Malaysia WT/TPR/S/92
Page 25
III. TRADE POLICIES AND PRACTICES BY MEASURE
(1) INTRODUCTION
1. During the period under review, Malaysia's economy has remained relatively open as far as
international trade and foreign investment are concerned.  This is especially true of the goods sector;
by comparison, the services sector is more closed, although the recently launched eighth Malaysia
Plan envisages opening up the sector gradually.  While some trade barriers were raised "temporarily"in the wake of the Asian financial crisis, certain restrictions on foreign direct investment (FDI) were at
the same time relaxed, also temporarily.  In addition, as discussed in Chapter I(2)(ii)(a), the
Government, by promoting corporate and financial restructuring, has taken steps to address structural
weaknesses that became more evident during the crisis.  Nonetheless, there are several barriers to
trade and investment that still constitute potentially important distortions to competition and thuspotential impediments to Malaysia's long-term development.
2. The tariff continues to be the main border measure on imports; it also accounts for 5.8% of
total tax revenues.  As a consequence of "temporary" increases in rates in 1998, the average applied
MFN tariff increased from 8.1% in 1997 to 9.2% in 2000.  This rise in tariff protection was facilitated
by the fact that one third of tariff lines are not bound and, even for those lines that are subject tobindings, bound rates often considerably exceed applied rates.  This lack of bindings, together with
the gap between bound and applied rates, can impart a degree of unpredictability to Malaysia's tariff.
Furthermore, the multiplicity of applied rates contributes to the complexity of the tariff.  However, the
decline in non- ad valorem  tariffs from 4.5% of all tariff lines in 1997 to only to 0.7% in 2000 has
increased the transparency of the tariff, as such dut ies tend to conceal tariff "peaks".  Tariff peaks
apply, inter alia,  to automobiles, beverages, textiles and clothing.  With an increase in the number of
tariffs both below 10% and above 30%, the dispersion in applied MFN rates has risen, therebyincreasing the potential for the tariff to distort the allocation of resources to the detriment of
Malaysia's economy.
3. The average level of tariff protection is lower than that indicated by the simple applied MFN
average owing to tariff concessions, often for capital and intermediate inputs, as well preferential
rates, particularly those favouring ASEAN countries; indeed the average rate of duty collected on totalimports was 1.3% in 2000 (compared with 3% in 1997).  The widening gap between the average level
of applied MFN tariffs and the average level of the preferential AFTA tariff has increased the
potential for trade diversion; as pointed out earlie r (Chapter I(3)(ii)), ASEAN's share of Malaysia's
imports rose substantially between 1996 and 1999, although this trend may be due more to the
depreciation of ASEAN countries' currencies in the wake of the Asian financial crisis than to theAFTA.  Insofar as trade diversion does occur owing to the AFTA, and outweighs trade creation, it
could possibly be detrimental to Malaysia's non-ASEAN trading partners.
4. Apart from import prohibitions implemented for national security, religious, and
environmental reasons, various non-tariff border measures barriers are also used as instruments of
Malaysia's trade and development policy.  In particular, an increasing proportion of tariff lines issubject to import licensing;  for some agricultural and industrial products, such licencing can
seemingly provide the authorities with scope for administrative discretion.
1  On the other hand,
Malaysia is not a major user of contingency measures;  during the review period, it has taken few anti-
dumping (AD) actions and no countervai ling (CV) or safeguard measures.
5. Local-content requirements were used in an attempt to foster the development of locally
owned businesses; these requirements were abolished in 2000, except in the case of the automobile
                                                     
1 APEC (2000a).WT/TPR/S/92 Trade Policy Review
Page 26
industry.  Government procurement procedures, notably preference margins, are also used to favour
locally owned businesses, particularly where relatively small amounts are involved.  Foreign suppliers
are usually excluded for contracts of larger amounts unless the supplies or services are not available
locally;  for works contracts, foreign contractors are allowed to participate if there is no local
expertise.2  Malaysia is not a party to the GPA, although it does participate in the WTO working
group on transparency in government procurement.  Furthermore, restrictions on foreign ownershipencourage local participation in companies operating in Malaysia, although these restrictions tend to
be relaxed the more companies export.
6. Some items, notably forest products, crude oil, and selected palm oil products, are subject to
export duties, which account for around 2% of total tax revenues.  A few products are also subject to
prohibitions, restraints, and licensing requirements.  At the same time, assistance is provided toexports through, inter alia,  tariff concessions, tax relief, export processing zones, concessionary
credits, insurance, and guarantees as well as promotion and marketing assistance.
7. Tax measures are among the main instruments of Malaysia's economic development strategy.
They include a wide array of investment incentives that are offered to various manufacturing
activities, including exports thereof, agriculture, tourism, and other approved service sectors, researchand development, training, and environmental protection.  It appears that some of these incentives
might have been provided as a quid pro quo  for local-content requirements that the authorities
sometimes attached to investments;  with the re moval of most of these requirements, the question
arises whether such incentives are still necessary.  Tax incentives are often costly (in terms of tax
revenues forgone) and their effectiveness is not always clear.  While tax as well as non-tax incentives
for investment can sometimes be justified on grounds of "market failure", they also run the risk of
subsidizing good investments, which need no such assistance and could well have been undertaken inany event, or turning otherwise dubious investments into profitable ones.  Insofar as incentives have
stimulated investment in the latter, they may well have contributed to over-investment, and to a
distortion in the allocation of resources, thereb y possibly contributing to the fall in total factor
productivity that occurred in Malaysia during the early 1990s.
8. Malaysia is gradually bringing domestic standards into line with international norms.
Although 31% of the 2,862 Malaysian standards currently in force are aligned with or based on
international standards, 80% of the new standards developed by Malaysia in 1998 and 1999
correspond to international standards.
9. Since its previous Review (in 1997), Malaysia has enacted two new laws and amended four
others to strengthen the protection of intellectual property rights and bring domestic legislation intoconformity with the TRIPS Agreement.  It has also stepped up enforcement of IPR laws, especially
those pertaining to copyrights.
10. State-owned enterprises continue to play an important role in the Malaysian economy,
especially in petroleum, electricity, transportation, telecommunications, and postal activities.  Aside
from their own operations, some of these enterprises provide finance not just to each other, but also toprivate companies.  For example, PETRONAS, the highly profitable state-owned oil company has
purchased stakes in, inter alia,  automobile and shipping companies.  However, the Government has a
long-standing privatization programme, although the onset of the Asian crisis has seemingly slowed
its progress;  indeed, the Government has bought back stakes in some companies.
                                                     
2 Successful foreign contractors must form joint vent ures with local contractors;  they also have to
register with the Construction Industry Development Board.Malaysia WT/TPR/S/92
Page 27
11. Currently, Malaysia does not have a comprehensive competition law.  It does, however, have
various other laws that regulate the activities of enterprises and protect consumer interests.  Moreover,
with a view to fostering competition in telecomm unications, the Government has recently established
competition guidelines for this sector.  Steps are being taken to improve corporate governance in
Malaysia.
(2) MEASURES DIRECTLY AFFECTING IMPORTS
(i) Registration, customs valuation, and procedures
12. Since 1997, there have been no major changes in the registration requirements for imports
into and exports from Malaysia.  All goods require the importer or exporter to submit declaration
forms along with other documents prior to customs clearance at the time of import or export.  No fees
are currently imposed for customs procedures.
13. Local importers and exporters of palm oil and other selected palm products must be licensed
by the Malaysian Palm Oil Board, while exporters of natural rubber, pepper, pineapple, and selected
timber and timber products must register with relevant licence-issuing agencies.  All household and
agriculture pesticides are subject to registration ce rtificates issued by the Pesticides Board to the
importers.3
14. Computerized customs clearance (Electronic Data Interchange (EDI)) is carried out at Port
Klang and the Kuala Lumpur International Airport.  The authorities indicate that the duration for
customs clearance for cargoes range from three hours to two working days provided that all
documentary requirements have been met.
15. Malaysia has discontinued the use of the Brussels Definition of Value and employed “the
transaction value” for customs valuations since 1 January 2000.  Under the new legislation, importers
are required to submit a Value Declaration Form (Form K1A).  Values are verified provisionally atthe time of importation, and confirmed after the release of goods under a newly created Post
Clearance Audit System.  Malaysia's legislation has a provision for minimum import values;  however
the authorities maintain that this provision has never been invoked.  Any party may appeal decisions
made by the Customs Department related to classification and valuation to the Minister of Finance
and subsequently to the courts.
4
16. Malaysia does not maintain any non-preferential rules of origin.  Tariff preferences granted
under the Common Effective Preferential Tariff Scheme for the ASEAN Free-Trade Area are subject
to the fulfilment of rules of origin criteria, which have been set at minimum 40% local or regional
value added.
17. The authorities indicated that Malaysia does not undertake preshipment inspection and there
have been no changes to Malaysia's temporary import procedures since 1997.
                                                     
3 Customs (Prohibition of Imports) Order 1998.
4 The relevant regulations include section 143 of the Customs Act 1967, which stipulates that in any
case where the decision on any matter rests with the Director General, unless it is specifically provided that suchdecision is at the absolute discretion of the Director Ge neral, any person aggrieved by such decision may appeal
to the Minister.  Section 143A of the Act stipulates that any person aggrieved by the decision of the DirectorGeneral on the valuation of imported goods may appeal therefrom to the court.WT/TPR/S/92 Trade Policy Review
Page 28
(ii) Tariffs
(a) Overview
18. The customs tariff is Malaysia's main border measure affecting imports.  It does not use tariff
quotas or variable import levies.  Malaysia extends at least MFN treatment to all of its trading partners
(including WTO non-members), while it provides tariff preferences to ASEAN countries.  During the
period 1997-2000 the overall simple average applied MFN tariff rate (excluding ad valorem
equivalents of specific rates and the including ad valorem  component of compound and alternate
duties) increased from 8.1% to 9.2% (Table III.1).
Table III.1
Tariff structure in Malaysia
(Per cent)
Indicators 1997 2001
1. Bound tariff lines 63.7 63.5
2. Duty-free tariff lines 58.6 58.3
3. Specific and mixed tariffs/all tariffs 4.5 0.7
4. Tariffs with no ad valorem  equivalent 4.5 0.7
5. Simple average applied tariff rate 8.1 9.2
Agricultural products (HS 01-24) 4.8 3.5
Industrial products (HS 25-97) 8.5 9.9
6. Domestic tariff "peaks"a15.8 9.6
7. International tariff "peaks"b25.9 23.8
8. Overall standard deviation 13.9 19.4
9. Coefficient of variation 1.7 2.1
a Domestic tariff "peaks" are defined as those exceeding three times the overall simple average MFN rate.
b International tariff "peaks" are defined as those exceeding 15%.
Note: Calculations exclude specific rates and include the ad valorem  component of alternate and compound rates.
Source: WTO Secretariat calculations, based on data provided by the Malaysian authorities.
(b) Forms of tariffs
19. The Malaysian customs nomenclature is ba sed on the 1996 Harmonized System (HS).  It
currently contains 10,368 tariff lines (9-digit HS level) and involves 73 different rates.5  Reflecting the
conversion of some specific, compound, and alternate duties into ad valorem  rates, the share of total
lines with ad valorem  duties increased from 95.5% in 1997 to 99.3% in 2001.
20. Non- ad valorem  duties (i.e. specific, compound, and alternate duties) currently apply to 0.7%
of total tariff lines, a decline from 4.5% in 1997.6  In 2000, 366 tariff lines were converted to
                                                     
5  These are 32 ad valorem  rates, levied on the c.i.f. value of imports, ranging from zero to 300%;
22 specific rates;  and 13 compound rates (i.e. duties involving both specific and ad valorem  components).  For
all compound rates, the ad valorem  component is at 5%, and for the six alternate rates (i.e. duties involving
either ad valorem  or specific rates) the ad valorem  component is at 114%, 30%, or 25%.
6 Malaysia’s current applied MFN tariff schedule includes 36 lines with specific duties, covering
alcoholic beverages, tobacco product s, and pineapple;  35 lines with compound duties, covering tobacco
products, fruit, scrap ingot, and alums;  and 11 lines with alternate duties covering certain ethyl alcohol,industrial-type roller chain and parts, wire of alloy steel, compressors for automotive air-conditioners and tyresfor trucks.  By contrast, there were 149 lines with specific duties in 1997, 244 with compound duties and127 alternate duties.Malaysia WT/TPR/S/92
Page 29
ad valorem  duties, which came into force on 1 January 2000.  No current estimates of the ad valorem
equivalents (AVEs) for these duties were made available to the WTO Secretariat.  Given that such
duties tend to conceal relatively high AVEs, the level of applied MFN tariff protection could be
higher than the simple average (of all ad valorem  rates) of 9.2% in 2001.7
21. All duties have to be paid to the Customs and Excise Department prior to customs clearance.8
Power to fix the tariffs and exempt imports from payment of customs duties is vested with the
Minister of Finance, while all other matters relating to imports and exports are under  the Customs and
Excise Department.  The authorities indicate that a Special Advisory Committee on tariffs, within the
MIDA, is also involved in tariff policy matte rs;  the Committee makes recommendations to the
Ministry of Finance after evaluating the application to the MIDA submitted by the concerned
manufacturers requesting tariff protection.
(c) Tariff quotas
22. Although Malaysia included selected agricultural products in its WTO Schedule XXXIX for
tariff quota purposes, these quotas do not appear to be used in practice;  according to the authorities
tariff quotas are granted to applicants according to the amount demanded.
(d) Tariff bindings
23. Malaysia bound about two thirds of its tariff lines in its WTO Schedule XXXIX.  Bindings
are most prevalent for agriculture, food, and textile and clothing products.  Bound rates tend to be
above applied MFN rates9, which can impart a degree of uncertainty to Malaysia's tariff and providing
the Government with scope to raise applied tariffs;  with the onset of the Asian financial crisis in
1997, the Government raised some of its applied MFN tariffs (see below).
(e) Tariff levels
24. Since its previous Review, Malaysia has eliminated tariffs on selected food products,
petroleum, textiles, raw material for manufacturin g, heavy machinery, and information technology
products;  it has also reduced tariff rates for a number of tariff lines, in response to its WTO
commitments and the “Information Technology Agreement” or unilaterally.  Currently, 58.3% of
Malaysia's total tariff lines are duty free.  However, tariffs on imports of automobiles, construction
equipment, and certain appliances were raised in October 1997, and those on alcoholic beverages andtobacco products in October 1998.
10  As a result, the overall simple average tariff rate (excluding
ad valorem  equivalents of specific rates and specific components of compound and alternate duties)
increased from 8.1% in 1997 to 9.2% in 2001.
                                                     
