RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/225 
14 December 2009  
 
(09-6387) 
Trade Policy Review Body Original: English 
   
 
  
 
TRADE POLICY REVIEW 
 
Report by 
 
MALAYSIA 
 
  
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by Malaysia is attached. 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Malaysia. Malaysia WT/TPR/G/225 
 Page 3 
 
 
CONTENTS 
 
    Page 
I. ECONOMIC DEVELOPMENTS 5 II. TRADE POLICY DEVELOPMENTS 7 
(i) Overview 7 
(ii) Multilateral Trading System 7 (iii) Preferential Trad ing Arrangements 7 
(iv) ASEAN  8 
(v) Asia Pacific Economic Cooperation (APEC) 8 
III. SECTORAL POLICIES 9 
(i) Manufacturing Sector 9 
(ii) Agriculture Sector 9 (iii) Services Sector 10 
IV. FUTURE DIRECTION AND STRATEGY 12 
 
  Malaysia WT/TPR/G/225 
 Page 5 
 
 
 I. ECONOMIC DEVELOPMENTS 
1. The Trade Policy Review of Malaysia covers  a period of 2005-2009, amidst a global 
economic and financial slowdown, increased inflati on, oil price hike and the Influenza A (H1N1) 
pandemic.   
2. To ensure that the Malaysian economy continued to remain resilient against these challenges, 
the Government put in place various measures, pa rticularly in enhanci ng domestic demand and 
mitigating the impact of the unstable external environment.  These include fiscal and monetary 
measures to stimulate domestic demand-led growth , enhancing the competitiveness of the economy, 
stimulating new sources of growth, focusing on th e development of human capital and diversifying 
exports to gradually reduce over-d ependence on traditional markets.  The first Economic Stimulus 
Package was introduced in November 2008 totalling RM 7 billion, while the second Stimulus Package 
made available in March 20 09 totalled RM 60 billion.  
3. The Malaysian economy recorded an average growth of 5.5% for the period 2005-2008.  Real 
gross domestic product (GDP) growth which was 5.3% in 2005, increased to 5.8% in 2006 and 6.2% 
in 2007 before slowing down to 4.6% in 2008.  The first quarter of 2009 recorded an economic 
contraction of 6.2%, while a smaller decline of 3.9% was recorded in the second quarter.  While 
economic performance is expected to improve in the second half of the year, the GDP for 2009 is 
estimated to contract by 3.0%. 
4. In 2008, the surge in commodity prices led to sh arp upward adjustments in domestic food and 
retail fuel prices.  This caused infl ation to reach its 26 year peak of 8.5% in July 2008.  This trend, 
however, moderated towards the end of the year as the contraction in global demand and rapid 
declines in global commodity prices led to the modera tion in domestic inflation to 4.4% by December.  
For the year as a whole, headline inflation averaged at 5.4% in 2008 compared to 3% in 2005. 
5. The labour force increased from 11.2 million in 2006 to 11.7 million in 2009.  The 
contraction in growth in 2009 has resulted in grad ual increase in levels of unemployment, with the 
rate relatively high at 4.5%. 
6. The services sector registered a growth of  7.9% for the period 2005-2008, supported by 
strong expansion in wholesale and retail trade, finan ce and insurance, real estate, tourism and business 
services. 
7. The manufacturing sector grew by 4.1% contri buted by production of both export and 
domestic-oriented products for the period 2005-2008.   Growth in export-oriented industries was 
mainly supported by higher production in elect rical and electronics (E&E), petroleum products, 
rubber products and machinery and equipment.  Fo r domestic-oriented industries, growth emanated 
from expansion in the production of chemicals and chemical products, constr uction-related materials 
and transport equipment.  
8. The agriculture sector expanded by 3.3%, on account of higher palm oil output, livestock and 
other agriculture products for the period 2005-2008.  
9. The construction sector registered a grow th of 1.25% for the period 2005-2008. 
10. The mining sector declined marginally by 0. 05% due to lower crude oil and natural gas 
production in 2007 and 2008. WT/TPR/G/225 Trade Policy Review 
Page 6 
 
