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II. INSTITUTIONAL DIMENSIONS OFTRADE POLICY MAKING
(1) Overview
1. While retaining itsconstitutional authority forexternal trade policy, theFederal Parliament
hasdelegated theadministration oftradeandtrade-related policy instruments totheExecutive Branch
ofGovernment. TheGovernment hasconsiderable discretionary authority intheimplementation of
ActsofParliament dealing withtrade andinvestment instruments.
2. Policy objectives oftheGovernment arepublished inMalaysia 'slong- andmedium-term plans,
which areformulated inthePrime Minister 'sDepartment following consultations withotherMinistries,
advisory bodies andtheprivate sector. Annual policy objectives areoutlined inthebudget andtabled
inParliament bytheMinister ofFinance. Although therealization ofpolicy objectives ismonitored
onaregular basisbythePrime Minister 'sDepartment andtheMinistries concerned, thecontribution
ofspecific trade andtrade-related policy instruments totheachievement ofthese objectives isnot
reported inthelong- andmedium-term plans.
3. InviewofthefactthattheWTO Agreements andrelated commitments cover Malaysia 'slargest
trading partners, these Agreements playapivotal roleintheformulation oftrade andtrade-related
policies. Nevertheless, regional arrangements, notably those involving theAssociation ofSouth East
Asian Nations (ASEAN) andtheAPEC forum, arealsoimportant.1Indeed, Malaysia coordinates its
policies onWTO matters withother ASEAN members. Atthesame time, however, itendeavours to
ensure thatitsparticipation inregional trade arrangements isconsistent withthemain principles
underlying theWTO Agreements. Thisincludes notonlynotifying theWTO ofASEAN trade
preferences under theEnabling Clause,2but,more importantly, implementing some ofthetariff cuts
agreed withitsASEAN partners onanMFN basis (Chapter III(2)(ii)). Inaddition toregional
arrangements, Malaysia hasconcluded several types ofbilateral agreements usually inareas beyond
thepurview ofexisting WTO rules. Suchagreements include investment guarantee agreements, which,
amongotherthings,protectinvestorsfromexpropriationwithoutadequatecompensation,andtaxtreaties,
which provide relief forinternational double taxation.
1ASEAN 'sfounding members were Indonesia, Malaysia, thePhilippines, Singapore, andThailand; Brunei
Darussalam joined asthesixthmember in1984, VietNam joined astheseventh inJuly1995. Laos andMyanmar
joined inJuly1997, while theprocess ofadmitting Cambodia continues. Malaysia holds therotating Chair of
theASEANEconomicMinisters'Meetingduring1997.TheAPECforumencompassesAustralia,Brunei,Canada,
Chile, China, Chinese Taipei, Hong Kong China, Indonesia, Japan, Republic ofKorea, Malaysia, Mexico, New
Zealand, Papua New Guinea, thePhilippines, Singapore, Thailand, andtheUnited States. Canada willhost
theAPEC meeting in1997, Malaysia willdosoin1998.
2GATT documents L/7111, 30October 1992; L/7111/Add.1, 16July1993; L/7307, 29October 1993;
L/7491, 27June1994; L/7546, 2November 1994; L/7546/Add.1, 3November 1994; andWT/COM/TD/3,
11August 1995 (Table AII.2).Malaysia WT/TPR/S/31
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(2) Internal Trade Policy making
(i) Institutional structure
4. Malaysia, aformer British colony, became independent in1957.3Itisafederation of13States
andtwofederal territories, Labuan andKuala Lumpur.4Malaysia isaparliamentary democracy and
isruled asaconstitutional monarchy.5Islam istheofficial religion, butthemulti-racial population
practices various religions, generally according toitsethnic origins. Themain ethnic groups ofthe
1995 totalpopulation of18million areindigenous Malay "Bumiputra" (57.6 percent), Chinese
(26.2 percent), Indian (7.3percent), otherMalaysian citizens (5.8percent)andnon-Malaysian citizens
(6.3percent).
5. Legislative authority isdivided between theFederation andtheStates. TheFederal Parliament
iscompetent toenact lawsonissues enumerated intheFederal List(List I),while theStates have
exclusive authority onsubjects included intheStates 'List(ListII).Matters falling under thejoint
competence ofbothFederal andStateauthorities arespecified inListIII.Anymatters notenumerated
inanyofthelistsaretheprerogative oftheStates. Trade policy issues, including commerce, industry,
finance, industry, shipping, navigation andfisheries, communications andtransport, andfederal works
andpower, areintheFederal List. Bycontrast, allissues related tolanduse,including mining and
forestry, arewithin thecompetence oftheStates.6
6. Federal legislative authority restswiththebicameral Parliament, which consists oftheDewan
Negara (Senate) andtheDewan Rakyat (House ofRepresentatives). TheSenate comprises 69members,
26ofwhom areelected bytheLegislative Assemblies ofthe13States, twofromtheFederal Territory
ofKuala Lumpur andonefromtheFederal Territory ofLabuan; theremaining members arenominated
bytheKing from among distinguished citizens.7TheHouse ofRepresentatives contains 193seats.
Representatives aredirectly elected andholdoffice forfiveyears, although theHouse maybedissolved
earlier bytheKing upon theadvice ofthePrime Minister.
3Theeleven States ofMalaya became independent on31August 1957. TheFederation ofMalaysia was
establishedon16September1963,throughaunionoftheindependentStatesofMalaya,Singaporeandtheformer
British colonies ofSarawak andSabah. Singapore lefttheFederation in1965.
4The13States areJohor Darul Takzim, Kedah Darul Aman, Kelantan Darul Naim, Melaka, Negeri Sembilan
Darul Khusus, Pahang Darul Makmur, Perak Darul Ridzuan, Perlis Indera Kayangan, Pulau Pinang, Sabah,
Sarawak, Selangor Darul Ehsan andTerengganu Darul Iman.
5TheKing iselected tothethrone forafive-year termby,andfrom among, thehereditary rulers ofthenine
StatesintheFederationthathaveSultansattheirhead.TheKingnormallyactsupontheadviceoftheGovernment,
headedbythePrimeMinister.Onhisownauthorityhemayperformcertainfunctionssuchaswithholdingconsent
toarequest forthedissolution ofParliament, orconvening ameeting oftheConference ofRulers concerned
withtheprivileges, honours andpositions oftherulers. Healsoappoints members oftheCabinet, judges of
theSupreme andoftheHigh Courts andother state dignitaries.
