WT/TPR/S/156 Trade Policy Review 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) I NTRODUCTION  
1. There has been little change in Malaysia's trad e-related institutional framework since its last 
Review.  The practice of Malaysia's trade and br oader economic policy involves an increasing degree 
of transparency and consultation.  Important polic y initiatives are preceded by extensive consultations 
with affected sectors and other stakeholders.  Malaysia's main trade policies aim to:  improve market access for exports of primary commodities, manuf actured products and, increasingly, services; 
develop and promote exports of higher value-added manufactures;  expand trade with major trading 
partners;  diversify trade into non-traditional mark ets, particularly developing countries;  strengthen 
trade and economic cooperation within ASEAN and expand bilateral trade and investment links 
within the Asia-Pacific region.  
2. Since its previous Review, Malaysia has con tinued efforts to liberalize its relatively open 
trade and investment regime.  In the WTO,  Malaysia has implemented its Uruguay Round 
commitments, has unilaterally lowered tariffs in its annual budget exercise s and is participating 
constructively in the Doha Development Round. WTO agreements and negotiations, however, seem 
to play a less pivotal role in the  formulation of Malaysia's trade policies than was the case previously. 
At the regional level, together with its ASEAN partners, Malaysia is moving towards achieving a 
single market by 2020 and is participating fully in th e APEC forum.  In addition, in particular since 
the failure of the WTO Cancún talks, Malaysia  has been actively seeking bilateral free-trade 
agreements, with an important investment co mponent, with Japan, India, Korea, Australia, 
New Zealand, and Pakistan, and through ASEAN, it is participating in regional free-trade and 
investment negotiations with Japan, India, Korea, and China as well as Australia/New Zealand.  It has 
also signed a trade and investment framework agreement with the United States.  The Malaysian authorities maintain that existing and planned b ilateral and regional free-trade agreements are 
consistent with, and complement, the multilateral fra mework for trade negotiations.  The simultaneous 
negotiation of a number of ASEAN-wide as well as bilateral agreements would seem to raise issues of 
uniformity and consistency that ma y need to be addressed with a view to minimizing complexity. 
3. In terms of investment liberalization, equity holdings in all new manufacturing projects have 
been fully liberalized, effective June 2003;  fore ign investors can now hold 100% equity in all 
investments in new projects as well as in expansion/di versification projects, irrespective of the level 
of exports.  Earlier, in May 2003, Malaysia had rela xed its guidelines, to provide greater flexibility for 
foreign equity participation in local firms;  for acquisitions by Malaysian and foreign interests, the 
only equity condition is to maintain at least 30% bumiputera equity.  Previously, foreign interests 
could hold a maximum of 30% equity;  the remaini ng 70% was to be held by Malaysians, of which 
30% was reserved for bumiputeras.  Sectors deemed strategic, such as broadcasting, water and energy 
supply, banks, and health, however, are still lim ited to 30% foreign equity participation.  
Notwithstanding this, more than 30% foreign equity  is allowed in certain segments of Malaysia’s 
banking sector.  For instance, 100% foreign ownership is allowed for incumbent foreign banks and the 
three new foreign Islamic banks.  Further, foreig n ownership of up to 49% is also allowed for 
investment banks and Islamic banking subsidiaries established by domestic ba nking groups.  Despite 
the partial relaxation of equity guidelines in re cent years, the authorities retain considerable 
discretionary authority over individual investments.   
(2) G
ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  
4. There have been no significant changes to Malaysia's constitutiona l and legal framework 
since its last Review, in 2001.  Under the Constitu tion Malaysia is a federation of 13 states and the Malaysia WT/TPR/S/156 
 Page 17 
 
 
three federal territories of Labuan, Kuala Lumpur, and Putrajaya.  It is a multiracial society with a 
population of 25.08 million comprising Malays, Chinese,  Indians, and other ethnic groups.  Malaysia 
is a parliamentary democracy with a constitutiona l monarchy nominally headed by the paramount 
ruler customarily referred to as the king ( Yang di-Pertuan Agong ).  Kings are elected for five-year 
terms from among the nine sultans of the peninsular Malaysian states.  
5. Executive power is vested in the cab inet led by the Prime Minister.1 While retaining its 
constitutional authority for external trade polic y, the federal parliament has delegated the 
administration of trade and trade-related policy in struments to the executive branch of government. 2  
The Cabinet, headed by the Prime Minister, fo rmulates trade and investment policy objectives and 
measures, initiates legislation, and exercises executive functions. 
6. Malaysia practices a dualist legal system, unde r which international treaties and legal 
obligations are separate from the domestic legal system  and do not form part of domestic law directly.  
An international legal obligation does not become  automatically applicable in Malaysia until 
appropriate national legislation has been enacted to  give a treaty the force of law domestically.  The 
WTO Agreements are implemented on a case-by-case basis.  
(3) D EVELOPMENT AND ADMINISTRATION OF TRADE AND INVESTMENT POLICY  
7. There have been only limited changes of subs tance in Malaysia's trade-related legal and 
regulatory framework since its previous Review in 2001.  An overview of Malaysia's trade-related 
laws and regulations is provided in Table II.1.  Trade-related issues remain the responsibilities of a 
number of ministries.  The Ministry of Internationa l Trade and Industry (MITI) is the central authority 
charged with the planning and implementation of  Malaysia's internati onal trade and industrial 
policies.  In addition to MITI, Royal Customs Ma laysia (under the Ministry of Finance) and the 
Ministries of Agriculture and Health are the main bodies involved in import procedures.   
Table II.1 
Main trade-related laws and regulations  
Title  Year of issue  
General legislation   
Countervailing and Anti-Dumping Duties Act  1993  
Countervailing and Anti-Dumping Regulations  1994  
Customs procedures  
Customs Act  1967  
Free Zone Act  1990  
Excise Act  1976  
Intellectual property   
Patent Act  1983 (amended 2001)  
Copyrights Act  1987 (amended 2003)  
Industrial Designs Act  1996  
Table II.1 (cont'd) 
                                                      
