlyinsofar asMNEs areinanexcess foreign credit position, taxes onrepatriated income canbe
deferred, theMNE 'shome country exempts foreign-source income from domestic taxes, or"taxsparing" is
allowed.
Secondly, totheextent thatincentives dostimulate particular types ofinvestment, theymayresult inaless
efficient allocation ofnational resources than would bethecase iftheGovernment remains neutral and
refrains from influencing private decisions. Anyadverse effect ofincentives onresource allocation would
manifest itself aslower total factor productivity (TFP). Inthecaseofinvestments, such asthose inR&D,
which arethought toyield social benefits (externalities) thatarenotadequately taken intoaccount byprivate
investors, itisusually extremely difficult tomeasure such externalities accurately, with theresult that
incentives mayturnouttobeexcessive.
Thirdly, incentives areusually expensive fortheGovernment, involving large losses intaxrevenues. They
tendtoworsen thefiscal balance, thereby reducing national savings andshowing upasadeterioration inthe
current account balance.
Lastly, useofincentives may provoke countermeasures bytrading partners. Even where they donot
contravene theWTO Agreement onSubsidies andCountervailing Measures, theymaynevertheless beused
byother countries asajustification foranti-dumping orcountervailing actions. Alternatively, countries may
react byadopting incentives oftheir own, thusresulting inabeggar-thy-neighbour situation. Such an
"incentives race" isharmful toallcountries concerned.
91. Inviewofthelargeamounts oftaxrevenues forgone asaresult ofsuchincentives, anddoubts
astotheireffectiveness (BoxIII.4), theauthorities indicated thattheywerereviewing thewidespread
useofincentives inorder tomake them more selective (byamong other things, focusing themonthe
encouragement ofautomation inlabour intensive industries andontechnological development).Malaysia WT/TPR/S/31
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Curtailment ofother income taxincentives would notonlyreduce thecomplexity oftheincome tax
system andthescope fortaxavoidance, butalsofacilitate arevenue-neutral reduction inMalaysia 's
statutory corporate taxrate,which iscurrently 30percent,4percentage points higher thantheprevailing
rateinneighbouring Singapore.78
(b) Indirect taxincentives
92. Asregards indirect taxincentives, excise taxeslevied on"national cars" areconsiderably lower
thanthoseapplicable tootherdomestically assembled orimported cars(Chapter IV(3)(iii)).79Inaddition,
machinery, equipment, components andmaterials usedforR&D andtraining purposes areeligible
forexemption from sales andexcise taxes aswellasfrom import duties. Similar exemptions, or
drawbacks, arealsoallowed formachinery andequipment useddirectly inthemanufacturing process
aswellasforcomponentsandmaterialsthatareusedinthemanufactureofgoodsforexport(section(3)).
93. Indirect taxincentives intheform ofexemptions ordrawbacks aredesigned toaddress the
inherentbiasagainstexportsofMalaysia'sexistingsalesandexcisetaxes.Suchexemptionsordrawbacks
could bereduced oreliminated ifMalaysia followed inthesteps ofseveral other countries (including
Canada, Japan, NewZealand andSingapore) which haverecently introduced broad-based value-added
taxes (VAT) thatexempt exports inamanner consistent withtheGATT.
(c) Non-tax incentives
94. Theprincipal typeofnon-tax incentive istheIndustrial Adjustment Allowance (IAA), an
allowance ofupto100percentinrespect ofqualifying capital expenditure incurred byamanufacturing
company undertaking industrial adjustment. Inaddition, theIndustrial Adjustment Fundprovides loans
atconcessionary ratestocompanies undertaking restructuring programmes. ARM1,990,000 IAA
wasgranted tothree wholly Malaysian-owned textile companies in1994.
95. Notonlydosmall andmedium-sized firms haveprivileged access tocredit because banks are
required toallocate aminimum share oftotallending tosuchenterprises, theyarealsobeneficiaries
ofgovernment-sponsored credit. Asallmajor banks wellexceed theminimum lending requirement
tosmall andmedium-sized enterprises, nodefacto preferences appear toarisefromthisrequirement
(Chapter IV(4)(ii)). Asregards government-sponsored finance andassistance, theASEAN-Japan
Development Fund isthelargest, withatotalallocation ofRM588million overlessthantenyears
(Annex III.2). Under theSeventh Malaysia Plan(1996-2000) atotalofRM261million hasbeen
allocated toimplement technology acquisition, commercialization ofresearch anddevelopment and
technology development programmes forsmall andmedium-sized enterprises.80
78AnarrowingofthegapbetweencorporatetaxratesinMalaysiaandSingaporewouldalsoreducetheincentive
formultinational enterprises toexploit thedifference inrates byshifting profits artificially toSingapore from
Malaysia, thereby eroding corporate taxpayments inthelatter.
79InthecaseofthePROTON, forexample, thereduction inexcise taxis50percent.
80PlansforTheCommer cializationofResearch&DevelopmentFund(CRDF)andtheTechnologyAcquisition
Fund (TAF) forSMEs arecurrently underway. Theobjectives, among others aretopromote technological
upgrading through theintroduction andutilization ofmodern cost-efficient technology inthemanufacturing and
physical development ofexisting andnewproducts/processes among theSMEs andraising thecompetitive level
oftheindustrial sector, enabling them tocompete globally.WT/TPR/S/31
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(d) Investment protection
96. Protection ofinvestments against expropriation through bilateral, regional ormultilateral
investment protection agreements reduces theriskofinvesting inMalaysia forforeign investors and
thuspromotes suchinvestments. Moreover, Malaysia hasaccorded recognition totheInternational
Centre fortheSettlement ofInvestment Disputes bybecoming aparty totheWashington Convention
on8August 1966(Chapter II(3)(i)). AsaMember oftheASEAN FreeTrade Area(AFTA), Malaysia
isaparty toregional investment protection initiatives promoted inthisforum (Chapter II(3)(ii)).
Malaysia isalsoaparty to54bilateral investment protection agreements (Table AII.5), 35bilateral
payment arrangements (Table AII.6) and47bilateral taxagreements (Table AII.7). Malaysia supports
discussion intheWTO Working Group onTrade andInvestment, provided itisof"aneducative nature".
(iii) Intellectual property rights
(a) Overview
97. Intellectual property rights allow writers andinventors tosafeguard returns ontheirinvestment,
while trademarks (andgeographical origins) additionally facilitate product recognition byconsumers.81
Protection forinvestments intheform ofintellectual property isimportant because itencourages
investments in,andtrade in,suchproperty. InMalaysia, investors arefreetoownalmost anyform
ofintellectual property, andprotection forsuchproperty under Malaysian lawisevolving inlinewith
Malaysia 'sinternational commitments (section (b)below).
98. TheMalaysian Government 'sobjective ofpromoting investment andfostering totalfactor
productivity growth aswellasitsemphasis onmarket-led economic development ensures thatprotection
forintellectual property isacentral feature ofoverall economic policy. Alltechnology transfer
agreements (ITAs) withforeign partners aremonitored byMITI.82Monitoring ofthese agreements
allows forearlygovernment "assistance" tofirms negotiating withforeign partners (section (c)below).
99. TheadministrationofpropertyrightsthemselvesisunderthepurviewoftheMinistryofDomestic
Trade andConsumer Affairs, which isadvised byselected advisory andreview bodies (Table III.13).83
Theformulation ofMalaysia 'spolicy onintellectual property rights policy isfurther facilitated byits
membership ofvarious international property rights conventions.84Malaysia isalsoaparty tothe
ASEANFrameworkAgreementonIntellectualProperty,andtoreciprocalarrangementsfortheprotection
81Protection ofintellectual property rights (IPRs) maythusberegarded asakintoprotection forphysical
investment.
82Technology transfer agreements aremonitored toensure thatno"unjustifiable restrictions" ordisadvantage
tothelocal party isimposed, thattheagreement isnotprejudicial tothenational interest andthatpayment of
fees(ifapplicable) iscommensurate withthelevel oftechnology transferred.