7 According to the authorities, information concerning ad valorem  equivalents (AVEs) of non- ad
valorem  duties was not available.  Non- ad valorem  duties, i.e. specific, compound, and alternate duties, are
intrinsically more opaque than ad valorem  tariffs, and may conceal high AVEs.  Although in 1997, ad valorem
rates ranged from 0 to 200%, AVEs of non- ad valorem  duties ranged up to 1,772% (WTO, 1997, p. 38).
8 Customs and Excise Department (2001a).
9 For agriculture (HS 01-24), the average final (Uruguay  Round) bound rate is 11.8% as compared to a
2001 average applied rate of 3.5%.  Comparable bound and applied tariff rates for industrial products (HS 25-
97) were 16.6% and 9.9%.
10 In the 1998 budget, duties on automobiles, vans, and motorcycles were increased from 32-200% to
40-300% for CBU (completely built-up) and 5-42% to 30-80% for CKD (complete knocked-down) and dutieson construction equipment were raised from 0-35% to 5-50%.WT/TPR/S/92 Trade Policy Review
Page 30
(f) Tariff dispersion
25. Transport, notably automobiles,  is currently the most protected industry by ad valorem  tariffs.
Other products, such as beverages, spirits and vinegar;  plastic and rubber articles;  textiles and
clothing;  footwear, headgear and artificial flowers;  ceramic products, glass and glassware, are also
highly protected by ad valorem  tariffs (Chart III.1 and Table AIII.1).  By contrast, among the least
protected products are animals and animal products;  vegetable products;  animal and vegetable fatsand oils;  mineral products;  wood and articles thereof;  precious stones and articles thereof;  and
precision instruments, clocks and watches.
26. Judging from the standard deviation and coefficient of variation, tariff rates are more
dispersed in 2001 than in 1997.  This increase in dispersion can be attributed to the rise in the number
of lines with tariffs less than 10% and higher than 30% since 1997 (Chart III.2).
11  By contrast,
domestic tariff peaks (lines with tariffs exceeding three times the simple average tariff rate) as a
percentage of total tariff lines have declined, mainly due to the increase of the simple average applied
MFN tariff rate during this period.
(g) Tariff escalation
27. Overall MFN tariff escalation is more pronounced in 2001 than it was in 1997.  Between 1997
and 2001, the gap between tariffs on products in the first stage of processing and semi-processed
products increased owing to a decline in tariffs on th e former and an increase in tariffs on the latter.
The difference between tariffs on semi-processed and fully processed increased even further during
the period (Table III.2).  At the sectoral level, tariff escalation has increased in paper, printing and
publishing, and fabricated metal products and machinery (Chart III.3).
Table III.2
Applied MFN tariff averages by stage of processing, 1997 and 2001(Per cent)
1997 2001
Raw materials 1.0 0.9
Agriculture 0.6 0.5
Mining 1.0 1.0
Manufacturing 3.2 3.0
Semi-processed 7.0 7.7
Fully processed 11.9 13.6
Note: Calculations exclude specific rates and include the ad valorem  component alternate and compound rates.
Source: WTO Secretariat calculations, based on data provided by the Malaysian authorities.
                                                     
11 Currently, the maximum tariff is 300%, compared with 200% in 1997.Malaysia WT/TPR/S/92
Page 31
05101520253035404550
Per cent
HS Section
HS Section
I
II
III
IV 
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XVIII
XIX
XX
XXIDescription
Live animals;  animal products
Vegetable products
Animal or vegetable fats and oils;  prepared edible fats;  animal or vegetable waxes  Prepared foodstuffs;  beverages, spirits and vinegar;  tobacco and manufactured tobacco substitutes
Mineral products
Products of the chemical or allied industries
Plastics and articles thereof;  rubber and articles thereof
Raw hides and skins, leather, furskins and articles thereofWood and articles thereof
Pulp, paper and articles thereof
Textiles and textiles articlesFootwear, headgear, umbrellas, sticks, prepared feathers;  artificial flowers;  articles of human hair
Articles of stone, plaster, cement or similar articles;  ceramic products;  glass and glassware
Precious stones;  pearls;  precious metals and articles thereof;  imitation jewellery; coinBase metals and articles thereof
Machinery, mechanical appliances and electrical equipment and parts and accessories thereof
Vehicles, aircraft, vessels and associated transport equipmentPrecision instruments;  clocks and watches;  musical instruments;  and parts thereof
Arms and ammunition; parts and accessories thereof
Miscellaneous manufactured articles
Works of art, collectors' pieces and antiquesChart III.1
Simple average applied MFN tariff rates, by HS section, 1997 and 2001
Calculations exclude specific duties and include the ad valorem  component of alternate and compound rates.
 WTO Secretariat calculations, based on data provided by the Malaysian authorities.Note:     
Source :MFN 1997 
MFN 2001
Average applied
 MFN rate (2001)
9.2%Average applied
 MFN rate (1997)
8.1%WT/TPR/S/92 Trade Policy Review
Page 32
01,0002,0003,0004,0005,0006,0007,0008,000
Duty free >0- 5 >5-10 >10- 15 >15-20 >20-25 >25-30 >30MFN 1997
MFN 2001Number of tariff linesChart III.2                             
Distribution of MFN tariff rates, 1997 and 2001
Tariff rates
Calculations exclude specific duties and include the ad valorem component of alternate and compound rates.   Figures 
indicate percentage of lines under each tariff range;  the number of tariff lines decreased between 1997 and 2001.
WTO Secretariat calculations, based on data provided by the Malaysian authorities.Note:
Sourc e:
(h) Tariff adjustment
28. While import (and export) duties are generally revised annually during the budget exercises
and incorporated in the First Schedule to the Customs Duties Order of 1996, they may be revised at
any time.  For example, tariff protection for "deserving infant industries" may also originate from
applications by existing and potential manufacturers to the Malaysian Industrial Development
Authority (MIDA).12
(i) Tariff preferences
29. On 1 January 1998, Malaysia abolished tariff preferences granted previously to Australia and
New Zealand under bilateral agreements.  It has continued to grant tariff preferences to imports from
ASEAN, under the Common Effective Preferential Tariff (CEPT) Scheme for ASEAN Free-Trade
Area (AFTA) by further widening the product coverage and deepening the preferences.13
                                                     
12 A Special Advisory Committee on Tariffs (SACT) within the MIDA then evaluates the application
and forwards its recommendations to the Minister of Finance and the Minister of International Trade andIndustry for their approval.  Changes to the tariff structure are gazetted and take effect from a specified date.
13 Under the CEPT scheme, the number of tariff lines subject to preferences is to be increased gradually
by including them in the CEPT scheme and the tariffs applied to these lines are reduced over time.Malaysia WT/TPR/S/92
Page 33
0510152025
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishing Chemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherChart III.3
Tariff escalation by 2-digit ISIC industry, 1997 and 2001
Calculations exclude specific duties and include the ad valorem component of alternate and 
compound rates.  
WTO Secretariat calculations , based on data provided b y the Mala ysian authorities.0510152025
Food,
beverages
and tobaccoTextiles and
leatherWood and
furniturePaper,
printing and
publishingChemicals Non-metallic
mineral
products Basic metal Fabricated
metal
products and
machineryOtherAverage applied rate in manufacturing
(9.7%)
Note:
Source :Per cent
First stage of processing Fully processed Semi-processedPer cent
2001
Average applied rate in manufacturing
(10.9%)1997WT/TPR/S/92 Trade Policy Review
Page 34
30. By January 2001, Malaysia had included 96.6% of its total tariff lines in the CEPT scheme14;
91.7% of lines included already have tariff rates ranging from 0-5%;  60.4% are at zero.  Malaysia
requested an extension for not including automobile products, covering 218 tariff lines, into the CEPT
scheme until 2005 in view of the difficulties faced by the domestic auto industry;  the request was
accepted by the ASEAN Members at the ASEAN Economic Ministers Retreat in May 2000.Malaysia had placed 83 tariff lines on the Sensitive List of Unprocessed Agricultural Products;  these
cover swine and poultry products, tropical fruit, tobacco and tobacco products, and sugar.
15  Malaysia
has also placed rice on the Highly Sensitive List.16  Malaysia's General Exception List includes 53
tariff lines (32 tariff lines on alcoholic beverages and 21 tariff lines on weapons).
31. Whereas the simple average of applied MFN rates rose from 8.1% to 9.2% between 1997 and
2001, the simple average of AFTA tariffs decreased from 4.7% to 3.9%.17  The resulting widening in
the overall margin of tariff preference accorded to Malaysia's ASEAN partners increased the potential
for trade diversion.  During this period, AFTA tariffs declined significantly on a number of products.18
By contrast, AFTA tariffs on selected products increased,19 reflecting a rise in MFN tariff rates that
were included in the CEPT scheme at a later stage, and, in some cases, an exclusion from the CEPTscheme (as in the case of automobiles, sugar, al coholic beverages) (Chart III.4 and Table AIII.2).
32. In 2001, the preferences were more pronounced in plastic and rubber and articles thereof;
leather;  paper and paper products;  textiles and textiles products;  footwear, headgear and artificial
flowers;  articles of stone, cement, ceramic products, glass and glassware;  base metals and articles
thereof;  machinery, mechanical appliances and electrical equipment;  transport equipment;  and
miscellaneous manufactured articles (Chart III.5).
33. In addition to the tariff preferences granted under the CEPT scheme, the six original member
countries are granted tariff preferences ranging from a 50% to 100% reduction in MFN rates for
products not included under the CEPT scheme, under the ASEAN Preferential Trading Arrangement
(APTA) signed in 1977;  the APTA preceded the entry into force of the CEPT.  Products that are still
subject to the preferential trading arrangement incl ude certain fruits, alcoholic beverages, and tobacco
products.
                                                     
14 Tariffs on these items are to be dropped to 0-5% by the end 2002.
15 These tariff lines are to be included in the CEPT scheme by 2003, and their rates are to be gradually
reduced to 0-5% by the end of 2010.
16 Rice is to come under the CEPT scheme in 2005;  the authorities indicate that the tariff rate would be
20% in 2010.
17 The WTO Secretariat's estimates are based on the 9-digit HS 96 nomenclature used for Malaysia's
MFN Schedule and include MFN tariffs (excluding ad valorem  equivalents of specific duties and specific
components of compound and alternate duties) for lines that are as yet not covered under CEPT scheme.
18 These include prepared foodstuffs;  plastic and rubber and articles thereof;  leather articles; paper and
paper products;  textiles and textiles products; footwear , headgear and artificial flowers;  articles of stone;
cements;  ceramic products; glass and glassware;  and miscellaneous manufactured articles.
19 These include automobile products;  sugar;  fertilizer;  beverages, spirits and vinegar;  iron and steel;
and miscellaneous chemical products.Malaysia WT/TPR/S/92
Page 35
05101520253035
Per cent
HS Section
HS Section
I
II
III
IV 
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XVIII
XIX
XX
XXIDescription
Live animals;  animal products
Vegetable products
Animal or vegetable fats and oils;  prepared edible fats;  animal or vegetable waxes  Prepared foodstuffs;  beverages, spirits and vinegar;  tobacco and manufactured tobacco substitutes
Mineral products
Products of the chemical or allied industries
Plastics and articles thereof;  rubber and articles thereof
Raw hides and skins, leather, furskins and articles thereofWood and articles thereof
Pulp, paper and articles thereof
Textiles and textiles articlesFootwear, headgear, umbrellas, sticks, prepared feathers;  artificial flowers;  articles of human hair
Articles of stone, plaster, cement or similar articles;  ceramic products;  glass and glassware
Precious stones;  pearls;  precious metals and articles thereof;  imitation jewellery; coinBase metals and articles thereof
Machinery, mechanical appliances and electrical equipment and parts and accessories thereof
Vehicles, aircraft, vessels and associated transport equipmentPrecision instruments;  clocks and watches;  musical instruments;  and parts thereof
Arms and ammunition; parts and accessories thereof
Miscellaneous manufactured articles
Works of art, collectors' pieces and antiquesChart III.4
Applied AFTA tariff rates, by HS section, 1997 and 2001
Calculations exclude specific duties and include the ad valorem  component of alternate and compound rates.
 WTO Secretariat calculations, based on data provided by the Malaysian authorities.Note:     
Source :AFTA 1997
AFTA 2001
Average applied
 AFTA rate (1997)
(4.7%)Average applied
 AFTA rate (2001)
(3.9%)WT/TPR/S/92 Trade Policy Review
Page 36
05101520253035404550
Per cent
HS Section
HS Section
I
II
III
IV 
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XVIII
XIX
XX
XXIDescription
Live animals;  animal products
Vegetable products
Animal or vegetable fats and oils;  prepared edible fats;  animal or vegetable waxes  Prepared foodstuffs;  beverages, spirits and vinegar;  tobacco and manufactured tobacco substitutes
Mineral products
Products of the chemical or allied industries
Plastics and articles thereof;  rubber and articles thereof
Raw hides and skins, leather, furskins and articles thereofWood and articles thereof
Pulp, paper and articles thereof
Textiles and textiles articlesFootwear, headgear, umbrellas, sticks, prepared feathers;  artificial flowers;  articles of human hair
Articles of stone, plaster, cement or similar articles;  ceramic products;  glass and glassware
Precious stones;  pearls;  precious metals and articles thereof;  imitation jewellery; coinBase metals and articles thereof
Machinery, mechanical appliances and electrical equipment and parts and accessories thereof
Vehicles, aircraft, vessels and associated transport equipmentPrecision instruments;  clocks and watches;  musical instruments;  and parts thereof
Arms and ammunition; parts and accessories thereof
Miscellaneous manufactured articles
Works of art, collectors' pieces and antiquesChart III.5
Applied MFN and AFTA tariff rates, by HS section, 2001
Calculations exclude specific duties and include the ad valorem  component of alternate and compound rates.
 WTO Secretariat calculations, based on data provided by the Malaysian authorities.Note:     
Source :MFN  
AFTA
Average applied
 MFN rate 
(9.2%) Average applied
 AFTA rate
(3.9%)Malaysia WT/TPR/S/92
Page 37
(j) Tariff concessions
34. By and large, Malaysia's duty concessions to various persons/organizations under the
Customs Duties (Exemption) Order 1988 has remained unchanged since 1997.  The main duty
concessions accorded to imports and importers are listed in Table AIII.3.
35. Tariff exemptions in Malaysia can also be provided upon direct application on a case-by-case
basis to the Treasury.20  The Customs Act 1967 provides for refund and drawback in cases that are
deemed appropriate.  In cases where duty ha s already been paid on imported goods, refunds
amounting to 90% of duty paid are allowed upon the re-export of such goods.
(k) Tariff revenue
36. The importance of tariffs as a source of tax revenue has been declining over the years;   tariffs
accounted for only 5.8% of total revenue in 2000 compared with 9.9% in 1997.  The average rate ofcustoms duty collected on total imports also dropped from about 3.0% in 1997 to 1.3% in 2000.
21
(iii) Other charges affecting imports
37. In addition to tariffs, sales tax is levied on all imported goods at the same rates as those
applicable to domestic products (section (4)(ii)).  No rent is charged for warehousing of imported
goods if released within 48 hours.22  Handling charges at the rate of 20 cents per 100 kg. are levied for
weighing all dutiable goods for assessment purpose, if such weighing is not conducted by the
importers.  If handling other than for assessment of customs duty is performed by the Customs,
handling charges are levied at the rate of 80 cents per 100 kg.
(iv) Import prohibitions, restrictions, and licensing
38. Malaysia maintains import prohibitions mainly for moral and national security reasons;  it
also operates an import licensing/approval regime for a number of reasons, such as data collection and
monitoring, maintaining health, sanitary and phytosanitary conditions, protecting public morals, andmaintaining security and safety standards.  Malaysia also uses import licensing measures on a
discretionary basis to regulate import flows with a view to developing certain important infant and
strategic industries and promoting greater forward and backward linkages to achieve certain socio-
economic objectives.
23
39. The Customs (Prohibition of Imports) Order 1998 is the main instrument for import
prohibition and licensing.  The Order, which came into force on 1 June 1998, broadened the product
coverage of the import licensing regime.24  The authorities indicate that no trade sanction has been
                                                     
