__________________________________________________________________________________
Note:  Advance written questions by WTO Members and replies provided by Malaysia to these 
questions, and to other questions raised during the meeting are reproduced in document 
WT/TPR/M/92/Add.1.WORLD TRADE
ORGANIZATIONWT/TPR/M/92
17 January 2002
(02-0241)
Trade Policy Review Body
3 and 5 December  2001
TRADE POLICY REVIEW
MALAYSIA
Minutes of Meeting
Chairperson:  H.E. Mr. Pekka Huhtaniemi (Finland)
Page
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON 3II. OPENING STATEMENT BY THE REPRESENTATIVE OF MALAYSIA  4III. STATEMENT BY THE DISCUSSANT 7
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY 10
V. REPLIES FROM THE REPRESENTATIVE OF MALAYSIA AND
ADDITIONAL COMMENTS 15
VI. CONCLUDING REMARKS BY THE CHAIRPERSON 21WT/TPR/M/92
Page 3
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The third Trade Policy Review of Malaysia was held on 3 and 5 December 2001. The
Chairperson welcomed the delegation of Malaysia, headed by H.E. Mr. M. Supperramaniam,
Permanent Representative of Malaysia to the WTO, and the discussant, Mr. Yoichi Suzuki (Japan).
As usual, the discussant would speak in his personal capacity and, in accordance with established
procedures, had made available in advance a broad outline of the themes he intended to raise
(document WT/TPR/D/71).
2. The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of
the procedures of the meeting.  The Report by the Government of Malaysia was contained in
document WT/TPR/G/92 and that of the Secretaria t in document WT/TPR/S/92.  Copies of advance
written questions, submitted by Japan;  the European Union;  Norway;  Hong Kong, China;  Canada;
Australia;  India;  Korea;  and the United States were transmitted to the delegation of Malaysia.  Thesequestions, as well as replies provided at the meeting by the representative of Malaysia to these
questions and other are reproduced in WT/TPR/M/92/Add.1.WT/TPR/M/92
Page 4
II. OPENING STATEMENT BY THE REPRESENTATIVE OF MALAYSIA
3. The representative of Malaysia, Ambassador M. Supperamaniam, recalled that Malaysia's
rapid economic progress since the late 1980s had continued throughout the 1991-97 period.  Although
real GDP had contracted by 7.4% in 1998 due to the Asian financial crisis, the Malaysian economy
had quickly recovered and registered positive growth since the second quarter of 1999;  it had
continued to grow strongly in the past seven consecu tive quarters, leading to an average growth rate of
7.2% in the 1999-2000 period.  This positive growth could be attributed to expansionary fiscal andmonetary policies, the successful restructuring of corporate and financial sectors, and strong export
growth registered in 1999 and 2000.  However, amidst the deteriorating external environment,
especially after the attacks on 11 September 2001, Malaysia's real GDP had registered small growth of
0.7% in the first three quarters of 2001 (compared with 9% in the same period of 2000).  This had
been supported by a strong increase in domestic demand, reflecting the effects of expansionary fiscaland monetary policies.
4. The presence of strong macroeconomic fundamentals (i.e. low inflation, current account
surplus, low external debt, comfortable level of international reserves, and a strong banking sector)
had accorded the Government flexibility to impl ement pro-growth policies.  In addition to the
expansionary 2001 Budget, a further fiscal stimulus amounting to RM7.3 billion was announcedduring the year.  In the absence of inflationary pressures, the Central Bank had reduced the
three-month intervention rate by 50 basis points to 5% on 20 September 2001.  The reduction was
aimed at addressing the short-term developments biased towards weaker economic activities.  The
2002 Budget contained further stimulus measures, including reductions in personal income tax and a
salary increase and bonuses for public sector employees.  As a result, Malaysia was expected to
register positive growth in 2001 and a better performance in 2002.
5. The representative of Malaysia disagreed with the suggestion in the Secretariat Report that the
timing of the introduction of selective exchange control measures on 1 September 1998 had occurred
when financial markets in Malaysia and elsewhere in South East Asia had already stabilized.  The
representative of Malaysia felt that the situation in South-east Asia had not completely stabilized, and
events in Russia and Latin America had continued to affect global financial markets.  Hence, despite
strong macroeconomic adjustment measures undertaken, Malaysia had become increasinglyvulnerable to external developments.  The higher interest rates had not restored stability in the
financial markets, and it had become increasingly neces sary to eliminate the availability of the ringgit
in offshore markets, which funded  speculation on the Malaysian currency.
6. The imposition of these controls was to insulate the Malaysian economy from external shocks,
and to provide a stable environment to facilitate the ongoing economic and financial reforms. Therehad been no controls on foreign direct investment flows.  Current account transactions had remained
fully convertible.  The controls and fixing of the exchange rate had stabilized domestic financial
conditions and allowed the Government to lower interest rates and accelerate reforms.  The
Government had not substituted controls for policy reforms.  The success of the controls had been due
to Malaysia's favourable initial conditions and stronger balance-of-payments position throughout thecrisis.  Initial negative perceptions and reactions to the controls had been reversed once the controls
and their objectives had been better understood and appreciated.  As conditions stabilized, the controls
had been relaxed progressively, and were completely removed in May 2001, except for the rules on
the non-internationalization of the ringgit.
7. The Secretariat Report noted that capital and total factor productivity growth had dropped
markedly from 2.4% in 1990-1995 to 0.9% in 1995-2000;  it attributed this decline to over-investment
and inefficient allocation of resources.  The representative pointed out that the decline in the averageWT/TPR/M/92
Page 5
had been due primarily to the 1998 economic recession, which had caused overall productivity to
decline by 1.8%.  The decline in private sector investment had reflected uncertain economic outlookand low business confidence, rather than over-investment.
8. The Government's pro-business and pro-liberalization policies, and the private sector's active
participation in the development process had helped Malaysia and its trading partners to reap the
benefits of its accelerated industrialization process and the dynamism of its external sector.
Malaysia's economy had remained open to trade and foreign investment.  The open and liberal tradeand investment regimes had facilitated Malaysia's expansion of trade and investment flows.  In 2000,
Malaysia had been ranked as the 18
th largest exporter and importer.
9. The Secretariat Report observed that there was potential for trade diversion because of the gap
between MFN tariffs and AFTA rates.  The available figures did not show that this was the case;
Malaysia's trade with its major trading partners had increased.  Malaysia attached importance to theWTO, and had contributed positively to the strengthening of the rules-based multilateral trading
system.  Malaysia had undertaken substantial liberalization and deregulation measures.  Between 1994
and 1997, tariffs on 4,100 items had been reduced or abolished.  In 1998, despite the difficult
economic environment, Malaysia had abolished duties on 74 tariff lines, mainly on food products,
textiles, raw materials for manufacturing, and heavy machinery.  In 1999, tariffs on 40 ITA productshad been reduced, consistent with Malaysia's obligations under the ITA.  In 2000, tariffs on 81
products had been abolished whilst tariffs on 460 items reduced.  The 2002 Budget announced further
tariff reductions;  tariffs that had previously ranged between 20% and 105% had been reduced to a
10% to 50% range for 55 items, such as aerated beverages, woven fabrics, lace, and blankets.