83Moreover,theMinistryofHomeAffairsisinvolvedinenforcemen tofthepropertyrights.Customsofficials,
whoareunder theauthority oftheMinistry ofFinance, mayactagainst infringing imports upon official complaint
fromtheowner oftheintellectual property. However, customs officials donotusually enforce suchrights against
infringing imports ontheir owninitiative.
84Malaysia isamember ofWIPO, theParis Convention andtheBerne Convention, butnotoftheRome
Convention andtheTreaty onIntellectual Property inRespect ofIntegrated Circuits.Malaysia WT/TPR/S/31
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ofsound recordings, broadcasts andpublished editions withtheUnited States andtheUnited Kingdom
(Chapter II(3)).85
Table III.13
Semi-public andpublic-sector advisory andreview bodies (intellectual property rights), 1997
Body Functions Members
National Committee onTrade Related
Aspects ofIntellectual Property RightsToadvise theGovernment onits
obligations under, andimplementation of
theTRIPS AgreementRelevant government agencies, private
sector representatives, academics, trade
associations, intellectual property
associations, intellectual property
practitioners
Patent Boards established under the
Malaysian Patent Act1983-Toissue certificates forutility holders;
-toconsider applications forcompulsory
licences;
-toappoint examiners; and
-toadvise theMinister generally on
matters pertaining tothePatents Act.Relevant government agencies, research
institutes, institutions ofhigher learning,
andother persons considered tobefit
andproper bytheMinister ofDomestic
Trade andConsumer Affairs.
Anti-Piracy andProduct Counterfeiting
Task ForceTodealwithproblems relating to
infringing andcounterfeiting activitiesRepresentatives ofgovernment
enforcement agencies, Attorney
General 'sChamber, Intellectual
Property Department, Chambers of
Commerce andintellectual property
related industries
Copyright Tribunal established under the
Malaysian Copyright Act1987Toconsider applications withrespect to
licensing schemes, entitlement tolicences
andproposed orexpiring licences
granted bylicensing bodies aswellasto
issue licences toproduce andpublish in
thenational language atranslation ofa
literary workAsappointed bytheMinister of
Domestic Trade andConsumer Affairs
Source: Information provided bytheMalaysian authorities.
(b) Structure ofintellectual property rightprotection
Copyright
100. Copyright inMalaysia generally subsists oncreation andcontinues tosubsist until50years
afterthedeath oftheauthor (Copyright Act,1987). Itsubsists iftheauthor isacitizen, permanent
resident ofacorporate body established inMalaysia oranyother Berne Convention country, andif
thework ismade orfirstpublished inMalaysia oranyother Berne Convention country, orif,being
abroadcast, theworkistransmitted fromMalaysia oranyotherBerne Convention country. Conforming
totheBerne Convention, registration isnotaprerequisite fortheenforcement ofcopyright inMalaysia.86
Computer software andcompilation ofdataisprotected asaliterary work87,andtheActprotects rental
rights toalleligible works, sound recordings andbroadcasts. However, performers arenotcurrently
85These arrangements arebased ontheCopyright (Application ToOther Countries) Regulation 1990.
86However, Section 42oftheCopyright Act,1987 (Act332)explicitly allows asadmissible evidence an
affidavit orstatutory declaration stating thatatthetimespecified therein, copyright subsisted insuchwork, that
heorsheistheowner ofthework, andthatanannexed copy isatruecopy thereof.
87Section 13(2) oftheMalaysian Copyright Act1987 liststheexceptions tocopyright protection forresearch,
educational andother similar purposes.WT/TPR/S/31
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protected. Moral rights, suchastherighttoprohibit alteration, areprotected under copyright law.
TheCopyrightActdoesnotprohibitparallelimports.Compulsorynon-exclusivelicensesforcopyrighted
works maybegranted bytheCopyright Tribunal.88
101. Penalties against infringement ofacopyright mayinclude finesandimprisonment. Ofthe5,802
complaints received concerning copyright infringements during theperiod 1December 1987 to
5March 1997, over4,500 ledtolegalcases. Thetotalvalue ofgoods seized exceeded RM22million,
while finesexceeded RM1.2million (Table AIII.9).
Patents
102. Patents areprotected upon registration (Patent Act1983). During theperiod October 1986
toDecember 1996, atotalof9,302 patents were registered, ofwhich 212(2.3percent) originated
inMalaysia (Table AIII.10). Priority ofregistration isbased onthefirst-to-file principle. Theofficial
feeforfiling arequest forthegranting ofapatent isRM200. Patents areprotected for15years from
thedateofbeing granted. Utility innovations areprotected forfiveyears from thedateofgranting
andmaybeprotected fortwoadditional five-year terms. Utility innovations arealsosubject toannual
renewal fees. Non-patentable inventions arelisted intheAct.89Noprotection forplant varieties is
available atpresent under Malaysia 'spatent legislation. Conditions forgranting acompulsory licence
aredescribed intheAct.90Theowner ofapatent hastherighttoinstitute Court proceedings against
anyperson whohasinfringed orisinfringing thepatent.
Trademarks
103. Trademarks areprotected upon registration inMalaysia under theTrade Marks Act1976.91
Forregistration ofatrademark, theapplicant isrequired tofillin12copies oftheapplication form
withrepresentations ofthetrademark attached toeach. ThefeeisRM30.Iftheapplication islaunched
through anagent, twoadditional forms andanadditional feeofRM10ischarged. Registration of
atrademark isforaninitial period ofseven years andisrenewable forsubsequent periods of14years.
Words andsigns thatmaynotbecontained inatrademark arelisted intheActandtheRegulations.92
88Compulsory licences maybegranted onapplication onlyinrespect ofproduction andpublication innational
language ofaliterary work written inanyother language. Royalties forsuchlicences shall bedetermined by
theTribunal.
89Section 13oftheMalaysian Patent Act1983 (Act 291), listsamong others items, scientific theories,
mathematical methods, plant andanimal varieties other thanman-made living micro-organisms orprocesses,
business methods, surgery ortherapy methods forthetreatment ofhuman oranimal bodies.
90Ifapatent owner, without anylegitimate reasons, failstouseapatented process, ordoesnotproduce a
patented product, meetpublic demand, orcharge areasonable price within three years ofbeing awarded apatent,
thePatent Board maygrant acompulsory licence toanyapplicant (Patents Act1983 (Act291), section 49).
Acompulsory licence mayalsobegranted ifaninvention claimed inapatent cannot beworked inMalaysia
without infringing apatent benefiting from anearlier priority date(Patents Act1983 (Act291), section 49A).
When theapplication foracompulsory licence isfiled, theRegistrar shall notify theowner ofthepatent ofthe
datetheapplication istobeconsidered bytheBoard (Patents Act1983 (Act291), section 50).
91Although non-registered trademarks arenotprotected (Trade Marks Act1976, Section 82(1)), passing-off
goods orservices asthose ofanother person isnotallowed under theTrade Descriptions Act1972.
92Section 15oftheTrade Marks Act1976 andRegulation 12and13oftheTrade Marks Regulations 1983.Malaysia WT/TPR/S/31
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There isnocompulsory licence provision fortrademarks.93During theperiod 1992-96 atotalof
27,179 trademarks wereregistered inMalaysia, ofwhich 6,554 wereowned byMalaysian residents
(Table AIII.11).
Trade descriptions
104. TheTrade Descriptions Act1972 allows forcriminal proceedings against anyperson who,
inthecourse ofatrade orbusiness, applies afalsetrade description toorinrespect ofanygoods or
supplier oroffers tosupply suchgoods. Under thisAct,trade descriptions, suchasthose related to
markings offood, andpricedescriptions areregulated. Although notexplicitly mentioned intheAct,
itmight alsoprovide authority totakeaction against theuseofgeographical indications which donot
indicate thetrueorigin oftheproduct.94During theperiod 1January 1973 to8March 1977, 11,000
complaints werereceived concerning infringements ofthisAct,overRM55million worth ofgoods
were seized, andfinesofalmost RM6million were levied (Table AIII.12).
