Malaysia WT/TPR/S/92
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
(1) OVERVIEW
1. There has been little change in Malaysia's trade-related institutional framework since its
previous Trade Policy Review.  While retaining its constitutional authority for external trade policy,
the Federal Parliament has delegated the administration of trade and trade-related policy instruments
to the Executive Branch of the Government.
2. Policy objectives of the Government are published in Malaysia's five-year development plans
and "Outline Perspective Plans", which are prepared by the Economic Planning Unit in the Prime
Minister's Department in consultations with othe r Ministries, advisory bodies, and the private sector
through Inter-Agency Planning Groups.1  The Outline Perspective Plans set the broad thrusts and
strategies in the development agenda over the long term, while the "Malaysia Plans", the medium-term plan for a five-year period, are formulated  within the framework set under the Outline
Perspective Plan.  Annual policy objectives are outlined in the budget and tabled in Parliament by the
Minister of Finance.
3. WTO Agreements play a pivotal role in the formulation of Malaysia's trade and trade-related
policies;  however, regional arrangements, notably  those involving the Association of South East
Asian Nations (ASEAN) and the Asia Pacific Eco nomic Cooperation forum, and various bilateral
agreements, including in areas not covered by WTO Agreements, are also important.  Malaysia
coordinates its policies on WTO matters with other ASEAN members, and, at the same time, it
endeavours to ensure that its participation in regi onal trade arrangements is consistent with the main
principles underlying the WTO Agreements.
(2) G
ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK
4. Malaysia is a parliamentary democracy with a constitutional monarchy.2  It is a multi-racial
society with 23.3 million people (as of May 2001), comprising Malays, Chinese, Indians, and other
ethnic groups.  Under the Constitution, Malaysia is a federation of 13 States and three federal
territories, Labuan, Kuala Lumpur, and Putrajaya.  The States of Sabah and Sarawak, both on the
island of Borneo, have certain special rights (e.g. their own immigration policy, and the double
deduction for tax purposes on freight charges for wood products, so as to promote trade within theMalaysian Federation).
5. Legislative authority is divided between the Federation and the States.
3  Trade policy issues
such as finance, commerce, industry, shipping, communications, and health are vested in the Federal
legislature.  Land issues, in particular land use, mining, and forestry are within the competence of the
respective State Legislatures.  Federal legislative authority rests with the bicameral Parliament, whichconsists of the Senate and the House of Representatives.
4  Representatives are directly elected and
                                                     
1 The latest medium-term plan, the Eighth Malaysia Plan, was launched on 23 April 2001.
2 The King is elected to the throne for a five-year term by, and from among, the hereditary rulers of the
nine States in the Federation that have Sultans at th eir head.  The King normally acts upon the advice of the
Government, headed by the Prime Minister.
3 The Federal Parliament is competent to enact laws on issues enumerated in the Federal List (List I),
while the States have exclusive authority on subjects included in the States' List (List II).  Matters falling under
the joint competence of federal and state authorities are specified in List III.  Any matters not enumerated in anyof the lists are the prerogative of the States.
4 The Senate comprises 69 members serving for a six-year term, 26 of whom are elected by the
legislatures of the 13 States, two from the Federal Territory of Kuala Lumpur and one from the Federal TerritoryWT/TPR/S/92 Trade Policy Review
Page 16
hold office for five years, although the House may be dissolved earlier by the King upon the advice of
the Prime Minister.
6. Under the Constitution, Parliament has legisl ative authority to implement any treaty or
agreement.  Although domestic laws take precedence over international laws, the authorities ensure
that every effort is made to ensure that the domestic laws are consistent with WTO provisions.
7. While most Bills originate in either the House of Representatives or the Senate, those
involving taxation (including customs duties) or expenditure must be introduced in the House of
Representatives.  A Bill becomes law on assent from the King after it has been passed both by the
House of Representatives and the Senate.  However, a Bill may become law without such royal assent
if the latter is not given within 30 days of the presentation of the Bill to the King.  By virtue of their
authority, Parliament and the State Legislatures may delegate their legislative power, mainly inmatters of detail that require flexibility, to a person or body.  The execution of most trade policy
instruments is delegated to various Ministers and statutory authorities (Table AII.1).  Subsidiary
legislation (e.g. regulations, orders, rules, proclamations, and notifications) can be made under any
Act, Enactment or Ordinance, and be amended or revoked by the authority that has made it.