Similarly, a tariff reduction from a 5%-35% range to a range of 0% to 25% was announced for a
further 171 items, comprising multimedia projectors, telephone answering machines, furniture
components, and photographic equipment.  Tariffs on 37 items had been abolished.
10. While the simple average MFN tariff had increased from 8.1% in 1997 to 9.2% in 2000,
according to the Secretariat Report, the representative  of Malaysia pointed out that the trade-weighted
average tariff had declined from 3.9% in 1998 to 2.9% in 2000.  The wide gap between bound and
applied rates existed because Malaysia had unilaterally reduced its tariff rates since the Uruguay
Round negotiations.  The representative of Malaysia stated that Members should not be overlyconcerned over this gap, as bound rates provided the necessary predictability.  The Secretariat Report
also mentioned that some incentives were provided as quid pro quo  for local-content requirements,
and questioned the need for these incentives when the local-content requirements had been removed.
Malaysia viewed this observation as inaccurate because incentives were no longer linked to
compliance with local-content requirements.
11. The Secretariat Report had questioned the effectiveness of the tax and non-tax incentives.
Malaysia highlighted that:  the incentives offered were specifically targeted at achieving certain
development policy objectives;  the Government resorted to the use of such incentives as it was not in
a position to offer outright grants as in the case of some developed Members;  and that all incentives
were periodically reviewed to ensure their continued effectiveness.
12. The Secretariat Report had also noted that the automotive sector was highly protected and
lacked external competitiveness.  The Representative of Malaysia emphasized that the industry was
relatively new and needed to be nurtured.  Measures had been introduced to further enhance the
sector's productivity and efficiency;  these included forging strategic alliances with international
automobile companies to strengthen the industry's technological and marketing capabilities.  Efforts
were also being intensified to increase production capabilities to realize better economies of scale.
Malaysia's automotive industry was not being developed as a mere assembly activity, but rather was
geared towards a comprehensive range of manufacturing and services-related activities.WT/TPR/M/92
Page 6
13. On government procurement, although preferences were accorded to locally owned
businesses, foreigners were not prevented from participating in contracts.  Even where localcompanies were accorded contracts, materials and services continued to be sourced from outside, and
foreign participation through joint-ventures was also common.
14. The relaxation of foreign ownership restrictions had not been confined to export-biased
companies, but had been based on other factors.
15. Malaysia would continue to adhere to the principle of progressive liberalization in services
trade.  The representative of Malaysia did not believe it entirely correct to state that Malaysia's
services sector was restrictive.  Foreign participation was quite substantial in certain services sectors,
in particular, in banking, insurance, stock brokerage, and telecommunications.  Malaysia would
continue to reduce the cost of doing business in order to promote a competitive environment.
16. The Malaysian economy remained on track to achieve sustainable growth;  there would not be
any major policy shifts that would negatively impact on its open and outward orientation, which had
contributed predominantly to its economic success in the past decade.  The 2002 Budget was aimed at
strengthening Malaysia's economic fundamentals through domestic-led growth strategies.  Malaysia
was also intensifying its efforts to further diversify its economic base in both the traditional and non-
traditional sectors.WT/TPR/M/92
Page 7
III. STATEMENT BY THE DISCUSSANT
17. The discussant (Mr. Yoichi Suzuki) recalled that the 1997-2000 review period had been
marked by the Asian financial crisis in 1997, and sought information on how Malaysia had overcome
the crisis, and how its open economic system had resisted it.
18. The Government Report stated that the stability accorded by capital and exchange controls
introduced on 1 September 1998 had enabled Malaysia to accelerate the restructuring of its financial
and corporate sectors.  The Government had apparently introduced the controls to accelerate reformsaimed at addressing weakness in Malaysia’s corporate structure and governance and financial system,
which were revealed by the financial crisis.  The discussant asked whether Malaysia's objectives had
been attained, and whether the authorities were satisfied with the pace and the content of the structural
reform.
19. The pegging of the ringgit to the US dollar, introduced together with the selective capital
control system to stabilize short-term capital flow  in September 1998, had been maintained after the
lifting of the capital control in May 2001.  These measures could have resulted in the appreciation of
the ringgit against the currencies of Malaysia's ne ighbouring countries, possibly leading to a decline in
its export competitiveness in the longer run.  The discussant asked how Malaysia evaluated the control
system now that the currency market had been stabilized, and whether the system was compatible withits long-term economic policy.
20. The Government Report attributed the quick recovery of Malaysia's economy to Government
efforts to reactivate domestic demand through monetary easing and the provision of fiscal stimulus, as
well as to strong export growth;  exports particularly to the United States and to Europe had  promoted
the quick recovery.  The shares of these markets in Malaysia's total export markets had increased
between 1996 and 1999, whereas that of Asian markets had decreased.  Exports to the United States
had grown by 8.3% in 1998, 17.0% in 1999, and 8.8% in 2000.  More than a quarter of Malaysia'sexports were destined for the U.S. market when re-exports from Singapore (Malaysia's second largest
export market) to the United States were included.  Thus, the U.S. economic slowdown could have a
large impact on the Malaysian economy.
21. The importance of the electronics sector for Malaysian exports had to be taken into account.
The electronic sector accounted for 44.7% of Malaysia's exports in 2000;  a global slowdown in thedemand for electronics would have a negative impact on the Malaysian economy.  The Government
forecast of low economic growth in 2001 compared w ith the two previous years reflected such factors.
In March 2001, the Government announced a new economic policy programme, which included
greater public spending.  An increase in domestic spending to compensate for an export decline
seemed necessary.  Although the Government Report stated that the fiscal deficit in 2000 hadremained at a sustainable level of 6.3% of the GDP, increased public spending might have a negative
impact in the longer run.  The discussant asked about Malaysia's plans for the long-term structural
reform of its economy as well as the diversification of its export structure.
22. Malaysia had a highly open trade regime, and, with the exception of few tariff peaks, its tariff
rates were on average comparatively low.  Nevertheless, the Government apparently wished to retain afree hand in its trade policy.  The discussant appreciated that Malaysia was not a major user of trade
contingency measures but noted the lack of bindings as well as the wide gap between bound and
applied rates. Malaysia had used this manoeuvrability to increase its MFN tariff rates following the
financial crisis.  The multiplicity of applied rates rendered Malaysia's tariff structure very complex,
while the overall number of tariff lines subject to non-automatic import licensing requirementsappeared to have increased since 1997.  As Malaysia’s economy became increasingly interdependent
with the global economy, through the presence of foreign firms and competition with its neighbouringWT/TPR/M/92
Page 8
countries, he asked whether it would be in Malaysia's interest to accord higher predictability to its
tariff system by raising its binding ratio.  He also asked how the temporary tariff increases hadassisted the recovery of relevant sectors.
23. A widening gap between preferential rates applied through the AFTA scheme and the MFN
rates was observed.  Malaysia’s direction of trade remained fairly balanced.  Although imports from
ASEAN had increased from 19.9% in 1996 to 23.6% in 1999, the import  share of non-ASEAN
trading partners (e.g. Japan, other non-ASEAN Asia, the United States, and the EU) had remained at acomparable level.  The share of AFTA partners in Malaysia's export destinations had decreased
between 1996 and 1999.  He asked whether, given this trade structure, it would be in Malaysia's
interest to reduce the gap between preferential AFTA and MFN rates.
