WORLD TRADE  
ORGANIZATION  WT/TPR/M/156 
1 March 2006  
 
(06-0874) 
Trade Policy Review Body 
16 and 18 January 2006  
 
 
 
TRADE POLICY REVIEW 
 
MALAYSIA 
 
Minutes of Meeting  
 
Chairperson:  H.E. Mr. Don Stephenson (Canada) 
 
 
  Page 
 
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3 
II. OPENING STATEMENT BY THE RE PRESENTATIVE OF MALAYSIA 4 
III. STATEMENT BY THE DISCUSSANT 6 
IV. STATEMENTS BY MEMBERS 8 
V. REPLIES BY THE REPRESENTATI VE OF MALAYSIA AND ADDITIONAL 
COMMENTS  18 
VI. CONCLUDING REMARKS BY THE CHAIRPERSON 22 
 
 
Note:   Advance written questions by WTO Memb ers and the replies provided by Malaysia are 
reproduced in document WT/TPR/M/156/Add.1 and will be available online at:  
http://www.wto.org/english/tr atop_e/tpr_e/tp_rep_e.htm.  
   WT/TPR/M/156 
 Page 3 
 
 
  I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 
1. The fourth Trade Policy Review of Malaysia  was held on 16 and 18 January 2006.  The 
Chairperson (H.E. Mr. Don Ste phenson) welcomed the delegati on of Malaysia headed by 
H.E. Mr. Sidek Hassan (Secretary General, Minist ry of International Trade and Industry), and the 
discussant H.E. Mr. Eirik Glenne (Norway).  As usual, the discussant would speak in his personal 
capacity and, in accordance with established proce dures, had made available in advance a broad 
outline of the themes he intended to raise (WT/TPR/D/132). 
2. The Chairperson recalled the purpose of the Trad e Policy Reviews and the main elements of 
the procedures of the meeting.  The Report by Malaysia was contained in document WT/TPR/G/156 
and that of the Secretariat in document WT/TPR /S/156.  Copies of advance written questions, 
submitted by:  Japan;  Chile;  Australia;  Colombia ;  Hong Kong, China;  the European Union;  the 
United States;  the Republic of Korea;  Chinese Taipei;  Argentina;  New Zealand;  Canada;  
Switzerland;  and Trinidad and Tobago had been transmitted to the delegation of Malaysia.  These 
questions and the replies provided by the delegation of Malaysia are reproduced in 
WT/TPR/M/156/Add.1. 
3. From both reports, it was clear that during th e period under review, Malaysia had made 
impressive strides in its recovery from the Asian fina ncial crisis as a result of its openness to trade and 
investment together with prudent macroeconomic  and structural reforms in key areas.  The 
Government's adoption of policies and strategies to ensure sustainability of growth had strengthened 
the Malaysian economy and its resilience to extern al shocks, although it remained vulnerable to 
downturns in key markets.  In terms of challenges,  the reports showed that import competition could 
be expected to intensify as domestic  barriers were dismantled.  In response, Malaysia was focusing on 
higher-value-added exports of goods and encouraging services exports.  Developments in the period 
under review demonstrated the Government's co mmitment to moving from an input-driven economy 
to a knowledge- and productivity-driven economy in order to generate sustainable economic growth 
and maintain competitiveness.  An important challe nge in this respect was the speed at which new 
domestic sources of growth could be found, an issu e that would figure prominently in the new policy 
directions to be unveiled in 2006 under the Ninth Ma laysia Plan, the Third Industrial Master Plan, and 
the second phase of Vision 2020. WT/TPR/M/156 
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  II. OPENING STATEMENT BY THE RE PRESENTATIVE OF MALAYSIA 
4. The representative of Malaysia
 said that in the period since the last Review in 2001, the 
Malaysian economy had been recovering well, from a low of 0.3% of GDP growth in that year, to 4.4% in 2002, before accelerating to 7.1% in 2004.  Real GDP growth in 2005 was expected to 
surpass the projected 5% target, after a strong showi ng in the third quarter of 5.3%.  This stronger 
growth in 2005 was due to conti nued expansion in domestic demand,  supported by improved external 
growth in the second half of 2005.  Fourth quarter gr owth was expected to remain strong, with robust 
consumer expenditure due to yea r-end festival spending, a rebound in  semi-conductor sales, as well as 
continued positive trends in the economies of Malaysia's trading pa rtners, including the United States, 
Japan, China, and India. 
5. The continuous growth path indicated clearly  that the Malaysian ec onomy had recovered well 
from the financial crisis, which could be attributed to sound l eadership, prudent macroeconomic 
management to ensure strong economic fundamentals,  high savings, a sizeable surplus in the current 
account of the balance of payments, relatively lo w inflation and unemployment rates as well as the 
resilience and hard work of the Malaysian peopl e.  The World Economic Forum Competitiveness 
Report 2005 ranked Malaysia 24
th in its Global Competitiveness Index, up seven positions from the 
2004 rankings;  this was very encouraging, sin ce the Index measured competitiveness in terms of 
macroeconomic growth and pr oductivity.  WTO publications ranked Malaysia as the 18th largest 
exporting and 20th largest importing nation in 2004.   
6. From this position of macroeconomic stability, Malaysia had been able to replace the fixed 
exchange rate regime with a managed float system in July 2005.  Floating the ringgit against a basket 
of currencies allowed Malaysia to minimize any risk s associated with potentially wide adjustments of 
a single currency, such as the U.S. dollar.  Th e challenge for Malaysia was to achieve strong 
sustainable economic growth with price stability to  meet the goal of being a developed nation by 
2020, and to provide an equitable and good standard of living for all Malays ians.  Malaysia was a 
relatively small economy, surrounded by many emer ging economies that were performing extremely 
well economically.  These countries were providing st rong competition in terms of foreign investment 
and exports.  Nevertheless Ma laysia had always subscribed to the philosophy of " prosper thy 
neighbour " as this provided synergies to Malaysia 's own growth and development.   
7. To meet the challenges of rigorous competition in a globalized world, Malaysia intended to 
focus on developing human resources, new areas of growth, and new investment opportunities.  
Malaysia would continue to focus on increasing productivity and producing knowledge workers as the 
economy moved up the value-chain.  Human resource development remained the bedrock of future 
development efforts, including reorientation of  the education and training system to meet 
requirements of new technologies, and ensuring the nurturing of creativity, innovativeness, and 
versatility that allowed for a multi-skilled workfor ce.  In identifying and nurturing new areas of 
growth in manufacturing, services and agriculture  the emphasis was on high technology and greater 
value-added activities and linkages, building also on comparative advantages such as bio-diversity to 
venture into biotechnology, agro-biotechnology and bi o-pharmaceuticals;  continuing to develop and 
expand the multimedia super corridor;  and promoting the services sector as one of the main drivers of 
Malaysia's economy.  Focus would continue to be  given to the tourism sector, which had generated 
much foreign exchange earnings and efforts would be made to develop the health and education 
sectors, which had great potential for increasing foreign exchange inflows, and to boost the 
development of the services sector.  Malaysia was also developing new opportunities in investment:  
the strong current account surpluses of over 12% of GDP in the last few years pr edicated an excess of 
national savings over investment.  There was a need to enhance both domestic and outward investment to ensure continued strong growth in the economy.  Nevertheless, foreign direct investment continued to have an important role, pa rticularly in capital-inte nsive and high-value-added 
sectors, and building up new areas of growth.  WT/TPR/M/156 
 Page 5 
 
