WORLD TRADE ORGANIZATION

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1 WORLD TRADE ORGANIZATION WT/REG216/2 6 February 2009 ( ) Committee on Regional Trade Agreements FACTUAL PRESENTATION Economic Partnership Agreement between Japan and Malaysia (Goods and Services) Report by the Secretariat This report, prepared for the consideration of the Economic Partnership Agreement between the Governments of Japan and Malaysia has been drawn up by the WTO Secretariat on its own responsibility and in full consultation with the Parties. The report has been drawn up in accordance with the rules and procedures contained in the Decision for a Transparency Mechanism for Regional Trade Agreements (WT/L/671). Any technical questions arising from this report may be addressed to Mr. Roberto Fiorentino (tel: ).

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3 Page iii TABLE OF CONTENTS Page I. TRADE ENVIRONMENT 1 A. MERCHANDISE TRADE 1 B. TRADE IN SERVICES AND INVESTMENT 5 II. CHARACTERISTIC ELEMENTS OF THE AGREEMENT 10 A. BACKGROUND INFORMATION 10 III. NATIONAL TREATMENT AND MARKET ACCESS PROVISIONS ON TRADE IN GOODS 11 A. IMPORT DUTIES AND CHARGES, AND QUANTITATIVE RESTRICTIONS General provisions Liberalization of tariff lines and trade 13 (a) Japan 13 (b) Malaysia 16 B. RULES OF ORIGIN 19 C. EXPORT DUTIES AND CHARGES, AND QUANTITATIVE RESTRICTIONS 21 D. REGULATORY PROVISIONS ON TRADE IN GOODS Standards 21 (a) Technical Barriers to Trade 21 (b) Sanitary and Phytosanitary Measures Safeguard mechanisms 22 (a) Global safeguard actions 22 (b) Bilateral safeguard actions 22 (c) Provisional bilateral safeguard measures 23 (d) Restriction to safeguard the balance of payments Anti-dumping and countervailing measures Subsidies and State-aid Customs-related procedures 24 IV. PROVISIONS ON TRADE IN SERVICES AND INVESTMENTS 25 A. SCOPE AND DEFINITIONS 25 B. DENIAL OF BENEFITS 26 C. GENERAL PROVISIONS ON TRADE IN SERVICES AND INVESTMENTS Market access National treatment and MFN Movement of natural persons 27 D. LIBERALIZATION COMMITMENTS ON TRADE IN SERVICES Japan 29 (a) Horizontal commitments / exceptions 29 (b) Sector specific commitments / exceptions 29

4 Page iv 2. Malaysia 31 (a) Horizontal commitments / exceptions 31 (b) Sector specific commitments / exceptions 31 E. LIBERALIZATION COMMITMENTS ON INVESTMENT Japan Malaysia 34 F. REGULATORY PROVISIONS ON TRADE IN SERVICES AND INVESTMENTS Domestic regulation Recognition Safeguard actions on services trade and investment 36 (a) Emergency Safeguard Measures 36 (b) Temporary Safeguard Measures 37 (c) Restrictions to Safeguard the Balance of Payments Payments and transfers Transparency Other 37 V. GENERAL PROVISIONS OF THE AGREEMENT General and Security Exceptions Accession Institutional framework Dispute settlement Relationship with other agreements concluded by the Parties Other provisions 40 (a) Intellectual property 40 (b) Competition 41 (c) Environment 41 (d) Improvement of business environment 41 (e) Cooperation 41 ANNEX I 42 ANNEX II 46

5 Page 1 I. TRADE ENVIRONMENT 1. The Economic Partnership Agreement (EPA) between Japan and Malaysia (hereinafter referred to as 'the Agreement' or 'JMEPA') is Japan's second free trade agreement (FTA) with an Asian country (following its FTAs with Singapore) 1 and Malaysia's first bilateral FTA with an Asian country excluding its membership in the ASEAN free trade agreement (See Table V.1 for the Parties' participation in other RTAs). 2. Japan's GDP was estimated at US$4,340 billion in 2006, while that of Malaysia reached US$149 billion in the same year. 2 With total merchandise exports of US$650 billion and imports of US$580 billion, Japan ranked in 2006 as the world's fourth and fifth exporter and importer respectively; with merchandise exports of US$161 billion and imports of US$131 billion, Malaysia ranked as the world's 19 th exporter and 23 rd importer in that year. A. MERCHANDISE TRADE 3. Recent developments in global and intra-party trade are presented in Charts I.1 and I.2. Japan was Malaysia's largest trading partner in terms of imports in 2007, accounting for 13% of its total imports, and its 3rd largest trading partner in terms of 2007 exports, accounting for 9.1% of its total exports. Malaysia was Japan's 11th largest trading partner in terms of 2007 imports, accounting for 2.8% of its total imports and its 11th largest trading partner in terms of 2007 exports, accounting for 2.1% of its total exports. 3 Over the period surveyed ( ), Malaysia has run a consistent trade deficit with Japan although data from Japan shows that it has also run a trade deficit with Malaysia over this period. According to the parties, possible reasons for this discrepancy include transhipment, third country exports, re-exports and calculations based on CIF and FOB. Chart I.1 - Japan: Merchandise imports from and exports to world and Malaysia, US$billion Left hand scale: Total imports Total exports Right hand scale: Imports from Malaysia Exports to Malaysia US$billion Source : UNSD, Comtrade database. 1 Following the JMEPA, Japan has concluded similar agreements with Thailand, Indonesia and Brunei Darussalam. 2 WTO, Trade Profiles. 3 UNSD, Comtrade database (2007).

