RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/225 
14 December 2009  
 
(09-6388) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
MALAYSIA 
 
  
 
This report, prepared for the fifth Trade Policy Review of Malaysia, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Malaysia on its trade policies and 
practices. 
 
Any technical questions arising from this report may be addressed to 
Masahiro Hayafuji (tel:  022 739 5873)  or Zheng Wang (tel:  022 739 5288). 
 
Document WT/TPR/G/225 contains the policy statement submitted by Malaysia. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on Malaysia. Malaysia WT/TPR/S/225 
 Page iii 
 
 
CONTENTS 
 
    Page 
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) I NSTITUTIONAL FRAMEWORK  viii 
 (3) T RADE POLICY INSTRUMENTS  viii 
 (4) S ECTORAL POLICIES  x 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) M ACROECONOMIC POLICIES AND DEVELOPMENTS  5 
 (i) Monetary and exchange rate policies 5 
 (ii) Structural policies 6 
 (3) D EVELOPMENTS IN TRADE AND FOREIGN INVESTMENT  8 
 (i) Composition of trade 8 
 (ii) Direction of trade 8 
 (iii) Trade in services 8  (iv) Trends in foreign direct investment 11 
II. POLICY REGIME:  FRAMEWORK AND OBJECTIVES 12 
 (1) I
NTRODUCTION  12 
 (2) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  12 
 (3) D EVELOPMENT AND ADMINISTRATION OF TRADE POLICY  13 
 (i) Main trade laws 13 
 (ii) Agencies involved in trade po licy implementation, and transparency 13 
 (4) T RADE POLICY OBJECTIVES  15 
 (5) T RADE AGREEMENTS AND ARRANGEMENTS  15 
 (i) WTO 15 
 (ii) Regional agreements 16  (iii) Bilateral agreements 17 
 (iv) Unilateral trade preferences 19 
 (v) Aid for trade 20 
 (6) F
OREIGN INVESTMENT REGIME  20 
III. TRADE POLICIES AND PRACTICES BY MEASURE 23 
 (1) I NTRODUCTION  23 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  24 
 (i) Customs procedures, trade facilitation, customs valuation, and rules of 
origin 24 
 (ii) Tariffs 26 
 (iii) Import licensing, restrictions, and prohibitions 32 
 (iv) Contingency measures 33 
 (v) State trading 34 
 (vi) Other measures 34 WT/TPR/S/225 Trade Policy Review 
Page iv 
 
 
    Page 
 (3) M EASURES DIRECTLY AFFECTING EXPORTS  34 
 (i) Procedures 34 
 (ii) Export taxes, charges, and levies 34  (iii) Tariff and tax concessions 35 
 (iv) Free-trade zones and other measures 35 
 (v) Export prohibitions, restrictions, and licensing 36  (vi) Export subsidies 36 
 (vii) Export finance, insurance, and guarantees 36 
 (viii) Export promotion 36 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  37 
 (i) Legal framework for businesses 37 
 (ii) Taxation and tax incentives 37  (iii) Standards and other technical requirements 38 
 (iv) Sanitary and phytosanitary regulations 41 
 (v) Government procurement 42  (vi) Privatization and government-linked companies 43 
 (vii) Competition policy and regulatory issues 44 
 (viii) Corporate governance 45 
 (ix) Intellectual property rights 45 
IV. TRADE POLICIES BY SECTOR 48 
 (1) I
NTRODUCTION  48 
 (2) A GRICULTURE  48 
 (3) M INING AND QUARRYING  51 
 (4) O IL AND GAS 52 
 (5) M ANUFACTURING  53 
 (i) Overview 53  (ii) Automobiles 55 
 (6) S
ERVICES  56 
 (i) Overview 56  (ii) Financial services 57 
 (iii) Telecommunications 64 
 (iv) Transport 65  (v) Tourism 67 
 (vi) Professional services 67 
 (vii) Distribution services 69 
REFERENCES   71 
APPENDIX TABLES  73 
 