1 The Malaysian Constitution stipulates that the Prime Minister must be a member of the lower house 
who, in the opinion of the king, commands a majority in parliament.  The Cabinet is chosen from among 
members of both houses (Senate an d House of Representatives) and is responsible to that body. 
2 Legislative power is divided between the federatio n and the states.  Trade policy matters such as 
finance, commerce, industry, shipping, communications, a nd health are vested in th e federal legislature while 
land issues, in particular land use, mining, and forestry  are within the competence of  the state legislatures.  
Parliament has the legislative authority to implement any treaty or agreement. WT/TPR/S/156 Trade Policy Review 
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Title  Year of issue  
Layout Designs of Integrated Circuits Act  2000  
Geographical Indications Act  2000  
Protection of New Plant Varieties Act  2004  
Sector specific   
Legal Profession Act  1976  
Banking and Financial Institutions Act  1989  
Communications and Multimedia Act  1998  
Accountants Act  1967 (under review)  
Environmental Quality Act  1974  
Foreign investment   
Promotion of Investment Act  1986  
Industrial Coordination Act  1975  
Source: Malaysian authorities.  
8. The Ministry of Energy, Communications and Multimedia was restructured and renamed the 
Ministry of Energy, Water and Communications (M EWC) in March 2004, following the appointment 
of the new cabinet after the 2004 general elections.  As a result, the information and communications 
technology (ICT) functions were transferred to th e Ministry of Science, Technology and Innovation, 
although issues concerning ICT infrastructure remain under the purview of MEWC.  The regulatory 
function of the Ministry is undertaken through its regulatory bodies3, and the overall objective of the 
restructuring was to facilitate the growth of an in tegrated, efficient and high quality infrastructure for 
the supply of energy, water, and communications services. 
9. The Malaysian Intellectual Property Corporation (MIPC, now known as MyIPO), was 
established in March 2003 under the Intellectual Prope rty Corporation of Malaysia Act 2002.  MyIPO 
not only registers trade marks, patents, industria l designs and geographical indications, but also 
creates and enhances public awareness on the importa nce of intellectual property.  It took over the 
functions and responsibilities of the Intellectual Propert y Division of the Ministry of Domestic Trade 
and Consumer Affairs (MDTCA).  In the face of optical disk piracy becoming a national issue, the Enforcement Division of the MDTCA stepped up its activities in spearheading the Special Anti-Piracy 
Task Force comprising the Royal Malaysian Poli ce, Ministry of Home Affairs and the Royal 
Malaysian Customs.  The MDTCA is also tasked with formulating a competition policy for Malaysia 
and is expected to complete its work in 2005. 
10. The Ministry of Primary Industries Malaysia was renamed the Ministry of Plantation 
Industries and Commodities Malaysia.  The new Mini stry gained responsibility for the development 
of plantation industries, while mining and forestry ma tters were transferred to the Ministry of Natural 
Resources  and Environment (NRE).
4 
11. The Ministry of Finance makes the final decisions on taxes, including tariffs and various tax 
and non-tax incentives for investment.  Mark et-access conditions for trade in services are 
administered by specific ministries.  Following the 2004 election, there was also a consolidation of all 
government investments in government-linked compani es (GLCs) held under the Ministry of Finance 
                                                      
3 Energy Commission and the Communications and Multimedia Commission. 
4 After the General Election in 2004, there were changes in the functions of ministries: flood 
mitigation, river and coastal management functions of th e Drainage and Irrigation Department were transferred 
to the newly formed Ministry of Natural Resources and Environment (NRE);  and the management of marine parks has been transferred from the Department of Fisheries (Ministry of Agriculture) to NRE. Malaysia WT/TPR/S/156 
 Page 19 
 
 
into the Government's investment arm, Khazanah  Nasional Bhd, essentially a holding company with 
stakes in 48 GLCs.  
12. Bank Negara Malaysia, (the Cent ral Bank of Malaysia), is vest ed with comprehensive powers 
under various laws to regulate and supervise th e activities of commercial banks, Islamic banks, 
insurance companies, takaful operators, developmen t financial institutions, m oney changers, operators 
of payment systems, issuers of payment instrument s, and other financial in stitutions.  Bank Negara 
Malaysia is also responsible for administering th e rules on foreign exchange, which are liberal and 
apply uniformly to transactions with all countries except the State of Israel, against which special 
restrictions apply.  The foreign exchange rules do not affect the business operations of traders and 
investors and guarantee free flows of foreign direct  investment as well as repatriation of interest, 
profits, and dividends.  The Anti-Money Laundering Act 2001 entered into force on 15 January 2002 
and Bank Negara Malaysia was appointed by the Mini ster of Finance as the authority responsible for 
the formulation and implementation of anti-money laundering measures. 
13. Malaysia generally encourages foreign investment  in the form of acquisitions, mergers, and 
takeovers.  Approval is required from the Foreign Investment Comm ittee (FIC) for investments that 
exceed 15% or in aggregate 30% of voting rights or shareholder funds or that result in ownership or 
control passing to a foreign interest.  The FIC administers the Guidelines on the Acquisition of 
Interests, Mergers and Takeovers by Local and Fo reign Interests and handles foreign and domestic 
proposals on manufacturing, or manufacturing-related services, on a case-by-case basis.  Approval depends on factors such as investment size, expor t-orientation, required financing, technology 
transfer, infrastructure requirements, and the existence of a product market.  
14. Different ministries are involved in the formulation of foreign investment policies although 
all industrial projects are subject to an approva l system operated through the Malaysian Industrial 
Development Agency (MIDA).  MIDA coordinates and promotes industrial development in Malaysia 
including promoting FDI.  Applications for ma nufacturing licences under the Industrial Coordination 
Act 1975 and incentives provided under the Promotion of Investment Act 1986 are processed by 
MIDA while final approval is by MITI/MOF.  Th is involves vetting equity stakes, financing, 
technology transfer, local content and the products  and processes concerned.  MIDA also coordinates 
the non-financial services sectors and promotes Malaysia as the preferred services hub in the region.  In the services sector, the Government promotes fo reign investment in information technology and 
tourism-related industries, which continue to generate significant  growth in terms of output and 
foreign exchange earnings.  Malaysia does not ac tively seek foreign investment in financial or 
professional services or in agriculture or construction;  foreign investment is also restricted in the oil 
and gas industries.  Modelled after MIDA, the Mu ltimedia Development Corporation or MDC, is a 
one-stop agency for selected services which, among others, promotes ICT-related services to local and foreign multinational companies and is endeavourin g to make the Multimedia Super Corridor a global 
ICT hub. 
15. The Registrar of Companies (ROC) and Registra r of Business (ROB), under the Ministry of 
Domestic Trade and Consumer Affairs, were cons olidated to become the Companies Commission of 
Malaysia (CCM), which was officially launched on  16 April 2002.  This new body spearheads efforts 
to regulate and further improve the availability of  corporate information in response to a changing 
business environment.  The body also provides tim ely, accurate, and value-added information and 
services and encourages good corporate governance through continuous training programmes, 
effective surveillance, and enforcement. 
16. In 1998, to strengthening the resilience of the fi nancial market, the authorities established the 
national asset management company, Danaharta, to assist banks to acquire, manage and dispose of WT/TPR/S/156 Trade Policy Review 
Page 20 
 