6Land useintheFederal Territories ofKuala Lumpur andLabuan fallsunder theprerogative oftheFederal
Parliament.
7Distinguished citizens arepersons who, intheopinion oftheKing, haverendered distinguished public service
orhaveachieveddistinctionintheprofessions,commer ce,industry,agriculture,culturalactivitiesorsocialservice,
orarerepresentative ofracial minorities orarecapable ofrepresenting theinterests ofaborigines.WT/TPR/S/31
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7. While most billsmayoriginate ineither theHouse ofRepresentatives ortheSenate, those
involving taxation (including customs duties) orexpenditure must stem from theHouse of
Representatives. However, those thathavepassed theHouse ofRepresentatives mustbeconsidered
bytheSenate, although theybecome law(upon theKing'sassent) irrespective ofwhether theyare
approved bytheSenate. Subsidiary legislation (e.g. regulations, orders, rules, proclamations and
notifications) maybemade under anyAct,Enactment orOrdinance.8Byvirtue oftheirauthority,
Parliament andtheState Assemblies mayconfer theirlegislative power, mainly inmatters ofdetail
thatrequire flexibility, toaperson orbody. Theexecution ofmosttradepolicy instruments isdelegated
tovarious Ministers andstatutory authorities (Table AII.1). Subsidiary legislation canbeamended
orrevoked bytheauthority thathasmade it.
8. TheCabinet ofMinisters oftheMalaysian Federation, headed bythePrime Minister, formulates
trade andinvestment policy objectives andmeasures, initiates legislation andexercises executive
functions. Theannual budget, which istabled inParliament bytheMinister ofFinance, assesses
economicperformanceduringthepreviousyearandpresentstheGovernment'slegislativeagendarelated
tobudget andfinance. TheMinistries involved intheimplementation ofMalaysia 'smerchandise trade
policies havenotchanged since the1993 Review. TheMinistry ofInternational Trade andIndustry
(MITI) isthecentral authority charged withtheplanning andimplementation ofMalaysia 'sinternational
trade andindustrial policies, while theMinistry ofFinance isthefinalarbiter intheExecutive Branch
ontaxes, including tariffs, andvarious investment incentives. Inaddition toMITI, theMinistries of
Agriculture andHealth arethemainbodies involved inimport licensing (Chapter III(2)(iii)). Market
access conditions fortrade inservices aregenerally administered byspecific ministries andstatutory
bodies. Intellectual property rights areunder thepurview oftheMinistry ofDomestic Trade and
Consumer Affairs (Table II.1).
9. Anumber ofinter-ministerial committees cover specific policy areas. TheNational Committee
onMultilateral Trade Issues under theMinistry ofInternational Trade andIndustry advises the
Government onitsobligations under, andonimplementation of,theWTO Agreements (Chapter III(4)).9
TheForeign Investment Committee (FIC) isahigh-level inter-agency committee withrepresentatives
from thekeyeconomic ministries andagencies.10TheCommittee 'spolicy-making activities focus
onareasthatarenotcovered bytheIndustrial Coordination Act1975(Chapter III(4)(ii)), ortheBanking
andFinancial Act(Chapter IV(4)(ii)). TheroleoftheFIC,under itsGuidelines established in1974,
istoregulate theacquisition ofassets of15percentormore ofthevoting power inMalaysian
8Actsenacted bytheMalaysian Federation between 1946 and1957 arecalled Ordinances. Laws made by
State Legislative Assemblies arecalled Enactments, except inSarawak where laws arecalled Ordinances.
9TheNationalCommitteeonMultilateralTradeIssueshasassumedsomeofthefunctionspreviouslyperformed
bytheCoordinating Committee onTrade andInvestment Policy. TheCoordinating Committee wasan
inter-Ministerial committee ofsenior officials chaired bytheSecretary-General oftheMinistry ofTrade and
Industry (GATT, 1993 p.33).TheCoordinating Committee discussed those issues anddevelopments overseas
having animpact onMalaysia 'sforeign trade andinvestment promotion andformulated appropriate strategies
andpolicy responses. TheCoordinating Committee hasnotmetsince 1993.
10TheForeign Investment Committee ischaired bytheDirector-General oftheEconomic Planning Unitin
thePrime Minister 'sDepartment. Other members oftheCommittee aretheSecretary-General oftheMinistry
ofFinance, theGovernor oftheCentral Bank, theSecretary-General oftheMinistry ofInternational Trade and
Industry,theChairmanoftheMalaysianIndustrialDevelopmentAuthority,Director-GeneraloftheImplementation
andCoordination Unit, theSecretary-General oftheMinistry ofDomestic Trade andConsumer Affairs, the
Secretary-General oftheMinistry ofEntrepreneurial Development, andtheRegistrar ofCompanies.Malaysia WT/TPR/S/31
Page 23
companies, control andtake-over ofcompanies byforeign interests, andmergers andotheracquisitions
ofassets exceeding RM5million, whether byMalaysian orforeign interests.
Table II.1
Main trade-related functions ofselected ministries andgovernment agencies/statutory authorities, 1997
Ministry, agency, committee Trade-related functions
Ministry ofInternational Trade andIndustry Planning andimplementation offoreign trade andindustrial policies
Ministry ofForeign Affairs Promotion ofMalaysia 'sinterests abroad, including theinterest of
Malaysians travelling orresiding overseas
Economic Planning Unit, Prime Minister 'sDepartment Formulation ofstrategies andprogrammes fordevelopment planning,
privatization policy andmonitoring therealization oftheNew
Development Policy
Ministry ofFinance Formulation ofmonetary andfiscal policy, implementation ofthe
budget including import andexport tariffs, prohibitions andlicensing
Central Bank ofMalaysia Implementation ofmonetary policy under theMinistry ofFinance;
banking andinsurance supervision, including exchange control policy
Securities Commission Monitoring andregulation ofdevelopments inthesecurities market
Ministry ofDomestic Trade andConsumer Affairs Facilitation ofdomestic trade, protection ofconsumers andformulation
andimplementation ofpolicies fortheprotection ofintellectual
property rights
Malaysian Industrial Development Authority (MIDA) Implementation andpromotion ofinvestment policies
Ministry ofAgriculture Formulation andimplementation ofagricultural (except forestry and
treecrops) andfishery policies
Ministry ofPrimary Industries Formulation andimplementation ofMalaysia 'sprimary sector policies
(forestry, treecrops, rubber, mining) including research and
development, production, processing, marketing, anddeliberation of
international commodities issues
Ministry ofEnergy, Telecommunications andPost Formulation andimplementation ofenergy, telecommunications and
postpolicies. TheMinistry isalsoresponsible fortheformulation ofa
"convergence" lawdealing withtelecommunications, audiovisual and
computer services.