20 Examples of such cases are tariff exemption on machinery/equipment not directly used in the
manufacturing process, but essential to the manufacturing process and not produced locally;  input for
agriculture produce;  equipment for petroleum upstream  operations;  and sports equipment and accessories used
for competition at national/international level.
21 Estimated from Ministry of Finance (2001a) Table 4.3;  and Central Bank of Malaysia (2001).
22 However, charges for warehousing after this period are levied on an incremental basis.
23 APEC (2000a);  and WTO documen t G/LIC/N/3/MYS/1, 19 December 1997.
24 Customs (Prohibition of Imports) Order has four Schedules.  The First Schedule contains a list of
absolutely prohibited items;  the Second, Third and Fourth Schedules contain lists of items that are subject to
conditional prohibition.  Those in the Second Schedule are prohibited on security and environmental grounds,except if an import licence has been issued by the relevant authority, while those in the Third Schedule are forreasons of providing protective measures.  Items that require approval/licence under different laws are mainlyincluded in the Fourth Schedule.  Conditions of imports of the products included in Part I of the Fourth ScheduleWT/TPR/S/92 Trade Policy Review
Page 38
applied by Malaysia since 1997.  Malaysia restricted food imports on health and safety grounds in
1999 owing to the dioxin contamination in Belgium,  and in 2001 owing to the spread of BSE (Bovine
Spongiform Encephalopathy).25
40. Under the  Agreement on the CEPT scheme for the AFTA, Malaysia and other ASEAN
member countries are to phase out quantitative restrictions on imports of the products included in the
CEPT Scheme of Concessions, and eliminate all other non-tariff barriers on imports of these productson a gradual basis within five years.
26
(a) Import prohibitions
41. Since the previous Review of Malaysia, there have been no major changes in its list of
prohibited items, except for goods from Haiti, which have apparently been made freely importable.
Malaysia has continued to prohibit certain items on religious, security or environmental grounds.27
Since December 2000, a temporary ban on rice imports has been imposed with a view to stopping the
smuggling of rice into the country.  The ban applies to rice of a similar grade to rice produced by
domestic farmers.
(b) Import approval and licensing
42. Malaysia continues to apply import licensing requirements on various industrial and
agricultural products (Table AIII.4).  Since 1997, a number of heavy and construction equipment, hot
and cold rolled flat products of iron or non-alloy steel, ephedrine and its salts, Pseudoephedrine (INN)
and its salts, machines for making master compact discs and parts thereof, coin and medicine making
machines, and certain electrical household goods have been brought under the import
licensing/approval regime28;  however, import licensing has been removed on button and button
blacks of artificial plastic materials, polyethylene, polypropylene, diamonds, shotgun cartridges, coin
or disc operated amusement machines.29
                                                                                                                                                                    
are applicable to all imports, whereas the conditions fo r import of the products listed in Part II of the Fourth
Schedule are not applicable to Free Commercial Zones.
25 On 6 June 1999, Malaysia imposed a temporary ban on the import of beef, pork, poultry, eggs, milk
and their products, manufactured or processed after 15 January 1999 in Europe.  The ban was withdrawn on20 March 2000.  However, imports of products derived from pigs and poultry reared in Belgium from
15 January and slaughtered before 20 September 1999 have been permitted upon submission of a certificate that
the products are not contaminated.  Furthermore, temporary bans were imposed on imports of beef and beefproducts, including offal and live cattle and processed pr otein, from certain European countries and on imports
of cloven-hoofed animals from the United Kingdom (WTO documents G/SPS/N/MYS/6, 10 June 1999;G/SPS/N/MYS/6/Add.1, 29 June 1999; G/SPS/N/MYS/6/Add.2, 17 March 2000; G/SPS/N/MYS/7,16 January 2001; G/SPS/N/MYS/8, 26 February 2001;  and G/SPS/N/MYS/9, 5 March 2001).
26 ASEAN (2001).
27 Prohibited goods are articles bearing the imprint or reproduction of any currency note, bank note or
emblems and devices for which there might be a reasonable presumption that they will be used in a mannerprejudicial to or incompatible with peace, welfare or good order in Malaysia; indecent or obscene articles;  cloth
bearing the imprint or reproduction of any verses of the Koran;  daggers and flick knives;  certain broadcastreceivers;  certain liquors containing lead;  sodium arsenite ;  all genus of Piranha fish;  turtle eggs;  cocoa pods,
rambutan, pulasan, longan and namam fruits produced in the Philippines and Indonesia; pens, pencils and other
articles resembling syringes; and certain poisonous chemicals.
28 Customs (Prohibition of Imports) Order 1998; WTO documents G/LIC/N/3/MYS/1,
19 December 1997 and G/LIC/N/2/MYS/2, 6 September 1999.
29 APEC (1999).Malaysia WT/TPR/S/92
Page 39
43. Thus, overall, the number of tariff lines subject to a non-automatic import licensing
requirements would appear to have increased since 1997;  some 27.3% of Malaysia's tariff lines are
subject to such requirements, compared with 17% in 1997.30  Licensing requirements were most
pervasive in forestry and logging31;  animals and animal products;  vegetable products; chemical
products;  machinery and electrical products, transportation equipment (notably automobiles), and
arms and ammunition (Chart III.6).
44. The Customs and Excise Department is responsible for enforcement of import licence
requirements, while authority to issue licences/approval is vested in the relevant ministries and
agencies (Table III.3).  Automatic licences issued by the Ministry of International Trade and Industry
are intended to facilitate data collection.  In most cases, non-automatic licensing on a discretionary
basis is used to regulate the flow of imports (through annual quota allocation) in order to promoteselected strategic industry.
32
Table III.3
Ministry/agency responsible for issuing licences, 2001
Product groups Ministry/agency issuing licence
General goods and motor vehicles Ministry of Intentional Trade and Industry
Fish and fish products Fisheries Department
Plants and plant product, pests, and rice, paddy including
rice flour, rice polishing, rice bran, and rice vermicelliDepartment of Agriculture
Animals (domestic) and animal products Department of Veterinary Services, Ministry of Agriculture Malaysia
Wild animals and corals Wildlife Department and Department of Veterinary Services
Wood and wood products Malaysian Timber Industry Board
Cabbage and coffee Federal Agricultural Marketing Authority
Tobacco Ministry of Primary Industry
Palm oil Malaysian Palm Oil Board
Pesticides and toxic chemicals Pesticide Board
Pharmaceutical goods Ministry of Health
Arms The Royal Malaysian Police
Telecommunication equipment SIRIM QAS Sdn. Bhd.
Electrical goods Department of Electricity Supply
Toxic and hazardous wastes Department of Environment
Toxic chemicals and their precursors Department of Environment
Coin- or disc-operated amusement machines and video
machinesMinistry of Finance
Radioactive material/irradiating apparatus Atomic Energy Licensing Board
Source: Customs (Prohibition of Imports) Order 1998;  and WTO document G/LIC/N/3/MYS/1, 19 December 1997.
                                                     
30 Currently, 1,168 lines covering wood and wood products are subject to import licensing;  these lines
account for 11.3% of Malaysia's total tariff lines.
31 The authorities maintain that forestry and logging activities can have detrimental environmental
effects if left uncontrolled;  licensing is necessary to ensu re monitoring and control of these activities, and if left
unlicensed there would be "fly by night" operations and more irresponsible logging.
32 WTO document G/LIC/N/3/MYS/1, 19 December 1997.WT/TPR/S/92 Trade Policy Review
Page 40
0102030405060708090100
Per cent
HS Section
HS Section
I
II
III
IV 
V
VI
VII
VIII
IX
X
XI
XII
XIII
XIV
XV
XVI
XVII
XVIII
XIX
XX
XXIDescription
Live animals;  animal products
Vegetable products
Animal or vegetable fats and oils;  prepared edible fats;  animal or vegetable waxes  Prepared foodstuffs;  beverages, spirits and vinegar;  tobacco and manufactured tobacco substitutes
Mineral products
Products of the chemical or allied industriesPlastics and articles thereof;  rubber and articles thereof
Raw hides and skins, leather, furskins and articles thereof
Wood and articles thereof
Pulp, paper and articles thereof
Textiles and textiles articlesFootwear, headgear, umbrellas, sticks, prepared feathers;  artificial flowers;  articles of human hair
Articles of stone, plaster, cement or similar articles;  ceramic products;  glass and glassware
Precious stones;  pearls;  precious metals and articles thereof;  imitation jewellery; coinBase metals and articles thereof
Machinery, mechanical appliances and electrical equipment and parts and accessories thereof
Vehicles, aircraft, vessels and associated transport equipmentPrecision instruments;  clocks and watches;  musical instruments;  and parts thereof
Arms and ammunition; parts and accessories thereof
Miscellaneous manufactured articlesWorks of art, collectors' pieces and antiquesChart III.6
Import licensing, by HS section, 2001
Note:       Calculations based on HS 9-digit.
Source :   WTO Secretariat calculations, based on data provided by the Malaysian authorities.Percentage of all tariff lines subject 
to import licensing
(27.3%)Malaysia WT/TPR/S/92
Page 41
45. During the review period, Malaysia has participated in the WTO Committee on Import
Licensing Procedures;  it has submitted replies to the questionnaire on import licensing procedures
and notified imposition of new licensing procedures for imports of cold and hot rolled flat products of
iron or non-alloy steel.33  Malaysia has not made notifications to the WTO Committee on Import
Licensing pursuant to Articles 1.4(a) or 8.2(b).34  In a communication by a WTO Member, concerns
were expressed regarding the purpose and application of the import licensing regime on certain heavyand construction equipment, of which certain aspects appear to be non-automatic in nature.  Malaysia
maintained that this regime was introduced to ensu re utilization of existing idle machinery in order to
optimize the use of foreign exchange, and was automatic in nature.
35
(v) Contingency measures
46. Malaysia revised its anti-dumping and countervailing legislation with a view to bringing it
into conformity with the WTO Agreements on Anti-dumping and on Subsidies and Countervailing
Measures.  The Countervailing and Anti-dumping Duties Act 1993 was amended in December 1998
through the Countervailing and Anti-Dumping  Duties (Amendment) Act 1998 (Act A 1046).  In
November 1999, the relevant Regulations were also revised.  Both the Act and Regulations came into
force on 1 December 1999.36  The regulatory changes incorporated in this legislation include matters
such as definition of like products;  dumping calculation;  definition of prohibitive, actionable and
non-actionable subsidies;  inclusion of negligible import volume and  de minimis  margin of dumping
and subsidy;  initiation of investigation;  non-market economy;  and judicial review.37
47. Currently there is no safeguard legislation in Malaysia.
48. Since 1997, Malaysia has initiated five anti-dumping investigations, of which three were
provisional measures;  four resulted in definitive measures and one was terminated without any
determination.  As at 5 April 2001, Malaysia had in place anti-dumping duties against imports of:self-copy paper from the European Union, Indonesia, and Japan;  corrugating medium paper from
Australia, the European Union, Indonesia, and the Republic of Korea;  and plaster/gypsum board from
Thailand.  Anti-dumping duties imposed on imports of PVC floor from the Republic of Korea and
Thailand on 16 March 1996 were withdrawn on 16 March 2001.  No countervailing duties were
imposed during these period.
49. As of 12 December 2000, seven Malaysian products were subject to anti-dumping duties in
the European Union, anti-dumping duties on one product terminated on 21 October 2000 and one
product is under investigation.  In addition, there were countervailing duties in the EU against
two Malaysian products.  The United States imposes anti-dumping duty on one Malaysian product
and has imposed preliminary duties on two Malaysian products.
(vi) Government procurement
50. Malaysia's government procurement policy is intended to encourage greater business
participation of Bumiputera, promotion of local industries, and the transfer of technology and
expertise.  Malaysia is not a party to the WTO Agreement on Government Procurement;  the
authorities are of the view that Malaysia has yet to attain the level of economic development that
                                                     
33 WTO documents G/LIC/N/3/MYS/1 and G/LIC/N/2/MYS/2, 6 September 1999.
34 WTO document G/LIC/7, 14 February 2001.
35 WTO documents G/LIC/Q/MYS/1, 23 October 1998, and G/LIC/Q/MYS/2, 17 January 2000.
36 WTO documents G/ADP/N/1/MYS/Add.1, and G/SCM/N/1/Add1, 22 May 2000.
37 WTO documents G/ADP/N/1/MYS/Add.1, and G/SCM/N/1/Add1, 22 May 2000.WT/TPR/S/92 Trade Policy Review
Page 42
would enable it to be a party to this Agreement.   Nonetheless, they consider the Working Group on
Transparency in Government Procurement as a useful educational forum.
51. The Financial Procedure Act 1957 and the Government Contracts Act 1949 are the main legal
instruments providing the guidelines for Malaysian government procurement procedures.  These Acts
have not been amended since the previous Review  of Malaysia.  The Treasury Instructions and
Treasury Circulars Letters provide details of financial and accounting procedures and clarify andimprove certain policies, rules, and regulations.  The Ministry of Finance is the central federal
procurement agency;  it managed procurement amounting to RM 1.57 billion in 2000.  Each Ministry
has its own procurement unit, but supplies and services contracts with a value above RM 15 million
and works contracts with a value above RM 30 million are referred to the Ministry of Finance.  The
Ministry also procures common-use items (e.g. office equipment and supplies, furniture, and vehicles)usually through open local tenders, i.e. foreign companies cannot participate in such tenders unless the
supplies or services are not available locally.  Federal procurement regulations generally apply to
procurement by State Governments, local government  authorities, the 58 Statutory Bodies of Federal
Government and the three largest Non-Financial Public Enterprises (NFPEs:  i.e. PETRONAS,
Tenaga Nasional and Telekom Malaysia Berhad (Limited)).
38  However, with the concurrence of the
Ministry of Finance, local government authorities and statutory bodies are allowed flexibility in
adopting and adapting the financial regulations.
52. Between 1996 and 2000, procurement of goods, services, and works doubled to reach around
RM 74.1 billion (Table III.4), which accounts for 21.8% of GDP.39  Development expenditures of the
Federal Government and NPFEs were major compone nts of  government procurement, representing
about 34.1% and 39.1%, respectively, of the total procurement budget in 2000.40
Table III.4
Government procurement, 1996-2000
(RM million)
1996 1997 1998 1999 2000
Federal government expenditure on supplies and services .. 6,363 5,212 6,074 7,930
Federal government development expenditure 14,628 15,749 18,103 22,614 25,286
State government development expenditure 3,584 4,442 4,321 3,826 5,661
Local government development expenditure 782 824 1,428 1,262 1,225
Statutory bodies' development expenditure 1,810 1,442 1,357 2,540 3,065
Non-financial public enterprises 15,512 21,341 27,178 26,252 28,942
Total 36,316 52,158 59,597 64,567 74,109
.. Not available.
Source: Estimated from Ministry of Finance (2001a), Economic Report 2000/2001 Annex tables 4.4, 4.6, 4.10, 4.11, 4.12,
4.13, and 5.9 [Online].  Available at:  http://www.treasury.gov.my/bs2001/er2001.htm [20 March 2001].
                                                     
