WT/TPR/S/156 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. At Independence in 1957, Malaysia was reliant on tin, rubber, and palm oil for its foreign 
exchange earnings.  While palm oil earnings rema in significant – Malaysia is the world's largest 
exporter of palm oil – elaborately transformed manuf actures, in the shape of electronics and electrical 
products, now dominate Malaysia's exports.  As shown in Table IV.1, manufacturing accounted for 
nearly 83% of exports in 2004 and of 31% of GDP.  In 2001, at the start of the period under review, 
the Third Outline Perspective Plan and the Eight h Malaysia Plan emphasized the Government's 
commitment to moving from an input-driven to a knowledge- and productivity-driven economy in 
order to generate sustainable economic growth an d maintain competitiveness.  As announced in the 
2005 budget speech, the Malaysian Government is working to accelerate the transition towards a 
higher value-added and knowledge-base d economy.  Priority is being given to promoting investments 
and developing products in new areas of growth in selected and strategic economic sectors in 
agriculture, manufacturing, and services. 
Table IV.1 
Structure of production and employment, 2001-05 
(Per cent) 
 2001 2002 2003 2004 2005a 
Share of main sectors in real GDP (%)      
Agriculture, forestry and fishing 8.8 8.6 8.7 8.5 8.4 
Mining and quarrying 7.2 7.2 7.2 7.0 6.7 
Manufacturing 30.0 30.0 30.8 31.6 31.5 
Services 60.3 61.3 60.7 60.3 57.8 
GDP annual growth (%)      
Agriculture, forestry and fishing -0.6 2.8 5.6 5.0 4.8 
Mining and quarrying -1.5 4.3 5.8 3.9 1.5 
Manufacturing -5.9 4.3 8.4 9.8 4.8 
Services 5.8 6.2 4.3 6.4 5.8 
Share in employment (%)      
Agriculture, forestry and fishing 14.8 14.3 13.8 13.3 13.3b 
Mining and quarrying 0.4 0.4 0.4 0.4 0.4 
Manufacturing 26.8 27.3 28.1 29.1 28.4 
Services 58.0 58.0 57.7 57.3 50.8 
Share in exports (%)      
Agriculture, forestry and fishing 10.7 12.2 13.4 12.8 17.1c 
Mining and quarrying .. .. .. .. .. 
Manufacturing 85.2 85.3 82.0 82.8 .. 
Services .. .. .. .. .. 
.. Not available. 
a Forecast. 
b Estimates. 
c For January-July 2005 
Source:  Ministry of Finance (2004), Economic Report 2004/2005;   and EPU (2005), The Malaysian Economy in Figures 
2004. 
2. To promote the development of agriculture, the focus is on generating new investment 
particularly in food and biotechnology-related activities to expand the product base and export 
capacity of the sector, which accounted for 7.5% of gross exports in 2004.  The manufacturing sector 
has long been the catalyst of growth, and govern ment efforts are concentrated on structural Malaysia WT/TPR/S/156 
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transformation towards greater capital- and technolo gy-based industries.  Malaysia, one of largest 
exporters of semiconductors in the world, is now engaged in climbing the value chain to move its 
electronics industry from commodity chip-making to testing and design in order to stay ahead of competitors.  Generally, however, Malaysia's export or ientation will be more difficult to sustain as an 
increasing number of countries pursue export-led eco nomic growth.  Import substitution is no longer 
an option as it is already difficult to protect dom estic industry against international competition.  
Despite heavy protection over the years, Malaysia's  domestic car makers, and notably Proton, have 
seen their market share decline as the Malaysian car market becomes increasingly open, possibly 
encouraging the industry to take advantage of th e scope for regional specialization in collaboration 
with major global manufacturers of automobiles, whic h could use Malaysia as their regional base.    
3. Efforts to stimulate growth in the services sector focus on tourism, health, education, Islamic 
finance, and ICT-related and manuf acturing-related services.  Tourism has become Malaysia's most 
successful service sector and has increased in impor tance as a source of economic growth.  Regional 
and global negotiations to liberalize trade in services offer both challenges and opportunities for 
Malaysia's relatively protected sector in terms of the need to increase competitiveness.  For example, 
Malaysia has sought to promote the competitiveness of locally owned financ ial institutions, through 
consolidation and mergers, in anticipation of increased competition from foreign-owned financial 
services providers. 
4. To guarantee rising living standards and econom ic prosperity, Malaysia must remain 
competitive in the era of trade liberalization and gl obalization.  Malaysia has a relatively low IMD 
competitiveness rating, with its overall ranking fallin g to 28th from 16th in 2004 and 21st in 2003.
1  
International competition has intensified for Ma laysian industries both at home and abroad as 
domestic barriers are dismantled through bilateral and regional FT As and through WTO negotiations, 
and as low-wage countries, especially China, er ode Malaysia's competitive advantage in unskilled 
labour-intensive manufacturing.  Competitive pressures are forcing the Malaysian economy to shift to the upper end of the value-chain, producing know ledge- and technology-intensive goods as well as 
supplying services.  Experience indicates that, given the limits to additions of capital and labour, 
input-driven growth is not sustainable, underlini ng the importance of productivity-driven growth.  The 
National Productivity Corporation (NPC) has ste pped up efforts to improve productivity across 
industries in agriculture, manufacturing, and ser vices and recent data show positive trends in 
productivity in several areas (Table IV.2). 
5. As noted elsewhere in this review, the Mala ysian Government has a strong presence in most 
sectors of the economy.  The Government oversees ov er 40 listed and non-lis ted government-linked 
companies (GLCs), with combined assets equivalent to  more than half of Malaysia's GDP.  In many 
cases, this gives the Government the final decisi on in the corporate direction of these businesses.  
Petronas, which dominates the oil and gas industry, a nd by far Malaysia's biggest company, is wholly 
government-owned.  The national car maker Proton' s biggest shareholder is the Government's 
investment arm, Khazanah, which has increased its stake after Japan's Mitsubishi sold back its 7.9% 
stake in 2004;  other leading comp anies in the automotive sector with government shares are EON, 
the distributor, and Modenas, active in motorcycle manufacturing.  Leading government-controlled enterprises in the transport subsector are Mala ysian Airlines, Malaysia Airports and Plus 
Expressways, the largest listed toll expressway operato r in Asia.  Leading fina ncial institutions with 
Kazanah shareholdings include Commerce Asset, RH B Bank, EON Capital and Maybank, the largest 
banking group in Malaysia in terms of assets.  Th ere are important government shareholdings in the 
technology and engineering/constr uction subsectors and in telecomm unications (Telekom Malaysia 
                                                     
 
1 IMD (2005).  According to the IMD's ranking of international competitiveness, using 312 criteria, 
within the Asia-Pacific region, Malaysia trails Hong Kong, China (2nd), Singapore (in 3rd position), Chinese 
Taipei (11th), Japan (21st) and, for the first time, Thailand (27th). WT/TPR/S/156 Trade Policy Review 
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and Maxis) and utilities (Tenaga Nasional, the country' s largest electricity utility company).  To raise 
efficiency and transparency in GLCs, the Ma laysian Government introduced key performance 
indicators and performance-linked compensation for the managers of these companies.  The Government has also started to gradually relax pol icies designed to maintain bumiputera ownership of 
assets and control over strategic sectors.
2  For example, non-bumiputeras are now allowed for the first 
time to serve as chief executives of GLCs, which ma y be regarded as a step towards creating a more 
dynamic corporate culture in the state sector, by emphasizing ability and performance over other 
criteria for promotion. 
Table IV.2 
Growth of labour productivity, 2001-05  
(Per cent) 
 2001 2002 2003 2004 2005a 
Total 0.29 2.46 2.66 3.42 2.80 
Agriculture 2.29 1.11 1.92 2.50 2.80 
Mining & quarrying -0.38 1.90 2.11 3.57 3.80 
Manufacturing -3.42 3.32 5.31 6.10 5.10 
Construction 0.39 2.51 2.55 -0.30 0.40 
Electricity, gas & water 2.53 2.93 3.12 2.90 2.10 
Transport 2.12 1.35 2.15 3.21 2.20 
Commerce/Trade 1.54 1.14 3.24 2.36 2.80 
Finance 4.93 2.75 2.81 2.41 2.50 
Government services 3.52 3.36 3.37 3.30 3.40 
Other services 0.13 1.03 2.12 1.76 1.40 
a Forecast. 
Source:  National Productivity Corporation Mala ysia.  Computed from Economic Report,  Ministry of Finance, Malaysia, 
various issues and Economic  Planning Unit, Malaysia. 
(2) AGRICULTURE  
(i) Main features 
6. The modernization of agriculture is one of  the main policy goals of the Malaysian 
Government.  It intends to develop the unused poten tial in fruit, aquaculture, and livestock output and 
through various incentives, subsidies, and training schemes is promoting labour-saving techniques, 
greater commercial orientation, adoption of new technologies and modern farm management systems, 
and greater participation by the private sector. 
7. Foreign investment in agriculture has considerab le potential to contribute to modernization in 
areas such as downstream processing industries, wh ich could benefit supply-chain management and 
productivity in agriculture more generally.  There are, however, limitations on foreign ownership in 
agriculture, including on ownership of rural land.  Most land designated for agricultural use is under 
state jurisdiction or is reserved for Malays.  
                                                      