(3) D
EVELOPMENT AND ADMINISTRATION OF TRADE POLICY
(i) Administrative framework
8. The Cabinet, headed by the Prime Minister, formulates trade and investment policy objectives
and measures, initiates legislation, and exercises executive functions.  The annual budget, which is
tabled in Parliament by the Minister of Finance, assesses economic performance during the previous
year and presents the Government's legislative agenda related to the budget and finance.  The
Ministries involved in the implementation of Malaysia's trade policies have not changed since its
previous Trade Policy Review, except that the Mi nistry of Energy, Telecommunication and Post was
renamed the Ministry of Energy, Communications and Multimedia in November 1998.  The Ministry
of International Trade and Industry (MITI) is the central authority charged with the planning and
implementation of Malaysia's international trade and industrial policies, while the Ministry of Finance
is the final arbiter in the Executive Branch on taxes, including tariffs, and various tax and non-tax
incentives for investment.  In addition to MITI, the Ministries of Agriculture and Health are the mainbodies involved in import procedures.  Market-access conditions for trade in services are generally
administered by specific ministries and statutory bodies.  Intellectual property rights and broad
competition issues are under the purview of the Mi nistry of Domestic Trade and Consumer Affairs
(Table AII.2).
9. In January 1998, the National Economic Action Council (NEAC) was established as a
consultative body to the Cabinet with a view to  dealing with economic problems arising from the
Asian financial crisis that broke out in mid-1997.  In July 1998, the NEAC announced the National
Economic Recovery Plan (NERP).  A number of inter-ministerial committees cover specific policy
areas.
5
                                                                                                                                                                    
of Labuan;  the remaining members are nominated by the King from among "distinguished citizens".  The
House of Representatives contains 193 elected seats.
5 The National Committee on Multilateral Trade Issues under the Ministry of International Trade and
Industry advises the Government on its obligations under, and on implementation of, the WTO Agreements.The Foreign Investment Committee (FIC) is a high-level inter-agency committee with representatives from thekey economic ministries and agencies.  See WTO (1997) for details of the role of the FIC.Malaysia WT/TPR/S/92
Page 17
10. With a view to strengthening the resilience of Malaysia's financial market, Danaharta (the
national asset management company), Danamodal (a special purpose vehicle to revitalize the banking
sector), and the Corporate Debt Restructuring Committee (CDRC) were established under NERP.6  In
1997, the National Consumer Affairs Council was formed under the chairmanship of the Minister of
Domestic Trade and Consumer Affairs, to deal with consumer protection issues.
11. Although a variety of ministries is involved in the formulation of policies towards foreign
investment, all investment policies relating to  manufacturing projects are implemented by the
Malaysian Industrial Development Authority (MIDA).  MIDA serves as a one-stop investment
approval agency for practically all domestic and foreign-owned investments in the manufacturing
sector.  It can propose the granting of a broad range of tax and non-tax incentives, and can also
propose the granting of tariff protection to what are cons idered to be "deserving infant industries";  the
Ministry of Finance is the final arbiter on these matters.  The Foreign Investment Committee (FIC), a
high-level inter-agency committee with representatives from the key economic ministries and
agencies, regulates mergers and acquisitions and coordinates Malaysia’s foreign investment policy.7
Bank Negara Malaysia (the Central Bank) regulates and supervises the activities of commercialbanks, insurance companies, and all other financial institutions.
8
12. Malaysia has no formal competition policy.  Nevertheless, abuse of dominant market position
is addressed by a number of other policy instruments, such as maximum prices for
telecommunications services administered by the Ministry of Energy, Communications and
Multimedia (Chapter III(4)(viii) and Chapter IV(5)(iv)).
13. As in many other WTO Members, statutes provide a margin of discretion to the Executive
Branch of the Government.  The discretion of the Government in implementing trade policy statutes is
subject to judicial review.  A right of appeal to the judicial system may be provided by law.