38 Items with a value of more than RM 50 million procured by PETRONAS, Tenaga Nasional and
Telekom Malaysia must be referred to the Ministry of Finance.
39 Malaysian government procurement is categorized into three classes:  supplies, services (including
engagement of manpower, expertise and consultants, research, designing, and repairs), and works (includingconstruction and engineering activities).
40 Development expenditure by the three largest NFPEs, i.e. PETRONAS, Tenaga Nasional and
Telekom Malaysia, accounted for 81.6% of total development expenditure of NFPEs in 2000.  The expenditureinvolved mainly construction and expansion of petrochemical projects by PETRONAS, upgrading andexpansion of the transmission and distribution network by Tenaga Nasional, and expansion and modernizationof the telecommunication network by Telekom Malaysia (Ministry of Finance, 2001a).Malaysia WT/TPR/S/92
Page 43
53. For supplies and services contracts between RM 100,000 and RM 15 million, Bumiputera
suppliers receive a margin of preference of between 2.5% and 10%;  the margin is inversely
proportional to value.  In addition, preferential treatment is given to Bumiputera manufacturers for
locally produced goods;  the preference margin is up to 10% for contracts valued below
RM 10 million and up to 3% for contracts valued above RM 100 million.41  No preferences are
provided for purchases exceeding RM 15 million.
54. Only registered Bumiputera suppliers have access to all supplies and services contracts with a
value between RM 10,000 and RM 100,000, and procurement orders for works up to RM 100,000.
For works valued between RM 100,000 and RM 350,000, 50% of the total value is reserved for
Bumiputera contractors, while registered local contractors (including Bumiputera) have access to the
remaining 50%.  In aggregate, 30% of all annual works conducted by the agencies must be reservedfor Bumiputera contractors;  the remaining 70% must be open to competitive bidding.  In the
procurement of works, foreign companies that su ccessfully won tenders must carry out the work
concerned as a joint venture with local companies.
55. Procurement of supplies, services and works up to RM 50,000 may be via direct purchase
from registered Bumiputera suppliers/contractors.  Purchases of supplies and services valued betweenRM 50,000 and RM 100,000, and non-requisition works exceeding RM 20,000 and up to RM 100,000
require quotation from registered Bumitutera suppliers/contractors.
42  Supplies and services above
RM 100,000 and up to RM 200,000 require quotations from registered contractors including non-
Bumiputera contractors.  All procurement above RM 200,000 must be through an open tender
process, in which all bidders must be registered with the Government.  No threshold value is specified
for international tender, which is only called when the goods are not locally available.
56. Procurement of goods, services, and works above the value of RM 50,000 are considered and
decided by the Government Procurement Boards.43  However, tenders above the value of
RM 15 million for goods and services, and RM 30 million for works, or any other decisions of
Government Procurement Boards that are not unanimous, irrespective of value, are forwarded to the
Ministry of Finance for final decision.
57. All open tenders are to be advertised in the local newspaper Bahasa Malaysia , in the case of
local tenders, and in two local newspapers ( Bahasa Malaysia  and an English paper), in the case of
international tenders.44  The Ministry of Finance may approve restricted tenders if the number of
suppliers is limited;  it may also approve direct negotiation if there is only one supplier, and, in case of
works, if the project is in need of urgent completion.   All individuals or companies wishing to
participate in government procurement must regi ster with the Government Procurement Division in
the Ministry of Finance, for supplies and services, and with the Contractors Service Center in the
Ministry of Entrepreneur Development and the Construction Industry Development Board, for works.
                                                     
41 APEC (2001a).
42 "Requisition works" are minor works, repairs and maintenance works, costing not more than
RM 50,000, which do not involve the structure of a building.  Such works may be carried out using pre-approved schedule rates.  "Non-requisition" works are minor works, repairs and maintenance works that mayinvolve the structure of a building and include electri cal and mechanical works;  there are no pre-approved
schedule of rates.
43 All tenders, at first are evaluated by two committees (Technical and Financial) on the basis of pre-
determined criteria and weightage for evaluation and then submitted to the Government Procurement Boards.
The Federal Government Procurement Boards are established at each Federal Ministry and appointed by theMinistry of Finance.  State Procurement boards are appointed by the Chief Minister of State (APEC, 2001a).
44 International tenders are also circulated to embassies and high commissions.  Some tenders are also
published in the Malaysian civil service online information.  Available at:  http://mcsl.mampu.gov.my/.WT/TPR/S/92 Trade Policy Review
Page 44
In the case of international tenders, there is no need for registration when bidding but the successful
bidder needs to register with the Construction Industry Development Board.
58. Public tenders may be contested to the procuring authority if there is a suspicion that
specifications for a particular tender are tailored to an individual brand or product.  Challenges must
be filed within 14 days of the tender advertisement;  if sustained they lead to cancellation of the
tender;  data regarding the number of challenges were not available.
(vii) State-trading
59. The only state-trading enterprise within the meaning of Article XVII:4(a) of GATT 1994, the
National Paddy and Rice Board, was corporatized on 7 July 1994.  Following this corporatization, the
Board was dissolved and all its regulatory functions and activities were transferred to the Ministry of
Agriculture.  Its commercial activities, on the other hand, were taken over by the  Padiberas Nasional
Berhad (BERNAS), a new company registered under the Companies Act 1965.  BERNAS was then
partly privatized in 1995 through a sale of equity .  BERNAS has been listed in the Kuala Lumpur
Stock Exchange since 25 August 1997.
60. The commercial activities of BERNAS include paddy procurement, rice milling and rice
trading.  BERNAS operates strictly as a business concern except for the arrangement to carry outcertain non-commercial activities on behalf of the Government (i.e. the management of the national
rice stockpile, the disbursement of the paddy subsidy payments, and the procurement of paddy from
farmers).  In consideration of its agreement to perform the above non-commercial activities on behalf
of the Government, BERNAS has been given the exclusive right to import rice into Malaysia for a
period of 15 years following the signing of the agreement in 1996.
(viii) Local-content requirements and the vendor programme
61. Malaysia continues to implement a local-content requirement policy on motor vehicles, as a
condition for establishing a new industry as well as for existing industry;  however, on 1 January 2000
it eliminated other local-content requirements tied to investment incentives.
45
62. During the period under review, Malaysia continued to implement several programmes, such
as the Industrial Linkage Programme (ILP) and the Vendor Development Programme, to promote
domestic industry.  The objective of the programmes is to assist in the development of Malaysiansmall and medium-sized enterprises (SMEs) as manufacturers and suppliers of components required
by large companies and multinational corporations.  Although these programmes do not require the
use of local materials and services, they do promote the use of such intermediate inputs through
financial, technical, and other related assistance.
46
63. The ILP, introduced in 1997 and implemented by the Small and Medium Industries
Development Corporation (SMIDEC), is a cluster-based industrial development programme under the
Second Industrial Master Plan (Second IMP) (1996-2005).  One of the objectives of the ILP is to
deepen and diversify the country’s industrial base towards high-value-added activities in the priority
                                                     
45 On 29 December 1999, Malaysia requested that the deadline for elimination of local-content
requirements for motor vehicles be extended to 31 Dece mber 2001 in view of difficulties faced by the Malaysian
motor vehicle industry during the financial crisis (WTO document G/C/W/174, 12 January 2000).
46 For a summary of the assistance under these programmes see SMIDEC online information.
Available at:  http://www.smidec.gov.my.Malaysia WT/TPR/S/92
Page 45
sectors.47  To be eligible to participate in the ILP, the linkage companies must be incorporated under
the Companies Act 1965, with paid-up capital of not less than RM 100,000, and at least 51% of equity
must be Malaysian.48  Since the inception of the programme, a total of 128 SMEs have been linked
with large firms with orders totalling RM 113.5 million.
64. Since 1999, Malaysia has implemented the Gl obal Supplier Programme (GSP), which
represents the next phase of the ILP.  The GSP is aimed at enhancing the capacity and capability ofSMEs to provide world-class products and services to large corporations, supplying not only their
operations in Malaysia but also to their operations world-wide.  The GSP involves two initiatives:
training of workers of existing or potential suppliers in management skills, as well as in new skills and
technologies;  and the linkage programme whereb y large/multi-national corporations adopt local
companies and ‘hand-hold’ them for upgrading in leadership skills and technology.  The eligibilitycriteria under GSP are:  SMEs as defined under SMIDEC  terms;  relevant industrial experience;  more
than three years in business;  submission of a business plan; financially sound;  and commitment to
training and partnership for two years.  SMIDEC provides funding for GSP training for SMEs under
the Skill Upgrading Programme.  To date, a total of 875 employees from 245 SMEs have been trained
under the training initiative.  As for the linkage initiative, ten SMEs have been linked with ninelarge/multi-national corporations.
65. The Vendor Programmes, implemented by the Ministry of Entrepreneurs Development, are
targeted at the development of backward linkages in selected sectors.
49  During 1996-2000, vendor
schemes worth a total of RM 10.1 billion were offered to 501 companies, of which 347 were
Bumiputera-owned.50
(ix) Other measures
66. There are no import or export cartels known to the Malaysian authorities.  Currently, the
Government engages in one countertrade deal with India.  The deal covers Malaysian exports of palm
oil and a design, testing, commission, and guarantee of rail link in Malaysia by an Indian firm;  the
value of the project is about US$121 million.
(3) MEASURES DIRECTLY AFFECTING EXPORTS
(i) Procedures
67. Exporters of palm oil and selected palm products, natural rubber, pepper, pineapple, and
selected timber are subject to an export registration requirement.  Approval from the relevant licence
issuing authority may be required for exports of cert ain products (Table AIII.5).  Although prices for
                                                     
47 Priority sectors include electrical and electro nics, transportation equipment, machinery, and
engineering industries, and resource-based industry.
48 Since 1998, the threshold for paid-up capital to be eligible for the ILP has been lowered from
RM 250,000 to RM 100,000, and the foreign equity restriction has been relaxed from 30% to 49%.
49 Automotive, electrical and electronics, plastics, rubber-based, wood-based, telecommunications,
film-production, ceramics, and shipbu ilding industries, and export in general.  The type of activities promoted
are the supply of products and components, repair and remedial works as well as operations and maintenance
works, including those in the utility and services sectors in privatized companies by the Bumiputeraentrepreneurs.
50 During this period Peruahan Otomobil Nasional Berhard (PROTON) alone undertook a component
scheme programme worth RM 8.2 b illion (Economic Planning Unit, 2001a).WT/TPR/S/92 Trade Policy Review
Page 46
crude petroleum, palm oil, and palm kernel are determined by market forces, export duties on these
products are calculated on the basis of a gazetted price determined by the Customs Department.51
68. For exports exceeding RM 100,000 f.o.b. per shipment, exporters are required to submit to
Bank Negara Malaysia the foreign exchange control form "KPW X" or online a declaration form
through the Port Klang Community System or ot her Community Systems (EDI systems).  Exporters
are permitted to retain a portion of their export proceeds in approved foreign currency accounts withonshore commercial banks.  The overnight limits on balances in these accounts are based on the
average monthly export proceeds of the exporting firms, up to an aggregate overnight limit between
US$1 million and US$10 million.
52  Exporters wishing to retain the export proceeds in foreign
currency above the limit with an onshore bank, or with banks overseas, including Labuan offshore
banks, must seek approval from Bank Negara Malaysia.53
69. The authorities indicate that Malaysia does not have minimum export price regulations.
(ii) Export taxes, charges, and levies
70. Out of 10,368 tariff lines, 710  lines are subject to export duties, of which nine are specific and
701 are ad valorem ranging from 2.5% to 30%.54  Specific export duties on selected palm oil products
are levied at rates that vary  directly with the value per tonne of the exported products.55  The overall
average of the ad valorem  export duties is 11.7%.56  Seventy-two tariff lines are subject to both import
and export duties;  these include selected fish products, birds' eggs, avocados, certain citrus fruits,
semi-processed palm oil, refined petroleum, articles of stone, and remelting scrap ingots.  Export duty
on crude palm oil is calculated on the gazetted price, which is fixed on a weekly basis by the Customs
Department, while the duty on processed palm oil in Category I and II is calculated based on 5% of
the weekly gazetted price for the respective products under each category.  Currently, processed palm
oil products under Category I and II are exempted from export duty.
71. Exports of palm oil, palm kernel oil57, and rubber (under HS4001)  from Sabah and Sarawak
are subject to a duty rebate of 30% on dutiable products.  Timber (log and sawn) produced in and
exported from Sabah is exempt from payment of any export duties provided royalties have been paid.
Similarly, rattan exported from Sabah and Sarawak is subject to a lower rate.58  Exports of crude oil
by PETRONAS are accorded a 10% exemption from export duties;  in the assessment of duties for
                                                     