Confidential information
105. Confidential information isprotected against unauthorized useanddisclosure under common
law. Confidential information includes industrial processes, business secrets, secret methods, and
customer lists. There arenoformalities ortimelimits applied toobtain suchprotection.95
Industrial Designs
106. Currently, theIndustrial Design Registration Actof1949oftheUnited Kingdom isapplicable
inMalaysia. Aregistered proprietor ofindustrial designs andmodels cannot recover damages ifan
infringer proves thatatthedateofinfringement heorshewasnotaware oftheregistered design.96
107. AMalaysian Industrial Design Billwaspassed bytheMalaysian Parliament in1996 andis
expected tocome intoforce in1997. Once theBillisinforce, allactivities relating toadministration
andregistration ofindustrial designs willbeundertaken inMalaysia. TheBillspecifies thepriority
dateofanapplication forregistration asthefiling dateoftheapplication; designs filedearlier abroad
inatreaty orconvention country willreceive priority iffiledinMalaysia within sixmonths fromsuch
earlier date.97Under theBill,registration ofanindustrial design willcome intoforce onthefiling
93However, there isaRegistered User provision whereby theregistered proprietor permits aperson touse
hisorhertrademark bywayofagreement between theregistered proprietor andtheuser(Trademarks Act1976
(Act175), PartIX).
94ObservershavenotedthattheMalaysianTradeMarksAct1976alsoprovidessomeprotectionforgeographical
indications (Ariff etal.1996, p.71).
95Hemnes etal.(1994), p.5.
96Hemnes etal.(1994), p.2.
97Industrial Design Bill1996, Clause 17.WT/TPR/S/31
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dateforaperiod offiveyears andmaybeextended fortwofurther consecutive fiveyearterms.98
Compulsory licences forindustrial designs maybegranted bydecision oftheCourt.99
Forthcoming changes inIPRlegislation
108. Inorder tofullyimplement theTRIPS Agreement, theMalaysian authorities intend toamend
by1998, thePatents Act,theTrade Marks ActandtheCopyright Act,andalsotoenact aPerformers '
Actandalawtoprotect thelayout designs ofintegrated circuits.100Toaddress some oftheissues
related tointellectual property protection formultimedia investments, a"Convergence Act"covering
broadcasting, telecommunications andcomputer services isunder study attheMinistry ofEnergy,
Telecommunications andPosts (Table AII.1). Malaysia 'sAPEC Individual Action Planacknowledges
thelong-term needtoreview andadapt intellectual property lawsinlinewithglobal developments.
(c) Policies towards thetransfer ofprotected intellectual property rights
109. Theuseofforeign-owned intellectual property plays animportant roleinMalaysia 'seconomic
development because itcontributes tototalfactor productivity growth. Licences, feesandroyalties
paidtoforeigners fortheuseofintellectual property arereflected inthebalance ofpayments. As
inthecaseofphysical capital, inflows ofintellectual property exceed outflows andthusinternational
payments fortheuseofthisproperty farexceed receipts.101Receipts increased dramatically in1996
butarestillbelow 10percentofpayments (Table III.14).
Table III.14
International payments andreceipts foruseofintellectual property rights, 1991-96a
(MRmillion)
1991 1992 1993 1994 1995 1996
Receipts 4.9 66.8 6.2 4.6 9.2 62.8
Payments 377.5 480.0 603.6 749.9 909.7 979.9
Balance -372.6 -413.2 -597.4 -745.3 -900.5 -917.1
a Payments andreceipts forauthorized useofpatents, copyrights, trademarks, industrial processes, franchises etc.andtheuse
through licensing agreements ofproduced originals ofprototypes (such asmanuscripts andfiles).
Source: Bank Negara Malaysia, Cash Balance ofPayments Reporting System.
110. TheMinistry ofInternational Trade andIndustry monitors alltechnology transfer agreements
(TTAs) withforeign partners. Allmanufacturing concerns licensed byMITI arerequired toobtain
priorwrittenapprovalfromtheMinistrybeforeenteringintotechnologytransferagreementswithforeign
98Industrial Design Bill1996, Clause 25.
99Compulsory licences maybegranted ontheground thatthedesign isnotapplied inMalaysia. However,
noorder which isinconsistent withanytreaty, convention, arrangement orengagement withanycountry outside
Malaysia shall bemade bytheCourt.
100APEC (1996).
101Awithholding taxof10percentislevied onpayments made toforeign suppliers oftechnology. Double
Taxation Agreements mayresult inthereduction orelimination ofsuch taxes (Table AII.7).Malaysia WT/TPR/S/31
Page 77
partners.102Theagreements mustdefine indetail thetechnological content andprincipal features of
technology orprocess, anticipated production, quality andspecification ofproducts andparticulars
oftechnical assistance andthemanner inwhich itistobeprovided.103TheMinistry monitors the
duration oftheagreements toensure thattheyaresufficient toallow fullabsorbtion oftechnology,
thatprovision ismade foradequate training ofthelocalcompany 'spersonnel, andthatthereissufficient
provision forthecontinued useofpatents covered bytheagreement afteritsexpiry.104Effective
3September 1997, theGovernment hasderegulated theprocessing oftechnology transfer agreements
bygranting automatic approval totechnology agreements signed between 100percentforeign-owned
companies andwithroyalty payments oflessthan3percentofnetsales.
111. During theperiod 1989-96 atotalof1,124 TTAs wereapproved byMITI, andduring 1993-96,
royalty payments were made under 467agreements. Most royalty payments concerned theelectric
andelectronics sector (Table III.15), which suggests thatadvanced technology wastransferred mainly
tothissector (Chapter IV(3)). Forthose agreements which expressed royalty payments asapercentage
ofthesalesprice, more thanhalfofallpayments were below 2percent.105
Table III.15
Number oftechnology transfer agreements byrateofroyalty payment, inselected industry groups, 1993-96
Industry group Royalty
lessthan
2%Royalty
2%-4%Royalty
more than
4%Lump sum
+running
royaltyLump
sumOthersNo
paymentCumulative
total
(1993-96)
Electrics andelectronics 60 37 22 14 10 28 11 182
Chemical products 27 5 2 4 7 12 2 59
Transport equipment 21 8 1 21 8 3 1 63
Plastic products 12 4 1 5 1 3 0 26
Food products 9 2 1 2 0 0 1 15
Fabricated metal products 11 3 2 3 1 0 0 20
Others 45 29 2 10 5 6 5 102
Total 185 88 31 59 32 52 20 467
Source: Information provided bytheMalaysian authorities.
102Such agreements maycover licence rights overspecific processes, formulae ormanufacturing technology,
other knowledge andexpertise fortheestablishment ofaplant andtheprovision ofvarious technical assistance
andsupporting services.
103Ministry ofFinance (1995), p.260.
104Ariff etal.(1996), p.25.
105According totheMinistry ofInternational Trade andIndustry, thelevel oftechnology transferred can
generally beconsidered lowifthispercentage isbelow 2percentandhighifitisabove 4percent(Ministry
ofInternational Trade andIndustry (1996b), p.p.241-242).WT/TPR/S/31
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(iv) Standards andtechnical requirements
112. Theprocedures forthedevelopment ofstandards areestablished intheStandards ofMalaysia
Act1996.106Under theAct,theMinister107appoints aDirector General oftheDepartment ofStandards
whoshall"foster andpromote standards andstandardization ofspecifications asameans ofadvancing
thenational economy, benefiting thehealth, safety andwelfare ofthepublic, assisting andprotecting
consumers, promoting industrial efficiency anddevelopment, facilitating domestic andinternational
trade andfurthering international cooperation inrelation tostandards".108Further, under theActa
Malaysian Standards andAccreditation Council hasbeenestablished toadvise theMinister inrespect
ofstandardization policies, programmes, schemes, projects andactivities. TheMinister may, by
notification intheGazette, declare anyspecification tobeastandard ifheorsheissatisfied thatthe
affected people havehadtheopportunity tocomment.