2 The Malaysian Government promotes the acquisition of economic assets by bumiputera to encourage 
a more even distribution of wealth among races:  it often requires foreign and domestic non-manufacturing firms to take on bumiputera partners (usually 30% of share cap ital) and to maintain a workforce that proportionately 
reflects Malaysia's ethnic composition.  Other policies to encourage bumiputera involvement include the 
awarding of government contracts to bumiputera companies as well as the granting of approved permits to ethnic Malay companies to enable them to import cars and distribute them locally. Malaysia WT/TPR/S/156 
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(ii) Trade regime 
8. Malaysia's agricultural trade regime is relatively open.  Many commodities carry zero or low 
applied tariffs, including zero for wool, meat, cere als, oilseeds, and animal feed, although some 
horticulture and processed food products face applied tariffs of up to 30%.  Many bound tariffs are 
considerably higher than the rates currently applie d:  the products involved include pork (applied rate 
zero, bound rate nearly 140%), preserved meat (applied zero, bound 168%), milk and cream (applied 
zero, bound 54%) (Table IV.3).  Specific rate ta riffs apply to some tropical fruit and alcoholic 
beverages, notably wine.  Imports of commodity-t ype fisheries products are generally duty free but 
the more value-added products generally face duties of up to 20%.  There is marked tariff escalation 
in forestry products. 
Table IV.3 
Tariffs affecting imports of selected agriculture products into Malaysia 
HS Item Maximum applied 
tariff (% unless 
specified) Max. WTO bound 
rate ( ad valorem ) Max. WTO bound 
rate (specific, 
(RM/unit)) 
Meat     
0201 Bovine meat, fresh or chilled 0 15  
0202 Bovine meat, frozen 0 15  
0203 Pork 0 138.6a  
0204 Sheep or goat meat, fresh, chilled or frozen 0 15  
0206 Offal of beef, pork, sheep, goats 0 15  
0207 Poultry 0 85a  
0210 Preserved meat 0 167.87a  
Dairy     
0401 Milk and cream 0 54.4 
(liquid)a RM 8.82/100 kg.b 
0402 Milk powder/other solid form 5 5 41.89/100 kg. 
(condensed) 
0403 Yoghurt (flavoured) 25 10  
0405 Butter and butterfats 2 5  
0406 Cheese 5-10 10  
Honey     
0409 Natural honey 2 5 0.55/kg. 
Vegetables     
0710 Frozen vegetables 8  
(sweet corn) 5  
0711 Preserved vegetables 7 20  
0712, 0713 Dried vegetables 5 15 9.84/kg. 
0714 Cassava and sweet potatoes 5 5 31/kg. 
Fruit     
0804.30 Pineapples 827/tonne  608/tonne 
0804.40 Avocados 5 16  
0804.50 Mangoes 5+220.45/t 5 224.70/t 
0805 Citrus 5-10 20 various 
0806 Grapes 5 20  
0807 Melons and pawpaws 5+661.40/t 5 661.40/t 
0808 Apples and pears 5 20  
Table IV.3 (cont'd) WT/TPR/S/156 Trade Policy Review 
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HS Item Maximum applied 
tariff (% unless 
specified) Max. WTO bound 
rate ( ad valorem ) Max. WTO bound 
rate (specific, 
(RM/unit)) 
0809 Apricots, cherries, peaches and plums 10 20 661.40/t 
0810 Berries and other fruit 5-30 20 661.40/t 
0813 Dried fruit, mixed nuts or fruit 20 20 1,322.77/t 
Processed food and beverages     
1516 Processed animal/vegetable fats/oils 5 20  
(almond) 88.18/t  
(groundnut) 
1517 Margarine 20 30 
(liquid) 198.92/t 
1601 Sausages and similar products 15 15  
1602 Other prepared meat 15 15  
1701 Cane or beet sugara 0 15 385.45/t 
1702 Other sugars and sugar syrups 15 20 369.3/kg. 
1704 Sugar confectionery 15 30  
1806 Chocolate and cocoa preparations 15 15 2/kg. 
1901 Cereal and dairy preparations 7 31 44.85/kg. 
1902 Pasta 8 20  
1905 Bread, pastry, cakes and biscuits 6 15  
2001 Veg./fruit/nuts preser ved by vinegar 8 20  
2002 Tomatoes prepared/preserved 8 20 14.96/kg. 
2004 Frozen/preserved vegetables 20 20 14.96/kg. 
2005 Other prepared vegetables , not frozen 20 20 14.96/kg. 
2008 Fruit or nuts otherwise prepared 20 20 744/kg. 
(pineapples) 
2009 Fruit juices 30 20  
2103 Sauces and condiments 20 20  
2104 Soups 20 20  
2105 Ice cream and other edible ice 5 5  
2106 Other food preparations 20 20  
2201 Waters 20 20  
2202 Sweetened or flavoured drinks 20 15  
2203 Beer 5/litre  150/decalitre 
2204 Wine 23/litre  1,200/decalitre 
a Tariff quota applies. 
b SSG – special safeguard applies. 
Note: Items in brackets (e.g. liquid) refer to the specific product within a class that  attracts the maximum rate.  Maximum tar iff rate for 
each HS code is shown (there may be lower rates on some lines within a code).  If both ad valorem  (%) and specific (RM) tariffs, 
rate may be whichever is the higher, both %+RM, or refer to different tariff lines within an HS item.  WTO bound tariffs are fi nal 
rates by 2004, applied tariffs as at September 2004.  Where maximu m applied rate is higher than bound rate further investigatio n 
is required (e.g. 2202 and 0403). 
Source: WTO Uruguay Round Schedule XXXIX;   Malaysian Government Budget Papers  2004;  Australian Department of 
Foreign Affairs and Trade, "An Aust ralia–Malaysia FTA:  Australia Scopi ng Study", February 2005, pp. 52-53. 
9. Malaysia retains the right under its WTO commi tments to apply tariff rate quotas on poultry 
products, pork products, fresh milk, cabbage, coffee,  flour, and sugar.  The over-quota tariffs on these 
products are currently at zero so the quota restrictions do not apply.  Malaysia has reserved, but has 
not used, the right to apply the special safeguard provisions under the WTO Agreement on Agriculture.  
10. A number of agricultural products remain subject  to import licensing requirements, including 
rice and rice products, sugar, un-manufactured tob acco, milk, cabbage, coffee, and cereal flours.  Malaysia WT/TPR/S/156 
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BERNAS, a government corporation, is the sole authorized importer of rice, and import licences for 
white sugar are reportedly available only to certain Malaysian sugar refiners, which effectively shuts 
the market to white sugar imports.  Livestock imports  are subject to licensing in addition to veterinary 
certification.  This implies that market access is potentially subject to limitations.  Malaysia's food 
standards and labelling regime, in particular the halal trade regime, has also caused concern among 
foreign exporters.  One issue see ms to be the accreditation of foreign abattoirs in cases where the 
Malaysian Department of Islamic Affairs (JAKI M) does not recognize another country's halal 
approval and accreditation programme for meat;  this  creates uncertainty for foreign exporters of 
some processed foods.   
11. Malaysia has no export subsidy programmes that  are subject to WTO reduction commitments. 
12. The Government provides support and protectio n to the rice and tobacco subsectors.  
Production subsidies on fertilizer apply only for ri ce production.  The situation regarding domestic 
support appears to be the same as in 2001.  With a view to maintaining food security and eradicating 
poverty, the Government provides support and accords protection to two main subsectors in agriculture, i.e. rice (for food security and povert y reasons) and tobacco (for poverty reasons).  The 
largest outlay in connection with domestic support in volves the financing of a minimum price for rice;  
this amounted to RM 476.6 million in 2004 (Table IV.4).  The Government maintains a guaranteed 
minimum price and a paddy price subsidy for padd y farmers.  Under the guaranteed minimum price 
scheme, BERNAS undertakes to buy paddy from farm ers at not less than the guaranteed minimum 
price, which is currently RM 55.00 per 100 kg. for both long and medium grains.  Under the paddy 
price subsidy programme, the Government makes fixe d payments (currently RM 24.81 per 100 kg.) to 
farmers for the paddy sold by them  to any commercial rice mill.  This subsidy is in addition to the 
price received by the farmers for the paddy, a nd constitutes the largest domestic support outlay for 
agricultural production. 
Table IV.4  
Overview of domestic support measures, 1998 and 2004 
Value 
(RM million) Type of measures Description 
1998 2004 
Drainage and irrigation facilities General services th at benefit rural and sma llholding farm ers 56.4 56.7 
Research and development General services  provided to most crops and agricultural 
programmes  18.0 59.2 
Marketing services General services provided for marketing of produce of smallholders 34.6 29.9 
Extension services  General services that  benefit rural and smallholding farmers;  
include pesticide inspection servi ces and transfer of information 
and results of R&D to producers 5.6 4.7 
Price support and guaranteed 
minimum price Guaranteed minimum price and paddy price subsidy provided to 
paddy farmers in the context of po verty redressal and uplift of the 
socio-economic well-being of paddy farmers 380.2 476.6 
Fertilizer subsidy Aimed at increasing pr oductivity and encouraging good agricultural 
practices amongst smallholders 136.9 186.7 
Investment subsidies (credit 
concessions) Aimed at reducing production cost s and encouraging individual 
farmers and smallholders to be  less reliant on outright subsidy nil nil 
Source: WTO document G/AG/N/MYS/13, 14 September 2000, an d data provided by the Malaysian authorities. 
(iii) Key subsectors 
13. The most important agricultural activities are production of food commodities (notably 
fisheries, livestock, and rice cultivation) and planta tion crops for international markets, led by palm 
oil, rubber, cocoa, and timber.   WT/TPR/S/156 Trade Policy Review 
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(a) Food commodities 
14. According to the Government, one of the main ch allenges faced by the agriculture sector is to 
increase domestic food supply.  To achieve this, plans have been developed since 2001 to move the 
country from being a net food importer to a net food exporter by 2010, as stated in the Third National 
Agriculture Policy, and an objective is to achieve self-sufficiency in meat production and enhance the 
national food security programme.  Schemes such as the perman ent food production parks and 
aquaculture industrial zones, to increase in produc tion levels of food crops, are designed to increase 
planting and catchment areas.  
15. Aquaculture currently provides about 10% of do mestic fish consumption but with aggressive 
promotion it is expected to be a significant supp lier of Malaysia's growing demand for fish in the 
future.  Rice growing continues to attract special government help, such as schemes for raising yields 
and productivity.  Malaysia, a net importer of ri ce, is aiming for a minimu m self-sufficiency level 
of 65%. 
(b) Plantation crops 
16. Malaysia's economic development used to be dom inated by the cultivation of plantation crops 
such as natural rubber and palm oil.  Malaysia is no longer the world's biggest producer of natural 
rubber, as plantation companies have for many years been switching to the more profitable cultivation 
of palm oil, of which the country is the world's leading producer.  Malaysia is one of the world's 
leading producers of saw logs although output is gra dually declining.  Restrictions on log exports 
were originally imposed as much to encourag e more downstream processing as to preserve the 
Malaysian rainforest. 
Palm oil 
17. Malaysia is the largest global producer of pa lm oil, accounting for half of global output.  
Output has continued to expand, reaching almo st 14 million tonnes in 2004 and accounting for over 
one third of total value added in the agriculture sect or (Table IV.5).  Malaysia continually seeks new 
uses for palm oil, to develop new varieties and to boost productivity through intensifying R&D 
efforts.  In 2004, exports were around 12.5 milli on tonnes, accounting for 58% of global palm oil 
exports and 27% of the global oils and fats trade.3  Malaysia's biggest export markets are China, the 
EU, India, and Pakistan.  In the Doha negotiatio ns, Malaysia continues to insist on substantial 
reduction in high tariffs as they pose a barrier to palm oil exports in a number of markets.4 
                                                      
3 Figures provided by the Minister of Plantation Industries and Commodities, Malaysia, March 2005.  
According to the Malaysian Palm Oil Promotion Council (MPOPC), charged with spearheading the promotional 
and marketing activities of the Malaysia n palm oil industry, production in 2005 is forecast to  reach 14.2 to 
14.3 million tonnes.  
4 India, for example, has imposed high import duties for crude palm oil at 65%, refined oil at 75% and 
soyabean oil at 45%;  according to the MPOPC, this is affecting Malaysia negatively.  Exports to India were 
down 41% in 2004 compared with 2003.  Malaysia WT/TPR/S/156 
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Table IV.5 
Production of major agricultural products, 2001-03 
(Tonnes unless stated otherwise) 
Product 2001 2002 2003 
Palm oil 11,804,000 11,909,000 13,355,000 
Paddy 1,351,000 1,361,000 1,394,000 
Cocoa beans 58,000 48,000 36,200 
Pepper 25,000 24,000 22,000 
Poultry ('000 units) 147,138,600 170,395,100 184,759,400 
Cattle ('000 units) 742,200 714,200 719,200 
Marine fish 177,100 191,800 190,400 
Source:  Malaysian authorities. 
Natural rubber 
18. Production of natural rubber, Ma laysia's longest-established large-scale agricultural product,  
exceeded one million tonnes for the first time in ei ght years in 2004;  nearly all production is 
exported.  Smallholders account for nearly 95% of total rubber output.  Malaysia is the third largest 
producer of rubber, with a 16% share of world out put, after Thailand and Indonesia.  In 2004, export 
proceeds from rubber accounted for 1.1% of total e xports.  The strong export growth in recent years 
was fuelled by demand from tyre manufacturers respondi ng to demand for automobiles, in particular 
in China and the EU. 
Timber 
19. Malaysia is the world's largest exporter of tropi cal logs and sawn timber.  In 2004, Malaysia's 
exports of forestry products accounted for 1.1% of total exports, down from 7.4% in 1991.  Japan was 
the largest market, taking 24% of Malaysia's exports.  During the period under review, logging activities have been generally moderate in line with efforts to implement sustainable forest 
management practices.  In response to interna tional criticism of destructive logging practices, 
Malaysia has developed a management policy aimed at maintaining a sustainable permanent estate 
while maximizing social, economic, and environmental benefits.  The ban on e xports of raw logs has 
been extended to all states except Sarawak.  Con sequently, log production is stagnant.  The timber 
industry has come under pressure from environmenta lists for illegal logging an d trade in endangered 
tropical species.  Malaysia, through the Malaysian Timber Certification Council, developed its own 
timber certification scheme in 2001 to assure importers  and consumers that Malaysian timber products 
are from legal and sustainable sources.  In add ition, the Government imposed a ban on importing 
illegal tropical logs from Indonesia in 2004,  including the endangered ramin species.
5  
                                                      
5 Under the UN Convention on International Trade in Endangered Species of Wild Fauna and Flora 
(CITES), the Indonesian Government had to ban all cutti ng and export of the tree in 2001, while Malaysia can 
still trade ramin with a CITES permit.  According to a 2004 report by the Environmental Investigation Agency 
and Telapak, despite the ban, the timber is harvested ille gally in Indonesia, smuggled to  and washed in Malaysia 
before being exported (EIA/Telapak, 2004).  Malaysia maintains that it has been vigilant in enforcing regulations on trade in ramin in acco rdance with CITES.  In March 2004, the EIA reported that the Malaysian 
Timber Industry Board announced that it had found 1,636 tonnes of the banned ramin sawn timber, believed to 
be of Indonesian origin, when it conducted checks on warehouses in the free-trade zone area of Pasir Gudang Port in Johor on 20 February.  WT/TPR/S/156 Trade Policy Review 
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(iv) Policy objectives for the sector 
20. The 2005 Budget focused on revitalizing the agricultu re sector and making it a third engine of 
economic growth after manufacturing and services.  The aim is to make Malaysia a competitive 
global producer of high quality and safe agricultural products that meet international standards.  
Policy emphasis is on:  adopting modern agricu ltural methods through R&D including biotechnology 
(Malaysia has established three laboratories in molecular biology, agricultural biotechnology, and 
nutraceutical and pharmaceutical biotechnology);  developing Malaysia as a centre of processing, 
packaging, and marketing of agricultural products;  encouraging the private sector, and especially 
GLCs, to act as a catalyst in the commercializatio n of the agriculture sector;  and developing the 
country into a competitive food exporter in selected areas such as aquaculture6, deep-sea fishing, 
ornamental fish breeding, as well as halal products.  
21. According to the Malaysian Government, the potential market for halal food is US$350 to 
US$400 billion per year, and this large potential must be tapped to make Malays ia one of the world's 
leading producers and exporters of halal food.  A number of strategies and measures have been 
formulated in this regard.  Under the Second Indust rial Masterplan (1996-2005), one strategy is to 
position Malaysia as an international halal food hu b with emphasis on the processing of halal meat 
and livestock products.  For meat products, hala l certification is awarded when the producer has 
strictly followed procedures for slaughtering, process ing, and other related operations as prescribed by 
Islam.  For other food products7, the halal designation means that all ingredients used in the food 
production have Islamic approval.  The Small a nd Medium Industries Development Plan (2001-05), 
and Third National Agricultural Policy (1998-2010), sp ecify further measures, which include capacity 
building efforts in inspection, monitoring, standard ization, and certification of halal standards, and 
promotion of halal industries as well as a number of incentives.8  Currently, halal food production in 
Malaysia is relatively small, although there is  potential for expansion given the strong halal 
production base in place, worldwide acknowledgement  and recognition of JAKIM's halal logo, and 
strong support by the Government for the industry.  
(3) MINING AND QUARRYING  
22. Malaysia's mineral resources include tin, petr oleum, copper, iron ore, natural gas, and 
bauxite.9  Around 22% of Malaysia's industrial output  comprises production of minerals, mostly 
petroleum and liquefied natural gas (LNG), which ar e now the most important mineral products.  Both 
oil and natural gas are extracted from two main ar eas in the South China Sea, off Terengganu and off 
Sabah, and are key contributors to the Malays ian economy, accounting for 8.1% of total export 
earnings in 2004.  By international standards, Malays ia is a small producer of crude oil, but a large 
exporter of natural gas.  In 2004, Malaysia was the third largest LNG exporter in the world after 
                                                      
