Malaysia WT/TPR/S/225/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Between 2005 and 2008, Malaysia 's economy continued to grow steadily, although the speed 
of growth slowed in the fourth quarter of 2008 (Table I.1).  In the first quarter of 2009, the economy 
deteriorated markedly, as in many other countries, re flecting the global financial crisis and associated 
sharp fall in exports.  The Govern ment responded promptly, with bot h macroeconomic and structural 
policies.  In 2009, the Government relaxed restricti ons on foreign investment, particularly in services.  
This relaxation reflects an intensification of the G overnment's efforts to promote services, in addition 
to high-tech manufacturing.  Malaysia also inte nds to reduce reliance on exports of manufactured 
goods that are dependent on semi-skilled and low-co st labour.  The goal is to increase services' share 
of GDP from around half to 60% by 2020.  
Table I.1 
Selected macroeconom ic indicators, 2005-09  
  2005 2006 2007 2008 2009a 
National accounts (Percentage change) 
Real GDP (at 2000 prices) 5.3 5.8 6.2 4.6 -3.0 
Consumption 8.5 6.4 9.6 9.0 1.7 
Private consumption 9.1 6.8 10.4 8.5 1.6 
Government consumption 6.5 5.0 6.5 10.9 2.2 
Gross fixed capital formation 5.0 7.5 9.6 0.8 1.0 
Exports of goods and non-factor services (XGS) 8.3 6.6 4.5 1.3 -15.6 
Imports of goods and non-factor services (MGS) 8.9 8.1 6.0 1.9 -14.4 
XGS/GDP (%) (at current market price) 117.5 116.5 110.5 103.6 89.3 
MGS/GDP (%) (at current market price) 94.6 93.9 90.2 80.5 72.1 
Unemployment rate (%) 3.5 3.3 3.2 3.3 3.9 
Productivity (Percentage change) 
Productivity growth 2.7 3.7 4.2 4.3a .. 
Prices and interest ratesb (Per cent) 
Inflation (CPI, % change) 3.0 3.6 2.0 5.4 .. 
Fixed 3-months deposit rate 3.02 3.19 3.15 3.04 .. 
Savings deposit rate 1.41 1.46 1.44 1.40 .. 
Money, credit (end period)c (Percentage change) 
Narrow money (M1) 8.5 13.7 19.6 8.3 .. 
Broad quasi money  8.2 13.3 7.3 12.6 .. 
M3 8.3 13.0 9.5 11.9 .. 
Credit to private sector (households) 8.7 6.6 8.5 11.9 .. 
Exchange rate      
RM/US$ (annual average) 3.787 3.668 3.438 3.336 .. 
Real effective exchange rate (%  change) -0.4 2.7 3.6 -0.6 .. 
Nominal effective exchange rate (% change) 0.4 4.0 3.4 0.8 .. 
 (Per cent of GDP, unless otherwise indicated) 
Overall Government balance  -3.6 -3.3 -3.2 -4.8 .. 
Current Government balance 1.6 2.8 2.6 0.9 .. 
Current revenue 20.3 21.5 21.9 21.6 .. 
Tax revenue 15.4 15.1 14.9 15.3 .. 
Current expenditure 18.7 18.7 19.2 20.8 .. 
Development expenditure 5.2 6.1 5.9 5.7 .. 
Government total debt (end- period) 43.8 42.2 41.7 41.5 .. 
Domestic debt  38.0 37.8 38.6 38.7 .. 
Table I.1 (cont'd)  WT/TPR/S/225/Rev.1 Trade Policy Review 
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  2005 2006 2007 2008 2009a 
Saving and investment       
Gross national savings 35.0 37.2 37.4 36.5 32.6 
Gross domestic investment 20.0 20.5 21.7 19.1 19.3 
Savings-investment gap 15.0 16.7 15.7 17.5 13.3 
External sector      
Current account balance  15.0 16.7 15.7 17.5 13.3 
Net merchandise trade  24.7 23.9 20.0 23.1 17.4 
Merchandise exports 103.2 102.7 94.7 89.9 76.2 
Merchandise imports 78.6 78.8 74.8 66.8 58.8 
Services balance -1.8 -1.3 0.4 0.0 -0.1 
Capital account 0.0 0.0 0.0 0.1 .. 
Financial account -7.1 -7.5 -5.9 -16.0 .. 