 
non-performing loans (NPLs);  a recapitalization ag ency, Danamodal, to minimize the impact on the 
real economy;  and the Corporate Debt Restruct uring Committee (CDRC), charged with facilitating 
voluntary corporate debt restructuring between creditors and viable debtors.  These bodies fulfilled their overall functions on schedule:  the CDRC closed its doors in 2002 when all the cases were 
resolved;  Danamodal was wound down at end-2003 , and Danaharta plans to close down in 2005. 
(i) Advisory and review process  
17. Representatives from the business sector, academia , and NGOs including several interest 
groups are members of the various task forces,  and committees chaired by the Minister of 
International Trade and Industry.  MITI incorpor ates the views and inputs received into the policy 
formulation process.  There are processes for contin uing review of established policies;  for example, 
producers and consumers can make representations for changes in tariff levels to a special advisory 
committee during annual consultations on the budget. 
(ii) Transparency  
18. The Malaysian Government has declared that it is committed to improving the transparency 
of government decision-making and procedures, and fi ghting corruption.  Prime Minister Badawi has 
made the fight against corruption one of the key pr iorities in Malaysia's development.  To promote 
that objective, Malaysia maintains an Anti-Corru ption Agency (ACA) in the office of the Prime 
Minister.  The ACA has the independent power to conduct investigations and is able to prosecute 
cases with the approval of the Attorney General.  In April 2004, the Government launched the 
National Integrity Plan (NIP), aimed at reducin g corruption, providing greater transparency and 
accountability, and enhancing efficiency at all leve ls of the community.  To implement NIP, the 
Government set up the Malaysian Institute of Integrity, which has embarked on a number of 
educational and awareness programmes. 
19. Measures taken to improve governance include the re-examination of the dominant role of 
sometimes opaquely managed state enterprises in major sectors of the economy.  Many GLCs are 
considered inefficient in terms of quality of goo ds and services as well as in financial performance, 
amounting to a significant loss for shareholders a nd the nation.  Recent steps to reform these 
companies include the introduction of key performance indicators and performance-based management compensation.  A Corporate Governan ce Committee, headed by the Chairman of the 
Securities Commission and reporting to the Prime Minister, has been established to monitor the 
enforcement of corporate governance laws in all enterprises.  
20. According to most governance indicators, Malaysia ranks well among the region and 
countries with similar GDP levels.  A composite index aiming to measure various dimensions of 
governance ranks Malaysia above the East Asian average.
5  However, a review of the individual 
components of the World Bank governance index show s that Malaysia scores highly in terms of 
government effectiveness but less well on matters of  rule of law, regulatory quality, control of 
corruption, political stability, and political accountability (Table II.2). 
21. Malaysia has taken a number of measures within  the context of APEC, to foster greater 
transparency in laws, procedures, and administra tive rulings in a number of sectors, including 
customs, investment, intellectual property, and st andards.  For example, Malaysian customs has 
published several guide and established a customs-pr ivate sector consultative panel;  Malaysia's 
investment policies, procedures and incentives are widely published. 
                                                      
5 Kauffman, Kraay an d Mastruzzi (2003). Malaysia WT/TPR/S/156 
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Table II.2 
Comparative governance indicators:  selected countries and the OECD, 2002 
Percentile rank (0-100) indicates the percentage of  countries that rank below the selected country 
 Government 
effectiveness Rule of law Regulatory 
quality Control of 
corruption Political 
stability Voice and 
accountability 
China 63.4 51.5 40.2 42.3 51.4 10.1 
Chinese Taipei 82.5 80.9 80.9 77.3 70.3 74.2 
Hong Kong, China 88.7 86.3 90.7 90.2 85.4 53.5 
Korea 79.4 77.8 76.3 66.5 60.5 67.7 
Malaysia 80.9 69.6 68.6 68.0 61.6 42.4 
Singapore 100.0 93.3 99.5 99.5 91.9 49.2 
Thailand 64.9 62.4 65.5 53.6 62.7 57.1 
OECD 91.6 91.6 91.9 91.3 87.2 91.3 
Source:  IMF (2005), Malaysia – Selected Issues,  Table 4, 18 January;  Kaufman,  Kraay and Mastruzzi (2003), Governance 
Matters III:  Governance Indicators for 1996-2002,  World Bank, Washington D.C.;  see also 
www.worldbank.org/wbi/gov ernance/govdata2002. 
(4) T RADE POLICY OBJECTIVES  
22. Malaysia has a well-established development planning process.  Visi on 2020, launched in 
1991, focuses on achieving the status of a develope d country by the year 2020.  The Third Outline 
Perspective Plan defines the broad thrust for national development for 2001-10, while medium-term 
objectives are set down in Malaysia's five-year devel opment plans.  The Eighth Malaysia Plan (EMP), 
covering 2001-05, consists of sectoral strategi es and programmes aimed at developing a knowledge-
based economy.  The plan aims at shifting from an input-intensive growth strategy to one that is 
knowledge-intensive, increasing productivity, accelera ting restructuring within the manufacturing and 
services sectors and revitalizing the agriculture sect or.  Annual policy objectives are outlined by the 
Finance Minister in the Budget.  The key role in the planning process is played by the Economic 
Planning Unit in the Prime Minister's Department in consultations with other ministries, advisory 
bodies, and the private sector throu gh inter-agency planning groups. 
23. The overall trade-related policy aim is to prom ote and safeguard Malaysian interests in the 
international trade arena, to spur the developmen t of industrial activities, and to further enhance 
Malaysian economic growth  towards realizing Vision 2020.  It is t hought that WTO, AFTA and other 
regional arrangements will further liberalize trade, intensifying competition both in the domestic as 
well as international markets.  Initiatives to promot e exports include enhancing the competitiveness of 
exports, creating a niche in selected products includ ing education, tourism, health, transport, and 
professional services, creating global brand names a nd venturing more assertively into non-traditional 
markets.  Efforts are being undertaken to incr ease intra-regional trade using the AFTA and other 
bilateral mechanisms. 
(5) T RADE AGREEMENTS AND ARRANGEMENTS  
24. The WTO Agreements continue to play a pivotal role in the formulation of Malaysia's trade 
and trade-related policies.  To ensure markets remain open, Malaysia is committed to the trade 
liberalization process and negotiations through the rules-based multilateral trading system under the 
WTO.  Malaysia considers that the multilateral pr ocess has been successful and remains relevant.  
Malaysia is also seeking closer economic relations at both a regional and bila teral level to enhance 
economic growth and complement its push for greater market access.  
25. Malaysia participates in the ASEAN Free Trade Area (AFTA) and ASEAN is engaged in 
trade negotiations with Japan, India, Korea, China,  Australia, and New Zealand.  Malaysia is also WT/TPR/S/156 Trade Policy Review 
Page 22 
 
