WT/TPR/S/92 Trade Policy Review
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IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. The Malaysian economy is relatively open to both trade in goods and foreign investment,
although rice and automotive products are notable exceptions.  The electronics sector appears to offer
a striking example of the benefits of an open regime in fostering development.  The sector has drawn
significant flows of foreign direct investment (FDI), has had fairly little tariff and non-tariffprotection, and has grown to account for approximatel y 2.5% of global electronics production:  it has
been among the main engines of Malaysia's growth, and its strong external competitiveness was an
important element in Malaysia's recovery from Asian financial crisis, with the sector accounting for
more than half of Malaysia's total exports.  By contrast, the domestic automotive sector has been
relatively sheltered from foreign competition;  it has been protected by high tariffs and supported byvarious other incentives;  the sector has been successful in winning a large share of the domestic
market but, contrary to stated objectives, its exports are modest, suggesting perhaps a certain lack of
external competitiveness.
2. The Government's recently launched Eighth Malaysia Plan envisages a further gradual
opening of the services sector.  The services sector, which accounts for over half of Malaysia's GDP,is not yet as open to trade as  agriculture and manufacturing.  This is largely because of restrictions on
foreign direct investment, which is necessary for the establishment of commercial presence, the main
mode of delivery for most services.  Commercial presence is generally confined to joint ventures, in
which combined foreign ownership cannot exceed 30%.  Insofar as barriers to commercial presence
restrict competition in the provision of services, they tend to impair efficiency in the sector, so that the
prices paid for these services, both by businesses and households, are higher than would be the case in
a more competitive market.  The resulting higher costs of doing business could hamper thecompetitiveness of all firms in Malaysia that require essential services (such as energy, finance,
telecommunications, and transportation) as inputs in their production and delivery of goods and
services.
3. The Government's plans to further open the financial services sector to international
competition, reform measures undertaken by the Securities Commission, and steps taken to promotecorporate governance and corporate restructuring are all mutually supporting.
(2) A
GRICULTURE
(i) Main features
4. The contribution of agriculture (together with forestry and fisheries) to GDP and employment
declined gradually from 9.2% and 16.7% in 1997 to 8.4% and 15.5% in 2000, respectively (Table I.2).Land area used for palm oil has increased significantly, partly reducing the land available for other
agricultural commodities;  the lack of arable land and the small average size of farms are constraints
on the development of the agriculture sector in Malaysia (Table IV.1).  Labour shortage has forced the
sector to rely heavily on foreign labour;  in 2000, there were some 190,000 foreign workers,
accounting for 13.4% of total agriculture employment.Malaysia WT/TPR/S/92
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Table IV.1
Production of selected agricultural commodities and land use, 1990, 1995 and 2000
Land area used
('000 hectares)Production
('000 tonnes)
1990 1995 2000 1990 1995 2000
Industrial commodities
Rubber 1,823.1 1,727.0 1,430.7 1,291.0 1,089.0 616.0
Palm oil (crude) 1,984.2 2,540.1 3,376.7 6,094.6 7,810.5 10,842.1
Cocoa 419.8 234.5 105.0 247.0 131.0 70.0
Pepper 11.5 8.6 11.5 31.0 13.0 24.0
Pineapple 9.3 9.1 10.2 168.3 140.0 184.0
Tobacco 10.2 10.5 15.0 10.2 10.0 7.2
Food commodities
Paddy 662.6 666.3 699.1 1,885.0 2,127.0 2,140.0
Coconut (million units) 313.6 273.5 165.2 1,257.0 1,389.0 578.6
Vegetables 32.8 42.5 43.8 609.6 718.0 379.1
Fruit 177.5 303.7 211.4 870.5 1,020.0 1,017.7
Totala5,637.8 5,769.0 6,075.0 .. .. ..
.. not available.
a Total includes land use by other agricultural crops and livestock production.
Source: Data provided by the Malaysian authorities; and Economic Planning Unit (2001a), Eighth Malaysia Plan 2001-2005 ,
Kuala Lumpur.
5. Malaysia's main agriculture and forestry products include rubber, palm oil, cocoa, rice,
vegetables, fruit, meat (poultry, pork, mutton, and be ef), pepper, tobacco, and flowers.  During the
period under review, production of palm oil, rice, fruit, vegetables, livestock, pepper, tobacco, and
flowers increased while that of rubber, sawlogs, and cocoa declined.1  Malaysia's self-sufficiency ratio
is more than 70% for poultry, fruit and vegetables and about 65% for rice, while for beef it is 18%,
mutton 10% and milk 5%.
6. Although labour productivity in the agriculture sector increased marginally during the period
under review, it remains lower than that in manufacturing.2  The sector's share in Malaysia's trade also
declined substantially: the share of agricultural exports in Malaysia's total exports fell from 13.0% in
1997 to 10.9% in 1999, while the share of agricultural imports in Malaysia's total imports remained
almost unchanged at 6.7% in 1997 and 6.9% in 1999 (Tables AI.1 and AI.2).
(ii) Policy objectives for the sector
7. Agricultural policies are guided mainly by the Third National Agricultural Policy (NAP3),
adopted in 1999 for the period 1998-2010.  The NAP3 aims to further improve the market-driven and
commercially oriented environment for Malaysia's agriculture sector, in order, inter alia , to raise
productivity and thereby improve the sector's competitiveness.  Thus, in the NAP3, emphasis has beenplaced on expanding and modernizing domestic food production and management, encouraging large-
scale and organized agriculture, and shifting agricultural production from mono-cropping to mixed
farming as well as from monoculture to polyculture so as to intensify land use and increase
productivity.
                                                     
1 Bank Negara Malaysia (2001b).
2 Ministry of Agriculture (2001).WT/TPR/S/92 Trade Policy Review
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(iii) Main policy instruments in the agriculture sector
8. Malaysia's laws and regulations related to activities in agriculture have remained unchanged
since its previous Trade Policy Review.3  The Ministry of Agriculture administers policies on
agriculture4;  a number of product-specific agencies are also involved in supervising and supporting
agriculture.5  Attempts are being made to revamp the various agricultural agencies through their
consolidation, corporatization, and privatization.6
9. Overall, Malaysia maintains liberal agricultural trade policies, especially as far as tariff and
non-tariff border measures are concerned.  Generally speaking, import tariffs on agricultural products
(HS chapters 01-24) are low, averaging 3.5% in 2001, if non- ad valorem  duties are excluded.  A wide
range of products are subject to import licensing as well as sanitary and phytosanitary (SPS)
measures.   Non-border measures, notably production subsidies, are also used.
10. Although Malaysia included selected agricultural products in its WTO Schedule XXXIX, for
tariff quota purposes, these quotas do not appear to be used in practice7;  the authorities grant tariff
quotas to applicants on request, according to the amount demanded.  Malaysia has reserved, but not
used, the right to apply the special safeguard provisions under the WTO Agreement on Agriculture.
However, these products remain subject to import licences whose validity varies by product.According to the authorities, Malaysia does not use minimum price restrictions on imports.
11. Since the previous Review of Malaysia, there has been no substantial change in its policy on
price and export controls.  The authorities maintain that no investment incentives, such as
concessional access to credit, are accorded to the ag riculture sector.  Access to credit is accorded for
food production to smallholders and entrepreneurs under the Fund for Food Programme (3F Fund).
Malaysia has no export subsidy programmes subject to reduction commitments.  Crude palm oil,
rubber, pepper, and some timber products are subject to export taxes (Chapter III(3)(ii)).
12. With a view to maintaining food security a nd eradicating poverty, the Government provides
support and accords protection to two main subsectors in agriculture, i.e. rice (for food security and
poverty reasons) and tobacco (for poverty reasons).  The authorities maintain that trade liberalization
in these two subsectors is to be undertaken on a gr adual basis, accompanied by structural adjustment
programmes.  It would appear that production subsidies and input subsidies (in the form of a fertilizersubsidy) are only applicable to rice production.  The largest outlay in connection with Malaysia's
domestic support programme involves the financing of a minimum price for rice.  The Government
maintains a Guaranteed Minimum Price and a Paddy Price Subsidy for paddy farmers.  Under the
Guaranteed Minimum Price scheme, BERNAS (a privatized enterprise involved in state trading)
                                                     
3 There are various laws and regulations applied to the agriculture sector. For example, overall import
and export licensing procedures are regulated by the Customs (Prohibition of Import) Order 1998 and theCustoms (Prohibition of Export) Order 1998, while imports and exports of plant and planting material areregulated by the Plant Quarantine Act 1976 and Plant Quarantine Regulations 1981.
4 Food processing industries are regulated by the Ministry of International Trade and Industry,
incentives issues for agricultural activities are under the Malaysian Industrial development Authority, and exportand import tariffs on agricultural products are regulated by the Ministry of Finance.
5 For example, the Malaysian Pineapple Industry Board, Malaysian Cocoa Board, Malaysian Rubber
Marketing and Licensing Board, Malaysian Timber Board, Malaysian Tobacco Board, Malaysian Palm OilBoard.
6 In 1998, four agencies involved in rubber sector were amalgamated to form one agency, the
Malaysian Rubber Board. Land development agencies have also been privatized.  The Federal AgriculturalMarketing Authority is also on the list of bodies in the privatization programme (Economic Planning Unit2001b).
7 Poultry and poultry products, swine and swine products, fresh milk, and round cabbage.Malaysia WT/TPR/S/92
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undertakes to buy paddy from farmers at not less than the guaranteed minimum price, which is
currently RM 55 per 100 kg. for both long and medium grains.  Under the paddy price subsidy
programme, the Government makes fixed payments (currently RM 24.81 per 100 kg.) to farmers for
the paddy sold by them to any commercial rice mill.  This subsidy is in addition to the price received
by the farmers for the paddy, and constitutes the largest source of domestic support for agricultural
production. (Table IV.2).  A comprehensive review of the rice sector is currently under way and isexpected to be completed in 2002.
Table IV.2
Overview of domestic support measures, 1996-98
Type of measures Description Value
(RM million)
1996 1997 1998
Drainage and irrigation facilities General services that benefit rural and smallholding farmer 287.0 202.0 301.0
Research and development General services provided to most crops and agricultural
programmes30.0 20.0 90.0
Marketing services General services provided for marketing of produce of
smallholders21.5 20.9 56.7
Extension services General services that benefit rural and small holding farmers and
include pesticide inspection services and transfer of information
and results of R&D to producers4.4 1.9 0.2
Price support and guaranteed
minimum priceGuaranteed minimum price and paddy price subsidy are
provided to paddy farmers in the context of poverty redressal
and uplift of the socio-economic well-being of paddy farmers411.1 420.6 416.0
Fertilizer subsidy Measure is aimed at increasing productivity and encouraging
good agricultural practices amongst smallholders90.0 114.9 131.0
Investment subsidies (credit
concessions)Measure is aimed at reducing production costs and encouraging
individual farmers and smallholders to be less reliant on out-
right subsidynil nil nil
Source: WTO documents G/AG/N/MYS/7, 10 December 1997, and G/AG/N/MYS/13, 14 September 2000, and data
provided by the Malaysian authorities.
(3) MINING AND QUARRYING
13. Malaysia’s mining and quarrying sector experienced negative growth in 1999 and 2000; its
contribution to GDP declined from 7.3% in 1997 to 6.9% in 2000.  The sector's share in totalemployment has been about 0.5% since 1997, indicating that its labour productivity is well above the
national average (possibly because of its high capital intensity).
8  Malaysia has been a net exporter of
mining products;  such exports constituted 7.9% of total merchandise exports in 1999.9  Major mining
products include crude petroleum, natural gas, metallic minerals (such as gold, copper, tin, iron ore),
non-metallic minerals (such as sand and gravel, clays, limestone, silica, and kaolin), and energy
minerals (coal).10
14. The wholly state-owned company, PETRONAS, established under the Petroleum
Development Act (1974), continues to be the main vehicle for the appropriation of resource rents
from oil and gas;  it has exclusive rights of ownership, exploration and production, and is responsible
for planning, investment, and regulation of all activities relating to exploration of petroleum
                                                     