 
 11. The private sector remains the main driver of  economic growth.  Private investments for the 
period 2005-2008 grew by 6.3% per annum and increased capital spending was recorded particularly 
in the manufacturing and services sectors.  The average growth rate of net foreign direct investment (FDI) inflows from 2005 to 2008 was 11.5%. 
12. Private consumption grew at 8.7% per annum for the period 2005-2008, mainly attributed by 
higher disposable income and commodity prices. 
13. Public investments recorded an average growth of 5.1% per annum from 2005 to 2008, 
mainly due to the speedier implementation of development projects, while public consumption 
registered 7.2% per annum due to higher expe nditure on emoluments, supplies and services. 
14. Malaysia's trade continued to record a surplu s since November 1997.  Exports registered an 
average of 8.5% growth for the period 2005-2008.  In  2007, exports expanded, albeit at a lower rate of 
2.7% due to decline in demand for manufactured goods.  However, the surge in commodity prices 
helped to push export value up by 9.6% in 2008.  The US, Japan, China and ASEAN member 
countries continued to be Malaysia's major trading partners with a combined average share of 60.0% 
of total exports from 2005-2008. 
15. The Government continued to pursue a prudent fiscal policy as reflected by the narrowing of 
fiscal deficit from 3.6% to GDP in 2005 to 3.2% in 2007.  However, the level of deficit increased to 
4.8% in 2008 following implementation of various pr ogrammes to cushion the impact of high oil and 
food prices.  In 2009, the fiscal deficit is expect ed to increase to 7.4% of the GDP due to the 
implementation of the second stimulus package.  
16. Government debt continued to rise in absolu te terms from RM 228.7 billion (43.8% of GDP) 
in 2005 to RM 306.4 billion (41.5% of GDP) in 2008.  Of the total, 93.4% was domestic debt.  External debt continued to dec line during this period, from RM 30 billion (5.7% of GDP) in 2005 to 
RM 20.3 billion (3.8% of GDP) in 2008.  
17. Gross National Savings (GNS) remained high,  averaging 37.8% of Gross National Product 
(GNP) in 2005-2008, enabling Malaysia to finan ce its economic activities from domestic sources.  
18. Malaysia continued to record a current account  surplus with the reserves position remaining 
strong.  At the time of the last Trade Policy Review, the level of reserves amounted to RM 265.3 billion or US$70.2 billion (31 December 2005).  Since then, the international reserves of 
Bank Negara Malaysia had risen to RM 334.3 b illion or equivalent to US$96.0 billion (as at 
September 2009).  The reserves position was sufficient to finance 9.5 months of retained imports and 
was 3.9 times the short-term external debt. 
19. The sustained rates of growth over the past f our years have resulted in the growth in per 
capita income from RM 20,911 (US$5,700) in 2006 to RM 25,722 (US$7,716) in 2008, representing 
an average annual increase of 10.5%. 
20. Since the transition of the exchange rate arrange ment from a peg to a managed float regime in 
July 2005, the ringgit has generally been on a path of appreciation.  By April 2008, the ringgit had 
undergone a cumulative appreciation of over 21% agains t U.S. dollar, reaching its peak of RM 3.1315 
on 23 April 2008.  This trend subsequently reversed  as the global financial crisis led to portfolio 
outflows from emerging economies.  The deleveraging activity caused the ringgit to depreciate, in line 
with other regional currencies.  Th e current regime has provided the flexibility for the ringgit to adjust 
to global economic and financial de velopments.  It has also accor ded a degree of exchange rate Malaysia WT/TPR/G/225 
 Page 7 
 
