WT/TPR/S/225/Rev.1 Trade Policy Review 
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II. POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) INTRODUCTION  
1. Malaysia's overall economic policy objectives shifted during the review period towards 
developing, inter alia , services;  consequently its trade objectives also changed to reflect the 
Government's efforts to promote services and re duce reliance on manufactured exports.  Other major 
trade objectives include:  improving market access for goods and services, promoting the global competitiveness of Malaysian exports, expanding and di versifying trade with existing partners, and 
exploring new markets.   
2. To achieve these objectives, the Government has unilaterally liberalized its services sector 
and lowered its applied MFN tariffs (Chapter III(2)(ii )).  Malaysia continues to consider the WTO a 
priority in realizing its trade objectives.  Although WTO Agreements play a pivotal role in the formulation of Malaysia's trad e and trade-related policies, Ma laysia also considers regional 
arrangements, notably those involving the Associat ion of South East Asian Nations (ASEAN), and 
various bilateral agreements, to be important.  ASEAN, of which Malaysia is a member, has RTAs 
with Australia, China, India, Japan, Korea, and New Zealand.  Two bilateral FTAs with Japan and 
Pakistan entered into force in 2006 and 2008, a nd one with New Zealand signed in October 2009 and 
expected to be implemented in 2010.  Malaysia is also negotiating bilateral FTAs with Australia, 
Chile, India, and the United States.   
3. The Government continues to encourage FDI,  and has been relaxing foreign investment 
restrictions in services.  Since April 2009, 100% fo reign equity has been allowed in 27 services 
subsectors, and foreign investment restrictions in so me financial services relaxed.  Also, in June 2009, 
the Government announced the deregulation of th e Foreign Investment Committee (FIC) guidelines 
on the acquisition of interests, merger s, and takeovers;  this included in particular the repeal of its 
bumiputera  (ethnic Malay) participation requirement.   
(2) G
ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  
4. Since Malaysia's previous Review in 2006,  its constitutional and legal framework has 
remained largely unchanged.1  Malaysia has a single-structured judicial system consisting of the 
superior courts and the subordinate courts.  The s uperior courts have jurisdiction to determine the 
validity of any law made by parliament or by a state legislature.  In January 2009, a Judicial 
Appointment Commission (JAC) was established, to improve transparency in the process of 
nomination and appointment of judges. 
5. Under the Constitution, federal parliament has the power to legislate matters relating to 
treaties or international agreements.  Treati es or international agreements (including WTO 
Agreements) are not implemented automatically;  appr opriate national legislati on is required to give 
the treaty force of law domestically.   
                                                      
1 Under the Constitution, Malaysia is a federation of 13 states and the 3 federal territories of Labuan, 
Kuala Lumpur, and Putrajava.  It is a parliamentar y democracy with a constitutional monarchy.  Executive 
power is vested in the Cabinet led by the Prime Minister.  Legislative authority is divided between the federation 
and the states.  The federal parliament has legislativ e authority on trade policy issues such as finance, 
commerce, industry, shipping, communications, and transpor t.  Each state has its own constitution, a council of 
state or cabinet with execu tive authority, and a legislature dealing w ith matters not reserved for the federal 
parliament.  Land issues, particularly land use, mining, and forestry are reserved for state legislatures.  Malaysia 
is a multi-racial society (population of  28.31 million as at July 2009), comp rising Malays, Chinese, Indians, and 
other ethnic groups. Malaysia WT/TPR/S/225/Rev.1 
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(3) DEVELOPMENT AND ADMINISTRATION OF TRADE POLICY  
(i) Main trade laws 
6. Malaysia's major trade-related laws include  legislation on customs procedures, company 
registration, investment, and sectoral regulations (T able AII.1).  Several pieces of legislation have 
been amended since 2005, and some new ones have been promulgated.2  For example, the Capital 
Markets and Services Act 2007 entered into force in  2007 to simplify licensing procedures and reduce 
administrative and compliance costs of capital mark et intermediaries (Chapter IV(6)(ii)(d)).   
7. For the purpose of enhancing transparency a nd disseminating regulatory information, the 
Government is considering an official on e-stop website for laws and regulations.   
(ii) Agencies involved in trade policy implementation, and transparency 
8. While there has been some restructuring of trad e-related ministries in Malaysia (Chart II.1), 
the Ministry of International Trade and Industry (MIT I) remains the central aut hority in charge of the 
planning and implementation of Ma laysia's international trade and industrial policies (Table AII.2).3 
9. The authorities state that, when formulating policies, the Government has an established 
mechanism to consult with relevant advisory  and review bodies.  Representatives from business 
associations, universities, and NGOs are members of various task forces and committees chaired by 
ministries.  The Government also organizes di scussions, dialogues, meetings, seminars, and 
workshops to seek public and private sector views to ensure that policies are business friendly.  
Foreign representatives, especially from business/industr y, are usually included in these consultations.  
The authorities consider feedback from releva nt bodies important in formulating policies. 
10. To improve transparency, the Prime Minister established a Special T askforce to Facilitate 
Business (PEMUDAH) on 7 February 2007.  Compri sing high level representatives from both public 
and private sectors, PEMUDAH aims to improve the business environment by enhancing public 
services.  Major measures include:  setting up one-s top centres to facilitate application for business 
licences and registration of property;  accelerating the approval procedures to employ expatriates and 
skilled workers;  and promoting the use of information and communications technology 
(e-government).  According to the authorities, bus iness operating costs were reduced:  the time taken 
to register property was shortened from 144 days to  41 days via online valuation, and to 61 days 
manually.4   
  