8 Estimated from Ministry of Finance (2001a), Statistical tables, Table 6.1.
9 Based on UNSD, Comtrade database, SITC Rev.3.
10 In 1999, Malaysia produced abou t 4,500 million cubic feet of gas and 608,000 barrels of crude
petroleum per day, while total production of metallic minerals, excluding gold was 701,583 tonnes; goldproduction amounted to 3,449 kg.  Production values were RM 1,239 million for non-metallic minerals,RM 369 million for metallic minerals, and RM 31 million for energy mineral (coal).WT/TPR/S/92 Trade Policy Review
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resources.  Foreign investment or participation in the upstream industry is accepted in the form of
production-sharing contracts (PSC);  by the end of 2000, PETRONAS had signed more than 60 PSCs
with foreign companies.  Investments in downstrea m activities, such as processing, refining, and
distribution, are regulated by MITI and the Mini stry of Domestic Trade and Consumer Affairs
(MDTCA).  Licences for the processing and refining of petroleum and the manufacture of
petrochemical products are issued by MITI, while the MDTCA issues licences for the marketing anddistribution of petroleum products.  Besides PETRONAS, the refining of petroleum products is
undertaken by private companies, including three major oil companies, and more than six major oil
companies are engaged in the distribution and retailing of petroleum products and lubricants.
15. Tariffs on mining products, including crude petroleum and gas, have been eliminated since
1997 and 2000, respectively.  Mining products, including crude oil and petroleum products, are notsubject to any import restrictions, except for barite, which requires an import licence.  With regard to
foreign investment, majority foreign-equity participation of up to 100% is permitted in the extraction
or mining and processing of mineral ores.  In determining the percentage, the following criteria are
taken into consideration:  the level of investments,  technology and risk involved in the projects, the
availability of Malaysian expertise in the areas of exploration and mining, and level of value addedinvolved in the projects.  Currently, there is no export duty on petroleum products; export duties for
crude oil and tin are 10% and 0-25%, respectively.
(4) M
ANUFACTURING
(i) Features
16. Malaysia’s manufacturing sector contracted (in terms of value added at constant prices) by
13.4% in 1998, but recovered rapidly in 1999 and 2000, growing at the rates of 13.5% and 21%,
respectively.11  The sector's contribution to GDP increased from 29.9% in 1997 to 33.4% in 2000;
during the same period, its share in total employment also increased from 26.9% to 27.5%.12  T h e
main manufacturing subsectors in Malaysia are electrical machinery (including electronics),
machinery and equipment, food, chemical and chemi cal products, and basic metals;  these contributed
68.6% of total value added in the manufacturing sector in 2000.13  Between 1994 and 1997, value
added grew notably in machinery, tobacco, transport equipment, products of petroleum and coal,electrical machinery, and basic metals, while it declined in leather and leather products (Table IV.3).
Data provided by the authorities indicate that labour productivity in Malaysia’s manufacturing sector
registered growth of 16.2% in 2000, (16.8% in 1999)
14, while real wages in the sector grew by 4.6%,
leading to a decline in unit labour costs.  The sector's share in Malaysia's trade also increased
substantially; the share of manufactured exports in total exports increased from 76.4% in 1997 to80.3% in 1999, while the total share of manufactured imports in total imports increased slightly from
83.1% to 83.7% in 1999 (Tables AI.1 and AI.2).  Machinery and transport equipment, chemicals, and
textiles and clothing are among Malaysia's main manufactured exports and imports.
15
                                                     
11 Bank Negara Malaysia (2001c).
12 Labour productivity, as measured by real sales value of products per employee, increased during
1999 and 2000.  In 2000, the sector accounted for the major share of new workers employed (52.7% or
215,600 persons)  (Bank Negara Malaysia, 2000).
13 The share of electrical machinery alone wa s 30.0% of total manufacturing value added.
14 Productivity is measured in terms of value added per employee.
15 Malaysia is the eighth largest clothing supplier to Japan and the 18th largest supplier to the EU and
the United States.Malaysia WT/TPR/S/92
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17. Between 1996 and 2000, the manufacturing sector's share of total private investment
increased from 26.3% to 38.4%16, although overall private investment declined substantially, from
RM 79.4 billion to RM 46.5 billion during the period.  In 2000, 805 manufacturing projects were
approved, with total investment of RM 33.5 billion, of which RM 19.8 billion involved foreign
participation.17
Table IV.3
Manufacturing value-added in Malaysia, 1994-1997
(Per cent)
Value-added
Structure in 1994 Structure in 1997 Change since 1994
Processing of estate-type agricultural products in factories off
estates3.52 3.05 38.81
Food 4.71 3.90 32.26
Beverages 0.87 0.79 44.20
Tobacco products 0.98 1.23 99.71
Textiles 3.22 3.14 55.90
Footwear (except rubber footwear), other wearing apparel and
made-up textile goods2.03 1.68 31.91
Wood products 6.52 5.11 25.24
Furniture and fixtures 1.31 1.41 72.61
Printing, publishing and allied industries 2.68 2.71 61.83
Paper and paper products 1.67 1.41 34.84
Leather and leather products 0.13 0.07 -19.14
Rubber products 3.48 3.59 65.22
Chemicals and chemical products 8.17 8.59 68.04
Products of petroleum and coal 2.95 3.35 81.23
Non-metallic mineral products 4.68 3.94 34.67
Basic metal industries 2.72 3.35 97.00
Metal products 4.05 4.05 59.89
Machinery except electrical machinery 4.76 5.98 100.92
Electrical machinery 29.79 30.02 61.04
Transport equipment 4.76 5.80 94.51
Miscellaneous manufacturing industries 7.00 6.84 56.26
Total 100.00 100.00 59.84
Source: Bank Negara Malaysia (2001d) .  Monthly Statistical Bulletin, "Value-added by Manufacturing Industries"
[Online].  Available at: http://www.bnm.gov.my/pub/msb/200102/vi_05.pdf [30 March, 2001].
(ii) Policy objectives for the sector
18. Malaysia's main policy objectives for the manufacturing sector include:  targeting  high value-
added investment flows (particularly FDI);  st rengthening competitiveness;  enhancing export
potential;  keeping down the costs of doing bus iness, and improving the business environment;
increasing the supply of skilled workers, and enhancing capacity building for training and skills
development;  fostering the development of strong industrial linkages, upgrading technology, and
developing indigenous technological capabilities.
                                                     
16 Bank Negara Malaysia (2001a) .
17 Bank Negara Malaysia (2001d ).WT/TPR/S/92 Trade Policy Review
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(iii) Main policy instruments for the sector
19. Malaysia's average MFN applied tariff on manufacturing imports increased from 9.7% in
1997 to 11.0% in 2001 (excluding ad valorem  equivalents of specific duties);  the number of duty free
lines increased from 4,155 to 4,336 during the period.  The higher average rate can be attributed to
increases in applied MFN tariffs on automobiles, construction equipment, certain appliances, and
alcoholic beverages in 1998.18  Since 1997, tariffs on selected manufactured products have been
reduced either on unilateral basis or under Malaysia’s WTO and ITA commitments.19  Manufacturers
are exempted from duties on imports of raw materials/components that are not available locally.
20. A number of manufactured goods are subject to discretionary import licensing for public
morals, security, and safety reasons as well as for protection purposes (Chapter III(2)(iv)).  Malaysia
also has an export licensing scheme for a number of manufactured goods.  Export duties are notapplicable to manufactured products.  Malaysia provides incentives to promote exports by means of
import duty exemptions, duty drawback facilities, export credit refinancing scheme, export credit
insurance and guarantee schemes (Chapter III(3)(iv-v i)).  It also exempts exports from sales tax.
21. Since 31 July 1998, Malaysia has allowed 100% foreign equity ownership in manufacturing
without export requirements
20;  this was initially set for the period until 31 December 2000 but was
extended for another three years until December 2003.21  Foreign participation in companies that do
not possess a manufacturing licence requires approval from the FIC; the level of foreign participation
approved is determined on a case-by-case basis.  Companies with manufacturing licences are
exempted from FIC approval.  Various tax and non-tax incentives are accorded to manufacturing
investment (Chapter III(4)(ii and iii)).
22. Companies are eligible to apply for import duty and sales tax exemption on machinery and
equipment used for storage, treatment, and disposal of toxic and hazardous waste, energyconservation, waste recycling, and utilizing biomass as a source of energy, provided they are not
produced locally.  The Technology Acquisition Fund (TAF) was established in September 1997 to
facilitate the acquisition of strategic and relevant technology by the Malaysian small and medium-
sized enterprises (SMEs) through partial funding.
22  Since 23 November 1998, a Rehabilitation Fund
For Small and Medium Industries has been in place to provide financial assistance to viable SMEsfacing temporary cash-flow problems owing to the financial crisis.
23
23. Owing to an acute labour shortage since August 1995, Malaysia has adopted a policy not to
provide incentives to labour-intensive manufacturing industry.24  This policy is not applicable to:
                                                     