51 For details, see WTO (1997), p. 57, footnote 44.
52 Exporters with average monthly export receipts exceeding RM 20 million are allowed to retain up to
US$10 million;  with average monthly export receipts above RM 10 million and up to RM 20 million, up toUS$5 million;  with average monthly export receipts between RM 5 million and RM 10 million, up toUS$3 million;  and with average monthly export receipts of less than RM 5 million, up to US$1 million.
53 Bank Negara Malaysia (2001a).
54 Products subject to export duties include certain fish, birds' eggs, certain fruit and nuts, palm seeds,
gum and resin, rattan, crude and semi-processed palm oil, palm kernel, animal feeds, slags, magnesite,petroleum oil, rough wood, articles of stones, certain precious metals, ferrous waste and scraps, certain basemetals and their waste.  In 1997, there were a total of 10,732 tariff lines, of which 324 were subject to exportduties:  17 were specific and 307 ad valorem  (WTO, 1997, p. 58).
55 See WTO (1997), p. 58 for details.
56 In 1997, the average was 7.8% (WTO, 1997, p. 58).
57 Falling under HS 15.11, 15.13, 15.16, 15.17 and 15.18.
58 Falling under HS1401.20.100, 14 01. 20.910,1401.20.920 and 1401.20.990.  Customs Duties
(Exemption) Order 1998.Malaysia WT/TPR/S/92
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exports of crude oil, deductions are provided for up to 20% of oil cost under old production-sharing
contracts and 50% of actual cost under new production-sharing contracts.59
72. Rubber produced in Malaysia is subject to a research cess at the rate of RM 26.5 per tonne,
and a development/replanting cess at the rate of RM 9.9210 per tonne;  exports of tin are subject to a
research and development cess.60
73. Revenue from export duties decreased from RM 1,053 million in 1997 to RM 623 million in
1998, but increased to RM 1,133 in 2001.  The bulk of export duties was derived for from crude
petroleum, which accounted for 97% of total export duties collected in 2000.61
74. The authorities maintain that promoting the use of locally  produced commodities in domestic
downstream industries is one of the main objectives of export duties;  in the case of forestry products,
export duties are also regarded as an effective means of forestry management.  Export restrictionsmay not be the best way to tax resource rents and thereby ensure the sustainability of Malaysia's
forests;  more efficient alternatives include, for example, the auctioning of logging quotas or the
imposition of stumpage fees.  According to the authorities, however, export duties are used by the
Federal Government because such alternatives cannot be imposed on the State governments, within
whose jurisdiction taxation of natural resources, like forestry, apparently lies, although some states douse tendering for logging quotas, in combination with fixed premium charges, and incorporate
stumpage values into royalty calculations.
(iii) Export prohibitions, restrictions, and licensing
75. In 1998, a new Customs (Prohibition of Export s) Order 1998 was introduced without major
changes to the content or procedural requirement on export prohibitions, restrictions or licensing
requirements.  The First Schedule carries the list of items prohibited for exports;  the Second and
Third Schedules carry lists of items subject to conditional prohibition.  Exports of goods, thoughmainly regulated by this Order, may also be affected by other laws.
62
76. The prohibited exports listed in the First Schedule are turtle eggs and rattan from Peninsular
Malaysia (except rattan classified under tariff lines 1401.20.910 and 1401.20.920).  Since the previous
Review of Malaysia, no changes appear to have been made in the list of products subject to export
licences.  Since 6 October 2000, exports of diesel fuel exceeding 20 litres have been prohibited underthe Control of Supplies (Prohibition on Export) Regulations 2000.
63
77. Any company can apply for an export licence;  licences are issued free of charge.  Exporters
are required to submit an export declaration form for MITI’s endorsement;  endorsement documents
are regarded as export licences unless specific licences are required.  Export licences for textile and
clothing products to countries that apply import quotas under the WTO Agreement on Textiles andClothing are issued only up to the limit allowed by the importing country.
64  Allocation of quotas for
                                                     
59 Ministry of Finance (2000).
60 Ministry of Finance (2000).
61 Estimated from Ministry of Finance (2001a) Table 4.3.
62 Paragraph 9 of the Customs (Prohibition of Exports) Order 1998 states "the issue of any license or
permit under this Order shall be without prejudice to the provisions of any law which for the time being
provides for the control and regulation of currency and exchange, or any other law which for the time being
provides for the control or regulation of exportation of goods."
63 Ministry of Domestic Trade and Consumer Affairs (2000a).
64 Currently, Canada, the European Union, and the United States maintain the import quotas on
Malaysia's exports.WT/TPR/S/92 Trade Policy Review
Page 48
textile and clothing is based on a few criteria, i.e. bona fide manufacturing companies, production
capacities, specialization of manufacturers in manufacturing a certain category of products, and
availability of quotas as per restraining level imposed by importing countries.  Export of sand is
subject to export licensing.65  Export licences are not required for exports of goods imported by or on
behalf of the federal or state government and for goods exported from free zone.66
78. In 2001, 36.2% of Malaysian total tariff lines were subject to export licensing requirements.67
Licensing requirements were most pervasive in the cases of forestry products, animals and animal
products, mineral products, chemicals, textiles an d clothing, footwear and headgear, and arms and
ammunition (Chart III.7).
79. The authorities are not aware of any export cartels;  they indicate that no voluntary export
restraints are maintained in Malaysia.
(iv) Duty and tax concessions
(a) Duty and sales tax exemption on imported inputs for exports
80. Imports of machinery, equipment, raw materials, and components used for the manufacture of
products for export are exempt from import duty and sales tax, where such items are not produced
locally or, if produced locally, are not of acceptable quality and price.
(b) Duty and sales tax drawback for exports
81. A drawback is provided for import duty and sales tax as well as excise duty paid on raw
materials and packaging of finished goods that are subsequently exported.  For imported goods that
are subsequently exported within twelve months, 90% of import duties and the full amount of sales
tax are refunded.68  Data on the amounts refunded and beneficiaries of such refunds were not
available, as records are apparently not kept.
(c) Export processing zones
82. Malaysia maintains two types of facilities for export processing with minimum customs
formalities.  They are the licensed manufacturing warehouses, which are entitled to carry out
manufacturing process in the Principal Customs Area69, and free zones, which consist of free
industrial zones for manufacturing activity and free commercial zones for commercial activity.70
                                                     
65 The authorities regard sand as a depleting resource whose extraction is deemed to have an adverse
impact on the environment.  Insofar as it reduces the domestic price of sand, the restriction on exports of sand,which is also intended to cater to the demands of the domestic construction industry, favours the latter at theexpense of domestic suppliers of sand.
66 Customs (Prohibition of Exports) Order 1998.
67 Wood and wood products account for half of these lines (1,928 lines), or 18.6% of Malaysia's total
tariff lines.
68 Customs Act 1967, Excise Act 1976, 1972 and  Sales Tax Act 1972.
69 Principal customs area means any part of Malaysia but excluding a free zone, Labuan and Langkawi.
70 Commercial activity includes trading (except retail trading), breaking bulk, grading, repacking,
relabelling, and transit.WT/TPR/S/92 Trade Policy Review
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83. Except for selected items71, any goods may be brought into, produced or provided in the free
zones without payment of any customs duty, excise duty, sales tax or service tax.  In the case of free
industrial zones, only goods used directly for manufacturing other goods, and goods manufactured in
any part of the Principal Customs Area for export  purposes are allowed to be brought in without
payment of customs duty, excise duty or sales tax.72  Licensed manufacturing warehouses are allowed
to import free of customs duty and sales tax all raw materials and components used directly in themanufacture of approved products included in the list of raw materials and components issued with
the manufacturing warehouse licence.
73  As of May 2001, there were 14 free industrial zones, 12 free
commercial zones, and 1,934 licensed manufacturing warehouses.
84. Free zones are operated under the Free Zone Act 1990, while the licensed manufacturing
warehouses are operated under the Customs Act 1967.  The Free Zones Act 1990 was amended witheffect from 1 January 1998;  the amendment, inter alia,  replaced the definition of "value" in relation
to imported goods with a view to bringing it in line with the new valuation regime on imported goods
under the WTO Agreement.  Both free zones and licensed manufacturing warehouses are regulated by
the Customs and Excise Department.  No data were available on the value of the free zones' exports
and imports.
(v) Export subsidies
85. The authorities maintain that Malaysia has no di rect export subsidies.  However, incentives
are provided to exporters in the form of tax exemptions (section (iv)(b)).
(vi) Export finance, insurance, and guarantees
(a) Export credits
86. Under the Export Credit Refinancing (ECR) sc heme, short-term financing at a competitive
interest rate, regulated and financed by Export-Import Bank of Malaysia (Exim Bank), is available viacommercial banks.
74  Manufacturing companies, trading companies, and indirect exporters (i.e.
suppliers to direct exporters) are eligible for the ECR.  The Negative List of Exim Bank’s ECR
Guidelines, last published on 1 January 1999, lists products that are not eligible for the loan scheme.75
ECR is applicable to exports from Malaysia to all countries except those prohibited by theGovernment.
76  Outstanding credit under the ECR scheme decreased from RM 1,269.3 million to
RM 1,142.6 million between 1997 and 2000, while the banks' operating income increased from
RM 19 million to 82 million.
87. Two types of facility are available to exporters under the ECR scheme;  they involve pre- and
post-shipment ECR.77  The maximum limit of financing is RM 50 million for pre-shipment and
                                                     
71 These include forklifts; office equipment/furniture; fire fighting and pollution control equipment;
construction/building material and equipment; motor ve hicles and spare parts; petroleum/petroleum products;
tyres; explosives and chemicals; air conditioning equipment; manufacturing aids;  and all goods and services
that are not used directly in the activities  (Free Zones (Exclusion of Goods and Services) Order 1998).
72 Custom & Excise Department (2001b).
73 Custom & Excise Department (2001c).
74 Effective from January 1998, the Export Credit Refinancing facility was transferred from Bank
Negara Malaysia to Exim Bank (Bank Negara Malaysia, 2000).
75 There have been no changes in the negative list since 1997.
76 Prohibited countries are Israel, Serbia and Montenegro.
77 Exporters of eligible products may obtain post-shipment ECR upon shipment of their goods sold on
credit terms.  The post-shipment facility is the financing of the credit period extended by the exporter to theforeign buyer, but subject to a minimum of seven days and a maximum of six months.  The post-shipment ECRMalaysia WT/TPR/S/92
Page 51
RM 50 million for post-shipment ECR;  Exim Bank ’s approval is required for funds exceeding
RM 50 million. The current ECR rate is 3.50% per annum.  The current average difference between
the ECR rate and the Banker's Acceptance Rate is 0.46%.  The authorities do not consider this
instrument to be a subsidy and therefore have no intention of phasing it out.78
(b) Export insurance and export credit guarantee
88. Export credit insurance, export credit guarantee, and overseas investment insurance are
provided through the state-owned Malaysian Export Credit Insurance Berhad (MECIB).  Export credit
insurance is intended to protect the exporter against the risks associated with non-payment by their
overseas buyers arising from political or commercial risks;  up to 95% coverage is offered to
exporters.  Export credit guarantees are granted to banks providing export finance to overseas buyers
for purchase of capital goods where the minimum Malaysian content is 30%.
89. In 2000, export insurance and guarantee coverage by the MECIB amounted to
RM 1,345.3 million, up from RM 876.4  million in 1997.  During 1997-2000, insurance coverage
increased substantially, from RM 383 million to RM 766 million;  however, this amount represented a
negligible share of total exports.79
(vii) Export promotion and marketing assistance
90. The Government provides assistance programmes that include tax incentives, financial
assistance, and institutional support for export marketing and promotion activities.  The Malaysia
External Trade Development Corporation (MATRADE), an agency under the Ministry of
International Trade and Industry, focuses on facilitating the export promotion activities of the local
business sector.  MATRADE is responsible for various trade promotion and development
programmes;  it provides Malaysian exporters with information on international business
opportunities and new markets, arranges business matching services between Malaysian exporters andforeign buyers, organizes trade visits and buying and selling missions, manages Malaysian
participation in international trade fairs, and orga nizes training programmes to improve the exporting
skills and knowledge of Malaysian companies.  MATRADE has 22 overseas offices.
91. Malaysia's export promotion strategy focuses on sustaining Malaysia’s market share in
traditional markets, including the United States, the European Union, and North Asia, anddiversifying export markets.
92. Preferential duties through the Generalized System of Preference (GSP) scheme are accorded
to Malaysia's exports by a number of countries, i.e. Australia, Belarus, Bulgaria, Canada, Czech
Republic, European Union, Hungar y, Japan, New Zealand, Norway, Russia, Slovak Republic, and
Switzerland.  Malaysia has been partially graduated from the EU GSP for plastic, rubber, clothing,
                                                                                                                                                                    
loans must be liquidated on or before their maturity da te or upon receipt of the export proceeds, whichever is
earlier.  Trading companies may obtain pre-shipment ECR to finance their purchases of domesticintermediate/final products from local suppliers for export.  The maximum period of financing under the pre-
shipment facility is four months. The pre-shipment EC R loans must be liquidated upon receipt of the export
proceeds.
78 WTO document G/SCM/Q2/MYS/9, 27 January 1997.
79 Bank Negara Malaysia (2000),  Annex Table A.59;   and Bank Negara Malaysia (1998),  Annex
Table A.59.WT/TPR/S/92 Trade Policy Review
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and a few consumer electronics products since January 1998, and cereals, products of the milling
industry and animal or vegetable fats and oils since January 1999.80
(4) MEASURES AFFECTING PRODUCTION AND TRADE
(i) Legal framework for businesses
93. By and large, the regulatory environment for conducting business or establishing a company
in Malaysia has remained more or less unchanged since the previous Review.81  All companies,
domestic and foreign seeking to establish in Malaysia must apply to the Registrar of Companies for
registration under the Companies’ Act 1965.82  All sole proprietorships and partnerships must be
registered with the Registrar of Businesses under the Registration of Businesses Act 1956.
Furthermore, in accordance with the Industrial Co-ordination Act 1975 (ICA), both domestic and
foreign manufacturing companies are required to obtain a manufacturing licence, unless shareholders'funds are less than RM 2.5 million or fewer than 75 full-time employees are involved.  Licence
applications for investment in the manufacturing, ag riculture, and mining sectors are submitted to the
Malaysian Industrial Development Authority (MIDA) for evaluation.  All manufacturing companies
licensed under the ICA also require approval from MITI for any technology transfer agreement
concluded with a foreign company or partner.
(ii) Taxation and tax measures
94. Malaysia is a relatively low-taxed country;  total taxes amounted to around one fifth of GDP
in 2000.
83  Indirect taxes on international trade account for nearly one tenth of total taxes; import
duties and export duties, respectively, amounted to an estimated 7.6% and 2.2% of total tax revenues
in 2001 (Table III.5).  Internal indirect taxes account for a further 28.5% of total taxes, with sales tax,
excises, and service tax, respectively, contributing 12.7%, 8.1% and 3.6% of total tax revenues.  In
2001, it is estimated that nearly two thirds of total tax revenues were derived from direct taxes, almosthalf of which involve Company Taxes, with most of the other half evenly split between personal
income taxes and the much more volatile taxes levied on income from petroleum operations.
95. In addition to being used to generate tax revenues in order to finance government
expenditures, the tax system has long been one of the main instruments of Malaysia's economic
development strategy.  Quite apart from tariffs, which are intended to protect producers of domesticgoods from foreign competition, a wide range of incentives for investment are delivered through the
tax system, both direct and indirect, under the Pr omotion of Investments Act 1986, Income Tax Act
1967, Customs Act 1967, Sales Tax Act 1972, and Excise Act 1976.
84  They are targeted largely at
manufacturing, including exports thereof, agriculture, tourism and other approved service sectors,
research and development, and training, as well as environmental protection.  It appears that some ofthese incentives have been provided as a quid pro quo  for local-content requirements that the
                                                     