 
 Malaysia WT/TPR/S/225 
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CHARTS 
    Page 
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 2004 and 2008 9 
I.2 Direction of merchandise trade, 2004 and 2008 10 
 II. POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
II.1 Major government restructure, 2009 14  
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 III.1 Simple average applied MFN rates, by HS section, 2005 and 2009  28 
III.2 Distribution of MFN tariff rates, 2005 and 2009  29 
III.3 MFN tariff escalation by 2-digit ISIC industry, 2005 and 2009  30  
 
TABLES 
 
 I. ECONOMIC ENVIRONMENT 
 
I.1 Selected macroeconomi c indicators, 2005-09 1 
I.2 Basic economic and soci al indicators, 2005-09 3 
I.3 Malaysia's trade in comm ercial services, 2005-08 11 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Malaysia's tariff structure, 2005 and 2009 26 III.2 Summary analysis of the Malaysian preferential tariff, 2009 31 
III.3 Summary of anti-dumping actions, 2006-09 (June) 33 
III.4 Structure of direct and indirect tax revenue, 2005-08 37 III.5 Malaysian standards aligned to international standards, 2005 and 2008 39 
III.6 Import restrictions on agricultural products, 2005-08 42 
III.7 Government procurement in Malaysia, 2005-08 42 III.8 Raids and inspections related to copyright infringement, 2005-07 47 
 
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Self-sufficiency ratio in major food commodities, 2005-08 49 IV.2 Overview of domestic agricultural support measures, 2004, 2007, and 2008 50 
IV.3 Share in total assets of the financial system by institution, 2005-08  58 
IV.4 Performance of the Malaysian banking system, 2006-08 59 IV.5 Foreign equity restrictions in financial institutions, 2009 60 
 WT/TPR/S/225 Trade Policy Review 
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APPENDIX TABLES  
    Page 
 
I. ECONOMIC ENVIRONMENT  
AI.1 Merchandise exports by product group, 2004-08 75 
AI.2 Merchandise imports by product group, 2004-08 76 AI.3 Merchandise exports by destination, 2004-08 77 
AI.4 Merchandise imports by origin, 2004-08 78 
 II. POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
AII.1 Overview of selected trade-related legislation, 2009 79 AII.2 Main trade-related ministries and their key divisions, affiliated agencies, and statutory 
 bodies, 2009  81 
AII.3 Principal notifications under WTO Agreements, 2006 to mid-October 2009  84 AII.4 Malaysia's involvement in bilateral and regional trade agreements 86 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Summary analysis of the Malaysian's MFN tariff, 2005 and 2009 88 AIII.2 Privatization projects in Malaysia, 2005-08 89 
 
IV. TRADE POLICIES BY SECTOR  
AIV.1 Quota utilization for TRQ products, 2008 90 
AIV.2 Tariff, excise, and sales tax rates on passenger vehicles, 2009 91 AIV.3 Financial institutions, September 2008 91 
AIV.4 Overview of Malaysian insurance sector, 2005-08 92 
AIV.5 Airport charges, 2009 93  
 
 
 Malaysia WT/TPR/S/225 
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SUMMARY OBSERVATIONS 
 