 
 stability against the country's main trading partners.  In addition, further liberalization of Malaysia's 
foreign  exchange administration rules were undertaken in 2005, 2007 and 2008 to provide for greater 
mobility of capital flows and reduce the costs of doing business, including by providing greater 
flexibility for resident corporations to source ringgit and foreign currency financing onshore and 
offshore. 
II. TRADE POLICY DEVELOPMENTS  
(i) Overview  
21. Malaysia's trade policy continues to focus on greater integration into the world economy and 
enhancing its global position as a trad ing nation.  Efforts will continue to focus on trade liberalization 
and facilitation initiatives under the World Trade Organisation (WTO), as well as pursuing regional 
and bilateral free-trade agreements (FTAs)  to complement the multilateral approach. 
22. Trade policies have focused on both internal and external improvements to ensure that exports 
continue to grow.  Domestically, policies are gear ed towards developing high quality and innovative 
products, creating brand awareness a nd consumer recognition.  Another major step is to diversify the 
product range to reduce over-reliance on electrical and electronic products. 
23. To ensure export growth remains robust, trad e policies will focus on strengthening Malaysia's 
presence in traditional markets as well as diversifying into non-traditional export markets.  Malaysia is actively promoting trade in new and emerging mark ets, such as China, India, Middle East and the 
new EU members.  With the current focus on promoting the development of the services sector, 
promotional efforts will also be intensified for the export of services.  
24. The trade regime has been progressively liberali zed to encourage integration at the regional 
and global level.  As at 2008, 99.3% of total tariff lines are at ad valorem  basis, and the average 
applied tariff is at 7.3%.  
(ii) Multilateral Trading System 
25. The Uruguay Round agreements and full implemen tation of commitments and monitoring of 
trading partners observance of WTO rules will rema in an important component of Malaysia's trade 
policy.  Malaysia has benefited from the WTO and has been among the top trading nations.  
26. Malaysia seeks greater market access under the Doha Round negotiations for selected 
agricultural products, industrial goods and services.  Conclusion of the Doha  Round of negotiations 
will enhance market access opportunities for Malays ian products and services, as well as impact 
positively on the domestic and global economic development.  
(iii) Preferential Trading Arrangements 
27. While Malaysia's focus remains on the multilate ral trading system, bilateral and regional 
arrangements are also being pursued to diversif y the export markets for Malaysian products and 
services.  These arrangements will not only include liberalization and facilitation measures to boost 
exports, but also economic and technical cooperati on and collaboration initiatives to build domestic 
capacity. WT/TPR/G/225 Trade Policy Review 
Page 8 
 
 
 28. Malaysia has signed bilateral preferential agre ements with Japan, Pakistan and New Zealand 
on 13 December 2005, 8 November 2007 and 26 Oct ober 2009, respectively.  Bilateral negotiations 
are on-going with Australia, Chile, India and the United States.  
29. Malaysia has also concluded preferential trading arrangements with members of the 
Organisation of the Islamic Conference (OIC).  The Trade Preferential System of the OIC (TPS-OIC) 
and the Developing Eight Preferential Tariff A rrangement (D8-PTA) are pending ratification by 
Members.  Malaysia has signed and ratified both the agreements. 
30. At the regional level, Malaysia together w ith ASEAN has concluded agreements with China 
(signed on 4 November 2002), Korea (signe d on 29 November 2004), Japan (signed on 
14 April 2008), Australia-New Zealand (signe d on 27 February 2009) and India (signed on 
13 August 2009).  
31. Effective 1 January 2010, under the ASEAN-China and ASEAN-Korea Free Trade 
Agreements, duties on 90% of the products will be eliminated.  The import duties for ASEAN-China 
FTA and ASEAN-Korea were progressively reduced  and eliminated begi nning 2005 and 2007 
respectively. 
(iv) ASEAN 
32. The realization of the ASEAN Economic Community (AEC) was further accelerated to 2015 
from 2020, with the coming into effect of the ASEAN Charter on 15 December 2008, and the adoption of the declaration on ASEAN Community in March 2009.  Under the AEC, ASEAN will be 
a single market and an integrated production base.  
33. To accelerate towards realizing the AEC by 2015, the Common Effective Preferential Tariff 
ASEAN Free Trade Area (CEPT-AFTA) Agreemen t of 1992 has evolved as the comprehensive 
ASEAN Trade in Goods Agreement (ATIGA), signed on 29 February 2009.  The ATIGA aims to facilitate the creation of free flow of goods within  the region with the aim of achieving the single 
market and production base for goods by 2015.  In the area of investment, a new ASEAN 
Comprehensive Investment Agreement (A CIA) was signed in February 2009.  
34. In the area of services, in 2007, ASEAN concluded the Sixth Package of services 
liberalization covering 70 subsectors and in Februa ry 2009, the Protocol to implement the Seventh 
Package was signed.  Mutual Recognition Arra ngements (MRAs) to facilitate intra-ASEAN 
movement of professionals such as engineers, dent al and medical practitioners and accountants have 
also been put in place.  
35. Malaysia attaches importance to the realisati on of the AEC and participates actively in all 
ASEAN initiatives.  Malaysia has also made si gnificant progress in reducing and eliminating 
intra-regional tariffs through the Common Effectiv e Preferential Tariff (C EPT) Scheme for the 
ASEAN Free Trade Area (AFTA).  Beginning 1 Janua ry 2010, duties on most of the products will be 
eliminated for ASEAN-6 members.  Malaysia has committed to eliminate import duties on 
2,123 products (17.22%), reduce import duties to 5%  for tropical fruits, tobacco and tobacco products, 
and reduce import duties for rice and rice products to 15%-20%.  
(v) Asia Pacific Economic Cooperation (APEC) 
36. Malaysia continues to participate actively in APEC activities in order to strengthen its trade 
and investment linkages, as well as technical and economic cooperation.  In  2008, APEC accounted Malaysia WT/TPR/G/225 
 Page 9 
 