(ii) Advisory and review processes
14. The private business sector, as well as semi-independent research institutes such as the
Malaysian Institute of Economic Research (MIER), various universities, and the Institute of Strategic
and International Studies (ISIS) Malaysia, are invited to contribute to the preparation of policy
initiatives.  The representatives from the business sector, academia, and NGOs including interestgroups, are members of the various Task Forces and Committees chaired by the Minister of
International Trade and Industry and the various working committees.  The interests of foreign
investors in Malaysia are represented notably through the Malaysian International Chamber of
Commerce and Industry (MICCI), whose members are involved in several such task forces and
committees.
(4) T
RADE POLICY OBJECTIVES
15. Since the launching of the National Economic Recovery Plan (NERP)  in July 1998, the main
policy objectives have been to stabilize the ringg it, restore market confidence, maintain financial
stability, strengthen macroeconomic fundamentals, continue the socio-economic agenda, and restore
sectors badly affected by the South-East Asian crisis.
                                                     
6 Danaharta was incorporated on 20 June 1998 as a government-owned lim ited liability corporation.
Danamodal and CDRC were established in August 1998 and July 1998, respectively.
7 The statutory Malaysia Code on Take-overs and Mergers is administered by the Securities
Commission.
8 Financial institutions that fall within the ambit of the Banking and Financial Institutions Act, 1989.WT/TPR/S/92 Trade Policy Review
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16. Various tax and non-tax incentives are offered to companies whose activities are thought to
contribute to the realization of the Government's objectives.  Since 1998, various financial and fiscal
measures have been introduced to help attain economic recovery.  These measures include, inter alia ,
gradual reduction of the central bank intervention rate and the statutory reserve requirement;  setting
up of the national asset management company, to acquire and manage NPLs of the banking
institutions, and Danamodal to recapitalize banking institutions;  the introduction of a new frameworkfor liquidity management to enable the banking inst itutions to manage their liquidity positions more
flexibly without compromising prudential standards;  and an allocation of RM 7 billion in 1998 for
development expenditure for infrastructure and public facilities, industrial development, rural
development, housing, education, and health.
(5) T
RADE AGREEMENTS AND ARRANGEMENTS
17. While the WTO Agreements would appear to be central to the formulation of trade policies,
Malaysia also participates actively in the Association of Southeast Asian Nations (ASEAN), the Asia-
Pacific Economic Cooperation (APEC), and several other groupings with trade and trade-related
objectives.9  At the same time, however, Malaysia makes every effort to ensure that its adherence to
such arrangements is consistent with the main principles underlying WTO Agreements.  Bilateralarrangements are intended primarily to address measures impeding access to foreign markets that are
felt to be particularly important to the two partie s concerned;  the authorities maintain that these
agreements are in line with the WTO Agreements.
10  Malaysia accords at least most-favoured-nation
(MFN) treatment to all of its trading partners.
(i) Multilateral agreements
(a) WTO
18. Malaysia is an original Member of the WTO.  It has signed the "Information Technology
Agreement" and the Fourth and Fifth Protocols of GATS concerning basic telecommunications
services and financial services, respectively.  Malaysia does not subscribe to the plurilateral WTO
Agreements.11  Malaysia bound about 65% of its tariff lines in 1995, and has made extensive
commitments under the GATS (Chapter IV(5)(i)).
19. Malaysia adopted the "transaction value" method of customs valuation on 1 January 2000.   In
the area of trading rules, such as anti-dumping and countervailing measures, subsidies, technical
barriers to trade, customs valuation, and import licensing, it has made various notifications
(Table AII.3).
20. Malaysia requested an extension of the transition period for one of its commitments under the
TRIMs Agreement, i.e. to eliminate local-c ontent requirements in the automobile sector12;  it
abolished all other TRIMs measures on 31 Decemb er 1999.  With a view to  complying with the
TRIPS Agreement, Malaysia has enacted new legislation:  the Layout Designs of Integrated Circuits
                                                     
9 The Organization of Islamic Countries, the Commonwealth, the Non-Aligned Movement, and Group
of 15.