Direct investment 0.7 0.0 -1.4 -3.5 .. 
Balance-of-payments  2.6 4.4 7.1 -2.5 .. 
Merchandise exportsd (% change) 11.4 9.8 2.7 9.6 -20.0 
Merchandise importsd (% change) 8.3 10.5 5.6 3.3 -18.6 
Service exportsd (% change) 14.2 7.0 27.4 -0.2 -9.8 
Service importsd (% change) 14.6 3.4 14.0 2.0 -8.8 
International reserves, net (US$ b illion, end-period) 70.2 82.5 101.3 91.5 95.9g 
in months of imports 7.7 7.8 8.4 7.6 9.5g 
Foreign exchange reservese, net (US$ billion, end-period) 66.2 78.4 95.0 85.7 .. 
Total external debt (US$ billion,  end-period) 51. 8 51.7 56.0 67.4 .. 
of which short term 12.3 12.0 16.3 22.7 .. 
Debt service ratiof 5.4 4.8 3.8 2.6 .. 
.. Not available. 
a Estimates. 
b Commercial bank's annual interest rate. 
c M1 consists of currency in circulation and demand deposits.  Broad quasi money consists of  fixed and savings deposits, 
negotiable instruments of deposits, repurchase agreement, forei gn currency deposits and other deposits.  M3 equals the sum of 
M1 and M2. 
d Annual exchange rate based on tr ade figures in Malaysian ringgit. 
e International reserves excluding gold, Special Dr awing Rights, and Reserve Position in the IMF. 
f Debt service on medium- and long-term debt in  per cent of exports of goods and services. 
g As at 15 October 2009. 
Source :  Bank Negara Malaysia (2009), Monthly Statistical Bulletin, June,  and Annual Yearbook 2008;  IMF (2009),  
International Fi nancial Statistics ;  and information provided by  the Malaysian authorities.  
2. Real growth in Malaysia was 4.6% in 20 08 (down from 6.2% in 2007).  With exports 
declining significantly in the second half of the year, there was a decrease in the contribution of 
external demand, the country's traditional source of  growth.  Consequently, the unemployment rate 
increased slightly to 3.3% in 2008 (3.2% in 2007).   The consumer price index (CPI) increased by 
5.4% in 2008 (2.0% in 2007), mainly reflecting the sharp rise in commodity prices in the first half of the year.
1  Higher commodity prices partly, if not fully,  explain the rise in the shares of agriculture 
and mining and quarrying in GDP and the decline in the shares of manufacturing and services 
(Table I.2).2 
                                                      
1 Domestic food and fuel prices dec lined in the fourth quarter of 2008. 
2 In 2008, services mainly contributed to the overall growth, although a slowdown in services 
subsectors that were dependent on trade and/or activitie s related to capital market moderated the growth of 
services in the second half of the year;  manufacturing grew in the first half of 2008 but deteriorated in the 
second half in line with the worsening of global demand. Malaysia WT/TPR/S/225/Rev.1 
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Table I.2 
Basic economic and social indicators, 2005-09  
    2005 2006 2007 2008 2009a 
Real GDP at market prices (RM million, 2000 prices ) 449,250.0  475,526. 0  504,920.0  528, 311.0  512,447.0 
Real GDP at market price (US$ million, 2000 prices ) 118,626.7  129,635. 7  146,882.8  158, 494.9  142,946.0 
Current GDP at market price (RM million) 522,44 5.0  574,441.0  639,788. 0  738,677.0  691,927.0 
Current GDP at market price (US$ million) 137, 954.2  156,601.1  186,116. 4  221,605.3  193,012.0 
GDP per capita at current market price (RM) 19,995.8  21,562.9  23,544.5  26,639.4  24,441.0 
GDP per capita at current market price (US$) 5,280.0  5,878.4  6,849.0  7,991.9  6,818.0 
  (Annual percentage change) 
GDP by economic activities at constant 2000 prices      
Agriculture 2.6 5.2 1.4 4.0 -2.3 
Mining and quarrying -0.4 -1.0 2.0 -0.8 -2.9 
Manufacturing 5.2 6.7 3.1 1.3 -12.1 
Construction -1.5 -0.3 4.7 2.1 -1.4 
Services 7.2 7.4 9.6 7.2 3.5 
 Electricity, gas, and waterb 5.7 4.9 4.0 2.2 2.1 
 Wholesale and retail trade 9.2 7.0 12.3 9.8 1.2 
 Restaurants and hotels 6.4 5.6 10.8 7.3 3.2 
 Transport, storage, and communication 6.1 7.0 8.4 6.7 -3.3 
 Finance and insurance 6.3 7.7 10.9 7.7 3.0 
 Real estate and business activities 11.4 10. 9 18.1 1.5 1.0 
 Government services 7.5 10.0 4.8 11.1 2.6 
 Other services 4.3 4.5 5.0 5.2 4.9 
  (Per cent) 
GDP by economic activities at current prices      
Agriculture 8.4 8.8 10.2 10.2 .. 