18 In the 1998 budget, duties on automobiles, vans, and motorcycles were increased from 32-200% to
40-300% for CBU and 5-42% to 30-80% for CKD, and duties on construction equipment were raised from0-35% to 5-50%.
19 These include electrical parts and apparatus, ar ticles of leather and apparel, certain pharma-
chemicals, capital goods, intermediate goods, components and machinery, products of papers, woven fabrics,
footwear, sewing machines, and products covered by the "Information Technology Agreement".  See APEC
(2001b, 2001c, 2001d).
20 However, activities that involve small and medium-sized enterprises, like paper packaging, plastic
packaging (bottles, films, sheets, and bags), plastic injection moulded components, metal stamping and metalfabrication, steel service centres, wire harness, and pr inting are excluded from this relaxation.  Foreign equity
participation for these activities is limited to 30% if the products are domestic-market oriented  (APEC, 2001a).
21 Ministry of International Trade and Industry (2001).
22 Ministry of Finance (2001b).
23 Bank Negara Malaysia (2001e) .
24 Projects with a capital investment per employee ratio of less than RM 55,000 are defined as labour-
intensive Ministry of Finance, (2001b).Malaysia WT/TPR/S/92
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projects located in the eastern corridor of Peninsular Malaysia, Sabah, and Sarawak; projects with
minimum 30% valued added or with a managerial, t echnical, and supervisory index higher than 15%;
projects listed as promoted activities;  and high technology products.25  Manufacturing companies that
employ 50 or more workers, and companies with a paid-up capital of RM 2.5 million and above
employing from 10 to 49 employees are required to contribute to the Human Resources Development
Fund (HRDF) for the purpose of retraining and skill-upgrading of workers.  In the Third OutlinePerspective Plan 2001-2010 launched on 3 April 2001, emphasis has been placed on strengthening the
manufacturing sector by developing strong linkages,  industrial clusters and SMEs as well as on
improving the technological base.
26
(iv) Key subsectors
(a) Automobiles and their parts
24. Following a slowdown during the financial cris is, Malaysia's automobile industry recovered
substantially in 1999 and 2000, with volume growing by 53.4% and 19.1%, respectively.27  Sales of
passenger cars, commercial vehicles, motorcycles, and scooters increased during these years.  In
2000, Malaysia had one of the biggest automobile markets in South East Asia, with sales of 347,174
units of passenger cars and commercial vehicles.28  By the end of 1999, about 9.9 million motor
vehicles were registered in Malaysia.  Imports of automotive products decreased from US$3,057
million in 1997 to US$1,351 million in 1999 or around 2.1% of total imports.  Exports of automotive
products accounted for 0.4% of total exports in 1999.29  Automobile exports for 1999 and 2000 were:
18,117 and 16,270 units for passenger cars; 1,336 and 1,113 units for commercial vehicles;  and
29,146 and 29,341 units for motorcycles, for the respective years.
25. In 2000, there were 12 assemblers of commercial and passenger vehicle in Malaysia.
National car assemblers Perusahaan Otomobil Nasional Berhad, with national brand namePROTON
30, and Perusahaan Otomobil Kedua Sdn. Berhad31, with national brand name PERODUA,
held 79% of the total automobile market and 93% of passenger car market.32  Other assemblers are
mainly joint-venture companies involving local fi rms and major foreign automobile companies; the
latter also promote their own products in the market and have small market shares.
26. Malaysia's automotive market is protected both by tariff and non-tariff measures.  Tariffs on
automobiles were raised in October 1997;  currently, they range from 42% to 80% on completely
knocked down (CKD) cars, and from 140% to 300% on completely built up (CBU) cars.33  M o s t
                                                     
25 Ministry of Finance (2001b).
26 Economic Planning Unit (2001c).
27 Bank Negara Malaysia (2000).
28 Passenger cars alone accounted for 86% of total sales in 2000.
29 UNSD, Comtrade database, SITC Rev 3.
30 Perusahaan Otomobil Nasional Berhad is a joint-venture company originally involving the Malaysian
Government through HICOM Bhd (70%), Mitsubishi Motor Corporation, Japan (15%), and Mitsubishi
Corporation, Japan (15%).  PROTON is now controlled by PETRONAS, however, since the latter bought a27.2% stake in the carmaker from HICOM in 2000.
31 Perusahaan Otomobil Kedua Sdn. Berhad is a join t-venture of local companies with Daihatsu Motor
Co Ltd (20%) and Mitsui & Co Ltd (7%) (PERODUA, 2001).
32 It would appear that market shares are affected by the down-payment requirements on loans for
vehicles:  15% for vehicles valued at RM 40,000 and below and 30% for vehicles over RM 40,000.  Bank
lending for purchases of passenger cars and commercial vehicles was around RM 1,800 million and aboutRM 1,200 million at  end 1999 and 2000.
33 Similarly, import tariffs on vans range from 5% to 40% for CKD vans and from 42% to 140% for
CBU vans.  Tariffs on multi-purpose vehicles are 10-40% on CKD vehicles and 60-200% on CBU vehicles.WT/TPR/S/92 Trade Policy Review
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automobile parts and components, except tractor parts (duty free), are subject to 25-30% tariffs,
(Table IV.4).34  Motor vehicles, chassis fitted with engine for ambulances and motor vehicles, chassis
not fitted with engine and parts thereof, bodies for ambulances, and road tractors for semi-trailers
(completely build up and old) are subject to discretionary import licencing.35  Imports of automotive
products and components/parts are not subject to quality control inspections;  there is no import
prohibition for products that do not conform to the various standards, except for seat belts, whichrequire import permits from SIRIM Berhad (Chapter III(4)(iv)).
Table IV.4
Tariffs on automotive products, 2001
Description Engine capacity (cc) Tariff on CBU Tariff on CKD
Cars Less than 1,800 140 42
1,800-2,000 170 42
2,000-2,500 200 60
2,500-3,000 250 70
3,000 and above 300 80
Multi-purpose vehicles Less than 1,800 60 10
1,800-2,000 80 20
2,000-2,500 150 30
2,500-3,000 180 40
3,000 and above 200 40
Vans Less than 1,800 42 5
1,800-2,000 55 10
2,000-2,500 100 30
2,500-3,000 125 40
3,500 and above 140 40
Road tractors for semi-trailers n.a. n.a. 30
Tractors for agriculture purposes n.a. n.a. 0
Other tractors n.a. 5-25 5-25
Buses n.a. 0 30
Parts of tractors n.a. n.a. 0-5
Multi-sourcing parts n.a. n.a. 42-80
LPG cylinders n.a. n.a. 0
Parts of other motor vehicles n.a. n.a. 25-30
n.a. Not applicable.
Source: Data provided by the Malaysian authorities.
27. Under the ASEAN Free Trade Area (AFTA) agreement, South-East Asian countries were to
have cut import duties on automobiles to 0-5% by 2003.  Malaysia asked for two-year extension to
meet this deadline covering 218 tariff lines on CKD and CBU automotive products;  the request was
approved by ASEAN Trade Ministers on 1 May 2000.
                                                                                                                                                                    
Motorcycles are subject to import tariffs of 30% on CKDs and 80-120% CBU.  Imports of tractors for
agriculture purposes are duty-free, and tariffs on road tractors and buses are zero for CKD and 30% for CBUvehicles.
34 Tariffs on multi-sourcing parts range from 42% to 80%; and the tariff on LPG cylinders is zero.
35APEC (2000a).Malaysia WT/TPR/S/92
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28. A number of internal taxes, such as sales tax at 10%, excise tax at various rates36, and road tax
at RM 0.13 to RM 3.16 per cc, based on engine displacement, are imposed on all vehicles.  National
cars receive 50% reduction in the excise tax.  All assemblers and manufacturers including PROTON
and PERODUA must source certain amounts of parts and components locally.  Local content of
passenger vehicles (including multi-purpose vehicles) up to 1,850 cc must be at least 60%;  for
passenger vehicles ranging from 1,851 cc to 2,850 cc and commercial vehicles up to 2,500 GVW(gross vehicle weight) it must be at least 45%; and for passenger vehicles above 2,851 cc and
commercial vehicles above 2,500 GVW must source "mandatory deletion programme" items locally.
Under the local-content policy for the automotive sector, there are 30 items on the mandatory deletion
list, which local automotive assemblers/manufacturers must source locally.
37  For commercial
vehicles above 2,500 GVW, this condition may be relaxed based on the recommendation of the Joint
Technical Committee on Local Content (JTCLC), a committee comprising component manufacturers.
All local assemblers including the national car manufacturers are subject to the same list.  Malaysia is
to phase out current local-content requirement on automobiles by 31 December 2001.
29. Malaysia’s promotion schemes for its motor vehicle industry notably include Pioneer Status
or Investment Tax Allowance under the Promoti on of Investment Act, 1986.  The industry is also
eligible for incentives for high technology industries, R&D, and training.  Imports of machinery and
equipment for manufacturing are exempt from import duty and sales tax if the goods in question are
not produced locally.
30. High levels of tariff protection together with other forms of assistance for the domestic
automotive industry might have been justified initially, on "infant industry" grounds, when the first
national car company was established in 1983 under the National Car Project (a Second National Car
Project involving a second company was started in 1993).  The stated objective of the policy was topromote domestic production and exports of automotive products.
38  The two national car companies
have secured large shares of the domestic market but few cars have been exported from Malaysia,
suggesting perhaps that the companies lack a ce rtain competitiveness in the world market, and
possibly raising questions about the net benefit of the assistance and its structure.  However, the
authorities maintain that, from development perspective, PROTON and PERODUA created about220 vendors (component suppliers), of which about 40 are regarded as having export capability.
(b) Electronics
31. The Malaysian electronics industry constituted approximately 2.5% of global electronics
output in 1999.
39  The sector is the largest contributor to Malaysia’s manufacturing output,
employment, and exports;  after a 4.2% decline in production in 1998, output growth of 22.5% wasrecorded in 1999 and 31.8% in 2000.
40  In 1999, the sector employed 361,100 people, around 16% of
total labour force in the manufacturing sector.
                                                     