Ministry ofTransport Formulation andimplementation ofroad, maritime andairtransport
policies
Ministry ofCulture ArtsandTourism Formulation oftourism policies, implementation ofthese policies is
shared withtheMalaysia Tourism Promotion Board.
Source: Information provided bytheMalaysian authorities.
10. Although avariety ofministries isinvolved intheformulation ofpolicies towards foreign
investment, allinvestment policies relating tomanufacturing projects areimplemented bytheMalaysian
Industrial Development Authority (MIDA). MIDA serves asaone-stop investment approval agency
forpractically alldomestic andforeign-owned investments inthemanufacturing sector11;anditis
responsible forthegranting ofabroad range ofincentives (Chapter III(4)). MIDA canalsopropose
togrant tariff protection towhat areconsidered tobe"deserving infant industries". However, the
Ministry ofFinance remains thefinalarbiter onthese measures.
11Only some small-scale investments areexcluded (Chapter III(4)(ii)).WT/TPR/S/31
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11. Malaysia hasnoformal competition policy.12Nevertheless, theabuse ofdominant market
position isaddressed byanumber ofother policy instruments, suchaspricecontrols forsome products
administered bytheMinistry ofDomestic Trade andConsumer Affairs, andmaximum prices for
telecommunications services administered bytheMinistry ofEnergy, Telecommunications andPost
(Chapter III(4)).
12. Asinmany other WTO Members, statutes provide amargin ofdiscretion totheExecutive
BranchofGovernment.TheMalaysianauthoritieshaveimplementedtradepolicystatuteswithaconcern
forthetrade-off between economic growth anddistribution ofincome andassets. Suchconcerns may
bespecified intheimplementing regulations, while inother cases theyaretaken intoaccount inthe
implementation ofpolicies andregulations onthebasis ofgeneral principles formulated inthe
development plans(Annex II.1). Thediscretion oftheGovernment inimplementing tradepolicy statutes
is,inprinciple, limited bytherightofappeal tothejudicial system. Inpractice, however, thedecisions
oftherelevant Ministers are,according totheauthorities, invariably final.13
(ii) Trade policy objectives
13. InviewofMalaysia'sracialandculturaldiversity,theoverridingdevelopmentalpolicyobjective
oftheMalaysian Government hasbeeneconomic growth balanced withsocial equity, elimination of
poverty andrestructuring ofsociety. Adeliberate policy oftheGovernment withemphasis on
manufacturing based export-led growth, driven bytheprivate sector resulted intherapid expansion
ofexport-oriented manufacturing activities. Twoother major policy objectives areacceleration of
totalfactorproductivitygrowth,andareductionofthebalance-of-paymentsdeficit.Tradeandinvestment
policies aredesigned withthese objectives inmind (Annex II.1).
14. Various taxandnon-tax incentives areoffered tocompanies whose activities arethought to
contribute totherealization oftheGovernment 'sobjectives. Incentives areoffered uponapplication,
tocompanies thatfulfil thecriteria established. Insome instances, however, companies maychoose
toforgo suchincentives ifthatenables them tosecure arelaxation ofcertain requirements normally
attached tocertain activities. Some suchrelaxation maybepossible where theGovernment feelsthat
those requirements could beunduly detrimental toeconomic growth. ThePrime Minister hasreportedly
suggested thatpreferences forBumiputra mayberelaxed, given fullemployment intheMalaysian
economy andtheneedtopromote optimal useofresources, domestic andforeign.14
(iii) Advisory andreview processes
15. Theprivatebusinesssector,aswellassemi-independentresearchinstitutessuchastheMalaysian
Institute ofEconomic Research (MIER), various universities andtheInstitute ofStrategic and
12Adraft competition legislation hasbeen prepared. Itisunder revision bytheMinistry ofDomestic Trade
andConsumer Affairs following comments from government agencies, theprivate sector andnon-government
organizations.
13Discretion isconferred ontheMinister toactjustifiably andingood faith incarrying outthepurpose of
theAct.Theadministrative decision ofaMinister maybebrought before theCourt through theuseofprerogative
writs e.g.mandamus, certiorari, andinjunction. Thecourts mayreview administrative decisions inasupervisory
capacity, i.e.their roleisrestricted toseeing thatthedecision-maker actswithin andaccording tolaw.
Thus far,there have notbeen anyappealed cases onanytrade policy statutes.
14Financial Times, 23May 1997 "Mahathir hints ethnic rules maybeeased".Malaysia WT/TPR/S/31
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International Studies (ISIS) Malaysia areinvited tocontribute tothepreparation ofpolicy initiatives.
Mostministries havealsodeveloped sector-specific consultation procedures (Chapter IV).TheMinistry
ofDomestic Trade andConsumer Affairs hasestablished anumber ofsemi-public andpublic sector
advisory andreview bodies dealing withprotection forintellectual property rights (Chapter III(4)).
Consultation between thepublic andprivate sectors facilitates theformulation ofimport, export and
investment policies, andfosters high-level government support fortrade policy promotion offoreign
investment inMalaysia, andinvestment abroad byMalaysian companies.
(a) Economy-wide consultation andreview bodies
16. TheMalaysian Business Council (MBC) wasestablished in1991 tofacilitate theprocess of
consultation between policy makers, civilservants, andcorporate leaders. Theterms ofreference of
theMBC include examination ofdomestic andinternational economic andbusiness developments;
discussion ofdifferent issues andproblems; examination anddevelopment ofpractical options and
strategies; providing feedback onpolicy issues anddevelopments withregard toindustrialization;
removal ofmisunderstandings androadblocks tocooperation between public andprivate sectors; and
generation ofconsensus onnational economic strategies.