Mining and quarrying 14.4 14.9 14.4 17.2 .. 
Manufacturing 29.6 29.4 27.9 26.3 .. 
Construction 3.0 2.8 2.8 2.7 .. 
Services 46.7 46.3 46.7 45.3 .. 
 Electricity, gas, and waterb 2.7 2.6 2.5 2.3 .. 
 Wholesale and retail trade 10.6 10.5 10.8 11.0 .. 
 Restaurants and hotels 2.2 2.2 2.2 2.2 .. 
 Transport, storage, and communication 6.9 6.8 6.7 6.2 .. 
 Finance and insurance 8.4 8.5 8.3 7.8 .. 
 Real estate and business activities 4.1 4.1 4.5 4.0 .. 
 Government services 6.6 6.6 6.9 7.3 .. 
 Other services 5.3 5.0 4.8 4.5 .. 
Otherc -2.1 -2.2 -2.0 -1.7 .. 
Share of sector in total employment      
Agriculture 12.9 12.5 12.2 12.0 12.0 
Mining and quarrying 0.4 0.4 0.4 0.4 0.4 
Manufacturing 28.8 28.9 28.9 29.0 28.4 
Construction 7.0 6.8 6.6 6.6 6.6 
Table I.2 (cont'd)  WT/TPR/S/225/Rev.1 Trade Policy Review 
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    2005 2006 2007 2008 2009a 
Services 51.0 51.5 51.9 52.0 52.6 
 Electricity, gas, and water 0.9 0.9 0.8 0.8 0.8 
 Transport, storage, and communication 5.8 5.8 5.8 5.8 5.8 
 Wholesale, retail trade;  hotels and restaurants 17.1 17.3 17.2 17.2 17.3 
 Finance, insurance, real estate, and business 6.7 6.9 6.9 6.9 7.0 
 Government services 10.3 10.3 10.8 10.8 11.0 
 Other services 10.3 10.3 10.4 10.5 10.7 
a Estimates. 
b In the data source indicated below, electricity , gas, and water are classified under "services". 
c Including import duties less imputed bank service charges. 
Source : Bank Negara Malaysia (2009), Monthly Statistical Bulletin, June ;  Ministry of Finance (2009), Economic Report 
2008/09 ;  and information provided by the Malaysian authorities . 
3. Malaysia's development of export-oriented  production remains highly successful, and trade 
plays an important role in the economy.  The share in GDP of trade (exports plus imports) of goods 
and services was around 184% in 2008 (compared w ith 212% in 2005).  Between 2005 and 2008, 
Malaysia's gross national savings ra te remained among the highest in the world, averaging about 37% 
of GDP;  its gross domestic investment averaged  some 20% of GDP.  The large and growing gap 
between gross national savings and gross domestic i nvestment is reflected in a corresponding current 
account surplus, which rose from 15.0% of GDP in 2005 to 17.5% in 2008;  the increasing gap was 
due to an overall rise in gross national savings in relation to GDP over 2005-08, and a substantial 
decrease in gross domestic investment in 2008.  As at 28 August 2009, Malaysia's foreign currency 
reserves were around US$93.3 billion, which is equivale nt to about 9.3 months of Malaysia's imports.   