10 Article 1 of a bilateral trade agreement normally  provides that:  "The Contracting Parties shall,
subject to laws, regulations and procedures in force in their respective countries, including any obligations as a
member of the World Trade Organization (WTO) take all appropriate measures to facilitate, strengthen anddiversify trade between the two countries".
11 The Agreement on Trade in Civil Aircraft and the Agreement on Government Procurement.
12 WTO document G/C/W/174, 12 January 2000.Malaysia WT/TPR/S/92
Page 19
Act 2000;  and the Geographical Indications Act 2000.  Malaysia has also amended the Patents Act
1983, Trade Marks Act 1976, the Copyright Act 1987, and the Industrial Designs Act 1996.
21. Malaysia is committed to phasing out its export subsidies in the manufacturing sector over
eight years, to bring them in conformity with the WTO Agreements.13  Amendments have also been
made to the Malaysian Countervailing and Anti-dumping Duties Act 1993.  Furthermore, national
standards, control, inspection, and approval procedures are being developed, based on relevantinternational standards (Chapter III(4)(iv)).
(b) Other multilateral arrangements
22. Malaysia is a party to the Convention on the Settlement of Investment Disputes between
States and Nationals of other States (Washingt on Convention), and recognizes the International
Centre for the Settlement of Investment Disputes as the administrative body to provide the facilitiesfor conciliation and arbitration in investment disputes.
(ii) Regional arrangements
(a) ASEAN
23. As part of the Framework Agreement on Enhancing Economic Cooperation to accelerate
regional economic growth, ASEAN set up the ASEAN Free-Trade Area (AFTA) in 1992.  At the
Fifth ASEAN Summit in 1995, the AFTA, which was expected to reduce tariffs to between 0 and 5%
for all trade between member nations by 2008, wa s brought forward to the year 2003 for the six
original founding members of ASEAN, and later, in response to the financial crisis that affected the
region in 1998, to 2002.  The Common Effective Preferential Tariff (CEPT) scheme is the main trade
instrument of the AFTA, and currently covers, on average, 90% of the tariff lines of all ASEAN
member nations.  Malaysia has included 8,764 tariff lines in its CEPT tariff.  Tariffs for these lines are
expected to be reduced to a range of 0 to 5% by the end of 2002 (Chapter III(ii)(i)).
24. In 1999, ASEAN leaders decided to eliminate all import duties by 2010.  They also agreed, in
principle, to advance the schedule from 2018 to 2015 for the new members of ASEAN, but allowing
some sensitive products to follow the original date of 2018.
25. Since 1993, Malaysia has been progressively transferring its products into the CEPT scheme,
a process that has continued during the period under review.  In 1997, 671 tariff lines were transferredinto the scheme;  in 1998, 129 tariff lines, in 1999, 61 tariff lines, and in 2000, 504 lines.  To date,
96% of Malaysia 's tariff lines have been transferred to the CEPT scheme;  90% of lines are subject to
duties of no more than 5%, two third of which are duty free.
26. Products excluded by members from their CEPT tariffs could be placed on the temporary
exclusion list (TEL), or on the sensitive or general exclusion lists.  Products on the TEL were to betransferred gradually to the inclusion list in five equal instalments of 20% annually, within five years
beginning on 1 January 1995, although, for Malaysia, this transition is yet to be completed.  Currently,
2.5% of all tariff lines are on the Temporary Exclusion List (TEL);  this comprises 218 tariff lines on
CBU/CKD passenger cars and commercial vehicles.  Malaysia has delayed the transfer of these tariff
lines into the CEPT scheme until 2005.  Malaysia has 0.79% of its tariff lines in the Sensitive List,involving 83 tariff lines of unprocessed agricultural products, including poultry, swine, tropical fruits,
vegetables, tobacco, tea, coffee, sugar, and rice.  About 0.68% of tariff lines, or 53 tariff lines, on the
General Exception List (GE) involve mainly alcoholic beverages and weapons.
