RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/210
29 May 2000
(00-2168)
Council for Trade in Goods Original:  English
REPLIES BY MALAYSIA TO WRITTEN QUESTIONS FROM THE EC
CONCERNING MALAYSIA'S REQUEST FOR AN EXTENSION UNDER
ARTICLE 5.3 OF THE TRIMS AGREEMENT
The following communication, dated 24 May 2000, has been received from the Permanent
Mission of Malaysia.
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1. In your notification to the TRIMs Commit tee of March 1996, you notified two TRIMs,
a) Local Content requirement related to Investment Incentives and b) Local Content Policy on
Motor Vehicles (LCPMV).
The GOM’s extension request dated 29 December 1999 covers only one of the two
TRIMs.  Has the other TRIM been eliminated in  the meantime? If so, have you notified the
TRIMs Committee?  Or is the measure still in force?  If so, why has the GOM requested an
extension only for the LCPMV?  Please clarify the situation.
Since 1.1.2000, the TRIM on local content requirement related to investment incentives has
been eliminated.
2. Please describe the main features of the Malaysian automotive industry (including the
parts and components).
There are four manufacturers and eight assemblers with an installed capacity of 630,000 units
per annum.  About 109 models from 18 makes are manufactured/assembled in Malaysia.  There are
320 component manufacturers producing about 6,000 pa rts.  The industry provides employment for
over 40,000 workers.
3. Please describe in detail the measure for which the GOM is requesting an extension
(local content percentages, basis for calculation,  product coverage, type of investment, type of
producers to which it applies).
The GOM is requesting an extension of the local content policy on motor-vehicles (except
motor-cycles).  The local content percentages are:
• Passenger cars : 45-60% (depending on the engine capacity)
• Commercial vehicles : 45%
The calculation is determined on a percentage point system based on the value of components to the
value of the vehicle.  All components sourced locally qualify as a basis for calculation.  The local
content policy is applicable to companies that produce or assemble passenger cars and commercial
vehicles.G/C/W/210
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4. In your 1996 notification to the TRIMs Commit tee, you stated that that TRIM is applied
through administrative measures and that Malaysia has no local content laws or regulations.
What does this mean?  What form do these administrative measures take?  Please provide
examples of administrative measures in the area of the TRIMs for which you are requesting anextension.
Para 2.3 of Malaysia’s March 1996 notification to the TRIMs Committee
(G/TRIMS/N/1/MYS/1 Rev.1) stated that Malaysia has no local content laws or regulations.  This
simply mean that Malaysia’s local content policy is implemented administratively and not by statute.
The administrative measures take the form of conditions for all locally manufactured and assembled
vehicles.
5. In your 1996 notification, it is said that different levels of local content ‘have been
achieved’ in the various product categories.  What does this mean?  What are the consequences
of achieving or not achieving the local content requirements?
This refers to the local content level achieved at the time of the notification.  The consequence
of non-compliance will be that the cost of the imported item will be deducted from the government-
approved net selling price (NSP) of the vehicle.  As a result, the NSP will be lower.
6. In the same notification, it is also said that local content requirement is “just a condition
and there is no tax or financial advantage involved”.  What does this mean?  Does this mean
that the authorization to invest/operate is denied unless local content requirements are fulfilled?
In other words, is fulfilling the TRIM a conditio n for establishment?  Or alternatively, is any
form of penalties/sanctions envisaged in case conditions are not met?
This means that compliance with this requirement is not linked to the granting of a fiscal
incentive.  The GOM does not deny authorization to invest/operate based on the local content
requirement.  Please also see answer to Q5.
7. Why do you consider that the TRIM has been effective in developing Malaysia’s
automotive industry?
Please see answer to Q2.
8. What has been, according to GOM, the ef fect of existing TRIMs on Foreign Direct
Investment (FDI) in the automotive sector?  Do you consider that the existing TRIMs have
attracted or rather discouraged inflows of FDI?
a) Can you provide a breakdown of FDI by country of origin in the automotive sector for
the period 1995-1999 and for a period of 5 years preceding the adoption of the administrative
measures envisaging TRIMs.