17. Asinothercountries, producers areorganized invarious Chambers ofCommerce. TheNational
Chamber ofCommerce andIndustry ofMalaysia isafederation oftheAssociated Chinese Chambers
ofCommerce andIndustry ofMalaysia, theMalay Chambers ofCommerce andIndustry ofMalaysia
andtheMalaysian Associated Indian Chambers ofCommerce andIndustry ofMalaysia. Inaddition
manufacturers arerepresented bytheFederation ofMalaysian Manufacturers. TheMalaysian
International Chamber ofCommerce andIndustry represents thevarious international Chambers of
Commerce inMalaysia. TheChambers ofCommerce andIndustry express theirinterests andopinions
regarding various policies andpolicy options insubmissions totheGovernment. Representatives of
theChambers ofCommerce pointed outthatMalaysia 'simport liberalization ahead ofitsWTO
commitments forced Malaysian companies toimprove theirefficiency tomaintain market share. More
detailed comments aremade inmemoranda oftheFederation ofMalaysian Manufacturers totheannual
Dialogue withtheMinistry ofInternational Trade andIndustry (Chapter IV(3)).
18. Bycontrast, Malaysia doesnotappear tohaveastrong organization representing consumer
interests. Although consumer interests areprotected through pricecontrols andlabelling requirements
forsome products, there isnolawpreventing domestic producers from otherwise taking advantage
ofadominant position onthedomestic market through collusive behaviour. Intheabsence ofaspecific
competition policy, liberalization ofimports ofgoods andservices isthemain instrument tocounter
suchcollusion. However, consumer interests donotappear toberepresented indecisions regarding
theimposition oftrade barriers.
19. BoththeISISMalaysia andMIER arenon-profit institutions established under theCompanies
Act.ThetwoInstitutes serve asbridges between theGovernment, theprivate sector anduniversities.
Theyarepartly funded bytheGovernment, private sector contributions andpaidconsultancy activities.
ISIS'sroleistoconduct objective andindependent policy research intheareas ofdefence, security
andforeign affairs, national andinternational economic affairs, policies fornational building, science,
technology andindustry. MIER conducts independent, problem-oriented research oneconomic and
financial issues andprovides advice onmacroeconomic management, development andfuture economic
perspectives. Research assessing theimpact ofvarious policy measures usedbytheGovernment appears
tobeconducted primarily inresponse tospecific requests from theMalaysian authorities.WT/TPR/S/31
Page 26Trade Policy Review
(b) Topic-specific consultation andreview bodies
20. VariousconsultationandreviewbodiesexistunderthepurviewofMinistrieswithsector-specific
responsibilities. Thelarge number ofcommittees andconsultation procedures facilitates close links
between thepublic andtheprivate sector. Insome cases, suchaconsultative process allows forthe
efficient, non-discriminatory development ofstandards (Chapter III(4)(iv)). Ontheother hand, trade
policiesdevelopedinconsultationwiththeprivatesectorhaveinsomecasesbenefitedselectedMalaysian
companies, asinthecaseofProton, Malaysia 's"national car"producer, developed under adeliberate
policy-driven strategy ofenhancing indigenous capabilities andindustrialization (Chapter IV(3)(iii)).
21. Thespecialized nature ofmany oftheconsultation committees atthesectoral ministry level
hasalsoallowedthesecommitteestodevelopstronginternationallinkages.Suchlinksarecomplementary
toMalaysia 'sformal external policy making intheWTO aswellastoregional andbilateral
arrangements.
(3) External Trade Policy making
22. Likemostother WTO members, Malaysia formulates trade policies notjustonamultilateral
basis, butalsoonbothregional andbilateral bases. While theWTO Agreements arecentral tothe
formulation oftradepolicies, Malaysia alsoparticipates actively inregional groupings suchasASEAN
andother regional arrangements including APEC. Atthesame time, however, Malaysia attempts to
ensure thatitsadherence tosucharrangements isconsistent withthemainprinciples underlying WTO
Agreements. TheMalaysian Government alsoregards ASEAN andother groupings asameans of
formulating concerted responses bylike-minded countries totradepolicy discussions anddisputes within
theWTO andnewissues (such asinvestment, environmental andlabour standards) raised byother
WTO Members.15Bycontrast, bilateral arrangements areintended primarily toaddress those measures
impeding access toforeign markets thatarefelttobeparticularly important tothetwoparties concerned
butfallbeyond thescope ofexisting multilateral orregional agreements.
23. Thegrowing trendtowards regional (andbilateral) arrangements begsthequestion astowhether
sucharrangements areindeed consistent withtheprinciples thatunderlie theWTO Agreements and,
inparticular, thebalance between trade(andinvestment) creation anddiversion. Itwould appear that,
atleastasfarasMalaysia 'sparticipation inASEAN isconcerned, thediversionary effects havenot
outweighed thetradecreation effects between ASEAN andnon-ASEAN members. Thismaybepartly
duetothefactthat,since1993, tariffpreferences granted within theASEAN FreeTrade Area(AFTA)
areformulated asratesofdutyinstead ofapreferential margin inrelation toMFN tariffs.16Recent
cutsinMFN rates, allowable under ASEAN procedures havethussubstantially reduced thedifferences
between these andAFTA tariffs.17
15Government ofMalaysia (1996a), p.8.
16Under theASEAN Preferential Trading Agreement concluded in1977 andvalid until theendof1992,
tariff preferences were expressed asapreferential margin of25-50 percentbelow MFN tariffs. (GATT (1991),
pp.74-76).
17TheCommon External Preferential Tariff (CEPT) Agreement allows member States toreduce theirtariffs
to0-5percentonanMFNbasiswhileenjoyingconcessionsfromotherASEANmemb erStates(ASEANSecretariat
(1993), p.8).Malaysia WT/TPR/S/31
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24. TheMalaysian authorities emphasize thatMalaysia hasalways supported open regionalism
andoften voiced concern overinward-looking anddiscriminatory regional trading blocks. They also
maintain thatregional groupings should bethebuilding blocks ofmultilateralism.