 
 for 76% of Malaysia's total trade.  More than 75% of Malaysia's total exports go to the APEC 
countries.  Approved FDI from APEC economies in the manufacturing sector amounted to RM 30.77 billion or 66.7% of total investments in 2008.  
37. Through collaboration with APEC economies, Malaysia seeks to facilitate trade and reduce 
the cost of doing business.  Among the measures adopted are reduction in tariffs and non-tariff 
barriers, simplifying business regulations, as well as enhancing supply chain connectivity across the 
border by improving logistics and transport networks .  Key initiatives in the area of trade facilitation 
include the implementation of the Customs Singl e Window, the expansion of the APEC Business 
Travel Card Scheme, harmonization of food safety st andards and work in the area of data privacy to 
protect the integrity of e-commerce.  To further improve the business environment, APEC has 
identified priority areas for regulatory reforms based on the World Bank Ease of Doing Business indicators.  These include starting a business, acc ess to credit, trading across borders, enforcing 
contracts and dealing with permits.   
III. SECTORAL POLICIES  
(i) Manufacturing Sector  
38. During the review period, the manufacturing sector continued to remain as one of the major 
contributor to economic growth.  The competitiveness of the manufacturing sector will be further enhanced by focusing on higher value added a nd high-technology activities as well as promoting 
productivity driven growth.  The Third Industrial M aster Plan (IMP3) has outlined the strategies for 
the period 2006–2020, to promote th e development of 12 targeted sectors, namely petrochemicals, 
pharmaceuticals, rubber and rubber products, wood-based products, oil palm-based industry, food 
processing, electrical and electronics (E&E), medica l devices, textiles and apparel, machinery and 
equipment, metals industry and transport equipment.  
39. In terms of GDP share, the manufacturing sector contributed 30.7% in 2005 and 29.1% in 
2008.  During the review period, manufacturing growth was 5.2% in 2005, 6.7% in 2006, 3.1% in 2007 and 1.3% in 2008.  The lower performance in 2007 and 2008 was due to reduced global demand 
for E&E products.  Further decline is expected in  2009 due to the current global economic crisis.  
40. In 2008, the bulk of manufacturing activities remain concentrated in the E&E sector, mainly 
in semi conductors, which account for a share of 29. 3% of production.  Contribution of other key 
subsectors are plastics and chemical products (12%),  refined petroleum products (9.3%), construction-
related industries (6.4%), food and beverages (4.9 %) and wood and rubber based industries (4.0%).  
41. In 2008, the manufacturing sector accounted for 70% of total exports, with the E&E sector 
accounting for 38.3% of total exports of manufactur ed goods.  Other sectors which contributed to 
export earnings include the chemicals (6.1%), iron and steel (1.6%) and petroleum products (0.6%).  
42. Malaysia continues to remain a competitiv e destination for FDI inflows into the 
manufacturing sector.  Approved FDI comprised 59% of total investment for the period 2006-2008.  
The investments were mainly in the basic metal, electrical and electronics, transport equipment and 
food manufacturing. 
(ii) Agriculture Sector  
43. Under the Ninth Malaysia Plan covering the period 2006-2010, the agriculture sector is 
identified as the third engine of growth after the manufacturing and services sectors.  To boost WT/TPR/G/225 Trade Policy Review 
Page 10 
 