 
pursuing bilateral FTA negotiations with Japan, I ndia, Korea, New Zealand, and Australia and 
recently signed a trade and investment framework  agreement with the United States.  Malaysia 
continues to accord at least MFN treatment to all its trading partners.   
(i) World Trade Organization 
(a) Participation 
26. Malaysia participates actively in the WTO and is committed to the multilateral trading 
system.  It is an original member of the WTO and of the Ministerial Declaration on Trade in Information Technology Products (ITA-1) under whic h it is still implementing its tariff elimination 
commitments.
6  MITI takes the lead role for the implementation of many WTO agreements but 
several ministries and ag encies share responsibilities.7 
27. Malaysia states that it has implemented its obligations with regard to its Uruguay Round 
commitments;  it has enacted new legisla tion to comply with the TRIPS Agreement8, completed the 
abolition of its TRIMs, and made various notifications to the WTO (Table II.3). 
Table II.3 
Status of selected notifications to the WTO, 2001 to October 2005 
WTO Agreement Description of requirement Periodicity Document symbol of most recent 
notifications 
Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement) 
Article 16.4 Anti-dumping actions taken Semi-annual G/ADP/N/132/MYS, 25 July 2005 
G/ADP/N/126/MYS, 18 May 2005 
G/ADP/N/105/MYS, 22 October 2004 G/ADP/N/119/MYS, 18 August 2004 
G/ADP/N/112/MYS/Corr.1, 9 July 2004 
G/ADP/N/112/MYS, 8 April 2004 G/ADP/N/106, 15 July 2003 
G/ADP/N/98/MYS, 30 January 2003 
G/ADP/N/92/MYS, 23 October 2002 G/ADP/N/85/MYS/Corr.1, 4 February 2002 G/ADP/N/85/MYS, 31 January 2002 
Agreement on Agriculture 
Article 18.2 Volume of imports under tariff 
quotas (MA:2) Annual G/AG/N/MYS/12, 4 May 2005 
Articles 5.7 and 18.2 Special safeguard me asures Annual G/AG/N/MYS/16, 19 July 2005 
Table II.3 (cont'd) 
                                                      
6 Malaysia eliminated tariffs on ten products in 2 003 and will eliminate tariffs on another 24 lines  
including on telephone sets, videophones, transreceivers , radiotelephonic receivers, and telephone answering 
machines by 2005. 
7 Responsibilities by subject area:  TRIMs;  Anti-Dumping;  Import Licensing;  ACT;  Subsidies and 
Countervailing Measures;  and Safeguards – MITI;  GA TT – MITI and Ministry of Finance;  Agriculture – 
MITI, and Ministries of Finance, Agriculture, and Plan tation Industries and Commodities;  TRIPS – MYIPO;  
SPS – Ministries of Agriculture and Health;  TBT – SIRI M and Department of Standa rds;  Customs Valuation, 
Rules of Origin, and PSI – Royal Customs and Excise  Department;  Dispute Settlement Understanding – 
Attorney General's Chambers.  
8 Legislation adopted or amended as a conseque nce of the WTO Agreements:  Countervailing and 
Anti-Dumping Duties Act 1993, effective 28 April 1994;  Countervailing and Anti-Dumping Duties Regulations 
1994, effective 28 April 1994;  Copyright Act 1987;  Patents Act 1983;  Trade Marks Act 1976;  Geographical 
Indication Act 2000;  Layout Designs of Integrated Circuits Act 2000;  Protection of New Plant Varieties Act 2004.  Malaysia WT/TPR/S/156 
 Page 23 
 
 
WTO Agreement Description of requirement Periodicity Document symbol of most recent 
notifications 
Agreement on Implementation of Article VII of  the GATT 1994 (Agreement on Customs Valuation) 
Article 22.2 Laws and regulations Once, then changes G/VAL/N/1/MYS/1, 8 June 2001 
Agreement on the Application of Sanitary and Phytosanitary Measures  
(Article 6, Annex B) No tification of emergency 
measures, and changes Ad hoc G/SPS/N/MYS/18,/Add.1 29 October 2004 
G/SPS/N/MYS/18, 10 August 2004 
G/SPS/N/MYS/17, 9 February 2004 G/SPS/N/MYS/16, 7 January 2004 
G/SPS/N/MYS/13/Add.2, 22 December 2003 
G/SPS/N/MYS/14/Add.1, 3 December 2003 G/SPS/N/MYS/15, 17 June 2003 
G/SPS/N/MYS/14, 4 April 2003 
G/SPS/N/MYS/13/Add.1, 4 April 2003 G/SPS/N/MYS/13, 27 February 2003 G/SPS/N/MYS/12, 19 December 2002 
Agreement on Technical Barriers to Trade  
(Article 15.2) Laws and regulations Once, then  change G/TBT/2/Add.9/ Rev.1, 29 October 2004 
(Article 10.6 )  Inform ation about technical 
regulations, standards and 
conformity assessment procedures Ad hoc G/TBT/N/MYS/5, 29 April 2005 
G/TBT/N/MYS/4, 1 February 2005 
G/TBT/N/MYS/3, 29 August 2003 G/TBT/N/MYS/3/Corr.1, 15 November 2002 
Agreement on Trade-Related Aspects of  Intellectual Property Rights (TRIPS) 
(Article 63.2) Laws and regulations Once, then changes IP/N/1/MYS/1, 8 November 2001 
(Article 69) Contact points Once, then changes  
 Checklist of issues on 
enforcement  IP/N/6/MYS/1, 3 December 2001 
Source : WTO Central Registry of Notifications. 
(b) Trade negotiations 
28. Malaysia has participated actively in all WTO negotiations to ensure that the global trading 
environment remains open, transparent, and predic table.  Malaysia views WTO negotiations as an 
opportunity to seek greater market access for its goo ds and services in both de veloped and developing 
markets.  Active participation in international tr ade has helped transform Ma laysia from an agri-based 
to a manufacturing-based economy exporting to global markets. 
29. With respect to the Doha Development Age nda (DDA) negotiations, Malaysia notes that 
overall the issues of concern and interest were ade quately addressed in the 2004 "July Package".  As a 
member of the Cairns group, Malaysia's participati on in the agriculture negotiations is guided by the 
need to substantially reduce all market distortions in the global market that pose unfair competition to 
Malaysia's exports;  it seeks commitments to e liminate agricultural subsidies and substantial 
reductions in high tariffs.  Malaysia seeks flexib ility to use policy measures, including government 
support, to pursue developmental goals, such  as poverty reduction and rural employment. 
30. On NAMA, Malaysia, as a major exporter of manufactured goods, is keen to address high 
tariffs and tariff escalation.  In services, Malaysia 's initial offer tabled in December 2004 contains 
improvements to offers made in the Uruguay Ro und as well as new commitments.  Malaysia has 
called for a balance between progress in market a ccess and in rule-making, in particular on the 
emergency safeguard mechanism.  The Government is  of the view that the domestic service industries 
should take advantage of the opportunities that can come from liberalization, but that appropriate 
safeguard mechanisms must be put in place to ensure fair and rules-based trade in services. WT/TPR/S/156 Trade Policy Review 
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31. Malaysia has urged WTO Members to make S& D provisions more precise, effective, and 
operational.  Regarding a multilateral system of  notification and registration of geographical 
indications for wines and spirits, Malaysia is concer ned about the legal implications of such a system. 
32. The National Committee on Multilateral Trade Negotiations, headed by MITI, coordinates 
and formulates national positions on the DDA issues .  Issues requiring policy decisions are forwarded 
to the Cabinet for approval.  Eleven subject-relate d working groups were established to assist the 
MTN Committee and include representatives from othe r ministries, government agencies, private 
sector, professional bodies, and other stakeholders. 
(ii) Regional agreements 
33. Since its last Review, Malaysia has intensifie d its pursuit of regional and bilateral trading 
arrangements to complement its pursuit of market a ccess in the WTO.  This can be seen as part of a 
broader shift towards bilateral a nd regional initiatives among countries in  Asia that have traditionally 
favoured multilateral trade liberalization.9 
34. Being a small and open trading nation, Malaysia has also pursued trade liberalization at the 
regional and bilateral level in order to maximi ze all opportunities for enhancing the country's 
economic growth.  Malaysia is seeking arrangements that provide mutual benefits among signatories, 
are consistent with WTO rules, and allow suffi cient flexibility to address specific sectoral and 
development concerns (Table II.4). 
Table II.4  
Malaysia's involvement in bilateral and regional trad ing initiatives  with non-ASEAN partners, June 2005 
Partner Type Title Scope Status 
Bilateral Japan-Malaysia Economic 
Partnership Agreement FTA:  trade in goods, 
agriculture, services, and 
investment with flexibility for sensitive sectors;  economic cooperation in several sectors Negotiations started 2003; 
agreement in principle in 
May 2005;  expected to be 
signed in December 2005 Japan 
Regional ASEAN-Japan Comprehensive 
Economic Partnership  Goods, services, investment 
liberalization by 2012;  
facilitation;  economic and technical cooperation Negotiations commenced 
April 2005;  commitment to 
conclude within two years 
United States Bilateral Malaysia-US TIFAa Trade and investment;  
possibility of FTA Signed in May 2004 
Bilateral Malaysia-Australia FTA Comprehensive FTA negotiations began in April 
2005, to conclude mid-2006 Australia 
Regional ASEAN-Australia and NZ FTA   Comprehensive for goods, 
services and investment within 
ten years Agreement in November 2004 to 
establish an FTA by 2007 
Bilateral Malaysia-NZ FTA FTA:  to address high tariffs, 
NTMs, MRAs, facilitation of investment flows in agriculture and agri-based industries Agreement in March 2005 to 
conclude negotiations by 
end 2005 New Zealand 
Regional See above See above See above 
    Table II.4 (cont'd) 
                                                      