                                                     
 
2 For example, the Exchange Control Act was amended in 2005 to address illegal foreign exchange 
trading.  The amendment of the Insurance Act (in 2005 ) was to specify the licensi ng procedure for financial 
advisory business.  Also in 2005, the Malaysia Depo sit Insurance Corporation Act (MDIC) was issued, under 
which an explicit depositors' insurance system was es tablished to replace the implicit government guarantee for 
depositors.  To incorporate changes under the MDIC Act, the Banking and Financial Institutions Act and the 
Islamic Banking Act were both amended;  their last amendments were in July 2007. 
3 In April 2009, there was a cabinet reshuffle following the appointment of Malaysia's new Prime 
Minister.  The number of ministries was reduced from 27 to 25. 
4 Malaysia's improved national competitiveness was reflected in the World Bank's Doing Business 
Report, where, out of 181 countries, Malaysia's ranking changed from 25th in 2007 to 20th in 2008 (World Bank, 
2009). WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 14 
 
 
Source :   Information provided b y the authorities.Chart II.1
Major government restructure, 2009
Majlis Amanah RakyatMinistry of Rural and Regional 
Development
Tabung Ekonomi Kumpulan Usahawan Ministry of Agriculture and         
Agro-based Industry
Universiti Kuala Lumpur
Malaysia-Japan University NiagaMinistry of Higher EducationMinistry of Entrepreneur and 
Cooperative Development
(Abolished)Franchise Development and Promotion
Vendor Development ProgrammeCooperative DevelopmentCooperatives Commission of Malaysia
Cooperative College of MalaysiaMinistry of Domestic Trade,             
Co-operatives and Consumerisma
Bumiputra Commercial and Industrial 
Community
National Entrepreneurship Institute
SME BankMinistry of International Trade and 
Industry (MITI)
Commercial Vehicle Licensing BoardPrime Minister's Department
Contractor Service Centre Ministry of Works
State Development CorporationsUrban Development CorporationsPerbadanan Nasional Bhd
Bank RakyatMinistry of Finance
Ministry of Energy, Water and 
Communications (Split)All Divisions,except Communication Division
Communication DivisionMinistry of Energy, Green 
Technology and Water
Ministry of Culture, Arts and 
Heritage (Merged) All Divisions
All DivisionsMinistry of Information, Communication and Culture
MITI SMIDEC (Transferred)Small and Medium Industries 
Development Corporation (SMIDEC)SME Corporation Malaysia 
(SME Corp)Ministry of Information 
(Merged)
a              Ministry of Domestic Trade and Consumer Affairs was renamed as the Ministry of Domestic Trade,
                Co-operatives and Consumerism in June 2009.
 Malaysia WT/TPR/S/225/Rev.1 
 Page 15 
 