 
 development in the agriculture sector, focus is gi ven to the development of large-scale commercial 
farming and venturing into high-quality and value-added primary and processing activities, 
particularly biotechnology.  The productivity, effici ency, and wealth-generating potential of the sector 
will be enhanced through wider application of  modern farming methods and Information and 
Communication Technology (ICT), strengthening research and development, improving marketing 
capability and promoting greater private sector investment, including foreign investment.  
44. The Government has also introduced sever al measures to increase food production and 
productivity in line with the food security initiative to  ensure sustainable supply of food.  Among the 
programmes being implemented include upgrading and building of agricultural infrastructure, food 
production parks, aquaculture industrial zones and national feedlot centres to increase production of 
fruits, vegetables, livestock and fish products. 
45. Agriculture value added recorded  an average annual growth of 2.1% during 2006-2008, with 
the major contributors being oil palm, with a share of 31.2%, forestry and logging 20.3% and fishing 
16.6%. 
(iii) Services Sector  
46. The Government is embarking on a new economic  model, which is intended to shift reliance 
from a manufacturing base dependent on semi skilled and low cost labour to one that hinges on high technology and modern services sector  dependent upon skilled and highly paid workers.  This is in 
line with the IMP3, which laid out the policies and strategies to develop the services sector as the next 
engine of growth. 
47. During the period under review, the services sector continued to be the main contributor to 
the GDP.  Despite the global economic slowdown in  2008, the services sector accounted for 55% of 
the GDP compared with 51.2% in 2005.  The sector is the largest source of employment in the country, employing 52% of total workforce.  The services sector registered a trade surplus for the 
second consecutive year in 2008 of RM 2.3 billion, following a surplus of RM 2.8 billion in 2007 due 
mainly to the increase in exports of the tourism and education sectors.  
48. On 22 April 2009, the Government announced the lib eralization of 27 subsectors in the health 
and social services, tourism services, transport services, business services and computer and related 
services.  The liberalization of these services secto rs aims to strengthen the competitiveness of 
domestic players, increase investment opportunities, create more high income and knowledge jobs and foster greater innovation.  
49. Malaysia will continue to focus and promote the development of private education, health 
tourism, Islamic finance, ICT, creative industri es and biotechnology as sources to generate growth 
and foreign exchange earnings.  
50. Another major initiative to ease doing business in Malaysia and make Malaysia more 
attractive as an investment destination was the deregulation of investment guidelines administered by 
the Foreign Investment Committee on 30 June 2009.  This is in line with the Government's focus 
towards establishing a more conducive regulatory envi ronment and enhance Malaysia as a place to do 
business and invest. Malaysia WT/TPR/G/225 
 Page 11 
 