113. SIRIM Berhad (Standards andIndustrial Research Institute ofMalaysia) established in1975
andincorporated in1996, isthesolenational agency appointed tocoordinate thedevelopment of
standards inMalaysia.109Assuch, SIRIM functions asanarmofGovernment aswellasadevelopment
agency andaprotector ofconsumer interests. Itaimstoensure thatMalaysian Standards takeinto
consideration socio-economic factors, product capability andsuitability tolocalconditions, while it
conducts independent thirdparty certification through inspection, testing andcertification.110
114. Inaddition toissues covered bytheStandards ofMalaysia Act1996, product standards are
thebasisfornewly adopted technical regulations otherthansanitary andphytosanitary measures applied
toagricultural products (Chapter IV(2)). Packaging andlabelling requirements aregoverned bythe
Food Act(1983) andtheFood Regulation (1985) aswellasthePrice Control (Labelling by
Manufacturers, Importers, Producers andWholesalers) Order 1990.111Since thelastReview, thePrice
Control Order hasbeenamended torequire theindication ofRecommended Retail Price forpowdered
milkandcooking oil.
106TheStandards ofMalaysia Act1996 received Royal Assent on15July1996 andwasGazetted on
25July1996.
107TheDepartment ofStandards Malaysia isunder thepurview oftheMinister ofScience, Technology and
theEnvironment.
108Standards ofMalaysia Act1996, Section 10(1).
109Inspecific areas, suchasinterconnections inthetelecommunications sector, ministries appoint specific
committees. Forexample, in1994, theregulating authority inthissector (Jabatan Telekom Malaysia) established
theInterconnection Steering Committee tosetguidelines fortheinterconnection ofbasic andcellular services
(Chapter IV(4)(iv)).
110SIRIM (1996), p.2.
111Under theFood ActandRegulation every package containing foodforsale, should notonlyinclude the
designation andweight oftheproduct, butalsoinformation onthemanufacturer. Inthecaseofimported food,
thename andaddress ofthemanufacturer orpacker isrequired, aswellasthecountry oforigin andthename
oftheimporter. Iftheproduct contains beef, pork, edible fat,oil,alcohol, food additive, vitamins orcertain
minerals,thelabelmustindicatethepresenceoftheseitems.Inthecaseofimportedfoodproducts,theinformation
hastobeprovided inBahasa Malaysia orEnglish.Malaysia WT/TPR/S/31
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Development ofstandards
115. Outof2,416 Malaysian Standards currently inforce, 521(or21.6percent)arebased onISO
orIECStandards. Between 1992and1996, 818newstandards weredeveloped ofwhich 63.7percent
werebased onISOorIECstandards (Table III.16). Malaysian standards arealigned, asfaraspossible,
withinternational standards, according totheauthorities.
Table III.16
Indicators ofstandards development inMalaysia, 1992-96
Indicator 1992 1993 1994 1995 1996
NewMalaysian standards 121 150 168 213 166
Appointment ofStandard Writing
Organizations0 0 2 1 2
Licences issued under theProduct
Certification Scheme94 161 109 163 187
Certificates issued under theQuality
System Registration Scheme79 158 218 225 216
Source: Information provided bytheMalaysian authorities.
116. Malaysia participates inASEAN andAPEC initiatives. Initiatives developed inthese regional
bodies aimtoalignexisting national standards intheirregion withinternationally developed standards.
Under theASEAN Consultative Committee onStandards andQuality (ACCSQ) programme, member
countries haveagreed toalign standards forsome electrical andelectronic domestic appliances and
rubber products within anagreed time-frame. Within APEC, Malaysia isdeveloping anaction plan
toalign itsstandards withinternational standards inselected priority areas; electrical andelectronic
appliances, foodlabelling, plastic andrubber products.
117. SincetheinceptionoftheWTO,andasof1September1997,Malaysiahasnotified27standards
totheTechnical Barriers toTrade Committee (Table AIII.13). In1995, Malaysia notified alabelling
requirement forcigarettes totheWTO Committee onTechnical Barriers toTrade.112During 1996,
notifications on19draftMalaysian standards weremade, covering taps,water meters, plastic containers,
pipesandfittings,bitumensandotherproducts.DuringJanuary-July1997,sevennotificationsconcerning
PVC pipes were received.
Developments intechnical regulations since Malaysia 's1993 Trade Policy Review
118. InMalaysia, national standards areusedasthebasisfortechnical regulations. Since Malaysia 's
1993Review,MalaysianStandardsSpecificationforProtectiveHelmetsforVehicleUsers113andPortland
Cement114havebeenmade obligatory bytherelevant regulatory bodies inorder toensure thesafety
andquality oftheproducts concerned. TheCode ofPractice onSafety andHealth atWork115isa
112WTO document G/TBT/Notif.95.175, 7June 1995.
113Malaysian Standard 1:1996.
114Malaysian Standard 522:Pt.1-3:1985 (notyetenforced).
115Malaysian Standard MS462:1994.WT/TPR/S/31
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supplementarydocumentoftheexistingOccupationalSafetyandHealthAct1994.Technicalregulations
areapplied equally todomestically owned, foreign-owned andjoint-venture firms.
Conformity assessment
119. Anyperson ororganization desiring tobeaccredited orregistered asaconformity assessment
organization, alaboratory fortesting orcalibration, atraining organization forconformity assessment,
oraperson qualified toperform conformity assessment andrelated services mayapply totheDirector
GeneralofStandards.116DepartmentofStandardsMalaysia(DSM)accreditationisopentoanyapplicant,
localorforeign, whofulfils theaccreditation conditions specified andpublished bytheDepartment.
Since 15August 1990, andasatMay1997, 109laboratories havebeenaccredited forspecific tests
andorcalibration, while ninesuchaccreditations havebeenwithdrawn.
120. Acertificationbodyisanimpartialgovernmentorprivatelegalentitywhichisallowedtooperate
acertification scheme inwhich interested parties arerepresented without asingle interest dominating.
Activities ofacertification bodymayinvolve thegranting ofISO9000certificates, product certification
tomanufacturers, andISO14000 certificates tofirms, andtheupgrading ofISO9000 certificates for
manufacturersofmotorvehiclesandauto-components.ThecurrentAccreditationofCertificationBodies
(ACB) scheme oftheDepartment ofStandards offers accreditation onlytoquality system certification
bodies onthebasisofinternational accreditation criteria. Theapplication feeinMalaysia isRM5,000
andtheannual feeisRM5,000. Non-Malaysian applicants aresubject tothesame application and
annual feesaswellastoactual professional charges, costsofreturn flights, andaccommodation arising
fromengaging overseas assessor(s). Appeal toanimpartial andindependent panel isavailable. SIRIM
Berhad isthefirstorganization inMalaysia tobeaccredited asanISO9000 certification body. As
at22April 1997, over1,000 companies havebeencertified under theISO9000 system andseven
companies under theISO14000 system. Theelectrical, electronic andtelecommunications sector was
thelargest userofbothstandards (Table III.17).
Table III.17
Certification ofcompanies, byquality system andsector, April 1997
Scheme andsector Number ofcompanies certified
ISO9000 (Management standards)
Food andagriculture
Pharmaceutical
Chemical
Polymer andmaterial
Building andcivilengineering
Mechanical engineering
Automotive industry
Electrical andtelecommunications
Services1,059
56
39
109
160
116
119
66
280
114
ISO14000 (Environmental standards)
Electrical appliances
Electronic components
Machinery equipment
Depot operation
Photographic equipment7
2
2
1
1
1
Source: Information provided bytheMalaysian authorities.