24. Malaysia was an important member of the APEC and had supported the launch of a New
Round.  As the Doha Ministerial had been successfully concluded, he asked about Malaysia’sexpectations on the Work Programme agreed in Doha.
25. Malaysia’s high economic growth rates, particularly in the 1990s, were a fruit of its active
policy to attract foreign direct investment (FDI).  Malaysia fully understood the importance of
inbound FDI in its economic development, and offered a very favourable climate to FDI.  It had  also
provided various investment incentives, often coupled with performance requirements such as local-content or export-performance requirements in the pa st.  The removal of most of these requirements
was welcomed, as they were trade distorting and could hamper the optimal allocation of resources.
The two ASEAN schemes related to investment, i.e. the ASEAN Investment Area (AIA) and the
ASEAN Industrial Cooperation Scheme (AICO), togeth er with AFTA, were designed to increase FDI
in the region.  If these schemes were aimed at attracting FDI in ASEAN by offering a sizeable market
and if investors were to be free to choose where to produce, how to source parts, and in which market
to sell their products, performance requirements would be inconsistent with such policy orientations.He invited Malaysia to confirm that performance requirements would not be reintroduced, and that
remaining requirements would be abolished.
26. The investment climate in Malaysia was changing rapidly, both externally and internally;  it
faced increasing competition in the region as host to FDI, and it had to adapt to the result of its past
economic success, such as increasing labour cost.  In the past, the manufacturing sector had absorbedthe bulk of FDI in Malaysia;  the country appeared to be making efforts to retain its competitive edge
as an attractive host to FDI by further developing its human resources and infrastructure.  An observed
increase in FDI in higher-value-added sectors would be further facilitated  by accelerated
liberalization of investment in the services sector and greater predictability and freedom for FDI;  the
discussant asked Malaysia’s view in this respect.  The Government Report explained Malaysia’sactive stance regarding investment guarantee agreements as a tool to protect foreign investors;  he
asked whether Malaysia believed that these numerous investment guarantee agreements facilitated or
accelerated FDI flows.
27. State-owned enterprises continued to play an important role in Malaysia's economy, especially
in petroleum, electricity, transportation, telecommunication, and postal activities.  These sectors wereof vital importance as inputs in production and other activities of foreign firms, thus playing an
important role in FDI-related decision-making.  He asked how Malaysia intended to assure a pro-
competitive climate in these sectors, and the rationale behind the provision of finance to private
companies by some state-owned enterprises.
28. One important exception in Malaysia’s liberal manufacturing sector was the automotive
industry, which remained highly protected with high tariff rates and TRIMs (i.e. local-contentWT/TPR/M/92
Page 9
requirement).  Malaysia had postponed the abolition of the TRIMs from end of 2001 to 2003, perhaps
because of the financial crisis.  This contrasted with other manufacturing sectors, particularlyelectronics, which was highly liberalized, had retained international competitiveness, and had
weathered the crisis.  Malaysia's industrial policy in the automotive industry, at least for exports, had
not brought the anticipated results so far.  The indu stry would be undergoing important changes by the
next Trade Policy Review of Malaysia with the elimination of local-content requirements and the
lowering of tariff rates through the non-agricultural  market access negotiations agreed in Doha.  He
asked for Malaysia's view on the development of its automotive industry in light of these future
shocks.
29. The services sector remained more closed than the goods sector. mainly because there were
far more restrictions on FDI in services than in manufacturing and agriculture.  Though a number of
restrictions remained, he considered that the Malaysian economy had been and remained open.  It wasnow necessary to build up national capabilities whil e maintaining the open business environment.  In
the banking sector, for example, 14 of the 27 commercial banks were foreign-owned and controlled
24% of total assets, gross loans, and deposits in the sector in 2000.
30. The discussant had some sympathy with Malaysia’s intention to control the pace of
liberalization, with the aim of developing competitive national banks before liberalizing the sectorfurther.   However, in a highly globalized and competitive world, artificial barriers might work against
the interest of national economy.  He asked what would differentiate a foreign bank from a national
bank when both were subject to the same regulations and prudential measures.
31. Malaysia’s economy was highly globalized and liberal. The challenge facing the Government
seemed to be to enhance its openness while retaining the necessary policy tools for balanced economic
development as it strove to become an industrialized nation by 2020.  As it developed and became
wealthier, Malaysia would face increasing challenges from both inside and outside the region.WT/TPR/M/92
Page 10
IV. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
32. Members thanked the Malaysian Government and the Secretariat for their Reports.  They
looked forward to receiving any outstanding replies to their advanced written questions.
33. Many members noted that their bilateral trade and investment ties with Malaysia had been
strengthened over the recent period.
34. Members welcomed and were impressed by Malaysia's rapid growth and its remarkably quick
and strong recovery from the 1997 Asian financial crisis.  In this regard, Members particularlycommended Malaysia's efforts to restructure the corporate and financial sectors.  
35. Members commended Malaysia's strong attachment to the multilateral trading system, and
welcomed its support for the market access negotiations on non-agricultural products.  Members
hoped that it would participate positively in the Doha Development Agenda.
36. Members appreciated Malaysia's efforts to simplify its tariff regime and reduce tariffs since its
last Trade Policy Review.
37. The representative of Japan noted that, although Bank Negara Malaysia had played an
important role in the country's recovery from the financial crisis, its instructions, particularly on the
introduction (and subsequent modification) of the selective exchange control measures, had not
always been clear, and had sometimes been changed abruptly.  He hoped that Malaysia would try toadminister its financial sector with more transparency to gain trust from markets.  Japan was also
concerned that the pace of privatization had slowed down since the financial crisis;  in the case of
state-owned enterprises, the Government's capital share had increased.  He asked Malaysia to provide
its view of the privatization process in the future.
38. Japan commended Malaysia's measures to encourage FDI, and hoped that, to strengthen its
international competitiveness, Malaysia would take fu rther steps to strengthen its trade and investment
regime.  In particular, Japan was interested to know whether Malaysian intended to accelerate thetimetable for the abolition of the local-content requirement on motor vehicles, due by the end of 2003.
He also urged Malaysia to convert the temporary relaxation of the foreign equity restrictions into a
permanent measure;  to abolish the export requirement;  and to deregulate the 30% foreign equity
restriction applied to the services industry.
39. Japan invited Malaysia to increase its tariff binding level in the upcoming market access
negotiations, noting an increase in Malaysia's average applied MFN tariff level to 9.2% in 2000 up
from 8.1% in 1997.  The increase was made possible by a relatively low level of tariff bindings, and to
relatively wide gaps between bound and applied rates.  He encouraged Malaysia to address the
situation with a view to ensuring more predictability in its tariff system.   
40. Many products, including agriculture, forestry, and fishery products, were subject to export
duties, and the overall average of the ad valorem  export duties had increased.  He was concerned
about the adverse impact of such export duties, in particular on timber, as they might have a negative
effect on the balance of rights and obligations between importing and exporting countries.