6 Malaysia is amongst the world's top 20 harvesters /producers of fish, crustaceans, and molluscs.  The 
main aquaculture exports are fresh and frozen fish, pr awns, and shrimp.  Until the mid-1990s, Malaysia was a 
net exporter of fish, but has became a large importer in order to meet increasing domestic demand.  Imports are 
expected to increase as fish is an important food  ingredient for all ethnic groups in Malaysia.   
7 Halal products certified in Malaysia range from processed chicken and beef products to ice cream, 
chocolate, and food supplements.  
8 In 2004, the Government in 2004 proposed a double deduction incentive for producers of halal 
products on expenses incurred in meeting the standards to  obtain halal certificates fr om JAKIM.  To encourage 
new investments and increase the use of modern machinery and equipment, the Government has also proposed an investment tax allowance of 100% for five years for companies that produce halal food. 
9 The output of tin, which played a crucial role in Malaysia's industrial history, went into strong decline 
in the mid-1980s.  Malaysia lost its position as the world' s largest producer of tin concentrates after depletion of 
the richest deposits but remains a centre for tin refining, using partly imported concentrates.  Malaysia WT/TPR/S/156 
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Indonesia and Algeria, accounting for about 16% of the world's total LNG exports.  The main 
customers for LNG exports are Japan, the Re public of Korea, and Chinese Taipei.   
23. It has been the objective of successive Malaysian governments to raise earnings from all 
primary products by increasing the degree of domestic processing.  The country now has large 
commodity-based industries, in particular the chem ical industries based on oil and gas but also the 
production of rubber goods and wooden furniture .  Petroliam Nasional Berhad (Petronas)10 is 
Malaysia's national petroleum corporation and is wh olly owned by the Government.  Under the terms 
of the Petroleum Development Act of 1974, the ups tream oil and gas industry is controlled by 
Petronas, which is the sole entity with legal title  to ownership, explora tion, and production of 
Malaysian crude oil and gas deposits.  It is responsible for planning, investment, and regulation of all 
activities relating to exploration of petroleum resources.  
(i) Regulatory framework  
24. The main regulations for the oil and gas sub sector are the Petroleum Development Act 1974 
and the Gas Supply Act 1993.  The purpose of the Pe troleum Development Act 1974 is to regulate the 
petroleum and petrochemical industries.  The power to regulate all activities in the upstream 
petroleum sector is vested in Petronas.  The Petroleum Regulations 1974, amended on 
14 January 1991, vest power in the Ministry of Do mestic Trade and Consumer Affairs and the MITI 
to regulate all downstream activities of the petroleum industry.  The Ministry of Domestic Trade and 
Consumer Affairs issues licences for the marketing and distribution of petroleum and petrochemical 
products while the MITI issues licences for the pr ocessing and refining of petroleum as well as the 
manufacture of petrochemical products.  In additio n, the Petroleum (Income Tax) Act 1967 (under the 
auspices of the Ministry of Finance) was amended in 1976 to bring the structure in line with the production-sharing contracts signed between Petronas and the various oil companies.  Effective from 
the year of assessment 1998, income tax on the petroleum industry was reduced from 40% to 38%, 
compared with a rate of 28% for general compani es, and the export duty for crude oil and condensate 
was reduced from 20% to 10% with effect from 1 January 1998.  
25. The Gas Supply Act 1993 aims to safeguard the interest of consumers supplied with gas 
through pipelines and from storage tanks or cylinders.  The Gas Supply Regulations 1997 include procedures for the issuance of a licence for supply, installation of gas pipelines, inspection, tests, and 
maintenance of competent persons to undertake the relevant work in such a manner as to ensure 
public safety.  Both the Act and its regulati ons are enforced by the Energy Commission. 
(ii) Trade and Investment regime 
26. Export duties on most minerals have been abolishe d.  Most raw minerals are subject to low or 
zero import duty, and importers may apply to the gove rnment for a waiver of any duties still payable.  
Imported machinery and equipment for use in mining projects are subject to the general schedule of import tariffs, but an application for a waiver ca n be made on a case-by-case basis.  Most mineral 
                                                     
 
10 A leading GLC, Petronas is an international oil and gas company, with more than 120 wholly or 
partly owned subsidiaries, with business interests in more than 30 countries.  Net revenue for the year ended 
31 March 2005 was RM 137 billion, equivalent to nearly 30% of GDP, which broke down as follows: 
exploration and production (23%), oil (37%), gas (19%), petrochemicals (9%), and other, including logistics, 
maritime and properties (12%).  Profit after tax was RM  35.5 billion and total assets were RM 239 billion.  
According to the Business Times, if Petronas were to join the world's listed companies, it would stand just 
outside the top 10 in terms of output with 1.5 million barrels of oil equivalent (boe) per day, more than Spain's Repsol and about a third of that of Exxon Mobil.  WT/TPR/S/156 Trade Policy Review 
Page 84 
 
 
products, including all metal ores and concentrates, ente r Malaysia free of duty.  Coal enters duty free, 
but refined petroleum is subject to a 5% duty.  
27. As embodied in the National Mineral Policy, the Malaysian Governme nt welcomes foreign 
investment.  Majority foreign equity participati on of up to 100% is permitted for projects involving 
extraction or mining and processing, but mergers and acquisitions are subject to FIC approval.  In 
determining the percentage, three criteria are co nsidered, namely:  the level of investment, 
technology, and risk involved;  the availability of relevant Malaysian expertise;  and the degree of 
integration and level of va lue-added involved in the project.  In keeping with the objective of ensuring 
increasing Malaysian participation in mining activ ities, the Government encourages mining projects 
to be undertaken on a joint-venture basis between  Malaysian and foreign partners.  Companies 
involved in mineral processing and the manufactur e of mineral-based products enjoy several 
investment incentives and other facilities (Chapter III(4)(iii)). 
(iii) Foreign participation in the oil and gas sector 
28. Foreign investment in the upstream energy sector takes the form of production sharing 
contracts (PSCs).  Petronas has close working rela tionships with foreign oil companies through the 
PSC system, which replaced the concession system in  1976.  The upstream oil and gas industry is 
quite open to foreign participation and in some exploration blocks, fo reign participation has increased 
up to 85%.  In the downstream segment, crude oil refining and marketing of  petroleum products are 
also open to foreign oil companies.11  In petroleum products transportation, a joint venture company 
(PS Pipeline Sdn Bhd) owned by Petronas (50%), Shell (25%) and Exxon Mobil (25%) operates a 
multi-product pipeline.  Petronas is the sole pipeline gas supplier;  its major customer is the power 
industry (70%). 
(4) MANUFACTURING  
(i) Features 
29. Since the 1970s, Malaysia has built up its expor t-oriented manufacturing capacity, based to a 
considerable extent on inward foreign direct inv estment.  Exports of goods were between 106% and 
116% of current price GDP between 2001 and 2005.   Manufacturing accounts for over 30% of GDP 
and over 80% of Malaysia's exports.   
30. Export-oriented industries, notably electronics and electrical, chemicals and plastics and 
wood products, account for over 70% of the manufac turing production index (1993 base).  Domestic-
oriented manufacturing accounting for around 28% of the industry comprises mainly the fabrication 
of metal products, construction -related industries, food produc ts, and transport equipment 
(Table IV.6).  Export-oriented manufacturing was until recently located mainly on the island of Penang and in Klang valley, the centr al industrial belt to the west of  the capital.  Government policy 
to disperse manufacturing has resulted in over 200 industrial estates and 14 industrial free zones 
throughout the country (Chapter III(3)(iv)).  These are export-processing zones where companies are 
permitted duty-free imports of raw materials, compone nts, parts and equipment.  There are also a 
number of special industrial parks for high-technology, including the Multimedia Super Corridor (MSC), a 750-sq. km information technology zone near Kuala Lumpur.  As of October 2005, there 
                                                     
 
11 There are currently five refineries in Malaysia w ith a total refining capacity of 546,500 barrels per 
day:  Esso Malaysia Berhad (100% Exxon Mobil);  Shell Refining Co. (FOM) Berhad (100% Shell);  
PETRONAS Penapisan (Terengganu) Sdn Bhd (100% PETRONAS);  PETRONAS Penapisan (Melaka) Sdn 
Bhd (PSR-1) (100% PETRONAS);  and Malaysia Refining Company Sdn Bhd (PSR-2) (53% PETRONAS, 47% Conoco). Malaysia WT/TPR/S/156 
 Page 85 
 
 
were 1,134 companies with MSC status, employing some 23,000 workers.  MSC-status companies 
receive various incentives and benefits from the Malaysian Government.  A second phase of 
development started in 2004 with a significant en largement of the area and a target to add 
biotechnology activities over the next six years.  
Table IV.6 
Manufacturing production index, 1995 and 2000-04 
Annual change (%) Selected industries Weight 
1995 2000 2001 2002 2003 2004 
Manufacturing production 
index (1993=100) 100.0 14.3 25.0 -6.6 4.5 10.5 12.7 
Export-oriented industries 71.8 14.5 25.8 -10.4 5.0 11.9 14.2 
Electronics & electrical 32.9 20.6 40.5 16.0 8.1 9.6 17.7 
Chemicals & plastics 15.5 11.5 15.1 -7.7 2.7 20.8 14.1 
Wood products 7.7 6.0 4.0 1.3 -6.0 0.9 12.7 
Textiles & apparel 5.6 5.4 8. 7 -8.3 -6.2 -2.2 -11.7 
Rubber products 4.6 13.0 4.0 3.3 2.0 18.7 14.8 
Domestic-oriented industries 28.2 13.2 22.1 5.9 3.4 6.1 7.1 
Construction-related 8.9 11.8 18.5 4.5 3.8 10.2 -0.6 
Fabricated metal 4.5 9.1 33.8 3.9 0.8 7.4 29.2 
Food manufacturing 4.1 7.3 16.6 4.4 8.7 8.8 3.0 
Transport equipment 3.7 36.1 19.1 19.0 6.2 -5.5 8.6 
Petroleum products 1.8 13.9 20.0 19.2 -4.1 2.3 1.3 
Paper products 1.7 9.2 15.1 1.9 12.8 8.0 2.3 
Source:  Department of Statistics. 
(ii) Objectives for the sector 
31. Like many other developing economies, Mala ysia is transforming itself from a production-
based economy into a knowledge-based economy.  A ccording to the Government, Malaysia must 
identify the right sources of growth to give impetu s to this transition.  Accordingly, the Eighth 
Malaysia Plan acknowledges the need to strengthe n the manufacturing sector and accelerate the shift 
to high technology and knowledge-based industri es.  Information technology (IT) and multimedia 
industries are being promoted as the new sources of growth.  The MSC was launched as a catalyst to the expansion of IT and multimedia industries.  To encourage the growth and development of IT 
industries in the MSC, a Government Bill of Gu arantees grants key MSC infrastructure projects 
exemption from local ownership requirements, un restricted employment of foreign knowledge 
workers, and eligibility for tenders.  In addition, sev eral areas have been identified as having potential 
to be developed into new sources of growth, includi ng the marine industry;  machinery and equipment 
as well as metal fabrication;  implementation of the Bio-Valley project (located within the MSC infrastructure) to attract investment in bio-technol ogy related activities;  the aerospace industry;  food 
processing;  and promotion of manufacturing-related services such as R&D, distribution, marketing, packaging and branding, which are important to increase value added. 
(iii) Trade policy instruments 
32. Trade and trade-related policy instruments continue  to be an important part of Malaysia's pro-
active industrial development policy.  Some of these  instruments are applied at the border, as in the 
case of tariffs, quantitative restri ctions and non-automatic import licensing procedures, whereas other 
instruments can be used inside the border, through tax incentives, export-related equity or ownership 
incentives and export processing zones.  The use of tariffs and non-tariff border measures to protect WT/TPR/S/156 Trade Policy Review 
Page 86 
 