6 Page 2 Chart I.2 - Malaysia: Merchandise imports from and exports to world and Japan, US$billion Left hand scale: Total imports Total exports Right hand scale: Imports from Japan Exports to Japan US$billion Source : UNSD, Comtrade database. 4. The commodity structure of trade among the Parties, as well as of their imports and exports to the world in the three years preceding entry into force of the Agreement ( ), is shown in Chart I.3 on the basis of Harmonized System (HS) section. Malaysia's two largest export product categories machinery and minerals made up 66.4% of its total exports in and accounted for 69.5% of Japan's imports from Malaysia. Japan's four largest export product categories machinery, vehicles, base metals and chemicals made up 79.4% of its total exports in and accounted for 82.5% of Malaysia's imports from Japan. 5. Chart I.4 shows the same commodity structure of trade post-entry into force of the Agreement for the period Over this period both Malaysia and Japan recorded a drop in the overall percentage to total export represented by their largest export categories. In the case of Malaysia, its two largest export product categories machinery and minerals made up 63.8% of its total exports, down 2.6 percentage points from the period; however, while machinery dropped 4.8 percentage points minerals gained 2.2 percentage points. These changes are reflected in Japan's imports from Malaysia over the period, with machinery and minerals recording an overall drop of 4.1 percentage points compared to figures; however, while machinery recorded a 7.7 percentage points drop, minerals actually gained 3.6 percentage points compared to figures thus replacing machinery as Japan's major import product category from Malaysia. With the exception of the latter, the overall commodity structure of trade has remained unchanged. 6. In the case of Japan, machinery was also accountable for the overall drop of 0.6 percentage points to total exports of its four largest export product categories (vehicles and base metals both recorded a gain of 1.1 percentage point). With respect to Malaysia's imports from Japan, machinery recorded a drop of 2.6 percentage points while base metals gained 2.7 percentage points. Vehicles, however, dropped 2.6 percentage points from figures while plastic became the 4 th largest import product category, up from 6 th in the period. With the exception of the latter, the overall commodity structure of trade has remained unchanged.

7 Page 3 Chart I.3 Japan and Malaysia: product composition of merchandise trade, annual average ( ) Per cent Japan's imports from Malaysia Malaysia's imports from Japan Fats and oils 2.1 Optical 2.8 Chemicals 3.5 Other 9.9 Machinery 38.2 Pearls 2.2 Plastics, Rubber 4.6 Optical 4.8 Other 6.0 Machinery 53.8 Plastics, Rubber 3.5 Chemicals 4.8 Articles of wood 8.8 Vehicles 10.5 Minerals 31.3 Base metals 13.4 Total: US$13.8 billion Japan's global imports Total: US$15.9 billion Malaysia's global imports Articles of wood 2.5 Vegetables 3.3 Prepared foods 3.7 Other 11.7 Minerals 25.8 Vegetables 1.7 Prepared foods 2.0 Optical 3.2 Plastics 3.9 Other 9.6 Machinery 54.7 Vehicles 3.9 Vehicles 4.2 Optical 4.4 Chemicals 5.5 Animal products 4.6 Base metals 4.8 Textiles 5.8 Chemicals 6.7 Machinery 22.8 Minerals 7.3 Base metals 7.9 Total: US$451.5 billion Total: US$100.6 billion Plastics 4.2 Japan's global exports Ot her 10.0 Textiles 2.0 Optical 2.4 Articles of wood 2.9 Malaysia's global exports Other 8.7 Optical 6.4 Chemicals 7.0 Machinery 41.6 Base metals 3.3 Chemicals 4.3 Plastics, Rubber 4.9 Machinery 54.4 Base metals 7.1 Fats and oils 5.0 Minerals 12.0 Vehicles 23.7 Total: US$ billion Total: US$124.3 billion Source: UNSD, Comtrade database.

8 Page 4 Chart I.4 Japan and Malaysia: product composition of merchandise trade, annual average ( ) Per cent Japan's imports from Malaysia Malaysia's imports from Japan Miscellaneous 1.5 Base metals 1.8 Fats and Oils 2.4 Optical 2.7 Chemicals 3.0 Plastics 4.0 Other 9.2 Minerals 34.9 Optical 3.5 Pearls 3.8 Chemicals 4.7 Plastics 6.7 Ot her 6.1 Machinery 51.2 Articles of wood 9.9 Vehicles 7.9 Base Metals 7.7 Machinery 30.5 Total: US$16.5 billion Japan's global imports Base metals 16.1 Total: US$18.2 billion Malaysia's global imports Articles of wood 2.0 Miscellaneous 2.2 Plastics 2.3 Vegetables 2.7 Animal products 3.2 Prepared Foods 3.2 Vehicles 3.5 Optical 4.1 Other 6.9 Minerals 32.0 Pearls 1.6 Vegetables 1.8 Prepared Foods 2.2 Optical 3.0 Vehicles 4.3 Plastics 4.5 Chemicals 5.5 Other 7.9 Machinery 49.8 Textiles 4.9 Base metals 5.7 Chemicals 6.3 Machinery 21.0 Minerals 9.4 Base Metals 9.9 Total: US$600.7 billion Total: US$139.0 billion Japan's global exports Stone, Cement 1.1 Other Prepared Foods Textiles 1.7 Textiles 1.2 Miscellaneous 1.8 Optical 2.5 Plastics 4.5 Articles of wood 2.8 Optical 5.2 Machinery 38.8 Base metals 4.3 Chemicals 4.3 Chemicals 7.0 Fats and oils 5.3 Malaysia's global exports Other 6.1 Machinery 49.6 Base metals 8.2 Plastics, Rubber 5.9 Vehicles 24.8 Minerals 14.2 Total: US$ billion Total: US$168.4 billion Source: UNSD, Comtrade database.