                                                     
13 See WTO document G/SCM/N/3/MYS, 12 July 1995 for relevant subsidies.WT/TPR/S/92 Trade Policy Review
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27. At the 32nd ASEAN Economic Ministers Meeting, held in October 2000, which led to the
signing of a protocol on 23 November 2000, members agreed to allow a temporary delay in tariff
liberalization for those products still on temporary exclusion lists of the six original founding
members of ASEAN as at 31 December 1999.  In Malaysia's case, this concerned automobile
products.  To request such a delay, the member concerned is to write formally to the AFTA Council;
the submission is then considered by the relevant ASEAN bodies and members and may result incompensation being paid to countries affected by the delay.  The amount of the compensation is to be
agreed upon between ASEAN members within 180 days of receipt of the submission.
14  The target
date for the complete elimination of all tariff barriers remains 2015 for the six founding nations
(Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand) and 2018 for the rest
(Cambodia, Laos, Myanmar, and Viet Nam).
28. Other agreements aimed at increasing intra-ASEAN trade, promoting greater integration of
ASEAN economies, and increasing investment in ASEAN countries, which have been signed in
addition to the AFTA, include the ASEAN Industr ial Cooperation Scheme (AICO) and the ASEAN
Investment Area (AIA).  The AICO, signed in April 1996, aims to integrate ASEAN economies more
closely and increase industrial output of the region, in addition to increasing foreign investment intothe region.
15  The AIA, which was signed in October 1998, aims to increase foreign investment from
both ASEAN and non-ASEAN sources in the region by  removing barriers to investment for all
ASEAN investors by 2010 and for all investors by 2020.  Sectors specified in the temporary exclusion
and sensitive lists would be excluded.16  The Framework Agreement on Mutual Recognition
Arrangements was also signed in 1998.  Most  recently, ASEAN leaders adopted the e-ASEAN
Framework Agreement at the Fourth ASEAN Inform al Summit, held in November 2000 in Singapore.
The agreement aims to achieve digital readiness in six areas:  connectivity;  local content;  electronic
commerce;  ICT goods and services;  human resources development;  and e-governance.  Efforts to
develop such digital readiness will include the de velopment of an appropriate legal and regulatory
environment as well as skills and proficiency in the use of information technology in the region.17
29. Further regional economic integration has been pursued under the ASEAN Vision 2020,
adopted in 1997, aimed at achieving a free flow of  goods, services, and investment, and reducing
economic disparities in the region by the year 2020.  Economic cooperation between member States is
also taking place in a number of areas, including customs procedures and valuation, intellectual
property rights, standards and conformance, and investment, as well as sectoral liberalization.
Economic cooperation with non-members
30. In addition to regional liberalization, ASEAN pursues cooperation with other inter-
governmental organizations including the Andean Council, the Australia—New Zealand Closer
Economic Relations (CER), the Economic Cooperati on Organization, the Gulf Cooperation Council,
MERCOSUR, the Rio Group, the South Asian Associ ation for Regional Cooperation, and the South
Pacific Forum.  Most ASEAN members are also active  participants in the activities of the Asia-Pacific
Economic Cooperation (APEC) forum, the Asia-Eur ope Meeting (ASEM), and the East Asia-Latin
America Forum (EALAF).
31. ASEAN also pursues bilateral cooperation with non-member States.  In recent years, annual
dialogues have been held with China, Japan, and the Republic of Korea (ASEAN plus three) and
resulted in a joint statement between ASEAN and each of these countries, which provides for a
                                                     
14 ASEAN Secretariat (undated a).
15 ASEAN Secretariat (undated b).
16 ASEAN (1999).
17 ASEAN (2000).Malaysia WT/TPR/S/92
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framework for cooperation in the 21st century.  ASEAN also maintains regular contact with its other
"dialogue partners" including Australia, Canada, the European Union, India, New Zealand, the
Russian Federation, the United States, and the United Nations Development Programme;  cooperation
with Pakistan is also pursued in certain sectors.
(b) APEC
32. Malaysia is a founding member of the As ia-Pacific Economic Cooperation (APEC) forum.18
Under the terms of the Bogor declaration of November 1994, Malaysia intends to implement free
trade and investment by 2020, as is expected  of developing country members of APEC.
