WORLD TRADE  
ORGANIZATION  WT/REG216/3 
14 April 2009 
 (09-1749) 
Committee on Regional Trade Agreements Original:   English 
  
 
ECONOMIC PARTNERSHIP AGREEMENT BETWEEN JAPAN AND MALAYSIA 
 
Questions and Replies
 
  
 The following communication, dated 7 April 2009 is being circulated at the request of the 
delegations of Japan and Malaysia.   This document reproduces the questions addressed to the Parties and the responses submitted.  
_______________ 
 
 
Questions from the Delegation of Chinese Taipei
 
 
Trade Environment  
 1. Since this Economic Partnership Agreement (EPA) is the first bilateral FTA for 
Malaysia with an Asian country aside from ASEAN free trade agreement, could Malaysia 
provide more details about the economic benefits of the Agreement? 
 Generally, Malaysia’s total trade, exports to and imports from Japan have increased, more so 
with the implementation of this Agreement in July 2006. Similarly, investments from Japan have also 
increased. These are illustrated in Table I and II below:  
Table I: Malaysia’s Bilateral Trade with Japan, 2003 – 2008
 
 
Year 2003 2004 2005 2006 2007 2008 
Total Trade, 
US$ Mil. (RM Mil.)  
25,406.6 
(96,545.1)  
29,707.2 
(112,887.3)  
29,890.0 
(113,282.9)  
31,548.5 
(115,783.0)  
35,110.6 
(120,780.5)  
41,119.0 
(136,926.3) 
% Growth 3.1 16.9 0.3 2.2 4.3 13.4 
Exports 
US$ Mil. (RM Mil.)  
11,185.9 
(42,506.6)  
12,762.8 
(48,498.7)  
13,327.0 
(50,509.5)  
14,227.4 
(52,214.6)  
16,058.5 
(55,241.2)  
21,561.6 
(71,800.1) 
% Growth 7.0 14.1 4.1 3.4 5.8 30.0 
Imports 
US$ Mil. 
(RM Mil.)  
14,220.7 
(54,038.5)  
16,944.4 
(64,388.6)  
16,562.9 
(62,773.5)  
17,321.1 
(63,568.3)  
19,052.1 
(65,539.2)  
19,557.4 
(65,126.2) 
% Growth 0.2 19.1 -2.5 1.3 3.1 -0.6 
 WT/REG216/3 
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  Table II: Investments from Japan to Malaysia, 2003 – 2008
 
 
Year 2003 2004 2005 2006 2007 2008 
Investments from 
Japan, US$ Mil. 
(RM Mil.) 341.0 
(1,295.8) 265.9 
(1,010.6) 968.8 
(3,671.7) 1,202.1 
(4,411.6) 1,896.1 
(6,522.7) 1,680.1 
(5,594.9) 
% Growth 120.6 -22.0 263.3 20.2 47.9 -14.2 
 
 Another benefit achieved under this Agreemen t is the economic and technical cooperation 
programmes undertaken bilaterally between both Par ties. One major area is the automotive industry 
where capacity-building programmes are implemented.  2. We notice that Japan has not only signed bilateral EPAs with Malaysia and certain 
ASEAN members individually, but has also sign ed a comprehensive economic partnership 
agreement with ASEAN recently.  Could Japan pl ease provide the reasons why it made such 
decisions and explain the main differences between the Japan-ASEAN CEPA and these 
aforementioned bilateral EPAs? 
 From a legal point of view, the Agreemen t on Comprehensive Economic Partnership among 
Japan and Member States of the Association of Southeast Asian Nations (“AJCEP Agreement”) and 
the individual bilateral EPAs are completely separ ate agreements. One concrete difference, for 
example, is that some chapters of the bilatera l EPAs, on such matters as Intellectual Property, 
Competition and Government Procurement, are not included in the AJCEP Agreement.  The AJCEP 
Agreement, as an agreement with ASEAN as a whole, enhances the strategic relationship between Japan and all of the ASEAN member countries. Through the establishment of common rules, Japan 
and the ASEAN also strengthen their common and shared production network. 
 Co-operation in the Field of Automotive Industry
 