9 Page 5 B. TRADE IN SERVICES AND INVESTMENT 7. In 2006, Malaysia ranked 29 th in terms of world exports of commercial services and 30 th in terms of imports. Its commercial services exports amounted to US$21.7 billion, representing 0.79% of world exports, while imports amounted to US$23.5 billion, representing 0.89% of world imports. In the same year Japan ranked fourth in the world both for exports and imports of commercial services. Its commercial services exports amounted to US$122.5 billion, representing 4.43% of world exports, while imports amounted to US$144 billion representing 5.48% of world imports Chart I.5 shows the breakdown of commercial services trade for Japan in Transportation services, other business services, and royalties and license fees represent the largest categories in terms of exports of commercial services, while transportation services, travel services, and other business services are the largest in terms of imports. Chart I.5 Japan, total commercial services trade, US$ billion Exports US$ billion Imports Transportation services Travel services Communications services Construction services Insurance services Financial services Computer and information services Royalties and license Other business services Personal and cultural services Government services Note: Exports of insurance services were negative in the following years: 1999 (-US$80 million), 2001 (-US$100 million), and 2002 (-US$380 million). Source : IMF, BOP CD-Rom. 4 WTO, Trade Profiles.

10 Page 6 9. Chart I.6 shows the breakdown of Japan's commercial services trade with Malaysia in Transportation services, royalties and license fees, travel services and construction services are the largest categories in terms of exports of commercial services, while transportation services, travel services, and other business services are the largest in terms of imports. Chart I.6 Japan,bilateral commercial services trade with Malaysia, US$ million Exports US$ million Imports 1,200 1,200 1,000 1, Transportation services Travel services Communications services Construction services Insurance services Financial services Computer and information services Royalties and license Other business services Personal and cultural services Note: Exports of other business services were negative in the following years: 2004 (-US$ 2,173 millions), 2005 (-US$1,522 millions) and 2006 (- US$ 1,077millions) ; Figures for "travel" in 2006 indicate a break-in series. Source : WTO Secretariat, based on data supplied by Japan. 10. Japan's global investment position is depicted in Chart I.7 which shows inward and outward foreign direct investment (FDI) stocks with the world for the period Japan's inward FDI stock reached US$129 billion in 2007 up from US$54 billion in 2000; this marks a 13% average annual increase compared to a 8.4% average annual increase of its outward FDI stock over the same period; the latter stood at US$ 525 billion in 2007.

11 Page 7 Chart I.7 Japan inward and outward foreign direct investment stock from world, US$ billion Inward US$ billion Outward Source: WTO Secretariat estimates based on data at Japan's bilateral investment position with Malaysia is depicted in Chart I.8 which shows its inward and outward stock of FDI with Malaysia over the period Japan's inward FDI stock from Malaysia remained rather constant from 2000 to 2006 except for an isolated increase in 2001; however, in 2007 it dropped by 91.1% to US$1.2 million from US$13.8 million in Its outward FDI stock in Malaysia, on the other hand, has recorded over the same period a regular positive trend, increasing by 9% on average annually from US$4.3 billion in 2000 to US$7.9 billion in Chart I.9 shows the breakdown of commercial services trade for Malaysia in Travel, transportation, and other business services represent the largest categories in terms of exports of commercial services, while transportation, travel, and other business services are also the largest in terms of imports.

12 Page 8 Chart I.8 Japan inward and outward foreign direct investment stock with Malaysia, US$ million Inward US$ billion Outward Source : WTO Secretariat estimates based on data at Malaysia's global investment position is depicted in Chart I.10 which shows inward and outward foreign direct investment (FDI) stocks with the world for the period Malaysia's inward FDI stock reached US$77 billion in 2007 up from US$53 billion in 2000; this marks a 6% average annual increase compared to a 20% average annual increase of its outward FDI stock over the same period; the latter stood at US$ 58 billion in 2007.

13 Page 9 Chart I.9 Malaysia, total commercial services trade, US$ billion Exports US$ billion Imports Transportation services Travel services Communications services Construction services Insurance services Financial services Computer and information services Royalties and license Other business services Personal and cultural services Government services Source : IMF, BOP CD-Rom.

14 Page 10 Chart I.10 Malaysia inward and outward foreign direct investment stock from world, US$ billion Inward US$ billion Outward Source: UNCTAD, Foreign Direct Investment database. II. CHARACTERISTIC ELEMENTS OF THE AGREEMENT A. BACKGROUND INFORMATION 14. The JMEPA was signed by Japan and Malaysia on 13 December 2005 and entered into force on 13 July The Parties notified the goods and services aspects of the Agreement to the WTO on 12 July 2006 under Article XXIV:7(a) of the GATT 1994, and Article V:7(a) of the GATS (document WT/REG216/N/1 and S/C/N/371). The text of the Agreement is available, together with its related Annexes, on the following official websites: Japan: Malaysia: The Agreement aims at liberalizing and facilitating trade in goods and services between the Parties; improving investment opportunities and the business environment; establishing a framework to enhance closer cooperation of the socio-economic partnership; ensuring protection of intellectual property; encouraging effective control of anti-competitive activities; and to create effective procedures for the resolution of disputes (Article 1). 5 The URL address is to Malaysia's Trade and Industry portal. The link to the text of the Agreement can be found under the directory "Info Centre" and sub-directory "Malaysia and Free Trade Agreements".