33. At their 1997 meeting in Vancouver, the heads of APEC States agreed to implement early
voluntary sectoral liberalization (EVSL) in 15 sectors, of which nine were to be accelerated under the
accelerated tariff liberalization (ATL) initiative.19  At their meeting in Kuala Lumpur in
November 1998, APEC ministers confirmed that 16 APEC members would participate in the EVSL
programme.20  It was also decided to pursue liberalization in the ATL sectors at the WTO.  In
June 1999, members agreed to pursue liberalization in the remaining six sectors at the WTO, although
separate from the ATL package.  Work on the EVSL in APEC is currently focused on non-tariff
measures, trade facilitation, and economic and technical cooperation components of the sectoralinitiatives.
34. The APEC meetings in November 2000 and June 2001 called for a new round of multilateral
trade negotiations to be launched in 2001.  APEC also agreed to continue a moratorium on customs
duties on electronic commerce until the next WTO Ministerial Conference in 2001.  Other issues
discussed included the encouraging recovery of the region from the economic and financial crisis, and
the need for continued structural reform, particularly of the banking and financial system, the recent
volatility of petroleum prices, and the need to address the international digital divide and developinformation technology.
21
(c) ASEM
35. The Asia-Europe Meeting (ASEM) held its first summit meeting in Thailand in 1996, with the
participation of seven ASEAN members22, the European Commission and the 15 members of the
European Union, Japan, China, and Korea.  The goal of ASEM is to build a political, economic, andcultural relationship between the two regions.  The second ASEM summit meeting, which was held in
London, in April 1998, adopted a trade pledge to main tain open markets between participants in the
ASEM dialogue despite difficulties experienced as a result of the Asian financial crisis, which erupted
in 1997.  The second summit also endorsed a trade facilitation action plan (TFAP), aimed at reducing
                                                     
18 Formed in 1989, APEC currently consists of:  Australia;  Brunei Darussalam;  Canada;  Chile;
China;  Chinese Taipei;  Hong Kong, China;  Indonesia;  Japan;   Korea;  Malaysia;  Mexico;  New Zealand;Papua New Guinea;  Peru;  Philippines;  Russia;  Singapore;  Thailand;  the United States;  and Viet Nam.
19 The 15 sectors were:  automotive products;  chemicals;  civil aircraft;  energy;  environmental goods
and services;  fish and fish products;  food;  forest products;  gems and jewellery;  medical equipment andinstruments;  fertilizers;  natural and synthetic rubber;  oilseeds and oilseed products;  toys;  as well as a mutual
recognition agreement for telecommunications products.  Liberalization in nine of these sectors, chemicals,energy, environmental goods and services, fish and fish products, forest products, gems and jewellery, medicalequipment and instruments and toys, as well as the mutual recognition agreement for telecommunications
products were to be accelerated.
20 Australia;  Brunei;  Canada;  China;  Hong Kong, China;  Chinese Taipei;  Indonesia;  Japan;  Korea;
Malaysia;  New Zealand;  Papua New Guinea;  Philippines;  Singapore;  Thailand;  and the United States.
21 APEC (2000b).
22 Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Viet Nam.WT/TPR/S/92 Trade Policy Review
Page 22
non-tariff barriers, particularly with regard to customs regulations and procedures, standards,
government procurement, and sanitary and phytosanitary measures.
36. The second ASEM Economic Ministers Meeting, which was held in Berlin in October 1999,
adopted future action on the TFAP and extended a mandate for a further two years for the Investment
Experts Group.  The commitment to trade liberalization was reiterated at the third ASEM meeting
held in Seoul, in October 2000.  ASEM members ag reed to intensify efforts to launch a new round of
world trade liberalization talks "at the earliest opportunity".23  Other areas of cooperation in ASEM
include science and technology and the environment.