41. Malaysia had enacted new laws and amended existing laws to strengthen the protection of
intellectual property rights.  He sought confirmation of whether Malaysia considered that it hadthereby fully implemented the TRIPS Agreement, and he invited Malaysia to strengthen the
enforcement of such laws and regulations.  Japanese  companies had complained that their trade-marksWT/TPR/M/92
Page 11
had been used without their explicit consent.  He sought an explanation on the protection of foreign
well-known trade-marks and on measures taken in this regard.
42. The representative of Australia welcomed efforts made to reduce applied tariffs on a range of
items, and encouraged Malaysia to continue in that direction.  He also sought information concerning
future developments in the automotive industry, and wondered whether Malaysia intended, in the near
future, to reduce the MFN tariffs on automotive products to pre-crisis levels.  He also asked whether
Malaysia intended to reduce MFN tariffs in line with the anticipated reduction in CEPT tariffs, due in2005, and to increase the number of licences gr anted for the importation of CBU vehicles.
43. Malaysia maintained a number of mixed and compound duties, which generally supported low
value-added producers, while it had sought to move production up the value-added chain.  He sought
Malaysia’s view on the greater use of ad valorem  tariffs in supporting its policy objectives.   
44. The Malaysia-Australia Agricultural Cooperation Working Group had facilitated cooperation
in developing trade in halal meat.  The representative sought information on: whether existing
requirements were the same for all suppliers of halal meat;  and, if different requirements existed for
some suppliers, what was the basis for such difference and what conditions had to be fulfilled by those
suppliers.  He also asked whether a publication might be made available outlining requirements and
conditions for halal meat certification.
45. Australia hoped to expand services trade with Malaysia, including with its educational
institutions. Noting Malaysia's recognition of some of Australian law degrees, the representative
encouraged Malaysia to extend its recognition to degrees from the other institutions.  He also
wondered whether Malaysia intended to open further its professional services market.  In particular,
he asked about any plans to permit foreign lawyers and law firms to practice foreign law in mainland
Malaysia, enter into commercial association with Malaysian lawyers and law firms, and establish a
direct presence in Malaysia.
46. The representative of the European Union sought clarifications on the effectiveness of, and
rationale behind, Malaysia’s use of capital controls after the Asian crisis.  Structural reforms were
crucial to addressing Malaysia’s structural weaknesses, such as labour market shortages, over-capacity
and over-investment, and inefficiencies in the financial sector.
47. Malaysia's services sector was not yet as open as other areas of its economy.  He encouraged
the continued implementation of the Eighth Malaysia Plan, including the abolition of FDI restrictions,
and the promotion of international competition, notably in financial services.  Noting a high level of
protection and poor level of competitiveness in the automotive sector, he sought information on
measures to increase competitiveness in the sector.
48. The WTO Agreements offered a framework for regional trade agreements to be fully
consistent with support for the multilateral trading system, and the representative sought information
about Malaysia’s plans on the further deepening of its regional integration.  He also asked how
Malaysia viewed prospects of an ASEAN-China FTA, and what role it intended to play in this respect.
He wondered whether the widening gap between average applied and preferential tariff rates might
have increased the potential for trade diversion, and wished to hear Malaysia’s future plans to avoiddetrimental effects from trade diversion.
49. European exporters were interested in obtaining a clearer picture of product groups subject to
discretionary licensing, and of license-issuing criteria.  The representative had specific concerns on the
non-granting of sanitary certification for a number of products, including chicken, pork meat, and
milk.  The EU encouraged Malaysia to become an observer or a member of the GPA;  it did not fullyWT/TPR/M/92
Page 12
agree with the Malaysian assessment that it had not yet attained the level of economic development
that would enable it to be a party.
50. The representative of Norway sought information on Malaysia’s measures to restructure its
corporate and financial sectors, its privatization programme, and labour market reforms.  He also
asked Malaysia to specify its concerns on the transparency of government procurement, and to explain
whether such concerns related to the lack of technical capacity to implement the GPA.  He asked
about Malaysia's plans for future liberalization in telecommunications, which accounted for the largestNorwegian investment in Malaysia.  The representative also encouraged Malaysia to simplify its tariff
system, and to bind all of its tariff lines, thus increasing predictability for its trading partners. Norway
believed that the Doha Work Programme provided a sound basis for Malaysia's future economic
growth.
51. The representative of Brunei, on behalf of AS EAN Members noted that Malaysia had adopted
a combination of pro-active macroeconomic policies to boost economic activity, and that this had
differed from the traditional approach adopted by some other crisis-affected countries.  The easing of
fiscal and monetary policies, taken in conjunction with other structural reforms to strengthen the
financial sector and to improve corporate governance, had proven to be the most appropriate for
Malaysia.  The establishment of the National Economic Action Council (NEAC), which haddeveloped the National Economic Recovery Plan, was particularly noteworthy.  Various pragmatic
approaches under the plan might be of interest to other countries in similar circumstances.
52. ASEAN welcomed the relatively low tariff protection in Malaysia, and looked forward to its
initiatives to further reduce its tariff levels, and to other measures to enhance trade and investment.
ASEAN was pleased with Malaysia’s enactment of new laws and amendment of four existing laws on
intellectual property rights protection, and hoped that these would bring Malaysia's intellectual
property protection into line with its obligations under the TRIPS Agreement.  He hoped thatindividual and collective efforts in ASEAN would bring a more liberal and conducive rules-based
multilateral trading system that would enhance development for all.
53. The representative of Hong Kong, China expressed appreciation for Malaysia's liberal trade
and investment policies, and prudent macroeconomic policies and structural reforms.  He hoped that
Malaysia would speed-up the relaxation of its exchange controls.  He was concerned that the averageapplied MFN tariff had increased, and hoped that it would be adjusted downwards as Malaysia’s
economy improved. He also noted certain restrictions on FDI in the services sector, and encouraged
Malaysia to liberalize its services trade, particularly financial services.
54. The representative of Canada highlighted Malaysia’s efforts to implement its intellectual
property obligations pursuant to the TRIPS Agreement.  The restructuring of the corporate and
financial sectors, together with its prudent macroeconomic policies, privatization programme, labour
market reforms, and its commitment to strengthen the protection of intellectual property rights, would
strengthen investor confidence.  Malaysia could improve predictability and stability for Malaysian
importers and foreigner exporters by binding more tariff lines, and by reducing the gap between bound
and applied rates.  She encouraged Malaysia to continue its liberalization of services activities.Increased competition in services would improve efficiency, thus reducing costs, particularly in
telecommunications, finance, and transportation.   
55. The representative of India remarked on the strong rebound of Malaysia's economy since
1999, and requested information on the measures taken to restructure its corporate and financial
sectors, and on its long-term plan to face any future crisis.  He considered that differences betweenbound and applied rates enabled developing countries to respond quickly to external economicWT/TPR/M/92
Page 13
emergencies.  Malaysia had launched the Eighth Malaysia Plan and its Financial Sector Master Plan in
2001, and was currently implementing its Third National Agricultural Policy to address new andemerging challenges.  Malaysia was committed to the ASEAN Vision 2020, which was aimed at
closer integration of ASEAN countries.  He hoped that implementation of these plans and strategies
would enable Malaysia to achieve greater prosperity and growth.