 
11. Policy evaluation is undertaken by the Economic Planning Unit (EPU) in the Prime Minister's 
Department.5  The EPU also commissions  specific bodies, such as the World Bank, to undertake 
studies.  Various government agencies may study the effectiveness of policies; for example, the 
Malaysian Productivity Centre (MPC) publishes an  annual productivity report analysing Malaysia's 
performance.  Nonetheless, no agencies are providing cost-benefit analysis of government policies, 
indicating room for further improvement in transparency.  
(4) TRADE POLICY OBJECTIVES  
12. Malaysia's trade policies are intended to:  improve market access for goods and services; 
promote the global competitiveness of its exports;  expand and diversify trade with existing trade 
partners;  and explore new markets.  Since its pr evious Review, Malaysia has introduced a notable 
change in its trade objectives:  to promote servi ces and reduce reliance on manufactured exports.  To 
achieve these objectives, Malaysia has unilaterally liberalized its services sector and lowered its 
applied MFN tariffs.  The Government continues to  consider the WTO a priority in realizing these 
objectives, as the multilateral trading system pr ovides for predictability and transparency in 
establishing trade rules and has a mechanism for trad e disputes.  The authorities state that Malaysia 
will continue to push for greater market access, while recognizing the need to achieve national 
objectives. 
13. Sectoral policy objectives are specified under, inter alia , Malaysia's five-year plans.  The 
EPU plays a key role in the planning process:  in consultation with other ministries, advisory bodies, and the private sector, it issued the Ninth Malays ia Plan covering 2006-10 in March 2006, setting out 
detailed sectoral objectives (Chapter IV).  
(5) T
RADE AGREEMENTS AND ARRANGEMENTS  
14. Malaysia continues to pursue trade liberaliza tion through the WTO, as well as regional and 
bilateral trading agreements, which it considers as  complementary to the mu ltilateral liberalization 
approach.6   
(i) WTO 
(a) Participation 
15. Malaysia participates actively in the WTO and is strongly committed to the multilateral 
trading system, although it is not party to the two plurilateral WTO Agreements.7  It eliminated all its 
tariffs under the Information Technology Agreement (IT A) in 2005.  Malaysia considers a successful 
Doha Round crucial to safeguardi ng the multilateral trading system and expanding trade opportunities 
in both goods and services. 
16. In the interest of transparency, Malaysia  makes regular notifications to the WTO 
(Table AII.3).  Since its previous Review, Mala ysia has had no trade disputes with any WTO trade 
partners for which solutions have been sought in the WTO framework. 
                                                      
5 The Government declared that it is committed to improving transparency and fighting corruption.  In 
April 2008, the Prime Minister announced that the Anti- Corruption Agency (ACA) became fully independent.   
6 MITI online information:  "Malaysia and FTA-In troduction".  Viewed at:  http://www.miti.gov.my 
[28.07.2009]. 
7 The authorities do not consider Malaysia mature enough in terms of economic development to enable 
it to benefit from the WTO Agreement on Government Procurement.   WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 16 
 
 
(b) Trade negotiations 
17. Malaysia views the WTO negotiations an opportuni ty for it to seek better market access for its 
goods and services.  Regarding the current negotia tions under the Doha Development Agenda, the 
authorities consider that Malaysia's concerns ha ve been addressed in the December 2008 modalities.  
18. As a member of the Cairns Group, Malaysia par ticipates in the agriculture negotiations with a 
view to substantially reducing all market distor tions in the global market, including eliminating 
agricultural subsidies and lowering tariffs.  Malaysia  considers that flexibility should be given to 
developing and least developed Members in pursu ing developmental goals, such as poverty reduction 
and rural employment. 
19. On NAMA, as a major exporter of manufactured goods, Malaysia's aims are to improve 
market access and enhance competitiveness for produc ts of interest to it, by lowering/eliminating 
tariff and non-tariff barriers.   
20. Since April 2009, Malaysia has been unilatera lly liberalizing its services sectors.  The 
Government intends to improve its offers in areas  where domestic services suppliers are ready to 
compete with foreign suppliers.  Malaysia cons iders that an agreement on emergency safeguard 
measures in GATS could mitigate the impact of lib eralization on domestic se rvices suppliers.  The 
Government also considers that negotiations on dom estic regulations must be completed to ensure 
there is no disguised restriction to trade in services. 
(ii) Regional agreements 
21. Since its previous Review, Malaysia has intensif ied its efforts in regional and bilateral trading 
arrangements to complement its pursuit of market a ccess in the WTO.  The authorities maintain that, 
being a small and open economy, Malaysia seeks all possibilities to promote its economic growth;  this includes arrangements that provide mutual be nefits among signatories, ar e consistent with WTO 
rules, and allow for sufficient flexibility to a ddress specific sectoral and development concerns. 
(a) Asia Pacific Economic Cooperation (APEC) 
22. Malaysia has substantial trade with APEC member s (Tables AI.3 and AI.4).  It participates in 
the APEC forum and supports  its open regionalism goals.
8  In 2007, APEC members formulated an 
Investment Facilitation Action Plan (IFAP) for 2008- 10, to enhance the investment climate and 
emphasize capacity building to narrow the economic  gaps among members.  In accordance with the 
IFAP, Malaysia is adopting measures to enhance the transparency and predictability of its trade and 
investment regime.9  Malaysia, like other APEC members, also submits an annual Individual Action 
Plan (IAP);  its latest IAP plan was submitte d in 2008, with its peer Review in 2009. 
                                                      