(1) ECONOMIC ENVIRONMENT  
1. Between 2005 and 2008, Malaysia's 
economy continued to grow steadily.  
Nonetheless, the pace of growth slowed in 2008, and in first quarter of 2009 the economy deteriorated markedly, reflecting the global financial crisis and associated sharp fall in 
exports.  The Government responded 
promptly, with both macroeconomic and structural policies.  In 2009, the Government started to relax restrictions on foreign investment in services, including health and social services, tourism, transport, business 
services, and computer and related services.  
This relaxation reflects an intensification of the Government's efforts to promote services by, inter alia , eliminating barriers to trade and 
investment in services, in addition to high-tech 
manufacturing;  net FDI inflows in 2008 were 
about 8% lower than those in 2005, and FDI in services accounted for only about a quarter of the total FDI.  Malaysia also intends to reduce reliance on exports of manufactured goods that are dependent on semi-skilled and low-cost 
labour.  The goal is to increase services' share 
of GDP from around half to 60% by 2020.  
2. Real GDP growth in Malaysia was 
4.6% in 2008, down from 6.2% in 2007.  With exports declining significantly in the second 
half of the year, there was a decrease in the 
contribution of external demand to economic growth.  Consequently, in 2008, the unemployment rate rose slightly.  At the same time, the consumer price index increased by 
5.4%, mainly reflecting the sharp rise in 
commodity prices in the first half of the year.  Higher commodity prices partly, if not fully, explain the rise in the shares of agriculture and mining and quarrying in GDP and the decline in the shares of manufacturing and services. 
3. Malaysia's development of 
export-oriented production remains highly successful, and trade plays an important role in the economy.  The share in GDP of trade (exports plus imports) of goods and services 
was around 184% in 2008 (compared with 212% in 2005).  Between 2005 and 2008, 
Malaysia's gross national saving rate remained among the highest in the world, averaging about 37% of GDP;  its gross domestic 
investment averaged some 20% of GDP.  The 
large and growing gap between gross national saving and gross domestic investment is reflected in a corresponding current account surplus, which rose to 17.5% of GDP in 2008;  
the increasing gap was due to an overall rise in 
gross national saving and a substantial decrease in gross domestic investment, both in relation to GDP.  As at 28 August 2009, Malaysia's foreign currency reserves were around US$93.3 billion, whic h is equivalent to 
about 9.3 months of Malaysia's imports.   
4. The Malaysian economy contracted by 
6.2% in the first quarter of 2009, but it contracted less (by 3.9%) in the second quarter, against the background of 
higher public spending and positive growth in 
private consumption.  Healthy foreign exchange reserves, a relatively small external debt, as well as ongoing financial and corporate sector restructuring are positive factors that have enabled Malaysia to 
withstand the global financial crisis.  
Nonetheless, the economy remains vulnerable to downturns in the United States, Europe, and Japan, its top export destinations and key sources of foreign investment.  The 
Government's forecast for real GDP growth in 
2009 is about -3%;  it expects the economy to grow by around 2% to 3% in 2010.  Significant challenges for Malaysia include the speed at which new domestic sources of 
growth are found;  this depends to a large 
extent on gains in total factor productivity (TFP) and resolving the problem of the shortage of skills.  The Government aims to meet these challenges by promoting further competition through, inter alia,  unilateral trade 
liberalization, recognizing the importance of 
keeping its market open to foreign competition, and relaxing FDI restrictions.  It also intends to promote structural reform, for example, facilitating the diversification of the 
economy by encouraging services sectors by, 
inter alia , reducing, if not eliminating, barriers 
to trade in services. WT/TPR/S/225 Trade Policy Review 
Page viii 
 