 3. According to Article 26, the countries shall cooperate to further enhance 
competitiveness of the Malaysian auto industry.  We would like to learn in more detail about 
why the Malaysian auto industry was chosen a nd the expected benefits for this targeted 
industry. 
 In response to the Malaysian improved offer of  market access for automobiles, which is one 
of Japan’s major interests, Japan agreed to co-ope rate with Malaysia to enhance the competitiveness 
of the Malaysian automotive industry.  In this re gard, there are ongoing skills upgrading and technical 
training programs which steadily advance with par ticipation of each Country’s respective automotive 
industries.   
 From the Malaysia’s point of view, the automotive industry is recognised as the second 
biggest pillar, after the housing and construction, to the national economy. The implication towards a 
broader value chain that includes the original  equipment manufacturers (OEM) and vendors are 
significant in contributing to the overall development of the economy.  
  It is expected that Malaysian automotive i ndustry will benefit through exposure towards the 
Japanese Best Practices which is done via assistance from the experts in the field of testing, training 
and cooperation in automotive in formation, in order to enha nce the competitiveness of local 
automotive industry. 
  
 
  WT/REG216/3 
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  Questions from the Delegation of the Republic of Korea  
 
National Treatment and Market Access Provisions on Trade in Goods  
 
Sanitary and Phytosanitary Measures 
 
4. Article 14 and 70 establish a Sub-committee on Sanitary and Phytosanitary Measures.  
What specific problems or issues to date has the committee identified and/or addressed? 
 The first Sub-Committee on SPS Measures under this Agreement was held on 23 October 
2008. The agenda of the Sub-Committee included the followings: 
 
(i) Adoption of the TOR of the Sub-Committee; 
(ii) Exchange of information in accordance with Paragraph 1(a) of Article 70 on  plant 
quarantine system for fruits and ve getables in Malaysia and Japan; 
(iii) Consultation in accordance with Paragraph 1 (c) of Article 70. 
Provisions on Trade in Services and Investments  
 
Scope and Definitions/Denial of Benefits  5. Para 58 and 60 of the Factual Presentation mention the definition of a Juridical person 
of a Party in Article 95 of this Agreement and the conditions under which a Party can deny the 
benefits of the Agreement to a service supplier in Article 109.  In Korea’s understanding, there 
may be an overlap in implementing these two provisions.  The scope of juridical persons who can benefit from the Agreement seems clear from Article 95, but, if so, it does not seem clear 
why the Agreement has to maintain the provisi ons related to denying the benefits of the 
juridical persons of a third State who seem to fall  outside the scope of this Agreement.  Please 
explain the relationship between the two provisions and the merits of having both.  
 Subparagraph (e) of Article 95 of this Agreem ent does not exclude “juridical person of the 
other Country” that owned or contro lled by persons of a third State, as far as it meets the requirements 
set out in subparagraphs (d) and (e) of Article 95. In other words, such juri dical person can enjoy the 
benefits of the Chapter on Trade in Services, unl ess its benefits are denied under Article 109.  
 6. As noted in Para 58 and 59 of the Factual Presentation, the Services Chapter of the 
Agreement, which follows a “positive approach,” includes all four modes of supply provided by 
GATS in its scope of application.  Howev er, the Investment Chapter, which follows a 
“negative approach,” does not seem to exclude  “Mode 3 (commercial presence)” from its 
coverage.  Korea would like to know if there are any differences in the sectoral coverage 
between services provided through commercial  presence under the Service Chapter and 
services provided through an establishm ent under the Investment Chapter. 
 As Korea pointed out in the question, “Mode 3 (commercial presence)” is covered in both the 
Trade in Services Chapter and the Investme nt Chapter. Chapter 7 (Investment) covers  all sectors 
except for those listed in the Schedules or Reservations , and Chapter 8 (Trade in Services) covers the 
sectors inscribed in the Schedule of Specific Commitments of each Party.  This type of application 
might cause inconsistencies between Chapter 7 (inv estment) and Chapter 8 (Trade in Services), and 
therefore Paragraph 2 of Article 73 stipulates that in the event of such inconsistency: (a) with respect 
to matters covered by Article 75 (National Treat ment), Article 76 (Most-Favored Nation Treatment) 
and Article 79 (Prohibition of Perfo rmance Requirements), Chapter 8 (Trade in Services) shall prevail WT/REG216/3 
Page 4  
 
  to the extent of inconsistency; and (b) with r espect to matters not fallin g under subparagraph (a), 
Chapter 7 (Investment) shall prevail to the extent of inconsistency. 
 