8 To achieve Bogor Goals, Trade Facilitation Action Plan (TFAP) II set a target to reduce trade 
transaction costs by 5% across the APEC region from 2007 to 2010, inter alia , by establishing an APEC single 
window, facilitating travel in a secure environment, and protecting data privacy.  Before this, the target under 
Trade Facilitation Action Plan (TFAP) I was to reduce tr ade transaction costs by 5% across the APEC region 
from 2002 to 2006. 
9 Further, in 2008, the APEC's Committee on Trade and Investment (CTI) began its study of a possible 
Free Trade Agreement for Asia Pacific (FTAAP).  The author ities state that this study is still in its initial stage. Malaysia WT/TPR/S/225/Rev.1 
 Page 17 
 
 
(b) Association of Southeast Asian Nations (ASEAN) 
23. Malaysia is a founding member of ASEAN.  Trade with other ASEAN members accounted 
for around 25% of Malaysia's total trade in 2008.  The ASEAN Economic Ministers agreed to realize 
an ASEAN Economic Community (AEC) by 2015;  i.e. to establish a single market and production 
base in the ASEAN region, with free flow of goods, services, and skilled labour, as well as freer flow 
of capital.10 
24. The ASEAN Free Trade Area (AFTA) aims at eliminating import barriers on all products 
within the region for free flow of goods.  Tari ff elimination is undertaken through the Common 
Effective Preferential Tariff (CEPT) Scheme.  Mala ysia, as one of the ASEAN-6, has committed to 
eliminate tariffs on 99.4% of its tariff lines by 1 January 2010.11  Malaysia's average tariff under the 
AFTA was 0.95% in 2008, down from 1.04% in 2007.12  The basic principle for granting origin status 
to a product is 40% regional/local-c ontent threshold.  Free flow of goods also requires the removal of 
non-tariff barriers (NTBs) and the adoption of trad e facilitation measures.  Removal of all NTBs by 
2010 is required for ASEAN-5, including Malaysia.13  Trade facilitation measures involve 
harmonizing product standards and technical regulati ons, and establishing mutual recognition of tests 
and certificates.14 
25. Free flow of trade in services is one of the catalysts in realizing the AEC.  Restrictions on 
trade in services for four priority sectors (air trans port, e-ASEAN, healthcare, and tourism) are to be 
removed by 2010, for logistics by 2013.  ASEAN members are also negotiating mutual recognition 
agreements (MRAs), and have signed MRAs on ar chitectural, accountancy, and engineering services, 
dental practitioners, medical practitioners, nur sing services, and surveying qualifications.15  O n  
investment, an ASEAN Comprehensive Investment Ag reement (ACIA) was signed in February 2009.  
The ACIA streamlines the existing ASEAN investment  agreements, with a view to attracting more 
foreign investment into ASEAN and increasing intra-ASEAN investment.  The authorities consider that the ACIA complements Malaysia's efforts to attract FDI and helps to promote Malaysian outward 
investment into the ASEAN region. 
26. ASEAN also has RTAs with other partners , covering goods, services, and investment 
(Table AII.4). 
(iii) Bilateral agreements 
27. The authorities maintain that, while intra- ASEAN trade remains the core of ASEAN 
members' trade policies, Malaysia also pursues bi lateral FTAs to enhance its comparative advantage, 
                                                     
 
10 ASEAN online information.  Viewed at:  http://www.aseansec.org/21083.pdf [02.11.2009]. 
11 ASEAN-6 are Malaysia, Br unei, Indonesia, Philippines, Singapore, and Thailand.  For 89 lines in the 
General Exception List covering mainly alcoholic beverages and arms and ammunition, their duties are not to be lowered.   
12 Based on the Malaysian tariff schedule (at HS 9-digit), Malaysia's average tariff under the AFTA 
was 0.8% in 2009. 
13 ASEAN-5 are Malaysia, Brunei, Indonesia, Singapore, and Thailand. 
14 Trade facilitation also involves creating an AS EAN Single Window to process trade documents 
electronically at national and regional levels.  The Si ngle Window integrates national single windows of 
member countries;  however, the authorities indicated th at its operation has been de layed.  ASEA N-6 countries 
are required to establish their national single windows by 2008, and ASEAN-4 by 2012.  Malaysia's single window started operation on 1 January 2009. 
15 MITI Weekly Bulletin , 3 July 2008.  Viewed at:  http://www.miti.gov.my/cms/documentstoragecom. 
tms.cms.document.Document_38a101f7-c0a81573- 5d8c5d8c-bca26c91/MITI%2 0 WEEKLY%20BULLETIN% 
20(Vol.%202)%2003%20July%202008.pdf [26.02.2009]. WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 18 
 