15 Page The Agreement is composed of 14 Chapters and has seven related Annexes, as follows: Table II.1: Chapters, annexes of the Agreement Chapters and Annexes Title/description Preamble Chapter 1 General Provisions Chapter 2 Trade in Goods Chapter 3 Rules of Origin Chapter 4 Customs Procedures Chapter 5 Technical Regulations, Standards and Conformity Assessment Procedures Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Sanitary and Phytosanitary Measures Investment Trade in Services Intellectual Property Controlling Anti-competitive Activities Improvement of Business Environment Co-operation Dispute Settlement Final Provisions Annex 1 Schedule in relation to Article 19 Annex 2 Annex 3 Annex 4 Annex 5 Product Specific Rules Minimum Data Requirement for Certificate of Origin Reservation for Existing and Future Measures Financial Services Annex 6 Schedules of Specific Commitments in relation to Article 99 Annex 7 List of Most-Favoured-Nation Treatment Exemptions in relation to Article 101 Source: The Agreement between the Government of Japan and Malaysia for an Economic Partnership. 17. In addition, the Agreement provides for an Implementing Agreement between the Parties pursuant to Article 12 of the Agreement. The Implementing Agreement outlines the details concerning the implementation of the cooperation provisions as set out in the various Chapters of the Agreement. These include co-operation on customs procedures, intellectual property, control of anticompetitive activities, improvement of the business environment, and co-operation on the implementation of projects and programmes as specified in the "Joint Statement at the Signing of the Agreement between the Government of Japan and the Government of Malaysia for an Economic Partnership" 6 which are to be implemented within the framework of the JMEPA. The Implementing Agreement entered into force at the same time as the Basic Agreement and will remain in force as long as the latter remains in force (Article 44 of the Implementing Agreement). III. NATIONAL TREATMENT AND MARKET ACCESS PROVISIONS ON TRADE IN GOODS A. IMPORT DUTIES AND CHARGES, AND QUANTITATIVE RESTRICTIONS 1. General provisions 18. Chapter 2 sets out the general definitions, market access provisions and regulatory regime applicable to trade in goods between the Parties. 6 The Parties' respective Prime Ministers agreed in their Joint Statement at the time of signing of the Agreement to promote co-operation in the following fields: agriculture, forestry, fisheries and plantation, education and human resource development, information and communications technology, science and technology, small and medium enterprises, tourism, and environment. See:

16 Page Each Party accords national treatment to the goods of the other Party in accordance with Article III of the GATT 1994 (Article 18) With respect to market access, the Parties agree to reduce or eliminate customs duties on originating goods in accordance with their respective schedules as set out in Annex 1 of the Agreement and not to increase such duties except as otherwise provided for under the Agreement (Article 19). No timeframe for the implementation of such commitments is explicitly stated in the Agreement, however, the Parties' schedules in Annex 1 indicate transition periods of up to 15 years for certain products with the final tariff cuts taking place in By this date, most of the Parties' bilateral trade will be duty-free, except for those tariff lines which are either excluded from the Agreement or subject to partial tariff liberalization. 21. Part 1 to Annex 1 lists the categories relating to the tariff treatment accorded by the Parties; these are common to both Parties except those qualified by notes specific to each Party's schedule (Part 2, Section 1 to Annex 1 for Japan and Part 3, Section 1 to Annex 1 for Malaysia). The categories indicate the following: timeframes for elimination of customs duties (categories A to B15); timeframes for reductions or elimination of customs duties qualified by notes specific to each Party's schedule (category P); products subject to tariff rate quotas (category Q); in the case of Japan, products not subject to tariff concessions but for which negotiations on issues such as improving market access conditions are envisaged in year 4 or 5 following the entry into force of the Agreement (category R); 8 and products excluded from the Agreement (category X). In the case of Japan, tariff reductions take place on the date of entry into force of the Agreement and on 1 April of following years. For Malaysia, tariff reductions take place on the date of entry into force of the Agreement and on 1 January in subsequent years. 22. Upon request by either Party, the Parties agree to negotiate on issues such as improved market access for goods designated for negotiation in the respective schedule in Annex 1, in accordance with the terms and conditions set out in the schedule (Article 19.3). They agree to undertake a general review of the implementation and operation of the Agreement in the fifth calendar year following its entry into force and every five years thereafter, unless otherwise agreed by them (Article 155). 23. Other general provisions include the undertaking by the Parties not to introduce or maintain any non-tariff measures on the bilateral import or export of goods which are inconsistent with their obligations under the WTO Agreement (Article 22). 7 For the purposes of this Agreement the term "Party" refers to the Governments of Japan or Malaysia and the term "Country" refers to either Japan or Malaysia. 8 Article 19.3 indicates such negotiations will take place at the request of either Party.