Questions from the Delegation of Turkey
 
 
7. The Government of Turkey kindly requests th at the mechanisms relating to “bilateral 
safeguard” and “provisional safeguard,” as per Article 23 of the EPA between Japan and Malaysia, be explained in more detail. 
 A Party is allowed to take a bilateral safegua rd measure as stipulated under Article 23 of the 
Agreement, when an originating good of the other Pa rty imported into the territory of the former Party 
under preferential treatment has resulted in increas ed quantities, absolute or relative to domestic 
production which causes serious injury or threat of  serious injury to a domestic industry. The 
mechanism is as follows:  
(i) Investigation shall be carried out by a part y before taking a bilate ral safeguard measure 
in accordance with the same procedures as tho se provided for in Article 3 (Investigation) 
and paragraph 2 of Article 4 (D etermination of Serious Injury or Threat Thereof) of the 
WTO Agreement on Safeguards; 
(ii) The other Party shall be notified upon initiation of investigation; 
(iii) Adequate opportunity for prior consultations shall be provided to the other Party to 
review information, to exchange views and to reach agreement on compensation;  
(iv) An investigation shall be completed within one year; 
(v) The other Party shall be notified of the decisi on to apply or extend the bilateral safeguard 
measure; 
(vi) Forms of measure that may be imposed: 
- suspension of further tariff reduction; or 
- increase tariff rate not exceeding the lesser of the MFN applied rate in effect at 
the time when the bilateral safeguard measures is taken and the MFN applied rate in effect on the date of entry in to force of this Agreement; and 
(vii) The maximum period of the measure shall be  4 years with 1 year extension under 
exceptional circumstances. 
 The “provisional bilateral safeguard measure”,  may be taken by a Party pursuant to the 
conditions provided for in Ar ticle 23 of this Agreement: 
 
(i) it may be taken under critical circumstances where delay could cause damage which it 
would be difficult to repair, subject to preliminary determination on clear evidence that increased imports of an originating good have  caused or are threatening to cause serious 
injury to a domestic industry of the Party; 
(ii) a written notice is to be delivered to the other Party prior to application of the provisional 
safeguard and consultations shall commence immediately after the measure is taken;  WT/REG216/3 
 Page 5 
 
 
  (iii) the duration of the provisional safeguard meas ure shall not exceed 200 days and shall be 
counted as a part of the duration of the bilateral safeguard measure; and 
(iv) the customs duties imposed as a result of the provisional safeguard measure shall be 
refunded if subsequent investigation does not  determine that increased imports of the 
originating good have caused or threatened  to cause serious injury to the domestic 
industry of the Party. 
8. With regards to the mechanism concerning “provisional safeguard,” the Government of 
Turkey kindly inquires whether the Parties envisaged any precautionary measures to avoid misunderstanding that may arise because of th e loosely-worded, open-ended statements that 
exist in the Agreement. 
 The relevant provision stipulated under para graph 9 of Article 23 in this Agreement gives 
technically clear and practicable mechanism agreed upon by both Parties. In order for the provisional 
bilateral measure to be taken in  an appropriate manner, the duration of the provisional bilateral 
safeguard is limited to 200 days and the require ments of consultation and investigation shall be 
completed during the period of provisional bilate ral measures.  In addition, the customs duties 
imposed as a result of the provisional safeguard measur e shall be refunded if s ubsequent investigation 
does not determine that increased imports of an or iginating good have caused or threatened to cause 
serious injury to the domestic industry of the Party.  
9. The Government of Turkey contemplates that it  would help to elucidate whether all four 
modes of trade in services are covered by the EPA between Japan and Malaysia. 
 Chapter 8 (Trade in Services) of this Agreement applies to all four modes of trade in services, 
namely “cross-border supply mode,” “consumpti on abroad mode,” “commercial presence mode” and 
“presence of natural persons mode.”  
10. The Government of Turkey kindly requests to  be informed about the estimated number 
of sectors or the estimated volume of trade that will come under affect by the EPA. 
 The Parties made commitments to eliminate du ties on approximately 97% of total trade of 
goods in value between Japan and Malaysia  (in 2004) under this Agreement.   
  Japan also made commitments on almost 140 service sectors and sub-sectors under the 
Chapter 8 (Trade in Services) of this Agreement. 
 