 
which is different from other ASEAN members.  Thus, when Malaysia negotiates bilateral FTAs, 
expanding and facilitating trade is a priority, a nd rules-of-origin must be liberal and simple. 
28. Malaysia has concluded three bilateral free-tr ade agreements (with Japan, New Zealand, and 
Pakistan), and is negotiating others (with Au stralia, Chile, India, and the United States) 
(Table AII.4).16  Its objectives in negotiating FTAs are to:  seek better market access and enhance the 
competitiveness of its exports;  further facilitate  and promote trade, i nvestment, and economic 
development;  and improve capacity building in sp ecific areas through technical cooperation.  To 
achieve these objectives, its FTAs are not confin ed to market-opening measures for goods and 
services;  rather, they include investment, trade facilitation, intellectual property rights (IPR), and 
other areas, such as competition policy, standards, and conformity assessment. 
(a) Malaysia-Japan Economic  Partnership Agreement 
29. In 2008, 10.8% of Malaysia's merchandise exports  and 12.5% of its imports were with Japan 
(Tables AI.3 and AI.4).  The Malaysia-Japan Ec onomic Partnership Agreement (MJEPA) entered into 
force on 13 July 2006.  Under the MJEPA, a free-tr ade area was established and Malaysia committed 
to eliminate duty rates on 10,469 tariff lines (98.9%) by 2016.17  Thus, Malaysia's average applied 
tariff rate was lowered from 7.7% before the entry into  force of the MJEPA to 3.1% in 2009, and is to 
be reduced to 0.1% by 2016.  Under the MJEPA, prefer ential rules of origin apply if products are fully 
produced or obtained in Japan, or if they are pr oduced with non-originating materials meeting product 
specific rules. 
30. Malaysia's commitments on trade in services went beyond its GATS commitments.  The 
MJEPA covers all four modes of  supply, and includes communication services, financial services, 
tourism and travel-related services, and transport services.18  The MJEPA also covers economic and 
technical cooperation to improve capacity building,  particularly in Malaysia's automotive sector.19  
The authorities consider that by exposing Malaysia 's automotive sector to Japan's Best Practices, 
through assistance from experts in the field of t esting, training, and co operation in automotive 
information, the competitiveness of the Mala ysian automotive industry will be enhanced.20  
(b) Malaysia-Pakistan Closer Economic Partnership Agreement 
31. In 2008, 0.86% of Malaysia's exports were to  Pakistan, and 0.08% of its imports were from 
Pakistan.  The Malaysia-Pakista n Closer Economic Partnership Ag reement (MPCEPA) entered into 
force on 1 January 2008.  For trade in goods, both countries agreed to lower tariffs gradually and are 
to renegotiate further tariff concessions in 2012.  In 2009, Malaysia's average applied tariff on goods 
imported from Pakistan was 6.5%;  64.9% of the tariff lines were duty free.21  Preferential rules of 
origin apply if:  products are fully produced or obtaine d in Pakistan;  at least 40% of the f.o.b. value of 
the product is produced or obtained or finally processed in Pakistan;  or the tariff heading of the 
                                                      
16 Malaysia's two bilateral FTAs with Japan and Pakistan are operational and consideration of these 
FTAs by the relevant WTO Committees was completed in  2009 pursuant to the Tr ansparency Mechanism for 
RTAs (WTO documents WT/REG216/M/1, 4 May 2009;  WT/REG265/M/1, 29 September 2009;  and WT/COMTD/RTA/M/3, 21 October 2009). 
17 Both parties agreed to a final tariff cut in 20 21 (WTO document, WT/REG216/2, 6 February 2009). 
18 It also covers computer-related services, construction and related engineering services, educational 
services, hospital services, other busine ss services, and professional services. 
19 WTO document WT/REG216/M/1, 4 May 2009. 
20 WTO document WT/REG216/3, 14 April 2009. 
21WTO document WT/COMTD/RTA/3/1, 30 June 2009. Malaysia WT/TPR/S/225/Rev.1 
 Page 19 
 
