Malaysia: December 1997
High rates of growth were coupled with low unemployment and inflation, and an improvement in the well-being of the population. This had been assisted by the pursuit of open trade policies.
POLICY REVIEW BODY: REVIEW OF MALAYSIA
The Trade Policy Review Body of the World Trade Organization (WTO) concluded its second review of Malaysia's trade policies on 4 and 5 December 1997. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.
The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.
The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.
A record of the discussions and the Chairperson's summing-up, together with these two reports, will be published in due course as the complete trade policy review of Malaysia and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993 and 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY:
REVIEW OF MALAYSIA
CONCLUDING REMARKS BY THE CHAIRPERSON Back to top
The second Trade Policy Review of Malaysia was conducted by the TPRB on 4-5 December 1997. These remarks, prepared on my own responsibility, are intended to summarize the main points of the discussion and not to be a full report. Details of the discussion will be reflected in the minutes of the meeting.
The discussion developed under four main themes: Malaysia's economic performance and reaction to present financial "turbulence"; regional and multilateral issues; specific trade policy issues; and sectoral questions.
Malaysia's economic performance and reactions to the present financial "turbulence"
Members commended Malaysia on its remarkable macroeconomic performance since 1993. High rates of growth were coupled with low unemployment and inflation, and an improvement in the well-being of the population. This had been assisted by the pursuit of open trade policies. Nevertheless, questions were raised on macroeconomic and structural problems such as the savings-investment gap, the current account deficit, the lack of skilled labour and the recent slowdown in productivity growth. The rapid transformation of the Malaysian economy from one largely dependent upon exports of primary products into one in which exports of manufactures predominate was noted. In this context, comments were made on the scope and impact of incentives in the transformation.
Members generally considered Malaysia's underlying economic fundamentals to be sound. Therefore, a number of members were concerned about the signals given by restrictive trade measures announced in Malaysia's 1998 Budget to address the current crisis. In this context various views were expressed on the factors underlying market volatility. Clarification was sought on a timetable to review and phase out these measures and the criteria on which these would be based. Noting that trade was central to the Malaysian economy, some expressed the view that currency adjustment could itself be sufficient to correct the external deficit and warned against short-term measures with trade restrictive effects. However, some Members felt that the WTO system should provide the necessary supportive environment to countries like Malaysia when they face difficulties. These Members pointed out that Malaysia has been pursuing a very liberal trade policy for many years. They suggested that Malaysia, and countries in a similar situation, should be given sufficient flexibility in adopting policy options in order to overcome the difficulties, even if these options are perceived to be trade restrictive.
In response, the Malaysian representative said that the current economic difficulties were caused by massive shifts of capital flows. The authorities believed that the risks associated with such flows could be minimized if the country's current account and reserve position was kept in equilibrium. Emphasis was placed on improving the level of national savings and encouraging investment that could generate higher foreign exchange earnings. The growing savings-investment gap had adversely affected the national balance sheet. The level of domestic credit growth should be reduced for prudential reasons. Loans geared towards expanding export capacity or increasing productivity would not be affected. He noted the need, because of over-capacity, to take measures such as increases in tariffs for materials and machinery used in the construction sector, and a reduction of two percentage points in corporate tax.
He emphasized that the fundamentals of the economy remained strong, but in light of the present crisis some measures had to be taken. He stressed that the tariff increases and other measures introduced in the 1998 Budget were consistent with Malaysia's obligations under the WTO, and noted that these measures were temporary. The need for the measures would be reviewed case by case.
Regional and multilateral issues
It was noted that, as a member of APEC and AFTA, regionalism was a major component of Malaysia's trade policy. Members hoped that these arrangements would promote greater trade liberalization and domestic efficiency. In this regard, specific questions were raised about possible trade diversion as a result of the implementation of AFTA; harmonization of standards within APEC; the justification for granting tariff preferences to Australia and New Zealand; and concrete liberalization measures taken by Malaysia as part of its APEC down-payment.