 
  8. Attention would be given to ensure that sound economic fundamentals were  in place, such as 
low inflation, manageable debt levels, a str ong balance-of-payments position and a well-functioning 
corporate and business sector.  In terms of trade policies and measures, Malaysia remained one of the most open economies in the world.  A World Bank study listed Malaysia as one of the top 30 economies in the Ease of Doing Business Index.  Mala ysia had a liberal trade policy regime, with low 
applied MFN tariff rates of 8.1%, though there were higher tariffs for some products given Malaysia's 
level of development and the need to develop do mestic industry.  Malaysia had already been 
unilaterally reducing tariffs and w as committed to contributing to furt her tariff liberalization under the 
present Doha negotiations. 
9. Malaysia constantly reviewed its polici es to enhance the investment climate and 
competitiveness.  The Government had introduced several measures including:  liberalization of 
equity policy to allow 100% foreign equity for manufacturing investments;  improving the government delivery system to enhance its efficien cy and effectiveness;  building up the institutional 
and physical infrastructure;  and drafting a co mpetition law based on fair trade practices.  The 
Secretariat Report stated that Malaysia had joined  the trend of seeking closer economic relationships 
at both the regional and bilateral levels;  Mala ysia considered that these could complement 
multilateral liberalization.  They represented a nother approach to meeting the challenges of 
globalization by fostering closer economic integration within a shorter time-fram e.  In the area of IP 
protection, Malaysia continued to strengthen the regulatory framework and institutional capabilities to 
deal with infringements such as counterfeiting and piracy.  These efforts might need to be supplemented by greater international cooperati on that provided countries with technological 
capabilities to combat infringements in a more  efficient and cost effective manner.  
10. In terms of sectoral policies, Malaysia was seeking ensure that all three major sectors – 
agriculture, manufacturing and services – were th e main drivers of economic growth.  While 
manufacturing continued to be the major contri butor to economic growth, efforts were being 
intensified to further develop the agriculture a nd agri-based, bio-technology, and services sectors.  
Agriculture remained a contributor to Malaysia's  economy.  Although its contribution to GDP was 
more modest at 8.5%, than that of manufacturing at 31.5%, it still contributed substantially to the 
country's export earnings and provided employmen t to the rural population.  The Malaysian 
Government was committed to further modernizing th e agriculture sector by enhancing its efficiency 
and productivity.  In the manufacturing sector, hi gh rates of growth had provided the catalyst to 
development.  Policy was to encourage further gr owth particularly in capital intensive, higher 
technology value-added activities, that could creat e new opportunities for growth.  In the services 
sector, efforts continued to enhance growth, including bilateral, regional and multilateral 
liberalization.  Within the context of the WTO,  Malaysia had made comm itments in 12 services 
sectors.  An initial offer was tabl ed in December 2004, offering improvements in six sectors, over the 
commitments made under the Uruguay Round.  Malays ia had also submitted a revised offer to the 
WTO in December 2005, reflecting improvements in professional services and some adjustments in 
the financial sector, and expected to make further improved offers in line with the decisions reached 
in Hong Kong. 
 WT/TPR/M/156 
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  III. STATEMENT BY THE DISCUSSANT 
11. The discussant
 (H.E. Mr. Eirik Glenne) said that the report by the Secretariat revealed that 
growth in Malaysia had resumed since the Asian crisis  and had reached almost the high levels of real 
growth achieved during the ten-year period prior to the crisis.  Putting an economy back on track was 
a formidable task and should be commended.  Th e main instrument in bringing about this 
development was fiscal policy.  A substantial stim ulus package had been introduced, which mitigated 
the worst effects of the dramatic reduction in external demand for Malaysian goods and services in 
2001.  The result was inevitably a budget deficit;  this  had been reduced from its highest level of 5.6% 
of GDP in 2002 to an expected level of 3.5% for 2006.  This was also an impressive performance and 
proof of a sound fiscal policy.  On the other hand, the Government did not have much of a choice of 
the time, since monetary policy was not fully availabl e to share the task of stimulating the economy, a 
situation which had since changed.  Relying only on fiscal policy as regulator of the level of economic 
activity had the disadvantage that the effects of the changes might take time to work through the economy and could be politically difficult to reverse if that became necessary. 
12. Malaysia had set itself the target of achieving de veloped country status by 2020.  Even before 
that vision was set, the Government of Malaysia  was pursuing a very successful growth-oriented 
policy.  This had helped the present Government in  continuing along the same track.  But like in all 
other societies that grew, the question of availa ble resources, and not least to what purpose these 
resources were applied, entered the equation sooner or later.  Malaysia had been able to develop some 
sectors into outstanding activities.  Consequently a re lative large share of resources had been allocated 
to these activities and brought about export earnings that contributed very positively to the current 
account.  If the spectrum of activities was too narrow, the risk of becoming too dependent on 
international markets was high.  Therefore, it w as paramount for every such economy to broaden its 
productive base and this was the policy that the Gove rnment of Malaysia was pursuing.  Instruments 
of economic policy needed to have the desired effect  and be the cheapest available in order for them 
to be optimal.  At the same time, for small economies that did not influence world market prices, 
absolute, not relative, productivity mattered.  Nati onal income depended on the supply of resources in 
the country and how they were put to work.  A polic y aimed, for instance, at investing in education 
and the labour force would also achieve the goal of  increasing the GDP.  On the other hand, policies 
aimed at specific sectors needed to  be carefully examined to see if they fulfilled their objectives.  The 
main thrust of Malaysian policy in this respect was to improve and adapt the general framework for 
economic activity combined with specific stimuli to sectors of major importance like education and 
the labour force.  Or to use the Government's ow n words;  "The Government had successfully pushed 
for higher value-added activities in manufacturing, focusing on improving services delivery, harnessing the dynamism of the private sector, whilst increasing investment in human capital". 
13. Malaysia had organized its energy sector simila rly to what was found in many other countries, 
including petroleum-producing countries.  Malaysia  was the world's third largest exporter of LNG 
and, although it was a modest oil exporter, total petroleum revenues amounted to around 10% of total 
exports of goods.  Fluctuating petroleum prices influenced government revenue through the taxes 
collected on the activities related to petroleum and th rough direct or indirect state ownership in this 
business.  Some countries had introduced one fund or  another in order to dampen the effects on fiscal 
policy of fluctuations in petroleum prices;  he w as tempted to ask whether Malaysia had contemplated 
establishing a similar system. 
14. On monetary policy he commended the Government  for its policy shift in July 2005.  Until 
then, the ringgit had been pegged to the U.S. dolla r following the Asian crisis.  One of the important 
reasons for doing so was to stem the short-term capital outflow from Malays ia, which was often of a 
speculative nature.  In the immediate aftermath of the crisis other measures were also introduced in 
order to overcome the difficulties;  many of th ese had the effect of reducing the openness of the 
economy.  The Government of Malaysia should be commended for its policy, since many of the  WT/TPR/M/156 
 Page 7 
 
 
  restricting measures introduced had since been a bolished, and for the prudent monetary policy 
followed in the last four years.  Regarding trade po licy, a striking development was Malaysia's pursuit 
of a policy similar to many other WTO Members, that of extending regional and bilateral trade 
relations through preferential agreements;  investme nt had occupied a more prominent place in these 
arrangements.  Furthermore, AFTA was near its goal of creating a free-trade area among its members 
since the ASEAN-6 had almost completed their tariff reduction commitments among themselves.  
ASEAN countries had agreed on the goal of establishing a single market by 2020, the ASEAN Economic Community, as a complement to the multilate ral system.  At the same time, Malaysia had 
played an important and constructive role in the DDA, reflecting the central role of WTO agreements 
in the formulation and execution of Malaysia's trade policies. 
 WT/TPR/M/156 
Page 8  
 
