( ) Page: 1/137 TRADE POLICY REVIEW REPORT BY THE SECRETARIAT MALAYSIA

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1 RESTRICTED WT/TPR/S/ December 2017 ( ) Page: 1/137 Trade Policy Review Body TRADE POLICY REVIEW REPORT BY THE SECRETARIAT MALAYSIA This report, prepared for the seventh Trade Policy Review of Malaysia, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Malaysia on its trade policies and practices. Any technical questions arising from this report may be addressed to John Finn (tel: ); Usman Ali Khilji (tel: ); and Zheng Wang (tel: ). Document WT/TPR/G/366 contains the policy statement submitted by Malaysia. Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Malaysia. This report was drafted in English.

2 - 2 - CONTENTS SUMMARY... 8 Economic Environment... 8 Trade Policy Framework... 8 Trade Policy Developments... 9 Sectoral Policy Developments ECONOMIC ENVIRONMENT Main Features of the Economy Recent Economic Developments Balance of payments Developments in Trade and Investment Trends and patterns in merchandise and services trade Composition of merchandise trade Direction of merchandise trade Trends and patterns in FDI TRADE AND INVESTMENT REGIMES General Framework Trade Policy Formulation and Objectives Structure of Trade Policy Formulation Trade policy objectives Trade laws and regulations Trade Agreements and Arrangements WTO Regional and preferential agreements ASEAN New RTAs PTAs Other agreements and arrangements Investment Regime Overview Foreign investment regime TRADE POLICIES AND PRACTICES BY MEASURE Measures Directly Affecting Imports Customs procedures, valuation, and requirements Rules of origin Tariffs Applied MFN tariff Duty concessions/exemptions Tariff preferences Other charges affecting imports...44

3 Import prohibitions, restrictions, and licensing Prohibitions (first schedule) Import licensing (second, third, and fourth schedules) Second schedule Third schedule Fourth schedule Anti-dumping, countervailing, and safeguard measures Measures Directly Affecting Exports Customs procedures and requirements Taxes, charges, and levies Export prohibitions, restrictions, and licensing Export prohibitions (first schedule) Export licensing (second and third schedules) Export support and promotion Export support Tariff and tax concessions Free trade zones and other measures Export promotion Export finance, insurance, and guarantees Measures Affecting Production and Trade Taxation and incentives Tax structure Indirect taxes Direct taxes Tax incentives Main incentives More favourable incentives Incentives on indirect taxes Other support measures, and SMEs Standards and other technical requirements Sanitary and phytosanitary requirements Competition policy and price controls Competition policy Legal framework Institutional framework and enforcement International cooperation Price and supply controls State trading, government-linked enterprises, and privatization State trading Government-linked companies (GLCs)...68

4 Privatization Government procurement Overview The legal framework and government procurement system Procurement methods and the use of e-procurement Integrity and bid challenges review mechanism Intellectual property rights Overview Enforcement TRADE POLICIES BY SECTOR Agriculture, Forestry, and Fisheries Agriculture Features Agriculture trade Domestic policies Selected sub-sectors Trade policy Support levels Fisheries Features Trade Policy Mining and Energy Mining and quarrying Energy Petroleum and gas Electricity Services General Financial services Telecommunications Transport Air transport Maritime transport Tourism APPENDIX TABLES CHARTS Chart 1.1 Product composition of merchandise trade, 2013 and Chart 1.2 Direction of merchandise trade, 2013 and