(i) Multilateral arrangements
(a) WTO
25. Malaysia ratified theWTO Agreements on6September 1994andbecame afounding member
oftheWTO on1January 1995. Since thenithasbecome aparty totheInterim Agreement onFinancial
Services reached in1995, theInformation Technology Agreement, andthe1997 Agreement on
Telecommunications Services. Itdoesnotsubscribe toanyofthefourplurilateral WTO Agreements.18
Malaysia 'sWTO Schedule XXXIX extends itstariff bindings fromlessthan1percentto65percent
ofalltariff lines(Chapter III(2)), ofwhich roughly twothirds pertain tomanufactured goods. Ithas
alsomade extensive commitments under theGATS (Chapter IV(4)). Asadeveloping country, however,
Malaysia hasinvoked itsrights todelay theimplementation oftheCustoms Valuation Agreement and
theTRIPS Agreement.19Ithasnotified anumber ofmeasures under theTRIMs Agreement
(Chapter III(2)). Selected notifications, ascirculated toWTO members on30June1997, arelisted
inTable AII.2.
26. Malaysia wasaparty tothefirstdispute raised under theWTO provisions when Singapore
requested consultations concerning theprohibition ofimports ofpolyethylene andpolypropylene in
January 1995.20Theoutcome wasamutually agreed solution withMalaysia converting therelevant
non-automatic licensing requirement toautomatic licensing (Chapter III(2)(iii)). On28February 1996,
Malaysia joined theconsultations requested byHong Kong concerning therestrictions onimports of
textile andclothing products administered byTurkey. Although theconsultation period hasexpired,
nopanel hasbeenrequested. Malaysia hadalsorequested consultations andtheestablishment ofa
panel concerning aU.S. import prohibition ofcertain shrimp andshrimp products.21Apanel was
establishedon25February1997anditsprocedureswereongoingasat30September1997(TableAII.3).
27. TheMalaysian authorities considered theSingapore Ministerial Meeting inDecember 1996
basically asareview forum toevaluate theprogress orotherwise ofimplementation ofthevarious
Uruguay Round Agreements. InMalaysia 'sstatement inSingapore, theMinister ofInternational Trade
andIndustry emphasized thatservice sectors should beliberalized toadegree commensurate withthe
levelofeconomic development. Malaysia rejected anylinkbetween labour standards andtradeactions.
TheMinister stated thatwork intheWTO onmultilateral investment rules, aswellascompetition
policies andlaws, could besupported provided itdidnotleadtoanegotiating process. Further, she
18TheAgreement onTrade inCivil Aircraft, theAgreement onGovernment Procurement, theInternational
Dairy Agreement andtheInternational Bovine Meat Agreement.
19WTO documents WT/Let/1, 27June 1995; revision 1,2March 1995 andrevision 2,22May 1995.
20WTO (1996), p.101.
21WTO (1997), pp.94-95.WT/TPR/S/31
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mentioned thattheWTO hadtheresponsibility toassist theleastdeveloped countries sothattheycould
alsobenefit from thework programme oftheOrganization.22
(b) Other multilateral arrangements
28. Malaysia became aparty totheConvention ontheSettlement ofInvestment Disputes between
States andNationals ofother States (Washington Convention) on8August 1966 andenacted the
Convention ontheSettlement ofInvestment Disputes Act1966(Act392)(Rev. 1989) togiveiteffect.
Ittherefore recognizes theInternational Centre fortheSettlement ofInvestment Disputes (ICSID) as
theadministrative bodytoprovide thefacilities forconciliation andarbitration ofinvestment disputes.
Under theConvention, parties toadispute apply theConciliation Rules orArbitration Rules, unless
otherwise agreed.
(ii) Regional arrangements
29. Malaysia participates intheAssociation ofSouth-East Asian Nations (ASEAN), theAsia-Pacific
Economic Cooperation (APEC) forum andtheEastAsian Economic Caucus (EAEC) aswellasin
several othergroupings withprominent tradeobjectives.23TheEAEC functions asaconsultative group
within APEC. Malaysia alsoparticipates inthesecond round ofnegotiations ontheGlobal System
ofTrade Preferences (GSTP), andhassubmitted anoffercovering tariff reduction on15tariff lines
tothese negotiations (Chapter III(2)(ii)).
(a) Developments inASEAN
30. Malaysia isoneofthefounding members oftheAssociation ofSouth-East Asian Nations
(ASEAN) formed in1967. Within ASEAN, Malaysia participates ininitiatives applied toallmember
States, cross-border initiatives withselected trading partners orgroups oftrading partners (thegrowth
trianglesorregions),andinitiativesdealingwithrelationsbetweenASEANandnon-Membercountries.24
ThePeople 'sDemocratic Republic ofLaosandMyanmar became members ofASEAN on23July1997
andhaveparticipatedinallASEANactivitiessincethen.OnaccessiontoASEAN,Cambodiaisexpected
todolikewise.
Recent initiatives applicable toallASEAN countries
31. InJanuary 1992theASEAN countries agreed toestablish theASEAN FreeTrade Area(AFTA)
topromote trade andinvestment intheregion. InJanuary 1993 theCommon Effective Preferential
Tariff (CEPT) emerged asthemechanism forimplementation. Member States agreed totheeffective
tariff reductions onproducts originating from ASEAN member States over15years.
22Statement bytheHonourable Dato'SeroRafidah Aziz, Minister ofInternational Trade andIndustry, WTO
Document WT/MIN(96)/ST/64, 11December 1996.
23TheOrganization ofIslamic Countries, theCommonwealth, theNon-Aligned Movement, andGroup of15.
24ASEAN'sdialoguepartnersareAustralia,Canada,theEuropeanUnion,India,Japan,theRepublicofKorea,
New Zealand andtheUnited States. Inaddition thetrade ministers from ASEAN andtheCloser Economic
Relations (CER) Agreement between Australia andNew Zealand, agreed tomeet annually since theirfirstjoint
meeting inSeptember 1995, (Lloyd, 1996, pp.178-193).Malaysia WT/TPR/S/31
Page 29
32. The1995 ASEAN Summit formalized newinitiatives thatwould accelerate thecompletion
ofAFTA by2003, instead of2008, andexpand ASEAN economic cooperation tothefields ofservices
andintellectual property.25TheAFTA product coverage wasalsoexpanded toinclude unprocessed
agricultural products. Inaddition, itisenvisaged thatallproducts intheTemporary Exclusion List
(TEL) willbetransferred totheInclusion List(IL)infiveequal annual instalments of20percent,
withthefirstinstalment inJanuary 1996 andthelastin2000.26Although theCEPT Agreement calls
fortheelimination ofnon-tariff barriers within fiveyears afterengagement ofconcessions, theeight
AFTA Council Members decided thatMembers should aimtoeliminate these barriers nolater
than2003.27
33. TheFramework Agreement onServices focuses onseven priority areas: financial services,
tourism,telecommunications,constructionservices,businessservices,airservicesandmaritimeservices.