56. The representative of Korea noted that Malaysia imposed high tariffs on passenger cars, and
maintained quantitative restrictions through import licensing on vehicles.  He invited Malaysia to
reduce the high tariff rates, and to remove quantitative restrictions.  Malaysia limited the number of
alien workers employed in the manufacturing sector;  this caused difficulties for foreign investors to
conduct business effectively in Malaysia.  He invited the Government to take steps to create a more
favourable investment environment.
57. The representative of the United States appreciated that Malaysia's support had been
important for the conclusion of the Uruguay Round, and of the Doha Ministerial Conference.
58. Existing barriers to trade and investment constituted a potential distortion of competition and
created impediments to Malaysia's long-term development.  The lack of tariff bindings, together with
the gap between bound and applied rates could impart a degree of unpredictability to Malaysia's tariff.
Barriers to commercial presence, which restricted competition in services, could hamper thecompetitiveness of all firms that required essential services, such as energy, finance,
telecommunications, and transportation as inputs in their production and delivery of goods and
services.  She thus encouraged Malaysia to speed up its privatization process, and invited Malaysia to
reduce the scope of its non-automatic licensing system, which applied to approximately 27.3% of its
tariff lines.
59. The representative encouraged Malaysia to address high tariffs and excise taxes on motor
vehicles, parts, and motorcycles so as to encourage investment in the sector.  She also invitedMalaysia to pursue full implementation the Optical Disk Act, and to take measures to improve
transparency in government procurement.  In the area of financial services, she asked the Government
of Malaysia to consider opening the banking sector and to grant licences to foreign banks before the
indicated liberalization of the sector in 2007.  Granting operating rights to foreign banks in Malaysia
would increase the pool of capital available to domestic investors, thereby boosting the economy'schances for a rapid recovery from the current downturn.   
60. The representative of New Zealand welcomed the statement in the Malaysia’s Government
Report that foreign trade was conducted within the framework of a free enterprise system and the
conduct of two-way trade was completely in the hands of the private sector.  The representative
congratulated Malaysia on its efforts since its last trade policy review concerning the enactment ofintellectual property legislation, with a view  to complying with th e TRIPS Agreement, and
acknowledged the corporate and financial restructuring subsequent to the Asian crisis.  However, there
was scope for further progress in competition policy and transparency in government procurement.
New Zealand was disappointed that an increasing proportion of Malaysia’s tariff lines were subject to
import licensing arrangements, and urged Malaysia to ensure that such policies were not used as non-trade barriers.  New Zealand hoped that the increased protection afforded by a temporary increase in
tariff rates since 1998 had been sufficient to achieve Malaysia's objective, and that these rates would
be reduced as soon as possible.  The representative encouraged Malaysia to bind all its tariff lines to
increase predictability of its tariff schedule.  New Zealand was concerned with Malaysia’s increased
tariff escalation, and hoped that this trend would be reversed in the future.  The representativecongratulated Malaysia on eliminating tariffs for selected food products, petroleum, textiles, raw
materials for manufacturing, heavy machinery, and information technology products.  The fact that
58.3% of Malaysia’s tariff lines were duty free was welcomed.WT/TPR/M/92
Page 14
61. The Government Report stated that national standards, control, inspection and approval
procedures continued to be developed based on relevant international standards;  New Zealand hopedthat this also applied to the issue of equivalence and international practices for the accreditation of
meat-processing facilities for meat exports to Malaysia.  The representative urged Malaysia to ensure
that all sanitary and phytosanitary requirements were WTO-consistent and based on sound science.
New Zealand welcomed Malaysia’s Third National Agricultural policy, which sought to further
improve a market-driven and commercially orientated agriculture sector, and to raise productivitywithout the aid of production-distorting interventionist policies and financial support.
62. The representative of Mauritius noted with interest that it had taken Malaysia only two years
to overcome the negative impact of the Asian financial crisis, and to reach the top 20 of the most
globalized economies, according to the Globalization Index.  Mauritius asked whether this had been
one of the short-term objectives of Vision 2020.
63. The representative of Uruguay referred to Malaysia's economic recovery since the 1997
financial crisis, and recalled that the two countries shared the Cairns Group objectives with regard to
agriculture liberalization as well as in relati on to implementation, and trade in services.
64. The representative of Pakistan noted measures taken by Malaysia to enhance transparency of
its trade regime, including its legislation on TRIPS, anti-dumping, and countervailing measures.
Pakistan believed that Malaysia would adjust the tariff lines on which concerns had been raised. He
hoped that Malaysia would continue to play an important role in the future WTO work plan.
65. The representative of Malaysia recalled the issues raised, and expressed his appreciation of
the quality of the debate.WT/TPR/M/92
Page 15
V. REPLIES FROM THE REPRESENTATIVE OF MALAYSIA AND ADDITIONAL
COMMENTS
66. The Chairperson invited the representative of Malaysia to focus his responses on three main
themes: (i) economic environment; (ii) trade policies and measures; and (iii) sectorial policies and
measures.
(i) Economic environment
67. The representative of Malaysia stated that Malaysia had successfully steered the economy out
of the financial crisis to register two years of strong growth, in 1999 and 2000.  Growth had been
broad-based and fundamentals had strengthened with low inflation, favourable external position, and
stable monetary and exchange rate conditions.  The banking system had also emerged stronger with
accelerated pace of restructuring.  Restructuring of the financial sector and the economy as well as
prudent macroeconomic policies had accorded Malaysia adequate flexibility to manage the currentglobal economic downturn.  The impact of the slow down had been felt strongly by the manufacturing
industry, which accounted for about one third of the country's GDP.  This was evident when the
country's third quarter real GDP contracted by 1.3% on an annual basis.
68. The Government responded quickly with expansionary fiscal and monetary measures in the
2001 Budget, which included tax measures and higher  expenditure to cushion the expected slowdown
in external demand in an effort to stimulate consumption and investment.  In early 2001, when the
U.S. slowdown became more severe than anticipated, the Government announced an additional fiscal
stimulus of RM3 billion.  Following the heightened uncertainty after the September 11 attacks,
another stimulus package of RM4.3 billion was announced to generate domestic economic activities
with immediate and large spin-off effects to minimize the impact of adverse external developments on
the domestic economy.  Fiscal prudence, low debt levels, a high rate of domestic savings, and a
favourable balance-of-payments position placed Malaysia in an advantageous position for continuedfiscal expansion. The Government had the flexibility to increase expenditure to stimulate domestic
economic activities to ensure sustainable long-term growth.  Increased financing requirements could
be met through domestic borrowing from non-inflationary sources or through external borrowing,
given the low external debt position.  Expenditure had been well targeted so as to have an immediate
impact on the economy, a strong multiplier effect, a short implementation period, and low importcontent. Nevertheless, the Government planned to consolidate its position once private sector
activities had revived firmly.