4. In the first quarter of 2009, the Malaysian economy was heavily affected by the deepening 
global economic recession, contracting by 6.2%.3  The economy contracted by 3.9% in the 
second quarter, against the background of higher pub lic spending and positive growth in private 
consumption.  Healthy foreign exchange reserves,  a relatively small external debt, as well as ongoing 
financial and corporate sector restructuring are positive factors that have enabled Malaysia to 
withstand the global financial crisis.  Nonetheless,  the economy remains vulnerable to downturns in 
the United States, Europe, and Japan, its top e xport destinations and key sources of foreign 
investment.  The Government's fore cast for real GDP growth in 2009 is about -3%;  it expects the 
economy to grow by around 2% to 3% in 2010.  Sign ificant challenges for Mala ysia include the speed 
at which new domestic sources of growth are found;  th is depends considerably on gains in total factor 
productivity (TFP), and resolving the problem of the shortage of skills.4  The Government aims to 
meet these challenges by promoting further competition through, inter alia,  unilateral trade 
liberalization, recognizing the importance of keepi ng its market open to foreign competition, and 
relaxing FDI restrictions.  It also intends to prom ote structural reform, for example, facilitating the 
diversification of the economy by encouraging services sectors by, inter alia , reducing, if not 
eliminating, barriers to trade in services.    
5. Import competition is also expected to intens ify as domestic barriers are being dismantled 
through regional/bilateral FTAs and through WTO ne gotiations.  Nonetheless, several long-standing 
barriers to trade and foreign direct investment still constitute potentially important impediments to 
Malaysia's recovery from the crisis.  A more liberal  trade and investment regime, as has recently been 
                                                      
3 The first contraction since the third quarter of 2001. 
4 A Mid-term Review of the Ninth Malaysia Plan (2006-10), which was announced in June 2008, 
indicated that the contribution of TFP to GDP was expected to be 36.2% during the period. Malaysia WT/TPR/S/225/Rev.1 
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adopted in some services subsectors, would cont ribute greatly to Malaysia's long-term economic 
growth.   
6. Monetary policy has become more accomm odative since November 2008, as the Bank 
Negara Malaysia (BNM – Central Bank) lowered its overnight policy rate, after having maintained the 
rate unchanged for more than two years.  Restrict ions on foreign exchange transactions have been 
further liberalized.  Although federal government de bt has continued to rise, the Government has 
employed fiscal stimulus packages, amounting to RM 67 billion since November 2008, to mitigate negative effects of the global financial crisis;  th e Government aims to reduce the budget deficit to a 
sustainable level in the medium term, without cutti ng spending so substantially that it may slow the 
economy too abruptly.  An early recovery of the Malaysian economy would not only depend on 
prudent macroeconomic policies but also on structural  reforms.  The Government's main objective for 
the structural reform is to promote competition, enhance the services sector, and move up the value chain in manufacturing. 
(2) M
ACROECONOMIC POLICIES AND DEVELOPMENTS  
(i) Monetary and exchange rate policies 
7. According to the authorities, Malaysia's monetary policy since 2006 has reflected its 
responses to various risks.  These risks included rising energy and commodity prices in the global 
markets, uncertainties in the global financial mark ets, and demand conditions  in Malaysia's main 
export markets.  While the Overnight Policy Rate (OPR) was raised in February 2006 (to 3.25%) and 
April 2006 (to 3.50%) against a b ackground of rising energy and commodity prices, it remained 
unchanged until 24 November 2008, when the BNM lo wered it to 3.25% as a pre-emptive measure 
aimed at providing a more accommodative environmen t.  The OPR was further lowered in January 
2009 (to 2.5%) and February 2009 (to 2.0%).   
8. The authorities state that the ex change rate regime for the ringgit has remained largely 
unchanged since 21 July 2005.  It is under a "managed  float" system based on a basket of currencies;  
the ringgit rises or falls within a trading band based  on the weighted values of a number of selected 
currencies.5  Malaysia's rules on foreign exchange admi nistration have been gradually liberalized 
during the review period with a view to promoting the competitiveness of the economy.6  T h e  
authorities consider that the economic benefits of liberalizing foreign exchange administration 
outweigh the risks and costs involved, and that libe ralization has led to positive economic benefits for 
the country by reducing the cost of doing business and facilitating the sound and healthy development 
of the financial system, while maintaining m onetary and financial stability, in Malaysia. 
                                                      
5 Although details on the basket of countries are not revealed, it is widely assumed that among the 
currencies used are the Chinese yuan, Singapore dollar, Japanese yen, the U.S. dollar, and the euro. 