36 Excise tax on multi-purpose vehicles is 45%, on vans 30%, commercial vehicles nil, and on cars
from 25% to 65% on cumulative basis, based on the car values.
37 Moreover, these items are not allowed to be imported as CKD parts.
38 Ministry of International Trade and Industry (1996).
39 MIDA (2001b).
40 As of July 2000, there were about 900 companies in Malaysia;  36 companies were engaged in the
production of semiconductors;  170 in passive components and display devices;  45 in computers, computerperipherals and data storage devices;  120 in telecommunication equipment;  40 in consumer electronicsBesides, more than 400 companies engaged in contract manufacturing and production of plastic moulded partsand components.WT/TPR/S/92 Trade Policy Review
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32. During the period 1996-2000, exports of electronics products more than doubled41;  they
accounted for 44.7% of total exports in 2000, up from 36.5% in 1997.  Semiconductor devices make
up the largest share of exports.  Principal markets for Malaysia's exports of electronics are the United
States, Singapore, Chinese Taipei, Japan, and Hong  Kong, China.  Imports of electronic products,
which are mainly used for further processing in the export-oriented electronics industry, have
increased alongside exports, although the rate of increase was lower than that of exports (Table IV.5).The United States is among the main sources of imports of electronic products.  Data provided by the
authorities indicate that duty-free imports comprised over 97% of total Malaysian imports of
electronic products during the period 1997-2000.
Table IV.5
Performance of Malaysia's electronics industry, 1996-2000
YearProduction
(1993=100)Output Employment Exports Imports
Index Growth RM Growth No. Growth RM Growth RM Growth
% (bil) % % (bil) % (bil) %
1996 163.3 12.6 76.0 7.0 329,100 5.1 64.6 13.8 68.0 6.6
1997 200.5 22.8 85.6 12.6 343,300 4.3 80.8 25.0 75.7 11.3
1998 192.1 -4.2 103.5 20.9 320,600 -6.6 114.2 41.3 96.6 27.6
1999 232.8 21.2 129.8 25.4 381,000 18.8 144.9 26.9 108.3 12.1
2000 337.2 44.8 167.1 28.7 416,976 9.4 166.8 15.1 141.0 30.2
Source: Information provided by the authorities.
33. The electronics industry accounted for 36.1% of total fixed assets held by foreign investors as
of 31 December 1998;  100% foreign equity participation has been allowed for export activities.  It is
the only sector where the majority of investment comes from foreign investors;  in 1999 and 2000,foreign investment constituted 84.5% and 83.6%, respectively, of approved capital investment in the
electrical and electronic product industries.
42
34. Based on average MFN tariffs applied to computing and accounting machinery, radio, TV,
and communication equipment43, the overall tariff fell during the period 1997-2001.  This is the
consequence of Malaysia becoming a signatory to the Information Technology Agreement (ITA),
which provides for the elimination of tariffs on most IT products (which are mainly electronics
products) by 2000, except for nine HS lines, on which tariffs will be eliminated by 2003, and for
20 lines on which they will be eliminated by 2005.44  Tariffs on electronic products have minimal
effect on imports of electronic products as most electronic components imported into Malaysia enter
for further processing in the export industry and therefore enjoy duty-free access.
                                                     
41 The sharp increase in electronics exports expressed in ringgits in 1998 was the result of a sharp
devaluation of the ringgit;  in terms of US$, this increase was only 1.1%.
42 Estimated from MIDA (2001c, 2001d, 2001e).
43 Between 1997 and 2001, the average tariff on office, computing, and accounting machinery declined
from 0.1 to nil, and the average tariff on radio, TV, and communication equipment was reduced from 8.3 to6.8% (WTO Secretariat estimates, based on data provided by the Malaysian authorities).
44 ITA Schedule of Malaysia.Malaysia WT/TPR/S/92
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(5) SERVICES
(i) Features
35. In 2000, services accounted for about 53.4% of Malaysia's GDP and 48.7% of employment.
Services, like other sectors, experienced a downturn in 1998, but recovered in 1999 and 2000.  In
2000, the sector grew by 4.8% in terms of value added at constant prices.  Malaysia continues to have
a large deficit in its services trade (Table I.1).
36. Services imports and exports may be delivered through cross-border supply, consumption
abroad, commercial presence, and the presence of natural persons.  For the delivery of a number of
services in Malaysia, a commercial presence is required.  Foreign professionals can be employed both
by foreign affiliates and Malaysian companies.  In both cases the number and category of
professionals are regulated by the Malaysian authorities.  By contrast, in the Multimedia SuperCorridor, all restrictions on foreign ownership and the presence of foreign professionals have been
removed, so as to facilitate the development of these projects.
37. Malaysia has signed and ratified the Fourth and Fifth Protocols of the GATS, covering basic
telecommunications and financial services, respecti vely.  Except for changes associated with these
Protocols, Malaysia's GATS Schedule has remained unchanged since its previous Review; sectors inwhich Malaysia has made commitments include professional services (such as legal services),
communication services, construction and related engineering services, financial services, health
related social services, tourism and travel related services, and transport services.
45  Malaysia has not
made any horizontal commitments covering cross-border supply and consumption abroad.
Commercial presence is generally limited to joint ventures in which equity by foreigners is limited to
15% by a single or grouped foreign interest or to an aggregate foreign interest of 30%.  Any proposed
acquisition of 15% or more of the voting power by any single foreign interest or associated group, orby foreign interests in the aggregate of 30% or more of the voting power of a Malaysian company and
business requires FIC approval.  However, a holding of more than 30% may be allowed on a case-by-
case basis, depending on the activities involved.  National treatment reservations have been taken for
all dealings in land, property, and real estate as well as for tax incentives and Bumiputera preferences.
38. The authorities maintain that no disputes concerning services trade have taken place since
1997.  Malaysia is a signatory to the ASEAN Fram ework Agreement on Services (AFAS), which was
signed on 15 December 1995.
(ii) Policy objectives for the sector
39. The Government considers that an efficient and competitive services sector would assume a
significant role in supporting the transformation of the economy as Malaysia strives towardsbecoming an industrialized nation by 2020;  it intends to liberalize the sector in a gradual and
progressive manner.  It envisages liberalization under the framework of GATS in accordance with
prevailing domestic fundamentals and the ability of the sector to accommodate changes without
impinging upon the orderly development of the sector.
                                                     
45 Malaysia's commitments on legal and tourism services, which are not mentioned elsewhere in this
report, include the following:  entry for legal services is permitted only through a corporation incorporated in theFederal Territory of Labuan;  and the services may only be supplied to offshore corporations established in theFederal Territory of Labuan:  and entry for tourism and travel related service activities is permitted only through ajoint venture with Malaysian individuals and/or Malaysian-controlled corporations.WT/TPR/S/92 Trade Policy Review
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40. Like in the manufacturing sector, Government-private sector consultations are a part of the
procedures in formulating Malaysia's policies and strategies in services.  The authorities maintain that
inputs and views from private sector organizations are fully taken into account in policy
formulation.46
(iii) Financial services
(a) Overview
41. In 2000, financial services (and real estate and business services) contributed around 12.5% to
GDP and around 5.5% to total employment, indicating that the sector's labour productivity is more
than twice the national level.  Although banking remains the largest manager of financial assets, its
share has declined gradually with the increasing  share of non-bank intermediaries in Malaysia
(Table IV.6).  The market share of the Employees Provident Fund (EPF), which is based oncompulsory contributions of employers a nd employees, has also gradually increased.
42. In principle, applications to provide any financial services require the approval of Bank
Negara Malaysia.  Companies involved in insurance, fund management, and securities brokerage may
have 51% foreign equity and at least 30% Bumiputera equity.  For companies involved in
finance/banking and venture capital, 70% of equity must be local comprising at least 30% Bumiputeraequity.  For companies involved in asset manage ment, 100% foreign ownership is allowed if the
companies manage only foreign investors' funds;  70% is allowed if managing both foreign and local
investors' funds.  Companies offering investment services may be 100% foreign owned if they offer
advisory service to the companies within the same group;  if the companies do not provide these
services, 51% foreign holding is allowed and at least 30% must be owned by Bumiputera.
43. Upon signing the Fifth Protocol of the GATS, Malaysia made changes to its 1995 GATS
commitments;  these are incorporated into the Gove rnment's current regulatory framework.  It bound:
51% ownership in existing joint-venture insurance companies by existing foreign shareholders that
were original owners of these companies;  trades for own account (or account of customers outside
Malaysia) that may be routed to member companies of the stock exchange for execution by a foreign
stockbroking company incorporated in Malaysia
47;  and six new licences for life reinsurance business
up to 30 June 2005.  It allowed: the establishment of majority or wholly foreign-owned fundmanagement companies;  up to 30% foreign shareholding in the Malaysian National Reinsurance
Berhad and the Malaysian Life Reinsurance Group Berhad;  five experts for each commercial bank or
merchant bank in trade financing, corporate finance, treasury management and information
technology;  and new entry into offshore investment banking services.
48
44. In 1999, Malaysia unilaterally relaxed its regulation restricting offshore banks and offshore
investment banks to lend in foreign currencies only.49  On 7 July 1999, the Controller of Foreign
Exchange agreed to allow Labuan Offshore Banks to grant medium- to long-term financing
denominated in ringgit to specific groups of resident companies that are undergoing financial
restructuring under the Corporate Debt Restructur ing Committee, or involved in infrastructure
                                                     