17 Page 13 Table III.1 Market Access: Basic features at a glance Japan Malaysia Scope and coverage HS Chapters 1-97 Elimination or reduction of duties in accordance with the schedule in Annex 1 (Part 2, Section 2) HS Chapters 1-97 Elimination or reduction of duties in accordance with the schedule in Annex 1 (Part 3, Section 2) Tariff elimination or reduction in accordance with each Party's schedule as contained in Annex I (positive list) Schedule of tariff concessions Categories of tariff elimination or reduction (General notes Part 1 to Annex 1) Cat. Description of tariff treatment Date of tariff elimination/reduction Japan No. of lines 9 Malaysia No. of lines A entry into force (EiF) , ,918 B3 four equal annual cuts as from EiF B4 five equal annual cuts as from EiF B4* equal annual cuts as from EiF with final cut in: B5 six equal annual cuts as from EiF B6 seven equal annual cuts as from EiF B7 eight equal annual cuts as from EiF ,361 B9 ten equal annual cuts as from EiF B9* equal annual cuts as from EiF with final cut in: B10 11 equal annual cuts as from EiF B15 16 equal annual cuts as from EiF P In accordance with the notes of each Party's schedule Note 3, 6 to 10 1, (1 x note) Q In accordance with the notes of each Party's schedule Note 2 2 R Negotiations as set out in the notes of Japan's schedule Note 1,4,5 161, 3, 8 X Excluded from tariff liberalization Elimination in: Source: Annex I to the Agreement. 2. Liberalization of tariff lines and trade The elimination of tariffs between the Parties is detailed in their corresponding schedules. For both Parties, tariff elimination started at entry into force of the Agreement; the base rates for tariff reductions were in the case of Malaysia the MFN applied duties on 1 January In the case of Japan the base rates were the MFN applied duties on 1 April 2004 or any other lower rates agreed upon by the Parties. Subsequent duty reductions take place on 1 January of each year with respect to Malaysia and on 1 April of each year with respect to Japan. (a) Japan 25. Japan's tariff elimination under the Agreement is depicted in Table III % of Japan's tariff lines were already duty-free on an MFN basis in which corresponded to 83.2% of imports from Malaysia for the period The bulk of Japan's scheduled tariff liberalization took place on entry into force of the Agreement with a further 41% of tariff lines becoming duty-free amounting to an additional 10.7% of imports from Malaysia. The remaining tariffs lines are to be 9 Japan's total number of tariff lines listed in the Table is slightly higher than the total number of tariff lines indicated in the remaining charts and tables of this Factual Presentation due to the exclusion from the Secretariat's tariff analysis of Japan's MFN in-quota tariff lines. 10 Unless otherwise specified, all statistics contained in the tables and charts have been prepared on the basis of data provided by the Parties. 11 For tariff lines subject to TRQs only the out-of-quota duty is included in the tariff-related calculations. 12 Japan's tariff is composed of 8,915 tariff lines at the HS 9-digit level; 93.3% of this tariff is ad valorem, 2.3% relates to lines with specific duties; 0.6% relates to compound tariff lines; 3.7% relates to mixed tariff lines, and 0.2% to others. For compound and mixed lines, only the ad valorem component is taken into account in the calculation of averages.

18 Page 14 eliminated in equal annual cuts over a six stage period starting in 2011 and ending in 2021 at which point an additional 7.4% of Japan's tariff schedule will have been liberalized. By the end of the transition period 90.1% of Japan's tariff schedule will be duty-free, corresponding to 94.4% of imports from Malaysia; 9.9% of Japan's tariff lines will remain subject to duty corresponding to 5.6% of its imports from Malaysia after the Agreement is fully implemented. Table III.2 - Japan Tariff elimination commitments under the Agreement and corresponding average trade Duty phase-out period Number of lines % of total lines in Japan's tariff schedule Value of Japan's imports from Malaysia ( ) in million US$ % of Japan's total imports from Malaysia MFN duty free (2006) 3, , , , Remain dutiable Total 8, , Note: Based on the HS 2002 nomenclature. Calculations exclude tariff lines having an in-quota rate. Source: WTO estimates based on data provided by Japan. 26. The base rates used by Japan for implementing its tariff liberalization scheme already provided for 41.7% of the tariff or 3,717 tariff lines being duty free on an MFN basis before the entry into force of the Agreement. Of the remaining 5,198 tariff lines, 3,944 held a base rate of up to 10%, 525 a base rate of between 10% and 20%, 422 a base rate of between 20% and 30%, 24 a base rate of between 30% and 40%, 14 a base rate of between 40% and 50%, 6 a base rate of over 50%, and 263 lines had non ad valorem rates. Table III.3 shows Japan tariff elimination under the Agreement by year and duty range. Tariff lines with a base rate of up to 10% are mostly liberalized on entry into force of the Agreement and progressively thereafter; those with a base rate of between 10% and 20% are to be liberalized in four stages, and most significantly upon entry into force of the Agreement and in 2016; tariff lines with a base rate of between 20% and 30% are mostly liberalized in 2016 and 2021; tariff lines with a base rate of between 30% and 40% are liberalized in 2021; tariff lines with a MFN rate of between 40% and 50% and above are not scheduled for liberalization under the Agreement; tariff lines with non ad valorem rates are mostly liberalized on entry into force of the Agreement and in By the end of the transition period, 882 tariff lines will retain a duty; in general the percentage of tariff lines excluded from liberalization is proportionally higher the higher the MFN rate. Table III.3 Japan Tariff elimination under the Agreement by year and duty range MFN duty range Schedule of Tariff Liberalization No. of lines Excluded lines No. of lines % of lines in range Duty Free 3,717 <=10 3,944 3, <= <= <= <= > Non ad valorem Total 8,915 3, Source: WTO Secretariat estimates, based on data provided by Japan.