6 Changes adopted on 1 April 2007 include:  expansion of the scope of licensed onshore banks' foreign 
currency businesses;  facilitation of investments in ringg it assets by non-residents;  an increase in the limit of 
foreign currency borrowing by resident corporations;  an increase in the limit of residents to invest in foreign  
currency assets;  and increasing flexibilities concerning cr oss-border use of proceeds from the listing of shares 
through initial public offering on the Bursa Malaysia (stock exchange).  For details of current foreign 
administration rules and restrictions on foreign exchange transactions in Malaysia, see BNM (various issues);  
and BNM online information on foreign exchange administration.  Viewed at:  http://www.bnm.gov.my/ fxadmin [12.10.2009]. WT/TPR/S/225/Rev.1 Trade Policy Review 
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Fiscal policy 
9. Malaysia has become less dependent on trade-re lated revenues;  thus, trade liberalization is 
not likely to be constrained by fiscal concerns.  The shares of import and export duties have slightly 
declined;  in 2008 they accounted for 2.3% and 2.5%, respectively, of the total tax revenue (4.2% and 
2.6%, respectively, in 2005) (Chapter III(4)(ii)).7 Since its previous Review, consolidation has been 
the main focus of Malaysia's fiscal policy.  The federal government debt amounted to RM 229 billion 
(about 44% of GDP) in 2005 and RM 303 billion (about 41%) in 2008.  The fiscal deficit was 
gradually reduced from 3.6% of GDP in 2005 to 3.2%  in 2007.  Nonetheless, there was a reversal of 
the trend in 2008, when the deficit rose to 4.8%, reflecting, inter alia,  increased subsidies to address 
the rising cost of fuel and food.   
10. In view of an envisaged downturn in the international economy, the 2009 Budget, announced 
on 29 August 2008 was expansionary, allocating e xpenditure of RM 207.9 billion, an increase of 
5.1% from the revised 2008 Budget.  In the wake of the global financial crisis, fiscal policy has 
become more accommodative.  Moreover, to mitigate th e effects of the crisis on Malaysia's economy, 
a fiscal stimulus package of RM 7 billion was announced on 4 November 2008;  spending was to be 
on projects that would involve "high mu ltiplier effect and low import content".8   In March 2009, the 
Government  announced another fiscal stimulus package wo rth RM 60 billion (about 9% of GDP), to 
be implemented during 2009 and 2010.  The pack age includes a fiscal injection (RM 15 billion), 
guarantee funds (RM 25 billion), equity invest ments (RM 10 billion), private finance initiative 
(RM 7 billion), and tax incentives worth RM 3 billion.  The package is intended to:  provide training 
and create employment opportunities for local wo rkers;  expand opportunities for post-graduate 
education;  ease the burden of the poor;  provide pr ivate companies with capital guarantees and other 
financial assistance9;  increase investment by Khazanah, the G overnment's investment arm for various 
"government-linked companies (GLCs)" for projects th at are deemed to have "high multiplier effects 
and create more job opportunities".  These fiscal packag es are likely to raise fiscal deficits for the 
coming years.10   
(ii) Structural policies  
(a) Structural reform 
11. Because of the sharp deterioration in extern al demand and consequent fall in Malaysia's 
exports, one of the Government's main objectives is to restructure Malaysia's economy so as to 
increase its reliance on domestic demand.  The aut horities consider that expansion in private 
                                                      
7 The share of petroleum income tax in Malaysia's tax revenue amounts to 21.4% in 2008 
(Chapter III(4)(iii)), indicating the importance of a fu lly state-owned Petronas as a source of revenue and 
possible off-budget expenditures in lieu of the Government. 
8 According to the authorities, this may include:  upgrading, repair, maintenance, and refurbishment of 
schools, police stations, hospitals, and public housing for the police and armed forces, roads  and bridges in rural 
areas;  building of low-cost houses;  improvement of  public transport infrastructure;  and human capital 
development. 
9 For example, a speech by the Minister of Finance on 10 March 2009 lists an additional allocation of 
RM 200 million to the Automotive Development Fund, and a subsidy of RM 5,000 per purchase of a new Proton or Perodua cars if the purchaser scraps an old car that he/she currently owns. 