69. Monetary policy remained accommodative so as to support fiscal policy.  On
21 September 2001, Bank Negara Malaysia reduced its three-month intervention rate by 50 basis
points to 5%.  This resulted in commercial banks and finance companies reducing their ceiling baselending rates by 40 to 50 basis points to 6.40% and 7.45% respectively.  Currently, Malaysia's lending
rates were among the lowest in the region.  
70. In the area of international trade, the Government continued to support market and product
diversification to penetrate a wider range of markets as well as to reduce reliance on electronic goods
as a major source of export earnings.  Steps had been taken to promote the export of Malaysianservices.  For a small and open economy like Malaysia, the exchange rate was a very important price.
Large fluctuations in the exchange rate could have serious consequences for the performance of the
economy, especially with trade accounting for about 200% of Malaysia's GNP.  Stability accorded by
the peg had provided an environment conducive to businesses by offering a degree of certainty in the
conduct of their operations.  There was no optimal exchange rate regime appropriate for a country atall times.  The pegged exchange rate had been sustainable due to consistent macroeconomic policies
that had prevented a significant misalignment of th e ringgit exchange rate from the fundamentals ofWT/TPR/M/92
Page 16
the economy.  There were no plans to review the peg under current circumstances.  Exchange rate
policy had been that the rate should not respond to short-term developments.  Malaysia had neverrelied on promoting a weaker ringgit to gain international competitiveness.  Any gains to
competitiveness from exchange rate depreciation were only temporary.  The main objective behind the
selective exchange control measures was to restor e stability in the domestic markets as well as to
promote economic recovery.  The use of the controls was aimed at managing short-term capital flows,
at a time when such flows created excessive volatility and threatened financial and economic stability.   
71. The measures taken had been effective in restoring stability to the Malaysian economy in the
face of speculative attacks against its currency by ensuring that the ringgit was not available for
currency traders in offshore markets.  Overall, th e selective exchange controls were one of the key
factors in Malaysia's emergence from the recession in 1998.  In 1999, economic activity rebounded
from a contraction of 7.4% in 1998 to a growth of 5.8%.  This had been possible because exchangecontrols allowed Malaysia to reduce interest rate s and fix the exchange rate to support growth.  In
2000, growth expanded further to 8.5%, in an environment of low inflation and stable financial
markets. More importantly, the measures not only brought about an earlier economic recovery but
also contained the cost of the crisis on the economy as well as on social conditions.
72. All policies and measures by the Central Bank, particularly the selective exchange controls,
were implemented in a transparent manner, with in stant dissemination of information being made and
released through the press, circulars to the banking institutions, and postings at the Bank Negara
website.  Implementation of selective exchange controls had been undertaken pragmatically, and once
stability had been achieved, major modifications had been made to relax controls.
73. Malaysia's corporate and financial restructuring efforts had been significant, and had been
undertaken on a number of fronts.  Numerous measures had been introduced to facilitate restructuring.
Despite the current weak economic environment, restructuring efforts had continued to make realprogress.  To date, the merger programme for the banking sector had been successfully completed
with 52 out of 54 banking institutions consolid ated into ten banking groups, and 98% of the total
assets of the domestic banking sector rationalized and consolidated.  In terms of corporate debt
restructuring, at the end of September 2001, Malaysia's asset management corporation, Danaharta, had
restructured or approved restructuring of RM40.1 billion or 83.4% of the RM48.1 billion ofnon-performing loans in its portfolio.  It had initiated recovery measures on 99% of the NPLs in its
portfolio.  As of the end of October 2001, the Corporate Debt Restructuring Committee (CDRC) had
resolved a total of 36 debt cases, which in total value accounted for 50% of the total cases eligible for
restructuring.
74. Considerable progress had also been achieved in the operational restructuring of companies in
terms of asset disposal, changes in organizational structure, ownership, and business strategy as well
as improvements in corporate governance.  Furthermore, industry-wide restructuring in the public
transport system, steel sector, and telecommunications industry had also been undertaken when the
restructuring of troubled companies could not be done without restructuring the whole industry.
Privatization had played a vital part in strengthen ing the role of the private sector in Malaysia's
economic development, and had contributed to the accelerated growth of the economy.  The increased
number of privatization projects had significantly reduced the Government's financial and
administrative burden, thus enabling it to allocate more resources to the critical sectors of the
economy.  However, due to the financial crisis, the privatization programme had slowed down
primarily because of the weak financial position of the private sector, thus hindering its ability tomobilize financial resources from banking and financial institutions.  Implementation of the
privatization programme would be further accelerated to enhance efficiency and productivity.WT/TPR/M/92
Page 17
75. Malaysia's support for the Doha Work Programme had been based on the premise that there
was a continuous need to maintain a strong multilateral system, which would in turn ensure openmarkets for Malaysia's goods and services.  More importantly, the work programme should focus on
addressing developing countries' needs to allow their participation in the global economy, so as to
avoid their marginalization, which would have negative repercussions not only on them but on other
trading nations.  Members had to ensure that the organization and management of the negotiations
took into account developing countries' human and financial resources.
76. In Malaysia's view, the Doha work programme was important.  Malaysia would welcome a
more tempered approach by major trading countries in their approach to various negotiating issues,
and sought mutual respect on difficulties to be faced in the negotiations.  The attempt to incorporate
issues outside the scope of the WTO mandate was a matter of concern.  Certainly, sections of civil
society in some countries were keen to see non-trade issues becoming an essential part of the WTO;however, Members had equal responsibility to ensure that they would not use non-trade issues as
forms of disguised protectionism.  This would run counter to the Doha Conference's objective to
strengthen the WTO system.
77. Malaysia saw the work programme and negotiations as the means to achieve further
liberalization in the agriculture and industrial goods  sectors.  Liberalization of agriculture was long
overdue.  Success in this area would go a long way to convince Malaysia that countries with highly
protectionist agriculture policies could take the major step to open up their markets to foreign
competition, and remove inherent distortions.  Otherwise disappointment would turn into
disillusionment with the WTO.  The industrial goods sector was a major component of Malaysia's
economy.  Hence, there was an urgent need to address tariff and non-tariff barriers affecting this
sector on a global basis.  Malaysia acknowledged that negotiations were also aimed at liberalization of
the services sector.  The representative of Malaysia reiterated Malaysia's position that liberalizationhad to be progressive, and should lead to the strengthening of its domestic industry.  In this regard,
Malaysia appreciated the discussant's realistic appreciation of Malaysia's situation.
78. The DDA contained extensive reference to special and differential treatment, development
dimensions, technical cooperation, and capacity building.  Malaysia's expectation was that the
outcome of the work programme would bring concrete results that would benefit developing countriesin terms of their trade, economic, and development needs, be it in real market access commitments or
strengthened rules to underpin trade liberalization.  Malaysia wished to caution against over-ambitious
plans that could impose further burdens on developing countries in terms of commitments and
obligations, especially in areas alien to the WTO.
79. The discussant sought clarifications on the role of state-owned enterprises in Malaysia's
economic policy-making, particularly in the light of the need to enlarge its domestic market, to be less
dependent on export-led growth, and improve its corporate system.  He also asked about Malaysia's
future orientation in general to promote FDI, and an assessment of the role of investment guarantee
agreements.  He wondered how Malaysia, as a mo re developed economy among developing countries,
viewed cooperation with poorer developing c ountries in the framework of the Doha Work
Programme.