Members commended Malaysia's commitment to the multilateral trading system through its active role in the WTO, including in the ongoing financial services negotiations. They welcomed the announcement of a revised offer by Malaysia. However, some Members enquired about Malaysia's timetable for compliance with Uruguay Round undertakings, including progress with new anti-dumping legislation, the timetable for amending existing intellectual property legislation, a phase-out programme for prohibited export subsidies, and the elimination of local-content requirements. Some Members encouraged Malaysia to accede to the Government Procurement Agreement, and were pleased to note Malaysia's active participation in the Working Group on Transparency in Government Procurement.
The representative of Malaysia replied that ASEAN members were gradually changing specific duties to ad valorem duties and that these duties would be reduced on an MFN basis. Malaysia did not envisage any trade diversion as a result of AFTA. The Arrangement had been notified to the Committee on Trade and Development. He added details on steps taken or promised by Malaysia in the recent meeting of APEC Ministers, including multilateral tariff reductions and deregulation in services.
Specific trade-related measures and policies
In general, Members commended Malaysia's open trade regime, particularly the substantial reduction in tariffs since the last review. Several Members voiced concern, however, regarding the tariff increases for some consumer goods, capital goods and building materials announced in the 1998 Budget. Some Members sought reassurance that these increases would be temporary and asked when tariffs would be lowered again. There were also questions regarding the relationship between the new applied rates and bound rates, and the tariff lines which would be affected by the increase.
Some Members sought clarification regarding Malaysia's import licensing procedures, especially regarding automobiles. Concern was expressed about new import restrictions announced in the budget and their consistency with the Agreement on Import Licensing Procedures. In regard to government procurement, questions were raised regarding tendering procedures, criteria used to review procurement regulations, statistics on procurement by country of origin and sector and application of preferences to suppliers from ASEAN countries. Members sought information about Malaysia's intentions to align national standards to international standards and about institutional practices and coordination in this area; questions were posed regarding environmental requirements, accreditation of foreign laboratories and conformity assessment used. Regarding sanitary and phytosanitary (SPS) measures, enquiries were made regarding new legislation to accommodate all the provisions in the SPS Agreement.
Questions were raised about anti-dumping investigations and the timetable for bringing current anti-dumping legislation into full conformity with the relevant Agreement. The practice of not providing foreign exporters with an individual calculation of their dumping margin before final determination of definitive measures was also questioned.
Information was sought regarding the phase-out programme for export subsidies. Concerns were expressed as to whether recently announced tax exemptions were WTO consistent. Noting the existence of investment and export incentives, Members sought clarification as to whether Malaysia had plans to evaluate their economic efficiency. Members sought information on plans to phase out local content and export balancing requirements attached to incentives and other measures inconsistent with the TRIMS Agreement. The environmental justification for different export taxes was also questioned.
Some Members sought information regarding progress in amending Malaysia's intellectual property legislation to bring it into compliance with the TRIPS Agreement. Questions were posed on Malaysia's schedule for implementing the provisions of the Agreement and the relevant laws to be applied within the Multimedia Super Corridor (MSC).
Regarding competition policy, Members asked about the current status and content of a draft competition law prepared by the Ministry of Domestic Trade and Consumer Affairs. Questions were raised regarding how price controls on basic and strategic goods were applied to imports.
In reply, the representative of Malaysia emphasized that the tariff increases and other measures introduced in the 1997 Budget were consistent with its rights and obligations under the WTO. All the increases in tariffs, for example, were within the bound rates. The temporary nature of these measures was also stressed.
Non-automatic licensing was confined to 17 per cent of national tariff lines, 60 per cent of which related to wood products. This mechanism was designed to facilitate development of infant and strategic industries, and, in the case of wood products, for conservation purposes. The licensing requirement introduced in the 1997 budget for heavy machinery was largely to ensure that existing idle machinery was utilized, thereby optimizing the use of foreign exchange. Since the requirement was put in place, all applications had been approved by MITI.
