RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/209
29 May 2000
(00-2167)
Council for Trade in Goods Original:  English
REPLIES BY MALAYSIA TO QUESTIONS FROM THE GOVERNMENT OF
THE UNITED STATES CONCERNING MALAYSIA'S REQUEST FOR AN EXTENSION
UNDER ARTICLE 5.3 OF THE TRIMS AGREEMENT
The following communication, dated 24 May 2000, has been received from the Permanent
Mission of Malaysia.
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Measures
1. Please describe in detail the measures that are included in the Government of Malaysia's
("GOM") request.  Could the GOM please elaborate beyond the description provided in
previous submissions?  For example for the TRIMs in the motorcycle, passenger car and
commercial vehicles sectors:
(a) What percentage of local content is currently required?
(1) Passenger cars – 45% to 60% (depending on the engine capacity)
(2) Commercial vehicles – 45%
(3) Motorcycles – 60%
(b) What kinds of local goods qualify (anything? Some parts but not others? etc.)
All component parts sourced locally qualify.
(c) What domestic and foreign producers are required to comply with these measures?
All producers are required to comply.
 (d) Are there any (local or foreign-owned) entities that are exempt?
No.
2. Regarding the "administrative measures" described in paragraph 2.3 in the GOM
notification (G/TRIMS/N/1/MYS/1Rev.1):
(a) What is meant by "administrative measures"?
Administrative measures refer to the application of local content requirements by administrative
means and not through legislation.G/C/W/209
Page 2
(b) Please provide a list of all measures to wh ich the notification applies, and the date of
such measures.
The local content programme is applicable to motor-cycles, passenger and commercial vehicles.
The programme was implemented in 1981 for motor-cycles and 1990 for passenger andcommercial vehicles.
(c) Have copies been published, and if so, where?
The information is made available on request from the Ministry of International Trade and
Industry (MITI) and from the Malaysian Industrial Development Authority (MIDA).
(d) Which of these measures are still in forc e, and which have expired or been rescinded?
The measures in 2b are still in force.
3. How have the measures changed over time?
(a) Have there been any changes to the measu res covered by your extension request since 1
January 1995?  If so, what are they?  For example, have these measures increased the
amount or percentage of local content required since 1 January 1995?
No.
(b) Your TRIMs notification states that there ar e no advantages given to participants in this
program.  Is this still accurate?  If not, please detail the advantage including what
formulas are used to decide on the scope of the benefits and what is the total value ofsuch benefits?
Yes, it is still accurate.
4. The implementing agency, as listed in the GOM's TRIMs notification  is the Malaysian
Industrial Development Authority (MIDA).  Is this statement still accurate?
Yes.
(a) What responsibilities does this organization have generally?
MIDA is a government agency responsible for the promotion and coordination of industrial
development in Malaysia.
(b) What are its responsibilities with respect to the TRIMs measures and     the motor
vehicle sector?
MIDA verifies all locally sourced components.
.
(c) Are there any other GOM agencies or other entities or persons with responsibility for
implementing or otherwise supervising th e measures identified in question 1?
Yes, MITI.  MITI is the overall supervisory agency.G/C/W/209
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Basis for the Extension Request
5. The GOM extension request provided to the Council for Trade in Goods asserts that the
"financial crisis, which also affected Malaysia, severely impacted the development of the motor
vehicle industry" and that the "economic downturn resulted in significant decline in demandwhere sales of motor vehicles contracted."  Pl ease elaborate on the basis for your request, for
example:
(a) How was the two-year period determined ?  What was the empirical evidence examined
to gauge that an additional two years would be required to ensure that your industry
would recover?
This two-year period is determined based on consultations with the automotive industry. The
request for extension is based on the fact that economic crisis of 1997/1998 affected the plans of
Malaysian automotive companies to comply with WTO requirements.
Given the positive indication of the economic recovery, an extension of two years period will
help the component parts manufacturers to upgrade their level of competitiveness. The
industry needs an extension period for recovery to a more sustainable level of production in order
to achieve economies of scale and to face a competitive open market environment.
Sales of passenger car and commercial vehicles sales contracted by 59.5% from 404,837 units in
1997 to 163,851 units in 1998. Sales in 1999 were 316,703 units, which is very much below pre-
crisis levels.
(b) What is the basis of the statement that 200 companies would close if       the TRIMs
measures were removed?  What types of companies are these?
These 200 companies are component parts manufacturers. They are mostly small and medium
scale companies relying on a single automotive producer.
(c) Please provide details of the consolidation and readjustment alluded to in the final
paragraph of your request.  Please explain why these events support your request.
The consolidation in the Malaysian automotive industry is in line with changing global trends.