9 World Bank (2004). Malaysia WT/TPR/S/156 
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Partner Type Title Scope Status 
Bilateral Malaysia-India CECAb To enhance exports of goods and 
services and expand cooperation 
in advanced sectors 
(biotechnology, software development, science and education) Decision in December 2004 to 
develop joint study report by mid-2006 India 
Regional ASEAN-India CECA Goods expected to be completed 
by end of 2005;  services and 
investment;  DS mechanism Framework Agreement signed in 
October 2003;  
Negotiations to finalize FTA on goods by end 2005;  services and 
investment by 2007;  to establish 
DS mechanism by end 2005 
Bilateral Malaysia-Korea FTA Trade in goods and services, 
investment promotion, economic and technical cooperation Negotiations to start after taking 
into account ASEAN-Korea 
FTA talks, which started early 
2005 Korea 
Regional ASEAN-Korea FTA To expand two-way trade and 
investment by liberalizing and 
integrating markets;  at least 80% of goods at zero tariff by 2009 Negotiations commenced early 
2005;  scheduled to be 
completed by end 2006 
China Regional ASEAN-China CECA 
Framework FTA on goods by 2010 for 
ASEAN-6;  FTA for services trade and investment to be 
implemented within mutually 
agreed timeframes Early Harvest programme for 
tariff elimination on selected 
products;  cooperation in other 
areas Framework agreement entered 
into force on 1 July 2003 
Pakistan Bilateral Malaysia-Pakistan FTA Liberalization of trade in goods, 
services, investment, and 
economic cooperation Negotiations commenced in 
April 2005; 
Negotiations for trade in goods and investment to be finalized by 
end 2005;  services to be 
initiated end 2005 
a Trade and Investment Framework Agreement. 
b Comprehensive Economic Cooperation Agreement. 
Source: WTO Secretariat analysis, based on MITI data. 
(a) APEC 
35. Malaysia participates in the Asia Pacific Ec onomic Co-operation (APEC) forum and aims to 
implement free trade and investment by 2020 along with other developing country members, as agreed at Bogor in 1994.  Members have conti nued to implement the APEC Trade Facilitation Action 
Plan, which aims to cut transaction costs in the regi on by 5% by 2006.  APEC members have agreed 
on transparency standards – designed to foster greater transparency in laws, procedures and 
administrative rulings of APEC members – in eight  areas:  services, investment, competition policy 
and deregulation, intellectual property, custom s procedures, business mobility, market access and 
standards.  Rule making and liberalization through WT O negotiations are central to their work toward 
free and open trade and investment, as is the pursu it of WTO-consistent bilateral and regional free-
trade agreements.  
36. Under its 2004 Individual Action Plan (IAP) to liberalize the economy, Malaysia indicated, 
inter alia,  the reduction/elimination of import duties on 145 items, the lifting of an import prohibition WT/TPR/S/156 Trade Policy Review 
Page 26 
 
 
on certain agricultural products10, alignment of 50% of Malaysia n standards with international 
standards, improvement of several investment  gui delines, and the introduction of measures to enforce 
intellectual property laws.  Each APEC member ec onomy has had a voluntary review of its IAPs:  
Malaysia's review, in 2004, conclude d that openness to international trade and investment continue to 
make a major contribution to Malaysia's progress to wards its goal of developed country status by 
2020, although high levels of import protection in certain sectors would benefit from a review.11 
(b) Association of Southeast Asian Nations (ASEAN)12  
37. Malaysia is a founding member of ASEAN whic h, as a group, continues to be Malaysia's 
largest trading partner and, as a market of 530 million people, is believed to provide significant 
economic benefits.  The Framewor k Agreement on enhancing economic  cooperation, signed in 1992, 
established the Common Effective Preferential Tari ff (CEPT) Scheme, which aimed to achieve an 
ASEAN Free Trade Area (AFTA).  Under the CEPT it was agreed that tariffs on goods subject to 
tariff reductions would be reduced to 0-5% by 2002 for the original founding members plus Brunei 
(ASEAN-6), by 2006 for Viet Nam, by 2008 for Laos and Myanmar, and by 2010 for Cambodia.  Tariff reduction/elimination under th e AFTA is granted on a reciprocal basis and local content 
requirements apply.
13  The process of reducing tariffs, wh ich began in 1993, has almost been 
completed.  The ASEAN-6 members have fully complie d, by including 98.9% of the products into the 
CEPT Scheme of which 99.6% are at tariff rate between 0-5%.14 
38. ASEAN is also working to:  remove non-tariff barriers to intra-ASEAN trade;  harmonize 
customs nomenclature, valuation and procedures;   harmonize product st andards and regulatory 
requirements;  and improve rules of origin under the CEPT.   
39. The ASEAN Framework Agreement on Services, signed in 1995, guides services 
liberalization over and above WTO commitments, and promotes cooperation among service suppliers 
in ASEAN.  To date, ASEAN has completed four packages of services liberalization covering construction, telecommunications, business services, fi nancial services, air and maritime transport and 
tourism.  This involves preferential access for ot her ASEAN member states in the establishment of 
services entities and employment of professionals.  Under the priority integration approach, tourism, 
healthcare, and air travel are scheduled to be lib eralized by 2010.  ASEAN countries are currently 
working on expanding negotiations to cove r all sectors and all modes of supply.  
40. The ASEAN Investment Area Agreement, signed in  1998, aims at facilitating the free flow of 
direct investment, technology, and skilled prof essionals.  The agreement covers manufacturing, 
agriculture, fisheries, forestry and mining as we ll as services activities related to these sectors.  
Certain sectors are subject to exclusion.
15  The ASEAN Investment Area Agreement aims to increase 
intra-ASEAN investment and FDI, to promote the economic integration of ASEAN, and to jointly 
                                                      