80 Ministry of International Trade and Industry (2000).
81 Changes made in the Companies Act 1965 during the review period include the duties and
responsibilities of corporate directors, with an emph asis on transparency and accountability (Ministry of
Domestic Trade and Consumer Affairs, 2000b).
82 Registration is required for the establishment of an operational headquarters, international
procurement center or a branch, except for the establishment of a representative office, for which approval fromMITI or the Central Bank of Malaysia in case of the banking sector is sufficient.
83 Additional non-tax revenues, amounting to 5% of GDP in 2000, are derived from government
commercial undertakings, interest and returns on investment, licences, service fees, road tax, fines andforfeitures, rental income from Federal Territories, contributions from foreign governments and internationalagencies, and petroleum royalties/gas cash payments.
84 MIDA (2001a).Malaysia WT/TPR/S/92
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authorities have sometimes attached to investments.  Direct tax incentives are designed to grant partial
or total relief from payment of income tax for a limited period of time.  Indirect tax incentives are
provided in the form of exemptions from import duty, sales tax, and excise duty.
Table III.5
Federal government tax revenues, 1997-2001
(US$ million and per cent)
1997 1998 1999a2000b2001c
Total tax revenue (US$ million) 19,062.6 11,552.3 11,933.4 12,413.9 14,029.2
% of total tax revenues
Direct taxes 56.7 66.2 60.1 61.8 62.4
Income taxes 50.6 62.6 55.5 57.3 58.4
Company tax 31.1 38.1 34.7 29.5 30.5
Personal tax 12.0 15.2 14.2 14.9 13.4
Petroleum operations 7.2 8.9 6.3 12.7 14.2
Co-operatives 0.3 0.3 0.3 0.2 0.3
Other direct taxesd6.2 3.6 4.6 4.5 4.1
Indirect taxes 43.3 33.8 39.9 38.2 37.6
Taxes on international trade 14.1 9.9 11.9 9.8 9.4
Import duties (and surtax) 12.2 8.5 10.4 7.6 7.1
Export duties 2.0 1.4 1.5 2.2 2.3
Internal taxes 29.1 23.9 28.0 28.5 28.2
Excises 11.3 7.9 10.4 8.1 7.4
Sales tax 11.5 8.5 9.9 12.7 12.6
Service tax 2.8 3.2 3.2 3.6 4.0
Other indirect taxes 3.6 4.3 4.5 4.1 4.2
aA c t u a l .
bP r e l i m i n a r y .c Budget.
d Includes stamp duties.
Source: Data provided by the Malaysian authorities.
(a) Direct taxation
96. Although the standard statutory rate of company tax applicable both to resident and non-
resident companies is 28%85, generous tax incentives in the form of exemptions, tax credits, and
deductions ensure that corporations undertaking eligible investments can pay considerably less thanthis rate.  Notwithstanding the wide range of incentives embodied in the Company Tax, it currently
accounts for nearly one third of total tax revenues, which is high by international standards.
97. Among the main tax incentives for investment are the Pioneer Status, Investment Tax
Allowance (ITA), Reinvestment Allowance (RA) an d Accelerated Capital Allowance (ACA).  These,
together with other incentives, are aimed at promoting, inter alia,  manufacturing, small businesses,
high technology companies, strategic products, ag riculture, tourism, research and development
(R&D), information and communication technolo gy, the Multimedia Super Corridor (MSC),
approved services projects (ASP), and regional development and training, as well as at protecting the
environment (Table III.6).  Various incentives are also provided for the export of goods and services.
These include double deductions for expenses incurred in the promotion of exports of goods and
                                                     
85 The rate is 38% for companies carrying out petroleum operations.  The top personal tax rate is 29%.WT/TPR/S/92 Trade Policy Review
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services and for the payment of export credit insurance premiums.86  Furthermore, statutory income
equivalent to 10% and 15% of the value of increased exports is exempt from company tax provided
the exported goods attain at least 30% and 50%, respectively, of value-added.87  In addition, the tax
exemption for shipping company income constitute s an incentive for the use of shipping services
provided by resident companies.
Table III.6
Main direct tax incentives for investment
Type of incentive Description of incentive
Pioneer Status (PS) A company granted PS enjoys a partial or full exemption from payment of income tax for a given period of
time.  In the case of manufacturing, for example, the exemption involves 70% of statutory income for a
period of 5 years.  The exemption can be even higher and the period longer, however; for example, in the
case of designated regions and high technology  (or R&D) companies, respectively, the exemption is 85%and 100%, while for strategic projects, including approved service projects (ASP), the exemption is 100%
and the period 10 years.
Investment TaxAllowance (ITA)An alternative to PS, the ITA involves a tax credit that can be offset against taxes paid on 70% of statutory
income;  any unutilized part of the allowance can be carried forward to subsequent years until the whole
amount is used up.  The ITA is usually 60% of qualifying capital expenditure incurred within a 5-year
period.  For designated regions, strategic projects, R&D companies, companies with MSC status, and
training, for example, the ITA is larger and the qualifying period longer.
Reinvestment Allowance(RA)Like the ITA, the RA is in the form of a tax credit amounting to 60% of qualifying capital expenditure that
can be offset against taxes paid on 70% (100% in designated regions) of statutory income.  It is granted to
manufacturing companies that have been operating for at least 1 year and incur qualifying capitalexpenditure for the expansion, upgrading, modernization or automation of production capacity and
diversification into related products.
Accelerated Capital
Allowance (ACA)Upon expiry of the RA, companies that reinvest in promoted manufacturing or food products or agricultural
activities can write off such capital expenditures within 3 years (60% in the first year and 20% in the twosubsequent years).  A similar allowance  is provided for capital expenditures related to the use of information
technology and environmental protection
Infrastructure Allowance Companies undertaking capital expenditure on infrastructure in designated regions are eligible for an
infrastructure allowance of 100%, which can be set off against taxes paid on 85% of statutory income.
Incentive for Small-
Scale CompaniesSmall-scale manufacturing companies with Malaysian equity of at least 70% are eligible for the PS incentive.
Export incentives:
Double Deductions Double deductions are allowed for the following expenses related to exports: expenses related to the
promotion of exports, freight charges for rattan and wood products (only for manufacturers in Sabah and
Sarawak), export credit insurance premiums, and the promotion of Malaysian brand names.
Exemption for the Value
of Increased ExportsCompanies' statutory income equivalent to 10% and 15% of the value of increased exports is exempt from
tax provided the goods exported attain at least 30% and 50% value-added, respectively.
Industrial BuildingAllowanceAn allowance of 10% of qualifying expenditure is granted in respect of buildings used as warehouses for
storing goods for export and re-export.
Incentive for Operational
Headquarters (OHQs)Companies granted OHQ status are subject to a concessionary tax rate of 10% on income from qualifying
services for a period of 5 years (which may be extended for another 5 years).
Exemption for Shipping
OperationsShipping company income derived or deemed to be derived from the operations of Malaysian ships is
exempt from tax.
Source: MIDA (2001a), Malaysia – Investment in the Manufacturing Sector: Policies, Incentives and Facilities .
                                                     
86 These expenses include, inter alia , overseas advertising, supply of free samples abroad, export-
market research, preparation of tenders for the supply of goods overseas, supply of technical informationabroad, exhibits and/or participation required in trade or  industrial exhibitions held  locally or abroad approved
by the Ministry of International Trade and Industry, and fares in respect of travel overseas by employees ofcompanies for business.  A double deduction is also provided for insurance premiums paid for export credit
insurance, insurance of imported cargo, and insurance of exported cargo with any insurance company
incorporated in Malaysia.  Manufacturers in Sabah and Sarawak that export rattan and wood-based products(excluding sawn timber and veneer) are eligible for a double deduction on domestic freight charges incurred.
87 Exporters of fruit and selected services are also granted exemption of statutory income equivalent to
10% of the value of increased exports.Malaysia WT/TPR/S/92
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98. While most tax incentives apply to domestic and foreign-owned companies alike, there are a
few exceptions to such national treatment.  For example, tax deductions in respect of voluntary
contributions to private retirement-income schemes are accorded only to approved provident funds;
foreign-owned companies incorporated in Malaysia are eligible for approval for the provident fund
scheme, but at the time of writing, information was not available on such approvals.  Moreover,
annuities purchased from foreign-owned life insurance companies do not qualify for the personal taxexemption otherwise applicable to such income.
88  The absence of national treatment in both instances
constitutes a disincentive for Malaysians to contribute to retirement income plans offered by foreign
providers or to purchase annuities from them.  The authorities consider that, given the mandatory
contributions to the centralized provident fund, the demand for private annuities outside the EPF
scheme has not been significant.
(b) Indirect taxation
99. Incentives are also delivered through the indirect tax system.  In addition to providing tariff
relief in the form of exemptions for raw material s/components, machinery and equipment, spares, and
consumables (that are not produced locally) and drawbacks for parts and raw materials used in the
manufacture of goods for export, exemptions and drawbacks are used to relieve sales and excisetaxes.
89  Such relief is usually intended to address these taxes' inherent bias against exports; this is
especially true of excise duties, which are levied solely on locally manufactured goods.90  However,
relief from such duties is also used in some instances as a means of favouring certain domestic
producers.  In particular, excise duties levied on "national cars" may be half the normal rates levied on
cars that are either imported or domestically assembled.
(c) Fiscal transparency
100. Judging from the manufacturing sector, a majority of projects benefit from one tax incentive
or another.  Of the RM 102.8 million in capital investment projects in this sector approved during the
period 1996-2000, 28% received Pioneer Status (PS) and 32% were eligible for the Investment Tax
Allowance (ITA), while 40% received no tax incentives at all.
101. Estimates of the annual revenue forgone as a result of these and other tax measures were not
available but, judging from the previous Malaysian Review, the costs of such measures could belarge.
91  Experience in other countries suggests that tax incentives may well not be cost-effective.92
They run the risk of subsidizing good investments, which might have been undertaken anyway, orturning otherwise doubtful investments into pr ofitable ones, possibly weakening total factor
productivity.  Publication of estimates of tax revenues forgone along the lines of practice in many
other countries
93, and studies evaluating their cost-effectiveness, could enhance fiscal transparency
and contribute to more effective tax policy.  Also elimination of those incentives that are found to be
                                                     
88 Section 49 of the Income Tax Act 1967 and section 127 of the Act read with paragraph 6 in
Schedule 6 to the Act.
89 The sales tax is an ad valorem  single-stage tax levied at the manufacturing and import levels at rates
ranging from 0-25%.  Excise duties are also levied at the manufacturing level, although not on imports, at ratesranging from 25% to 65% for passenger cars.  A 5% service tax is levied on certain goods and services providedin prescribed establishments.
90 A broad-based multi-stage value-added tax that exempts exports would involve no such bias.
91 The Reinvestment Allowance alone cost the Government RM 1 billion annually in forgone tax
revenues (WTO, 1997, p. 70).
92Most econometric studies show that forgone tax revenues exceed the additional investment generated
(OECD, 1996).
93 Such estimates are published in the form of tax expenditure accounts in 14 countries (See OECD,
1996).WT/TPR/S/92 Trade Policy Review
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ineffective could permit a broadening of the tax base, thus perhaps allowing lower tax rates and/or
lower tariffs, moving towards a more neutral tax system for resource allocations.
(iii) Non-tax incentives
102. The principal type of non-tax incentive is the Industrial Adjustment Allowance (IAA), an
allowance of up to 100% in respect of qualifying capital expenditure incurred by a manufacturing
company undertaking industrial adjustment.94  The Rehabilitation Fund for SMIs and the Entrepreneur
Rehabilitation and Development Fund were set up by the Government for companies undertaking
restructuring programmes and in small and medium-sized industries.95
(iv) Standards and other technical requirements
103. Procedures for the development of standards were established in the Standards of Malaysia
Act 1996.  The Department of Standards Malaysia (DSM) implements policies and strategies fornational standardization, and represents Malaysia in international and regional standardization
activities. SIRIM Berhad
96, a wholly state-owned company, is the sole national agency appointed by
the DSM to coordinate standards development activities in Malaysia;  SIRIM participates in
international and regional standardization activitie s at the technical level.  Main advisory bodies
related to standards include the Malaysia Standards and Accreditation Council, the National StandardsCommittee and the National IEC (International El ectrotechnical Commission) Committee.  The
Ministry of Health develops mandatory standards for food safety.  The Minister of Science,
Technology and the Environment may, by notification in the Gazette , declare any specification to be a
standard if he or she is satisfied that the affected parties have had the opportunity to comment.
104. Malaysia is a member of the ISO and IEC.  It participates in ASEAN and APEC initiatives
aimed at aligning existing national standards in their region with international standards.  Malaysia is
also involved in an ASEAN initiative to ha rmonize pharmaceutical and cosmetic regulatory
requirements, the Pharmaceutical Inspection Co-operation Scheme (PIC/S) for Good Manufacturing
Practice (GMP) inspection and licensing, and the Asian Harmonization Working Party (AHWP) for
medical devices.
105. In addition to issues covered by the Standards of Malaysia Act 1996, product standards are
the basis for newly adopted technical regulations other than sanitary and phytosanitary measuresapplied to agricultural products.  Packaging and labelling requirements are governed by the Food Act
1983 and the Food Regulation 1985 as well as the Price Control (Labelling by Manufacturers,
Importers, Producers and Wholesalers) Order 1980.
(a) Development of standards
106. Out of 2,598 Malaysian Standards in force, in February 2001, 988 (or 38%) are aligned to
international standards (ISO or IEC Standards).  Between 1997 and 2000, 678 new or revised
                                                     
94 IAA is available to companies in selected manufacturing industries, which were in existence before
31 December 1990 and were already participating in certain industrial adjustment activities such as re-
organization, re-construction or amalgamation within the sector.  The selected industries include wood-based,
textile, machinery and engineering, stamping, moulding, and tools and dies).
95 The Enterprise Programme for Small and Medium Industries expired on 31 December 2000.  Details
of the Funds are published in BNM online information.  Available at:  http//:  www.bnm.gov.my.
96 Formerly known as the Standards and Industrial Research Institute of Malaysia.Malaysia WT/TPR/S/92
Page 57
standards were developed, of which 300 (44%) were aligned to international standards (Table III.7).97
The authorities indicate that the percentage of Malaysian standards aligned to international standards
increased from 20% to 76% between 1996 to 2000.
Table III.7
Indicators of standards development in Malaysia, 1996-2000
1996 1997 1998 1999 2000
New and revised Malaysian Standards 192 132 166 200 180
Percentage aligned to international standards 76 31 20 68 51
Licences issued under the Product Certification Scheme 187 158 177 168 180
Certificates issued under the Quality System Registration Scheme 220 299 360 255 289
Source: Information provided by the Malaysian authorities .
107. Since 1 July 1997, Malaysia has notified 136 standards to the Technical Barriers to Trade
Committee (Table AIII.6).  These notifications cover, inter alia,  plastic products, paints and
varnishes, chemical products, wood produc ts, meat products, and steel products.
108. In Malaysia, certain national standards have been  used as the basis for technical regulations.
Currently, technical regulations for road transpor t equipment (under the Road Transport Act), fire
safety and protection equipment (under the Unifor m Building By-Laws 1984), electrical products and
accessories (under the Electricity Regulations 1994 of the Electricity Supply Act), consumer safety
products (under the Consumer Protection Act 1999), telecommunication equipment (under the
Communication and Multimedia Act 1998), and food items (under the Food Act 1983 and Food
Regulations 1985) are subject to mandatory technical regulations. Consumer safety products may besubject to technical regulations under the new Consumer Protection Act 1999, although none have
been prescribed to date.
109. In addition to national and international standards, various kinds of standards exist and are
used in Malaysia.  For example, standards established by selected bodies such as the ASTM
(American Society for Testing and Materials), API (American Petroleum Institute), NFPA (NationalFire Protection Association), ASME (American Soci ety of Mechanical Engineers), and SAE (Society
of Automotive Engineers) are used in certain sectors.  Other than these, Halal Certification as well as
some private standards for food safety are in use.  Voluntary compliance with the implementation of
the Hazard Analysis and Critical Control Point (HACCP) system is encouraged by the Ministry of
Health for all food products.  The Ministry of H ealth also undertakes the certification of the HACCP
scheme implemented by the food industries.
(b) Conformity assessment
110. Any person or organization wishing to be accredited or registered as a conformity assessment
organization, a laboratory for testing or calibration, a training organization for conformity assessment,
or person qualified to perform conformity assessment and related services may apply to the Director
General of DSM.  DSM's accreditation is open to any applicant, local or foreign, who fulfils the
accreditation conditions specified and published by the DSM.  The Malaysia Standards andAccreditation Council (MSAC) advises the Minister on development of independent, impartial and
credible national accreditation system; the National Accreditation Committee establishes accreditation
criteria, requirements, policies and procedures for the consideration of the MSAC.  Currently,
                                                     