In this context, the consolidation and rationalisation exercise is targetted particularly at the
component parts manufacturers, the group most affected by the removal of the TRIM.
PROTON, the largest single local motor-vehicle producer, has restructured its sourcingprogramme and adopted the Global Supplier Programme.  Local vendors, comprising mainly
SMIs, are consolidated as second-tier suppliers under a core group of anchor companies.  This
restructuring was undertaken as part of efforts by the private sector to face global competition
and the eventual removal of the TRIM measure.
(d) What evidence can be provided to show that the motor vehicle      program has spawned
local entrepreneurs, "particularly in the indigenous community?"
Between 1990 and 1999, a total of 328 automotive projects were approved.  Of this number,
89 were projects that were majority-owned by local bumiputera (indigenous people)companies.G/C/W/209
Page 4
(e) Article 5.3 of the TRIMs Agreement req uires the Council for Trade in Goods to
conclude that an applicant for an extension has demonstrated "particular difficulties."
How does the GOM consider that the difficulties it has described fit this requirement?
The Malaysian automotive industry experienced particular difficulties in terms of:
(i) a significant decline in motor vehicle sales.  From sales of 404,837 units in 1997, the
number declined to 163,851 units in 1998.  This represents a decline of 59.5%, to the
sales level achieved in 1993.   Sales have recovered to 316,703 units in 1999 but
these are well below the 1997 figures.
(ii) the decline in sales has a knock-down effect on both motor-vehicle (passenger and
commercial vehicles) and component parts production.  Production of passenger cars
declined by 61.5% to 128,979 units in 1998, while commercial vehicle production
declined by 83% to 18,370 units, and production of component parts declined by
40.1% in 1998.
(iii) majority of component parts manufacturers rely on a single domestic automotive
producer. Most of them have reinvested between RM500,000 to RM1 million as
development costs in anticipation of the launch of a new PROTON model in mid
2000. The removal of local content policy by 1/1/2000 at this juncture will affect the
chances of recouping this investment and jeopardise 6,200 jobs and investment ofRM1.6 billion in the affected companies.
(f) What makes these difficulties different from other Members' situations?
Malaysia is not familiar with the difficulties experienced by other countries.
6. Paragraph 2.1 of the GOM notification says that the motorcycle industry already
exceeded the local content requirement.
(a) Is this still accurate?
Yes.
(b) If so, does the GOM extension extend to motorcycles?
No.
(c) If so, how is this justified given that motorcycles are above the minimum local content
requirement?
Not applicable.
7.  Another key factor to focus on is employment:
(a) Is there any basis for an assumption that jobs have been created by the TRIMs-related
policies since 1995?
This is based on the increase in approved capital investments in the automotive sector. Please
also refer to answer in 14a.G/C/W/209
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(b) What was the total employment in the industry before the TRIMs policy, and what are
current employment figures?
Total employment in the automotive industry was 16,226 in 1990.  Employment in this sector
is 41,211 workers in 1998.
(c) Is there any basis for an assumption that  jobs will be created or saved by the
continuation of the TRIMs-related policy after 1 January 2000?
The financial crisis has seen an attrition in the work force levels for the motor vehicles
component manufacturers.  While employment went up from 7,472 in 1990 to 18,156 in
1997, it fell sharply to 13,067 in 1998.  With the on-going recovery, it is expected thatemployment in this sector should improve, while any removal of the TRIM would result in
plant closures and impact negatively upon employment.
(d) Which entity, agency or persons analysed your employment estimates?
Department of Statistics, Malaysia.
8. With respect to "development, financial, and trade needs" referenced in  Article 5.3:
(a) How is the maintenance of these TRIMs part of the development plans and needs of
Malaysia?
The development of the automotive industry is part of the development plans of Malaysia.
The objective is to develop the automotive industry including supporting industries to
strengthen the industrial structure and enhance linkages between Small and Medium ScaleIndustries (SMIs) and larger firms and contribute to the broadening of the industrial base of
the Malaysian economy.
(b) How long have such TRIMs been pa rt of the development plans and needs?
Please see answer in 2b.
(c) How can it be determined that these same development policies will not still be used and
needed after a two year period?  Why should one expect that this policy will be different
1, 2, 5, or 10 years from now?
Malaysia would pursue developmental polices in the automotive industry that are consistent
with WTO agreements.
 (d) Were the GOM's development policies part of the development needs and plans of the
GOM prior to the Uruguay Round?
Yes.
(e) What are the financial needs of the GOM related to the maintenance of the TRIMs?