116Standards ofMalaysia Act1996, Section 16.Malaysia WT/TPR/S/31
Page 81
121. TheISOQuality Assessment Recognition (QAR) andInternational Accreditation Forum
(IAF) establish asystem fortheaccreditation ofanISOcertification body. TheDepartment ofStandards
hasclose linkswithitscounterparts abroad through theInternational Accreditation Forum (IAF) and
thePacific Accreditation Cooperation (PAC). Malaysia hasamemorandum ofunderstanding with
member countries oftheAsia-Pacific Laboratory Cooperation (APLAC) andInternational Laboratory
Accreditation Council (ILAC) tocooperate andwork towards mutual recognition agreements. The
Department ofStandards Malaysia hasaMemorandum ofUnderstanding withtheJointAccreditation
System ofAustralia andNewZealand (JAS-ANZ).
(v) Government procurement, state-owned enterprises andprivatization
122. Government procurement preferences accorded toMalaysian firms constitute government
assistancetothesefirms.Selectedstate-ownedenterprisesarerequiredbypublicprocurementregulations
tofollow similar practices. These preferences notonlyrestrict competition among suppliers, thereby
impairing economic efficiency, butalsoraisethecosttotheGovernment andstate-owned enterprises
ofprocuring goods andservices. Thecompetitiveness ofstate-owned enterprises is,inturn,hampered
insofar astheyareforced bypreferential procurement regulations topurchase theirinputs fromrelatively
high-cost localsuppliers. Ontheother hand, theMalaysian authorities taketheviewthatgovernment
procurement plays avitalroleinnational development andthatsincestate-owned companies contribute
substantially towards Malaysia 'sdevelopment, these companies need toberegulated interms of
procurement procedures. Inthiscontext theyconsider anyincidental increase incostsasunavoidable.
However, theMinistry ofFinance willregularly review these procurement regulations toenable the
procuring enterprises toimprove theircompetitiveness.
123. Inorder tofoster economic efficiency, however, some state-owned firms areallowed greater
autonomy, including freedom frompublic procurement regulations, while others havebeenprivatized.
Privatizationhasmadeasignificantcontributiontoeconomicgrowthandgovernmentrevenue.Efficiency
gains resulting fromprivatization ofcertain enterprises areindicative oftheefficiency losses associated
withprevious government control overthem.117Foreign investors areallowed toparticipate inthe
privatization exercise intheform ofequity financing andprovision ofmanagement expertise. Asa
matter ofpolicy, foreign investors areallowed toparticipate uptoamaximum of25percentofthe
share capital ofaprivatized entity. Inaddition, theycanalsoparticipate inprivatized companies listed
ontheKuala Lumpur Stock Exchange. Thisistoenable foreign companies withthenecessary expertise
andcapital toprovide therequired inputforprojects involving newtechnology notavailable inMalaysia.
Foreign participation isalsoencouraged inorder toraiseforeign capital required forlarge projects
andtoprovide access toforeign markets andglobal linkages.
(a) Government procurement
124. Theimpact ofgovernment procurement regulations goeswellbeyond current government
purchasesofgoodsandservicesandpublicinvestment,asfederaloperatinganddevelopment(investment)
expenditure, which currently amounts toRM58.2billion, iswellover20percentofGDP.118Federal
procurementregulationsalsoapplytoprocurementbythe58StatutoryBodiesoftheFederalGovernment
117InthecaseofTelekom Malaysia, forexample, thereturn onassets andoutput peremployee more than
doubled following privatization (Chapter IV(4)(iii).
118Ministry ofFinance (1996).WT/TPR/S/31
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andthethreelargestNon-FinancialPublicEnterprises,NFPEs,(Petronas,TenagaNasionalandTelekom
Malaysia Berhad).119
125. Among theobjectives offederal procurement policies aretoencourage useoflocalmaterials
andcomponents, reduce dependence onimports anddiminish thebalance-of-payments deficit. The
scaleofgovernmentexpendituresuggeststhatprocurementpreferencesmayhaveasubstantialshort-term
impact onthebalance ofpayments. Suchapolicy would, however, attract resources fromother more
efficient uses, thusundermining thecompetitiveness ofMalaysian firms inthelongterm. Inpractice,
theMalaysian authorities allocate asubstantial share ofgovernment procurement contracts toforeign
suppliers (Table III.18). Thispolicy contributes totheimpressive performance ofMalaysia 'seconomy.
Table III.18
Overview ofgovernment procurement, 1991-97
1991 1992 1993 1994 1995 1996 1997a
Federal government operating expenditure
(RMbillion)28.3 32.1 32.2 25.1 36.6 41.8 41.4
Federal government development expenditure
(RMbillion)9.6 9.7 10.1 11.3 14.1 14.9 16.8
Total Government contractsb... ... ... ... 13.2 36.6 ...
Government contracts awarded toforeign
companiesb(RMbillion) ... ... ... ... 5.2 29.2 ...
... Notavailable.
a Budget allocation.
b Including contracts forStatutory Authorities Petronas, Tenaga Nasional andTelekom.
Source: Dataprovided bytheauthorities andMinistry ofFinance (1995 and1996), Economic Report 1995/96 and1996/97, Kuala Lumpur.
126. TheGovernment Procurement Management Division (previously known astheContract and
Supply Management Division) oftheMinistry ofFinance isthecentral federal procurement agency.
Onanannual basis, thisagency manages procurement amounting toRM5.3billion. In1994,
government procurement regulations wererevised aspartofaregular review, leading tothereplacement
of151Treasury Circular Letters by34newTreasury Circular Letters.120Contracts aredivided into
threecategories, supplies, services andworks. EachMinistry hasitsownprocurement unit,butsupplies
andservices contracts withavalue above RM7million andworks contracts withavalue above
RM50million arereferred totheMinistry ofFinance.
127. Forsupplies contracts, Malaysian Bumiputra companies receive amargin ofpreference of2.5
to10percentoverareference price. Themargin ofpreference isinversely proportional toavalue
ofnotmorethanRM15million.MalaysianBumiputramanufacturingcompaniesalsoenjoypreferential
treatment of3to10percent, withthemargin ofpreference being inversely related tothecontract
value uptoRM100million. Allsupplies contracts withavalue between RM10,000 andRM100,000,
andworks contracts uptoRM100,000 arereserved forBumiputra suppliers. Asamatter ofplanning
119Items procured byPetronas, Tenaga Nasional andTelekom withavalue ofRM15million ormore must
bereferred totheMinistry ofFinance.
120TheFinancial Procedure Act1957, asamended in1972, authorizes theMinister ofFinance tomanage,
supervise, control anddirect allfederal financial matters.Malaysia WT/TPR/S/31
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forprocurement ofworks contracts, atleast30percentoftheannual value ofworks contracts isset
aside forBumiputra contractors. Contracts above these limits areopen tocompetitive bidding.
CompetitivetendersnotexceedingRM10millionareopento100percentMalaysian-ownedcompanies.
Tenders withavalue ranging fromRM10million toRM25million areopentolocally incorporated
jointventures listed ontheKuala Lumpur Stock Exchange (KLSE) withforeign equity oflessthan
30percent. Tenders exceeding RM25million areextended tojoint-venture companies listed on
theKLSE withforeign equity upto40percent. Forthedelivery ofimported goods, fivelocalmulti-
model transportation companies arerequested togiveaquotation forthedelivery ofimported goods,
andagencies arerequired toselect thecompany which tenders thebestoffer. Countertrade requirements
arewaived forinternational tenders.121Foreign export- ormixed-credit offers areconsidered intender
evaluations onthebasis ofvalue formoney.
128. Open tenders areusedtoensure openness, fairness andtransparency. Alltenders aretobe
announced inlocal daily newspapers unless awritten exemption hasbeenobtained earlier from the
Ministry ofFinance. Restricted tenders areusedsparingly when thenumber ofsuppliers arelimited.
Direct negotiations areconsiderd ifthere isonlyonesupplier. Allrestricted tenders anddirectly
negotiated contracts must beconsidered andapproved bytheMinistry ofFinance.