10 The authorities maintain that the expected high deficit is necessary  in stimulating economic activity 
because of the deteriorating external  demand.  The deficit is to be f unded entirely from dom estic borrowings, 
given the ample liquidity in the banking and financial system, high savings rate and the slowing private 
investment.  The Government is to resume fiscal consolidation when the economy recovers.  Efforts are being 
intensified to diversify the economy, enhance revenue co llection, and reduce dependence on oil, as well as to 
diversify sources of energy, an d promote energy efficiency. Malaysia WT/TPR/S/225/Rev.1 
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consumption and public spending are essential for the ach ievement of this objective.  In the "new 
economic model", whose details are currently being developed, the Government aims to shift its 
industrial structure to be more reliant on services and less on manufacturing (and its exports);  it 
intends to raise services' share of GDP to 60% by 2020.  At the same time, the Government has 
largely refrained from setting up additional barriers to  trade, and instead introduced various unilateral 
measures to liberalize international trade and foreig n investment, especially in services, in order to 
facilitate this restructuring.      
12. The Government has continued to take action to  address structural weaknesses, by fostering 
improvements in productivity, and thereby establish a more solid basis for future growth.  The Ninth 
Malaysia Plan aims at 6% annual growth in 2006- 10 with the ultimate objective of becoming a fully 
developed nation by 2020.  The goals of the "N ational Mission", a policy framework for the period 
2006-20, which includes the Ninth Malaysia Plan (NMP), are:  moving the economy up the value chain;  raising Malaysia's capacity for know ledge and innovation;  addressing persistent 
socio-economic inequalities;  im proving the standard and sustainability of quality of life;  and 
strengthening the institutional and im plementation capacity of the country .  In the mid-term review of 
the NMP in 2008, with a view to achieving th e National Mission, the authorities stressed, inter alia,  
the importance of pursuing multilateral trad e arrangements and free-trade agreements. 
13. Financial sector reforms to introduce further co mpetition have been adopted since 2006;  in 
particular, restrictions on FDI were  partially relaxed in April 2009 (C hapter IV(6)(ii)).  Accordingly, 
foreign equity restrictions on some financial service providers  (e.g. fund management companies 
providing wholesale services, trust management  companies providing retail services, and 
stock-broking companies) were relaxed and new boa rds for Bursa Malaysia (stock exchange) were 
established in August 2009.  The Government also ai ms to strengthen its capita l market in accordance 
with the Capital Market Master Plan (CMMP), a nnounced in 2001, to establish an internationally 
competitive capital market (equity and bond markets). 
(b) Reform of corporate sector, including government-linked companies 
14. The Government continues to play an active ro le in the development and industrialization of 
the Malaysian economy.  This includes significan t state investment, a number of policies and 
programmes to improve the economic status of indigenous communities
11, and a close alliance 
between government and private business.  Noneth eless, the Government appears to place more 
emphasis on competition than previously, making efforts to draft competition-related laws 
(Chapter III(4)(vii)).  The corporate sector  too has been strengthened further by, inter alia,  the 
introduction of revised rules on corporate govern ance and an amendment to the Companies Act 
introducing more stringent requirements for corpor ate executives.  Concu rrently, "the Putrajaya 
Committee on GLC High Performance" (a committ ee comprising Khazanah, the Government's arm 
for holding and overseeing 34 partially state-owne d firms, or government-linked companies (GLCs)12, 
and other government-affiliated entities), has be en pursuing programmes to make GLCs more 
competitive, in accordance with th e GLC Transformation Program.  Nonetheless, the Government's 
                                                      
11 The bumiputera majority continues to receive preferen tial access to education, housing, jobs, 
business licences, public sector contracts, government grants, bank credit, and share capital;  in April 2009, the 
Government announced that it wo uld review such preferential access in the near future.   
12 GLCs play an important role in the Malaysian economy through the provision of critical services 
such as transport, energy, telecommunications, and fi nancial services.  The 34 GLCs' stakes are held by 
Khazanah Nasional Berhad.  Other gover nment-affiliated entities in Malaysia include Petronas, the Employees 
Provident Fund, and Permodal Nasional Berhad, a non-financial public enterprise managing unit trusts and property trusts for the bumiputera  community. WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 8 
 
 
guidelines for GLCs in their procurement polici es is to promote the use of local content 
(Chapter III(4)(vi)). 
(3) DEVELOPMENTS IN TRADE AND FOREIGN INVESTMENT  
15. Malaysia was the world's 13th largest exporter (counting EU27 as one)13 and 16th largest 
importer in 2007.  Exports remain essential for Malaysia, and as an open ec onomy, its international 
trade performance depends to a considerable extent on world growth and expansion in global trade.  