Malaysia imported RM7.5 billion of motor-vehicles and parts in 1996 and RM7.4 billion in
1997. This amount would be higher in the absence of the local content requirement.  An
extension to the local content policy would as sist to minimise further drawdown on foreign
exchange reserves, and contribute to the strengthening of the foreign reserves position that
was affected by the currency crisis.G/C/W/209
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The automotive sector is a capital-intensive industry.  There are investments of over RM13
billion in this industry.  Any setback to the recovery of the industry could result in plant
closures, loss of jobs and an increase in non-performing loans that would be detrimental to the
economy and increase the financial needs of the GOM.
(f) What analysis has been conducted to dete rmined whether the elim ination of the TRIMs
would actually increase, decrease, or be neutral concerning the financial needs of
Malaysia?
The analysis to determine the impact of the el imination of the TRIM based on potential plant
closures, job losses and non-performing loans, showed that this would increase the financialneeds of the GOM.
(g) Are there any other particular issues th at the GOM believes should be taken into
account with respect to these factors?  Please describe and discuss such issues.
The use of the local content policy in Malaysia is not only to foster development of the
industry but also to further socio-economic objectives in restructuring society.  The policy has
been instrumental in building up local indigenous entrepreneurs and in ensuring that
ownership in manufacturing entities are equitably represented across all races.  This has
resulted in racial and political stability and contributed to a conducive environment forinvestment, both domestic and foreign.
9. Please describe the domestic motor vehicle production and parts and components
industries in detail.  What efforts have they taken to modernize or be more competitive
internationally over the last five years?  Additionally:
Please see answers to 5e(iii).  Efforts taken to modernise or make the industry more
competitive include:
• Implementing the modular concept of manufacturing;
• Introduce cost-cutting measures;
• Undertake research and development, design and engineering of new parts and models;
• Sourcing parts and components at competitive prices, where applicable;
• Joint ventures with major automotive and component manufacturers.
(a) Please describe the specific manner in which the notified TRIMs have been
administered in connection with specific motor vehicle production projects (by
manufacturer and models).
Please see answers in 2a and 2b.
(b) Please also explain which projects benefited from TRIMs prior to the 1995 notification
of such measures to the WTO, and the motor vehicle projects to which TRIMs have
been extended since 1995.
The TRIM is applicable to all motor-vehicle projects.
(c) Given that, according to some estimates, domestic production accounts for more than 80
percent of the Malaysian market for motor ve hicles - which suggests that TRIMs andG/C/W/209
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other government measures have substantially promoted the domestic industry - how
should WTO Members evaluate Malaysia's request for an extension?
While domestic production accounts for a large share of the Malaysian market, the removal of
the TRIM will affect the small component parts manufacturers that are solely dependent onthe domestic producers.
(d) Has production capability in the projects  covered by the extension request increased
during the period from 1997 to the present?
No.  Production of passenger cars and commercial vehicles in 1997 was 345,840 units,
147,349 units in 1998 and 287,634 units in 1999, as a result of the effects of the financialcrisis.
10. Prior to making the decision to request an extension, what measures had the relevant
industries and the GOM undertaken to begin the transition to a system that did not rely
on TRIMs?
GOM has conducted awareness programmes on the phasing-out of TRIMS by 2000.  The
companies concerned were informed that local content policies would be eliminated by 2000.  They
are expected to undertake measures that would enable them to adjust to a non-local content regime by
the end of the transition period.
(a) What types of liberalisation adjustments were or were not completed?
Please see answer in 5c.  This programme is still on-going.
(b) At what point did the GOM make the decision to stop this process of becoming TRIMs
consistent (or does the process continue)?
The process of being TRIMS consistent has not stopped.   Companies are aware that steps
need to be undertaken by them to ensure compliance after the extension period is over.
(c) What would the process be for changing  the local content requirements - (i.e.
administrative changes, legislative changes)?
The process to change the local content requirements is administrative.
(d) How quickly could such changes be implemented?
As soon as the decision is made and after taking into account the views of industry.
11. What types of efforts were undertaken to prepare the relevant industries for the
removal of TRIMs on 1 January 2000?  Specifically:
(a) Did the GOM conduct discussions with the private sector and with labor organizations
at that time and even well before the comple tion of the Uruguay Round to inform them
that these policies would be eliminated in 2000?
The private sector was consulted during the negotiations. The results were informed after the
Round.  Regular meetings were held with the private sector through the Cluster Working
Group (CWG) on Motor Vehicles. Members include relevant government agencies,
Malaysian Motor Traders Association (MMTA), Malaysian Motor Vehicles AssemblersG/C/W/209
Page 8
Association (MMVAA), Proton Vendors Association (PPP), Motorcycle and Scooters
Assemblers Association of Malaysia (MAS AAM), PROTON Bhd (Ltd.), Perodua Bhd., MTB
Bhd. and INOKOM Bhd.
(b) What kind of domestic consultation process concerning TRIMs has been conducted over
the past five years?