129. Treasury Circular Letter 15/1981, relating toState-level procurement, wasrepealed on
13April1995.FederalTenderBoardsinStatesheadedbyStateDevelopmentOfficershavetheauthority
toapprove works contracts uptoRM5million only. They arenotempowered todecide onsupplies
contracts ofanyvalue orworks contracts where decisions arenon-unanimous. Theauthority forstate
government procurement matters restswiththe'statefinancial authority 'whodecides onprocurement
through procurement boards, andactsinaccordance withthedirections given tohimbytheChief
Minister oftheState. Decisions made intheStates arealsotobeinaccordance withthefederal rules
andregulations pertaining toprocurement.
130. Inaddition tothethesepolicies, therearealsovarious informal policies topromote localcontent.
Onacase-by-case basis, theGovernment encourages NFPEs andprivate companies tomake useof
local components when undertaking their projects. TheGovernment hasannounced thatevery
international tender document must nowensure theactive involvement oflocal companies, andthe
areas inwhich thelocalcompanies canbeactively involved should beidentified. Anadded measure
isthatcivilengineering works mustbeawarded tolocalcompanies. Allcivilengineering works are
tobeprocured locally. However, according totheauthorities, thepolicy isnotenforced strictly.
Where localexpertise isnotavailable, procurement isstillopentoothers. Thestate-owned oilcompany,
Petronas, forexample, requires contractors toprocure inputs locally, butthispolicy appears tobe
subject toanunspecified preferential margin, andisonlyapplied when localsuppliers areabletoprovide
thesame quality asforeign suppliers.
131. Public tenders maybecontested totheprocuring authority ifthere isasuspicion that
specifications foraparticular tender aretailored toanindividual brand orproduct; according tothe
authorities, suchpractices arestrictly prohibited. Challenges havetobefiledwithin 21daysofthe
tender advertisement, andifsustained leadtocancellation ofthetender. Sofartwoobjections have
beenformally received andremedial action hasbeentaken upon investigation.
121Since July1992, countertrade hasbeen taken intoaccount intwocases, onewithaCommonwealth of
Independent States country andonewithItaly, dealing withanaircraft contract.WT/TPR/S/31
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(b) Non-financial public enterprises andprivatization
132. Investment bypublic agencies andNFPEs accounted for17.7percentofGNPduring 1991-95,
down from24.1percentduring 1981-85, butslightly upfromthe14.2percentduring 1986-90. For
the1996-2000 period, anaverage of11.5percentshare inGNP isenvisaged. From 1991 to1995
outofatotalpublic sector development (investment) expenditure ofRM142.8 billion, 27percent
wasmade bytheFederal Government, 9.7percentbyState governments, 8.6percentbylocaland
statutory authorities, and54.7percentbyNFPEs. While some oftheseinvestments earnacommercial
rateofreturn, others aremade onthebasis ofnon-commercial criteria reflecting theGovernment 's
policy objectives formulated initseconomic development plans (Annex II.1).122Asaconsequence
ofprivatisation, thenumber ofthemain NFPEs declined from 42in1993 to31in1996, although
theirrevenue increased somewhat (Tables III.19 andAIII.14).123
Table III.19
Financial position ofNFPEs, 1991-96
(RMmillion)
1991 1992 1993 1994 1995 1996
Revenue 41,032 42,540 43,679 43,323 46,615 50,101
Operating expenditure 27,835 28,999 30,036 28,520 30,251 33,990
Current surplus/deficit 13,197 13,541 13,643 14,803 16,364 16,111
Development expenditure 11,156 16,147 19,458 16,196 15,222 18,654
Overall balance 2,041 -2,606 -5,815 -1,393 1,142 -2,543
Sources offinancing
Domestic financing -3,602 -295 -868 -6,875 -11,094 -5,585
External borrowing 1,561 2,901 6,682 8,268 9,952 8,128
Source: Dataprovided bytheMalaysian authorities.
133. Privatization offirms producing goods andservices mayinclude thetransfer ofmanagement
responsibility, assets ortheright totheuseofassets andpersonnel involved. Privatization isseen
asimportant because itcancontribute toeconomic efficiency, promote economic growth, reduce the
Government'sadministrativeandfinancialburden,increasegovernmentrevenueandfacilitateBumiputra
participation; foreign participation inprivatization isexpected toassist inpromoting global international
exposure forMalaysian entities.
122Attheendof1996 there were 528government-controlled companies compared to504attheendof1995.
These companies were mainly engaged inproviding services (157companies), manufacturing (74companies),
investmentholding(48companies),plantations(30companies),propertydevelopment(37companies),recreation
andresorts(29companies),transportation(29companies),agriculture(17companies),construction(17companies),
andother activities (58companies). State-owned companies inmanufacturing, investment holdings, finance,
servicesandpropertydevelopmentaccountedfor83.8percentofinvestmentbygovernment-controlledcompanies
Ostensibly323outofthe481government-controlledcompaniesthatsubmittedfinancialinformationwereprofitable.
123Non-Financial Public Enterprises (NFPEs) arepublic sector agencies undertaking thesaleofindustrial
andcommercial goods andservices. They include statutory bodies, government-owned orgovernment-controlled
companies andagencies owned bystatutory bodies. Ownership andcontrol refertoagovernment orpublic-sector
agency controlling more than50percentoftotalequity. Thenumbers inthetextrefertotheNFPEs withminimal
annual sales ofatleast RM50million.Malaysia WT/TPR/S/31
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134. Malaysia 'sprivatization policies weresetoutinthePrivatization Master Plan(PMP) published
in1991. Together withthePMP, theGovernment introduced thePrivatization Action Plan(PAP)
which isatwo-year rolling plantoassist theannual implementation oftheprogramme. ThePAPis
reviewed annually withaviewtoidentifying measures toexpedite theimplementation oftheprogramme
andtodetermine theentities tobeprivatized inthefollowing two-year period. Attheendof1995,
there were12different methods ofprivatization inuse,including saleofequity, saleofassets, lease
ofassets, management contract, build-operate-transfer, build-operate-own, build-operate, build-transfer,
landdevelopment, management buy-out, jointventures andasset swap.124Asageneral rule, the
authorities seektousethemethod which results inamaximum degree ofprivate-sector involvement
andareasonable return totheGovernment. TheGovernment provides various forms ofsupport,
including softloans, taxincentives andother concessions, toselected projects which haveahighsocial
component. Theprivatization process ismanaged bytheEPU inthePrime Minister 'sDepartment
through theNational Privatization Committee (Table II.1). Foreign consultants mayparticipate in
studies andprovide advice onprivatization.
135. Foreign companies maytakeshares inprivatized companies uptoalimitof25percent,under
certain circumstances.125Ofthe42entities which wereprivatized during 1993to1997, foreign interests
heldshares infiveof15major companies forwhich records were available. Only inthecaseof
Malaysian Airlines didtheforeign share exceed 10percent.126Attheendof1995, atotalof24
privatized companies werelisted ontheKLSE withatotalmarket value ofRM124.7 billion (22percent
oftotalmarket capitalization). These listings made amajor contribution totheturnover onthisstock
exchange. Foreigner investors areallowed toinvest inthelisted companies uptotheprescribed limits
(Chapter IV(4)(ii)).
124During the1991-95 period, atotalof204projects were privatized inallsectors oftheeconomy, including
infrastructure andgovernment services. During thisperiod 46projects wereprivatized intheconstruction sector,
ofwhich 23through saleofassets and13through build-operate-transfer modes. Overall, thesaleofequity was
themode usedin94(outofthetotal204)projects, ofwhich 27wereinthemanufacturing sector, 13inwholesale,
retail trade andhotels andrestaurants, andanother 13infinance, realestate andbusiness services. However,
privatization isanongoing process withthenumber ofprivatized projects increasing from 25in1991, to27
in1992, to40in1993, to47in1994 and65in1995. Approximately 55were federal projects, theremaining
were State projects. During thisperiod theproceeds from sales ofequity were RM11.8 billion compared to
revenue from sales ofassets ofRM2.3billion, andanadditional capital expenditure ofRM51.6 billion was
saved. Atotalof43,000 public sector employees were transferred totheprivate sector. Selected datasuggest
thatproductivity improved significantly inthecompanies following theirprivatization (Government ofMalaysia
(1996a).