 
domestic producers from foreign competition, by tend ing to increase prices of competing imports, is 
exemplified by the import substitution policy of de veloping manufacturing industries to serve the 
domestic market, such as in the case of the steel  and, notably the uncompetitive automotive industry.  
Export-oriented industrial policies, on the other hand, have aimed to ma ke Malaysia products 
competitive on export markets.  The leading exampl e is the electronics and electrical sector, which 
has expanded rapidly with only modest levels of tariff protection.    
33. The Malaysian Government encourages foreign direct investment, particularly in export-
oriented manufacturing and high-tech industries.  The Government relaxed investment guidelines for 
manufacturing in 2003, including allowing 100% foreign equity for all investments in new 
manufacturing projects and for investments in expa nsion or diversification projects by existing 
companies, with no export requirements (Chapter II(7)).  The 2003 changes are a positive development for potential manufacturing investment , but  the Government retains considerable 
discretionary in approving individual investment projects.  MIDA, which screens and approves all 
proposals for manufacturing projects in Malaysia, may consider the size of an  investment, the export-
orientation of production, the required financ ing, the capital/labour ratio, the potential for 
technological diffusion into the local economy, infr astructure requirements, and the existence of a 
local or foreign market for the output.  Requests are handled on a case-by-case basis.  
34. Malaysia offers a number of incentives to fo reign manufacturing investors.  Historically, 
these were linked to export requirements but th ese were relaxed for firms issued licences after 
17 June 2003.  The main incentives for the manufac turing sector are contained in the Promotion of 
Investments Act of 1986 and the Income tax Act of  1967 and include pioneer status, investment tax 
allowance, export credit refinancing, double deduc tion of export credit insurance and for export 
promotion, as well as incentives for R&D and for trai ning.  Export-oriented manufacturers are eligible 
for customs duty exemption on raw materials and machinery not available locally of acceptable 
quality, as well as on machinery used directly in production.  Customs duty exemption on machinery 
can also be considered for R & D projects and for environmental purposes.  
35. The Multimedia Super Corridor (MSC) is a Go vernment initiative, launched in 1996, to 
provide new impetus to the electronics industry.  Specifically, the MSC is intended to promote the 
information and communication technology (ICT) industry.   It is a strategic project to attract major 
electronics and multimedia firms by providing highl y sophisticated infrastructure in a strategic 
location.  Companies with MSC status are eligible for a number of incentives:  pioneer status for ten 
years or 100% investment tax allowance;  no duty on computers and capital equipment;  special 
incentives for companies who se presence will attract others to establish their operations in the MSC;  
no restriction on recruitment of expatriates;  exempt ion from all capital contro l measures;  and small- 
and medium-scale firms can apply for government fu nding for R&D in designated areas.  Government 
guidelines on the employment and retention of expatr iate personnel in the manufacturing sector were 
liberalized effective 17 June 2003. 
(iv) Key subsectors  
(a) Electronics and electrical products 
36. The electronics and electrical industry is the largest contributor to Malaysia's manufacturing 
output, employment, value added, and exports (Table IV.7).  The electronics components sub-sector includes semiconductors, passive components, and ot her components such as  relays, printed circuit 
boards, cathode ray tubes, transformers, and co ils.  The other major subsectors are consumer 
electronics, including audio-video components, and industrial electronics, which include computer 
and computer-peripheral, office equipment, tel ecommunication equipment, automotive systems, and 
medical equipment.  Malaysia WT/TPR/S/156 
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Table IV.7 
Export, employment, total output, and value a dded for selected manufacturing subsectors, 2003 
(Per cent share of manufacturing sector) 
Subsector Share of 
exports Share of 
employment Share of total 
output Share of added 
value Growth of 
added value 
2002/03  
(%) 
Electrical and electronics 66.0 31.0 42.9 37.1 12.1 
Food products 1.6 7.7 10.7 7.2 9.6 
Textiles 2.7a 3.4 1.5 1.6 3.8 
Apparel -  4.7 1.0 1.3 3.0 
Transport equipment 1.0 5.2 5.2 7.3 -6.6 
Machinery 3.8 3.0 2.5 3.2 3.6 
Rubber products 1.7 4.7 2.5 3.1 11.6 
Chemicals and chemical products 6.0 4.4 8.5 11.4 18.6 
Furniture 1.0 5.0 1.6 2.0 10.3 
Plastic products 1.4 7.7 2.9 3.9 -3.4 
Basic iron and steel 1.5 1.3 2.1 2.2 10.8 
Fabricated metal products 2.3 4.4 2.5 3.3 6.8 
a Including apparel. 
Note: Total output is defined as value of products manufactured (e x-factory value) + value of construction work done + change i n 
work-in-progress (WIP) + capital expenditure  on own construction + income from serv ices rendered + income from sales of 
goods purchased in same condition. 
 Added value measures the wealth generate d by collective efforts of those who work in an enterprise (the employees) and the 
capital providers (e.g. investors and shareholders).  Added valu e is different from sales reve nue or value of production becaus e it 
does not include the wealth created by  the suppliers to the enterprise. 
Source:  National Productivity Cooperation (2004), Productivity Report 2004 , and MITI for export share. 
37. Electronic products are the single most important  category in  manufacturing and have grown 
at a double-digit rate for the past 25 years, declining only in 1985 and in 2001.  Production of  
electronic products are heavily dependent on importe d parts and components (Table IV.8).  It is 
government policy to raise the domestic content of exports and the value added in production.  The 
strong export orientation of the electronics industr y makes it extremely competitive and vulnerable to 
fluctuations in global demand.  
Table IV.8 
Exports and imports of selected el ectrical and electronic products, 2004 
 Exports Imports 
 RM million Share (%) RM million Share (%) 
Electrical machinery, apparatus & appliances and 
parts 117,330.4 48.6 133,431.4 73.3 
Semiconductor devices, ICs, micro-assemblies, 
transistors and valves 89,298.3 37.0 102,949.5 56.5 
Electrical apparatus for electrical circuits and 
printed circuits 14,084.4 5.8 14,488.6 8.0 
Electrical machinery and apparatus, n.e.s. 7,128.5 3.0 10,048.1 5.5 
Electrical and non-electrical househol d equipment  2,724.0 1.1 910.1 0.5 
Equipment for distributing electricity 1,897.1 0.8 1,609.6 0.9 
Electrical power machinery and parts 1,880.8 0.8 3,114.9 1.7 
Electro-diagnostic apparatus, medical & 
radiological equipment 317.3 0.1 310.6 0.2 
Table IV.8 (cont'd) WT/TPR/S/156 Trade Policy Review 
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 Exports Imports 
 RM million Share (%) RM million Share (%) 
Office machines & automatic data processing 
machines and parts 76,713.6 31.8 32,674.2 17.9 
Automatic data processing machines 45,903.8 19.0 8,812.1 4.8 
Parts for office machines & automatic data 
processing machines 30,309.5 12.6 23,535.2 12.9 
Office machines 500.3 0.2 326.9 0.2 
Telecommunications & sound recordings equipment 47,439.1 19.6 15,994.8 8.8 
Telecommunications equipment and parts 25,268.7 10.5 14,390.8 7.9 
Television receivers 7,789.0 3.2 306.6 0.2 
Sound recorders 7,728.2 3.2 1,058.1 0.6 
Radio broadcast receiver 6,653.1 2.8 239.3 0.1 
Total 241,483.1 100.0 182,100.4 100.0 
Source:  Ministry of International Trade and Industry. 
38. Semiconductors, computer parts and components, a nd parts for audio-visual products  are  the 
most significant segments of the electronic com ponents subsector.  The semiconductor industry has 
developed rapidly over the past three decades to b ecome one of the key industries in the country and 
has played a major role in Malays ia's drive towards industrialization.  The industry now accounts for 
about 30% of Malaysia's current manufacturing out put and 25% of manufactured exports.  There are 
five manufacturing steps or processes:  designing, masking, fabrication, assembly, and testing of 
chips. Semiconductor  activities in Malaysia are still dominated by the lower-end assembly and testing 
of semiconductor devices, which include microproce ssors, memory chips, power ICs, linear ICs and 
other logic devices.  
39. Malaysia is currently among the world's lead ing sites for semiconductor assembly, testing and 
packaging.  Many multinationals (MNCs) have  manufacturing operations in the country, and 
Malaysian companies are playing an increasing role in the industry, mainly as contract 
manufacturers.12  The Second Industrial Master Plan (1996- 2005) expects that MNCs will continue to 
be the main source of new technologies although major efforts are being made to create a base for an innovative Malaysian electronics industry.  Key el ements in the Government's strategy are:  
developing the value chain by encouraging MNCs to shift more sophisticated operations to Malaysia;  
moving to a higher technology plane through the acquisition and development of technological 
capabilities;  developing the IT and multimedia in dustry;  developing world-class Malaysia-owned 
companies in this context. 
40. Malaysia is moving into higher technology ch ipmaking via backward integration into silicon 
ingot growing, chip design and wafer fabrication.   Issues facing the Malaysian semiconductor industry 
currently include dependence on  imported t echnology as well as competition from lower cost 
countries.  It is therefore important for the industr y to enter into higher value activities, such as wafer 
fabrication and chip design, and to expand lowe r value added operations to new emerging economies 
like Viet Nam and China.
13   
                                                      
12 Companies such as Intel, Motorola, Agilent, AMD, National semiconductor, Fairchild, Texas 
Instruments, Samsung, Hewlett Packard, Hitachi, NEC, Fujitsu, Toshiba, Infineon, and STMicroelectronics.  See the analysis in UNIDO (2003). 
13 The cost of labour is far cheaper in China, a nd it is increasing its competitiveness in the production 
of higher value-added products through the development of technology and knowledgeable workers.  The Malaysian government is promoting a China plus one strategy, which envisages China as a base for low-skilled Malaysia WT/TPR/S/156 
 Page 89 
 
 
Trade and investment regime 
41. The production and export performance of the Ma laysian electronics, and in particular the 
semiconductor industry, has been impressive since the early 1990s and its growth has been supported 
by government policy such as tax incentives under th e Pioneer Status and Investment Tax Allowance 
schemes, which are offered to projects under th e "promoted product" or "promoted activity" 
categories.  The Government is also encouragin g the establishment of international procurement 
centres (IPCs), which are locally in corporated companies of local or  foreign owners, through which 
the Government intends to make Malaysia a major distribution centre.  Incentives include:  approval 
of expatriate posts needed for the IPCs;  exem ption from the requirements of guidelines on foreign 
equity ownership of wholesale and retail trade;  du ty-free imports of raw materials, components, or 
finished products into free industrial zones or licensed manufacturing warehouses for repackaging, 
cargo consolidation, and integration before distri bution.  There is also a wide range of export 
incentives in Malaysia.  The sector has enjoyed rela tively modest levels of tariff protection and has 
expanded rapidly and become a main impetus of Ma laysian growth.  While liberal access to foreign 
markets is essential, the openness of the Mala ysian electronics market has provided a strong 
competitive stimulus to the development of this export industry.  Data provided by the authorities 
indicate that duty-free imports comprised over 98% of  total Malaysian imports  of electronic products 
during the period 2001-05.  Malaysia has also reduc ed tariffs under its ITA commitments since 1997.  
Malaysia was granted flexibility in cutting its tariffs to zero by 2005 (Table IV.9). 
Table IV.9 
Tariff reductions on selected ITA products by Malaysia 
HS Product Base rate 
(%) Zero in 
(year) 
8517 Electrical apparatus for line telephony or line te legraphy, including telecommunication apparatus 
for carrier-current line systems or for digital line systems. 28 2005 
8518 Microphones;  loudspeakers, whether or not m ounted in their enclosures;  headphones, earphones 
and combined microphone/ speaker sets;  audio-fr equency electric amplifiers;  electric sound 
amplifier sets. 34 2003 
8520 Magnetic tape recorders and other sound record ing apparatus, whether or not incorporating a 
sound reproducing device. 34 2005 
8523 Prepared unrecorded media for sound recording or similar recording of other phenomena, other 
than products of Chapter 37. 5-34 2000 
8524 Records, tapes and other recorded media fo r sound or other similarly recorded phenomena, 
including matrices and masters for the produc tion of records, but excluding products of 
Chapter 37. 5-40 2000 
8525 Transmission apparatus for radio-telephony, radi o-telegraphy, radio-broa dcasting or television, 
whether or not incorporating r eception apparatus or sound recordi ng or reproducing apparatus;  
television cameras;  still image video cameras and other video camera recorders;  digital cameras. 26 2005 
8527 Reception apparatus for radio-te lephony, radio-telegraphy or radi o-broadcasting, whether or not 
combined, in the same housing, with sound reco rding or reproducing apparatus or a clock. 26 2005 
8529 Parts suitable for use solely or principally with  the apparatus of headings Nos. 85.25 to 85.28. 50 2003 
8531 Electric sound or visual signalling apparatus (for example, bells, sirens, indicator panels, burglar 
or fire alarms), other than those of heading No. 85.12 or 85.30. 3 2000 
8532 Electrical capacitors, fixed, variable or adjustable (pre-set). 30 2000 
8533 Electrical resistors (including rheostats and poten tiometers), other than heating resistors. 1.2 2000 
8534 Printed circuits. 5 2000 
Table IV.9 (cont'd) 
                                                                                                                                                                     
labour-intensive manufacturing with a second base in Malaysia to undertake more complex manufacturing and 
design.  More generally, China poses a challenge to Ma laysia's economy because Chin a competes with Malaysia 
in around 70% of Malaysia's export markets.  WT/TPR/S/156 Trade Policy Review 
Page 90 
 