19 Page Table III.4 shows Japan's liberalization commitments under the Agreement organized by HS Section product categories. Of the 8,915 tariff lines forming Japan's tariff schedule 3,717 were already duty free on an MFN basis in Of the 3,651 tariff lines liberalized upon entry into force of the Agreement, more than half fall under HS Section XI (Textiles) while the others are distributed across the other HS Sections with a majority falling under HS Section VI (Chemicals). Of the 882 lines retaining a duty at the end of the transition period, the vast majority fall under HS Sections I to IV. The average tariff that applies to the excluded lines is 18.3% compared to an overall MFN applied average of 4.8% which as indicated in Table III.3 would suggest a greater propensity for exclusion from liberalization of products retaining higher MFN rates. Table III.4 Japan: Tariff elimination under the Agreement, by HS section HS section and description MFN average % Total No of lines MFN Number of duty-free lines No. of excluded lines Avg. tariff of excluded lines I Live animals and animal products II Vegetable products III Animal or vegetable fats and oils IV Prepared food etc V Minerals VI Chemical and products 2.3 1, VII Plastics and rubber VIII Hides and skins IX Wood and articles X Pulp, paper etc XI Textile and textile articles 6.5 2, , XII Footwear, headgear XIII Articles of stone XIV Precious stones, etc XV Base metals and products XVI Machinery XVII Transport equipment XVIII Precision equipment XIX Arms and ammunition XX Misc. manufactured articles XXI Works of art, etc Total 4.8 8,915 3,717 3, Note: Source: Based on the HS 2002 nomenclature; for tariff lines subject to TRQs only the out-of-quota duty is included in the tariff-related calculations. WTO estimates based on data provided by Japan. 28. Chart III.1 shows the composition of the 882 tariff lines which remain subject to duties in Japan. Of the 882 tariff lines, 166 fall under category "R" (notes 1, 4 and 5), hence subject to renegotiation in year four or five as the case may be; 1 falls under category "P" (note 3) which foresees a tariff reduction to 25% by year six and thereafter renegotiation; 1 line subject to a TRQ; 1 mixed category line; and the remaining 713 fall under category "X", hence completely excluded from the scheduled tariff liberalization (see paragraph 21).

20 Page 16 Chart III.1 Composition of Japan's Remaining Dutiable Lines Japan's Composition of Remaining Dutiable Lines Excluded (713) Mixed Category (R&B5) (1) Category R (1, 4, 5) (166) Category P (3) (1) TRQs (1) Source: WTO estimates based on data provided by Japan. (b) Malaysia 29. Malaysia's tariff elimination under the Agreement is depicted in Table III % of Malaysia's tariff lines were already duty-free on an MFN basis in which corresponded to 71.2% of imports from Japan for the period At entry into force of the Agreement, Malaysia liberalized a further 16.7% of its tariff lines amounting to an additional 10.2% of imports from Japan. The remaining tariff lines are scheduled to be liberalized in equal annual cuts starting from 2008 and ending in 2016 except 2014 when no cuts are scheduled. 15 Over this period, the most significant tariff liberalization stages in terms of number of tariff lines are 2011, 2013 and 2016 with an additional 4.1%, 12.9% and 5.3% respectively of Malaysia's tariff lines becoming duty-free. By 2016, 98.9% of Malaysia's tariff lines will be duty-free corresponding to 99.2% of its imports from Japan; 1.1% of tariff lines will retain a duty corresponding to 0.8% of imports from Japan. 13 For tariff lines subject to TRQs only the out-of-quota duty is included in the tariff-related calculations. 14 Malaysia's tariff is composed of 10,508 tariff lines at the HS 9-digit level; 99.3% of this tariff is ad valorem; 0.3% relates to tariff lines with specific duties; 0.3% relates to compound tariff lines; and 0.1% relates to mixed tariff lines. For compound and mixed lines, only the ad valorem component is taken into account in the calculation of averages. 15 Malaysia's does not have any tariff lines falling under category B.15 of Part 1 to Annex I for which tariff elimination is scheduled in 2021.

21 Page 17 Table III.5 - Malaysia Tariff elimination commitments under the Agreement and corresponding average trade Duty phase-out period Number of lines % of total lines in Malaysia's tariff schedule Value of Malaysia's imports from Japan ( ) in million US$ % of Malaysia's total imports from Japan MFN duty-free (2006) 6, , , , , Remain dutiable Total 10, , Note: Based on the HS 2002 nomenclature. Source: WTO estimates based on data provided by Malaysia. 30. The base rates used by Malaysia for implementing its tariff liberalization scheme already provided for 58% of the tariff or 6,141 tariff lines being duty free on an MFN basis before the entry into force of the Agreement. Of the remaining 4,444 tariff lines, 1,700 held a base rate of up to 10%, 1,302 a base rate of between 10% and 20%, 1,143 a base rate of between 20% and 30%, 30 a base rate of between 30% and 40%, 219 a base rate of between 40% and 50%, 14 a base rate of more than 50%, and 36 were lines with non ad valorem rates. Table III.6 shows Malaysia tariff elimination under the Agreement by year and duty range. Tariff lines with a base rate of up to 10% are mostly liberalized on entry into force of the Agreement; those with a base rate of between 10% and 20% are mostly liberalized in two stages, upon entry into force and in 2013; tariff lines with a base rate of 20% and 30% are progressively liberalized from entry into force of the Agreement with significant reductions in 2013 and 2016; tariff lines with a base rate of between 30% and 40% are mostly liberalized in 2013 except a few lines on entry into force and in 2016; liberalization of tariff lines with a base rate of between 40% and 50% starts in 2012 with the major elimination occurring in 2016; as for the tariff lines with a base rate of above 50%, most of these are eliminated in By the end of the transition period, 121 tariff lines will retain a duty of which most have non ad valorem rates; for lines with ad valorem tariffs, most have MFN rates in the 40% to 50% range. Table III.6 Malaysia Tariff elimination under the Agreement by year and duty range MFN duty range Schedule of Tariff Liberalization No. of lines Excluded lines No. of lines % of lines in range Duty Free 6,141 <=10 1,700 1, <=20 1, <=30 1, <= <= > Non ad valorem Total 10,585 1, Source: WTO Secretariat estimates, based on data provided by Malaysia. 31. Table III.7 shows Malaysia's liberalization commitments under the Agreement organized by HS Section product categories. Of the 10,585 tariff lines forming Malaysia's tariff schedule 6,141 were already duty free on an MFN basis in Of the 1,771 tariff lines liberalized upon entry into force of the Agreement, almost half fall under HS Section XI (Textiles) while the others are