10 Cocoa pods, rambutan, pulasan, longan, and namnam fruit produced in the Philippines and 
Indonesia. 
11 APEC (2004) and (2005a). 
12 ASEAN was established in 1967.  The five original members were Indonesia, Malaysia, the 
Philippines, Singapore, and Thailand.  Brunei joined in 1984, Viet Nam in 1995, Laos and Myanmar in 1997 and Cambodia in 1999.  
13 A product is eligible for a tariff concession if at least 40% of its content originates from any ASEAN 
member state;  the 40% local content refers to both single and cumulative content.  
14 See MITI (2001 to 2004) and ASEAN online inform ation.  Available at:  http://www.aseansec.org. 
15 Sensitive sectors under reservation in Malaysia are pineapple canning;  palm oil industry, milling, 
and refinery;  sugar refinery;  sawn timber, veneer and pl ywood;  petroleum refinery;  batik;  timber extraction;  
fisheries;  cement;  and oleo-chemicals. Malaysia WT/TPR/S/156 
 Page 27 
 
 
promote ASEAN as an attractive region for FDI.  Malaysian companies are among the most active 
investors in the region.  
41. ASEAN is also looking to enhance regional ec onomic integration through the establishment 
of the ASEAN Economic Community (AEC) – a single market providing for the free flow of goods, 
services, skilled labour and capital – by 2020.  Me mber countries have identified eleven priority 
sectors:  agri-based products, air travel, automotive products, electronics, fisheries, healthcare, rubber-
based products, information/communications technolog y sector (products and services) related to e-
commerce, textiles and apparel, tourism, a nd wood-based products.  In 2004, they signed a 
Framework Agreement for the Integration of Priority Sectors to accelerate their integration across 
members.  In 2003, the priority sectors accounted  for more than 50% of intra-ASEAN trade.  
ASEAN regional-plus FTAs 
42. ASEAN is seeking RTAs with other partners such as China, Japan, Korea, CER members 
(Australia and New Zealand), and India.  At  the ASEAN summit in 2002, ASEAN members and 
China signed a framework agreement to begin negotia tions in 2003 to create the world's largest FTA 
with a combined market of 1.7 billion people.   The ASEAN–China FTA is expected to be 
implemented over ten years through progressive elim ination of tariffs and non-tariff barriers and 
progressive liberalization of trade in services and i nvestment.  The Agreement in Goods was signed in 
November 2004.  The first package of tariff re ductions, covering 40% of the tariff lines, was 
implemented on 1 July 2005;  products covered by the "early harvest package", implemented on 
1 January 2004, include live animals, meat, fish, dairy produce, other animal products, live trees, 
vegetables, fruit, and nuts.  Talks are on-going fo r the agreement on trade in services and investment.  
ASEAN and China signed the DSM Agreement in November 2004. 
43. ASEAN also cooperates with Australia and New Zealand under the AFTA–CER Closer 
Economic Partnership, including on e-commerce, lega l infrastructure, mutual recognition of skills, 
quality assurance systems for fruit and vegetables, an d quality assurance and safety of fish and fishery 
products, processing and packaging.  Negotiations to establish an ASEAN–CER FTA commenced in 
April 2005 to be completed by two years.  Coop eration with the EU is taking place on trade 
facilitation, industrial standards, food products  and investment promotion under the Trans-EU 
ASEAN Regional Trade Initiative (TREATI).  ASE AN and EU are currently undertaking a joint 
feasibility study on a possible FTA.  ASEAN is also  working with the United States towards a U.S.–
ASEAN Trade and Investment Framework Agr eement (TIFA) under the Enterprise for ASEAN 
initiative (EAI) announced by the United States in 2002.  
44. Negotiations began in 2004 to establish an ASEAN-India FTA by 2011 for ASEAN-5 and the 
Philippines, and the other ASEAN members by 2016.  Negotiations also commenced between 
ASEAN and Japan to establish an ASEAN–Japan Comprehensive Economic Partnership covering a 
regional free-trade area in goods and services by 2012 for the ASEAN-6 and by 2017 for newer 
ASEAN members.  ASEAN and Korea commenced ne gotiations in April 2005 to establish an FTA;  
the two sides have agreed to eliminate tariffs on at least 80% of goods by 1 January 2009.   
(iii) Bilateral agreements 
45. Since its last Trade Policy Review,  Malaysia has been negotiating  bilateral FTAs, which are 
separate from negotiations through ASEAN.  Malays ia is currently negotiating with Japan, India, WT/TPR/S/156 Trade Policy Review 
Page 28 
 
 
Korea, Australia, New Zealand16, and Pakistan.  Malaysia has also signed a Trade and Investment 
Framework Agreement with the United States (Table II.4 above). 
46. A working group on Japan-Malaysia Economic Part nership was established in May 2003 and 
meetings were convened in  late 2003 to study a broad range of issues including liberalization and 
facilitation of trade in goods and services, investme nt, and cooperation in edu cation, HRD, ICT, R&D 
and science and technology.  Formal negotiations were  held in January and July 2004.  According to 
press reports17, Japan and Malaysia reached an agreement in principle in May 2005 that abolishes 
most tariffs between the two countries by 2015.  It is the first bilateral FTA for Malaysia.  
47. In December 2004, Malaysia and India agreed to conclude a Comprehensive Economic Co-
operation Agreement, which includes the possibility of an FTA.  A joint study group was set up, 
inter alia,  to see how the two countries can upgrade th eir economic cooperation beyond traditional 
agricultural trade, and in particular to:  develop a policy framework for enhancing trade in goods and 
services and investment including the feasibility of an  FTA in goods;  further economic cooperation in 
areas of mutual interest such as ICT, biotechno logy, pharmaceuticals, healthcare, education and 
tourism;  and encourage investment flows across borders.   
48. A Trade and Investment Framework Agreement between Malaysia and the United States, 
signed in May 2004, represents an important milestone  in the U.S.–Malaysian economic partnership.  
The United States buys more from Malaysia than it does from any other ASEAN country.  U.S. investment in Malaysia is US$8.5 billion.  The auth orities believe that the agreement represents a step 
towards improving competitiveness  and sustaining gr owth and development by diversifying growth 
engines.  Malaysia is keen bot h to position itself as a springboard to the growing ASEAN and Chinese 
markets and to retain American companies as top foreign investors.  The inclusion of biotechnology in the framework reflects the Government's high pr iority on this sector and on the importance of 
dialogue on intellectual property rights, and the in clusion of trade in services is consistent with 
Malaysia's interest in strengthening its services se ctors.  The exclusion of government procurement 
reflects Malaysia's position in the WTO that this area should not be included in international trade 
agreements.   
(iv) Trade preferences  
49. Malaysia graduated from U.S. GSP in 1998, afte r the United States judged that income levels 
no longer qualified the country as a developing nation.   Malaysia graduated from EU GSP for certain 
agricultural and other products in June 1999.  With effect from January 2003, cereal, malts and 
starches, and clothing had been reinstated.  Exports under the GSTP are still negligible. 
                                                     