11. The Government of Turkey kindly proposes to examine the degree in which the EPA 
will enable the Parties to move far and beyond their Schedule of Commitments embedded in the 
GATS. 
 Beyond Japan’s commitments as embedded in the GATS, Japan made new commitments 
especially in the sectors of Professional services and Recreational, Cultural and Sporting services 
under this Agreement.   In the case of Malaysia, services sectors where improvements were made further and beyond existing GATS commitments in the Schedule of Commitments include:  
(i) Professional Services
 
a. Accounting, auditing and bookkeeping (modes 3, 4) 
b. Taxation (mode 3) WT/REG216/3 
Page 6  
 
  c. Architectural (mode 4) 
d. Engineering (mode 3 for multidisciplinary practices) e. Medical specialty (mode 4) 
 
(ii) Computer and Related Services
 
 All sub-sectors (except mainte nance and other) fully committed 
 
(iii) Other Business Services  
a. R&D 
b. Rental and leasing 
c. Market Research 
d. Maintenance and repair 
 
(iv) Construction and related Engineering Services  
 Projects wholly foreign financed, financed by loans of international tendering, with foreign 
investment equal or more than 50% (local expe rtise not available and 100% Malaysian-funded but 
where local expertise not available (mode 3)  
(v) Communication Services
 
a. Basic telecommunications (mode 3) 
b. Value added telecommunications (mode 3) 
c. Broadcasting (mode 3) 
 
(vi) Educational Services  
a. Offered as a totally new sector 
b. Higher Education (modes 1, 2, 3, 4) 
 
(vii) Financial Services  
a. Commercial and merchant banks (mode 4) 
b. Direct insurance companies (modes 3, 4) c. Insurance (various mode 3, 4) d. Banking (various modes 1, 2, 3, 4) 
 
(viii) Hospital Services
 
Private hospital services (mode 3) 
 
(ix) Tourism & Travel Related Services  
 Hotel lodging (new sub-sector, modes 1, 2, 3) 
 
(x) Transportation Services  
 Rental of cargo vessel with & without crew (new sub-sectors, modes 1, 2, 3) 
  WT/REG216/3 
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  12. It is stated in Paragraph 20 that “…most of the Parties’ bilateral trade will be duty-free, 
except for those tariff lines which are either exclud ed from the Agreement or subject to partial 
tariff liberalization.”  In reference to Paragraph 20, the Government of Turkey kindly calls on 
the Parties to explicate the rationale for excludi ng certain tariff lines.  [882 tariff lines by Japan 
(Table III.4) and 121 tariff lines by Malaysia (Table III.7)]. 
 Japan is of the view that its liberalization commitments should be substantial and high-level 
enough to be consistent with the WT O benchmark, i.e. liberalization of  tariffs on “substantially all the 
trade.”  With this principle in mind, certain tariff lines were indeed excluded from the elimination 
given the possible impacts on the domestic industries.  
 Partial liberalization or exclusion of certain tariff lines from duty elimination is necessary to 
accommodate national interests of both Countries, wher e different levels of developments are evident 
in the domestic industry.    In the case of Malaysia, this includes tari ff capping of certain products such as mineral 
products (e.g. white cement capped at 20%), chem ical products (e.g. chlorine, carbon black, and 
sodium hypochlorite capped at 5%), and electrical  products (e.g. parabolic antennae capped at 20%. 
  Another rationale for excluding certain tariffs  from duty elimination under this Agreement is 
for health policy reasons such as the exclusion of  alcohol and tobacco by Malaysia. Besides that, 
Malaysia also excluded products such as arms and ammunition from the covera ge of this Agreement 
due to national security reasons. 
 