97 In this context, "alignment" is regarded as "to adopt international standards with:  as few technical
deviations taking into account the specific conditions of each member economy;  deviations clearly identified;and a general explanation of the deviations with reasons provided", as defined in the APEC.WT/TPR/S/92 Trade Policy Review
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accreditation service is limited to the accreditation of quality system certification bodies under the
Scheme for Accreditation of Certification Bodies (ACB Scheme), and the accreditation of testing and
calibration laboratories under Laboratory Accreditation Scheme.
111. Two organizations, i.e. SIRIM QAS Sdn Bhd. and AOQC Moody (Malay sia) Sdn Bhd. (as of
February 2001) have been accredited as ISO 9000 certification bodies since the previous Review of
Malaysia.98  The former is the authority to grant certificates of conformity for goods identified in
several technical regulations.99  As of February 2001 DSM-accredited certification bodies awarded
153 companies ISO 9001 certifications, and 1,663 companies ISO 9002 certifications.100  A s  o f
February 2001 there were 185 laboratories (comprising government, independent, and company-
owned laboratories) accredited for specific tests and/or calibration by the DSM (Table III.8).   Since
1997, a total of 105 laboratories have been accredited.
Table III.8
Accredited laboratories in Malaysia, as of February 2001
Fields of accredited laboratories Total
Chemical 113
Food and microbiology 11
Electrical 9
Mechanical 19
Palm oil 12
Rubber and SMR 15
Construction material 7
Calibration 34
Total 185a
a Some laboratories are accredited to more than one sector.
Source: Department of Standards Malaysia (2001), Statistics [Online].  Available at:  http://www.dsm.gov.my/statisti.htm
[14 June 2001].
112. Enforcement of the Malaysian food legislation is carried out by 11 food quality control
laboratories (FQCL);  three public health laboratories established under the Ministry of Health, and
ten Department of Chemistry laboratories established under the Ministry of Science, Technology andEnvironment.  Food test certificates issued by private/independent laboratories accredited under the
Laboratory Accreditation Scheme of Malaysia  (Skim Akreditasi Makmal Malaysia)  (SAMM) are
recognized by the Ministry of Health.  Analytical certificates for food issued by private/independent
laboratories accredited under SAMM are recognized by the Ministry of Health for the purpose of
issuance of a health certificate by the Ministry.
113. Malaysia signed the Pacific Accreditation Cooperation Multilateral Recognition Agreement
(PAC MLA) in November 1998.  Malaysia has si gned a memorandum of understanding with member
countries of the Asia-Pacific Laboratory C ooperation (APLAC) and International Laboratory
Accreditation Cooperation (ILAC) to cooperate an d work towards mutual recognition agreements.
The DSM has close links with its counterparts abroad through the Pacific Accreditation Cooperation
                                                     
98 SIRIM QAS Sdn Bhd, a wholly owned subsidiary of SIRIM Berhad, also grants conformity
certificates for ISO 14001.
99 On 1 April 1999, SIRIM Berhard was appointed by the Communication and Multimedia
Commission to be the certifying agent for telecommunication equipment, replacing Jabatan TelekomunikasiMalyasia (JTM), which has ceased to function.
100 Department of Standards Malaysia (2001).Malaysia WT/TPR/S/92
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(PAC) and the International Accreditation Forum (IAF).  Since 29 September 1999, Malaysia has also
participated in the development of the APEC and ASEAN MRAs;  it participates in the APEC Mutual
Recognition Agreement (MRA) for Exchange of  Information on Toy Safety, APEC MRA for
Electrical & Electronic Equipment, and the APEC Telecommunications MRA.  Malaysia does not
have any bilateral MRAs.
(c) Marking and labelling
114. Labelling requirements are normally incorporated into Malaysian Standards.  If standards are
made mandatory, the products have to be labelled accordingly;  examples are electrical equipment101,
all SIRIM-approved telecommunication equipment102, pesticides103, and food items.  For
pharmaceutical products, the requirements for labelling of registered products are set by the Drug
Control Authority (DCA) in acco rdance with the Control of Drugs and Cosmetics Regulations 1984.
(v) Sanitary and phytosanitary regulations
115. Since 1997, no changes have been made to Malaysia’s sanitary and phytosanitary regulations,
including quarantine regulations.  Currently, sanitary and phytosanitary measures are being
implemented in Malaysia under the Plant Quarantine Act 1976, with a view to preventing the entry
and spread of pests and diseases;  measures used for this purpose include import prohibition, importrestrictions, requirement of phytosanitary certificate from the exporting country, inspection at
49 designated entry points, post-entry quarantine, and treatment.
104  The Act also includes the
prevention, control, and eradication of dangerous pests found within the country of origin.  The
Department of Agriculture and the Department of Veterinary Services, under the Ministry of
Agriculture, formulate and implement policy for sanitary and phytosanitary measures relating to
plants and animals and their products, while the Ministry of Health has the authority to formulate and
implement laws relating to food safety.  Currently, the Plant Quarantine Regulation 1981 is beingamended to ensure effective enforcement of plant quarantine activities.
116. Importation of all live animals and birds and livestock products are subject to import licensing
as well as veterinary certificate, issued by the competent authority of the country of origin, giving
details of the consignment and certifying that the products are free from diseases.
105  Most animals
(including horses, cattle, buffalo, goats, sheep, and pigs) and birds, except when imported fromcertain countries, must undergo a quarantine process.
106  Quarantine facilities are provided at all major
                                                     
101 Electrical equipment must be labelled with information for safe use and in some cases, warning
notices.
102 Telecommunication equipment must be marked with the technical compliance requirement
established under the Communication and Multimedia Act, 1998.
103 Marking of pesticides must include the trade name, the formulation, usage, content, etc.
(Department of Agriculture, 1991).
104 For example, the entry of cocoa pods, rambutan fruit, etc. from Indonesia and Philippines, pests, and
soil is prohibited.  Imports of plant and plant parts, including seeds and other planting materials;  soil andgrowth/rooting media;  micro-organisms;  insects and other organisms;  and herbarium and dried flowers requireimport approval.  Whereas, imports of plants or plant parts;  coconut and oil palm;  and some plant productsfrom certain countries are subject to phytosanitary cer tificate or/and inspection/treatment prior to customs
clearance.
105 Department of Veterinary Services (2001a).
106 The countries are Australia, Brunei, Ireland, Japan, New Zealand, Northern Ireland, Singapore,
Sweden, and the United Kingdom where, according to Mala ysia, disease control programmes are very strict and
animals are free from major animal diseases.WT/TPR/S/92 Trade Policy Review
Page 60
entry points into Malaysia and the quarantine period varies from 7 to 30 days depending on species of
animals and purpose of imports.107
117. Malaysian standards and technical regulations for food safety require that food be processed,
stored, and handled in a sanitary manner in order to ensure that all food sold is free from
contamination and non-permitted additives, in compliance with the required standards, and labelled
and advertised accordingly.  These requirements apply equally to domestic and imported products.These standards and technical regulations are amended from time to time as part of an on-going
exercise to harmonize them with international as well as regional standards, for example, with the
CODEX Alimentarius and ASEAN standards.
118. Malaysia imposed food import restrictions in 1999 owing to the dioxin contamination in
Belgium, and in 2001 owing to the spread of BSE on SPS ground and accordingly notified to theWTO (section (2)(iv)(a)).
(vi) Intellectual property rights
119. Since its previous Review, Malaysia has enacted two new laws and amended four existing
laws with a view to complying with its obligations under the TRIPS Agreement.  The new laws are
the Layout-Designs of Integrated Circuits Act, 2000 (effective from 15 August 2000) and theGeographical Indications Act 2000 (effective from 15 August 2001);  and the amended laws are the
Copyright Act 1987, the Patents Act 1983, the Trade Marks Act 1976, and the Industrial Design Act
1996.
108  Malaysia has also enacted the Optical Discs Act 2000, effective from 15 October 2000, with
a view to controlling piracy, and the Computer Crimes Act 1997, effective from 1 June 2000, aimed at
offences related to the misuse of computers, including unauthorized access to computer material,
unauthorized access with intent to commit other of fences, and unauthorized modification of computer
contents.
120. The administration of intellectual property rights, including policy formulation and
registration, is under the purview of the Ministry of Domestic Trade and Consumer Affairs
(MDTCA).  Malaysia's intellectual property regime is enforced using civil and criminal remedies and
penalties.  The Copyright Act includes enforcement provisions allowing government officials to enter
and search premises suspected of infringement and to seize infringing copies and reproductionequipment.  The Customs Department may also inspect and seize shipments at the border on the basis
of instructions from the Ministry of Domestic Trade and Consumer Affairs.
121. The formulation of Malaysia's policy on intellectual property rights is facilitated by its
membership of various international property rights conventions.  Malaysia is a member of the World
Intellectual Property Organization (WIPO), and a party to the Berne Convention for the Protection ofLiterary and Artistic Works, since 1 October 1990, and the Paris Convention, since 1 January 1989.
The authorities mention that Malaysia intends to jo in the Patent Cooperation Treaty (PCT).  Malaysia
is also a signatory to the ASEAN Framework Agreement on Intellectual Property Cooperation.
Malaysia together with the other ASEAN countries are working on the harmonization of a patent and
trade mark filing system called the ASEAN Regiona l Patent Filing System and the ASEAN Regional
Trade mark Filing System.  Malaysia cooperates through networking with WIPO, the European Patent
Office (EPO), Japanese Patent Office (JPO), U.K. Patent Office, Australian Industrial Property Office
(AIPO), and other intellectual property offices.
                                                     
107 Department of Veterinary Services (2001b).
108 The Industrial Design Act 1996 repealed and repl aced the United Kingdom Designs (Protection) Act
1949, the United Kingdom Designs (Protection) Ordinance of Sabah, and the Designs (United Kingdom)Ordinance of Sarawak.Malaysia WT/TPR/S/92
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(a) Copyright
122. Copyright in Malaysia subsists on creation without registration generally until 50 years after
the death of the author.109  Computer software and compilation of data is protected as a literary
work110, and the Act protects rental rights for all eligible works, sound recordings, and broadcasts.
Since Malaysia's previous Review the Copyright Act, 1987 was amended twice;  an amendment in
1997 defined certain acts as offences and infringement of copyright111;  another amendment, in 2000
provides protection for performers with a view to complying with the TRIPS Agreement as well as
the WIPO Copyright Treaty and the WIPO Performa nces and Phonograms Treaty.  Moral rights, such
as the right to prohibit alteration, are protected under the Copyright Act.
123. In cases of infringement, owners can take either a civil action themselves, in the High Court,
or for a criminal action, they lodge an official complaint with the Enforcement Division of theMDTCA or with the Police, giving details of the infringement.  The Enforcement Division generally
conducts the necessary investigations and prosecutions and enforces the criminal sanction.  Penalties
against infringement of a copyright may include fines not exceeding RM 10,000
112, and/or
imprisonment for a term not exceeding five years.  Of the 6,720 complaints received concerning
copyright infringements during the period 1 December 1987 to 31 December 2000, about 5,600 led tolegal cases (Table III.9);  the total value of goods seized was about RM 37 million.
Table III.9
Actions taken under the Copyright Act 1987, 1987-2000
Complaints Actions Legal cases
Total 6,720 6,720 5,627
Films 5,468 5,468 4,606
Music 929 929 722
Literature 103 103 87
Artistic 114 114 111
Computer 106 106 101
Source: Data provided by the Malaysian authorities.
(b) Patents
124. Patents are protected upon grant for 20 years from the date of filing of an application and
subject to yearly renewal.113  Priority of rights is based on the first-to-file principle.  Utility
innovations are protected for ten years from the date  of filing, and may be protected for two additional
                                                     
109 It subsists if the author is a citizen, permanent resident of a corporate body established in Malaysia
or any other Berne Convention country, or if, being a broadcast, the work is transmitted from Malaysia or anyother Berne Convention country.
110 There are exceptions to copyright protection in th e case of research, education, and other similar
purposes.
111 These acts are unauthorized transmission over the internet; circumvention of any effective
technological device meant to prevent unauthorized access to copyright works;  and removal or alteration ofelectronic rights management information or distribution of any copies of work.
112 For subsequent offences the penalty is doubled.
113 Inventions that are not patentable are listed under section 13 of Patents Act 1983.  These comprise
discoveries, scientific theories, and mathematical methods;  plant or animal varieties or essentially biological
processes for the production of plants or animals, other than man-made living micro-organisms, micro-biological processes, and the products of such micro-organism processes;  schemes, rules or methods for doingbusiness, performing purely mental acts or playing games;  and methods for treatment of the human or animalbody by surgery or therapy, and diagnostic methods practised on the human or animal body.WT/TPR/S/92 Trade Policy Review
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five-year terms.114  No protection for plant varieties is available at present under Malaysia's patent
legislation.  The approval time for grant is on average five years from the application date.115
125. The Patent Act 1983 was amended in 2000, in order to extend the period of protection from
15 years from the granting to 20 years from filing, and to streamline the conditions of applying for a
compulsory licence in accordance with the TRIPS Agreement and the Paris Convention.
126. The owner of a patent has the right to institute court proceedings against any person who has
infringed or is infringing the patent or has performed acts that may be referred to as an "imminent"
infringement.  The court proceedings may not be instituted more than five years after the act of
infringement.  Awards of damages or the grants of injunctions or any other legal remedies are
determined by the court.
(c) Trade marks
127. Trade marks are protected upon registration in Malaysia under the Trade Marks Act 1976;
the Act is applicable to goods as well as services.  Registration of a trade mark is for an initial period
of ten years, and is renewable in accordance with the Trade Marks Act 1976.  During the period 1997-
2000, a total of 11,451 trade marks were registered in Malaysia, of which 3,451 were owned by
Malaysian residents.  Currently, the process of registration takes, on average, three years from theapplication date.
116
128. The Trade Marks Act 1976 was amended in 1994;  the amendments entered into force on
1 December 1997.  The amendments were intended to bring the Act into line with Malaysia's
obligations under the TRIPS Agreement, to simplify procedures for the processing and registration of
trade mark applications, and to provide for the registration of service marks.  The 1976 Act was
further amended in 2000, to comply with obligations under the TRIPS Agreement;  these amendments
entered into force on 1 August 2001.
129. In case of trade mark infringement and passing-off, trade mark holders may undertake civil
litigation under common law or pursue criminal prosecution under the Trade Descriptions Act 1972
(TDA).  Under civil litigation, the court determines awards for damages or grants injunctions or any
other legal remedies, while for criminal action, penalties under the TDA include fines of up to
RM 100,000 or imprisonment for up to three years, or both, for individuals, and fines of up toRM 250,000 for corporate entities.
(d) Industrial designs
130. Protection of industrial designs
117 is granted, upon registration, for five years from the date of
filing, and may be extended for two further consecu tive terms of five years, under the Industrial
                                                     