  IV. STATEMENTS BY MEMBERS 
15. On behalf of ASEAN
, the representative of Brunei, said that ASEAN had noted Malaysia's 
achievement of economic growth at an average of 5. 5% since its last Trade Policy Review.  Growth in 
real GDP had registered 7.1% in 2004, compared  with 0.3% in 2001, a remarkable accomplishment 
against a backdrop of difficult challenges regionally and globally.  The 1997-98 Asian financial crisis 
had had a big impact on Malaysia like others in ASEAN.  ASEAN congratulated Malaysia on its full 
economic recovery due to a combination of positive factors:  its continued openness to trade along 
with prudent macroeconomic and structural reforms in key areas including financial reforms.  Such 
successful measures were al so reflected by Malaysia's current account surplus, at 12.6% of GDP in 
2004, compared with 8.3% in 2001.  Malaysia's gr oss national savings rate also remained among the 
highest in the world, averaging 34% of GDP sin ce 2001;  this was commendable since the high level 
of savings has reduced Malaysia's reliance on forei gn savings, enabling it to fund its investment needs 
domestically. 
16. Malaysia's trade and investment regime had been progressively liberalized, resulting in an 
MFN average applied tariff rate of 8.1% in 2005, down from 9.2% in 2001.  Furthermore, almost all 
tariff rates were already at ad valorem , which contributed strongly to transparency and predictability.  
In the area of investments, equity holdings in all new manufacturing projects had been fully liberalized:  investors could now hold 100% equity  for new investment and expansion of existing 
investments.  Malaysia had also liberalized its policy on employment of expatriates in the 
manufacturing sector.  ASEAN welcomed these liberalization efforts.  ASEAN also noted from the report by the Secretariat that Malaysia, in line with its commitments under the WTO TRIMs 
Agreement, had phased out all trade-related investment measures at the end of 2003. 
17. Malaysia had identified services as one of the key drivers of economic growth, beside 
manufacturing and agriculture;  it would be a priority  in Malaysia's Ninth Malaysia Plan and the Third 
Industrial Master Plan.  This augured well for furt her development of identified priority sectors such 
as education, health, professional services, ICT- related and manufacturing-related services with 
established infrastructure.  Malaysia was also de regulating its financial sector to enhance domestic 
competition.  Foreign banks and insurers now en joyed greater operational flexibility, and foreign 
equity limits had also been liberalized gradually.  In the area of standards, Malaysia was an active 
participant at regional and international forums  and was constantly revising and creating new 
standards.  Malaysia was a global leader in the de velopment of halal certification in its effort to 
develop the country as a hub for halal food products.   
18. ASEAN highlighted the close economic ties of  ASEAN members with Malaysia as well as 
the achievements of the ASEAN Free Trade Area (AFTA ) in terms of liberalizing regional trade and 
investment.  Under the CEPT, Malaysia had committed  to reduce tariffs on 99.3%  of all products;  the 
tariff rates on 96.9% of these would be between zero and 5%, and 60.3% would be at zero.  Non-trade 
barriers were also dealt with under ASEAN, th rough measures to harmonize customs nomenclature 
and developing common product certification standards.   In addition, investment rules within the 
region would be liberalized by the year 2020.  In 2003, ASEAN leaders committed to an ASEAN 
Economic Community;  ASEAN would be a single market and an integrated base for production, allowing for free movement of goods, services, invest ment, and skilled labour by 2020.  As a regional 
bloc, ASEAN was building economic linkages with tr ading partners outside the region, including 
Australia/New Zealand, China, India, Japan, and Ko rea.  Malaysia had alwa ys been a strong supporter 
of the multilateral trading system and had been participating actively in all areas of the DDA 
negotiations.  Malaysia had recently submitted a revised  services offer to the WTO Secretariat.   In 
trade facilitation, Malaysia had c ontributed invaluably to the negotiation process, through clinching 
the Annex on Trade Facilitation prior to the Hong Kong Ministerial, proving that a member-driven process brought results.    WT/TPR/M/156 
 Page 9 
 
 
  19. The representative of Japan  congratulated Malaysia for the performance of its economy, 
which was due to its policies.  Real GDP grow th had rebounded from 0.1% in 2001 to 7.1% in 2004 
as a result of structural reforms in key sectors such  as the financial and corporate sector, as well as 
promoting liberalization based on several agreemen ts under the ASEAN framework.  Japan had also 
been engaging in structured reform and was pleased th at its partners were like- minded.  In particular, 
in terms of investment liberalization, Japan appreciat ed the full liberalization of equity holdings in all 
new manufacturing projects in 2003.  In addition,  the Economic Partnership Agreement between 
Japan and Malaysia was signed recently.   
20. Japan welcomed Malaysia's end eavours to enhance transparency, as stated in th e Secretariat 
Report.  Issues of interest in this regard concer ned the system of approved permits required for every 
car manufactured or assembled outside the country, as well as profit and general expenses (PGE) 
charges imposed on imports of selected completely  built-up automotive products and the 50% rebate 
of excise duty for national car manufacturers.  These measures would need to be reviewed by 
Malaysia. 
21. Ensuring predictability was another indispensable element in trade and investment;  in some 
areas further improvement was needed.  For example,  in March 2002, Malaysia raised the tariff rates 
on 199 steel products, which were not bound, which undermined trade predictability for relevant 
enterprises.  According to the Secretariat Report,  Malaysia said that it would increase the binding 
coverage of its tariff regime s ubstantially in the current round of negotiations, and Japan looked 
forward to this.  Japan was pleased that services woul d continue to be a driver for development.  In 
addition, enforcement of intellectual property rights  protection was important for the enhancement of 
predictability.  Japan welcomed Malaysia's enfo rcement activities to combat disc piracy and the 
strong resolve of the Malaysian Government in th is regard.  Concerning the DDA negotiations, Japan 
was confident that Malaysia would contribute to achieving its goals of greater market access for 
agricultural products, industrial goods and services.  
22. The representative of Australia  said that Australia had a strong bilateral trading relationship 
with Malaysia.  Australia noted Malaysia's steady GDP growth since 2002 and ongoing commitment 
to liberalize its policies on international trade and financial investment in certain key areas.  He  
welcomed in particular Malaysia's move to a mana ged float of the ringgit and its review of policy on 
foreign participation in the third phase of the financial sector master plan.  Many of these reform measured aimed to ensure that the export perform ance remained on track and to build a strong and 
resilient services sector.  He encouraged Malaysia to consider further liberalization in services, as a  
competitive services sector was a vital component of sustaining and improving trade performance.  
Australia noted with interest Malaysia's intensiv e free-trade agreement negotiating agenda.  Malaysia 
was engaged in three bilateral and five ASEAN FTA negotiations, including bilateral negotiations 
with Australia.  Australia and Malaysia shared a commitment to comprehensive agricultural trade 
reform in the WTO, in particular in the area of  market access, and would continue to work closely 
with other Cairns Group members to achieve the high level of ambition envisaged in the Doha 
mandate on agriculture.  Malaysia was also a constr uctive and active participant across all areas of the 
Doha Round particularly in non-agricultural mark et access, trade facilitation, and services.   
23. The representative of Colombia
 said that Malaysia had consolidated various export-based 
productive activities, for agricultural products as we ll as electrical and electronic products.  The 
vulnerability of the economy due to dependence on th ese activities had led to a change in strategy.  
Policy was now aimed at new sources of growth, on  sectors such as high technological products and 
services, and the adoption of measures to advant age domestic demand through fiscal and monetary 
policies.  Attracting foreign direct investment  through tax incentives was a key element of its 
economic development policy.  The goal of developm ent by the year 2020, the new strategy, and the 
levels of FDI and trade achieved, were a true ex ample for any developing country, and especially for 
Colombia.   WT/TPR/M/156 
Page 10  
 