Itwasexpected thatthefirstpackage ofcommitments covering tourism, andmaritime andairtransport
services would beconcluded bythe29thASEAN Economic Ministers Meeting inOctober 1997. The
newarrangement isexpected tostartin1998.
34. TheFramework Agreement onIntellectual Property, signed in1995, enhances ASEAN
administration, legislation andenforcement ofintellectual property rights andexplores thepossibility
ofsetting upASEAN patent andtrademark systems (Chapter III(4)(iii)).
35. FollowingthephasingoutoftheASEANIndustrialJointVenture(AIJV)andtheBrand-to-Brand
Complementation Schemes (BBC), ASEAN hasintroduced anewscheme called theASEAN Industrial
Cooperation Scheme (AICO) effective from1November 1996. Thenewarrangement isacooperative
arrangement consisting ofaminimum oftwoparticipating companies fromdifferent ASEAN countries.
Theoutput oftheparticipating companies willenjoy apreferential tariffrateintherange of0-5percent.
ParticipatingcompaniesarerequiredtobeincorporatedinanASEANmember,haveaminimumnational
equity stake of30percent, andundertake resource sharing/pooling and/or industrial cooperation
activities.28
Cross-border initiatives
36. Malaysia islocated atthegeographical centre oftheASEAN grouping ofcountries, sharing
landborders withBrunei Darussalaam, Indonesia, andThailand, andlinked toSingapore bycauseway.
During 1994 and1995 itaccounted foraround aquarter ofallintra-ASEAN trade, second onlyto
Singaporewhichaccountedforalmosthalfofintra-ASEANtrade.29MalaysiaisengagedinthreeASEAN
initiativestofacilitatecross-bordertradeandinvestmentflows;theIndonesia-Malaysia-SingaporeGrowth
25VietNam joined ASEAN in1995 andwasgranted aten-year transition period starting 1January 1996.
UponjoiningtheAssociation,LaosandMyanmaralsoreceivedaten-yeartransitionperiodstarting1January1998.
26TheTEL contains products exempted from theextension oftariff preferences under theCEPT scheme;
theILcurrently covers about 85percentofthevalue ofintra-ASEAN trade.
27ASEAN Secretariat (1995) pp.21-22.
28Equity waiver criteria forMalaysia areavailable forparticipating companies withlinkages tosmall and
medium-sized enterprises, companies involved inhightechnology, especially innewandemerging technologies,
andresearch anddevelopment companies.
29Ministry ofInternational Trade andIndustry (1996b), p.129.WT/TPR/S/31
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Triangle (IMS-GT); theIndonesia-Malaysia-Thailand Growth Triangle andtheBrunei-Indonesia-
Malaysia-Philippines-East ASEAN Growth Area(BIMP-EAGA). Allthree areintended tocapitalize
onthegeographical proximity andcomplementary strengths ofcontiguous sub-regions within ASEAN
withaviewtoincreasing cross-border tradeandinvestment flows. Bybuilding onnatural sub-regional
synergies, itishoped thatthepaceofintra-ASEAN economic cooperation andintegration canbe
accelerated anditsscope expanded. While anumber ofprojects arealready underway intheIMT-GT,
adevelopment strategy isbeing formulated fortheBIMP-EAGA under thesupervision oftheAsian
Development Bank.30
37. On17December 1994, Indonesia, Malaysia andSingapore signed aMemorandum of
Understanding (MOU) toformalize thecooperation framework between Singapore, Indonesia 'sRiau
Province, theMalaysian StateofJohor andanyother areawhich might bedesignated bytheParties.
Since then, themember areas have been expanded toinclude sixother provinces inIndonesia
(West Sumatra, South Sumatry, Bengkulu, Jambi, Lampung andWest Kalimantan) andthree more
Malaysian States (Melaka, Negeri Sembilan andPatang). TheMOU provides aframework forbilateral
andtrilateral co-operation inthedevelopment, expansion andintegration ofvarious sectors including
trade, transport andcommunications, tourism, shipping, agriculture, forestry, industrial infrastructure
andmanufacturing. Thethree countries alsoagreed toencourage human resource development and
tofacilitate andpromote theexpeditious andsmooth flowofgoods andservices, investments andpeople
within theIMS-GT. However, theIMS-GT isprivate-sector ledandmarket-driven. Therolesofthe
three countries involved aretosupport, encourage andfacilitate bilateral andtrilateral private-sector
collaboration efforts.31
(b) Asia-Pacific Economic Cooperation (APEC) Forum
38. TheBogor Declaration (November 1994) committed theAsia-Pacific Economic Cooperation
(APEC) toimplement freeandopen trade andinvestment intheregion, while affording flexibility
tomember economies toimplement theircommitments totrade liberalization. Itwasagreed thatthe
paceofimplementation would takeintoaccount thediffering levels ofeconomic development among
APEC economies, withtheindustrialized economies achieving thegoaloffreeandopen trade and
investment nolaterthan2010, anddeveloping economies nolaterthan2020.32TheDeclaration
articulated thethreemainpillars ofwork within theAPEC fora: tradefacilitation, tradeliberalization,
andeconomic andtechnical cooperation.33
39. TheAPEC Osaka summit meeting inNovember 1995 resulted intheadoption ofanAction
Agenda setting outtheframework forfuture APEC activities together withasetofprinciples andspecific
actions toimplement theBogor Declaration. TheOsaka meeting alsoresulted intheannouncement
ofspecific "down-payments" ofinitial actions including measures thatfurther liberalize andfacilitate
foreign tradeandinvestment. TheOsaka Initial Actions focused onstepstoharmonize customs forms,
adopt common product-safety standards, deregulate, reduce tariffs andeliminate other specific trade
30Ministry ofInternational Trade andIndustry (1996b), p.143.
31WTO (1996), p.25.
32WTO(1995), p.24.
33WTO (1996), p.24.Malaysia WT/TPR/S/31
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impediments.34Themeeting further identified tengeneral principles toguide trade andinvestment
facilitation andliberalization within APEC: comprehensiveness, WTO-consistency, comparability,
non-discrimination, transparency, standstill, simultaneous start, continuous process withdifferential
timetables, flexibility, andcooperation.