Please refer to answer in 11a.
(c) What administrative or legislative steps have which offices and officials explored with
which industry and labor groups?
The Ministry of Human Resources have held consultations with the relevant labour unions
and industry groups in the automotive sector.
(d) Are there legislative or administrative drafts  that have been submitted for consideration
over the past 5 years?
Yes.  The Malaysian Automotive Association had submitted memoranda over various periods
to the Government of Malaysia on this issue.
(e) What plans exist for adjusting to the elimination of such TRIMs if there is no grant of
an extension from the Council?
The Malaysian Government is hopeful that an extension will be granted.
12. Has the GOM considered other non-TRIMs options that would protect the domestic
industry but would allow for the elimination of your TRIMs regime as it currently exists?  For
example:
(a) Why is it necessary to retain the local content requirements in all sectors (i.e.
motorcycles, passenger cars and commercial vehicles)?
The request for extension of the local content requirement is applicable only to passenger cars
and commercial vehicles.
(b) Please describe the analysis/research that the GOM undertook (including alternatives to
a TRIMs extension that were considered) to ensure that the measur es included in the
GOM's extension request need to be retained.
The GOM undertook consultations between agencies and the private sector.  The impact on
plant closures, job losses and non-performing loans were also noted in a study done by the
Motor Vehicle Cluster Group. It was concluded that local content measures need to be
maintained.
Statistics
13. What is the GOM's estimation (both in production amounts and values) of future
foreign investment in its domestic market by manufacturers of motor vehicles and relatedindustries such as motor vehicle parts production?
It is not possible to provide estimates of future foreign investment.G/C/W/209
Page 9
14. What is the history of investment infl ows due to the Malaysian TRIMs programme?
Specifically:
(a) Have investments increased since the TRIMs policy was introduced?
Total proposed capital investment in approved manufacturing projects was RM276.6 million
in 1992, RM943.7 million in 1995 and RM389.3 million in 1999.
(b) From which WTO members have the investments originated?
Investments have originated mainly from Japan, Sweden, France, US and Germany.
(c) Would investment decrease if the TRIMs policy were eliminated?
If the TRIMs policy is eliminated, automotive producers would have to resort more to imports
that could jeopardise existing investments, lead to closure of domestic parts and components
industries, retrenchments, and loss of turnover.  The socio-economic objectives of nurturingand spawning local entrepreneurs, particul arly the indigenous community would also be
adversely affected.
(d) What studies have been done of this possibility?
This possibility is based on feedback from consultations with the automotive industry groups.
15. What are the destinations for exports from Malaysia for 1998 (i.e. what countries) for
motorcycles, passenger cars, commercial vehicles and motor vehicle parts and what are the
values and quantities (if applicable) of these exports?
Major destinations for Malaysian exports of passenger cars are UK, Germany and France,
while exports of commercial vehicles were mainly to the USA and Singapore.  Exports of passenger
cars, commercial vehicles, motorcycles and motor vehicle parts amounted to RM667.8 million,
RM305.5 million, RM85 million and RM314.3 million respectively in 1998.
16. What are the figures for: production, sales, exports and imports of motorcycles,
passenger cars, commercial vehicles, SKDs, CKDs and motor vehicle parts and components for
1996, 1997, 1998, and, if available 1999? In addition, what is the forecast for your industry for
the year 2000?
(For figures, please see Tables 1- 4.  Forecast for 2000 is not available).
Table I :  Production of Motorcycles, Passenger Cars and Commercial Vehicles (units)
1997 1998 1999
Motorcycles 358,093 228,847 271,293Passenger Cars 335,030 128,979 241,176
Commercial Vehicles 108,140 18,370 46,458
Component Parts  3,320.9 1,988.5 3,002.3
(Value in RM)G/C/W/209
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Table II : Sales of Motorcycles, Passenger Cars and Commercial Vehicles (units)
1997 1998 1999
Motorcycles 396,276 226,894 236,779Passenger Cars 314,399 142,194 296,716Commercial Vehicles  90,438   21,657 19,987
Table III : Imports of Motorcycles, Passenger Cars and Commercial Vehicles (RM million)
1997 1998 1999
Motorcycles 77.9 6.6 8.8
Passenger Cars 3,084.3 1,314.5 2,391.2
Commercial Vehicles 2,820.8 767.5 1,109.5Component Parts 1,416.8 615.6 1,100.2
Table IV : Exports of Motorcycles, Passenger Cars and Commercial Vehicles
1997 1998 1999
Motorcycles 18.6 85.0 136.9Passenger Cars 559.8 667.8 492.4Commercial Vehicles 43.9 305.5 58.6
Component Parts 263.3 314.3 440.1
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