Merchandise trade has grown by an average of 11.2%  annually since 2004, with total exports of goods 
equivalent to about 117% of nominal GDP in  2008, and imports equivalent to about 94%. 
(i) Composition of trade 
16. Exports of manufactured goods increased between 2004 and 2008, but their share in 
Malaysia's total exports declined;  in 2008, manuf actures accounted for 54.2% of Malaysia's total 
exports in 2008, down from 75.5% in 2004, reflecti ng a substantial decrease in the shares of electronic 
integrated circuits and micro-assemblies, agains t the background of lower external demand for 
semiconductors, electronic equipment and parts, a nd an increase of shares in agriculture and fuels 
against the background of high world prices of food and commodities (Chart I.1 and Tables AI.1 
and AI.2).  The shares of electronic integrated ci rcuits and micro-assemblies in imports also fell 
substantially in 2008, perhaps reflecting the larg e portion of imported parts used in electronic goods 
production in Malaysia.  As a consequence of Malaysia's  traditionally heavy dependence on electronic 
and electrical goods, it is vulnerable to fluc tuations in global demand for these products.   
(ii) Direction of trade 
17. Malaysia's trade flows have become more divers ified since its previous Review.  In addition 
to its four largest main trading partners (the United States, Singapore, the EU27, and Japan), which 
together accounted for 49.3% of exports and 46.0%  of imports in 2008 (dow n from 56.4% and 53.7%, 
respectively, in 2004), China's share in Malaysia 's trade has been increasing (Chart I.2 and 
Tables AI.3 and AI.4).  Singapore became Malaysia's  largest export market in 2008, as the share of 
the United States dropped substantially;  in the same  year, China became Malaysia's principal source 
of imports, followed by Japan, whose share of tota l imports has been declining gradually.  Trade 
between Malaysia and other ASEAN economies has re mained largely stable in terms of shares. 
(iii) Trade in services 
18. Malaysia's cross-border sales (exports) and purchases (imports) of services both reached 
US$30 billion in 2008 (Table I.3).  The services acc ount of the balance of payments turned into a 
surplus in 2007, reflecting a substantial increase in exports of tourism (travel) services;  the surplus 
slightly decreased in 2008.  Tourism has grown stea dily since the late 1980s and is now Malaysia's 
main services export. 
                                                      
13 On 1 December 2009, the Treaty of Lisbon amending the Treaty on European Union and the 
Treaty establishing the European Community  (done at Lisbon, 13 December 2007) entered into force.  On 
29 November 2009, the WTO received a Verbal Note (WT /L/779) from the Council of the Eu ropean Union and 
the Commission of the European Communities stating that, by virtue of the Treaty of Lisbon , as of 1 December 
2009, the European Union replaces an d succeeds the European Community. Malaysia WT/TPR/S/225/Rev.1 
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Chart I.1
Product composition of merchandise trade, 2004 and 2008
2004 2008
(a)    Exports (f.o.b.)
Other consumer goods
8.0
Manufactures
75.5
Total:   US$126.6 billion Total:  US$198.8 billion
(b)    Imports (c.i.f.)
Chemicals
8.0Iron & steel
3.4Transport  equip.
5.0
Manufactures
80.5
Office machines &
 telecommunication equipment
38.1Other electrical
machines  
7.5
Non-electrical 
machinery
7.6 Non-electrical 
machinery
7.6Other
10.0
Other electrical 
machines
7.0Office machines & 
telecommunication equipment
24.0
Other semi-manuf.  
4.2Transport equip.
5.0
Chemicals
8.8Manufactures
65.3
Office machines &
telecommunication equipment
22.1
Total:   US$105.2 billion Total:   US$156.2 billionPer cent
Manufactures
54.2Other electrical
 machines
4.4Fuels
18.2Other electrical 
machines
5.7
Other consumer
 goods   6.0Other
3.0Mining
20.0
Office machines & 
telecommunication equipment
44.4Textiles &  clothing  
2.8Other
11.7
Other semi-manuf.  
6.4 Non-electrical 
machinery
3.1Agriculture
14.0
Fuels
11.6
Source :  UNSD, Comtrade database (SITC Rev.3).Other
  consumer goods
6.8
Mining
16.1Other consumer goods
7.8
Textiles & clothing
   2.6
Other semi-manuf.