114 A utility innovation certificate is granted for an innovation or minor invention that does not satisfy
the test of inventiveness.
115 The authorities indicate that additional measures have been taken to reduce the approval time.
These include:  introduction of "modified substantive examination" whereby the Intellectual Property Divisionof the MDTCA recognizes the granted patents from USPTO, UK Patent Office, IP Australia, and EPO, in orderto minimize the search and substantive examination work ;  upgrading of the automation system;  and increasing
of the number of examiners.
116 The authorities indicate that in order to accelerate the processing, the Ministry of Domestic Trade
and Consumer Affairs has formed a task force to clear the backlog in the search and examination unit and has
taken steps to upgrade the automation system  and increase the number of examiners.
117 "Industrial designs" in Malaysia means features of shape, configuration, pattern or ornamentation
applied to an article by any industrial process or means, being features which in the finished article appeal to theMalaysia WT/TPR/S/92
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Designs Act 1996 and the Industrial Designs Regulations 1999, both of which entered into force on
1 September 1999.  Registration is normally granted 8 to 12 months from the time of application.  The
Act accords the owner of a registered design the right to institute legal proceedings against any person
who has infringed or is infringing any of the rights conferred by the registration of the industrial
design.  Court proceedings may not be instituted more than five years after the act of infringement.
(e) Layout-designs of integrated circuits
131. The Layout-Designs of Integrated Circuits Act 2000, which entered into force on
15 August 2000, provides property rights in layout-designs of integrated circuits, without  registration.
Protection is provided for ten years from the date of commercial exploitation.  Under any
circumstances, the protection granted lapses 15 years after the date of creation of a layout design.
Rights holders can initiate civil action in the High Court for infringements.118  Awards of damages or
grants of injunctions or any other legal remedies are determined by the Court.
(f) Geographical indications
132. Geographical indications in Malaysia are governed by the Geographical Indications Act 2000
and Geographical Indications Regulation 2001, which entered into force on 15 August 2001.  The Act
provides protection, upon registration, to goods following the name of the place where the goods areproduced.  Protection is applicable to selected goods such as wine, agricultural products, and
handicrafts.  Action, penalties, and remedies concer ning infringement of geographical indications are
similar to those applicable for trade marks.
(g) Trade descriptions
133. The Trade Descriptions Act 1972 allows for criminal proceedings against any person who, in
the course of a trade or business, applies a false trade description to or in respect of any goods or
supplier or offers to supply such goods.
(h) Trade secrets
134. Trade secrets are protected against unauthorized use and disclosure under common law.
Confidential information includes industrial processes, business secrets, secret methods, and customer
lists.  There are no formalities or time limits on eligibility for such protection.
119
(i) Compulsory licensing
135. Compulsory licensing provisions are applied in Malaysia to patents, layout-designs of
integrated circuits, and copyright and related rights.  Under the Patent Act, application for compulsory
licences can be submitted at any time after three years from the grant of a patent or four years from
the filing date of the patent application, whichever is later, under certain conditions.120  A compulsory
                                                                                                                                                                    
eye.  In addition, registerable industrial designs must be new and not include a method of construction or design
that is dictated solely by function.
118 An infringement of rights on a protected layout-design means reproduction or authorizing the
reproduction of all or a substantial part of the protected layout-design, whether by incorporation into anintegrated circuit or otherwise;  and commercial exploitation (including authorizing commercial exploitation) of
the protected layout-design, an integrated circuit or an article that contains an integrated circuit in which the
protected layout-design is incorporated, without the consent of the right holder.
119 WTO (1997).
120 The conditions are that there is no production of the patented product or application of the patented
process anywhere, without any legitimate reason; or there is some, but sold at unreasonably high prices, or itWT/TPR/S/92 Trade Policy Review
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licence granted by the Patent Board is limited to the supply of the patented invention predominantly in
Malaysia, and the beneficiary of the compulsory licence cannot conclude licence contracts with third
persons under this licence.  The authorities indicate that no compulsory licence has been granted since
1997, and no patent has been used by the government/third parties under compulsory licences.
136. In case of layout-designs of integrated circuits, compulsory licences are granted by the High
Court under certain conditions.121  The Court must specify reasonable remuneration to be paid to the
right holder for the compulsory licence.  The Court may terminate a compulsory licence granted to
any interested party if it is satisfied that the grounds on which the compulsory licence was granted
have ceased to exist.  The authorities indicate that there has been no claim of compulsory licensing
under this legislation.
137. In the area of copyright, a compulsory licence is issued by the Copyright Tribunal for
translation of foreign works into the national language when the author refuses to grant permission.
The authorities indicate that such a situation has never occurred.
(j) Parallel imports
138. Malaysia’s policy on parallel imports is reflected in the Patents Act (Amendment) 2000,
which allows parallel imports and does not consider import of any patented product or any productobtained by means of the patented process an act of infringement.  The potential for parallel imports,
which are allowed under the Patents Act, diminishes the sole distributors' exclusive rights to distribute
patented products in Malaysia.  However, they may take action against the contracting parties under
common law regime for damages for the loss of revenue.  The law makes no mention of this issue
with regard to copyrights and trade marks.
(k) Royalty payments
139. In Malaysia, the right to fix the rate of royalty payments for licensing intellectual property
rights is classified as a private right;  the rate of payment depends on the agreement between the
owner and the user.  Under the Copyright Act, a royalty is collected for public performance of musical
works by two collecting societies in Malaysia:  one collects royalties for music authors and the other
for sound recording companies.  If there is a dis pute between the users and collecting societies, the
parties concerned may bring the matter to the Copyright Tribunal for settlement.  Hitherto, no suchcase has been lodged.
(vii) Role of state-owned enterprises and privatization
140. State-owned enterprises continue to play an important role in the economy of Malaysia,
especially in the petroleum, transport, teleco mmunications, postal, and electricity industries.
122  As of
2000 there were 37 state-owned enterprises or non-financial public enterprises (NFPEs)123 involved in
                                                                                                                                                                    
does not meet the public demand, without any legitimate reason;  and the person making the application has
made efforts to obtain authorization from the owner of the patent on reasonable commercial terms andconditions, but such efforts have not been successful within a reasonable period of time.
121 The conditions are similar to those described for patients.
122 The major state-owned enterprises in these industries include:  PETRONAS (wholly state-owned) in
petroleum;  Malaysian International Shipping Cor poration Berhard (MISC) (Subsidiary of PETRONAS),
Malaysian Airlines (partially state-owned) and KTM berhard (wholly state-owned) in transport;  Telekom
Nasional Berhard (State as the majority shareholder) in telecommunication;  POS Malaysia Berhard (wholly
state-owned) in postal services;  and Tenaga Nasional Be rhard (State as the majority shareholder) in electricity.
123 The list includes only those enterprises where the State had at least 51% share in equity and the
turnover value of the NPFEs was at least RM 100 million and where enterprises had large borrowing needs.Malaysia WT/TPR/S/92
Page 65
the manufacturing and service sectors (Tables III.10 and AIII.7).  Development expenditure by
NFPEs for expansion and modernization programmes represented more than 50% of total public
sector expenditure during the period 1996-2000.124  The state-owned companies also accounted for
about 38% of Malaysia's total external debt.125  It is also noteworthy that, at the Kuala Lumpur Stock
Exchange, 40 privatized companies in which the State has substantial share represented 5% of total
listed companies;  their market capitalization accounted for 30.3% of the total on26 December 2000.
126  NFPEs also provide financing to each other and to private companies127;  in
2000, 56 NFPEs provided RM 111 billion in funds to the private sector.  No information was
available to the Secretariat concerning the total funds supplied by each of the NFPEs or on the
recipients of these funds (both NFPEs and private companies).
Table III.10
Financial position of NFPEs, 1997-2000
(RM million)
1997a1998b1999c2000c
Revenue 70,086 82,518 94,031 108,258
Operating expenditure 42,033 58,439 54,561 67,557
Development expenditure 21,341 27,178 26,252 29,185
Overall balance 6,712 -3,399 13,218 11,516
a Refers to 31NFPEs;  Road Railers was sold in 1996.
b Refers to 28 NFPEs;  Pernas Trading, Pernas Edar and Pernas  International Hotel and Properties were sold in 1997.c Refers to 37 NFPEs.
Note: Non-financial public enterprises (NFPEs) are public sector agencies undertaking the sale of industrial and commercial good s and
services.  They include statutory bodies, Government-owned and/or Government controlled companies and agencies owned by statuto ry
bodies.  Ownership and control refer to Government or a public-sector agency controlling more than 50% of total equity.  The ab ove table
refers only to 56 NFPEs being monitored, based on minimum annual sales of RM 100 million.
Source: Ministry of Finance (2001a).
141. Although there is no specific Act of Parliament regulating privatization per se , there are laws
enabling and regulating specific aspects of privatization, such as the Port Privatization Act 1990, the
Sewerage Services Act 1993, and the Federal Roads (Private Management) Act 1984.  Malaysia's
privatization programme was set out in the Privatization Master Plan published in 1991, and
implemented without major changes through a two-year rolling Privatization Action Plan.128   In order
to ensure greater public participation in the equity of privatized project, Malaysia has been pursuing apolicy of offering to the public shares in profitable corporatized entitities listed on the Kuala Lumpur
Stock Exchange.  The privatization programme is managed by the Economic Planning Unit of the
Prime Minister's Office.
142. The authorities regard privatization as an efficient mechanism for increasing economic
efficiency, promoting economic growth, reducing the Government's administrative and financialburden, increasing government revenue and facilitating Bumiputera participation in the economy.
                                                     
124 Estimated from Bank Negara Malaysia (2000),  Annex table A.31 .
125 Estimated from Bank Negara Malaysia (2000), Annex table A.21 .
126 Economic Planning Unit (2001a).
127 The authorities maintain that the financing of investments in these private companies is based purely
on commercial principles.
128 During the period under review, the concept of deferred payment was introduced, whereby the
company undertook the financing and construction of the facilities and received scheduled payments uponhanding over the completed facilities.WT/TPR/S/92 Trade Policy Review
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143. Although the financial crisis has seemingl y slowed down the privatization programme,
98 projects were privatized during the period 1996-2000, of which 47 were existing projects and
51 were new.  The majority of the projects involve construction, electricity and gas, transport, and
government services;  privatization was implemented mainly through the sale of equity, build-operate-
transfer, sale of assets, build-operate-own, corporatization, management-buy-out, lease of asset, or
management contract.  However, the State's equity in these projects has remained high, representing71% of total paid up capital.  Data based on 203 companies privatized since 1983 show that the
State’s share in these privatized companies declined from 62.7% in 1983 to 49.5% in December 2000,
while shares of Bumiputera, non-Bumiputera, and foreign investors in the projects increased from
21.5% to 25.6%, 9.7% to 14% and 5.9% to 10.9% respectively.
129
144. In the face of the economic crisis and its social implications, and on the basis of an evaluation
of performance of major privatized entities, the Government has taken over shares and assets of
several companies in strategic activities such as sewerage, and air and urban rail transportation;  the
authorities regard such acquisitions as interim measures.130
(viii) Competition policy and regulatory issues
145. Malaysia does not have any comprehensive competition law.  Nevertheless, it has various
laws to regulate activities of enterprises and protect consumer interests;  these include,  inter alia , the
Price Control Act 1946, the Companies Act 1965, the Control of Supplies Act 1961, the Food Act
1983, the Trade Description Act 1972, the Direct Sales Act 1993, and the Consumer Protection Act
1999.131  With a view to ensuring competition in telecommunications, the Communications and
Multimedia Commission was created by virtue of the Communication and Multimedia Act 1998.
Several guidelines were introduced to re gulate competition in this sector;  these  came into force on
1 February 2000.
146. Malaysia is a participant in the APEC "Competition Law Study", and has contributed to
improvements in the “APEC Regulatory Framework on Competition Policy and Law”.  Malaysia also
participates in various competition law seminars  and courses organized under WTO, APEC, ASEAN
and World Bank initiatives.  The authorities indica te that Malaysia will consider the possibility of
entering into bilateral agreements on competition policy actions, depending on the merits of eachcase.
147. Price controls are used in Malaysia on a number of products.
132  The price of rice is controlled
by law and is administered by the Ministry of Agriculture under the Rice (Grade and Price Control)
Order 1992.  Prices of the other items are administered by the Ministry of Domestic Trade and
Consumer Affairs, while their supply is admini stered under the Control of Supplies Act 1961.  The
price controls mentioned above generally apply to  domestically produced goods.  Imports are allowed
only when a shortage occurs and are generally subject to the same price controls as domestically
produced goods.  Import and export licensing applies to most goods subject to price controls.
                                                     
129 Economic Planning Unit (2001a).
130 Economic Planning Unit (2001a).
131 APEC (2000a).
132 These items include sugar;  milk including sweetened condensed milk;  portland cement;  wheat
flour;  cooking oil;  mild steel round bar;  kerosene;  diesel;  rice of standard and premium grade;  petrol of allgrades;  liquefied petroleum gas;  and chicken.Malaysia WT/TPR/S/92
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(ix) Corporate governance
148. A move towards a more disclosure-based regulatory regime has occurred recently;  the
objectives of the regime are increase disclosure of information by issuers, improve quality, timeliness,
and relevance of information disclosed, and enhance accountability among market participants.133
Focus has also been on enhancing corporate govern ance standards for public-listed companies.  The
corporate governance initiative, pursuant to the recommendations embodied in the FinanceCommittee Report on Corporate Governance,
134 covers three broad areas:  the development of the
Malaysian Code on Corporate Governance, which sets out principles and best practices for corporate
governance;  reform of laws, regulations, and ru les to strengthen the regulatory framework for
corporate governance;  and training and education.  The Code has also introduced a mandatory
accreditation programme for directors of listed companies and a Minority Shareholder WatchdogGroup.  With a view to the a long-term development of the capital market, the Securities Commission
released a Capital Market Masterplan.
135
                                                     
133 Securities Commission (1999).
134 The report was released to the public on 26 March 1999 by the Finance Committee on Corporate
Governance, which was established in 1998 to review the framework for corporate governance in Malaysia .  Aconsultative process adopted by the Committee to deve lop the report involved regulatory agencies, corporate,
banks, industry associations, standard-setting bodies, and academia.  The report may be consulted in the
Securities Commission online information.  Available at:  http://www.sc.com.my/html/publications/fr_public.
html.
135 See Securities Commission online information.  Available at:  http://www.sc.com.my/html/
cmp2001/fr_cmp2001.html.