40. TheManila Action PlanforAPEC (MAPA) 1996comprises Individual Action Plans (IAPs),
Collective Action Plans (CAPs) andjointactivities invarious APEC fora. Theaction plans arebased
onthetenprinciples setoutintheOsaka Action Agenda andthegoals formulated intheBogor
Declaration. Observers noteprogress indefining Bogor goals intariff reductions tospecific targets,
though thedefinition oftargets andtimeschedules fortheremoval ofnon-tariff barriers arelessclear.
Regarding services, thesameobservers noteacommitment tocollective APEC action tosupport WTO
negotiations onprofessional services andtelecommunications andtoadopt, within theBogor time-frame,
asetofprinciples forthedevelopment ofopenmarkets forenergy services andtelecommunications.35
Malaysia 'sIndividual Action Planfocused ontheprocess ofitscontinued trade liberalization andthe
implementation ofitsWTO commitments.
(c) Other regional groupings
41. In1993, theASEAN Ministers operationalized theEastAsiaEconomic Caucus asaloose
consultative group within theAPEC forum. TheMalaysian authorities consider thePeople 'sRepublic
ofChina, Japan andtheRepublic ofKorea asprospective member countries oftheCaucus.36Further,
Malaysia isaalsomember oftheOrganization oftheIslamic Conference (OIC),37theGlobal System
ofTrade Preferences (GSTP), theCommonwealth, theNon-Aligned Movement, andtheGroup of15.
(iii) Bilateral trade andinvestment arrangements, bytrading partner
42. Malaysiahassigned47bilateraltradeagreements,54bilateralinvestmentguaranteeagreements,
27bilateral payments agreements and48Avoidance ofDouble Taxation Agreements (Tables AII.4,
AII.5, AII.6 andAII.7). TheArbitration Act1952provides forresolution ofdisputes.38Inaddition,
Malaysia receives trade preferences onabilateral basis from anumber oftrading partners under the
GSP.39Export restrictions administered under theWTO Agreement onTextiles andClothing aswell
asSPSimport restrictions inselected markets arealsoadministered onabilateral basis. Trade
preferences administered under bilateral tradeagreements withAustralia andNewZealand areexpected
tobephased outby1January 1998 (Chapter III(2)(ii)).
34APEC Economic Leaders 'Meeting (1995).
35Pacific Economic Cooperation Council (PECC), Philippines Institute forDevelopment Studies (PIDS) and
theAsia Foundation (1996), p.11.
36Government ofMalaysia (1996b), pp.664-665.
37TheOICestablished theIslamic Corporation forInsurance ofInvestment andExport Credit (ICIEC) in
July1995,soastoprovidetheimpetustoincreasingintra-OICtrade.Further,theOICagreedtotheestablishment
ofamutual recognition arrangement onstandards forproducts from member States (Ministry ofInternational
Trade andIndustry Malaysia (1996b), p.118).
38APEC (1996), p.9.
39Asof30September 1997, Malaysia received GSPpreferences from Australia, Canada, Czech Republic,
theEuropean Union, Hungary, Japan, New Zealand, Norway, Poland, Russia, Slovakia, andSwitzerland.WT/TPR/S/31
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43. Malaysia 'slarge number ofbilateral trade, investment, payment andtaxagreements area
reflection ofaveryactive bilateral trade policy, which iscomplemented bypublic-sector support for
Malaysian companies investing abroad. Although recent initiatives havecontributed torapidly growing
trade andinvestment relations with, among others, China andSouth Africa, relations withthe
European Union, theUnited States andJapan arestillthemost significant. TheEU,USandJapan
arealldialogue partners ofASEAN.
(a) European Union
44. Malaysia hasinvestment guarantee agreements withmostindividual EUmember States (namely
Austria,Belgium,Denmark,Finland,France,Germany,Italy,Luxembourg,Netherlands,Spain,Sweden,
andtheUnited Kingdom). Further, Malaysia hasabilateral tradeagreement withGermany. Nobilateral
payments arrangements/agreements existwithanyEUmember State. With theUnited Kingdom (as
withtheUnited States), Malaysia isparty toareciprocal arrangement fortheprotection ofsound
recordings, broadcasts andpublished editions through theCopyright (Application toOther Countries)
Regulation 1990 (Chapter III(4)(iii)).
45. Themaintradeissues thathavearisen between theEuropean Union andMalaysia concern the
useofanti-dumping measures bytheEuropean Union against Malaysian exports, andpreferential access
ofMalaysian exports totheEuropean market under theGSPScheme. Asof1February 1997, there
weresixEUanti-dumping measures andinvestigations outstanding andoneongoing against Malaysian
exports. Bycontrast, Malaysia hadtaken oneanti-dumping measure against European exports
(Chapter III(2)(iv)). Malaysia hadalsoexpressed concern that"The intention oftheEUtolinkthe
GSPscheme toconditionalities suchaslabour standards andenvironment, from 1January 1998 is
contrary totheprinciples ofnon-discrimination andnon-reciprocity thatunderpin theGSP".40
Furthermore, theMalaysian authorities areconcerned that"local authorities inanumber ofEUmember
states, including Belgium, Germany, theNetherlands andtheUnited Kingdom, continue torestrict
theuseoftropical timber forconstruction purposes".41
(b) United States
46. Abilateral investment guarantee agreement between Malaysia andtheUnited States, dating
backto1959, wasrevised in1965(Table AII.5). There isalimited agreement toavoid international
double taxation (Table AII.7). Abilateral agreement concerning thetransboundary movement of
hazardous wastes fromMalaysia totheUnited States wassigned on10March 1996.42Intheareaof
intellectual property rights, there isareciprocal arrangement fortheprotection ofsound recordings,
broadcasts andpublished editions administered through Malaysia 'sCopyright (Application toOther
Countries) Regulation 1990 (Chapter III(4)(iii)). InMalaysia, overonethirdofallpatents registered
during 1986-96, andover20percentoftrade marks registered during 1992-96, areowned by
U.S.firms, thelargest foreign country ofownership ofsuch intellectual property rights
(Chapter III(4)(iii)).