5 - 5 - Chart 1.3 Foreign direct investment, Chart 3.1 Average applied MFN tariff rates, by HS section, 2013 and Chart 3.2 Distribution of MNF tariff rates, 2013 and Chart 3.3 Tariff distribution by type of duty, Chart 4.1 Contribution to GDP from agriculture, rubber, forestry, and fishing...79 Chart 4.2 Domestic support in Malaysia, Chart 4.3 Exports and imports of petroleum and petroleum productions, and natural gas, Chart 4.4 PETRONAS' contribution to government and state revenues, Chart 4.5 KLCI and market capitalization, TABLES Table 1.1 Selected macroeconomic indicators, Table 1.2 Basic economic and social indicators, Table 1.3 Balance of payments, Table 1.4 Trade in services, Table 2.1 Sectoral plans, and trade and investment tools...25 Table 2.2 WTO notifications, 1 November 2013 to 10 November Table 2.3 Main features of new RTAs, Table 2.4 ASEAN India: Malaysia's tariff elimination and reduction commitments...32 Table 3.1 Import time and cost, Table 3.2 Malaysia's tariff structure, 2013 and Table 3.3 Summary analysis of Malaysia's preferential tariffs, Table 3.4 Import prohibition and licensing schedules...44 Table 3.5 Import licensing...45 Table 3.6 Imports subject to TBT requirements...47 Table 3.7 Anti-dumping investigations and measures imposed, Table 3.8 Definitive anti-dumping measures in force, by country and product, June Table 3.9 Initiation of safeguard investigations, provisional measures, final measures, and termination Table 3.10 Export time and cost, Table 3.11 Malaysia export duties, Table 3.12 Export prohibition and licensing schedules...53 Table 3.13 Export licensing...53 Table 3.14 Structure of direct and indirect tax revenue, Table 3.15 Tax incentives...59 Table 3.16 More favourable tax incentives - manufacturing...60 Table 3.17 Accreditation...64 Table 3.18 Number of complaints, investigations and findings, Table 3.19 Government procurement value by public sector,

6 - 6 - Table 3.20 WIPO-administered treaties...75 Table 3.21 IPR data...76 Table 4.1 Exports and imports of agricultural products and rubber, Table 4.2 Agrobank financing for agriculture, Table 4.3 Self-sufficiency forecasts in NAP and actual levels...82 Table 4.4 Oil palm, selected indicators, Table 4.5 Export duty rate (after partial duty exemption)...84 Table 4.6 Rubber, selected indicators, Table 4.7 Rubber production incentive, 2015, 2016 and Table 4.8 Livestock indicators, Table 4.9 Rice, selected indicators, Table 4.10 Incentives for rice production 2009, 2014, and Table 4.11 Budget outlay for agriculture, Table 4.12 Financing scheme funds operated by Agrobank, Table 4.13 Selected indicators, Table 4.14 Marine and inland capture fishing and aquaculture, Table 4.15 Malaysia's fishing fleet, Table 4.16 Exports and imports of fish and fish products, Table 4.17 Fishing zones in Malaysia...95 Table 4.18 Government spending on fisheries, Table 4.19 Mining and quarrying production, Table 4.20 Imports and exports of non-petroleum minerals, Table 4.21 Mineral licences issued, Table 4.22 Primary energy supply and consumption, Table 4.23 Oil and gas production and use, Table 4.24 Electricity generation mix, Table 4.25 Regulated prices for natural gas in Malaysia, January 2014-June Table 4.26 Services contribution to GDP, Table 4.27 Financial sector indicators, Table 4.28 Islamic banking system, Table 4.29 Takaful sector, Table 4.30 Mobile service providers, Table 4.31 Selected telecommunication indicators, Table 4.32 Telecommunications licensing regime, Table 4.33 Telecommunications licences issued, Table 4.34 Functions of the Department of Civil Aviation and the Malaysian Aviation Commission Table 4.35 Air transport, selected indicators, Table 4.36 Total vessels registered in the Malaysian Ship Registry by type, Table 4.37 Total vessels registered in the Malaysian International Ship Registry by type,

7 - 7 - Table 4.38 Main ports and activities, Table 4.39 Tourism indicators, 2012 to Table 4.40 Foreign equity limits for tourism Table 4.41 Fiscal incentives for hotels and tourism projects, BOXES Box 4.1 Islamic banking and finance APPENDIX TABLES Table A1. 1 Merchandise exports by group of products, Table A1. 2 Merchandise imports by group of products, Table A1. 3 Merchandise exports by destination, Table A1. 4 Merchandise imports by origin, Table A3. 1 Summary analysis of Malaysia's MFN tariff, 2013 and