80. The representative of India recalled that Malays ia's experience in coping with the financial
crisis would be useful for other Members.  He also believed that the Doha Work Programme should
address the needs and constraints of developing countries and the implementation of the special and
differential treatment in order to ensure developing countries' active participation in the multilateraltrading system, and their increased share in international trade.WT/TPR/M/92
Page 18
81. The representative of Malaysia noted that, given the weak financial position of the Malaysian
private sector, state-owned enterprises had taken stakes in private companies to ensure their viability,
and to better contribute to Malaysia's sustainable economic growth.  State-owned enterprises also
played an important role in Malaysia's states.  The State Economic Development Corporations
(SEDCs) undertook a large number of economic activities in respective states in the areas of trade and
investment.  The SEDC also invested in rural ar eas, in which private companies were reluctant to
invest.  Malaysia had implemented pro-inve stment policies and would continue to adopt  a pragmatic
and realistic approach to create a climate conducive to foreign investors.  Malaysia regularly fine-
tuned its policies in this area.  Investment guaran tee agreements that Malaysia had concluded provided
foreign investors with security.  However, there had been many other factors, such as a relatively large
domestic market, good infrastructure, sound macroeconomic fundamentals, trainable workforce, and
an adequate legal framework, which had provided  an environment conducive to foreign investors.
Malaysia worked closely with poorer developing countries, including in the WTO informal group of
developing countries, and by providing assistance in relation to better understanding of WTO-related
issues.
(ii) Trade policies and measures
82. The representative of Malaysia referred to comm ents regarding the low level of tariff bindings
and gap between applied and bound rates.  The level of tariff bindings was 1% prior to the Uruguay
Round negotiations, and had increased to 65% thereafter.  Ceiling bindings had been allowed in tariff
negotiations as a way of encouraging greater scope of bindings, which provided greater predictability
and yet flexibility for countries to increase tariffs.  The gap between applied and bound rates had
widened because of Malaysia's unilateral reducti ons since the Uruguay Round.  The duty increases in
1998 were consistent with Malaysia's rights under the WTO as they were within the bound rates.  The
increase in tariffs was necessary to encourage the optimal use of existing machinery and equipmentleft idle, and to save on foreign exchange.
83. It was not necessary to be a member of the GPA to follow open and competitive procurement
procedures.  While Malaysia's government procurement policies were designed to enhance
socio-economic development, these policies were relatively open and provided adequate opportunities
for foreign suppliers.  Existing procedures were subj ected to periodic review with a view to enhancing
the transparency of trade procedures.
84. Imposition of export taxes and restrictions was intended to meet the objective of sustainable
forest management.  Export taxes imposed by Malaysia had not in any way affected exports of timber
products.  The import of meat and milk products was subject to SPS requirements, which were based
on risk assessment.  Malaysia would continue to take WTO-consistent SPS measures based on soundscience.  Import licences were required to monitor and ensure traceability, and were issued only when
the SPS requirements were satisfied.  Publications listing import conditions for halal meat were
available.
85. Malaysia had amended all its relevant intellectual property legislation in conformity with the
TRIPS Agreement.  The legislation had been reviewed by the TRIPS Council on 27 November 2001.Provisions in the Trade Marks Act prevented third parties from using these marks without the
proprietor's consent.  Recent amendments to the Act also included provisions that prohibited the
registration of well-known trade marks of goods and services by a person who was not a proprietor of
the trade marks.  The provision of border measures to prohibit counterfeit trade mark goods from
being imported was also included in the Act, consistent with the TRIPS Agreement. Malaysia
continued to intensify enforcement to prevent abuse of intellectual property.WT/TPR/M/92
Page 19
86. The representative of Australia noted that replies provided by Malaysia confirmed the
usefulness of the TPR exercise.  
87. The representative of the United States asked when, and under what circumstances, Malaysia
anticipated lowering tariffs in the automobile industry, for construction equipment, and for certain
appliances. He encouraged Malaysia to pursue efforts towards further transparency in government
procurement.
88. The discussant believed that by increasing tariffs, the Government had intended , inter alia ,  to
protect sectors severely affected by the financial crisis. He asked whether this was correct.  He asked
whether it would not be in Malaysia's interest to reduce the gap between preferential and MFN rates.
89. The representative of Malaysia indicated that his country planned to deal with tariff-related
issues in the negotiations on market access in non-agricultural products.  The representative of
Malaysia recalled that 65% of Malaysia's tariff lines applied zero duty.  Although the gap betweenpreferential and MFN rates was intended to make ASEAN industries more competitive, Malaysia
noted that exports from non-ASEAN sources into Malaysia, including of intermediate components and
parts, had continued to increase.  The representative of Malaysia confirmed that the gap between the
bound and applied rates had indeed widened.
(iii) Sectoral policies and measures
90. The representative of Malaysia stated that his country attached great importance to the
development of agriculture, which accounted for 8.4% of its GDP.  Malaysia was implementing the
Third National Agricultural Policy (NAP), which sought to ensure efficiency and productivity.  The
competitiveness and productivity of the sector was being enhanced through various programmes and
activities, particularly targeted at encouraging private investment, including foreign participation.  As
part of Malaysia's development objectives, initiatives had been taken to consolidate small farms and to
adopt modern farm and management techniques.  Malaysia hoped that agriculture negotiations wouldaddress specific issues, ensuring that farm trade was not distorted through export subsidies and other
domestic support measures.  Developing countries' concerns  in this sector had to be addressed.
91. Manufacturing, which had been developed through the promotion of local capacity while
encouraging foreign participation, continued to be th e main engine of Malaysia's growth.  The sector
had significant local as well as foreign presence.  While acknowledging that access to its automobilesector is restricted, this was a strategic industry for Malaysia, and it was being aggressively promoted
in view of its multiplier effects and the promotion of ancillary industries.  The industry was also
relatively new and required sufficient time to become competitive.  The Government was undertaking
a comprehensive review of the automobile sector;  th is included issues relating to the tariff structure
under the AFTA, CEPT, MFN rates, and the import licensing system.  Action had been taken toreduce import duties on motorcycles ranging from 80-120% to 60%.
92. A number of delegations had echoed observations made in the Secretariat's report that the
services sector remained "more closed" than the goods sector in the sense that there were more
restrictions on FDI.  In Malaysia's view, this was not a fair comment.  While foreign participation of
up to 30% was allowed in general, there had been cases where higher levels of foreign equityparticipation had been allowed.  Foreigners could own up to 51% of equity in insurance companies,
49% in stockbroking companies, and 61% in teleco mmunications companies. By any standards, these
were very liberal market-access opportunities accorded by any developing country.  The development
of the sector was a key priority for Malaysia, particularly to enhance its efficiency and
competitiveness.  Any further liberalization should take into account the needs of the economy.WT/TPR/M/92
Page 20
Malaysia had thus undertaken substantial liberalization in the services sector, which would benefit the
economy and assist in the development of particular sectors.