13. According to paragraph 43 and 44, the di spute settlement provisions set out in 
Chapter 13 do not apply to TBT and SPS measures.  In this regard, the Government of Turkey 
kindly requests a clarification as to why the disputes arising from TBT and SPS measures were 
left outside the scope of Chapter 13. 
 Chapter 13 of this Agreement which aims at settling disputes does not fit in the concept of 
SPS and TBT Chapters, the main objectives of wh ich is enhancement of cooperation.    
  It is therefore not necessary, nor adequate to apply the dispute settlement procedures under 
this Agreement to SPS and TBT Chapters.  
 
 TBT and SPS are merely cooperation chapters a nd there are no obligations of commitments to 
undertake liberalization or adherence to standards. Fo r that reason, there is no requirement to subject 
these measures to the provisions of dispute settlement under Chapter 13.  Questions from the delegation of the United States
 
Goods liberalization  
 
14. According to Paragraphs 25 and 29 and Annex 1 (Tables AI.1 and AI.2) of the Factual 
Presentation:   
 Japan
 will eliminate duties on 90.1% of all tariff lines covering 94.4% of imports from 
Malaysia under the agreement.  However, though 94.4% of Japan’s industrial duties are eliminated, only 63.6% of agricultural dut ies are eliminated under the agreement.  
 WT/REG216/3 
Page 8  
 
   Malaysia
 eliminates tariffs on 98.9% of all tari ff lines covering 99.2% of imports from 
Japan under the agreement.  99.3% of industrial duties and 95.4% of agricultural duties are 
eliminated under the agreement.  
(a) For what reasons did Japan undertake less tariff elimination than Malaysia?   
 The figures on liberalization commitments reflect  the results of the negotiations between both 
Parties, taking into consideration each C ountry’s specific interests and concerns.  
 
 Japan’s liberalization commitments are substa ntial and high-level e nough to be consistent 
with the WTO benchmark, i.e. liberalization of “subs tantially all the trade”.  In addition, taking into 
consideration Malaysia’s interests, Japan also made  commitments to reduce tariffs or establish special 
arrangements of tariff quotas fo r certain sensitive products. 
 
(b) How does Japan explain the disproportio nate tariff elimination between its 
industrial and agricultural sectors?  
 The figures concerning the liberalization commitm ents reflect the results of the negotiations 
between both Parties, taking into  consideration each Country’s sp ecific interests and concerns.  
 
 Japan is of the view that the liberalization commitments should be s ubstantial and high-level 
enough to be consistent with the WT O benchmark, i.e. liberalization of  tariffs on “substantially all the 
trade.”  With this principle in mind, certain tariff lines were indeed excluded from the elimination 
given the possible impacts on domestic industries.  
(c) Could Malaysia please explain why it a ccepted from Japan a disproportionately 
lower level of tariff elimination in agriculture?  
 Malaysia acknowledges the fact that agriculture  is a very sensitive sector to Japan. However, 
products excluded by Japan were not Malaysia’s main  export interests. We were satisfied that our 
main exports are covered.  
(d) Could the Parties please explain how Jap an’s tariff elimination commitments in 
agriculture achieve the “substantially  all trade” standard set out in 
GATT Article XXIV?  
 Pending agreement between WTO Members, GATT Article XXIV paragraph 8 does not 
specify a quantitative benchmark for assessing “subs tantially all the trade” and moreover does not 
mandate a sector by sector assessment.  The only condition regarding sectors that is clear in GATT 
Article XXIV is that no exclusion of a major sector  is allowed, although Members’ views also differ 
on what constitutes a major sector.  With respect to  this Agreement, it does not exclude any major 
sector, therefore, Japan is of the view that this Agreement complies with the “substantially all trade” 
standard set out in GATT Article XXIV.  
(e) Please provide the average duty rate by HS chapter and
 HS section for the lines 
that remain dutiable.  
 For Malaysia, the average duty rates by HS ch apter for the lines that remain dutiable are as 
follows:   WT/REG216/3 
 Page 9 
 