46 Examples of such associations are the Bar Council, the Malaysian Institute of Accountants, the
Institution of Engineers Malaysia, the Institute of Surveyors, the Real Estate and Housing DevelopersAssociation, Association of Banks, the Construction Industry Development Board, Malaysian Travel and Tour
Association, the Association of Private Hospitals, the Malaysian Medical Association, and a number of other
relevant bodies.
47 Subject to terms and conditions, yet be finalized.
48 WTO document GATS/SC/52/Suppl.3, 26 February 1998.
49 These changes were not bound in Malaysia's GATS Schedule.Malaysia WT/TPR/S/92
Page 81
projects, and multimedia companies accorded Multimed ia Super Corridor status, subject to certain
conditions.
45. The Securities Commission, the regulatory authority for securities and futures, has made a
concerted move towards a more disclosure-based regulatory regime for public-listed companies;  the
Commission also focuses on enhancing corporate governance standards for such companies
(Chapter III(4)(ix)).50  With a view to the overall long-term development of the capital market, the
Securities Commission has also released a Capital Market Masterplan, which is aimed at attaining
further deregulation and liberalization for the development of the Malaysian capital market.
Table IV.6
Share in total assets of the financial system by institution, 1997-2000
(RM billion and per cent)
1997 1998 1999 2000
Total (RM billion) 1,117.2 1,093.1 1,172.3 1,243.0
Shares in total (per cent)
Bank Negara Malaysiaa9.8 11.4 12.5 12.0
Banking system 63.0 58.7 56.0 54.8
Commercial banks 43.6 42.0 41.2 41.3
Finance companies 13.6 11.3 9.9 8.8
Merchant banks 4.0 3.6 3.3 3.0
Discount houses 1.9 1.8 1.6 1.7
Provident, pension and insurance funds 17.1 19.4 20.6 21.7
Employees provident fund 11.9 13.5 14.3 14.9
Other provident funds 2.0 2.3 2.4 2.6
Life insurance funds 2.2 2.4 2.7 3.1
General insurance funds 1.1 1.2 1.2 1.1
Development finance institutionsb1.4 1.8 1.9 2.0
Savings institutionsc1.7 1.7 2.2 2.6
Other financial intermediariesd7.0 7.0 6.8 6.9
a Includes Bank Negara Malaysia and Currency Board.
b Includes Malaysian Industrial Development Finance Berhad (MIDF), Agricultural Bank of Malaysia, Borneo Development
Corporation, Sabah Development Bank Berhad, Saban Credit Corporation, Development Bank of Malaysia, and Industrial BankBerhad.
c Includes National Savings Bank, Bank Kerjasama Rakyat, and the co-operative societies.
d Includes unit trusts, building societies, Pilgrims Management Fund Board, Credit Guarantee Corporation, and Cagamas Berhad.
Source: Bank Negara Malaysia (various issues), Annual Report , Kuala Lumpur.
46. Prudential regulation of the banking sector is particularly important as no private or public
deposit-insurance system exists. Malaysia discontinued the two-tier regulatory system on
7 April 1999.  No banking institutions have gone bankrupt since 1997;  however, two ailinginstitutions have been merged with other banking institutions.  An insurance guarantee scheme fund
(IGSF) for general insurance business, mainly funded  by levies from general insurers, was established
in 1997;  the IGSF has been used to partially meet the liabilities of three insolvent insurers, which
went into liquidation.  A new Insurance Act was brought into force on 1 January 1997 with a view to
strengthening regulation of the insurance industry.
                                                     
50 The corporate governance initiative is pursuant to the recommendations made in the Finance
Committee Report on Corporate Governance, which was released to the public on 26 March 1999.  The Reportcovers three broad areas:  the development of the Malays ian Code on Corporate Governance;  reform of laws,
regulations and rules;  and training and education.  The Finance Committee on Corporate Governance wasestablished in 1998.WT/TPR/S/92 Trade Policy Review
Page 82
(b) Banking
47. Malaysia's banking system has suffered from the downturn in the economy after the outbreak
of the Asian financial crisis, and the collapse of property and stock markets.  In 1998, it recorded a
decline in assets, pre-tax loss coupled with negative loan growth, and increase of non-performing
loans (NPLs) (Table IV.7).
Table IV.7
Performance of the Malaysian banking system, 1996-2000
(RM million and per cent)
Financial year  ending 1996 1997 1998 1999 2000
Net interest income 13,389 16,713 14,856 14,873 18,550
Pre-tax profit 8,721 7,655 -5,732 4,660 9,669
Total capitala45,210 58,788 60,403 59,936 63,817
Loans 319,305 401,865 394,422 373,840 390,253
Deposit 358,088 434,299 432,404 447,292 460,268
Non-performing loans (6 months)b12,480 25,053 52,406 46,241 48,157
Non-performing loans (3 months) .. .. 76,953 64,930 63,122
Loans /deposit (%) 89.2 92.5 91.2 83.6 84.8
Return on assets (%) 2.0 1.3 -0.9 0.7 1.5
Return on equity (%) 27.5 17.5 -12.3 9.8 20.4
General provisions ratio (6 months) -%c,b1.8 2.0 2.2 2.2 2.2
General provisions ratio (3 months) -%c.. .. 2.0 1.9 1.9
Net NPL ratio (6 months) -%d, b 1.9 4.1 8.1 6.4 6.3
Net NPL ratio (3 months) -%d.. .. 13.6 11.0 9.6
Risk weighted capital ratio (%) 10.4 10.5 11.8 12.4 12.3
.. Not available.
a Total capital = Tier 1 capital + Tier 2 capital.
b For years 1996 and 1997, NPL, general provisions ratio and net NPL ratio are based on actual classification.c General provisions ratio = General provisions/(gross loans - interest in suspense - specific provisions).
d Net NPL ratio = (NPL - interest in suspense - specific provisions)/(gross loans - interest in suspense - specific provisions).
Note: All data are excluding Islamic banks.
Source: Bank Negara Malaysia (2001), Annual Report 1997  [Online].  Available at:
http://www.bnm.gov.my/pub/ar/1997/bk_en.pdf 19 February 2001.  Bank Negara Malaysia (2001), Annual Report
1998  [Online].  Available at:  http://www.bnm.gov.my/pub/ar/1998/1998bk_en.pdf 19 February 2001.  Bank
Negara Malaysia (2001), BNM Periodic Reports  [Online].  Available at: http://www.bnm.gov.my/pub/index.htm
21 February 2001.  Economic Planning Unit (2001), Investment Indicators [Online].  Available at:
http://www.epu.jpm.my/kei/key_economic_indicators.html 22 February 2001.
48. Banking services are provided by commercial banks, finance companies, merchant banks,
discount houses, and credit guarantee cooperations.  The number of banks has decreased since 1995;
as of 30 June 2001, there were 27 commercial banks (including 2 Islamic banks)51, 12 finance
companies, and 10 merchant banks licenced in Malaysia.52  The operation of banking institutions is
governed by the Banking and Financial Institutions Act, 1989, while the Islamic banks are governed
by Islamic Banking Act 1983.  The activities of offshore banking business are governed by the
                                                     
51 The second Islamic bank (Bank Muamalat Malaysia Berhad) commenced operations in
October 1999.
52 In 1995, there were 37 commercial banks, 40 finance companies, and 12 merchant banks licenced in
Malaysia.Malaysia WT/TPR/S/92
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Offshore Banking Act 1990.53  Banking licences are granted by the Minister of Finance upon the
recommendation of BNM.  No new banking licences, except for offshore banking licences, have been
awarded to foreign or local investors since 1997.
49. Bank Negara Malaysia (BNM) has overall supervisory and regulatory responsibility for
banks.  The supervisory process is conducted via on-site examination as well as off-site supervision
by BNM.  All foreign banks must be locally incorporated to operate in Malaysia.54  The parent banks
of such locally incorporated foreign-owned bank s are allowed to hold 100% interest in their
Malaysian subsidiaries;  for companies involved in insurance, fund management and securities
brokerage, 51% foreign equity is allowed, and at least 30% Bumiputera equity is required;  in contrast
to insurance institutions, there is no requirement for divestment of share-holding in favour of
Malaysian interests.  Foreign parties may also acquire up to an aggregate of 30% equity interest inexisting Malaysian-owned banks.  There are no fo reign-ownership restrictions for offshore banks in
the Labuan International Offshore Financial Centre;  entry can be in the form of a branch or a
subsidiary.  Three investment bank licences in offshore banking have been issued since 1997.
55
Foreign banks can extend loans only in partnership with domestic banks.
50. Out of 27 commercial banks, 14 are foreign owned.  In 2000, these foreign-owned banks
controlled about 24% of total assets, gross loans, and deposits in the commercial banking sector.  As
at 31 December 2000, finance companies and merchant banking industries had 1.6% and 3.9% foreign
equity participation, respectively.  Although new branches and automatic teller machines are being
authorized for domestic banks, foreign banks may not establish new branches, including off-site
automatic teller machines.
51. Since March 1998, financial institutions have been required to publish and report key
indicators of financial soundness, such as NPLs and capital adequacy, both at bank level and onconsolidated basis, on a quarterly basis (for listed banking institutions) or half-yearly basis (for all
other banking institutions).  On 25 March 1998, BNM announced an increase in the minimum risk
weighted capital ratio of finance companies from 8% to 9% by the end of 1998 and to 10% by the end
of 1999, and an increase in the minimum capital funds from RM 5 million to RM 300 million by mid-
1999 and subsequently to RM 600 million by the end of 2000.
56
52. In 1998, the BNM introduced a programme to consolidate finance companies into fewer
institutions;  to this end, the Government provided  incentives including an exemption from stamp duty
and from real property gains tax, and tax credit amounting to 50% of the accumulated losses of
banking institutions to be acquired.57  The programme was extended in 1999 to all domestic banking
institutions, and on 14 February 2000, the Government  granted approval for the formation of ten
banking groups, which were completed by the end of 2000.58  Currently, the five largest banking
groups in terms of asset size account for 55% of the banking system's gross loans and deposits.  The
largest banking group is more than double the size of the second largest group, accounting for
approximately 20% of the market.  No monopoly banking activities are allowed by law.  While there
is no competition law encompassing the banking sector, based on the recommendations in theFinancial Sector Masterplan (FSMP), the authorities intend to develop anti-trust regulations.
                                                     