  24. Malaysia's exports of US$126,500 million and imports of US$104,280  million, achieved in 
2004, were the result of an economic policy based on external demand.  Unilateral trade liberalization 
within the framework of WTO disciplines and its multilateral commitments had contributed to these 
excellent trade results.  Likewise ASEAN had played a key role in Malaysia's trade policy.  Colombia, 
as member of the Cairns Group, recognized Malays ia's contribution to negotiations under way to 
achieve greater liberalization in agriculture, and woul d continue to work with Malaysia to this end, as 
well as in the other areas of the DDA.  Despite Mala ysia's excellent economic and trade results, his 
delegation echoed the Secretariat's concern as to the economic efficiency of Malaysia's tax incentives 
to investments in certain productive sectors on which,  to a large degree, its economic strategies had 
been based.  The new strategy of regional bila teral agreements might run counter to increasing 
multilaterally based trade.  Among the instruments of  trade policy that required greater transparency 
were import licences, which were not granted automa tically;  agricultural products subject to tariff 
quotas;  importing rice through state-trading enterprises;  and export licences.  The certification of halal products might become a non-tariff barrier for the import of like products that did not comply with this system.  It would also be advantageous  for Malaysia to strengthen its monitoring of and 
measures for better compliance with IPRs.   
25. The representative of Hong Kong, China
 said that bilateral trade with Malaysia had amounted 
to around US$7.7 billion in 2003, and to US$8.9 billion in 2004, marking a growth rate of 16.2%.  In 
terms of investment, Malaysia was one of the ma jor destinations of Hong Kong, China's outbound 
FDI, with US$3.1 billion in market value in 2003.   Inward investment from Malaysia amounted to 
around US$1.2 billion in the same year.  Malaysia was the 10th most visited place for Hong Kong 
visitors in the world in 2004 and Malaysians ranked 9th in terms of total visitors to Hong Kong, China.  
He appreciated Malaysia's commit ment to the multilateral trading system, its support for the DDA, 
and its active participation in the negotiations.  With the adoption of the Ministerial Declaration at 
Hong Kong, WTO Members now had a clearer roadmap on the final phase of the negotiations.   
26. On tariffs, Hong Kong, China a pplauded Malaysia's successive steps to reduce its average 
applied tariff rate, from 9.2% in 2001 to 8.1% in  2005, and encouraged Malaysia to continue its 
efforts both in lowering its applie d rates and binding them as firm commitments.  The simple average 
bound rate was currently 16.2%, almost double its applied rate.  Bound low tariffs brought 
predictability to trade, and the benefits could no t be overstated.  On standards, Hong Kong, China 
appreciated Malaysia's steps to align its national st andards with international ones;  around 80% of the 
new standards adopted annually were aligned intern ationally, though, as of May 2005, around half of 
Malaysia's standards remained unaligned.  Malaysia  planned to increase the alignment of standards, 
and Hong Kong, China urged it to expedite the harm onization of its remaining standards in order to 
facilitate the flow of international trade. 
27. The representative noted with regret that Mala ysia was becoming an active user of anti-
dumping measures, having initiated 17 investigations during the review  period.  Of the ten economies 
subject to definitive anti-dumping measures, eight we re developing Members.  He further noted that 
Malaysia planned to develop its safeguard legislation and urged Ma laysia to use such contingency 
measures cautiously.  Progress in liberalizing the services sector still lagged behind agriculture and 
manufacturing, and there were various restrictions on foreign investment in services.  This was odd as 
the Government had identified services as one of the key drivers of economic growth, accounting for 
approximately 60% of GDP in 2004.  He strongl y encouraged Malaysia to liberalize services 
progressively and reduce or eliminate restrictions  on foreign ownership;  he hoped to see these 
improvements reflected in Malaysia's  future offers in the Round.  During the review period, Malaysia 
had intensified its bilateral free- trade negotiations with other WTO Members.  His delegation trusted 
that Malaysia would remain committed to the multila teral trading system and the MFN principle, and 
hoped it would bring the fruits of successful RTA nego tiations into the WTO in the form of improved 
offers, thus demonstrating that RTAs could be trul y complementary to the multilateral trading system.    WT/TPR/M/156 
 Page 11 
 
 
  28. The representative of the European Communities  drew attention to the strong relations 
between the EU and Malaysia including political, ec onomic, and social priorities, as well as integrated 
rural development, environment, institution bu ilding, and economic coope ration.  Malaysia had 
experienced impressive and rapid development during the past 30 years, which was disrupted by the Asian economic crisis in the 1990s.  This had a significant impact  on development and growth in Asia 
and had resulted in a great number of challe nges from which Malaysia had recovered very 
successfully.  
29. The EC embraced Malaysia's efforts towards tr ade liberalization, transforming the country 
from an economy relying on mineral and agricultura l products into one dominated by manufacturing 
and services.  Malaysia served as a good example of  how a country could turn from crisis to success 
through, among other things, furt her liberalizing services and accelerating the privatization of 
state-owned companies.  Malaysia had also efficiently simplified its customs procedures.  Other important steps included:  lowering of tariffs in its annual budget exercise, the Malaysia Intellectual 
Property Corporation (the MyIPO), and the National Integrity Plan (NIP) in April 2004, aimed at 
reducing corruption and enhancing transparency.  
30. The EC noted that a number of measures had been taken to continue investment 
liberalization:  foreign investors could now hold 100 % equity in new projects.  However, investment 
had been resisted in certain areas, such as energy  and water supply, banking and health services.  
Industrial sectors where foreign participation was excluded were less succes sful than sectors where 
foreign companies could compete with domestic companies ensuring a comp etitive pressure capable 
of making domestic companies more efficient.  In troduction of the draft competition law and further 
steps towards the plurilateral WTO agreement on government procurement could serve as an 
appropriate set of rules furthering the efforts of Malaysia. 
31. Malaysia had already undertaken crucial reforms of its customs regime, streamlining the 
customs administration.  However, the benefits of this had been somewhat hampered by high tariffs 
on certain goods and fees, as well as the difference between bound and applied tariffs and the high 
percentage of unbound tariffs, wh ich had given rise to significan t insecurity for importers and 
exporters.  Malaysia would benefit from further market-opening and stre ngthening of fundamental 
rules aimed at increasing investment and strengt hening goods and services markets by furthering 
competition.  
32. Malaysia was important in terms of global, regional, and local trade.  Its trade strategy was 
aimed at global market-opening and strengthening of ru les as well as efforts to enhance regional trade.  
The EC shared Malaysia's view that regional integr ation, notably in the framework of ASEAN, could 
foster economic development.  However full bene fits and WTO compatibility could be achieved only 
through agreements covering substa ntially all trade.  While consolidation of regional trade could 
benefit development, multilateral trade talks provide d an important platform, not least for a better 
integration of developing countries in the global trading system.  
33. The representative of the United States
 said Malaysia had faced and overcome a number of 
economic challenges over the past several years.  It had pursued policies aimed at strengthening and 
diversifying its economy, building value-adde d industry, human capital and knowledge-based 
industry and services.  It had also taken steps to lib eralize its trade and investment, seeking to enhance 
its competitiveness and put its economy on a path of high and sustainable economic growth.  Exports 
had increased significantly, buoying real GDP growth, which had increased steadily since 2001, to 
reach 7.1% in 2005.  Meanwhile, unemplo yment and inflation remained low.  
34. Malaysia recognized the importance of global trad e to economic growth and development.  Its 
exports of manufactures as a percent of total mercha ndise exports had grown from only 6% in 1965 to 
more than 75%.  This was an impressive long-term achievement that might not have been possible WT/TPR/M/156 
Page 12  
 
  without the successive rounds of global market opening under GATT/WTO.  The United States 
appreciated Malaysia's constructive role in the Doha  Development Agenda and its work to ensure an 
ambitious outcome of the Round.  He applauded Minister Rafidah's efforts to encourage progress and 
to help to forge compromises acceptable to all WT O Members, developed and developing as well as 
Ambassador Noor's effectiveness in leading the trad e facilitation negotiating group.  At the same time, 
Malaysia supported regional liberalization through APEC and the ASEAN Free  Trade Area as well as 
bilateral trade agreements w ith key trading partners.   
35. Trade relations between the United States and Malaysia were strong.  Malaysia was the 
tenth largest trading partner of the United States,  with US$39.1 billion in total goods trade in 2004.  
U.S. imports from Malaysia had grown 56% in the p ast ten years, while exports from Malaysia grew 
102%.  The United States was Malaysia's largest ex port market and largest investor.  The stock of 
U.S. foreign direct investment in Malaysia totalle d US$7.6 billion in 2003.  This trade and investment 
has generated employment opportunities in both countri es.  To further enhance the trade relationship, 
Malaysia and the United States had signed a Trade and Investment Framework Agreement in 2004;  
meetings held under this agreement had been ex tremely productive and progress had been achieved 
on a number of bilateral issues and led to growing inte rest by both sides in exploring the benefits of 
further deepening cooperation.  
36. One general theme of the U.S. delegation's writte n questions to Malaysia related to remaining 
tariff and non-tariff barriers to trade.  Although Mala ysia had relatively low tariff rates, more than 
one third of its lines remained unbound, creating unpr edictability for importers.  Its non-tariff barriers 
were even more significant, particularly import restrictions, including in the automotive sector.  
Because these restrictions were non-transparent, tr ade-distorting, and served to undermine Malaysia's 
long-term trade policy goals, he was interested in learning whether Malaysia was planning to liberalize or eliminate these barriers.  One pos itive step would be an updated import licensing 
questionnaire;  its last notification was in  1999.  A second concern was incentives:  while 
manufacturing for export had been an area of st rength for Malaysia's economy, many industrial 
companies appeared to benefit from an array of incentive programmes provided by the Government.  
He hoped to hear when Malaysia intended to provide  the WTO with an updated subsidies notification, 
a required report that Malaysia had not provided to  Members since 1995.  A th ird issue was services, 
the largest component of Malaysia's economy and one of the key drivers of economic growth.  
Productivity in this sector was lower than in other sectors of Malaysia's economy.  Accordingly, he 
urged the Malaysian Government to further libera lize its services restrictions, including on foreign 
ownership, and was interested in any specific step s Malaysia might be contemplating for opening its 
financial services, telecommunications, health, edu cation, entertainment, and professional services 
markets.   
37. The United States commended the steps Malaysia  had taken to strengt hen its intellectual 
property regime over the past few years and lay the groundwork for development of the knowledge-
based economy.  The representative appreciated Mala ysia's work with the United States on the APEC 
IPR Initiative and applauded its announcement that it would establish a specialized intellectual 
property court and its consideration of accession to the WIPO internet treaties.  In addition, he 
welcomed Malaysia's increased IPR enforcement effo rts over the past year but believed that further 
sustained efforts were needed to reduce Malaysia's high piracy rates for optical media and substantial 
exports of counterfeit and pirated products.  Malaysia was moving ahead with a priority initiative on 
government procurement, and he would welcome an  update on these efforts and learning whether 
Malaysia was considering signing on the Govern ment Procurement Agreement, which would be 
another positive step in its  growth and development. 
38. The representative of Korea  said that Korea and Malaysia maintained very close trade and 
investment relations.  Trade volume between th e two countries had exceeded US$10 billion in 2004 
and 2005.  Korea had also been an important invest or in Malaysia.  This active trade and investment  WT/TPR/M/156 
 Page 13 
 