8 - 8 - SUMMARY Economic Environment 1. Malaysia is a middle-income country with a diverse economy. Trade is very important, with exports and imports of goods and services equivalent to about 130% of GDP. For the past four years, real GDP growth has averaged nearly 5% despite a number of external and domestic shocks, including global commodity price and financial market volatility, weak external demand, and domestic political controversy. Growth has been based on domestic demand and helped by the diversified production and export base, a flexible exchange rate, responsive macroeconomic policies, and strong financial markets. 2. From 2013 to 2016, there were some changes to the structure of trade in goods. In US dollar terms, exports and imports declined, mainly due to lower commodity prices. On the export side, the value of exports of fuels and palm oil declined while exports of office machines and telecommunications equipment increased. Other Asian countries, and other ASEAN in particular, are the main source of imports and destination for exports. 3. Long-term economic policy is set out in Vision 2020 which includes the objective of achieving high-income country status by 2020, by, inter alia, sharply accelerating the growth of labour productivity. In addition, the Eleventh Malaysia Plan and sectoral plans, such as the National Agrofood Policy and the National Commodity Policy , emphasize the importance of productivity, innovation, and trade in achieving economic growth. Trade Policy Framework 4. There have been no major changes to the institutions responsible for trade policy formulation since Among the new trade and investment-related laws that entered into force during the review period were: the Companies Act, which introduced provisions to simplify the procedures to start a company, to reduce the cost of doing business, as well as to reform corporate insolvency mechanisms; the introduction of the goods and services tax to replace the sales tax; the Malaysian Aviation Commission Act, pursuant to which the Malaysian Aviation Commission was established; and various amendments to the Food Regulations. 5. As an active Member of the WTO, Malaysia has submitted notifications to the WTO in a number of areas. However, at end-october 2017, several notifications were outstanding, including on: agriculture (domestic support); quantitative restrictions; and customs valuation. During the review period, Malaysia was not involved in any new WTO dispute settlement cases either as complainant or respondent. It participated as a third party in four cases. 6. As a member of ASEAN, Malaysia is a party to trade agreements with Australia and New Zealand; China; India; Japan; and the Republic of Korea. During the review period, the ASEAN-India Agreement was expanded to cover trade in services. Malaysia also has bilateral RTAs with: Australia; Chile; India; Japan; New Zealand; Pakistan; and Turkey. The Malaysia-Turkey FTA (MTFTA) entered into force in On 31 December 2015, the first phase of the ASEAN Economic Community (AEC) Blueprint 2015 was completed and ASEAN leaders then adopted the AEC Blueprint Restrictions on foreign investment remain in fisheries, energy, telecommunications, finance, and transport services, and foreign participation in public-private-partnership projects is limited to a ceiling of 25% of share capital. Some policies supporting the ethnic Malay community (bumiputera), including minimum equity participation in some sectors, may affect FDI. However, the Government has continued to relax foreign investment restrictions. Currently there is no foreign equity restriction in the capital market except for a 70% cap on investment banks. 8. The Government has been making efforts to modernize Malaysia's business licensing system, by reviewing licences and making them accessible online. The Malaysia Productivity Corporation (MPC) conducted sectoral regulatory reviews to reduce unnecessary regulatory burdens on business.