53 APEC (2000a).
54 A foreign bank is a bank that is incorporated in Malaysia and is majority owned by foreign parties.
55 APEC (2000a) and Oh (2001).
56 Bank Negara Malaysia (2001f).
57 Bank Negara Malaysia (2001g).
58 Accordingly, 51 of 54 existing banking institutions were consolidated into the ten banking groups,
and 96% of the total assets of the domestic banking sector were consolidated.WT/TPR/S/92 Trade Policy Review
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(c) Insurance
53. After a decade of rapid growth, the Malaysian insurance sector experienced a setback in 1998
against the backdrop of the Asian financial crisis.  The combined premium income of life and general
insurance sectors declined from RM 11.1 billion in 1997 to RM 10.9 billion in 1998 (Table IV.8).  A
recovery has been observed since 1999; total premiums grew in 1999 by 8.5% and by 17.7% in
2000.59  Reinsurance premium placed outside Malaysia has declined gradually and the domestic
retention rate of Malaysian insurance business increased over the last five years.60  Total insurance
fund assets amounted to RM 50.6 billion (US$13.3 billion) in 2000;  they comprised mainly private
debt and corporate securities, government papers, loans, cash and deposits, and properties.  Insurance
fund assets represented 4.1% of GNP in 2000.
Table IV.8
Overview of Malaysian insurance sector, 1996-2000
1996 1997 1998 1999 2000
Number of registered companies 145 146 147 145 141
Direct life insurance 5 7 7 7 7
Direct general insurance 40 40 40 38 36
Direct composite insurance 13 11 11 11 10
General reinsurance 7 8 9 10 9
Composite reinsurance 0 0 0 0 1
Life reinsurance 0 1 1 1 1
Insurance brokers 37 37 37 37 36
A d j u s t e r s 4 34 24 24 14 1
Life insurance agents 92,018 84,667 88,764 88,786 87,375
General insurance agents 25,222 29,177 33,695 37,864 41,233
Total premium (RM million)a 9,714.6 11,132.3 10,902.9 11,829.9 13,928.2
Per cent of GNP 4.1 4.2 4.1 4.2 4.1
Life insurance premium (RM million) 5,209.2 5,970.7 6,217.2 7,152.7 8,870.3
General insurance premium (RM million) 4,505.4 5,161.6 4,685.7 4,677.2 5,057.9
General reinsurance placed outside Malaysia 1,164.7 912.6 737.2 651.2 420.8
Retention rate (%) 79.5 85.0 86.4 87.8 89.6
Insurance funds assets (RM million) 30,926.4 34,958.5 39,324.5 45,397.3 50,571.0
Life insurance assets (RM million) 20,729.4 23,306.7 26,314.8 31,707.0 36,777.3
General insurance assets (RM million) 10,197.0 11,651.8 13,009.7 13,690.3 13,793.7
a Net of reinsurance premium placed with and outside Malaysia.
Source: Bank Negara Malaysia (2001l), Insurance Annual Report 2000 Chart 2: Insurance Key Indicators  [Online].
Available at:  http://www.bnm.gov.my/pub/dgi/1999BI/Chart-2.pdf 26 February 2001; and Bank Negara Malaysia(2001), " Life and General Insurance Funds Statement of Assets"  [Online].  Available at:
http://www.bnm.gov.my/pub/msb/200012/iv_02.pdf 26 February 2001.
54. The insurance sector in Malaysia comprises li fe and general insurers (direct insurers and
professional reinsurers), insurance brokers, adjusters, and registered agents.61  Currently, out of
                                                     
59 Bank Negara Malaysia (2001h).
60 Bank Negara Malaysia (2001c, 2001j, 2001k).
61 In addition to the conventional insurance activities, insurance services on Islamic principles
(Takaful) have been provided by two companies in Malaysia;  these companies operate both family takaful andgeneral takaful business.  Products offered by Family Takafuls include individual plans, mortgage plans, creditMalaysia WT/TPR/S/92
Page 85
63 insurers, 23 are foreign owned.  Foreign shares accounted for 72% and 36% of total life and
general premium, respectively, for the year 2000.  At the end of 2000, there were 832 insurance
branch offices, 30 brokers and 105 loss adjusters branch offices.62  Total employment in the insurance
industry (excluding insurance agents) increased slightly from 19,480 in 1996 to 21,780 in 2000
(figures as at June of the respective years).  At the end of 2000, foreign shares amounted to 42%, 64%
and 58% of total equity, assets, and premiums in the insurance industry.  As at December 2000, therewere 83 offshore insurance and insurance-related companies in Labuan.
55. The insurance industry in Malaysia is regulated by the Insurance Act 1996, and offshore
insurance by the Offshore Insurance Act 1990.
63  Bank Negara Malaysia (BNM) is in charge of the
overall supervision of Malaysia's insurance sector.  A company wishing to engage in general
insurance and reinsurance business must obtain a licence issued under the Insurance Act 1996.Application for a licence is made to the BN M, which reviews the application and makes a
recommendation to the Minister of Finance on whether a licence should be granted and the
conditions, if any, to be applied.  Licences are issued by the Minister of Finance.  Currently, no new
licences are being issued for the conduct of dire ct insurance business pending the consolidation of
existing insurers in the industry.  Licences for in surance broking or loss adjusting business are issued
by BNM.  Insurance agents are not licenced by BNM but registered by the mandatory trade
associations.  Since 15 February 1996, offshore insurance activities have been supervised by the
Labuan Offshore Financial Services Authority.
56. Under the Insurance Act 1996, insurers are requ ired to maintain the statutory minimum
margin of solvency.  Except for the restriction on investments of the Malaysian insurance fund in
foreign assets, there are no restrictions on the investment of assets exceeding the amount required to
satisfy the minimum margin of solvency.
57. Pursuant to Section 12 of the Insurance Act 1996, direct insurers are prohibited from carrying
on both life and general insurance businesses;  this prohibition is not applicable to an insurer that was
lawfully carrying out both businesses on the date the Act entered into force (1 January 1997).  BNM
approval is required for an insurer to conduct businesses other than insurance business;  to date, the
BNM has not allowed any insurer to offer banking services.
58. Insurers must be incorporated in Malaysia;  di rect branching is permitted only in the case of
reinsurance.  A locally incorporated insurer must obtain the approval of the BNM prior to opening any
office in or outside Malaysia, while for a branch of a foreign reinsurer, approval is necessary only for
the opening of an office in Malaysia.  Entry by foreign insurers into the Malaysian insurance market is
currently permitted through investment in existing  insurance companies, subject to an aggregate
foreign shareholding limit of 30%.  For existing jo int-venture insurance companies, existing foreign
shareholders that were the original owners of the companies are allowed to own up to 51% of the total
shares.  For the insurance sector, foreign equity ownership of up to 51% is allowed and at least 30%
of the total equity must be held by Bumiputera.  Insurers with foreign shareholding exceeding the
permitted level are required to divest to meet the permitted level.  As at October 2000, seven newlicences for non-life reinsurance business and one licence for life reinsurance business had been
                                                                                                                                                                    
plans, group term, and hospital plans, while General Takafuls mainly offer marine, motor, life, personal
accident, and engineering cover.  Takafuls are regulated under the Takaful Act 1984.
62 With effect from 1 December 1998, eligible offshore insurers were allowed to underwrite selected
liability and large and specialized risks on a co-insurance basis and sell ordinary life policies and investment-linked products to high net-worth Malaysian residents (Bank Negara Malaysia, 2001j).
63 Recent policies and measures implemented in the insurance sector are described in Bank Negara
(2001l), Chapter 2.WT/TPR/S/92 Trade Policy Review
Page 86
issued to foreign reinsurers since 1995.64  On 19 July 1999, BNM invited applications for the six
licences for professional life reinsurance business offered under Malaysia's GATS Schedule.65  A
director, chief executive officer or manager of a licenced insurer must not be disqualified under the
Act, must fulfil minimum "fit and proper" criteria set out in the Regulations, and except for a non-
executive director representing a foreign shareholder, must reside in Malaysia throughout the period
of his appointment.
59. A degree of self-regulation by the industry is also practised through market agreements, rules
and codes issued by the four mandatory associations representing general insurers, life insurers,
insurance brokers, and loss adjusters.  General insurers, for example, adopt an inter-company
agreement for general insurance business.  Insurance agents are subject to registration requirements
enforced by the life and general insurance associations.  Under a guideline issued by the BNM,insurers are not permitted to engage in any unfair or deceptive acts or conduct that constitute unfair
trade practices.
66
60. There are no legal obligations on domestic economic operators to use specified companies or
in-house funds for specified insurance activities.  Motor insurance coverage for third-party death and
injury is compulsory under the Road Transport Act 1987 for all vehicles travelling on Malaysianroads;  the premium rate is specified in the motor tariff.  Foreign Workers Compensation Scheme
cover, under the Workmen’s Compensation Act 1952, is also compulsory.  Under a market
agreement, insurers must cede a percentage of business written to the national reinsurer, Malaysian
National Reinsurance Berhad (MNRB).
67
61. Approval is not required before a new insurance product is offered to the public.  In the case
of life insurance products, an insurer must notify the particulars of a new product to the BNM at least
30 days before offering the product to the public.  Tariffs for fire and motor insurance businesses,specifying the minimum level of premiums that may be charged by insurers, are set by the industry
and approved by the BNM.  Tariff reviews proposed by the industry are subject to the BNM approval.
The authorities intend to remove such minimum pr icing regulation gradually once the market is ready
to compete on the basis of services rather than premium pricing.
62. In view of difficulties faced by some insurers in 1998, the minimum capital requirement for
direct insurers was reduced to RM 35 million; for other insurers the requirement was kept at
RM 50 million.  Following the recovery of insurance business, the minimum capital requirement for
direct insurers was reinstated to RM 40 million by 31 December 1999, to RM 50 million by
31 December 2000, and to RM 100 million by 30 June 2001.  In line with the revision of the
minimum capital requirement, the solvency margin for all insurers was reduced to RM 30 million, tobe achieved by 1 January 1999;  the margin was raised to RM 40 million, to be achieved by
1 January 2000, and to RM 50 million, by 1 January 2001.
68  Minimum paid-up share capital
requirements for insurance brokers and adjusters unimpaired by losses remained unchanged during
this period (RM 500,000 and RM 150,000 respectively).
                                                     