Total approved foreign capital investment in the automotive sector between 1985 and 1990
was RM555.9 million, and for the period 1990 to 1999, it was RM2.09 billion.   The high level of FDI
in this sector after 1990, the year the TRIM was imposed, does not provide any indication that the
TRIM has discouraged FDI.
(FDI by country of origin is provided in Annex 1 and 2).G/C/W/210
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9. Please provide an evaluation of the direct impact of TRIMs on employment in the sector
and describe the methodology used to arrive at your assessment?
Total employment in the automotive sector increased from 16,226 in 1990 to 41,211 workers
in 1998.  The figures are compiled by the Department of Statistics, which conducts a monthlymanufacturing survey, including on employment in the automotive sector.
10. What would the effect on employment be  if the WTO should reject the requested
extension?
The financial crisis has seen an attrition in the work force levels for the motor vehicles
component parts manufacturers.  While employment went up from 7,472 in 1990 to 18,156 in 1997, itfell sharply to 13,067 in 1998.  With the on-going recovery, it is expected that employment in this
sector should improve, while any removal of th e TRIM would result in plant closures and impact
negatively upon employment.
11. What measures has the GOM undertaken, in  the periods 1995-1999, to prepare for the
elimination of the TRIMs? Please explain in detail (legislative process, industrial policy
elements, consultations with industry etc.)
a) When did the GOM realised that it would be unable to meet the deadline of 31
December 1999 to phase out the TRIMs?
GOM has conducted awareness programmes on the phasing-out of TRIMs.  The companies
concerned were informed that local content policies would be eliminated by 2000.  They are expected
to undertake measures that would enable them to adjust to a non-local content regime.
The severity of the impact of the financial crisis on the automotive sector was unexpected.
The decline in production and sales impacted particularly on the component manufacturing industry.
The economic recovery began in early 1999 and an assessment of the extent of the recovery in the
automotive sector was much clearer by the third quarter of 1999.  By this time, the industry has yet to
return to pre-crisis levels of production and sales and it was very clear that an extension to the TRIM
would be necessary.
12. Why did the GOM wait till 29 December 1999 to notify its requests for extensions?
The issue of the TRIMs extension was one of the subjects discussed at the Third WTO
Ministerial Meeting in December 1999.  Given that the Seattle meeting was inconclusive, preparations
were then made to submit Malaysia’s request for a TRIM extension.
13. Why did the GOM request an extension for 2 years until 31 December 2001?  How did
the GOM arrive at the conclusion that such a period of extension was needed?
The two-year period is determined based on consultations with the automotive industry. The
request for extension is based on the fact that the economic crisis of 1997/1998 affected the plans of
Malaysian automotive companies to comply with WTO requirements.
Given the positive indication of the economic recovery, an extension of two years will help
the component parts manufacturers to upgrade their level of competitiveness. The industry needs anextension period for recovery to a more sustainable level of production in order to achieve economies of
scale and to face a competitive open market environment.G/C/W/210
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14. What further measures are planned by GOM  during this period to prepare for the
elimination of the TRIMs?
These measures include:
• Implementing the modular concept of manufacturing;
• Introduce cost-cutting measures;
• Undertake research and development, design and engineering of new parts and models; and
• Joint ventures with major automotive and component parts manufacturers.
15. When would the GOM be prepared to circu late information on the domestic process
leading to the elimination of the TRIMs, both from the legislative and from the industrial policy
point of view?
There is no legislative process required for the elimination of the TRIM.  Industry groups are
advised of developments pertaining to the TRIM extension.
16. Is there an ASEAN common automotive policy?
No.
(a) If so, please describe in detail the main features of the regime.
Not applicable.
(b) What is the link between the request for extension of TRIMs and the common
automotive policy or relations with ASEAN partners?
Not applicable.
(c) What if the extension is not granted? Would  this have effect on other ASEAN countries?
If the extension is not granted, automotive producers would have greater recourse to
outsourcing, including from ASEAN countries.
(d) To what extent does Malaysia currently calculate imports from other ASEAN countries
as being “local content”?  How will these issues develop in the coming years?
All automotive parts and components approv ed under the ASEAN Industrial Cooperation
(AICO) scheme qualify for local content accreditation.
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