125Participation offoreign firms ispermitted iftheirexpertise isrequired andnotlocally available; foreign
participation isrequired topromote exports; local capital isinsufficient toabsorb theshare capital offered;
andthenature ofthebusiness requires global linkages andinternational exposure. Foreign participation isnot
restricted toanyparticular sector, butisnormally considered forprojects involving advanced technology aswell
asprojects requiring active research anddevelopment efforts.
126Ofthe42entities which were privatized during 1993 to1996, records areavailable fortheshare offoreign
equity in15major companies. Thetotalsalevalue ofthese 15companies wasRM8billion. Non-Malaysian
investors hold24.09 percentoftheequity ofMalaysian Airlines, privatized in1994 atatotalsalevalue of
RM3.1billion bysaleofequity; 0.49percentofPetronas Dagangan Sdn.Berhad privatized in1994 through
public listing atavalue ofRM264.6 million; 6.29percentofHeavy Industries Corporation (HICOM), privatized
in1995 through asaleofequity ofRM1.7billion; 1.8percentofPetronas GasBerhad, privatized in1995
atapublic listing valued atRM1.9billion; 4.14percentofPerhak SEDC Subsidiaries, privatized in1996 through
sales ofassets andsales ofequity valued atRM208million.WT/TPR/S/31
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136. Privatized companies are,inselected cases, obliged toassume socio-economic obligations.
Examples arevendor development, marketing arrangements, training, technology transfer andresearch
anddevelopment (section (2)(iv)). Inthiscontext, seven ofthelargest privatized companies allocated
RM119million totraining programmes in1995, upfromRM79million in1993andRM90million
in1994.127Privatization isthususedasininstrument tofacilitate thetransfer anddevelopment of
technological andentrepreneurial skills.
137. Intheabsence ofacomprehensive competition policy, theauthorities established 11regulatory
authorities tomaintain standards andprotect consumer interests interms ofpricing, availability and
quality ofservice aswellastoensure thehealthy development oftheindustry. Regulatory authorities
wereestablishedtocoverelectricityandgassupply,ports,airports,highways,posts,telecommunications,
railways andsewerage (section (vi)below). However, the"regulatory authorities were notableto
function effectively particularly duetothedifficulty inoperating within arapidly changing technological
environment".128Theauthorities haveensured thatallprivatized roads andhighways havealternative
routes, thusproviding some competition totheprivatized entities.
(vi) Competition policy andrelated issues
138. Malaysia'seconomicpoliciesareaimedatcreatinganentrepreneurialclimateinwhichcompanies
areprepared totakeonthechallenges oftradeliberalization. Inthiscontext, government intervention
hasbeenreduced andprivatization hasallowed forgreater flexibility. However, greater freedom for
private firms mayalsoallow asmall number offirms toestablish adominant market position inwhich
notallbenefits ofliberalization arepassed ontotheconsumer. Theriskofasmall number offirms
resorting toanti-competitive practices mayincrease since thecontrol onsuchbehaviour isconsidered
inadequate;forexample,therearenocontrolsonanti-competitivepracticesoriginatingfromthelicensing
ofintellectual property. Furthermore, privatization of"natural monopolies" (e.g.theinfrastructure
field) mayhaveincreased thescope forprivate anti-competitive practices. Adraftcompetition law
hasbeenprepared bytheMinistry ofDomestic Trade andConsumer Affairs andisunder review
following comments from other government organizations andtheprivate sector.
Existing anti-trust policy instruments
139. Atthisstage, there isnocomprehensive competition laworregulation, although sector- and
product-specific regulations doexist. Import orexport cartels arenotnecessarily illegal andnorecords
existofpossible cartels. Ontheotherhand, anti-competitive practices ofprivatized firms inthedomestic
market aretosome extent controlled byregulatory authorities incharge ofselected sectors (section (v)).
140. TheMalaysian Code onTake-overs andMergers 1987hastheforceoflawbyvirtue ofexisting
provisions oftheSecurities Commission Act1993 (Chapter IV(4)(ii)). However, ithaslimited legal
127Other examples include thevendor programmes undertaken byprivatized companies. Forexample,
Perusahaan Otomobil Nasional Berhad agreed toaRM569.1 million Component Scheme Promotion; Telekom
Malaysia Berhad agreed toaRM452.6 million Entrepreneurs Development Programme andaCredible Supplier
Scheme; Tenaga Nasional Berhad agreed toaRM337.2 million Entrepreneurs Development Programme, an
Umbrella Scheme, aCredible Contractor Scheme andaStrategic Joint-venture; Indah Water Konsortium Sdn.
Berhad agreed toaRM6.3million Construction ofTreatment Plant andPumping Station Sewerage System and
Pumping Station Network. (Government ofMalaysia (1996b), p.211)
128Government ofMalaysia (1996b), p.216.Malaysia WT/TPR/S/31
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enforceability; where thereisabreach oftheCode, theSecurities Commission canmerely issueaprivate
reprimand, public censure, ortemporarily orpermanently deprive theperson ofexchange facilities.
141. Price controls, alsousedbyMalaysia, mayalsoprohibit producers fromtaking advantage of
adominant position onthedomestic market through anti-competitive practices. Pricecontrols forcertain
"basic" and"strategic" goods areintended toensure reasonable prices aswellassufficient supply.
Items currently subject toprice controls arewhite refined sugar, wheat flour, rice(standard and
premium), bread (standard loaf250-1,000 g.),chicken, mildround steelbars,ordinary Portland cement,
petroleum products (leaded andunleaded petrol, diesel andliquified petroleum gas). Thepriceofrice
iscontrolled bylawandisadministered bytheMinistry ofAgriculture under subsidiary legislation
Rice(Grade andPrice Control) Order 1992. Prices oftheother items areadministered bytheMinistry
ofDomestic Trade andConsumer Affairs while theirsupplies areadministered under theControl of
Supplies Act1961(Table AII.1).129Thepricecontrols mentioned above generally apply todomestically
produced goods. Imports areallowed onlywhen ashortage occurs andaregenerally subject tothe
samepricecontrols asdomestically produced goods. Import andexport licensing applies tomostgoods
subject toprice controls (sections (2)(iii) and(3)(ii)). TheGovernment 'saimistostabilize theprices
ofthese items astheyareconsidered asessential forthelower income groups. Prices ofsome
telecommunications services arealsosubject tomaximum levels determined byJabatan Telekom
Malaysia, aregulatory authority under thepurview oftheMinistry ofEnergy, Telecommunications
andPosts (Chapter IV(4)(iii).
142. Solerights tointellectual property are,ineconomic terms, amonopoly ontheuseofsuch
property togenerate areturn ontheinvestment involved initscreation. TheWTO TRIPS Agreement
recognizes that"some licensing practices orconditions pertaining tointellectual property rights which
restrain competition mayhaveadverse effects ontrade andimpede thetransfer anddissemination of
technology".130Issues relating tointellectual property are,withothers, being addressed inthe
consideration oftheenactment ofacompetition law,asmentioned above.
129Theproducers ofthese goods arerequired torefer anyproposed price increases totheMinistry. The
production anddistribution ofthese items aresubject tolicensing under theControl ofSupplies Act1961. The
licences arevalid foraperiod notexceeding fiveyears andaresubject topayment ofanannual feeofRM50.00
foramanufacturer, RM25.00 forawholesaler andRM10.00 foraretailer. Applications arerejected only
ifthere isreason tobelieve thattheplace ofbusiness isnotsuitable. Anappeal against therefusal toissue a
licence maybemade totheMinister, whose decision isfinal. Atotalof911applications were received and
approved during theperiod 1January 1997 to19April 1997.