 
product (most at the HS 4-digit level) changes.  Several products, such as agriculture products, 
textiles, and machinery must meet product-specifi c rules to qualify for the preferential treatment.22 
32. A Framework on Mutual Recognition Arrangeme nt was signed to help suppliers of 
professional services move between the two countries.  Malaysia and Pakistan agreed to mutually 
accept accreditation of educational institutions and acad emic programmes.  They are to renegotiate 
market access in services within three year s of entry into force of the MPCEPA.  
(c) Malaysia-New Zealand FTA 33. In 2008, 0.5% of Malaysia's merchandise e xports and 0.5% of its  imports were with 
New Zealand.  Growth in total bilateral trade in creased by 14.7% in 2007 and 46.2% in 2008.  The 
Malaysia-New Zealand Free Trade Agreement (M NZFTA) was signed on 26 October 2009, expected 
to be effective in 2010 after both countries co mplete their domestic procedures.  The FTA 
complements the ASEAN-Australia-New Zealand FTA,  aiming at further facilitating and enhancing 
trade in goods and services, and investment between  the two countries.  In particular, under the 
MNZFTA, Malaysia is to progressively eliminate import  tariffs on 10,293 tariff lines by 2016.  It is to 
apply country-specific quotas on 15 lines of agricu ltural products (including milk, eggs and live 
swine) from New Zealand.  The amount of quota, howe ver, is to increase annually:  3-5% per year for 
liquid milk, and 3% per year for eggs.
23 
(iv) Unilateral trade preferences 
34. Malaysia receives GSP (Generalized System of  Preferences) treatment from Belarus, the EU, 
Norway, Russian Federation, Switzerland, and Turkey.24  The authorities state that no Malaysian 
exporter has used the GSTP (Global Syst em of Trade Preferences) facility.  
35. As a member of the Group of Developing Eight (D-8), Malaysia signed a Preferential Tariff 
Agreement (PTA) with the other seven members in  May 2006 to gradually reduce tariffs and other 
barriers to trade on specific goods, to promote trade among members.25  However, the PTA has not 
yet been implemented as it requir es ratification from at least four member countries;  currently, only 
Iran and Malaysia have ratified the agreement. 
36. Malaysia signed a Framework Agreement on Trade Preferential System with members of the 
Organisation of the Islamic Conference (TPS-OIC) in 2004.26  The TPS-OIC is to be effective when 
protocols on the preferential tariff scheme (PRETAS) and rules of origin (RoO) have been signed and 
ratified by at least ten participating countries.  Seven OIC member states have signed and ratified the 
                                                      
22 WTO notification WT/COMTD/N/24, 4 March 2008. 
23 MITI online information. Viewed at:  http://w ww.miti.gov.my/cms/content.jsp?id=com.tms.cms. 
article.Article_995938b 6-c0a81573-3edb3edb-3 aac0f48 [28. 10.2009]. 
24 EU member states agreed to a revised GSP Scheme as of 1 January 2009.  Under the revised 
programme, tariff rates were reduced by 3.5% for "sens itive products", exempted for "non-sensitive products", 
and suspended on all products of Chapter 93.  For Malaysia, three sectors previously graduated (wood, 
consumer electronics, and plastics and rubber products) were reinstated into the GSP Scheme. 
25 The D-8 comprises eight Islamic countries:  Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, 
Pakistan, and Turkey. 
26 So far 20 countries have signed the Framewor k Agreement on TPS-OIC:  Bangladesh, Cameroon, 
Egypt, Guinea, Iran, Jordan, Lebanon, Libya, Malaysia , Maldives, Morocco, Oman, Pa kistan, Qatar, Senegal, 
Syria, Tunisia, Turkey, Uganda, and the United Arab Emirates. WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 20 
 