22 Page 18 distributed across the other HS Sections with a majority falling under HS Section XV (Base metals) and XVI (Machinery). The next major liberalization stage occurs in 2013 and most of the tariff lines being liberalized at this stage fall under HS Sections VII (Plastics), X (Pulp of wood), XIII (Articles of stone) in addition to Sections XV and XVI. A large number of the 121 lines retaining a duty at the end of the transition period fall under HS Section IV (Prepared food), followed by Section XIX (Arms and ammunition), XV, VII and a few others. The average tariff that applies to the excluded lines is 12% compared to an overall MFN applied average of 7.7% which as indicated in Table III.3 would suggest a greater propensity for exclusion from liberalization of tariff lines with higher MFN tariffs. Table III.7 Malaysia: Tariff elimination under the Agreement, by HS section HS section and description MFN avg. % Total No of lines MFN Number of duty-free lines No. of excluded lines Avg. tariff of excluded lines I Live animals and animal products II Vegetable products III Animal or vegetable fats and oils IV Prepared food etc V Minerals VI Chemical and products 2.2 1,231 1, VII Plastics and rubber VIII Hides and skins IX Wood and articles 1.3 1,990 1, X Pulp, paper etc XI Textile and textile articles , XII Footwear, headgear XIII Articles of stone XIV Precious stones, etc XV Base metals and products , XVI Machinery 7.0 1, XVII Transport equipment XVIII Precision equipment XIX Arms and ammunition XX Misc. manufactured articles XXI Works of art, etc Total ,585 6,141 1, , Note: Based on the HS 2002 nomenclature. Source: WTO estimates based on data provided by Malaysia. 32. Chart III.2 shows the composition of the 121 tariff lines which remain subject to duties in Malaysia. Of the 121 tariff lines, 16 fall under category "P" (notes 5, 13) which foresee the two following situations: a) tariff reductions to a rate not inferior to 10% by year 16; and b) duty-free provided that the originating good is imported for use in specific manufacturing sectors or imported for users which are designated as Licensed Manufacturing Warehouses or in Free Zones. Nine tariff lines fall under category "P" (note 3) which provides for tariff reductions in 11 equal annual instalments to a rate of 5%; two tariff lines fall under category "P" (note 2) which is based on the same principle as note 3 except that the threshold of the final tariff is to a rate of 20%; one tariff line

23 Page 19 falls under category "P" (note 4) which provides for the tariff rate to be set at 10%; the remaining 93 tariff lines fall under category "X", hence are completely excluded from the scheduled tariff liberalization (see paragraph 21). Chart III.2 Composition of Malaysia's Remaining Dutiable Lines Malaysia's Breakdown of Remaining Dutiable Lines Category P (5, 13) (16) Excluded (93) Category P (4) (1) Category P (3) (9) Category P (2) (2) (1 %) Source: WTO estimates based on data provided by Malaysia. B. RULES OF ORIGIN 33. Disciplines regarding rules of origin and customs procedures are set out in Chapters 3 and 4 respectively. Article 27 contains definitions relating to rules of origin while Articles 28 to 38 contain the substantive rules; the product specific rules of origin are contained in Annex 2. Certificate of origin and the procedures designed to administer and enforce the rules of origin are set out in Articles 39 to 50 of Chapter 3; these are complemented by Annex 3 which sets out the minimum data requirement for the certificate of origin; and an Agreement between Japan and Malaysia on the operational procedures for the implementation of the rules of origin by their respective customs and other competent government authorities. Customs procedures and cooperation on customs matters are addressed in Articles 51 to 58 of Chapter The general requirements for a good to be considered an originating good of a Party (Article 28.1) are that it is: (a) wholly obtained or produced entirely in the territory of the Party 16 ; (b) produced entirely in the Party exclusively from originating materials of the Party; or 16 This concept applies to goods that are born, raised, entirely grown, harvested, picked, or gathered, fished or mined in the territory of a Party; goods of sea-fishing and other goods taken by the vessels of the Party from the sea outside the other Party or goods produced on board factory ships of the Party outside the other Party; goods lawfully taken from the seabed or subsoil beneath the seabed outside the Party; and recovered goods and waste and scrap derived from production in the territory of the Parties. The detailed requirement are contained in Article 28.2.