(d) BIMP-EAGA
37. In March 1994, the Brunei Darussalam, Indonesia, Malaysia, Philippines – East ASEAN
Growth Area (BIMP-EAGA) was formed;  it covers a total area of around 1.5 million squarekilometres and a population of around 46 million.  It is composed of:  the entire area of Brunei;  ten
provinces in the Indonesian islands of Kalimantan, Sulawesi, Maluku, and Irian Jaya;  Sabah,
Sarawak and Labuan in Malaysia;  and Mindanao and Palawan in the Philippines.  Its goal is to
enhance trade and investment opportunities th rough the pooling of common and complementary
resources and infrastructure, and to encourage the free movement of resources across borders.  Theeleven Sectoral Working Groups, with participat ion from both the private and the public sectors,
concern, inter alia , air and sea linkages, construction, capital formation and financial services, agro-
industry, human resource development, and tourism.
(e) IMT-GT
38. The Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) was formed in 1993.
Currently, it involves the Indonesian island of Sumatra, the northern Malaysian States of Kedah,
Perak, Perlis, and Penang, and the provinces of Yala, Songkhla, Pattani, and Narathiwat in southernThailand.  The objective of IMT-GT is to promote greater economic cooperation within the subregion
through the creation of a conducive investment climate and facilitation by governments of greater
private-sector participation in trade expansion.  In June 2001, a new strategic approach was
introduced, based on six models of project oriented cooperation.
(iii) Bilateral agreements
39. Since its previous Trade Policy Review, Malaysia has signed 17 bilateral trade agreements,
15 bilateral investment guarantee agreements, 4 bilateral payments agreements/arrangements,
7 avoidance of double taxation agreements, and 16 air services agreements.
40. Malaysia has bilateral investment guarantee agreements and agreements on avoidance of
double taxation with most countries of European Union, and has signed air service agreements withsome of them.  Malaysia has also signed shipping agreements with Belgium and Luxembourg.  No
bilateral trade or payment agreements has been signed between Malaysia and any of the EU members.
Malaysia was partially "graduated" from EU GSP, for several products (plastic, rubber, clothing, and
few consumer electronics products) from January 1998, and cereals, products of the milling industry,
and animal or vegetable fats and oils from January 1999.
41. Since Malaysia's previous Review, the U.S.-Malaysian bilateral trade relationship has
remained virtually unchanged, apart from an Air Service Agreement that was signed between the two
                                                     
23 Financial Times , 23 October 2000.Malaysia WT/TPR/S/92
Page 23
countries on 21 June 1997, and a development concerning the signing of a Double Taxation
Agreement.
42. On 19 February 1999, Malaysia signed a new agreement on the avoidance of double taxation
with Japan.  There is no bilateral agreement between Malaysia and Japan covering investment
protection.  Japan has continued to grant GSP preferences to Malaysian products.
(6) TRADE DISPUTES AND CONSULTATIONS
43. Between January 1998 and March 2001, Malaysia was involved in one dispute in the WTO;
Malaysia, with other WTO Members, requested consultations with regard to U.S. measures affecting
certain shrimp and shrimp products.24  The Panel and the Appellate Body Reports were adopted on
6 November 1998.  The authorities state that since its previous Trade Policy Review Malaysia has had
no trade disputes or frictions with any of its trading partners, for which solutions have been soughtoutside the WTO framework.
(7) F
OREIGN INVESTMENT REGIME
44. Malaysia's policy on FDI is to encourage projects to be undertaken on a joint-venture basis
between Malaysian and foreign enterprises.  No ma nufacturing sector is closed to FDI, provided
investors meet certain guidelines for foreign equity participation, which are often related to exportperformance, and, in the case of automobile manufacturing, local-content requirements.
25  T h e s e
guidelines are enforced by MIDA through its licensing process.
45. Specific equity guidelines generally require at least 70% Malaysian ownership.  However,
this requirement may be relaxed (up to 100% foreign equity ownership) for projects that involve
higher levels of exports or technology.26  Foreign equity ownership of up to 100% may be allowed for
projects involving the manufacture of high technology products or priority products for the domestic
market, as determined by the Government from time to time.  These guidelines do not apply to
manufacturing companies with shareholders' funds of less than RM 2.5 million or less than 75 full-
time employees, which are not subject to any manufacturing licence requirement.