 
PRETAS, and four have signed and ratified the RoO.  Malaysia ratified the PRETAS in 2006, and the 
RoO in 2008.27 
(v) Aid for trade 
37. Malaysia provides Aid-for-trade assistance on both  a bilateral and a regional basis (such as 
ASEAN and the OIC).  According to the OECD, Ma laysia also receives Aid-for-trade assistance.28 
38. Under the ASEAN Integration System of Preferences (AISP), ASEAN-6, including Malaysia, 
has been offering unilateral import duty exemption to  products of export interest to the ASEAN-4 
since 2002.  In particular, Malaysia has been gr anting duty exemptions on 82 tariff lines (HS 10-digit) 
from the Lao PDR, 95 from Myanmar, 180 from Cambodi a, and 237 from Viet Nam.  In addition, the 
Initiative for ASEAN Integration (IAI) is targeted  at reducing the deve lopment gap among ASEAN 
members.  Under the IAI work plan 2002-08, 203 pr ojects and programmes were implemented;  they 
have attracted total investment of US$191 million fr om ASEAN-6, of which, Malaysia contributed 
US$10.7 million. 
39. In 2005, Malaysia initiated a Capacity Build ing Programme for the OIC countries, with a 
view to reducing poverty and prom oting economic development by enhancing capacity building in 
human resource development, institutional, or ganizational and management skills, and the 
development of infrastructure.  In March 2006,  Malaysia approved RM 12.1 million for capacity 
building programmes for Bangladesh, Ma uritania, and Sierra Leone.   
40. The Economic Planning Unit (EPU), as the nati onal focal point for all technical cooperation 
in Malaysia, oversees the activities of the Mala ysian Technical Cooperation Programme (MTCP).29  
The MTCP offers courses to LDCs:  from 2006 to 2008, eight MTCP training programmes dedicated 
to OIC countries were implemented, covering custom s procedures, halal food standards, investment, 
and trade promotion.  Malaysia has recently a pproved five new training programmes for 2009-11.  
(6) FOREIGN INVESTMENT REGIME  
41. FDI has been an important source of economic  growth for Malaysia, bringing in capital 
investment, technology, and management knowledge.30  Since the previous Review of Malaysia, and 
in particular since April 2009, the Government has been trying to encourage FDI by, inter alia , 
streamlining its regulatory framework, and removing or reducing equity and other restrictions on 
foreign investment.  Emphasis has been given to the services sector, which is identified as a leading growth engine.   
42. Malaysia's laws governing FDI do not provide  general principles and rules for foreign 
participation in local businesses.
31  FDI in Malaysia is mainly regulated under the Promotion of 
                                                      
27 MITI online information.  Viewed at:  h ttp://www.miti.gov.my/cms/content.jsp?id=com.tms. 
cms.section.Section_55c20a92-c0a8156f-2af82af8-b3841ecc [26.02.2009]. 
28 OECD online information.  Viewed at:  http://www.oecd.org/dataoecd/39/2/39876325.pdf 
[28.10.2009]. 
29 MTCP online information.  Viewed at:  http://mtcp.epu.gov.my/about.htm [28.10.2009]. 
30 See, for example, Mun et al. (2008).  Based on da ta from 1970 to 2005, a 1 percentage increase in 
FDI could lead to real GDP growth increasing by 0.046%, and real GNI (Gross National Income) growth 
increasing by 0.045%. 
31 Arguably, this had allowed the Government ma ximum policy and regulatory space to screen and 
control FDI to suit the economic and industrial  needs of the particular time (IISD, 2008). Malaysia WT/TPR/S/225/Rev.1 
 Page 21 
 