 
5. Import competition is also expected to 
intensify as domestic barriers are dismantled through regional/bilateral FTAs and WTO negotiations.  Nonetheless, several 
long-standing barriers to trade and foreign 
direct investment still constitute potentially important impediments to  Malaysia's recovery 
from the crisis.  A more liberal trade and investment regime, as has recently been 
adopted in services, would contribute greatly 
to Malaysia's long-term economic growth.   
6. Since November 2008, monetary 
policy has become more accommodative.  Restrictions on foreign exchange transactions have been further liberalized, and the 
Government has employed fiscal stimulus 
packages, amounting to RM 67 billion (about US$20 billion, or 9% of GDP) since November 2008, to mitigate the negative effects of the global financial crisis.  An early 
recovery of the Malaysian economy depends 
not only on prudent macroeconomic policies but also on structural reforms.  The Government's main objective for the structural reform is to promote competition, enhance the services sector, and move up the value chain in 
manufacturing. 
(2) I
NSTITUTIONAL FRAMEWORK  
7. Malaysia's overall economic policy 
objectives shifted during the review period towards developing services;  consequently its 
trade objectives also changed to reflect the 
Government's efforts to relax barriers to trade in services and reduce reliance on manufactured exports.  Other major trade objectives include:  improving market access 
for goods and services, promoting the global 
competitiveness of Malaysian exports, expanding and diversifying trade with existing partners, and exploring new markets.  To achieve these objectives, the Government has unilaterally liberalized Malaysia's services 
sector and lowered its applied MFN tariffs.  
Malaysia continues to consider the WTO a priority in realizing its trade objectives.  Although WTO Agreements play a pivotal role in the formulation of Malaysia's trade and 
trade-related policies, Malaysia also considers regional arrangements to be important, notably 
those involving the Association of Southeast Asian Nations (ASEAN), as well as various bilateral agreements.  ASEAN, of which 
Malaysia is a member, has RTAs with 
Australia, China, India, Japan, Korea, and New Zealand.  Two bilateral FTAs, with Japan and Pakistan, entered into force during the period under review, and one with 
New Zealand was signed in October 2009 and 
is expected to be implemented in 2010.  Malaysia is also ne gotiating bilateral FTAs 
with Australia, Chile, India, and the United States.   
8. The Government continues to 
encourage FDI, and has been relaxing foreign 
investment restrictions in services.  Since April 2009, 100% foreign equity has been allowed in 27 services subsectors and foreign investment restrictions in some financial 
services have been relaxed.  Also, in 
June 2009, the Government announced the modification of the Foreign Investment Committee guidelines on the acquisition of interests, mergers, and takeovers;  this included in particular the repeal of its 
bumiputera  (ethnic Malay) participation 
requirement.   
(3) T
RADE POLICY INSTRUMENTS  
9. Since its previous Trade Policy 
Review in 2006, Malaysia has continued to 
liberalize its trade and trade-related policies, 
mainly unilaterally, no twithstanding the global 
economic crisis that erupted in 2008.  Nonetheless, trade and trade-related policy instruments, applied both at the border and 
internally, remain integral parts of Malaysia's 
broad development policy.  This is most evident in government procurement and automobile manufacturing.  
10. The tariff is the main border measure 
affecting imports of goods.  The simple 
average applied MFN tariff was 7.4% in 2009;  
about 60% of tariff lines were duty free.  Around one-fifth of tariff lines were unbound, and the simple average bound MFN rate was roughly double the applied rate, leaving Malaysia WT/TPR/S/225 
 Page ix 
 
 
considerable scope for the authorities to raise 
tariffs within the bound levels.  However, the authorities have raised tariffs in only a few cases;  these involve tariff-rate quotas, which 
Malaysia began applying to several tariff lines 
since 1 April 2008.  Pa tterns of MFN tariff 
dispersion and escalation have changed little since 2006.  Malaysia grants preferential access to imports from Japan, China, the 
Republic of Korea, Pakistan, and other 
ASEAN countries under preferential bilateral/regional free-trade agreements.   
11. Various non-tariff border measures are 
also used as instruments of Malaysia's trade and industrial policy.  A considerable portion 
of Malaysia's tariff lines is subject to import 
licensing, most of which is non-automatic.  While automatic licensing is intended for data collection, the authorities maintain that non-automatic licences are mainly for sanitary 
and phytosanitary reasons (for those 
concerning agriculture).  However, non-automatic licensing is also used to regulate the flow of imports and to promote selected "strategic" industries that have been identified to achieve certain socio-economic 
objectives.  During the period under review, 
Malaysia initiated a variety of anti-dumping actions against 10 countries and economies;  in the same period, 13 Members took anti-dumping actions against Malaysian 
products.  Malaysia introduced a Safeguards 
Act in 2006 and Safeguards Regulations in 2007. 
12. Import duty exemptions or drawbacks 
are provided for intermediate goods used in 
the production of exports so that the import 
duties do not feed through to become implicit taxes on exports.  The exemptions or drawbacks greatly reduce or eliminate the implicit export taxes, but they tend to increase the complexity of the border taxation.  Rebates 
of internal sales taxes ar e also used to ensure 
that exported goods are not taxed twice (in both Malaysia and importing country). 
13. Explicit export taxes and export 
promotion measures also continue to play an 
important role in Malays ia's industrial policy.  Export taxes and/or export licence 
requirements, which are applied to certain goods (such as timber), have the effect of discouraging the export of those products and 
reducing their domestic prices, thereby 
assisting downstream processing of the products concerned.  Export promotion measures include export processing zones, concessionary credits, insurance, and 
guarantees, as well as government-sponsored 
promotion and marketing assistance.   
14. Tax incentives have long been an 
important instrument of Malaysia's industrial policy.  Direct and indirect tax incentives apply, inter alia,  to investments in the 
manufacturing, agriculture, tourism and 
approved services sectors, R&D, training, and environmental protection activities.  No estimates have been available of total tax revenue forgone as a result of these incentives.  
Experience in other countries suggests that tax 
incentives are rarely cost-effective.  The publication of estimates of tax revenues forgone as well as studies evaluating the cost-effectiveness of incentives would improve fiscal transparency in Malaysia and contribute 
to a more effective tax policy. 
15. Standards and standardization 
activities are among Malaysia's priorities for achieving developed-nation status by 2020.  Malaysia aims to align Malaysian standards 
with international standards;  in 2008, some 
58% were aligned, up from 51% in 2005.   
16. Preferential government procurement 
procedures continue to be used as a major instrument of industrial policy to favour 
locally owned businesses;  international 
tenders are invited only if goods and services are not available locally.  Malaysia is not a party to the WTO Agreement on Government Procurement.   
17. Government-linked companies (GLCs) 
also continue to play an important role in the 
Malaysian economy through their involvement in the provision of essential services, such as transport, energy, telecommunications, and financial services.  The Government aims to WT/TPR/S/225 Trade Policy Review 
Page x 
 