 
  relationship between the two countries would be further strengthened th rough various avenues 
including the bilateral FTA talks.  Korea appr eciated Malaysia's commitment to the multilateral 
trading system and its active participation in  the WTO and the DDA negotiations.  Malaysia 
maintained an open trade regime, and had continued to liberalize trade and investment during the 
period under review.  For example, the applied tari ff rates had been reduced to an average rate of 
8.1% in 2005 from 9.2% in 2001.  However, one  third of tariff lines remained unbound and gaps 
between bound and applied rates were large, which resu lted in substantial uncertainties.  High tariffs, 
combined with non-tariff measures, limited trade oppor tunities in the strategic sectors, including those 
of interest to Korea, such as steel, home elect ronics appliances, automobiles, and automotive 
components.  Simplifying the tariff regime, increasi ng the coverage of tariff binding, and reducing the 
bound rates, in particular in the context of ongoing DDA market access negotiations, would enhance 
the predictability of the tariff regime and provide Malaysia and its trading partners further trade 
opportunities of mutual benefit. 
39. Korea welcomed Malaysia's efforts to libera lize its services trade,  though there remained 
substantial scope for improving market access.  For example, distribution services were yet to be 
bound, and restrictions on commercial presence in su ch services as telecommunications, construction, 
and international marine transport services limited th e participation of foreign services suppliers in the 
Malaysian market.  Korea was interested in learni ng Malaysia's plans to improve its commitments in 
the context of the current services negotiations.   
40. Malaysia had taken measures to make its government procurement system more transparent 
and efficient, but little progress seemed to have been made in opening the market to foreign 
competition.  This reflected Malaysia's view of government procurement as an instrument of national 
economic policy.  Its market was open to forei gn competition only when goods and services are not 
available locally, and even then, the requirement fo r foreign suppliers to participate jointly with 
domestic companies and the lack of transparency in the government procurement procedures limited 
the opportunities for foreign companies.  Kor ea sought information on any plans to make the 
government procurement market more open and tr ansparent.  Malaysia had strengthened the 
protection of intellectual property rights through e nhancing the institutional framework, strengthening 
enforcement, and raising public awareness.  Howeve r, further actions seemed to be needed in 
enforcing IPRs to address copyright and trade mark infringement.  
41. The representative of Chinese Taipei  congratulated Malaysia on the success of its 
macroeconomic policy and structural reforms in ke y areas, which had helped its economy to recover 
fully from the Asian financial crisis of 1997-98.  He recognized Malaysia's commitment to the WTO 
and the active role it had been playing in the Doha round of negotiations.  As one of Malaysia's major 
foreign investors, Chinese Taipei was pleased to see the continuing liberalization of its trade and 
investment regime, but a few aspects of Malaysia's trade policy were of concer n.  One related to the 
measures introduced to protect the automobile i ndustry.  These measures include the approved permit 
system, which appeared to act as a quota by restric ting the total number of automobiles imported in a 
year, and the rebate on excise taxes, available only to local manufacturers.  He asked whether 
Malaysia had any plans to amend these measures or  introduce improvements.  Another concern was in 
the area of export requirements for manufacturing companies.  Companies investing in Malaysia that were subject to export conditions were now able to  apply for MIDA approval to sell products in the 
domestic market under certain conditions.  He en quired about any plans to further relax these 
approval requirements, with a view to lessening th e uncertainty that existed among foreign investors 
in Malaysia.   
42. The representative of Argentina
 said that Malaysia's recovery from the Asian financial crisis 
was encouraging.  Over the last four years the Malaysian economy had increased at an average of 
5.5% and overcome various difficulties including a global downturn in 2001, the SARS outbreak in 
2003, and increases in petroleum prices in 2004-05.  In this context, the efforts of the Malaysian WT/TPR/M/156 
Page 14  
 
  Government were designed to develop new sources of growth:  agriculture, natural-resource 
processing industries, and high-technology manufacturers and services had played a more important role and improved the competitive nature of the econom y and the ability to resist crises.  Malaysia had 
continued to liberalize and pursue healthy polici es on international trade and foreign investment.  
During this period imports and exports in goods accounted for respectively an average of 86% and 
110% of GDP.  As a member of the Cairns Group, Ar gentina shared with Mala ysia the need to reach 
undertakings to remove agricultural subsidies, s ubstantially reduce high tariffs, and support market 
opening.  They also agreed on the need for speci al and differential treatment measures be more 
effective and operational.  
43. The representative of New Zealand
 said that two-way trade with Malaysia was worth in 
excess of $NZ 1 billion in 2005.  Malaysia and New Z ealand were currently at an advanced stage in 
negotiations for a comprehensive and high-quality bila teral free-trade agreement, which would further 
enhance their close trading relationship.  They were also involved in FTA negotiations between 
ASEAN, Australia and New Zealand.  New Ze aland commended Malaysia's constructive and 
forward-looking approach to free-trade agreemen ts.  New Zealand congratulated Malaysia on 
achieving an average growth rate of 5.5% in the four-year review period, in spite of challenges 
presented by the global slowdown in 2001, the SARS  outbreak in 2003, and the oil price rises in 
2004/05.  He also noted the continued low level of  unemployment in Malaysia, which remained at 
3.5%. 
44. New Zealand noted with interest the growth of the services sector in Malaysia, which now 
accounted for more than half of GDP and half of to tal employment.  As the Secretariat's report stated, 
there were distinct opportunities for Malaysia throug h liberalization of its services sector, particularly 
by increasing labour productivity through increasi ng competitiveness.  New Zealand also commended 
Malaysia on lowering its average MFN applied tariff from 9.2% in 2001, to 8.1% in 2005, and encouraged Malaysia to continue this trend, in li ne with the jointly held APEC Bogor Goals, and to 
provide greater certainty to traders by reducing the number of unbound tariff lines.  Further, New 
Zealand encouraged Malaysia to continue to incr ease transparency in import licensing, as 27% of 
imports were still subject to licences.  In the c ontext of the Doha Round, New Zealand as a fellow 
Cairns Group member acknowledged Ma laysia's ambition for greater market access for agricultural 
products, as well as for industrial goods and servic es.  New Zealand and Malaysia also shared a 
common interest in the multilateral process.  
45. The representative of Canada
 said that since the Asian financ ial crises and Malaysia's last 
Review, the Government of Malaysia had pursued prudent macroeconomic and structural reforms in 
such key areas as the financial sector.  These in itiatives, along with Malaysia's openness to trade, 
including the liberalization of its trade and invest ment regime, had allowed the country to benefit 
from strong economic growth.  Malaysia, as current chair of ASEAN, was well-placed to provide leadership to ASEAN member  countries on trade issues. 
46. Canada noted that Malaysia's tariff regime  was still the main border measure affecting 
imports.  Although applied tariffs had been reduced to a relatively low average MFN rate of 8.1% in 
2005, the main exception being the automotive sect or, over 33% of tariff lines were not bound.  
Moreover, for the lines that were bound, there wa s a significant gap between the bound and applied 
tariff rates.  This provided the Malaysian authorities w ith considerable leeway to raise tariffs, which, 
in turn, created unpredictability for foreign exporters and domestic importers.  Thus, in the interest of 
providing a more stable and predictable trade envi ronment, Canada encouraged Malaysia to bind 
outstanding non-bound tariff lines and bring bound rates closer to applied rates.  With respect to the international procurement contracting process, a gr eater commitment to increased transparency and 
better prevention of contracting irregularities with in the public sector would help to address ongoing 
concerns.  WT/TPR/M/156 
 Page 15 
 