 
HS Product Base rate 
(%) Zero in 
(year) 
8536 Electrical apparatus for switching or protecting el ectrical circuits, or for making connections to or 
in electrical circuits (for example, switches, rela ys, fuses, surge suppressors, plugs, sockets, lamp-
holders, junction boxes), for a voltage not exceeding 1,000 volts. 40 2005 
8541 Diodes, transistors and si milar semiconductor devices;  photosensitive semiconductor devices, 
including photovoltaic cells whethe r or not assembled in modules or  made up into panels;  light 
emitting diodes;  mounted piezo-electric crystals. 1.2 2000 
8542 Electronic integrated circuits and microassemblies. 20 2000 
8543 Electrical machines and apparatus, having individual functions, not specified or included 
elsewhere in this Chapter. 5 2000 
8544 Insulated (including enamelle d or anodised) wire, cable (inc luding co-axial cable) and other 
insulated electric conductors, whether or not fitted with connectors; optical fibre cables, made up 
of individually sheathed fibres, whether or not a ssembled with electric conductors or fitted with 
connectors. 30 2005 
Source:  WTO Secretariat. 
(b) Automobiles 
42. The automotive industry has three major sectors:   assembly of motor vehicles, component 
parts manufacturing, and motorcycle assembly.  There are 14 motor vehicle assembly and 
manufacturing plants including two national car proj ects:  Proton, which manufactures passenger cars;  
and Perodua, which produces passenger and commercia l vehicles.  Nine companies are involved in 
motorcycle assembly.  Other car plants include Nissan, Toyota, and KIA.  There are more than 
350 automotive component parts manufacturers in Malaysia, which combines locally owned 
companies and subsidiaries of multinational corporations. 
43. Proton is struggling to survive as its market opens  up.  In 1999, 66% of cars sold in Malaysia 
were made by Proton;  in 2004 its domestic ma rket share had fallen to 44%.  An estimated 
520,000 cars will be sold in Malaysia in 2005, up from 343,000 in 2000, which makes Malaysia the 
biggest car market in ASEAN.14  Malaysia has long protected its automobile manufacturing industry 
from foreign competition using tariffs as high as 300% and non-tariff trade barriers, notably the 
opaque licensing system for automobile imports.  The Government, however, has recently begun to 
dismantle some of its protection in order to meet its commitments in the WTO and the ASEAN Free Trade (AFTA) Agreement.  The Government is  reducing tariff rates as Malaysia meets its 
commitments to its ASEAN partners to lower im port barriers on made-in-ASEAN cars to 5% by 
2008.  In addition, one of the most significant out comes of the Japan-Malays ia Economic Partnership 
Agreement, Malaysia's first bilateral FTA outside A SEAN, is that Malaysia has agreed to eliminate 
                                                     
 
14 Some industry analysts have argued that Proton is not yet ready to meet the challenges of an open 
market as cost and quality, whilst improving, remain below global standards.  Proton should therefore secure a 
technology, assembly and ownership tie-up with a global manufacturer which would enable it to continue to 
develop niche models for Malaysia and the ASEAN market s and, at the same time, use its excess capacity to 
become a regional production base for its foreign partner.  As a first step, Proton signed a deal with Volkswagen 
AG in October 2004 to jointly manufacture VW cars in Malaysia for domestic and export markets.  Under this arrangement, Proton would benefit by tapping into VW's technological know-how to improve the quality of its 
own models.  The partnership agreement apparently does not  involve any equity participation.  According to the 
Financial Times  of 1 September 2005, both Proton and Volkswagen have confirmed that they are discussing the 
sale of an equity stake, but said any decision was unlikely until the two had completed talks on technical co-
operation.  Analysts suggest that Khazanah, Malaysia's st ate investment agency that controls Proton with a 43% 
stake, might retain a "golden share" to ensure that stra tegic decisions meet its approva l.  See also MIER (2005a) 
and (2005b). Malaysia WT/TPR/S/156 
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tariffs on knocked down auto parts for Japanese carma kers by 2010, starting first with the high-end 
car market segment.15  
44. On 31 December 2003, the Government comple tely eliminated local-content requirements 
that were inconsistent with its  obligations under the WTO TRIMs Agreement, notably the Local 
Material Content Policy and the Mandatory Deleted Items Policy, which prohibited car and 
motorcycle assemblers from importing all components listed as "mandatory", such as tyres, batteries, 
mudflaps, seat belts, engines, and shock absorbers,  for use in local car and motorcycle assembly.  
45. The Government amended the automotive tax regi me in 2004 and again in 2005 to meet its 
obligations under the AFTA Agreement.  Unde r AFTA, made-in-ASEAN vehicles, including 
Japanese, U.S. and European cars produced in ASE AN countries with a minimum 40% local content, 
are subject to tariff duties of between zero and 5%  in 2005.  Malaysia obtained special dispensation 
from ASEAN to postpone compliance with the new ta riff targets until January 2008, citing a need for 
more time to prepare for the market opening.  In  Malaysia, the import duty rate for vehicles traded 
under the ASEAN Common Effective Preferential Ta riff Scheme (CEPT) fell  to 20% in 2005, and 
will be lowered to 5% or below in 2008.  However, the Government imposed automobile excise taxes 
for CBU cars for the first time in 2004, and increased  them in 2005 to up to 250% to make up for 
revenue it lost by cutting import tariffs¸ thus the ta x burden on automobiles, on average, has remained 
unchanged.  Proton and Perodua, plus two locally incorporated joint ventures assembling imported 
kits, receive a 50% tax rebate on excise taxes, not available to foreign manufacturers.  The Government has maintained that the rebate on exci se tax for national cars is both WTO- and AFTA-
compliant.  The Government is expected to a nnounce other incentives for domestic car makers in 
late 2005.  
46. The import duty/excise tax schedule is complex;  the rate varies according to engine capacity 
(Table IV.10). 
47. With respect to import licensing, MITI oversees a system of approved permits (APs), required 
for every car manufactured or assembled outside th e country before it can be imported subject to 
current duties and sold locally.  The AP system was designed to provide bumiputera companies easy 
entry into the automobile distribution and service sector.
16  MITI issues APs to companies controlled 
by bumiputera investors and endorsed by the mini stry as qualified importers.  No open bidding is 
involved in the process and the APs are awarded at no cost to the recipient.  The AP system acts as a quota by restricting the total number of automobiles that can be imported in a given year relative to 
the size of the domestic market.  Under the current ru les, AP holders can import up to 10% of total car 
production which, pursuant to liberalization under AFTA, will apply in the foreseeable future to 
imported non-ASEAN cars.  In additi on to quantitatively  restricting market access for imports, many 
of the permits are sold for profit
17, with the associated costs passed by auto dealers on to consumers, 
further raising the cost of imported vehicles.  The licensing system for imported cars began in the 
1970s as a tool to encourage ethnic Malays to ventur e into the motor vehicle distribution business, at 
                                                      
15 The JMEPA will allow Japanese carmakers direct en try into one of ASEAN's largest car markets.  
Tariffs on imported Japanese cars above 2000cc are expect ed to be eliminated by 2010, which offers some 
breathing space to Proton and Perodua as they mainly manufacture below 2000cc. 
16 According to Malaysian press reports in July 2005, the Government for the first time named the 
holders of car import permits, answering calls for greater  transparency.  The indivi duals named received a total 
of 67,158 permits in 2005.  Of th ese, four businessmen received more than 25,000 permits, among them, the 
head of the Naza group, which dist ributes KIA cars in Malaysia.  
17 AP holders may sell the use of their AP rights to car distributors for prices reportedly ranging from 
RM 10,000 to as much as RM 50,000 .  The industry estimates that import licensing, which also covers foreign-
built trucks and motorcycles, in recent years has been worth more than US$340 million annually.  WT/TPR/S/156 Trade Policy Review 
Page 92 
 
 
the time dominated by foreign trading compan ies and ethnic-owned business groups.  When the 
Malaysian Government created Proton in the mid-1980s , the AP system was blended with high tariffs 
to protect the new state-controlled car manufacturer from foreign competition.  It is unclear to what 
extent the AP import licensing system will be am ended when the review of automotive sector is 
completed, expected to be in the latter part of 2005. 
Table IV.10 
Tariff and excise rates on imported passenger vehiclesa, 2004-05 
(Per cent) 
 ASEANb Non-ASEAN 
 Tariff Excise Tariff Excise 
 2004 2005 2004 2005 2004 2005 2004 2005 
CBU vehicles 
Engine size (cc)         
<1800 70 20 60 90 80 50 60 90 
1800<2000 90 20 70 120 100 50 70 120 
2000<2500 110 20 80 150 120 50 80 150 
2500<3000 180 20 90 200 160 50 90 200 
>3000 190 20 100 250 200 50 100 250 
CKD vehicles 
Engine size 
(cc)         
<1800 25 0 60 90 35 10 60 90 
1800<2000 25 0 70 120 35 10 70 120 
2000<2500 25 0 80 150 35 10 80 150 
2500<3000 25 0 90 200 35 10 90 200 
>3000 25 0 100 250 35 10 100 250 
a Proton and Perodua receive a 50% rebate on excise .  Tariffs on most imported components are 25%. 
b In line with the ASEAN Free Trade Ar ea (AFTA), Malaysia was required to reduce its import duty rates for all ASEAN-
manufactured cars to 5% by 2003.  However, it indicated a need fo r more time to make up for the loss in revenue.  Malaysia 
initially asked for a grace period until 2008 for a ll import duties to be reduced to 5%. 
Note: CBU:  Completely-built-up;  CKDs:  Completely-knoc ked-down.  All new rates ar e effective 1 January 2005. 
Source: Malaysian authorities. 
(5) SERVICES  
(i) Features 
48. Services accounted for 60.3% of constant-price GDP in 2004.  The share of services in GDP 
has increased steadily, although it tends to decline when manufacturing grows strongly, usually during 
export-led recoveries.  The growth of intermediate  services (transport, storage and communications;  
and finance, insurance, real estate, and business servic es) has fluctuated in recent years, mainly due to 
the changing fortunes of the finance and pr operty sectors. During the period under review, 
intermediate services have expanded strongly, having benefited from th e rapid growth of internet and 
mobile phone services, the strong demand for financ ial services, as well as increasing transhipment 
activities in local ports.  All three factors are likely to continue to shape near-term developments.  The 
growth of final services (utilities, wholesale and reta il trade and restaurants, government services and 
other services) has been relatively stable dur ing the period under review.  The expansion of 
production by the utilities (electricity, gas and water) is set to continue as household and 
manufacturing industry demand grows.  The distributi on, hotel and restaurant category suffered from Malaysia WT/TPR/S/156 
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a temporary SARS-related weakness in the early part of 2003, and it appears that growth in 
government services will slow as a result of government spending restraints.  
49. Malaysia's exports of services reached US$18 billion in 2004 while imports amounted to 
US$19.2 billion.  In that year, Malaysia was ranke d the 29th largest exporter of commercial services, 
its share of world exports remaining small at about 0.9%.  At the same time, it was the 28th largest 
importer of such services, with imports also amounting to 0.9% of global imports.  The services account of the balance of payments continues to be  in deficit largely because of outflows for freight 
and insurance, and repatriation of profits and transf ers.  Malaysia has been a net importer of services 
because of the high demand created by merchandise trade for services such as insurance and freight.  
This means that the services balance tends to dete riorate when growth in the export of merchandise 
goods is strong.  Repatriation of pr ofits is inevitable, given Malaysia's openness to FDI;  transfers are 
mainly related to expatriation of incomes by migran t workers.  While transport and "other" services 
are generally in deficit, the surplus on the travel account – activities related to tourism – offsets these 
to some extent.  Tourism has grown steadily since the late 1980s and is now Malaysia's major services 
export. 
50. Malaysia is encouraging higher FDI inflows in services where the greatest potential for such 
investment lies.  Increasing competitiveness in the services sector is important as labour productivity 
remains lower than in other sectors.  The sector is  also strongly protected with many firms facing 
foreign ownership and labour rest rictions.  According to research by the World Bank, service firms 
that are constrained to have 30% or less foreign ownership are less productive than firms that operate 
in less restrictive industries.
18  In general, the services sector is not yet as open to trade as agriculture 
and manufacturing, largely due to r estrictions on foreign direct investment, which is necessary for the 
establishment of commercial presence, the main mode  of delivery for most services (Table IV.11). 
Table IV.11 
Overview of market access requirements in selected services sectors in Malaysia 
Sub-sector Principal barriers 
Banking Foreign banks operate under a gr andfathering provision and no new banking licences have been granted to 
foreign banks, with the exception of three new Islamic banks.  Foreign banks  must normally operate as locally 
controlled subsidiaries. 
Insurance Foreign shareholding exceeding 51% is permitted onl y with Malaysian Government approval.  New entry by 
foreign insurance companies is limited to equity partic ipation in locally incorporat ed insurance companies;  
aggregate foreign shareholding in such companies may not exceed 30%. 
Telecommunications Malaysia guarantees mark et access and national treatment for basi c telecom services only through acquisition  of 
up to 30% of the shares of existing licensed public telecommunications operators, and limits market access 
commitments to facilities-based providers .  Value-added service suppliers are similarly limited to 30% of foreign 
equity;  investments exceeding the 30% limits are sometimes allowed. 
Legal services Lawyers must be Malaysian citizens or permanen t residents and pass a Malay langua ge exam (unless exempted).  
Foreign lawyers may provide legal advisory services in foreign law and offshore corporations law of Malaysia 
through GATS Modes 1 and 2.  However, foreign law firm s may not establish operations in Malaysia except in 
the Federal Territory of Labuan to provi de limited legal services  to other offshore corporations established in 
Labuan.  The Attorney-General has the power to issue a Special Admission Certificate. 
Accounting Foreign firms can provide acc ounting and taxation services only through affiliates.  Accountants must be 
registered with the Malaysian Institute  of Accountants (MIA) before they can apply for a licence, which allows 
them to provide auditing and taxation services.  Registration with the MIA requires proof of citizenship or 
permanent residency. 
Table IV.11 (cont'd) 
                                                      