47. TheUnited States hasonecountervailing dutymeasure outstanding against exports ofextruded
rubber thread from Malaysia. Furthermore, Malaysia isalsoparty toanongoing dispute withthe
40Ministry ofInternational Trade andIndustry (1996b), p.108.
41Ministry ofInternational Trade andIndustry (1996b), p.108.
42TheBureau ofNational Affairs (1996) International Environmental Reporter, July, pp.59-60.Malaysia WT/TPR/S/31
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United States concerning exports ofshrimp andshrimp products (Table AII.3); andhasobjected (jointly
withitsASEAN partners) tothechange applied asof1July1996 intheU.S.rulesoforigin applied
toimports oftextiles andclothing. TheUnited States withdrew GSPtrade preferences forMalaysia
asof1January 1997.
(c) Japan
48. AMalaysia-Japan bilateral tradeagreement wassigned on10May1980andaDouble Taxation
Agreement on30January 1970. Inspiteofsignificant Japanese investment inMalaysia, however,
there isnobilateral agreement between Malaysia andJapan covering investment protection. Norhas
Japan anyanti-dumping orcountervailing measures outstanding against Malaysia 'sexports. Japan
grants GSPpreferences toimports fromMalaysia andcontributes totheASEAN-Japan Development
Fund (Chapter III(4)(ii)).WT/TPR/S/31
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Annex AII.1 Planning intheExecutive Branch
Malaysia maintains bothlong-term development plans, setting broad objectives forthemore
distant future, andmedium- andshort-term plans thattendtobemore specific inbothobjectives and
policy instruments. TheMalaysian authorities haveindicated theirlong-term, 25-year, objectives in
"Vision 2020". TheVision envisages Malaysia asaunited, developed nation bytheyear2020 with
acompetitive, dynamic, robust andresilient economy. Atthesame time, however, great emphasis
isplaced onsustainable development, andontheevolution ofaneconomically justandequitable,
democratic, liberal, caring, moral andethical society.43Toensure Malaysia 'sfuture competitiveness
inglobal markets, theGovernment seeks toencourage productivity improvement through astrategic
shifttocapital- andtechnology-intensive production processes; toreduce itsroleintheeconomy through
thecontinuing privatization ofpublicly-owned companies andassets; andtomaintain healthy fiscal
andmonetary management.
TheSecond Outline Perspective Plan(OPP2) (1991-2000), follows thefirstOPP(1971-1990)
inwhich theNewEconomic Policy (NEP) wasformulated. Under theNEP, various preferences were
enacted tofavour selected segments ofsociety, particularly theindigenous Bumiputra population, with
theviewofreducing economic inequality among ethnic groups, thuspromoting racial harmony. Such
preferences were modified during theSecond Outline Perspective Plan(OPP2) under theNational
Development Policy (NDP), moving towards more general economic andsocial objectives.44Under
theNDP, preferences forindigenous Malaysians aretargeted at"Bumiputra withpotential, commitment
andgood track records" and"groups within theBumiputra community whoarenewinbusiness and
donothavethenecessary track record".45Arange oftaxandnon-tax incentives isalsoprovided to
thebusiness sector, irrespective ofethnicity; theexpansion ofpublic amenities andsocial services
inrural andurban areas alikeisavailable toallresidents.
TheSeventh Malaysia Plan(SMP) covers thecentre period oftheNational Agricultural Policy46
andthesecond halfoftheOPP2. TheNational Agricultural Policy stresses theroleofmarket forces
andresearch anddevelopment intheagricultural sector (Chapter IV(2)). TheSMP stresses the
acceleration oftotalfactor productivity growth asamajor policy objective (Chapter I(1)). Total factor
productivity growth istobefostered bylarge-scale production, labour-saving techniques including
automation, enhancement oflabour quality, efficient management andexpansion ofinfrastructure;
thedevelopment ofhigh-value-added activities isencouraged including, inthefarmsector, horticulture
andaquaculture; integration withtheglobal economy istobepromoted through tradeandinvestment
andgreater backward andforward linkages oftheexternal sector. Pricestability andthecurrent account
43Government ofMalaysia (1996c), TheWayForward -Vision 2020, Kuala Lumpur, posted ontheInternet.
44"While theNDP maintains thebasic strategies oftheNEP, itsnewdimensions willbeto:(a)shiftthe
focusoftheanti-povertystrategytowardseradicationofhard-corepovertywhileatthesametimereducingrelative
poverty; (b)focus onemployment andtherapid development ofanactive Bumiputra Commercial andIndustrial
Community (BCIC) asamore effective strategy toincrease themeaningful participation ofBumiputra inthe
modern sectors oftheeconomy; (c)relymore ontheprivate sector tobeinvolved intherestructuring objective
bycreating greater opportunities foritsgrowth; and(d)focus onhuman resource development asafundamental
requirement forachieving theobjectives ofgrowth anddistribution." (Government ofMalaysia, 1991, p.4).
45Government ofMalaysia (1991), p.17.
46TheNational Agricultural Policy (1992-2010) stresses theroleofmarket forces inagricultural development
inthiscontext imports have been liberalized toreduce inflationary pressures.Malaysia WT/TPR/S/31
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deficit areidentified asindicators oftheresource constraint totherealization ofthese objectives. To
alleviate thesavings-investment gapandthebalance-of-payments constraint, domestic savings areto
beencouraged through thefurther development ofadynamic andinnovative capital market
(Chapter IV(5)(ii)).
TheSMP coincides withthefirsthalfoftheSecond Industrial Master Plan(IMP2). While
theFirstIndustrial Master Planemphasized resource-based andlabour-intensive industrialization, IMP2
emphasizes thedevelopment ofhuman capital, capital-intensive, high-technology andknowledge-based
industries.
Another major innovation oftheSecond Industrial Master Plan(IMP2) isitsemphasis onthe
development ofclusters ofactivities, ascompared totheprevious emphasis onselected sectors. IMP2
emphasises "moving beyond afocus onmanufacturing operations toinclude R&D anddesign capability,
development ofintegrated supporting industries, packaging, distribution andmarketing activities".47
IMP2 isimplemented onthebasis ofa"rolling plan" approach which stresses theimportance ofthe
continuous processes ofplanning, implementation andreview, conducted inactive participation with
theprivate sector asrepresented onadvisory andreview bodies (Chapter II(2)(iii)).
47Ministry ofInternational Trade andIndustry Malaysia (1996a), p.10.