 
  No. HS chapter Average duty rate 
1 Chapter 1 -  Live animals subject to Tariff Rate Quota (i.e. in-quota rate from 10% to 
25% and out-quota rate from 20% to 50%) 
2 Chapter 2 – Meat and edible meat o ffal subject to Tariff Rate Quota (TRQ) 
3 Chapter 4  -   Dairy produce; birds’ eggs; natural honey; 
edible products of animal origin, not elsewhere specified 
or included 5% or subject to TRQ 
4 Chapter 10  -  Cereals 36.9% 
5 Chapter 22  -  Beverages, spirit and vinegar RM1.00 – RM108.50 per litre OR RM25.50-RM93.50 per 
100% vol. per litre 
6 Chapter 24  -  Tobacco and manufactured tobacco 
substitutes 5% and RM14.50-RM40.00 per kg or RM200.00 per kg 
7 Chapter 39  -  Plastics and articles thereof 17.2% 
8 Chapter 40  -  Rubber and articles thereof 21.1% 
9 Chapter 93  -  Arms and ammunition; parts and accessories 
thereof 14.2% 
 
[Japan’s reply to be submitted.]  
 Services liberalization
 
 
15. Paragraph 89 of the Factual Presentation notes that, pursuant to Article 80.8 of the 
EPA, Parties may in certain sectors adopt investment measures inconsistent with the EPA’s national treatment and MFN obligations due to “exceptional financial, economic or industrial 
circumstances”. 
(a) Could the Parties please explain what they intend to mean by exceptional 
“industrial” circumstances? 
 Exceptional industrial circumstances apply to s ituations of fateful crisis faced by certain 
industries.  
(b) Can the Parties confirm whether, under the provisions of the EPA, exceptional 
measures adopted pursuant to Article 80 could be maintained by a Party indefinitely? 
 Paragraph 8 of Article 80 is silent on the pe riod of the exceptional measure. However, such 
exceptional measure may be phased out as the circum stance improves. In any case, the said paragraph 
provides for the notification and consultations, in order to buffer the impacts of such exceptional 
measure.  
16. Article 100 of the EPA provides that Parties may modify or withdraw commitments in 
their Annex 6 Schedules of Specific Commitments, upon notification of intent and upon entry into negotiations “in line with subparagraph 2(a) of Article XXI of the GATS”. 
(a) Can the Parties confirm whether other provisions of GATS Article XXI, and in 
particular subparagraphs 3 and 4, wo uld also apply to the procedure for 
modification or withdrawal of commitments under the EPA? 
 No, paragraphs 3 and 4 would not apply. 
 WT/REG216/3 
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  (b) If these provisions of Article XXI would not apply, what mechanisms would 
govern resolution of differences of view with respect to maintaining a “general 
level of mutually advantageous commitments”? 
 In such cases, the Parties will seek a resolu tion by the mechanism of Chapter 13 (Dispute 
Settlement). 
 
(c) Could an EPA Party implement a proposed modification or withdrawal of 
specific commitments in the absence of agreement between the Parties on a suitable compensatory adjustment? 
 No, an EPA Party cannot implement a proposed  modification or withdrawal of specific 
commitments in the absence of agreement between the Parties on a suitable compensatory adjustment 
as stipulated in the Article 100.  
17. Table IV.5 of the Secretariat’s report notes that among Malaysia’s Annex 4 non-
conforming measures is a national treatment reservation for “any measure relating to any 
sector that has not been established in Malaysia” at the time of entry into force of the EPA. 
(a) Can Malaysia please describe the scope a nd application of this reservation?  
What criteria are used in determining whether a sector is “established”?  How broadly or narrowly is “sector” defined? 
 The reservation is taken to cover activities or  sub-sectors in the manufacturing, agriculture, 
fishery, forestry or mining sectors that are still at the initial stages of development in Malaysia (hence, 
not established) and may or may not be regulated at this stage.  The reservation is taken to provide 
policy space to regulate or adopt non-conforming measures on the activity.     The reservation on national treatment is to en sure the development of the local industry 
players. 
 
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