130WTO Agreement onTrade-Related Intellectual Property Rights, Section 8:Control ofAnti-competitive
Practices inContractual Licences, Article 40(1). Further Article 40(2) ofthisAgreement notes that"Nothing
inthisAgreement shall prevent Members from specifying intheir legislation licensing practices orconditions
thatmayinparticularcasesconstituteanabuseofintellectualpropertyrightshavinganadverseeffectoncompetition
intherelevant market".WT/TPR/S/31
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Annex III.1
Timeframes specified inMalaysia 'sAnti-dumping andCountervailing Measures Legislation and
Regulations
Under Malaysia 'santi-dumping andcountervailing legislation, arequest foraninvestigation
maybesubmitted by"...aproducer, producers oranassociation ofproducers ofalikeproduct on
behalf ofthedomestic industry producing suchproduct".131TheGovernment isobliged todetermine
within 14daysupon receipt ofthesubmission whether itisanadequate petition. Onthebasis ofthe
information provided intherequest, theGovernment maydecide tolaunch aninvestigation ifthere
isenough evidence towarrant it,andifsuchaninvestigation isinthepublic interest. Inspecial
circumstances theGovernment mayinitiate aninvestigation ofitsownaccord.132Prior toinitiation
ofacountervailing investigation, theGovernment mustprovide anyinterested foreign government with
theopportunity forconsultation. TheGovernment mustthenpublish itsdecision regarding whether
tolaunch aninvestigation, andifitdoesdecide todoso,theproposed time-limits fortheinvestigation.
Forthepurpose ofaninvestigation, asubsidy isdefined asadirect orpotentially direct transfer
offunds orliabilities, forgone government revenue, government-provided goods andservices other
thangeneral infrastructure orpurchased goods, oranyformofincome orprice support.133Dumping
isassessed onthebasisofacomparison withthesaleofcomparable merchandise inthedomestic market
oftheexporting country during thesix-month period preceding theinvestigation oranyadditional or
alternativeperiodtheMalaysianGovernmentdeemsrelevantornecessarytopermitapropercomparison.
Intheeventthatsuchsalesdonotpermitapropercomparison,theGovernmentmayconsidercomparable
merchandise exported toanythirdcountry oraconstructed value.134Aspecific-company export price
andnormal value arecalculated onaweighted average basis.
Theinvestigation determines whether asubsidy hasbeenprovided oradumping margin exist
withrespect tothemerchandise inquestion, and,ifso,whether injury isfound toexistinanyofthe
following ways: thedomestic industry inMalaysia producing thelikeproduct ismaterially injured,
orthreatened withsuchinjury, byreason ofthemerchandise inquestion; ortheestablishment ofsuch
industry inMalaysia ismaterially retarded byreason ofthesubject merchandise. TheGovernment
mayprepare anddistribute questionnaires toanyparty relevant totheinvestigation andallparties
receiving aquestionnaire aregiven 30daystoreply. Within 90days(or,inspecial circumstances
131IdenticaltextintheCountervailingandAnti-DumpingAct1993wasusedfortheinitiationofacountervailing
dutyinvestigation (Article 4(1)) (Article 20(1)).
132Countervailing andAnti-Dumping Act1993, Sections 4(6)and20(6).
133Government payments toafunding mechanism orentrusted toordirected through aprivate body inorder
tocarryoutanyoneormoreofthelistedfunctionsisalsoconsideredasubsidy(Section24(d)oftheCountervailing
andAnti-dumping Duties Regulations 1994).
134Among other things, athirdcountry hastobeselected onthebasis thatthemerchandise tothethirdcountry
issimilar tothatexported toMalaysia, themarket structure anddevelopment issimilar andthesalesareconducted
intheordinary course oftrade. Aconstructed value mustbethesumofthecosts ofmaterials andother processing
methods employed insimilar merchandise, theamount ofgeneral expenses andanamount ofprofit.Malaysia WT/TPR/S/31
Page 89
120days) fromthepublication oftheinitiation oftheinvestigation, theGovernment isobliged tomake
apreliminary determination. Ifamutually agreed solution isreached, theGovernment mustpublish
anotice setting forth theterms ofthemutually agreed solution. Upto30daysprior toafinal
determination, apetitioner mayrequest retroactive imposition offinalduties. Afinaldetermination
mustbemade within 120daysofthepublication ofthepreliminary determination. During aperiod
of14daysfrom thenotice ofthefinaldecision, itcanbeappealed toatribunal established forthis
purpose. Anadministrative review mustbeconducted onlyafteroneyearhaselapsed from thedate
ofpublication ofthedecision.WT/TPR/S/31
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Annex III.2
Funds targeted atsmall andmedium-sized enterprises
Smallandmedium-sizedcompaniesspecializingintechnologicaladvancedproductionareeligible
forgrants available under theIndustrial Technical Assistance Facility (ITAF).135Thefacility consists
ofaConsultancy Service Scheme implemented byBank Pembangunan Malaysia Berhad ,which has
atotalallocation ofRM10million andallows foramaximum grant ofRM40,000; aProduct
Development andDesign Scheme implemented bySIRIM, which hasatotalallocation ofRM20million
andallows foramaximum grant ofRM250,000; aQuality andProductivity Improvement Scheme
implemented bySIRIM, which allows foratotalallocation ofRM15million andamaximum grant
ofRM250,000; andaMarket Development programme implemented byMATRADE withatotal
allocation ofRM5million andamaximum grant ofRM40,000. In1993 atotalofRM3.8million
wasallocated to137successful applicants, in1994 RM7.2million to291applicants, in1995
RM8.5million to418applicants andin1996 RM9.4million to392applicants.
In1993 aSoftLoan forQuality Enhancement wasestablished toprovide facilities tofinance
purchases ofmachinery andequipment forBumiputra-owned small andmedium-sized manufacturers
inthefurniture andfood-based industries. In1994 thescope waswidened tocover theautomotive,
electrical andelectronics, plastics, machinery, engineering, andtextiles sectors. Under thisscheme,
28loans were approved in1993, 30in1994, 50in1995 and19in1996.
TheMalaysian Industrial Development Finance (MIDF) agency manages theScheme for
Modernisation andAutomation withtheobjective ofencouraging small andmedium-sized enterprises
tousemodern machinery and/or replace oldmachinery. Theloans cover nomore than75percent
ofthecostofthemachinery andequipment, andcarry aninterest rateof4percent. Under thescheme
13loans were approved in1993 compared to26in1994, 42in1995, and39in1996. Asat
31August 1997, atotalofRM62.35 million hadbeenallocated totheMIDF under thescheme.
143. TheASEAN-Japan Development Fund scheme isdesigned topromote thedevelopment of
Malaysian-controlled small andmedium-sized enterprises. Thefunds areprovided bytheJapanese
Overseas Economic Cooperation Fund (OECF) andtheExport-Import Bank ofJapan (Eximbank) and
arechannelled through fourMalaysian development finance institutions.136Loans oftheOECF are
somewhat smaller andtargeted atless-capitalized firms, butdocarry alower interest ratethanthose
financed bytheEximbank (6.5percentperannum compared to7.75percent). Between 1988 and
March 1997, atotalofRM588million hasbeenallocated from thisfacility to450applicants.
135Qualifying companies arerequired to;process production facilities orhave access tofacilities approved
bythegovernment;beinvolvedinmanufacturingorservicesoranyrelatedprojectunderthegovernmentfranchise
scheme,beincorporatedundertheCompaniesAct1965;haveshareholders'fundsofnotmorethanRM2.5million;
have atleast 70percentoftheir equity heldbyMalaysian interests, andatleast 51percentshould beowned
byother small andmedium-sized enterprises, orindividuals.
136Malaysian Development Finance Berhad, Bank Industry Malaysia Berhad, Bank Pembangunan Malaysia
Berhad andBank Pertanian Malaysia.