 
  47. Canada acknowledged Malaysia's efforts in its approach to standards, conformity assessment, 
and regulation, including the use of the interna tionally accepted format for designating the degree of 
alignment of national standards to international standards.  These actions would promote greater 
transparency in Malaysia's trade relations.  Since its last Review, Malaysia had taken a number of steps to strengthen its intellectual property regime  and had continued to im plement its intellectual 
property obligations pursuant to the TRIPS Agreem ent.  The Optical Discs Act 2000 and the drafting 
of a National Intellectual Property Policy (NIPP)  demonstrated Malaysia's commitment to IPR 
enforcement and to promote intellectual property as an economic driver, as well as an economic tool.  He encouraged Malaysia to continue these effort s.  Canada commended Malaysia for encouraging 
both outward and inward investment, and for its  sustainable economic growth policy aimed at 
achieving developed country status by 2020.  Malaysia had implemented its Uruguay Round 
commitments and continued to liberalize its trade re gime and trade-related po licies.  He encouraged 
Malaysia to continue the liberalization of its services sector, which accounted for over 60% of its 
GDP, to allow the sector to become more competitive and efficient. 
48. The representative of Switzerland
 said Malaysia was an active Member in many areas in the 
current WTO negotiations and contri buted constructively, thus assisting in the elaboration of a 
balanced outcome.  In that sense, despite of the recent trend of seeking closer regional and bilateral 
economic relations, Malaysia's main  priority remained the WTO and the Doha Development Agenda.  
Its active engagement in bilateral, regional, and mu ltilateral arrangements re flected Malaysia's strong 
integration in the world economy and its openness to international trade and foreign investments.  
Bilateral economic relations between Switzerland and Ma laysia had developed in a very positive way.  
Switzerland regularly ranked among the top ten forei gn direct investors in Malaysia.  Switzerland 
noted with satisfaction, the resilience of Malays ia's economy against a number of external setbacks 
and its development in recent years, underlined by  an average growth of 5.5% during the period since 
its last Trade Policy Review.  
49. Adequate and effective protection of intellectua l property rights were a prerequisite for a 
market to attract investment and encourage research and development activities.  In this respect, he 
asked how Malaysia's legislation ensured that und isclosed test or other data submitted during the 
procedure for market authorization of pharmaceu ticals or agricultural chemical products was 
protected against disclosure and against unfair commercial use (TRIPS Article 39.3).  Written questions submitted by Switzerland concerned Mala ysia's foreign investment regime, TRIMs and 
local-content requirements as well as competition policy.  
50. The representative of Trinidad and Tobago
 said that Malaysia's success in reviving its 
economy was highly commendable.  Of note were a numb er of policies implemented with regard to IP 
protection, the financial system, and education, as well as Malaysia's wish to achieve developed 
country status by 2020.  This was of particular interest as Trinidad and Tobago had identified the 
same year to achieve similar status and were looking at Malaysia as a key model to follow in terms of 
policies that had been adopted.   
51. The representative of Pakistan  stated that Malaysia was an excellent example of a well 
managed economy with consistent high growth.  Ma laysia had fully recovered since the slowdown in 
1997 and, as in the past, the manufacturing sector had been a major contributor with annual growth of 
8-9%.  Although Malaysia was small it was one of the top 20 trading nations.  Obviously this had 
much to do with its opening up and excellent tr ade facilitation capability.  Bilateral trade with 
Malaysia was still less than US$1 billion, but th ere was much potential and the two countries were 
working on a free-trade area for which there had alre ady been two summit level meetings.  Pakistan's 
concerns vis-à-vis Malaysian trade policy include d the use of export duties on essential products like 
palm oil, which was a non-tariff barrier;  Mala ysia, as a believer in a free-trade regime, should 
undertake further reforms in this ar ea.  In the case of ag riculture many products remained subject to 
import licensing requirements, including rice;  as a member of the Cairns Group and a believer in free WT/TPR/M/156 
Page 16  
 
  and fair trade in agriculture, Malaysia might like to  rethink this policy.  While Malaysian tariff rates 
were low overall, they were rather high on certain  products such as textiles,  clothing, and leather 
products.  Regarding services, and areas such as cons truction, Malaysia had investment restrictions 
such as having a joint-venture requirement with Ma laysian entities and a cap on foreign equity of up 
to 30%.  Malaysia was to be complimented on its very active role in the Doha Development Agenda. 
52. The representative of India
 complimented the Malaysian Government for achieving an 
impressive all round economic performance during the period under review.  The Asian financial 
crisis of 1997-98 had impacted heavily on the Mala ysian economy.  Full credit should be given to the 
commitment of the Malaysian Government toward s the deep and painful structural reforms and 
prudent macroeconomic initiatives that had led to th e full recovery and revitalization of Malaysian 
economy.  An annual bilateral trade turnover betw een India and Malaysia was over US$3 billion in 
2004/05.  India was also negotiating an economic cooperation agreement  with ASEAN of which 
Malaysia was an important member.   
53. The representative of Brazil  commended Malaysia for the consis tent growth of its economy in 
recent years, which had reached the impressive rate of 7.1 % in 2004.  At the same time, 
unemployment and inflation remained low and th e current account surplus had increased from 8.3% 
of GDP in 2001 to 12.6 % of GDP in 2004.  Real GDP growth for 2005 and 2006 was expected to remain above 5%.  Bilateral trade between Mala ysia and Brazil had reached US$1 billion in 2005, 
which could be further improved in the coming years.   Brazil encouraged Malaysia in its efforts to 
develop new sources of growth, including in agricu lture and high-technology manufacturing, as well 
as to improve the economy's resilience to shocks .  It was to be noted that government-linked 
companies, which continued to have a strong presence in the economy, were the object of reforms by 
Malaysia to improve their perform ance, make them more independe nt, and encourage more private 
investment.  Malaysia had unilaterally lowered applied tariffs but over one third of tariff lines 
remained unbound and about 27% were subject to import licensing.  Tariff protection was high in 
some sectors, like steel, while tobacco, coffee and sugar were subject to tariff quotas. 
54. The representative of China
 said that China has been following closely the economic 
development and trade policy of Malaysia due to the important bilateral trade and investment relations 
between China and Malaysia.  China was encouraged  by the strong growth in Malaysia following 
various challenges, including the SARS outbreak in  2003 and the rising oil prices in 2004 and 2005.  
China was satisfied with overall bilateral trade re lations with Malaysia:  during 2002-05, trade volume 
between the two countries had increased over 90%, to reach US$30 billion, albeit with a large deficit 
on the Chinese side.  China was now ranked as Malaysia 's fifth largest export market.  Closer future 
cooperation was at hand with the gradual implementation of the China–ASEAN Free Trade 
Agreement.  China welcomed the sound developm ent of Malaysia's reforms on financial and 
monetary policies as well as its great effort to improv e its trade structure with a view to enhancing its 
competitiveness in international and regional markets.  
55. The representative of Turkey  said that since its last Trade Policy Review, Malaysia had taken 
decisive steps in further liberalizing its policies on international trade and foreign investment and 
strengthening its economic structure.  It was well recognized that these efforts had enabled the 
Malaysian economy to recover fully from the Asia n financial crises.  Main economic indicators 
during the period under review, such as real GDP  growth, the current account balance, low 
unemployment and inflation rates, were encourag ing signs for the overall well-being of Malaysian 
economy.  Malaysia was active in the DDA process and a staunch supporter of the rules-based 
multilateral trading system under the WTO.  Malays ia's intensified involvement in bilateral and 
regional trading initiatives was noticeable:  these ef forts were considered complementary tools by 
Malaysia to further liberalize trade cons istent with its multilateral commitments.  WT/TPR/M/156 
 Page 17 
 