18 A preliminary analysis sponsored by the World Bank found that gains from unilateral moves to lower 
trade barriers in services would be  significant, and far exceed those from reforms in the agricultural and 
manufacturing sectors.  The gains, arising from allo cative efficiency, terms of trade, endowment and 
productivity effects, would be the highest in business serv ices, distribution services, ai r transport, and electricity 
supply/distribution because ba rriers in those subsectors tend to be cost-e scalating in nature (World Bank, 2002). WT/TPR/S/156 Trade Policy Review 
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Sub-sector Principal barriers 
Architecture Foreign architects cannot be licensed in Malaysia , but can be involved in Malaysian firms.  Only licensed 
architects may submit architectural plans.  Foreign arch itectural firms can operate only as joint ventures in 
specific projects with approval of the Board of Architects. 
Engineering Foreign engineers can work on specific project s under licence from the Board of Engineers and must be 
sponsored by the Malaysian company undertaking the proj ect.  The Malaysian compa ny must demonstrate that 
they are unable to find a Malaysian engineer.  Foreign engineering companies may collaborate with a Malaysian 
company, but the latter is expected to design th e project and is required to submit the plans. 
Health For private hospital services, commercial presence of a foreign investor must be through a joint-venture and 
foreign equity participation is limited to 30%. 
Source:  WTO Secretariat. 
(ii) Policy objectives 
51. According to the Malaysian Government, the ser vices sector has great potential for growth 
and contribution to the economy.19  The sector represents the largest component of GDP with an 
estimated share of 60.6% in 2005, if construction is included.  A ccording to MITI, from 2000 to 2004, 
the sector grew at an annual average rate of 6.1% and is considered a new source of growth for the 
economy.  Accordingly, it will be given focus and priority for development under the Third Industrial 
Master plan as well as the Ninth Malaysia Plan.  
52. Services have been identified as amongst the key drivers of economic growth, besides 
manufacturing, and agriculture in the effort to achieve developed country status by 2020.  In 
particular, education, tourism, Islamic finance, health care, professional and consultancy services as 
well as ICT-related and manufacturing-related servi ces will be further exploited to realize their 
potential.  According to the Government, the grow th of these service industries will accelerate, given 
that most of the related infrastructures are in place  and the Government is ready to undertake more 
effective and coordinated promotion programmes.   
(iii) Key subsectors 
(a) Financial services 
53. The 1997-98 financial crisis was a watershed for the financial sector, which was overextended 
and undermined by imprudent lending.  During the decade before the crisis, credit had expanded by 
an annual average of nearly 30%, largely for prope rty development and stock market investments.  
When the crisis hit and the economy turned downw ards, the Government was active in solving the 
bad debt problem and restructuring the financial sect or.  This was virtually completed by 2004, with 
part of the total of recoverable NPLs still outstanding.20  Since the crisis, the authorities have 
reorganized the financial system, tightened supervis ion, and set long-term targets for the development 
of financial institutions and capital markets.  
54. Banks (Bank Negara, commercial  banks, finance companies, me rchant banks, Islamic banks 
and discount houses) account for over two thirds of the financial services sector, in terms of assets;  
                                                      
19 As the sector comprises various subsectors under the authority of different ministries and agencies, 
the Malaysian Industrial Development Authority (MIDA) has been charged with coordinating the non-financial 
services sectors, excluding utilities, in addition to th e manufacturing sector, and promoting Malaysia as the 
preferred services hub in the ASEAN region. 
20 According to the Economist Intelligence Unit (EIU, 2005), loans unpaid for six months amounted to 
5.9% of total loans at end 2004, compared with 6.8% a y ear earlier.  The risk-weighted capital ratio is high at 
13.3% (end-July 2005), well above the minimum of 8% set by the Bank for International Settlements.  Malaysia WT/TPR/S/156 
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non-bank financial intermediaries (provident, pension and insuran ce funds;  development finance 
institutions;  and other financial intermediaries) account for a little  under one third (Table IV.12). 
Table IV.12 
Assets of the financial system, 2004 
(RM billion) 
 As at end 2004 % share 
Banking system 1,189.9 67.4 
Bank Negara Malaysia 284.9 16.1 
Commercial banks 737.1 41.8 
Finance companies 68.4 3.9 
Merchant banks 42.8 2.4 
Islamic banks 24.9 1.4 
Discount houses 31.9 1.8 
Non-bank financial intermediaries 572.7 32.6 
Provident, pension and insurance funds 383.2 21.7 
Employees Provident Fund 240.2 13.6 
Other provident & pension funds 51.1 2.9 
Life insurance funds 74.1 4.2 
General insurance funds 17.8 1.0 
Development financial institutionsa 90.3 5.1 
Other financial intermediariesb 99.2 5.7 
Total 1,762.6 100.0 
a Includes Bank Simpanan Nasional (National Savings Bank);  Bank Kerjasama Rakyat Malaysia Berhad;  Bank Pertanian 
Malaysia;  Malaysian Industrial Development Finance Berhad (M IDF);  Borneo Development Cor poration;  Sabah Development 
Bank Berhad;  Sabah Credit Corporation;  Export-Import Ba nk Malaysia Berhad;  Bank Pembangunan dan Infrastruktur 
Malaysia Berhad;  Bank Industri dan Teknologi Malaysia Berhad ;  Malaysia Export Credit Insurance Berhad;  Credit Guarantee 
Corporation Malaysia Berhad (CGC);  and Lembaga Tabung Haji (Pilgrims' Funds Board). 
b Includes unit trusts run by Amanah Saham Nasional Berhad (A SNB) and Amanah Saham Mara Be rhad, cooperative societies, 
leasing and factoring companies and housing credit institutions  (comprising Cagamas Berhad, Borneo Housing Mortgage 
Finance Berhad and Malaysia  Building Society Berhad). 
Source:  Bank Negara Malaysia. 
Banking 
55. The Government also used the financial crisis as an opportunity to push through a 
restructuring of the financial sector;  this was cons idered necessary to ensure the emergence of strong, 
well-capitalized institutions capable of competing ef fectively with foreign banks.  The Government's 
policies are guided by the Banking and Financia l Institutions Act 1989 as well as the Ten-Year 
Financial Sector Master Plan, unveiled in 2001.21  The plan is aimed at building competitive domestic 
banks, outlines capacity-building measures to further develop the Malaysian financial services sector, 
and defers the introduction of new foreign compe tition until after 2007.  The central bank increased 
the minimum capital requirements to strengthen the banking institutions ;  banking groups were 
required to have minimum shareholder funds of RM  2 billion and assets of at least RM 25 billion by 
end 2001.  Foreign-owned banking institutions were also required to increase capital funds to 
RM 300 million (from RM 20 million). 
56. Malaysia has 28 commercial banks:  ten domestical ly owned;  13 locally incorporated, but 
foreign-owned;  and five Islamic banks (July 2005).  Comme rcial banks engage in corporate and retail 
deposit taking and loans and accounts for 62% of tota l banking assets.  As a result of consolidation, 
the 71 domestic banking institutions prior to the cris is have been merged in to ten banking groups 
                                                      
21 Bank Negara Malaysia (2001). WT/TPR/S/156 Trade Policy Review 
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(Table IV.13) and further mergers are considered likely.  The dominant local banks are the Malayan 
Banking Group, Commerce Asset Holding Group, RHB Group, Public Banking Group, and AmBank Group, which, together, hold nearly 80% of the asse ts of the banking sector, and all have extensive 
branch networks.  Foreign banks are authorized to  engage in a range of commercial banking activities, 
including retail deposit taking;  they currently ope rate in Malaysia under a grandfathering provision 
and must be locally incorporated subsidiaries (Tab le IV.14).  No new licences are being granted to 
either local or foreign banks.  In 2004, Bank Nega ra encouraged existing foreign banks to expand 
back-office operations or establish significan t computing operations in Malaysia. 
Table IV.13 
Top ten domestic banking groups, by total assets, end-June 2004 
(RM billion) 
Banking group Partner institutions Group assets 
Malayan Banking (Maybank Group) Co mmercial bank: Malayan Bank 
Merchant bank:   Aseambankers 
Finance company: Maybank Finance 180.0 
Commerce Asset Holding Group Commerci al bank:  Bumiputra-Commerce Bank 
Merchant bank: Commerce International Merchant Bank 
Finance company:  Bumiputra-Commerce Finance 104.9 
RHB Group Commercial bank:   RHB Bank 
Merchant bank:   RHB Sakura, Utama Merchant 
Finance company:   RHB-Delta 78.8 
Public Banking Group Commerci al bank:  Public Bank 
Merchant bank:   Public Merchant Bank 
Finance company:   Public Finance 86.1 
AmBank Group Commercial bank:   AmBank 
Merchant bank:   AmMerhant Bank 
Finance company:   AmFinance 60.2a 
Hong Leong Group Commercial bank:   Hong Leong Bank 
Finance company:  Hong Leong Finance 49.1 
Southern Bank Group Commercial  bank:   Southern Bank 
Merchant bank:   Sout hern Investment Bank 
Finance company:   Southern Finance 30.9 
EON Group Commercial bank:   EON Bank 
Merchant bank:   Malaysian In ternational Merchant Bankers 
Finance company:   EON Finance 31.8 
Affin Banking Group Commerci al bank:   Affin Bank 
Merchant bank:   Affin Merchant Bank 
Finance company:   Affin-ACF Finance 19.1 
Alliance Group Commercial bank:   Alliance Bank 
Merchant bank:   Alliance Merchant 
Finance company:   Alliance Finance 23.3a 
Total market  601.4 
a March 2004. 
Source:  Economic Intelligence Unit (2005), Executive Briefing:  Ma laysia, 5 July, p. 73.  Available at http://eb.eiu.com. 
57. Islamic banks act as financial intermediaries, acco rding to the Shariah (Islamic law) principle.  
Since the introduction of Islamic banking 20 years ago,  Malaysia has promoted itself as a centre for 
Islamic banking and finance.  It has a new Islami c Financial Services Board to set standards and 
harmonize practices, and a centralized Shariah Coun cil in the Bank Negara.  The Islamic banking 
currently accounts for 9.4% of the banking sector's total assets, and the Government aims to double 
this to 20% by 2010.  In September 2003, Bank Negara announced plans to issue three Islamic banking licences to foreign banks. Malaysia WT/TPR/S/156 
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Table IV.14 
Top ten foreign banks, by assets, June 2003 
(RM billion) 
Bank Assets 
HSBC (UK) 36.9 
OCBC (Singapore) 31.1 
Citibank (US) 28.8 
United Overseas Bank (Singapore) 26.9 
Standard Chartered (UK) 26.2 
Deutsche Bank (Germany)a 5.0 
Bank of Tokyo-Mitsubishi (Japan)a 3.0 
ABN Amro (Netherlands)a 2.2 
Bank of Nova Scotia (Canada)b 2.7 
J P Morgan Chase (US)a 1.4 
a December 2002. 
b October 2002. 
Source:  Economic Intelligence Unit (2005), Executive Briefing:  Mala ysia, 5 July, page 79.  Available at http://eb.eiu.com. 
58. The Federal Territory of Labuan was establishe d as an International Offshore Financial 
Centre in October 1990.  Foreign investors ar e granted fiscal and non-fiscal incentives for offshore 
banking activities, trust and fund management, offshore insurance-related businesses, and offshore 
investment holding businesses. 
Insurance 
59. Mergers and acquisitions in the insurance sector  have been left to market forces.  The 
insurance market remains dominated by foreign pr oviders, particularly in life insurance, where 
substantive deregulatory measures have been im plemented to provide greater management and 
operational flexibility.22  The Financial Sector Master Plan recommends phased liberalization of the 
insurance industry, including increasing caps on forei gn equity, fully opening the reinsurance industry 
to foreign competition, and lifting restrictions on empl oyment of expatriate sp ecialists.  Consolidation 
is one pre-condition for liberalization, as is esta blishing the necessary foundation to maintain market 
stability when the industry is fully liberalized.  Th e 15 foreign firms that are active in Malaysia hold 
about 40% of the equity and 50% of the assets in the market;  they dominate the fast-growing life 
insurance market.  Leading compan ies in this sector are Great Eastern Life Assurance (Singapore), 
American International Assurance (United States ), and ING Insurance (Netherlands).  Other 
significant firms include Kurnia and Hong Leong (both of Malaysia), Allianz (Germany), and 
Prudential Assurance (United Kingdom) (Table IV.15).  Malaysian Reinsurance Berhad has a share of 
over 50% of the reinsurance sector.  Branches of foreign insurance companies were required to 
incorporate locally under Malaysian law by mid-1998, although the Government has granted 
individual extensions.  As part of the 1997 WTO Fi nancial Services Agreement, Malaysia agreed to 
allow existing foreign shareholders who were the or iginal owners of locally incorporated insurance 
companies to increase their shareholding to 51%.  New entry by foreign insurance companies and 
aggregate foreign shareholding in such compani es may not exceed 30%, although this limit has been 
subject to negotiation. 
                                                      