 
improve GLC productivity notably through the 
GLC Transformation Program, which aims to make them as productive as their non-GLC competitors.  As in the case of government 
procurement, GLCs are encouraged to 
purchase from locally owned businesses.  
18. Recent initiatives in regard to 
corporate governance include a revision to the Malaysian Code on Corporate Governance, 
which entered into force on 1 October 2007.  
Malaysia does not have a comprehensive competition law;  however, it is in the process of drafting such a law.   
19. Since 2006, the Government has 
further strengthened its intellectual property 
regime.  It has also made further efforts to 
improve enforcement, such as the establishment of IP courts, although problems of piracy and counterfeiting seem to remain.  
(4) S
ECTORAL POLICIES  
20. During the period under review, 
Malaysia has been adopting measures specified under various plans, such as the Ninth Malaysia Plan (2006-10) and the Third Industrial Master Plan (2006-20), with a view to guiding the country towards a high level of 
global competitiveness and becoming a 
higher-value-added and knowledge-based economy.  Malaysia aims to increase the share of the services sector to GDP to 60% by 2020, in an effort to establish a knowledge-based 
economy less reliant on manufactured exports.   
21. Malaysia has a generally liberal trade 
regime for agricultural products, with an average applied MFN tariff of 2.8% (WTO definition) in 2009, although some 
non-ad valorem  tariffs tend to conceal 
relatively high rates.  In addition, import licensing applies to some agricultural products, and rice may only be imported by BERNAS. As a monopsony buyer of rice, BERNAS has 
the market power to negotiate lower prices with its suppliers.  Ma laysia began to apply 
tariff-rate quotas on agricultural products in 
2008.  Import tariffs are zero for mineral 
resources and oil and gas, which are not subject to any import licensing requirements.  Export taxes, however, apply to some mineral products, and to crude oil and condensate. 
22. Malaysia's manufacturing sector is 
relatively open to trade and foreign investment;  the average tariff for manufacturing products was 8.7% in 2009, and 100% foreign equity participation is generally allowed.  However, a notable exception is the 
automotive sector, which has long been 
sheltered from foreign competition by both tariff and non-tariff measures.  Although the sector has been successful in taking a large share of the domestic market, its exports are 
modest, indicating a lack of external 
competitiveness.  In October 2009, following a review of Malaysia's National Automotive Policy, the MITI announced liberalization measures;  the Government intends to encourage investment, promote exports, and 
enhance the competitiveness of Malaysia's cars 
in the global market.  Nonetheless, the sector continues to be protected;  in particular, in response to an economic downturn after the global crisis, cash rebates are given for buyers 
replacing vehicles over ten years old with 
national brands. 
23. The services sector has been the 
largest contributor to GDP.  Compared with manufacturing (with the notable exception of 
automobiles), the sector has been relatively 
closed to international competition, with FDI restrictions comprising the major obstacles.  However, the Government has recently been relaxing or removing foreign investment restrictions in services, although more 
measures are needed to promote competition.