RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/291/Rev.1
7 November 2001
(01-5492)
Council for Trade in Goods Original:  English
MALAYSIA – REQUEST FOR EXTENSION OF THE TRANSITION
PERIOD UNDER THE AGREEMENT ON TRADE-RELATED
INVESTMENT MEASURES
Revision
The following communication, dated 30 August 2001 and revised on 5 November 2001, has
been received from the Permanent Mission of Malaysia.
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In accordance with the Decision of the Council for Trade in Goods of 31 July 2001, I hereby
submit on behalf of my Government, the request for an extension of the transition period under
Article 5.3 of the Agreement on Trade-Related Inve stment Measures, for the period 1 January 2002 to
31 December 2003.G/C/W/291/Rev.1
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The Government of Malaysia is requesting a further 2-year extension of the transition period
for TRIMs pursuant to the 31 July 2001 Deci sion of the Council for Trade in Goods.
1. Malaysia's earlier request to the WTO, as documented in G/C/W/174 dated 12 January 2000, was
for a 2-year extension of the local content policy on motor vehicles from 1 January  2000  until 31
December 2001. A further extension of this measure from 1 January 2002 until
31 December 2003  is now necessary.
2. The removal of the TRIMs on 1 January 2002 would adversely affect the motor vehicle and
component manufacturing industry. The discontinuation of this measure is projected to have negative
impacts on the domestic automotive industry through the:
− retrenchment of a least 6,259 employees,
− annual turnover losses amounting to at least RM 716 million,
− capital investment losses amounting to at least RM 1,674.5 million, and
− possible closure of 47 local plants.
3. The 2-year extension ending on 31 December 2001 is inadequate for the motor vehicle industry to
attain full recovery from the financial crisis that affected Malaysia. The automotive sector has yet to
achieve the level of competitiveness and consolidation to compete in the open market.
4. At least 53% of component manufacturers, mostly small and medium size enterprises, are
dependent on some kind of assistance. Given the existing level of readiness to face competition, theremoval of such assistance would result in a drop in demand, reduction of market share and resultant
cash flow and loan servicing problems.
5. An extension of the transition period for TRIMs is necessary for the recovery of investment cost
undertaken by the industry. The majority of vendors have yet to fully amortise the cost of retooling
and other investment taken prior to the financial crisis. The enterprises in the componentmanufacturing industry have been heavily dependent on a single product, the domestic market and
foreign technology. A longer time is needed for structural adjustment. The industry produces a total of
6,000 components parts with investment of RM 4.6 billion and total employment of at least 30,000.
6. Programmes to enhance the competitiveness of the local automotive component industry have
already been implemented. However, more time is needed for vendors to strengthen and enhance theirproduct and design development and upgrading of skills and technology in order to be able to expand
their supply to the regional and global market.
7. Malaysia's plan to phase out the TRIMs includes removal of all penalties on non-conformance of
the local material content policy by 31 December 2002 . This will be followed by removal of all
penalties under the compulsory sourcing of locally manufactured items by 31 December 2003 .
8. Progress of the phase out plan will be reported to the Council for Trade in Goods as required by
the Decision of 31 July 2001.
9. We seek your cooperation in forwarding this request for the consideration of the Council at its
next meeting.G/C/W/291/Rev.1
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10. Details of the Phase-Out Programme:
(i) Local Material Content Policy (LMCP)
LMCP was introduced in 1992 to develop the local component parts industry.  The LMCP
only specifies levels of locally sourced components that must be achieved by the assemblers in their
vehicles but leaves the type of component to be integrated at the discretion of the assemblers.  The
following table shows the targeted points mandate d by the LMCP together with the target dates.
Local Material Content Policy Targets
Vehicle category Target
Date Points
Passenger cars 1,850 cc and below 1/192
1/1/93
1/1/94
1/1/95
1/1/9630
40
50
55
60
Passenger cars 1,851 cc to 2,850 cc andcommercial vehicles less than 2,500 kg. gross
vehicle weight1/1/92
1/1/93
1/1/94
1/1/95
1/1/9620
30
35
40
45
Passenger cars exceeding 2,850 cc and
commercial vehicles more than 2,500 GVWMandatory deleted items only
Ever since the local content policy was introduced, the local content in the automotive
industry has increased gradually.  In fact all manufacturers and most of the assemblers have achieved
the target set forth.
Local content target achieved by the various categories of vehicles are as follows:
Category Local content (% )
Passenger car
-  Manufacturers 60-80
-  Assemblers 40-60
Commercial vehicles
-  Manufacturers 32-60
-  Assemblers 25-45
The benefits of the LMCP:
-  Creation of 350 vendors who are actively supplying components and parts to the automotive
industry.
- Enhancement in the technological capability of automotive and other related industries.- Upgrading of skills of workers involved in the industry.
- Development of the engineering services.G/C/W/291/Rev.1
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Phase-out Programme for LMCP
The LMCP can be abolished with effect from 1 January 2002.
(ii) Mandatory Deleted Items (MDI)
There are 30 items in the list involving parts and components, which manufacturers and
assemblers must source locally.  The regulation was introduced to create a pool of suppliers which
manufacturers and assemblers can rely upon for speedy delivery of parts and components at
competitive cost.  As a result of this policy there are a number of manufacturers who have acquired
the capability to supply even to the export markets, for example batteries and seat belts.
The phase-out programme for MDI is as follows:
(i) There are 11 items in the Mandatory Deleted list which the current component parts
manufacturers are competitive at.  These components can be deleted from the MDI list effective
1 January 2002.
(ii) The remaining 19 items in the list can be phased out on 31 December 2003.  This will mark
the end of all the local content policy for the automotive industry.
List of Mandatory Deleted Items
A. Competitive items
1. Coil spring
2. Exhaust system3. External body protective moulding
4. Flasher relay
5. Fuel tank
6. Glasses
7. Melt damping sheet
8. Seat and slide assemblies
9. Seat pads10. Shock absorbers
11. Windscreen washer
B. Non-competitive items
1. Air filter
2. Alternator and voltage regulator
3. Battery
4. Carpet and underlay
5. Horn6. Leaf spring
7. Mud flaps
8. Radiator
9. Radiator hoses
10. Seatbelts11. Spark plugs
12. Starter motor
13. Tubeless tyre valves
14. Tubing for brake, clutch and fuelG/C/W/291/Rev.1
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15. Tyres
16. Wheel nuts
17. Wiper motor
18. Wire harness
19. Bolts assemblies comprising spring pins and shackle pins/bolts and shackle assembly for
commercial vehicles.
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