5.8
Non-electrical machinery
3.1
Other semi-manuf.
  4.1Mining
12.7Agriculture
10.4
Agriculture
8.6Agriculture
6.7
Mining
9.9
Iron & steel
4.6Other mining  1.1
Other mining 
1.8Chemicals  5.6
Chemicals  
5.9Other 
1.4
Fuels
10.9Fuels
6.3
Other mining
5.2Other mining  3.6
 WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 10 
 
 
Chart I.2
Direction of merchandise trade, 2004 and 2008
2004 2008
(a)    Exports (f.o.b.)
Other Asia
36.9
Total:   US$126.6 billion Total:  US$198.8 billion
(b)    Imports (c.i.f.)
Other 
4.0China
9.8
EU27
12.0Middle East
2.4Singapore
11.1United States
14.5
EU27
11.8China
12.8
    Thailand
5.6
Singapore
10.9United States
10.8
Total:   US$105.2 billion Total:   US$156.2 billionPer cent
Other Asia
40.6
Middle East
3.9Japan
10.1
Middle East
4.8Korea,  Rep. of
4.6 Korea, Rep. of  
 5.0United States
18.8Other Asia  4.9
United States
12.5Other 
5.9
Source :  UNSD, Comtrade database (SITC Rev.3).Japan
12.5China
9.5
Singapore
14.7EU27
11.3China
6.7
Middle East 
2.7Singapore
14.9
Other Asia
42.4Other Asia
42.3Japan
16.1
Other
5.9Other Asia
7.6  Hong Kong,
China
4.3
EU27
12.6Other
4.1India  2.4Australia   3.3Hong Kong,
China
6.0Japan
10.8
Thailand
4.8Other Asia  4.6
Thailand 
5.5Other Asia   
6.0Chinese Taipei
4.8Chinese  Taipei
        5.4
Indonesia  4.0Indonesia  4.6Thailand
4.8Australia  3.7Korea, Rep. of   3.9
Korea, Rep. of   3.5
ASEAN
24.2ASEAN
24.8ASEAN
25.8ASEAN
25.0
Other ASEAN
3.0Other ASEAN
4.2Other ASEAN
5.3
Other ASEAN
6.3India  3.7
 Malaysia WT/TPR/S/225/Rev.1 
 Page 11 
 
 
Table I.3 
Malaysia's trade in commercial services, 2005-08 
(US$ million at current prices) 
    2005 2006 2007 2008 
Exports     
Commercial servicesa 19,499.84  21,559.71  29,363.46  30,253.00  
 Transportation 4,174.04  4,148.35  7,151.02  6,743.31  
 Travel 8,846.70  10,424.60  14,047.44  15,276.91  
 Other commercial services 6,479.10  6,986.77  8,165.00  8,232.78  
Imports     
Commercial servicesa 21,945.56  23,410.92  28,559.51  30,031.65  
 Transportation 8,366.99  9,527.26  10,983.18  11,360.01  
 Travel 3,913.42  4,254.46  5,577.88  6,728.77  
 Other commercial services 9,665.14  9,629.20  11,998.45  11,942.88  
a Excluding government services. 
Source:  Bank Negara Malaysia (2009), Monthly Statistical Bulletin , June;  and WTO Secretariat calculations.  
(iv) Trends in foreign direct investment 
19. During 2001-08, Malaysia received a net inflow of FDI worth 3.1% of GDP;  the stock of FDI 
increased from RM 129 billion to RM 253.8 billion (about 34.4% of GDP).  Net FDI inflows 
decreased to RM 26.7 billion in 2008, from RM 29.1 billion in 2005.  According to a report by the 
Bank Negara Malaysia, whereas about 45% of inwa rd FDI was channelled into manufacturing (and 
26% into oil and gas) in 2008, only 27% went into services;  the recent relaxation of restrictions on 
foreign investment, especially in services, should he lp redress this imbalance.  Malaysia's outward 
FDI rose to RM 50.2 billion in 2008, from RM 38.2 billion.  According to the authorities, outward 
FDI was mainly in finance and insurance, communi cation, electricity, oil and gas, water, process 
equipment manufacturing, electrical and electronic manufacturing, and cement.