 
16 The Malaysian authorities did not provide a cost-ben efit analysis of  the fre e-trade agreements they 
are negotiating, but both New Zealand and Australia have studied the benefits of negotiating FTAs with Malaysia.  Both studies demonstrate that the case for a free-trade agreement with Malaysia is strong and 
recommend the negotiation of comprehensive agreements .  For New Zealand, the countries' complementary 
trade structures provide potential for tr ade creation;  dynamic gains over time  are expected to be significant.  
Australia, too, stresses that the Australian and Malays ian economies are highly co mplementary and estimates 
that gains for Malaysia in the period to 2027 would be RM 18.3 billion.  (DFAT, 2005 and MFAT, 2005.) 
17 See The Japan Times, 26 May 2005:  "Japan-Malaysia FTA gets  chiefs' approval".  The liberalization 
of Malaysia's automobile industry was the focal point of negotiations.  Tariffs on automobile parts used for the 
so-called knock-down format, under which components are imported to Malaysia, are due to be lifted immediately.  Tariffs on finished car s with an engine displacement of less than two litres will be abolished in 
stages by 2015. Tariffs on all steel products will be removed within ten years.  Japan, inter alia,  will eliminate 
tariffs on most farm and fishery products within ten years, including mangoes, durians, papayas, okra, shrimp, jellyfish, and cocoa.   Malaysia WT/TPR/S/156 
 Page 29 
 
 
50. Malaysia signed the agreement on the Trade Preferential System under the auspices of the 
Organisation of Islamic Conference (TPS-OIC) in June 2004, which covers 14 countries (Bangladesh, 
Cameroon, Egypt, Guinea, Iran, Jordan, Lebanon, Libya, Pakistan, Senegal, Tunisia, Turkey, and Uganda, and Malaysia).  The TPS-OIC aims to acco rd preferential tariff concession on selected goods 
among members.  Discussions are on-going with r espect to the modalities of tariff reduction.  
Implementation of the TPS-OIC would give Malays ian exporters preferential tariff treatment for 
selected products.  Malaysia is also a member of  the Preferential Tariff Arrangement of the Group of 
Eight Developing Countries (with Bangladesh, Indonesia, Iran, Egypt, Nigeria, Pakistan, and Turkey).  
The D8–PTA aims to accord pr eferential tariff concessions on sel ected goods among the participating 
countries.   
(6) D
ISPUTE SETTLEMENT  
51. Malaysia participated in the WTO dispute settlement case on the U.S. measures on the import 
of shrimp and shrimp products in 2000.  The auth orities state that since its previous Trade Policy 
Review, Malaysia has had no trade disputes or fric tions with any of its WTO trading partners for 
which solutions have been sought in the WTO framework.  In relation to anti-dumping and 
countervailing cases, the aggrieved party can refer the matter to the High Court in Malaysia for 
judicial review under section 34A of the Countervailing and Anti-Dumping Duties Act 1993.  Malaysia is also a party to the Convention on the Settlement of Investment Disputes between States 
and Nationals of Other States (Washington Convention).   
52. In the DDA Negotiating Group on Rules, Malaysia  has argued that the DSU process can take 
up to three years before any resolutio n.  In the interim, serious harm or injury can be caused to the 
complainant's industry.  As such , the concept of "preventive measure" would provide temporary 
relief, which would protect and prevent further inju ry.  Malaysia submitted a preliminary proposal on 
these lines.  
53. The authorities also note that ASEAN has st rengthened its dispute settlement process by 
establishing advisory, consultative and adjudicatory m echanisms to resolve disputes.  The Enhanced 
Protocol on ASEAN Dispute Settlement Mechan ism (DSM) was signed by the ASEAN Economic 
Ministers on 29 November 2004.  The Enhanced DSM has been aligned with the provisions of WTO DSM and provides for a shorter time-frame to resolve disputes.   
(7) F
OREIGN INVESTMENT REGIME  
54. According to  the authorities,  the main factors contributing to continued foreign investment in 
Malaysia include:  liberal and transparent investme nt policies, competitive costs of doing business, the 
streamlining of the government administrative system, attractive investment incentives, well-
developed infrastructure, skilled manpower, and pr oximity to major markets.  The Government 
encourages FDI particularly in export-oriented manufacturing and in high-tech industries that may provide transfer of technology.   
(i) Recent developments  
55. The Government has sought to promote FDI in export-oriented manufacturing as well as in 
capital-intensive and high-tech industries, such as electrical equipment and electronics, biotechnology, 
oil and gas, and chemicals.  At th e same time, it has resi sted investment in industries seen as key for 
national development, such as the automotive industr y, or in low value-added and labour-intensive 
industries.  The Government retains considerab le discretionary authority over the approval of 
individual investment projects, whic h it has used to restrict foreign equity and to extract favourable WT/TPR/S/156 Trade Policy Review 
Page 30 
 