 
 (a) Financial Services Sector 
Banking and Insurance Sectors 
51. Since 2005, Malaysia has under gone substantial liberaliza tion in both the banking and 
insurance sectors.  These include relaxing restri ctions on foreign equity, easing limitations on 
branching of incumbent foreign financial institutio ns, and issuing new licences to foreign Islamic 
financial players, among others.  These liberalizat ion measures are aimed at developing a resilient, 
diversified and efficient financial sector.  
52. There is a consistently high level of foreign presence in Malaysia's financial sector.  This 
trend continued over the review period of 2005-2008.   Of the total 39 commercial and Islamic banks, 
19 banks are fully foreign-owned and foreigners account for 28% of total commercial and Islamic 
banking assets as at May 2009.  In the insurance and takaful  sector, 20 of 58 insurance companies and 
takaful  operators (including reinsurance and retakaful ) are foreign-owned, and the foreign market 
share amounts to around 60% and 38% of life insurance/family takaful  premiums and general 
insurance/general takaful  premiums, respectively.   
53. On 27 April 2009, Bank Negara Malaysia announced  further liberalization in the issuance of 
new banking licences for Islamic banking, specializ ed banking, and world-class banks.  The foreign 
equity limits in existing domestic Islamic banks , investment banks, insurance companies and takaful 
operators were raised to 70%.  
54. The Malaysia International Islamic Financial Centre (MIFC) initiative was launched in 2006 
to strengthen Malaysia's position as a centre in inte rnational Islamic finance.  The MIFC's main 
measures have included issuing International Islami c Banks (IIB) and International Takaful Operators 
(ITO) licences to qualified foreign and Malaysian fi nancial institutions to conduct Islamic banking or 
takaful business in international currenc ies.  Malaysian Islamic banks and takaful  operators providing 
Islamic financial services in international currencies are also permitted to set up separate international 
currency business units (ICBUs) under their existing li cence.  To date, there are a total of 25 MIFC 
players comprising three IIBs and one ITO, with th e remaining 21 players in the form of ICBUs of 
12 Islamic banks, one commercial ba nk, one investment bank, five takaful  operators and two retakaful  
operators. 
55. Islamic banking and takaful  assets now constitute 17.6% and 7. 3% of the banki ng and takaful 
assets market share, respectively.  Malaysia's e fforts in advancing the MIFC initiative are gaining 
greater recognition, exemplified through MIFC be ing named as the "Best International Islamic 
Finance Centre" at the Second Annual London Sukuk Summit Awards of Excellence in 2008. 
(b) Capital Market Sector 
56. The Capital Market Masterplan (CMP) was launc hed in 2001 to chart the development of the 
Malaysian capital market over a 10-year period.  Malaysia is currently implementing the third phase of the CMP, covering the period of 2006-2010.  
57. Liberalization efforts of the capital market are ongoi ng.  In the area of Islamic finance, efforts 
to strengthen international participation in the do mestic Islamic Capital Market (ICM) include the 
issuance of additional licences to global players in  the Islamic fund management and Islamic stock 
broking segments.  WT/TPR/G/225 Trade Policy Review 
Page 12 
 
 
 58. Further liberalization was also undertaken to facilitate issuance of ringgit and non-ringgit 
bonds to position Malaysia as a signi ficant centre for origination and distribution in the region, in 
tandem with the aspiration to estab lish Malaysia as a global hub for sukuk .  
59. The liberalization in the bond market was undertak en in tandem with the liberalization in the 
foreign exchange administration rules by Bank Nega ra Malaysia.  In 2008, nine foreign entities from 
South Korea, Middle East, India and Singapore issued ringgit-denominated bonds amounting to RM 7.1 billion.  In December 2008, Bursa Malays ia facilitated the listing of ringgit and foreign 
currency sukuk  and bonds where listing approval would be pr ovided within one day of submission and 
sukuk and bonds listed in 2009 will be exempted from all listing fees.  In addition, international credit 
rating agencies are now allowed to hold up to 49% equity  interest in a third credit rating agency to be 
established in Malaysia. 
60. On 30 June 2009, additional liberalization measures were announced aimed at further 
strengthening Malaysia's position in fund manage ment, unit trust and stock broking industries, and 
enhancing the country's competitiveness as a destin ation for fund-raising and investments.  The 
liberalization measures, among others, allowed foreign players to invest in Malaysia and use Malaysia 
as a base for their regional and international operations. 
IV. FUTURE DIRECTION AND STRATEGY 
61. Real GDP performance of the Malaysian economy in 2009 is projected to contract by 3%.  
However in 2010, the economy is projected to grow between 2.0% to 3.0%. 
62. The Government is currently formulating the Tenth Malaysia Plan (2011–2015) with a view 
to shift the economy towards a high-income econom y, with focus on innovation, creativity and 
productivity.  Focus will continue to remain on build ing a resilient economy.  At the same time the 
private sector will continue to spearhead growth, a nd to support this, the Government will continue to 
undertake further liberalization in an effort to a ttract FDI and spur private investment activities.  
While the manufacturing sector will continue to rema in as one of the leading contributor to growth, 
efforts will be intensified to promote the developm ent of the services sector as the next engine of 
growth. 
 
__________