24 Page 20 (c) produced entirely in the Party using non-originating materials which satisfy the product specific rules of Annex 2, and all other applicable requirements of Chapter The Agreement does not provide for a single rule of origin; rather it lists (Annex 2) product specific rules for goods incorporating non-originating materials to be considered as originating (see Table AII.1 for a synopsis of the detailed rules). 36. The specific rules are detailed at the HS Subheading (6-digit) level. The change in tariff classification (CTC) criteria can be considered the regime-wide rule of origin since it is applied either as a standalone rule or in combination with other criteria. The CTC criterion may require a change of HS Chapter (CC); HS Heading (CTH); or HS Subheading (CTSH). The CTC rule is often qualified by a requirement that the non-originating material be obtained in the territory of an ASEAN member state (the rule is listed as "CTC*" in Table AII.1). The Agreement also makes frequent use of the regional value content (RVC) test which establishes the minimum value of originating materials needed in the final product for it to be granted originating status, expressed as a percentage of the overall FOB value of the product. In most cases, the RVC test is an alternative rule to the CTC criterion; in a few other cases the RVC test either supplements the CTC criterion or figures as a standalone rule. The standard RVC is 40%, except for a few headings under HS Chapter 87 (vehicles other than railway) where the RVC is set at 50% and 60%, and two subheadings under HS Chapter 22 (beverages, spirits and vinegar) where the RVC is set at 50%. For certain HS Chapters (50-55 and 60) under HS Section XI (Textiles) a technical condition may be applied together with the CTC criterion; this requires that the dyeing or printing process is accompanied by two or more of the 48 different operations identified in Annex 2 and that certain specified working processes are carried out entirely in the territory of the Parties or in a non-party which is a member country of ASEAN. 37. Article 29 provides for cumulation of materials among the Parties; it does not includes cumulation of production processes undertaken on goods and materials originating in the Parties and conducted in any one or more of the Parties. Article 30 establishes a de minimis principle whereby a good that does not conform to a CTC, pursuant to the provisions of Annex 2, will be considered as originating provided that the value of all the non-originating materials used in its production does not exceed specific percentages of value, weight or volume as set out in Annex 2. For goods in HS Chapters and 64-97, the applicable percentage is 10% of the value of the good; and for goods in HS Chapters 50-63, it is 7% of the weight of the good. Article 31 lists the minimal operations or processes that do not confer origin such as preservation of products, packing and repacking. 38. Additional rules in Articles clarify how certain materials (unassembled or disassembled goods; fungible goods and materials; indirect materials; accessories, spare parts and tools; packaging materials and containers for retail sale; packing materials and containers for shipment) are to be treated/valued when determining the origin of goods. Article 32 sets out the rule applicable to the transit of goods through non-parties. 39. The Parties agree to the establishment of a Sub-Committee on Rules of origin responsible for the implementation and operation of the chapter on rules of origin (Article 49).

25 Page 21 Box III.1 Rules of Origin: Basic Features at a Glance No single rule of origin methodology Origin criteria: Wholly obtained or produced entirely in the territory of a Country Produced entirely in the territory of a Country exclusively from originating materials Product specific rules: In general, CTC at the chapter, heading, or subheading level For some products the CTC rule and technical rules often allow the involvement of a third State which is a member country of ASEAN The RVC test figures as a standalone rule, as an alternative rule to CTC or in addition to CTC; the standard RVC is 40% Bilateral cumulation. De Minimis principle: value of non-originating materials can represent a maximum of 10% of the value of the good (HS Chapters and 64-97); 7% of the weight of the good (HS Chapters 50 through 63) C. EXPORT DUTIES AND CHARGES, AND QUANTITATIVE RESTRICTIONS 40. The Parties agree not to introduce or maintain export subsidies on any agricultural good listed in Annex 1 to the WTO Agreement on Agriculture (Article 21). 41. Neither Party may introduce or maintain any non-tariff measures on the export or sale for export of any good destined for the other Party which are inconsistent with its obligations under the WTO Agreement (Article 22). There are no provisions in the Agreement concerning export duties on goods. D. REGULATORY PROVISIONS ON TRADE IN GOODS 1. Standards (a) Technical Barriers to Trade 42. Chapter 5 sets out the provisions applying to technical regulations, standards and conformity assessment procedures as defined in the Agreement on Technical Barriers to Trade in Annex IA of the WTO Agreement (TBT Agreement). The aim of the Chapter is to facilitate trade among the Parties by ensuring that technical regulations do not create unnecessary obstacles to trade and through the negotiation of possible mutual recognition arrangements; to this end the Parties enhance cooperation and consult on such matters (Article 59). 17 In particular, the Parties endeavour to work, where possible, towards the harmonization of their respective technical regulations based on international standards, recommendations and guidelines and to give positive consideration to accepting as equivalent technical regulations of the other Party (Article 61) and accepting the results of each other's conformity assessment procedures (Article 62); a Party, upon request by the other Party and where appropriate, gives the reasons for not accepting as equivalent to its own a technical regulation and/or the results of a conformity assessment procedure of the other Party (Articles 61.3 and 62.2 respectively). With respect to mutual recognition arrangements, Article 63 provides that upon request by either one of the Parties, they will enter into negotiations for possible mutual recognition arrangements on the results of their conformity assessment procedures in the sectors they both agree upon (Article 63). 17 The Parties reaffirm their rights and obligations relating to technical regulations, standards and conformity assessment procedures under the WTO TBT Agreement (Article 60).