9 - 9 - Trade Policy Developments 9. There has been no major change to customs procedures during the review period. Malaysia ratified the WTO Trade Facilitation Agreement (TFA) in May 2015, and notified that it designated all provisions under Category A with some exceptions. Malaysia's ease of trading across borders remains highly ranked in international comparisons. 10. The tariff is the main trade policy instrument, despite its low share in total tax revenue (1.7%). Due to changes in nomenclature (HS12 to HS17) and for other technical reasons, the average applied MFN tariff increased from 5.6% in 2013 to 7.5% in 2017, although tariffs increased on only a single tariff line (at 10-digit level). Almost all rates (99% of tariff lines) are ad valorem, while duty-free lines accounted for 56.2% of all tariff lines. The number of different tariff rates increased from 19 in 2013 to 25 in Ad valorem tariff rates range from zero to 60% for industrial products and zero to 90% for agricultural products. Among different product groups, average tariffs are highest for transport equipment (the simple average tariff rate was 21.5% in 2017). These averages do not include the 1% of lines subject to non-ad valorem tariffs which are mostly applied to tobacco and alcohol products, with ad valorem equivalents that range from 0.2% to 465% for certain manufactured tobacco. Simple average rates under all preferential arrangements are lower than the simple average MFN rate, although the averages among arrangements are different, ranging from 0.1% to 7.4%. 11. Malaysia applies nine tariff quotas affecting 27 tariff lines at the HS 10-digit level. According to the authorities, this is to meet the requests of domestic small producers. Import duty exemptions are applied to local and foreign manufacturing companies on raw materials and components used in the manufacture of goods for export, and for machinery and equipment not available in Malaysia but used directly in the manufacturing process. In addition, imports of 16 product categories required import licences. 12. During the review period, the number of antidumping investigation initiations reached its peak in 2015, and the number of definitive anti-dumping measures reached its peak in Imports from nine Members were affected, and antidumping duties were applied mostly on biaxially oriented polypropylene film, and steel wire rod. Between 2014 and 2017, four safeguard investigations were initiated, all concerning steel products. 13. Export duties range from 5%-30% and apply to 217 tariff lines (mainly crude oil, palm oil, and wood) in The number of tariff lines with export duties declined from 482 in 2014, partly reflecting the merging of tariff lines during the transposition exercise. 14. A significant change to Malaysia's tax structure was the replacement of the sales tax with a 6% goods and services tax (GST) (from 1 April 2015), which is essentially a value added tax-type system. In 2016, revenue from GST accounted for 24% of total tax revenue. The share of petroleum income tax to total tax revenue declined, from 19% in 2013 to 5% in 2016, reflecting falling oil prices. 15. Malaysian incorporated companies, local or foreign, are eligible for incentives. Tax incentives continued to be implemented mainly through the pioneer status and the investment tax allowance schemes. Direct tax incentives grant partial or total relief from income tax for a specified period, and incentives on indirect taxes are in the form of exemptions from import tariffs and excise duties. In addition, Malaysia provides support in the form of a statutory income tax exemption to manufacturers based on the value of increased exports. Exemption of statutory income tax equivalent to 50% of the value of increased export is available to companies in selected services sectors. 16. Regarding standards, Standards Malaysia, Malaysia's national standardization and accreditation body, is focusing on establishing standards that have a high impact on the public, including industries, rather than on the number of standards. As a result, the number of Malaysian standards dropped from 6,381 in 2012 to 5,284 in Malaysia continues to align its standards with international ones: in 2017, 60% of Malaysian standards were aligned with international standards, up slightly from 59.8% in 2014, and 54% were identical, down from 57.5% in In 2017, 510 or 9.7% (6.5% at end-2012) of all Malaysian standards were compulsory.

10 State involvement in the economy is considerable, with government-linked investment companies involved in petroleum, electricity, telecommunications, postal services, air transport, public transport, and financial services. Malaysia notified the WTO that Padiberas Nasional Berhad (BERNAS) acts as a state trading enterprise for rice importation. General purpose flour, cooking oil, and liquefied petroleum gas (LPG) are subject to price controls and subsidies are provided to support ceiling prices. 18. There have been no major changes to the legal and institutional framework governing competition policy since the previous review. The government procurement regime remains a decentralized system, and continues to be used to favour locally owned businesses. Foreign suppliers are not allowed to participate in domestic tenders, while international tenders are invited only if there are no domestically produced supplies or services available. Malaysia is an observer to the plurilateral WTO Agreement on Government Procurement. 19. There has been no significant change to the IPR regime in Malaysia during the review period. Enforcement, despite having improved, remains an area of concern. Malaysia ratified the Protocol Amending the TRIPS Agreement on Public Health in December Sectoral Policy Developments 20. Malaysia has a dichotomous agricultural structure with large plantations dominating palm oil production and small producers dominant in other sectors. Several large corporations with international activities are responsible for a large proportion of production and processing of palm oil. While the area under rubber trees has declined relative to the mid-2000s, rubber remains important in terms of agricultural production and as an input to industry, with both domestic production and imports of natural rubber being used. Although rice production represents a relatively small part of the total value of agricultural production, the Government has continued to prioritize the sector, which is dominated by small-scale producers, through self-sufficiency targets (which also apply to fruits, vegetables, and livestock), minimum prices, input subsidies, and direct payments to producers. In general, small-scale producers tend to be supported by the Government, while large plantations tend to be taxed. 21. Petroleum and gas remain important to the economy, contributing about 10.5% to GDP and about 14% to government revenues in The sector is dominated by the state-owned company PETRONAS, which has exclusive ownership of all oil and gas deposits and exclusive rights for exploration and production in Malaysia, both on land and offshore, and responsibility for planning and investment. It is also responsible for regulation of upstream activities. Exploration, development and exploitation of petroleum and gas takes place through production sharing or risk service contracts between oil companies and a subsidiary of PETRONAS. Another subsidiary of PETRONAS, MISC Bhd, is a major energy shipping company with a large fleet of tankers and LNG vessels. In addition to producing crude oil, Malaysia also imports crude for refining. Although the value of both exports and imports of petroleum products and natural gas has declined over the past few years, the volumes traded have increased significantly and investment continues, bringing Malaysia towards its objective of being a principal hub for oil and gas in the Asia-Pacific area. At end-2014, subsidies for petrol and diesel were removed although regulated prices continue to be applied. Subsidies remain for LPG and regulated prices of gas to the power sector are being increased. 22. In line with the Eleventh Malaysia Plan, 18 services subsectors were liberalized in 2012 and up to 100% foreign equity participation is now allowed for wholesale and retail trade, healthcare, professional services, environmental services, courier, and education subsectors. Since then, progress has slowed, although foreign equity restrictions in unit trust management companies and in credit rating agencies were removed in 2014 and 2017, respectively. However restrictions remain in several sectors including telecommunications, transport, and investment banks. 23. Under the Malaysian Aviation Commission Act of 2015, the Malaysian Aviation Commission was established, taking over some of the responsibilities of the Ministry of Transport, including economic regulation, allocation and management of air traffic rights, monitoring of slot allocations, and licensing of air services, ground handling, and aerodrome operators. All except two of Malaysia's airports are owned by the State, and the government-linked company, Malaysia Airports Bhd, manages five of the six international airports.