While participation in the Working Group on Transparency in Government Procurement was viewed as an educational process, Malaysia did not see the need to accede to the GPA. Although government procurement policy was designed to enhance socio-economic development, it was relatively open and provided adequate opportunities to foreign suppliers. There were plans, however, to undertake periodic reviews as regards the economic efficiency of existing policy.
The representative stated that Malaysia's standards would be aligned to international standards. There were no private sector standards bodies. In order to accommodate the provisions of the SPS Agreement, acts to be amended included the Animal Ordinance 1953, the Fisheries Act (Amendment) 1993 and the Fisheries Development Board of Malaysia Act.
He indicated that new anti-dumping and countervailing legislation was being finalized and would be tabled in Parliament at its next sitting. In the meantime, as notified to the WTO, Malaysian anti-dumping authorities were applying measures administratively. Only two actions were taken during the period under review, both in 1995-1996.
Export levies and licensing on timber were designed to ensure sustainable forestry management, encourage downstream activities and finance R & D. These measures were constantly reviewed to ensure that the intended objectives are met. The local content requirement for the automotive sector would be phased out by 2000.
Drafting of new legislation on intellectual property was at an advanced stage. Among the key changes were new laws on "neighbouring rights", "industrial designs", "layout designs of integrated circuits" and "plant varieties". As regards enforcement of existing legislation, in the case of copyrights more than 5,000 cases had been resolved and 32 million ringgit worth of goods confiscated during the past ten years. In addition, judges and enforcement officers were undergoing training. The Ministry of Domestic Trade and Consumer Affairs was still examining the feasibility of a Competition Act and was discussing the matter with relevant groups. Import licensing applicable to goods subject to price control was intended to ensure their adequate supply.
Some Members questioned the differential treatment applied to services, as compared with manufacturing, regarding limitations on foreign ownership and voting rights in Malaysian companies, and asked whether these limitations would be relaxed. Members also asked whether liberalization measures planned for the MSC would be extended to other sectors. Some Members enquired about restrictions on foreign participation in Malaysian-owned banks, insurance companies and securities trading companies; on the establishment of new bank branches; and on the issuance of new licenses for banks and insurance companies. Questions were raised regarding the timetable to adopt the regulatory reference paper of the Agreement on Telecommunications, future liberalization plans, and limitations on foreign participation in the sector. Details were requested on future liberalization of air transport services, requirements for the establishment of new airlines, limits on commercial presence in maritime transport and limitation on foreign participation in airlines and shipping agencies.
The representative of Malaysia noted that at present there were 13 foreign bank branches locally incorporated. No new licences would be issued under present policy, since the existing banks were sufficient to serve the needs of the country. Malaysia had no intention to raise the 30 per cent limit on foreign equity. In the current round of financial services negotiations, Malaysia had relaxed the limitation on employment of specialists. On insurance companies he noted that Malaysia had relaxed the limit of foreign shareholding from 30 to 49 per cent. This limitation would be further relaxed to 51 per cent. This was, however, subject to the successful outcome of the current ongoing financial negotiations. As in the banking sector no new direct insurance licences would be issued in the near future, to consolidate the fragmented insurance industry. He added that there were no plans to allow branches of foreign stockbroking companies to become member companies of the Exchange and that the existing regulations were to remain in place.
Regarding Malaysia's intention to further improve their basic telecommunications commitment and the regulatory reference paper, he responded that it was premature to talk of further commitments in this area, given that negotiations had just been completed and that some Members had not even signed the Protocol, while Malaysia had already done so. Malaysia would be guided by the elements contained in the regulatory reference paper.
* * * * *
I should like to thank Members for the participation in the TPR of Malaysia. I am sure all Members present appreciate the answers provided by Malaysia today. We also welcome Malaysia's announcement that its financial services offer has now been submitted. I am also sure all Members will be sympathetic to Malaysia's efforts to withstand the present financial sector turbulence. Back to top