 
  56. The trade volume between Turkey and Ma laysia had increased from US$274,6 million in 
2001 to US$698,2 million in 2004.  However, the potential was for greater.  A successful conclusion 
to the DDA tariff negotiations would bring about positiv e repercussions in that regard.  Both countries 
were parties to the Trade Preferential System und er the auspices of the Organization of Islamic 
Conference and to the Preferential Tariff Arrange ment of the Group of Eight Developing countries 
known as D-8.  The common objective of these arra ngements was to accord preferential tariff 
concession on selected goods among the participating countries. 
57. The representative of Kenya  said that Malaysia had reali zed tremendous economic growth 
through its adoption of an open trade regime.  Keny a and Malaysia shared good trade relations, which 
could be strengthened.  Kenya appreciat ed Malaysia's contribution in the DDA. 
 WT/TPR/M/156 
Page 18  
 
  V. REPLIES BY THE REPRESENTATIVE OF MALAYSIA AND ADDITIONAL 
COMMENTS 
58. The representative of Malaysia
 said that his delegation was ready to provide responses and 
clarifications to issues raised by  the discussant and other Members.  Malaysia had circulated written 
replies to the some 200 questions received from Members.  His remarks would cover three main 
areas:  economic environment, trade policies, and sectoral policies. 
(i) Economic environment 
59. Malaysia was actively pursuing the objective of achieving developed country status by 2020. 
In this regard, it was in the process of finaliz ing the Ninth Malaysia Plan, which would outline 
strategies to develop its overall economy in the pe riod 2006-10, as well as the Third Industrial Master 
Plan, which would focus on the development of th e manufacturing and services sectors over the next 
15 years.  He underscored Malaysia's commitment and support for a rules-based multilateral trading 
system.  In the context of enhancing the overall tr ade and investment environment, Malaysia strongly 
believed that for this type of rules-based system to work effectively, it must give importance to 
providing effective technical assistance and capacity building to developing countries, in particular 
the least developed countries.  The WTO also needed to address Members' real concerns in such areas 
as industrial development and market access.  Mean ingful assistance needed to be given to enable 
them to achieve greater market access in areas in which they had export interests.  WTO Members 
needed to put a "human face" on the rules-based syst em and be able to feel the "heartbeat" of fellow 
Members in order to render it a robust, meaningful , and effective trading system capable of meeting 
the divergent needs of Members. 
60. Malaysia was encouraged by the positive comments made by the discussant and a number of 
Members regarding the improved performance of th e Malaysian economy sin ce the Asian financial 
crisis.  The Government was continuing with effo rts to further strengthen economic fundamentals and 
enhance the resilience of the economy to withstand similar shocks.  However, these efforts needed to 
be complemented by commitments to  improve the international financial architecture to ensure that 
such crises would not recur in the future.  Ma ny commented on Malaysia's recourse to a more 
expansionary fiscal policy during the crisis, the contagion effect of wh ich had led to a contraction in 
the economy of the region.  In this regard, the G overnment had had to take pre-emptive measures to 
prevent the economy from going into a prolonged r ecession.  The main obj ective was to ensure 
economic recovery and put the economy back on the pa th of growth.  The use of an expansionary 
fiscal policy, supported by an accommodative monetary policy and structural adjustment measures, 
was deemed to be most appropriate under the then  prevailing difficult economic circumstances.  The 
introduction of the fiscal stimulus packages provided the impetus to generate domestic demand when 
private investment levels were declining and cons umer and business confidence were low.  The fiscal 
deficit had widened to its highest level of 5.7% of GDP in 2000, be fore declining to 3.8% in 2005 as a 
result of fiscal consolidation measures.  The deficit w as expected to decline further to 3.5% in 2006.   
61. To achieve higher growth, investment spending n eeded to be enhanced.  Malaysia had learnt 
from the experience of others, including the more developed Members, in providing incentives to 
attract investment:  if others were doing it, it must  be doing some good;  experience indicated that it 
was an effective developmental tool to attract inv estment.  As to the notification of incentives under 
the Agreement on Subsidies and Countervailing Measu res, Malaysia would examine the issues raised 
and, if necessary, make the appropriate notification.   The Tax Review Panel was established to review 
the overall tax system in Malaysia;  it was at an advanced stage of developing the goods and services 
tax model and its legislation.  On competition policy,  Malaysia wished to reiterate that fair trade 
legislation was being drafted and would address market dominance, anti-competitive practices, and unfair trade practices.  WT/TPR/M/156 
 Page 19 
 
 
  (ii) Trade policies 
62. Malaysia's trade policy remained anchored to a strong and predictable rules-based multilateral 
trading system and Malaysia was fully engaged in the current Doha negotiations.  Malaysia joined 
other Members in seeking a positive outcome that provi ded mutual benefits to all Members, and in 
particular, results that took into account the devel opmental needs of developing countries, particularly 
the LDCs.  Malaysia's commitment to the multilatera l trading system was in no way undermined by 
its participation in bilateral and regional trading arrangements, which he believed, would contribute to 
enhancing the overall international trading system .  A wider network of FTAs would definitely 
energize and increase trade and investment flows.  He noted comments by Members on possible trade diversionary effects of FTAs, and concerns regard ing the coverage of FTAs.  Malaysia's FTA with 
Japan covered more than 95% of tariff lines, while th e FTA with Pakistan was expected to be equally 
substantial.  Under the FTAs pursued by ASEAN, coverage had also exceeded 90%. 
63. A number of Members had raised concerns about  the gap between the bound and applied rates 
and the relatively high percentage of unbound tariffs;  there were also concerns over the possible lack 
of predictability and certainty.  The representative stated that the gap between applied and bound rates 
should not be a cause for concern in Malaysia's cas e;  Malaysia had autonomously reduced tariff rates 
below its bound levels and this has resulted in  the so-called gap.  Such autonomous trade 
liberalization had provided benefits  to all its trading partners.  Furthermore, there was still 
predictability as rates would not be increased  beyond their bound levels.  Regarding the high 
percentage of unbound tariffs, Malaysia's commitm ents in 1995 under the UR represented an overall 
balance of its rights and obligations.  Keeping a number of tariff lines unbound was to ensure that 
Malaysia had the policy space to pursue its developmen t goals;  this did not mean that Malaysia was 
not prepared to increase its binding levels.  As Members were aware, Malaysia was ready to join others in substantially increasing the level of bindings in the current Doha negotiations.  
64. The issue of export duties had also been raised at Malaysia's previous Trade Policy Review.  
Export duties in themselves were not WTO-incons istent.  Malaysia imposed them for specific 
purposes, including for environmental conservation,  research and development, and to strengthen 
industry in terms of enhancing efficiency.  In te rms of trade measures, the import licensing system 
had been the focus of some attention.  For Member s' information, Malaysia had notified the use of 
import licensing in 1997 and 1999 to the WTO, in cluding for automotive products, steel, pesticides, 
rice, palm oil, explosives, plant and plant produc ts, and fish and fish products.  There had been no 
changes to these since then.  However, Malaysia would examine the issues raised, and if necessary, 
take appropriate action.  Some apprehension had been raised as regards Malaysia's use of anti-
dumping measures, particularly the impact on other de veloping countries.  He reassured Members that 
these actions were undertaken in a manner consiste nt with the AD agreement and were meant to 
legitimately protect the interests of companies operating in Malaysia. 
65. Malaysia appreciated the advice of Members on the need to diversify the export base and 
identify new markets.  It had been observed th at the Malaysian economy might be over-reliant on 
exports for growth, in particular exports of el ectronic products, and that over-dependence on a few 
markets in developed countries mi ght not be conducive to overall m acroeconomic stability.  Malaysia 
had been diversifying its economy progressively, from one based on primary commodities to manufactured products.  Currently, over 80% of Malaysia's exports were manufactured goods, of 
which more than half were E&E products.  Agricu ltural exports accounted for just over 6% of total 
exports, comprising mainly palm oil products.  Dive rsification of the export base, however, had not 
reduced the importance of the E&E sector, although the share of other exports such as chemicals, 
petroleum, agri-based and wood-based products ha d increased.  The major export destinations for 
Malaysia in 2005, were ASEAN, the United Stat es, the EU, Japan, China, Hong Kong China, 
Australia, Republic of Korea, Chinese Taipei, India,  and west Asia.  Malaysia's exports to these 
countries recorded increases ranging from 3% to 30% in the first 11 months of 2005. WT/TPR/M/156 
Page 20  
 