11 Malaysia has a well-integrated and mature financial sector, which has undergone consolidation over a number of years. The financial sector, which is comprised of banks, insurance, and capital markets, contributed 6.4% to GDP in 2016 with increasing levels of cross border activity. Furthermore, Malaysia is at the forefront of the global Islamic finance industry and has a highly developed Islamic finance sector. Islamic financial institutions operate in parallel with conventional financial institutions, both offering a full range of financial products and services and often using the same infrastructure. Islamic banking has grown rapidly over the past ten years with its market share increasing from about 12% in 2007 to 28% at the end of In addition, Malaysia issued more than 54% of the total global sukuk (Islamic bonds). 25. Malaysia's diverse economic base and general openness to trade helped the economy to continue to grow through a difficult period caused by low commodity prices which affected several sectors, particularly petroleum and gas, and palm oil. Growth was also helped by pragmatic government policies such as the floating exchange rate, which allowed the Malaysian ringgit to fall against other currencies while government revenues were supported by the introduction of the goods and services tax in 2015, despite the decline in oil-based revenues. On the other hand, the State remains very involved in the economy through government-linked enterprises and their subsidiaries, and investment restrictions remain in some sectors. However, trade and investment policies are becoming more liberal as investment restrictions are being relaxed, and Malaysia has expanded its network of trade agreements both through ASEAN and on its own behalf. Given Malaysia's abundance of natural resources, strategic location, and pragmatic policies, growth should continue towards the goal of becoming a high-income country by 2020.

12 ECONOMIC ENVIRONMENT 1.1 Main Features of the Economy 1.1. Malaysia is an open and diverse middle-income economy. Services account for over 50% of GDP, followed by manufacturing, agriculture, mining and quarrying (including crude oil and natural gas), and construction. The economy is well integrated into regional and global value chains; as such, trade is vital to growth and economic development. Imports and exports of goods and services account for around 130% of GDP and the country has been running current account surpluses for a number of years. Government debt remains manageable at under 53% of GDP in 2016, while both unemployment and inflation remain low (Table 1.1). Table 1.1 Selected macroeconomic indicators, National accounts (% age change, unless otherwise indicated) Real GDP (at 2010 prices) Consumption Private consumption Government consumption Gross fixed capital formation Exports of goods and non-factor services Imports of goods and non-factor services XGS/GDP (%) (at current market price) MGS/GDP (%) (at current market price) Unemployment rate (%) Productivity (%age change) Labour productivity Prices and interest rates Inflation (CPI, %age change) Fixed 3-months deposit rate (%) Savings deposit rate (%) Exchange rate RM/US$ (annual average) Real effective exchange rate (% age change) Nominal effective exchange rate (% age change) Overall government balance (% of GDP) Current government balance Current revenue Tax revenue Current expenditure Development expenditure, net Government total debt (end-period) Domestic External Saving and investment (% of GDP) Gross national savings Gross domestic investment (gross fixed capital formation) Savings-investment gap External sector (% of GDP, unless otherwise indicated) Current account balance Net merchandise trade Merchandise exports Merchandise imports Services balance Capital account