46. As part of the measures to counter the effects of the Asian financial crisis, the foreign equity
restriction applied to the manufacturing sector was partially liberalized on 31 July 1998.  Foreign
investors were allowed to hold 100% equity ownership irrespective of the level of exports;  thisapplied to all applications received from 31 July 1998 until 31 December 2000 to set up
manufacturing projects, except for specific activities and products where Malaysian small and
medium-sized companies have the capabilities and expertise.
27  Companies undertaking projects
approved under this policy are not required to divest their equity after the period.  Companies that
were licensed before 31 July 1998 must comply with th e equity condition as stated in the licence;  this
condition may involve a divestment requirement, as in the case of insurance (see below).  However,
for existing companies undertaking expansion or diversification, the liberalized equity policy as stated
                                                     
24 WTO documents WT/DS/58.
25 The local-content requirement applies to all automobile assemblers/manufacturers.
26 For example, projects may be fully foreign-owned if they involve exportation of more than 80% of
output.  The extraction or mining and processing of mineral ores is also eligible for 100% foreign ownership,
depending on the level of investment, technology applied, and availability of local expertise.
27 These activities and products are:  paper packaging;  plastic packaging (bottles, films, sheets and
bags);  plastic injection moulded components;  metal stamping, metal fabrication and electroplating;  wireharness;  printing;  and steel service centres.  For these activities and products, the prevailing specific equityguidelines would be applicable.WT/TPR/S/92 Trade Policy Review
Page 24
above would apply to the expansion and diversification projects.  Given the importance of sustaining
FDI, as well as the increasing competition for global FDI, the Government has extended the
liberalized equity policy in the manufacturing sector until 31 December 2003.  With the exception of
electroplating, which has been deleted from the list, the Exclusion List of activities and products
(where specific equity policies apply) remains the same.
47. Manufacturing companies for which FDI was approved subject to certain export requirements
may apply for relaxation of these requirements.  The export condition has been relaxed twice, and a
second relaxation is effective from 1 January 2001 to 31 December 2003 for all existing
manufacturing companies with export requirements;  they may be allowed to raise domestic sales to
as much as 100% of their output for products with zero duty or those not produced locally, or up to
80% of output if the domestic supply is inadequate or the imports from ASEAN for products withCEPT duties have increased.
48. Firms operating in certain services sectors are subject to registration, licensing or other
regulatory requirements. For example, all companies must be registered with the Registrar of
Companies before they may commence their activities.  The specific conditions attached to the
licences or other authorizations for the provision of services vary by sector.  In relation to equityownership, there is a limit of 30% foreign ownership, as listed in the horizontal commitments made in
Malaysia's GATS Schedule.  There are certain divestment requirements, such as a requirement for
foreign insurance companies to divest their existing  foreign-owned direct shareholding to a maximum
51% of the total shares after a prescribed number of years.  Exceptions to this maximum level of
foreign ownership are made for export-oriented invest ments, as, for example, in the cases of regional
headquarters, the offshore banking sector on the island of Labuan, and investments in the Multimedia
Super Corridor.
49. There have been no changes in the guidelines on expatriate employment since Malaysia's
previous Review.
28  Foreign companies are allowed to bring in expatriate personnel in areas where the
authorities consider there is a shortage of trained Malaysians to do the job.  In addition, foreign
companies are allowed to fill ‘key posts’ permanently with foreigners.
50. Malaysia participates in the WTO Working Group on the Relationship between Trade and
Investment.  As a Member of the ASEAN Free-Trade Area (AFTA), Malaysia is a party to regional
investment protection initiatives promoted in this forum.
                                                     
28 A company with foreign paid-up capital of US$2 million and above may have five expatriate posts
including key posts.  Additional expatriate posts may be allowed upon request.  For a company with foreign
paid-up capital of less than US$2 million, key posts may be allowed where the foreign paid-up capital is at least
RM 500,000.  For executive posts that require professional qualifications and practical experience, expatriatesmay be employed up to ten years, and for non-execut ive posts that require technical skills and experience,
expatriates may be employed up to five years;  both cases are subject to the condition that Malaysians aretrained to eventually take over these posts.