 
Investments Act (PIA) 1986, and the Industrial Coordination Act (ICA) 1975.32  The Malaysian 
Industrial Development Authority (MI DA), under MITI, is in charge of, inter alia , promoting foreign 
and local investment, and evaluating applications for tax incentives.  As a one-stop centre, MIDA coordinates with relevant authorities on investment facilitation measures. 
43. During the period under review, various me asures were adopted to attract FDI.
33  M o r e  
recently, restrictions on foreign investment in services have been removed or reduced (Malaysia 
already allowed 100% foreign equity in manufacturi ng (Chapter IV(5)).  As of 22 April 2009, 100% 
foreign equity is allowed in 27 services subsectors , covering health and social services, tourism, 
transport, business services, and computer and re lated services.  The Government also announced 
relaxation on foreign investment in financial serv ices on 27 April 2009;  fore ign equity limits were 
increased from 49% to 70% for investme nt banks, insurance companies, and takaful  (Islamic 
insurance) operators.  A higher foreign equity limit beyond 70% is considered on a case-by-case basis for insurance companies.  More operational flexibiliti es are also given to locally incorporated foreign 
banks, insurance companies, and takaful  operators (Chapter IV(6)). 
44. Most notably, on 30 June 2009, the Government announced the liberalization of the Foreign 
Investment Committee (FIC) guidelines, including the repeal of FIC Guidelines on the acquisition of 
interests, mergers, and takeovers.  The Guidelines had originally imposed bumiputera  equity 
requirement, whereby bumiputera  (ethnic Malays) had to hold a combined 30% stake in locally 
incorporated companies.
34  Following the repeal of the FIC guide lines, for newly listed companies, the 
bumiputera  requirement is 12.5% (50% of the Securities Commission's 25% public spread 
requirement), and this can be further reduced if mo re shares are issued later.   Also, foreign equity 
limits were raised from 49% to 70% for stock-brok ing firms and unit trust management companies, 
and from 70% to 100% for fund management compan ies providing wholesale services.  In addition, 
there was some relaxations on the acquisition of property, as some property transactions involving 
foreign investment no longer require approval from the FIC.  As part of the package, the Government 
set up a private equity fund, Ekuiti Nasional Berhad (EKUINAS) to promote investment in sectors 
with growth potential, and to ensure participation by bumiputera .35   
45. Although considering FDI positive to economic development and grow th, the Government 
insists that local participation needs to be main tained in some areas in order to promote domestic 
capabilities and capacities.  In particular, sectors with "national interest" (i.e. sectors with an impact 
on national security and overall socio-economic wellbei ng) are not to be liberalized.  Even under the 
reform package launched on 30 June 2009, the repeal of FIC guidelines does not eliminate 
bumiputera participation requirements in banking and in surance, certain manufacturing sectors (such 
as fabrics and apparel of batik, and integrated Portland cement), agriculture, defence, energy, 
telecommunication, and water.  Also, foreign invest ors are not allowed to acquire properties below a 
specified value:  RM 500,000 for commercial properties and RM 250,000 (increased to RM 500,000 
as of 1 January 2010) for residential properties.   
46. Malaysian incorporated companies, whether local ly or foreign owned, are eligible for tax 
incentives if they invest in promot ed activities, with a view to improving the investment environment 
                                                      
32 The PIA was amended in March 2007 to incorporate incentives approved from 2001 to 2007 annual 
Budgets.  The ICA is currently being amended.   
33 For example, in 2007, PEMUDAH was set up to  improve transparency, and thus the business 
environment (section (3 )(ii)).  And as of 1 December 2008, manufact uring licences were issued automatically 
(with a few exceptions) to reduce businesses' operation costs (Chapter IV(5)(i)). 
34 Bumiputera  refers to a Malay or other indigenous ethnic group in Malaysia. 
35 The Government provided an initial endowment of RM 500 million to EKUINAS, with a target of 
expanding EKUINAS to become a RM 10 billion fund. WT/TPR/S/225/Rev.1 Trade Policy Review 
Page 22 
 
 
(Chapter III).  These tax incentives, mostly uncha nged from the previous Review, are given to 
promote the development of targeted industries and activities, which are believed by the authorities to 
contribute to the future growth and development of the Malaysian economy.  In  addition, to encourage 
foreign investment, Malaysia has been signing b ilateral investment-guarantee agreements (IGAs) to 
protect foreign investors, as well as double-taxation agreements (DTAs).  IGAs are intended to protect 
foreign investors against non-commercial risks, such  as nationalization and expropriation, to provide 
free transfers of profits, capital, and other fees, and to ensure settlement of investment disputes between private companies and Government under the Convention on the Settlement of Investment 
Disputes (ICSID).
36  So far, Malaysia has concluded IGAs  with member states of ASEAN and the 
OIC, and 66 other countries.37  At end-August 2009, Malaysia had DTAs with 70 economies (68 are 
comprehensive and 2 are restricted to internationa l air and maritime transport business income only).  
The objectives of Malaysia's DTAs are, inter alia , to alleviate, if not remove, international double 
taxation of income, to make Malaysia's tax incentiv es fully effective (through "tax sparing"), to create 
a favourable climate for both inward and outward  investments, and to prevent tax evasion and 
avoidance. 
 
                                                      
36 Since 1966, Malaysia has been a member of the Convention on the Settlement of Investment 
Disputes (ICSID), which provides international conciliati on or arbitration through the International Centre for 
Settlement of Investment Disputes located in Washington.  The Kuala Lumpur Regional Centre for Arbitration, established in 1978 under the Asian-African Legal Consultative Committee (AALCC), provides a system for 
settling disputes in trade and investment within the Asia-Pacific region. 
37 For the list of countries with which Malaysia has signed IGAs, see MIDA online information.  
Viewed at:  http://www.mida.gov.my [27.10.2008].