64 APEC (2001b).
65 Bank Negara Malaysia (2001m).
66 These include entering into any agreement to co mmit any act of boycott, coercion or intimidation
resulting in a market monopoly of insurance business.
67 The level of cessions to MNRB under the agreement, which commenced in 1973, was reduced in
1999 (the level of cessions varies by class from 7.5% to 25%), with a view to giving direct insurers an
opportunity to retain a higher proportion of risks for th eir own account.  The authorities are of the view that
these market arrangements have played a vital role in helping to develop domestic capacity.
68 The BNM also revised the ratio of admitted assets for margin of solvency on three occasions:  70%
by January 1999, 90% by January 2000, and 100% by January 2001.Malaysia WT/TPR/S/92
Page 87
63. In order to promote life insurance business, 12 insurers had been given approval to carry on
investment-linked insurance business by the end of 2000.69  On 10 May 2000, the Prudential
Framework of Corporate Governance for Insurers was issued, to enhance the corporate accountability
of insurers and promote the interest of their stakeholders.70  Accordingly, each insurer was required to
set up its own internal audit department by 31 December 2000.
(iv) Telecommunications
(a) Structural change in the telecommunications sector
64. The telecommunications sector in Malaysia has continued to grow since 1997.  The number
of resident and business telephone lines increased from 3.8 to 4.4 million between 1996 and 1999,
with a penetration rate (i.e. number of telephones per 100 persons) of 20.3% in 1999.  At the end of
2000, the total number of cellular phone subscribers reached 5.1 million.71
65. As of 1 June 2001, there were six network facility providers.72  Equity in four
telecommunications companies in Malaysia was partly held by foreign investors;  foreign ownership
ranged from 21% to 52%.73  The main provider is Telekom Malaysia Berhad, which holds about 95%
of the fixed line market.  Telekom Malaysia has a de facto  monopoly to provide back-bone
infrastructure in the Multimedia Super Corrid or, on the grounds that the company possesses the
relevant infrastructure to do so.
66. In the cellular mobile communication sector, there were five companies with eight licenced
cellular networks providing services as of June 2000;  the largest company, through its two cellular
networks, captured 33.5% of total mobile subscribers.  Since 1997, the number of Internet service
providers has increased from two to seven (five new licences were issued in 1998).  The two
companies that had licences earlier remain the only Internet service providers offering nationwide
coverage.74  The types of services provided by the licenced telecommunication operators are listed in
Table IV.9.
Table IV.9
Market structure of telecommunication and multimedia in Malaysia, 2001
Type of service Licences granted Number of subscribers
Domestic network operators 7 4.6 milliona(as of 2000)
International network operators 5 ..
Cellular/personal communication services 8 5.1 million (as of 2000)
Internet service providers 7 1.7 millionb(as of 2000)
Paging services 30 .. (as of 2000)
Pay phone & public facsimile services 4 149,300c(as of 2000)
Trunk radio system 17 ..
Very small aperture terminal services 5 ..
Table IV.9 (cont'd)
                                                     
69 Specific approval is not required for a licenced insurer to provide health and medical insurance.
70 Bank Negara Malaysia (2001h).
71 Ministry of Energy, Communications & Multimedia (2001).
72These companies include Telekom Malaysia Bhd; Celcom (Malaysia) Sdn. Bhd., Maxis
Communications Bhd.;  Digi Telecommunications Sdn. Bhd; and Time dotCom Sdn.
73 The authorities indicate that the degree of foreign equity participation in Telecom Malaysia is
difficult to ascertain since the shares are floated.
74 One company offers Internet service only in Kuala Lumpur and was supposed offer countrywide
coverage by the end of 2000;  the four others are yet to start commercial operations.WT/TPR/S/92 Trade Policy Review
Page 88
Type of service Licences granted Number of subscribers
CT2/telepoint service 1 ..
Financial electronic transaction 3 ..
Radio maritime service 8 ..
Mobile satellite services 4 ..
Telecommunications satellite network services 1 ..
Radio location services 3 ..
Satellite broadcasting services 2 ..
Mobile data services 3 ..
Mobile radiocommunication services 1 ..
Private information services 3 ..
Public electronic data interchange service 1 ..
Value added network data services 55 ..
Value added services (premium rate) 19 ..
Telecommunication personal services 1 ..
Public internet kiosk services 1 ..
Power line carrier 3 ..
Wireless video communication network 1 ..
Private telecommunication network 3 ..
Common subscriber directory services 1 ..
Community interactive multimedia services 1 ..
Amateur satellite 1 ..
Broadcaster-radio 12 ..
Broadcaster-television 8 ..
.. Not available.
a Overall fixed-line subscribers.
b Dial-up subscribers.
c Number of payphones only.
Source: Malaysian Communications and Multimedia Commission (2001),  List of Licensees Under The Repealed Acts
[Online].  Available at:  http://www.cmc.gov.my/licenframe-repealed.htm 15 March 2001.
(b) Policy objective and regulating authority
67. With the objective of emphasising the convergence of telecommunications, broadcasting, and
information technology, a new Communication and Multimedia Act 1998 (CMA) was promulgated75,
and the Ministry of Energy, Telecommunications and Post was restructured and renamed the Ministryof Energy, Communications and Multimedia, established in 1998.  At the same time, the Malaysian
Communications and Multimedia Commission Act (MCMCA) 1998, enacted with effect from
1 November 1999, established the Communications and Multimedia Commission (CMC).  The
Multimedia Super Corridor is being established with a view to making Malaysia a major global centre
for communications and multimedia information services.
76
                                                     
75 Accordingly, the Telecommunication Act 1950 and Broadcasting Act 1988 were repealed.
76 The Corridor is 50 kilometres long and 15 kilometres wide stretching from Kuala Lumpur City
Centre in the north to the Kuala Lumpur International Airport at Sepang in the south.  Within the Corridor,
investors are eligible for duty-free imports of multimedia equipment, income tax exemption, and investment taxallowance up to ten years; 100% foreign ownership is allowed, fast-track processing of visas for foreignprofessionals apply, and there are no restrictions on the number of foreign professionals that can be employedper company.Malaysia WT/TPR/S/92
Page 89
68. The Ministry of Energy, Communications and Multimedia is responsible for the formulation
of policies and long-term planning of the telecommunications sector77, while the CMC is responsible
for the supervision, with a view to encouraging competition and ensuring orderly and efficient
development of telecommunications services.  Th e CMC is also empowered to develop a spectrum
plan and issue spectrum assignment, apparatus assignment, and class assignment, and represents
Malaysia in various international telecommunications fora.78
69. The CMA has introduced the concept of self-regulation and provides for formation of various
industry fora to prepare voluntary industry codes with respect to access and interconnection, technical
standards, consumer matters (including the protection of customer information), and content.
Compliance with a registered industry code of conduct constitutes defence against any action in court.
If voluntary codes are not complied with, the Commission may impose mandatory codes of conduct.79
(c) Licences and their conditions
70. The licensing regime under the CMA is based on network and application services rather than
telecommunications and broadcasting.  Licences are granted to four categories of service providers:
network facilities providers (NFPs)80, network services providers (NSPs)81 application services
providers (ASPs)82, and content application services providers (CASPs).83  The Minister for Energy,
Communications and Multimedia has discretion in granting licences, determining policies and issuing
regulations, while the CMC advises the Minister and enforces policies and regulations.  Since 1997,
no new licences have been issued for basic and mobile telephony services.
71. Two types of licences, individual and class84, are issued for each category of service.85  A
number of services are not subject either to individual licences or to registration requirements under
                                                     
77 Until 31 March 1999, the telecommunications industry was regulated by the Malaysian
Telecommunications Department (Jabatan Telekom Malaysia, JTM), while the broadcasting industry wasregulated by the Ministry of Information.
78 CMC participates in the activities of the International Telecommunications Union (ITU), the
International Telecommunications Satellite Organization (INTELSAT), the International Maritime Satellite
Organization (INMARSAT), the Asia-Pacific Telecomm unity (APT), the APEC meetings dealing with
telecommunications, bilateral meetings on frequency coordination of satellite networks and Joint TechnicalCommittees between Malaysia and Thailand, and cooperation with ASEAN dialogue partners.
79 Malaysian Communications and Multimedia Commission (2001a).
80 Network facilities providers are owners of facilitie s such as satellite earth stations, broadband fibre
optic cables, switching equipment, radio communications and broadcasting transmission equipment, mobile
communications base stations, etc.
81 Network service providers provide the basic connectivity and bandwidth to support a variety of
application services.  Their services include bandwidt h, broadcasting distribution, cellular mobile, customer
access, mobile satellite services, etc.
82 Applications service providers provide particular functions such as voice services, data services,
content-based services, and electronic commerce and othe r transaction services.  Applications services are
essentially the functions or capabilities that are delivered to end-users.
83 Content Applications Service Providers are a sp ecial subset of applications service providers
including those providing traditional broadcast services, limited or closed content services, and the newerInternet content services.
84 An individual licence is subject to a higher degree of regulatory control than a class licence.  A
person operating under a class licence is required only to register with the CMC.
85 Under the old licensing regime, a telecommunication company was required to hold a separate
licence for each service provided by the company.  However, under the new arrangement the company will holdthree licences:  a network facilities provider licence, a network service provider licence, and an application
service provider licence.WT/TPR/S/92 Trade Policy Review
Page 90
class licences.86  An existing company that intends to operate with an old licence must register with
the CMC and indicate whether it intends to seek a new licence under the CMA.  Under the CMA,
individual licences are granted to any entity ot her than a foreign company as defined under the
Company Act, 1965, an individual or a sole proprietorship, and a partnership;  the class licence is
granted to any persons/entities other than a foreign individual or company.87
72. For fixed line and mobile service providers, an individual licence is required;  no licence has
been issued since 1997 in these services because the authorities regard the current number of
providers as adequate.  ISP (internet service provider) services and content providers are liberalized
and now require only a class licence.  Fixed-line local and STD calls are still regulated.
73. Foreign equity participation of up to 30% is generally allowed in the network facilities
provider business, as stated in Malaysia's GATS Schedule;  higher participation may be allowed on acase-by-case basis.
74. Under the CMA, a price-cap mechanism maintained since 1996, both on fixed and cellular
services, was abolished for the mobile telephony;  the cap still applies to fixed line telephony.
88
75. On 1 January 1999, "Equal Access" to fixed-line services came into effect;  Equal Access
refers to subscribers' rights to choose any network to route their long-distance and international calls.An Access List to facilitate Interconnection has been determined by CMC.  Call-back services are not
allowed in Malaysia, while the use of international calling cards is permitted.  Telekom Malaysia has
been the sole provider of universal services in Malaysia.
89 Prior to 1999, Telekom Malaysia was
subject to the universal service requirement without receiving any contribution from other licenced
network operators.  Since 1999, however, all networ k operators have been required to contribute to
the cost of providing universal service.
(d) WTO commitments
76. Since Malaysia's previous Trade Policy Review, there have been no changes in its GATS
Schedule of commitments in telecommunication services.  In its Schedule, Malaysia guarantees
market access and national treatment for specific basic telecommunications services involving up to
30% equity of existing public telecommunications operators.  Malaysia has not fully adopted the
reference paper, nor has it made any commitments for future liberalization of the market.  Sector-specific commitments incorporated in Malaysia's GATS Schedule cover value-added services that are
provided from channels or lines obtained from licenced network operators.  Market access through
commercial presence is assured for data and transmission services, mobile data services and telex and
telegraph services.  Commercial presence is to be re alized through a locally incorporated joint venture
or through partial acquisition of an existing licenced value-added services operator.
                                                     