  (iii) Sectoral policies 
66. Manufacturing, services and agriculture were  three major sectors driving the economy, 
contributing 31.5%, 57.8% and 8.5%, respectivel y to GDP.  While manufacturing was important 
because of its contribution in terms of exports, the services sector was a significant provider of 
employment.  Agriculture contributed to exports as well as providing employment to the rural 
population. 
67. The main agricultural export was palm oil bu t there was untapped potential in aquaculture, 
livestock, and fruit and vegetable fa rming.  Import licensing for agricultural products, had been put in 
place mainly for SPS reasons and requirements of CITES.   It was also used to monitor the import of 
essential items such as rice and sugar, as well  as coffee and tobacco.  Malaysia was actively 
promoting itself as a hub for halal products, whic h had the potential to be  important exports.  
Malaysian certified halal products, as identified by its logo, were accepte d in many markets;  the halal 
certification was necessary to ensure that the prod ucts were produced according to Islamic law.  
Malaysia's certification scheme was consistent w ith the relevant CODEX guidelines.  The automotive 
subsector was a key industry in the Malaysian ec onomy;  its economic contribution was immense, 
with significant linkages in the manufacturing and ser vices sectors.  To ensure the long-term viability 
of the local automotive industry, the National Automotive Policy framework was introduced in 
October 2005 to promote a competitive and viable automotive sector, in particular national car 
manufacturers;  make Malaysia a regional hub for manufacturing, assembly, and distribution of 
automotive vehicles;  enhance value added and lo cal capabilities in the automotive sector;  promote 
export-oriented Malaysian manufacturers as well as  component and parts vendors;  and promote 
competitive and broad-based Bumiputera  participation in vehicle manufacturing, distribution, and 
importation as well as in component and parts manufacturing. 
68. Delegations had mentioned that Malaysia's services sector was not as open as the 
manufacturing sector.  Services would be liberalized  progressively, taking into account the readiness 
of each subsector to face intensified competition.   In the meantime, Malaysia was developing the 
services industries through capacity building and e nhancing their competitiveness.  A number of 
subsectors had a high degree of liberalization, such  as telecommunications, pr ivate higher education, 
and finance.  In addition, information and co mmunications technology and certain manufacturing-
related services such as international procur ement centres, regional distribution centres and 
operational headquarters were fully liberalized.  Ma laysia welcomed further foreign investment to 
assist in building an efficient services sector. 
69. In response to a query from the discussant on th e concept of a petroleum fund, he said that 
Malaysia had a National Trust Fund funded by petr oleum revenues.  The objective of the fund was to 
build a sizeable reserve from profits from petroleu m for the benefit of future generations.   
70. The representative had every confidence that the Malaysian economy was back on track.  
Nevertheless, with current trends  pointing to a more challenging gl obal environment, particularly 
arising from persistently high oil prices, it was in evitable that global developments would impact on 
the Malaysian economy.  He expected that w ith the measures outlined in the 2006 Budget, GDP 
growth would remain strong, at 5.5% in 2006.  Economic strategy would focus on implementing measures to accelerate economic activities;  providi ng a business-friendly environment;  developing 
human capital;  and enhancing the well-be ing and quality of life of Malaysians. 
71. The discussant
 said that the way in which the Malays ian Government had overcome the Asian 
crisis was to be commended, although there was no t a general prescription of how to do this.  He 
raised the issue of the high Malaysian savings rate  on the one hand and very low interest rate on the 
other hand and asked Malaysia to shed light on this.   WT/TPR/M/156 
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  72. The representative of Malaysia  replied that Malaysia continued to rely on investment and 
FDI, for which there was strong competition, and was in a happy situation of having low interest and 
high savings rates.  This helped Malaysia to pr omote domestic investment and hence contributed to 
growth.  
73. The representative of the European Communities  said that as Malaysia progressed towards 
developed country status, the EC's expecta tions of Malaysia in the WTO would grow 
correspondingly.  He understood that Malaysia would address the tariff issues in the NAMA negotiations, as well as concerns raised regarding IP Rs and the desirability of joining the GPA in the 
coming years.  On foreign investment, he considered  there was further scope for liberalization notably 
in the services sector.  
74. The representative of the United States
 noted his delegation's surpri se at the extent of imports, 
subject to import licensing in Malaysia, often of th e non-automatic type.  His delegation had asked in 
the relevant committee for more updated informa tion from Malaysia on its import licensing regime, 
particularly for motor vehicles, construction equipm ent, and paper and wood products;  to date, there 
had been no substantive response and his delegati on was keen to receive a response by the next 
meeting.  He welcomed Malaysia's statement that  it would catch up with its notifications on import 
licensing as a positive transparency development.  In particular, he asked whether Malaysia was 
considering new ways to streamline or reduce the scope of products subject to licensing and what 
types of appeal were available to companies if an  application for a non-auto matic licence was denied.  
75. The representative of Malaysia  said that his delegation would examine the questions raised 
closely and respond appropriately.  In a more general context, he noted that, in the interest of making 
its operations more efficient, the Government was in the process of reviewing whether it was 
necessary, inter alia ,  to maintain the existing licensing and permit system.   WT/TPR/M/156 
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  VI. CONCLUDING REMARKS BY THE CHAIRPERSON 
76. The fourth Trade Policy Review of Malaysia h as enabled us to improve our understanding of 
the developments in its trade and related policies since its previous Review in 2001, and of the 
challenges it now faces.  The Government and Secretar iat reports, together with  Malaysia's responses 
to Members' questions, have contributed to the transp arency of Malaysia's trade policies and practices.  
Our discussion has clearly benefited from the active participation of the Ma laysian delegation as well 
as from the insightful contribution of our discussant and the numerous interventions by Members.  
77. Members welcomed the recovery of the Malays ian economy after the As ian financial crisis 
and noted that Malaysia has pursued policies aime d at strengthening and diversifying its economy, 
liberalizing trade and investment, building knowledg e-based industries and services, and carrying out 
structural reforms in key areas, including the fina ncial sector.  Exports have increased significantly, 
supporting real GDP growth and both unemployment and inflation have remained low.  Members 
encouraged Malaysia to continue efforts to ensu re that it stays on the path of development and 
reforms and thereby strengthens its  resilience to external shocks. 
78. Members appreciated the constructive role play ed by Malaysia in the Doha Development 
Agenda negotiations and its varied efforts to achiev e  progress and consensus.  They also noted that, 
at the same time, Malaysia had been intensifying its bilateral free-trade negotiations with other WTO 
Members, whether on its own or as part of ASEAN.  
79. Members applauded successive steps taken by Malaysia to reduce its average applied MFN 
tariff rate.  However, they expressed some concer n that over one-third of tariff lines are not bound, 
and gaps between bound and applied rates are large, thereby imparting a degree of unpredictability to 
the tariff.  Some Members pointed out that high tariffs, combined with non-tariff measures, limited 
trade opportunities in significant sectors, such as stee l, automobiles and automotive components.  In 
the automobile sector, particular concerns were  raised concerning the approved permit system 
affecting imports and the rebate on excise taxes available to local manufacturers.  Some Members noted that Malaysia had become a more active user of anti-dumping measures and was planning to 
develop safeguard legislation.  Members acknowle dged Malaysia's efforts to align its national 
standards with international ones and urged Malaysia  to expedite the harmonization of its remaining 
standards.  Clarification was also sought with r espect to the array of incentive programmes provided 
by the Government to many industrial companie s as well as to the status of draft competition 
legislation.  Some Members were  interested to know of any government plans to make government 
procurement more open and transparent.  Members appreciated that Malaysia has taken steps to 
strengthen its intellectual property regime and encourag ed Malaysia to continue its efforts to improve 
enforcement. 
80. On sectoral issues, Members noted that service s are the largest component of Malaysia's 
economy and one of the key drivers of economic growth, although progress in liberalizing the 
services sector lagged behind agriculture and manufactu ring.  Some Members encouraged Malaysia to 
progressively liberalize its services sectors and to redu ce or remove restrictions on foreign ownership, 
notably through improving its commitments in the context of the current services negotiations.   
81. This successfully concludes our Review of Malaysia.  Members expressed their appreciation 
for the oral and written responses to their ques tions from the Malaysian delegation and looked 
forward to receiving the few still outstanding.  Member s clearly value Malaysia's efforts to continue 
to liberalize its trade regime and trade-related policies, to encourage both outward and inward 
investment.  They also appreciate Malaysia's aim of achieving developed country status by 2020.  
Given the contribution of the multilateral trading syst em to the achievement of this goal, I am sure 
that Members can look forward to Malaysia's c ontinued active support for the WTO and the ongoing 
negotiations. 
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