 
technology transfer and joint-venture agreements.18 
56. Equity restrictions and export requirements in the manufacturing sector for companies that do 
not compete directly with local producers were eased after the 1997-98 financial crisis and the 
economic downturn in 2001.  This policy, origin ally scheduled to expire by 31 December 2003, 
permits 100% foreign equity for new investment and for expansion of existing investments in 
manufacturing concerns;  it was exte nded indefinitely in June 2003. 
57. At the same time, in order to attract FDI as well as to promote technology transfer and 
inflows of foreign talents/skills, Malaysia furthe r liberalized its policy on the employment of 
expatriates in the manufacturing sector.  For manufact uring companies with foreign paid-up capital of 
US$2 million and above, automatic approval, for up to te n years, is given for ten expatriate posts for 
paid-up capital between US$200,000 and US$2 million, there is automatic approval for five expatriate 
posts. 
(ii) Legislative framework and procedures 
58. The Promotion of Investments Act of 1986 a nd the Industrial Coordination Act of 1975 
regulate foreign and domestic investment.  The Fore ign Investment Committee (FIC) ensures that all 
companies undertaking business in Malaysia have at least 30% Bumiputera equity in line with the 
national agenda.  The FIC, under the Economic Pla nning Unit of the Prime Minister's Department, 
consists of representatives from the prime Minister's  Office, the Central Bank, MITI, the Malaysian 
Industrial Development Authority (MIDA), and ot her government agencies.  The FIC guidelines, 
which apply unless there are specific industry requi rements, are only administrative and do not have 
statutory force.  Nonetheless, in practice, the guidelines may be enforced by other governmental 
authorities whose approval may be required for relate d matters such as seeking a licence required for 
a specific industry. 
59. The FIC has issued guidelines, liberalized in May 2003, on the following transactions:  (i) any 
proposed acquisition by foreign interests of any subs tantial fixed assets in Malaysia;  (ii) any proposed 
acquisitions of assets or mergers or takeovers of companies and businesses in Malaysia by any means 
that will result in ownership or control passing to fo reign interests;  (iii) any proposed acquisition of 
15% or more of the voting power in any Malaysian company by a foreign company or group, or 30% or more by aggregate foreign interests;  (iv) join t-venture, technical assistance or other arrangements 
resulting in the control of a Malaysian company bei ng transferred;  (v) all mergers and takeovers by 
foreign or Malaysian interests;  and (vi) ac quisition of assets or interests exceeding in value 
RM 10 million by Malaysian or foreign groups.  
60. The FIC guidelines aim to ensure a more equita ble distribution of wealth as established under 
the National Development Policy (NDP), which is d esigned to eliminate poverty and to restructure 
society through a more equitable distribution of the c ountry's  resources.  Its target is to achieve 30% 
of ownership by Bumiputera (Malays and other i ndigenous peoples) and 70% by other Malaysian and 
foreign interests.  All applications will be processed  based on the equity struct ure of the companies.  
In August 2004, the FIC reviewed its procedures in response to complaints that its procedures were 
burdensome and time consuming.  The new approa ch operates on the principle of self-assessment, 
self-disclosure and trust, and encourages the FIC to ta ke a monitoring rather than a processing role in 
line with the Government's objective of an investor-friendly approach.  
                                                     
 
18 The Malaysian authorities emphasize that though the Government has discretionary authority to 
approve projects, most investment applications are approved for companies meeting the requirements outlined 
in the Industrial Coordination Act, 1975. Malaysia WT/TPR/S/156 
 Page 31 
 
 
61. The Malaysian Industrial Development Authorit y (MIDA), which is part of MITI, is the 
principal agency for the promotion and coordina tion of industrial development in Malaysia.19  I t  
works with foreign and domestic investors in developing their proposals, processing investment 
applications, and coordinating permits and licences.  Among its major functions are the promotion of 
foreign and domestic investment in manufactur ing and related services and the evaluation of 
applications;  this includes evaluation for tax incentives, manufacturing licences, expatriate posts 
required, tariff protection, and import duty exemption for raw materials, components, and machinery.   
62. As noted, equity requirements have been relaxe d since 1998.  Effective 17 June 2003, a 100% 
foreign equity holding is allowed for investment in new projects and expansion or diversification 
projects by existing companies, irrespective of the level of exports.  A manufacturing licence is 
required for companies with shareholder funds of RM 2.5 million or more or at least 75 full-time 
employees, as required under the Industrial Coordi nation Act.  The Government has relaxed export 
requirements on manufacturing companies to enha nce industrial linkages and domestic sales.  
Companies subject to export conditions can now ap ply for MIDA approval to sell the following in the 
domestic market:  up to 100% of their output for pr oducts with nil duty or those not produced locally, 
and up to 80% of their output if the domestic suppl y is inadequate or there has been an increase in 
imports from ASEAN for products with CEPT duties of 5% and less.  
63. Malaysia has also liberalized its policy toward s the entry and stay of foreign managerial, 
professional, technical, and skilled personnel for the establishment and operation of investment 
projects.  There is also no restriction on the employment of foreign knowledge workers in the 
Multimedia Super Corridor (MSC), Malaysia's effort to create a Silicon Valley in Asia.  Foreign firms 
generally face no limits on their stakes in ventures in mining and processing of minerals.  
64. Foreign equity is limited to 30% in strategic sect ors with national interests, such as water and 
energy supply, broadcasting, defence and security;  and in commercial banks and merchant banks.  
The limit is 49% for stock-broking firms and financia l leasing companies.  In 1997 limits were raised 
to 49% in telecommunications and to 51% in insura nce, in certain circumstances.  To counteract a 
weakening property market in the wake of the 1997- 98 financial crisis, restrictions were loosened on 
foreign ownership of real estate.  The wholesale and retail industry falls under the purview of the 
Ministry of Domestic Trade and Consumer Affairs whose guidelines on the sector's activities essentially set out the same equity requirements as the general FIC requirements.  In the health sector, 
commercial presence of a foreign investor in private hospital services must be through a joint venture 
and foreign equity participation is limited to 30%.  
(iii) Incentives 
65. Malaysia has a considerable number of incentive schemes designed specifically for various 
industries as well as activities to promote the developm ent of targeted industries and activities that can 
contribute to the future growth and development of the Malaysian economy.  Tax incentives, both 
direct and indirect, are provided for in the Prom otion of Investments Act 1986, Income Tax Act 1967, 
Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990.  The direct tax incentives grant income tax relief for a specified peri od while indirect tax incentives come in the form 
of exemptions from import duty, sales tax, and excise duty.   
(iv) Investment guarantee and double taxation agreements 
66. The purpose of bilateral investment guarantee ag reements (IGAs) is to ensure against non-
commercial risks such as nationalization and exprop riation and allow for remittances and repatriation 
                                                     
 
19 MIDA (2004). WT/TPR/S/156 Trade Policy Review 
Page 32 
 
 
of capital.  Malaysia has IGAs with 71 countries a nd country groupings.  Mala ysia has signed bilateral 
investment guarantee and protection agreemen ts since 2001 with the Kingdom of Morocco, on 
16 April 2002 and the Islamic Republic of Iran, on 22 July 2002.  
67. Malaysia has double taxation agreements with 59 countries.20  Since 2001, it has signed 
agreements on the avoidance of double taxation with:  Sweden (28 February 2002);  Denmark 
(Protocol) (3 December 2003);  Croatia (18 Fe bruary 2002);  Luxembourg (21 November 2002);  
Singapore (5 October 2004);  India (14 May 2001);  Iran (Protocol) (22 July 2002);  Morocco (2 July 2001);  Lebanon (20 January 2003);  Austra lia (2nd Protocol) (28 July 2002);  Republic of 
Chile (3 September 2004);  Seyche lles Republic (3 December 2003). 
                                                     
 
20 Of these, Malaysia has limited double taxation ag reements with the United  States, Argentina, and 
Saudi Arabia, restricted to the income of sea and/or air transport enterprises only.