86These services include incidental network facilities, Internet cross-connect equipment, private
network facilities, incidental network services, electroni c transaction service, interactive transaction service,
web hosting or client server, and LAN service.
87 Malaysian Communications and Multimedia Commission (2001b).
88 In 1996, under a tariff re-balancing exercise, the Government introduced a price-cap mechanism on
fixed and cellular services.
89 Malaysian Communications and Multimedia Commission (2001c).Malaysia WT/TPR/S/92
Page 91
(v) Transport
(a) Air transport
77. The economic slowdown in Malaysia in 1998 reduced the air traffic volume of passengers
and cargo, although the volume increased in subsequent year in line with economic recovery
(Table IV.10).  There are currently four locally incorporated airlines providing domestic and
international air services. 90  Since 1997, no new airlines have been established in Malaysia.
Table IV.10
Traffic handled at Malaysian airports, 1996-2000
1996 1997 1998 1999 2000
Passengers (total '000) 28,873 30,465 27,008 28,835 30,227
Domestic ('000) 18,129 19,441 16,277 17,090 18,544
International ('000) 10,744 11,024 10,731 10,945 11,683
Cargo (total tonnes) 541,416 617,324 524,766 543,003 719,752
Discharged (tonne) 268,468 294,782 258,062 270,965 394,448
Loaded (tonnes) 272,948 322,542 266,704 272,038 325,304
Aircraft movements (total '000) 406 441 425 389 362
Domestic ('000) 337 314 284 298 263
International ('000) 104 111 105 108 99
Source: Economic Planning Unit, (2001), The Malaysian Economy in Figures 2001 (updated edition), Prime Minister's
department,  pages 29 and 30  [Online].  Available at: http://www.epu.jpm.my/eif99/ENERGY_10.html
20 March 2001.
78. The national carrier, Malaysian Airlines System (MAS), which has recently recorded losses
and a high debt has the largest market shares91; in 1999, it accounted for 56% and 50% of total air
traffic volumes for passengers and cargo, respectively.92  In the national interest, MAS is required to
fulfil certain "social obligations", which include, inter alia, providing services on some unprofitable
domestic routes that entail operating losses for which MAS is not compensated.  After selling 29.09%
of its stake in MAS to a domestic investor in 1994, the Government bought back this stake on
20 December 2000, paying more than double the going market price for the shares.93  As a result, the
Government raised its holding in MAS from 20% to just over 50%, thereby regaining control of the
airline.  Much of this holding is through government-linked investment companies (notably KhazanahHoldings
94) and the Employees Provident Fund (EPF).  This move constituted a departure from the
broader trend towards privatization of state-owned enterprises.  Earlier in 2000, the Government had
relaxed the foreign ownership limitation in MAS from 30% to 45%, possibly clearing the way for
foreign entities to take a stake in the national carrier;  data on current foreign shareholding in MAS
were not available to the Secretariat.
                                                     
90 These are Malaysian Airlines, Air Asia, Transmile Air, and Pelangi Air.
91 Having announced losses of RM 1.33 billion for th e year ending March 2001, it is expected to take
three years for MAS to return to profitability.
92 Volumes are estimated from the figures available in Economic Planning Unit (2001d and 2001e).
Malaysian Airlines is ranked 15th in the world in terms of total tonne kilometre performed (international
operation), (ICAO, 2001).
93 On 19 December 2000, the closing price for MAS shares was RM 3.68;  the price paid by the
Government was RM 8.
94 Khazanah, a wholly owned company of the Ministry of Finance (Incorporated), is the investment
holding arm of the Government of Malaysia.  Its primary objectives are to manage the investments entrusted toit by the Government and to undertake strategic investments particularly in high technology products (seeKhazanah online information available at:  www.khazanah.com.my/introduction.htm).WT/TPR/S/92 Trade Policy Review
Page 92
79. Air transport is regulated by the Ministry of Transport.  All international and domestic fares
have to be approved by the Ministry.  Code sharing and other commercial arrangements are subject to
government approval in order to ensure that they  are in accordance with the general principles and
entitlements contained in relevant bilateral air services agreements.  Foreign ownership of airlines
with the exception of MAS, is lim ited to 30% of the total equity.  Aviation personnel, air service
providers (except air services provided by the aircraft of any foreign country, with which Malaysiahas a transit agreement), airport operators, and maintenance suppliers, require licences.  Aircraft are
subject to registration with the Department of Civil Aviation under the Ministry.  The Department
exercises regulatory functions in respect of civil aviation, airport, and related services, and the
establishment of standards and their enforcement.
80. All airports in Malaysia are owned and managed on a commercial basis by Malaysia Airports
Holding Berhad, subject to the regulations of the Ministry of Transport.
95  The policies of setting
aviation charges and technical standards are based on ICAO standards and procedures.  As in many
other WTO Members, international civil air traffic between Malaysia and its trading partners is
governed by bilateral air services agreements;  as at end July 2001, Malaysia had established bilateral
air service agreements with 78 countries.
(b) Maritime transport
81. Maritime transport in Malaysia experienced a downturn in 1998 owing to the negative effects
of the Asian financial crisis.  Nevertheless, the total volume of cargo has increased since 1999 (Table
IV.11).  Total cargo handled in 2000 was 220.8 mil lion tonnes (up from around 152 million tonnes in
1995).  The number of vessels of all sizes registered in Malaysia was about 3,200 in 2000 (about
2,130 in 1995), and total shipping capacity was 6.5 million GRT (gross registered tonnes) in 2000
(3.5 million GRT in 1995).  More than 90% of Malaysia’s international trade is seaborne.  Malaysiahas been promoting Port Klang as a hub port and cargo trans-shipment centre by expanding its
capacity and designating it as a free commercial zone.
96  In 1999, Port Klang became the 14th busiest
port in the world in terms of container throughput.97
82. As of  21 March 2001, there was one national shipping line (in which the Government holds a
majority stake) and more than 50 private shipping lines operating in Malaysia.  The MalaysianInternational Shipping Corporation Berhard (MISC), a subsidiary of PETRONAS, is the largest
Malaysian shipping company with 125 vessels of 1000 GRT and above, with total capacity of
4.6 million dead weight tonnes.
98  Malaysian shipping lines carry less than 20% of Malaysia's total
seaborne trade.  Malaysian flag vessels must have at least 51% Malaysian equity.  Seven federal ports
and eight state ports in Malaysia are supervised by ten port authorities.  Terminal operations in six ofthe federal ports have been privatized.
                                                     
95 There are 37 airports for commercial us e, including 5 international airports.
96 Commercial-zone status is also conferred on the ports of Penang and Johor.
97 UNCTAD (2000).
98 Malaysian International Shipping Corporation Berhard (2001).  PETRONAS currently owns a 62%
stake in MISC;  the second largest shareholder is the Employees Provident Fund, with a total stake of almost10%.Malaysia WT/TPR/S/92
Page 93
Table IV.11
Number of ships calling at Malaysian ports and volume of cargo handled, 1996-2000
1996 1997 1998 1999 2000
Total volume of cargo (million tonnes) 181.1 201.5 180.9 191.4 220.8
General 31.4 34.3 24.9 25.8 26.0
Liquid bulk 30.7 35.4 23.8 24.7 30.7
Dry bulk 73.3 78.3 80.6 84.3 82.8
Container 45.7 53.5 51.6 56.6 81.3
Source: Economic Planning Unit (2001d), Economics in Figures 1999: Energy and Infrastructure  [Online].  Available at:
http://www.epu.jpm.my/eif99/ENERGY_10.html 20 March 2001.
83. Maritime transport is regulated by the Ministry of Transport.  Like in many countries,
domestic routes are protected by a cabotage policy, although foreign vessels are allowed to plybetween Port Klang and Penang Port and vice versa for trans-shipment of containers.  Currently, the
Ministry of Transport does not require international liner conferences to notify their contracts.  It
would appear that no preferences are accorded to Malaysian transport companies in regard to tax,
financing, or government procurement.  Malaysian shipping agencies are allowed to be majority
foreign-owned;  the maximum foreign equity c ondition is 70%.  Since the previous Review of
Malaysia, there have been no changes in the requirements and procedures for registration of ships;
Malaysian ships are required to be registered with any one of the four ports of registry.
84. To date, Malaysia has signed bilateral shipping agreements with 12 countries.
99  Malaysia is a
party to the International Convention on Oil Po llution Response and Cooperation (OPRC), and the
United Nations Convention on the Law of the Sea (UNCLOS).100
85. Since its previous Trade Policy Review, no changes have been made to Malaysia's GATS
Schedule regarding maritime transport.  Malaysia has made a commitment not to impose anyrestrictions on cross-border supply or consumption abroad in the international maritime transportation
services sector, excluding cabotage.  In additional commitments, it noted that the following services at
the port are made available to international maritime transport suppliers on reasonable and non-
discriminatory terms and conditions:  pilotage, towing and tug assistance, provisioning, fuelling and
watering, garbage collection and ballast waste disposal, port captain's services, navigation aids, shore-based operational services essential to ship operations, including communications, water and electrical
supplies, emergency repair facilities, anchorage, berth and berthing services.
86. Bindings on commercial presence apply only to "a representative office, regional office or
locally-incorporated joint venture corporation with Malaysian individuals or Malaysian-controlled
corporations or both and aggregate foreign shareholding in the joint-venture corporation shall notexceed 30%".  The requirement to register vessels in Malaysia is listed in the Schedule.
                                                     
99 Ministry of Transport (2001a).
100 Ministry of Transport (2001b).Malaysia WT/TPR/S/92
Page 95
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