22 Bank Negara Malaysia (2004b). WT/TPR/S/156 Trade Policy Review 
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Table IV.15 
Top ten insurance companies, 2001 and 2002 
Life insurance companies, 2001 
(by policyholders' funds) Funds 
(RM million) General insurance companies, 2002 
(by premiums) Premiums  
(RM million) 
Great Eastern Life Assurance 12,803 Kurniac 922 
American International Assurancea 4,903 Malaysian National Insurancec 432 
ING 3,185 Allianz 416 
OAC 1,975 Malaysian Assurance Alliance 396 
MNIb 1,962 UniAsia 332 
Prudential 1,719 American Home 311 
MAA 1,656 Hong Leong 306 
Hong Leongc 1,560 Avidad 264 
MCIS Zurichc 1,459 Mitsui Sumitomo 235 
Asia Life 1,434 Lonpac 224 
Total market 35,376 Total market 4,641 
a Financial year ending 30 November 2002. 
b Financial year ending 31 March 2003. 
c Financial year ending 30 June 2003. 
Source:  Bank Negara Malaysia, Insurance Annual Report 2004.   Available at:  http://www.bnm.gov.my. 
60. Takaful is a Shariah-compliant protection plan  that has grown rapidly since its inception 
20 years ago.23  The takaful industry constitutes 6.1% of th e insurance sector's assets.  Malaysia aims 
to become an international cen tre of Islamic finance and has therefore undertaken measures to 
strengthen the institutional infrastructure of the ta kaful industry.  Bank Ne gara Malaysia announced, 
in May 2005, the issuance of up to four new taka ful licences.  These are offered to qualified players, 
experienced in Islamic banking, takaful or insuran ce business.  Each applicant must be able to present 
a business plan on how its proposed company could contribute effectively to the development of the 
takaful industry.  Foreign equity participation in  these companies is permitted up to 49% (increased 
from 30%).  At the same time, domestic takaful comp anies are encouraged to venture abroad to where 
there is high demand in takaful.  Malaysian ta kaful companies have established in five foreign 
countries.  The latest is a joint-venture takaful co mpany in Pakistan.  It is also the first takaful 
company to be established in Pakistan. 
Securities 
61. The capital market, comprising the equity and b ond markets, is gaining renewed importance 
as a source of financing, particularly for the privat e sector, after being badly affected by the financial 
crisis.  In order to establish an internationally competitive capital market, the Government published a 
Ten-Year Capital Market Master Plan in February  2001 (Box IV.1).  The ma in aims of the first, 
foundation-building phase were to strengthen corpor ate governance and surveillance, to develop a 
broad corporate bond market, to make fundraising more efficient, to unite the existing stock exchanges, and to boost the liquidity of the stoc k market.  The second phase of the plan began in 2004 
and involved liberalization of stock-broking and i nvestment management, re moval of structural 
impediments to market access, deregulation, and al lowing greater international participation in the 
domestic capital market.  The Securities Commissi on (the capital markets regulator) has implemented 
several proposals under the plan and 94 of the 152 recommendations of the CMP had been implemented by end 2004. 
                                                     
 
23 Bank Negara Malaysia (2004d). Malaysia WT/TPR/S/156 
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Box IV.1:  Reform timetable under the Financia l Sector and Capital Markets Masterplans 
The underlying rationale in the Financial Sector Masterplan (FSMP), launched in 2001, is that Malaysia will 
progressively liberalize the service sectors taking into account the readiness of the sector and in line with 
the socio-economic objectives of the overall national policy.  
The recommendations are to be implem ented over ten years in three phases.a 
Phase 1: Strengthen capacity of domestic financial institutions to compete effectively, create an 
environment where a core group of domestic banking groups would emerge, and enhance financial infrastructure; 
Phase 2: Further strengthen key sectors and gradually level the playing field for incumbent foreign 
banks; 
Phase 3: Consider introducing new foreign competition and strengthen global integration.  
Measures to increase domestic capacity were implemented in the first phase, and will continue to be 
strengthened during the second and third phases to ensure that the financial sector is able to adjust and respond to competition arising from gr eater deregulation and liberalization.  
Malaysia is now in the second ph ase of the FSMP, in wh ich BNM will accord greater operational flexibility 
to foreign banks.  This will include the ability to establish new branches and enhance their ATM network.  
The policy on foreign participation will be reviewed in Phase 3. 
Capital Market Masterplan (CMP) 
Phase 1: Strengthen domestic capacity and deve lop strategic and nascent sectors (2001-03); 
Phase 2: Strengthen key sectors and gr adually liberalize market access (2004-05); 
Phase 3: Strengthen market pro cesses and infrastructure to become a fully-developed capital market, 
and enhance international positioning in ar eas of comparative advantages (2006-10). 
a The Central Bank has noted that the movement to subsequent phases of development is dependant 
on achieving the pre-conditions, that is, the emerge nce of a core group of strong domestic banking 
institutions and the infrastructure for a market-bas ed consumer protection fr amework.  Hence, no 
reference years are provided. 
Source:   Malaysian authorities.  
62. In September 2004, Malaysia announced that up  to five foreign stock brokerage firms and 
five global fund management firms could obtain licen ces to operate in Malaysia.  Approvals for stock 
broking were issued to CSLA, Credit Suisse First Bo ston, JP Morgan, Macquarie, and UBS;  and for 
global fund management only to Aberdeen Asset Ma nagement (out of the five planned).  Fund 
management companies may be 100% foreign-owned if they provide services only to foreigners, but 
are limited to 70% foreign ownership if they provid e services to both foreign and local investors.  In 
September 2003, the Securities Commission began allo wing foreign firms operating in Malaysia to 
seek a listing on the Kuala Lumpur Stock Exchange.24  Futures brokerage firms may now be 100% 
foreign-owned.  Malaysia currently allows 49% foreign ownership in stock-broking companies and a 
30% stake in unit trusts.  Restrictions on the em ployment of foreign dealers' representatives by 
domestic stockbrokers were lifted in September 2004. 
63. Restrictions on the shareholding composition of investment adviser companies have also been 
lifted to enable wholly foreign-owned investment advice companies to circulate research reports to 
domestic clients.  Investment advisers with at l east 30% domestic shareholding will be permitted to 
                                                      
24 The KLSE officially converted its name to Bursa Malaysia on 20 April 2004 following the 
demutualization of the exchange. WT/TPR/S/156 Trade Policy Review 
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undertake corporate finance activities, although th ey are not permitted to make submissions on 
corporate proposals to the Securities Commission.  Fi nancial planners with at least 30% local equity 
can also serve domestic clients. 
Financial services in the GATS 
64. In the September 2004 Budget, the Government also  announced that foreign participants will 
be allowed to own 100% equity in futures broke rs, futures fund managers, and futures trading 
advisers.  Foreign participants will be allowed to  own 100% equity in venture capital and venture 
capital management corporations.  The Secur ities Commission announced in September 2003 that 
foreign incorporated companies with:  (a) substa ntial operations abroad and controlled/owned by 
Malaysians;  (b) substantial ope rations in Malaysia and contro lled/owned by Malaysians;  or 
(c) substantial operations in Ma laysia and controlled/owned by foreigners may seek listing on the 
Bursa Malaysia subject to the approval of relevant regulatory authorities. 
65. Malaysia's commitments in the banking sector at  the conclusion of the financial services 
negotiations in 1997 reflect the Government's commitment to bind existing policies on foreign 
ownership and make improved commitments in sel ected subsectors.  The improved commitments 
included raising the foreign equity limit in insurance companies form 49% to 51%, subject to 
conditions, and to issue six new licences for life reinsurance business and seven for non-life 
reinsurance.  Malaysia also committed to the ma rket opening of its Labuan International Offshore 
Financial Centre.  The 13 wholly foreign-owned fo reign banks may remain 100% foreign-owned, but 
no new licences are being issued to either local or foreign providers.  The Malaysian Government is 
limiting participation in an attempt to strengt hen the soundness of existing financial services 
providers.  Measures to further strengthen the bankin g sector were applied to both local and foreign 
financial services providers.  Other than raising the minimum capital requirement, these measures 
were aimed at, inter alia,  improving efficiency and according greater operational flexibility, such as, 
lifting guidelines on the wage moratorium for the banking institutions, and a llowing the conduct of a 
full range of internet banking services.  Malaysia also bound foreign presence at an aggregate 
maximum of 30% of the total equity of a domest ic commercial or merchant banking institution.  
Maximum shareholding by a single person is 20%.  Market access and national treatment for cross-
border supply and consumption abroad are allowed for specific activities of commercial and merchant 
banks, subject to certain conditions.  The "All Fina ncial Services" horizontal  section of Malaysia's 
commitments states, "Unbound except as otherwise speci fied in this schedule" for modes 1 & 2.  
Market access and national treatment for these mod es are, therefore, specified in the subsector 
commitments for various financial services activities.   Natural persons, except senior managers and 
specialists, are not allowed to hold office on a temporary basis. 
66. Regarding the current Doha negotiations, Malays ia has made no new offers in the financial 
services sector.  Malaysia has made it clear that it is committed to gradual, progressive liberalization 
of the financial services sector, but for the benefits to  be realized, the pace of liberalization must be in 
line with the capacity of the system to absorb changes without undermining financial stability.  For 
Malaysia, an important lesson of the last financial crisis is that liberalization strategies must go hand 
in hand with increased regulation,  effective supervision, and enha nced capacity building to prepare 
domestic institutions for liberalization.  A ten-year  timeline has been set, encapsulated in the two 
master plans, to guide Malaysia's approach towards financial liberalization and the requisite strategies 
to be adopted.25 
                                                      
25 WTO document TN/S/W/17, 30 July 2003. Malaysia WT/TPR/S/156 
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(b) Telecommunications services 
67. The Malaysian telecommunications market is regulated by the Malaysian Communications 
and Multimedia Commission (MCMC), pursuant to the Broadcasting Act of 1998.  Although the 
monopoly of the mainly state-owned Telekom Malays ia on the provision of fixed-line and cellular 
services was abolished in 1994 with the licensing of  several competitors, th e company has remained 
the dominant provider of fixed-line services with an estimated 90% share of the market.  The market 
for fixed-line telephones is declining, with 17 tele phones for every 100 people in 2005.  Cellular 
services, on the other hand, have continued to grow  rapidly.  Mobile telephone subscribers have 
increased from 22 (per 100 people) in 2000 to over 61%  in 2005 (Table IV.16).  Although the mobile 
market is expected to continue to expand, growth  in subscriber numbers may slow, as suppliers are 
likely to promote new services rather than attracting more subscribers.  Consolidation has also made 
Telekom Malaysia one of the leading mobile opera tors and has shifted the bulk of the company's 
revenue base from fixed to mobile services.26  The two entities created thr ough the merger of Telekom 
Malaysia with Celcom, and that of Maxis with Ti meCel, are reported to control around 40% of the 
market each.  Telekom's stated objective is to provide 3G coverage for 80% of the population 
by 2010. 
Table IV.16 
Telecoms:  trends and forecast, 2000-07 
 2000 2001 2002 2003 2004 2005 2006 2007 
Telephone main lines 
('000) 4,697 4,757 4,717 4,553 4,522 4,432 4,343 4,256 
Telephone main lines 
(per 100 population) 20.2 19.8 19.2 18.2 17.8 17.1 16.5 15.8 
Phone sets ('000) 8,633 8,554 8,350 8,184 8,036 7,974 7,978 8,120 
Mobile subscribers ('000) 5,122 7,385 9,083 11,008 13,587 15,933 17,939 19,429 
Mobile subscribers 
(per 100 population) 22.0 30.8 37.0 44.0 53.4 61.5 68.0 72.3 
Internet users ('000) 4,977 6,345 7,842 9,322 10,554 11,390 11,932 12,273 
Internet users 
(per 100 population) 21.4 26.4 32.0 37.3 41.5 43.9 45.2 45.7 
Telecommunications 
investment (US$ million) 556 63 8 2 5 46 98 97 
Source: Economic Intelligence Unit (2005), Executive Briefing:   Malaysia, 5 July, page 72.  Available at 
http://eb.eiu.com.. 
68. Malaysia made a number of commitments unde r the Basic Telecommunications Agreement.  
It guaranteed market access and national treatment for these services through ac quisition of up to 30% 
of the shares of existing licensed public telecommuni cations operators;  market access is limited to 
facilities-based providers.  Value-added-service supplie rs are also limited to 30% foreign equity.  
Malaysia has included the sector in  its conditional offer in the contex t of the Doha Round.  There is 
limited trade and investment in telecommunication services in Malaysia, partly because the market for 
fixed line services is largely controlled by Teleko m Malaysia through its ownership of the lines.  
Access to the mobile phone market is also limited  by the Government's control over mobile phone 
licences.  Liberalization of the telecom market in Malaysia is limited by an investment cap of 30% for 
                                                      
26 As a GLC, it appears to be favoured by the government which, in July 2002, awarded third-
generation (3-G) spectrum licences to Telekom Malaysia and Maxis Communications, the country's largest 
cellular operator, effectively shutting out other bidders.  Some industry analysts believe that the Government 
must eventually distance itself from Telekom Malaysia, and legislate provisions for local loop unbundling, co-location, and interconnections otherwise Malaysia will not have a competitive market for broadband services. WT/TPR/S/156 Trade Policy Review 
Page 102 
 
 
an equity stake in a Malaysian telecom compan y, which includes a supplier of basic telecoms 
services, value-added services, and IT and database services.  Other issues – including the requirement that companies have a bumiputera equity  participation of 30%, a nd uncertain and lengthy 
procedures for acquiring the licences to operate – cr eate disincentives to investment in the market, 
which could adversely affect the efficiency and competitiveness in supplyi ng telecom services in 
Malaysia. 
69. Malaysia has sought to encourage investment in the telecommunications market by guiding 
investment into the Multimedia Super Corridor (MSC).  The Government has tried to position Malaysia as a regional and global ICT and multime dia hub, by providing tax incentives to attract 
multinational corporations.
27 
(c) Manufacturing-related services 
70. Manufacturing-related services (MRS) are defi ned by the National Productivity Corporation 
as activities or services performed to support manufacturi ng with a view to the use, sale, transport, 
delivery or disposal of the products.  Key up-stream  services relate to research and development and 
renewable energy.  Regarding distribution and l ogistics, manufacturing-related services include 
regional establishments such as operational headquart ers, international procurement centres, regional 
distribution centres, as well as other support services su ch as integrated logistics services, integrated 
market support services, central utility facilities and cold chain facilities for food products.  In terms 
of regional establishments, the global trend of outsourcing services, coupled with the country's 
developed infrastructure, provide Malaysia with  opportunities to become a regional centre for 
business and support services.  Mindful that FDI can pl ay an important role in developing this sector, 
Malaysia has introduced several incentives (includi ng income tax exemption, import duty and sales 
tax exemption, opportunities for expatriates, etc) to attract foreign companies to establish regional operations as well as support services such as ma rket support, central utility facilities and other 
environmental management services.  
(d) Tourism 
71. During the period under review, tourism has incr easingly contributed to foreign exchange 
earnings and the growth of other sectors;  it contri butes 6.9% to GDP.  Tourist spending, at around 
RM 30 billion in 2004, now ranks as Malaysia's seco nd biggest source of foreign exchange after the 
manufacturing industry.  According to the Go vernment, tourist arrivals in 2001 and 2002 
(12.8 million and 13.3 million, respectively) surpassed the targets set in the Eighth Malaysia Plan.  
Strong government support has continued to promote Malaysia as a tourist destination and increase 
business travel, with the aim of diversifying and br oadening the economic structure (Table IV.17).  
Tourist numbers declined in 2003, mainly as a cons equence of the outbreak of SARS in the region, 
but there was a powerful recovery in 2004, and record travel receipts are expected for 2005 
(Table IV.18).  Malaysia is aiming to diversify its  tourism market, intensifying promotional efforts to 
attract more visitors from west Asia, China, and Japan, as well as opening niche areas such as eco-
tourism, health tourism and edu cation-related visits and stays. 
                                                     