93. Foreign presence in financial services was very significant.  Currently, 14 out of
27 commercial banks were foreign-owned, and foreigners accounted for almost 30% of total
commercial bank assets.  Foreign presence was even more significant in the insurance sector, where
the market share of foreign-controlled insurers amounted to 73% of life insurance premiums, and 36%
of general insurance premiums.  Malaysia had made a large number of commitments under the GATS,including raising the foreign equity in insurance to  51%, increasing the equity limit in stockbroking
from 30% to 49%, and issuing more licences for life  reinsurance, general reinsurance, allowing 100%
foreign fund management, and employment of greater numbers of expatriates in foreign financial
institutions with commercial presence.  Even before the Uruguay Round had started, foreign
participation in Malaysia's financial sector was very significant compared with many other countries.
94. Noting the value of foreign participation in the telecommunications sector, particularly
regarding technological developments, the representative of Malaysia stated that Malaysia had
unilaterally liberalized foreign equity participation in this sector, and had provided for higher equity
levels of 61%, well over the GATS offer of 30%.  There were four telecommunications companies in
Malaysia, with substantial foreign equity.  Under the Multimedia Super Corridor project, Malaysia
accorded MSC status to international companies pr epared to set up operations within the MSC, and
which contributed significantly and strategically to ICT development.  These companies were offered
100% ownership, and no restrictions applied on employment of foreign personnel.  To date, a total of
583 companies had been accorded MSC status, of which 194 were foreign owned.  Malaysia had
made commitments on professional services, under Modes 1 and 2 of the GATS, and on commercial
presence through locally registered partnerships, joint ventures and setting up of regional or
representative offices.
95. Malaysia was prepared to participate actively and constructively in the WTO negotiations on
services to promote market access opportunities towards ensuring development of the sector.
96. The discussant noted the contribution of foreign firms to employment creation and economic
activities in Malaysia, and asked how the Government differentiated a foreign from a national
company.  He also sought Malaysia's view on th e relationship between sectoral openness and growth.
97. The representative of the European Union sought clarification on issues related to agriculture
and import licencing.  The EU had been informed that Malaysia was not delivering sanitary
certificates for a number of agricultural products, including pork and chicken meat, eggs, and milk,
thus denying market access to European exporters.
98. The representative of Malaysia stated that Malaysia applied the definition of the GATS to
differentiate a foreign-owned from a domestic company.  Malaysia acknowledged foreign companies'
contribution to its economic development, and reiterated that it applied the notion of progressive
liberalization.   As a result, Malaysia had attempted to liberalize sectors that could further enhance the
country's economic interest.  Delays in the issuance of sanitary certificates were due to lack of
information received by the competent authorities, and the representative of Malaysia asked the EU toprovide details on this matter.
99. The representative of the European Union indicated that his delegation would provide more
detailed information at a later stage.WT/TPR/M/92
Page 21
VI. CONCLUDING REMARKS BY THE CHAIRPERSON
100. This TPRB Review of Malaysia had seen a frank and very informative exchange of views,
stimulated both by the full and open engagement of the Malaysian delegation, and Members' active
involvement in the discussion.  This exchange has contributed to a much better understanding by
Members, and thus their collective evaluation, of Malaysia's trade and trade-related policies.  The
outcome, I believe, has been a highly successful third Review of Malaysia's trade policies, practices
and measures.
101. Members welcomed and were impressed by Malaysia's rapid growth and its remarkably quick
and strong recovery from the 1997 Asian financial crisis.  Members attributed this impressive
economic performance to sound macroeconomic policies, structural reforms, especially in the
corporate and financial sectors, and fast growth  in exports.  Some Members wondered about the
timing and effectiveness of Malaysia's capital and exchange control measures, implemented in thewake of the Asian crisis and the pegging of the ringitt to the U.S. dollar, measures that Malaysia saw
as appropriate for stabilizing markets and building confidence.  Members expressed the hope that
"temporary" liberalization measures introduced during the review period would be made "permanent".
Members also sought Malaysia's views on the need to diversify its exports, nearly half of which
involve electronics.
102. Members commended Malaysia for its strong support for and commitment to the multilateral
trading system, and expressed their hope that it would actively participate in the Doha Development
Agenda.  As regards Malaysia's pursuit of trade liberalization in regional fora, particularly ASEAN,
some Members noted that the gap between MFN and preferential tariff rates applied to imports from
ASEAN countries constituted a potential source of trade diversion, although Malaysia did not believe
that this had actually happened.
103. Members expressed their appreciation for Malaysia's relative openness to trade and foreign
direct investment and its continued liberalization efforts in these areas.  In particular, Members
commended Malaysia for its efforts to reduce tariffs, simplify the tariff structure, and abolish all local-
content requirements (except those for the automotive sector).  At the same time, concerns were raised
over the fact that about one third of Malaysia's tariff lines are unbound and the widening gap between
bound rates and applied MFN rates, which had permitted Malaysia to increase tariff protection forcertain products, thereby raising the simple average of MFN tariffs during the review period.
Malaysia noted that this widening gap between bound and applied MFN tariff rates is the consequence
of unilateral tariff reductions and that the import-weighted tariff average has declined; some other
Members felt that such a gap provides developing nations with a degree of flexibility in undertaking
trade liberalization and other economic reforms.  Members also urged Malaysia to reduce the scope ofits non-automatic licensing system.  It was noted that state-owned enterprises continue to play an
important role in Malaysia's economy and that the authorities might need measures to assure a pro-
competitive climate in the sectors where such enterprises are prevalent.  Some Members encouraged
Malaysia to accede to the Agreement on Government Procurement.
104. On sectoral issues, Members noted the contrast between the openness and economic
performance of the electronics and automotive industries; the much more open electronics industry
had performed much better than the automotive industry, which is protected by high tariffs and non-
tariff measures, including import licensing.  Members urged Malaysia to bring forward the abolition
of local-content requirements for motor vehicles.  Moreover, Members encouraged Malaysia to
continue its liberalization of the services sector, particularly financial services andtelecommunications.WT/TPR/M/92
Page 22
105. In addition, Members sought further clarification on, inter alia :
• the possibility of an ASEAN–China free-trade agreement;
• effectiveness of investment guarantee agreements;
• greater use of ad valorem  import duties;
• measures affecting exports;
• further progress in competition policy;
• transparency in government procurement;
• enforcement of intellectual property rights;
• standards and licensing concerning va rious agricultural products;  and
• recognition of qualifications in education and legal services.
106. Members expressed their appreciation of the responses provided by the delegation of
Malaysia during the meeting, and looked forward to later replies to some questions.
107. In conclusion, this Review has provided Members with a much better understanding of
Malaysia's trade and trade-related policies and of their role in fostering Malaysia's economicdevelopment and helping it to cope with shocks, such as the Asian financial crisis.  Malaysia's
recovery has apparently been greatly facilitated by Members' adherence to the principles of the
multilateral trading system and thus their willingness to keep their economies open to Malaysia's
exports.  Members encouraged Malaysia to further liberalize and diversify its economy.  In this
context, I, along with Members, look forward to Malaysia's continued support for future efforts to
liberalize the multilateral trading system.
__________