 
27 As of mid-January 2005, a total of 1,170 companies ha d obtained MSC status.  These companies, of which 
309 were majority foreign-owned, include technology manufacturers, data centres, and communications-related industries.  Investments that can gain MSC status include those aimed at research and development of new and innovative multimedia products.  Malaysia WT/TPR/S/156 
 Page 103 
 
 
Table IV.17 
Major foreign exchange earnings, 2004 
Sector/product RM billion 
Manufacturing 390.4 
Tourism 30.7 
Crude oil 21.3 
Palm oil 20.1 
LNG 17.1 
Sawn timber & sawn logs 5.3 
Rubber 5.2 
Source:  Department of Statistics Malaysia. 
Table IV.18 
Tourist arrivals and receipts, 2000-05 
 2000 2001 2002 2003 2004 2005 
Tourist arrivals 
(million) 10,221,582  12,775,073  13,292,010  10,576,915  15,703,406  9,485,074a 
Tourist receipts 
(RM million) 17,335.4 24,221.5 25,781.1 21,291.1 29,651.4 .. 
.. Not available. 
a January-July. 
Source:  Ministry of Tourism. 
72. Singapore, Thailand, and Indonesia are important  sources of visitors.  China has overtaken 
Japan as a source of tourists, and Chinese tourism is expected to become a major influence in the near 
future. Aside from the expected infl ux of Chinese tourists, a significant development in the near future 
is likely to be the increased number of cheap air ser vices.  In early 2004, a number of low cost carriers 
emerged in the region and the governments of Mala ysia, Singapore, and Thailand appeared to accept 
that protection of state airlines had less priority.  Malaysia Airlines (MAS) was virtually a monopoly operator in Malaysia's domestic market until the entr y of AirAsia, which has made the market more 
competitive, a development that appears to have been welcomed by the Government.
28  Nevertheless, 
the majority of visitors arrive overland from Si ngapore, and air arrivals account for only about a 
quarter of all visits to Malaysia.  
(e) Health care 
73. The inflow of foreign patients seeking hea lth care services has increased significantly in 
recent years, encouraging Malaysia to emerge as an  attractive regional centre for health care services.  
Given the relative high cost of such service in developed countries, the Government sees great 
potential for growth in health tour ism;  about 103,000 visitors sought  medical treatment and generated 
RM 58.3 in revenue in 2003, and about 208,800 hea lth tourists are expected in 2005, generating 
revenue of RM 126 million.  The majority are from ASEAN countries, especially Indonesia.  To 
further increase its contribution, the Government  is undertaking various measures, including:  
encouraging Malaysian hospitals to obtain interna tional accreditation;  organizing health tourism 
packages through coordination of efforts between hospitals and hotels;  relaxing immigration 
                                                      
28 In 2002, the Government wiped ou t most of MAS' 2.4 billion debt af ter an unsuccessful privatization 
led to renationalization of the national flag carrier.  De spite difficulties, the state-owned airline has maintained 
growth, with revenue per passenger-km growing by 6% on domestic flights and by 20% on international flights in 2004. WT/TPR/S/156 Trade Policy Review 
Page 104 
 
 
conditions for entry of foreign me dical specialists,  therapists, a nd patients;  and encouraging the 
private sector to establish Malaysian multinational h ealth companies.  The Government continues to 
encourage the private health sector to expand its  services to complement public sector efforts.  
Regulations under the Private Healthcare Facilities and Services Act 1998 are being reinforced to 
improve the quality of, and access, to private health services in terms of the equitable distribution of 
accredited facilities, deployment of qualified health professionals, and the maintenance of affordable 
health charges. 
(f) Education services 
74. Malaysia aspires to become a regional centre of educational excellence.  The private sector's 
participation in the provision of te rtiary education increased markedly with the implementation of the 
private Higher Educational Institutions Act 1996, which, inter alia,  permits foreign universities to 
establish branch campuses.  In 2001, there were 720 higher education suppliers, of which 704 were 
private institutions.  According to the Governme nt, there were 51,000 students in Malaysia from 
130 countries in 2004.  Measures being undertaken to  promote education tourism include:  expediting 
approvals and accreditation of courses by private in stitutions of higher learning;  assisting those 
institutions to obtain accreditation, in particular  from 14 identified countries;  and ranking the 
performance of the institutions based on internationa l standards.  Export revenue generated from the 
educational sector in 2004 was about RM 778 million.29 
(g) Professional services 
Legal services 
75. Foreign lawyers may not practice Malaysian law; nor may they affiliate with local firms or 
use their international firm's name.  Foreign law firms may not operate in Malaysia except as minority 
partners with local law firms, and their stake in a ny partnership is limited to  30%.  Under the Legal 
Profession Act of 1976, the practice of Malaysian law is normally restricted to Malaysian citizens or 
permanent residents who have apprenticed with a Malaysian lawyer, are competent in Bahasa 
Malaysia (the official language), and have a lo cal law degree or are accredited British barristers at 
law.  The Attorney General has authority to gr ant limited exceptions on a case-by-case basis, provided 
the applicant has seven years of legal experience.  Foreign attorneys' services are limited to providing 
advice on home country and international law.  Malaysian law does not allow for foreign legal 
consultancy except on a limited basis in the Labuan International Offshore Financial Centre, offering 
services covering advisory and consultancy services re lating only to home country laws, international 
law and offshore corporation laws of Malaysia for offshore clients.  Persons not licensed as lawyers 
are subject to criminal penalties if they undertake activities directly or indirectly relating to the Malaysian legal system, including drafting documents. 
Architectural services 
76. Malaysia participates actively in the APEC arch itect project aimed at facilitating mobility of 
architects through mutual recognition of qualif ications among particip ating APEC economies. 
Regarding market access in Malaysia, a foreign archit ectural firm may operate in Malaysia only as a 
joint-venture participant in a specific project with the approval of the Board of Architects.  Malaysian 
architectural firms may not have foreign architectural firms as registered partners.  Foreign architects may not be licensed in Malaysia, but are allowed to be managers, shareholders or employees of 
Malaysian firms.  Only licensed architects may submit architectural plans. 
                                                     
 
29 Asia Times,  "Malaysia focuses on se rvices", 18 May 2005. Malaysia WT/TPR/S/156 
 Page 105 
 
 
Engineering services 
77. Under the ASEAN Framework Agreement on Services, ASEAN service suppliers are 
permitted to undertake engineering and construction wo rk in Malaysia through the incorporation of a 
company with Malaysian individuals or corpora tions where ASEAN equity shall not exceed 49%. 
Non-ASEAN foreign engineers may be licensed by th e Board of Engineers only for specific projects, 
and must be sponsored by the Malaysian company carrying out the project.  The licence is valid only for the duration of a specific project.  To obtain temporary licensing for a foreign engineer, the Malaysian company often must demonstrate to the Bo ard that they cannot find a Malaysian engineer 
for the job.  Foreign engineers are not allowed to  operate independently of  Malaysian partners, or 
serve as directors or shareholders of a engineeri ng consulting company.  A foreign engineering firm 
may establish a non-temporary commercial presence if all directors and shareholders are Malaysian.  Foreign engineering companies may collaborate with  a Malaysian firm, but the Malaysian company is 
expected to design and is required to submit th e plans for domestic appr oval. Regarding exports, 
according to Construction Industry Board Develo pment data, in 2004 Malaysian companies secured 
eight infrastructure projects worth US$417 million in India, Cambodia, UAE, Singapore, Qatar, and 
Sudan.  These projects included highways, airport upg rading, waterworks, and structural steelworks.  
Accounting and taxation services 
78. Foreign accounting firms may provide accounti ng and taxation services in Malaysia only 
through affiliates.  Accountants who wish to provi de auditing and taxation services in Malaysia must 
register with the Malaysian Institute of Accountan ts (MIA) before they apply for a licence from the 
Ministry of Finance
30;  citizenship or permanent residency is required for registration with the MIA.  
Malaysian citizens or permanent residents who received degrees from local universities or are 
members of at least one of the eleven recognized overseas professional bodies recognized by Commonwealth countries may apply for registration. 
(h) Distribution services 
79. The subsector has grown rapidly since the estab lishment of the first hypermarket in 1993.  
Currently there are 22 hypermarkets in the Klang valley, including a number of well known 
international companies such as Carrefour (Fra nce), Tesco (UK), Giant (Hong Kong, China), and 
Makro (Netherlands).  The Ministry of Domes tic Trade and Consumer Affairs, which oversees 
foreign participation in retail and wholesale trade, has been concerned, however, that hypermarkets 
compete with and can displace small, neighbourho od retail outlets. In October 2004, the Government 
approved the new Guidelines on Foreign Participa tion in the Distributive Trade Services, which 
amended the 1995 guidelines, covering wholesalers,  retailers, franchise practitioners, direct sellers, 
and commission agents.  These more stringent guidelines include higher population density preconditions (i.e. one hypermarket per 350,000 residents) , a stricter definition of  the surface area that 
constitutes a hypermarket (from 8,000 m2 to 5,000 m2 ), rules restricting hypermarkets from being 
within 3.5 km of a residential area, limitations on operating hours, as well as a five-year freeze on the 
establishment of foreign-owned hype rmarkets in the Klang Valley.  It has been reported but not 
confirmed that the Government is considering im posing minimum stocking requirements so that 30% 
of all goods on shelves must be from Bumiputera companies.  
80. These measures could delay the restructuring of the retail trade sector and deter the flow of 
FDI into the subsector.  Generally, FDI has been  an important source of capital in Malaysia's 
development, as it provides capital, imports technology , generates employment, and, when related to 
                                                     
 
30 Under the Accountants Act 1967, the MIA regu lates the accountancy profession in Malaysia, 
inter alia,  admitting and registering members and promoting the interests of the profession.  (MIA, 2003) WT/TPR/S/156 Trade Policy Review 
Page 106 
 
 
export production, earns foreign exchange.  Howe ver, when FDI in services competes with domestic 
small businesses, such investments are viewed as incurring social costs if they drive out small 
businesses.  The differing treatment for foreign-ow ned and locally-owned hypermarkets also raises 
market access issues in the sector and the question of consistency of such policies with Malaysia's 
commitments under the WTO. 
(i) Port services 
81. Ports, shipping and maritime-related services are important to Malaysia since 90% of its 
international trade is seaborne.  The government is presently promoting Port Klang (Westport and 
Northport) as a regional load and transhipment centre, and has designated Port Klang as a free 
commercial zone.  Other ports with this status ar e Penang Port and Johor Port.  Both PTP and Port 
Klang will participate in the Container Security Initiative, a U.S. Customs program.  Total port capacity is expected to have increased to about  500 million tonnes in 2005 from 345 million tonnes in 
2000.  Malaysia's ports handled 4,265 million tonnes in 2004 up fro m 190 million tonnes in 2000.  In 
the medium term, containerized cargo throughput is e xpected to continue to grow in double-digits.  
Growth has been the result of an increase in containerized and liquid bulk cargo, but also of diversion 
of traffic from the Port of Singapore (POS), the wo rld's largest trans-shipment hub.  The relocation 
from POS of the operations of Maersk Sealand and Evergreen, two of the world's largest shipping 
companies, to the Port of Tanjung Pelepas
31 (PTP), in Johor at the southern tip of the Malaysian 
peninsular, demonstrated the potential for taking business from an established centre.  The significant 
expansion at PTP and on the central west coast at  Port Klang shows Malays ia's determination to 
become the preferred regional trans-shipment point.  Port development will continue to focus on 
improving capacity, upgrading equipment and facilities and enhancing the efficiency and productivity 
of port and port-related services.  According to th e Government, cooperation w ith other international 
ports will be enhanced through joint ventures and st rategic alliances with foreign port operators and 
shipping companies. 
                                                      
31 Constructed partially by private shareholders, PTP started operations only in October 1999, but in 
2004 was the world's 16th busiest container port, handling over 4 million of containers.  Trans-shipment business 
accounts for 95% of its throughput.  Under the deal for Maersk-Sealand, its  parent company took a 30% stake 
in PTP. Malaysia WT/TPR/S/156 
 Page 107 
 
 
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