13 Financial account Direct investment Balance-of-payments Merchandise exports (%age change in RM) Merchandise imports (%age change in RM) Service exports (%age change in RM) Service imports (%age change in RM) Gross official reserves (US$ billion, end-period) in months of retained imports Total external debt (US$ billion; end-period) of which short term Bank Negara Malaysia online information; data provided by the authorities; and IMF, International Financial Statistics. 1.2 Recent Economic Developments 1.2. During the period under review, real GDP growth averaged nearly 5% annually, and is expected to be in excess of 5% in However, after peaking at 6% in 2014, the rate of growth declined (Table 1.1). Despite a number of external and domestic shocks since late 2014, including global commodity price and financial market volatility, weak external demand, spillovers from China, and domestic political controversy, the economy has remained resilient. It was able to do so because of the diversified production and export base, strong balance sheet positions, a flexible exchange rate, responsive macroeconomic policies, and deep financial markets During the period under review, growth was driven by domestic demand, which was reflected in the construction and services sectors. Within the services sector, the growth of wholesale and retail trade, restaurants and hotels, transport, storage and communications, and real estate and business activities was particularly pronounced (Table 1.2). In contrast, the agricultural sector contracted; while mining and quarrying (which includes crude oil and natural gas) grew, albeit at a declining rate. These changes are due to a significant fall in global commodity prices as well as the adverse impact of the weather on agricultural production. Table 1.2 Basic economic and social indicators, Real GDP at market price (US$ million, 2010 prices) 303, , , ,152 Real GDP at market price (RM million, 2010 prices) 955,080 1,012,449 1,063,355 1,108,227 Current GDP at market price (US$ million) 323, , , ,535 Current GDP at market price (RM million) 1,018,614 1,106,443 1,157,723 1,230,120 GDP per capita at current market price (US$) 10,882 11,184 9,649 9,508 GDP by economic activity at constant 2010 prices (% age change) Agriculture Mining and quarrying Manufacturing Construction Electricity, gas and water Services Wholesale and retail trade; motor vehicles Restaurants and hotels Transport, storage, and communication Finance and insurance Real estate and business activities Government services Other services Import duties Information provided by the authorities.

14 GDP by economic activity at current prices (%) Agriculture Mining and quarrying Manufacturing Construction Electricity, gas and water Services Wholesale and retail trade; motor vehicles Restaurants and hotels Transport, storage, and communication Finance and insurance Real estate and business activities Government services Other services Import duties Share of sector in total employment Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas and water Construction Services Wholesale and retail trade, repair of motor vehicles and motor cycles Accommodation and food service activities Transport and storage Information and communication Financial and insurance activities Real estate Professional, scientific and technical activities Administrative and support service activities Public administration and defence Education Human health and social work activities Other services a The Department of Statistics Malaysia includes electricity, gas and water as part of the services sector. However, to ensure consistency across Trade Policy Reviews, these have been excluded from the services sector. Bank Negara Malaysia online information According to the IMF, risks to the growth outlook stem from both external and domestic factors. 2 External risks include structurally weak growth in advanced and emerging markets resulting in sustained lower commodity prices. Heightened global financial stress and associated capital flows could also have an adverse impact on domestic markets On the domestic front, risks arise from public sector and household debt levels as well as certain vulnerabilities in the corporate sector. Furthermore, according to the IMF, relatively high government debt and contingent liabilities limit policy space to respond to shocks. However, the authorities feel that the concern regarding high government debt and contingent liabilities is no longer valid as Malaysia's debt level is significantly below the self-imposed limit of 55% of GDP The authorities are cognizant of the above risks and realize that the external economic and financial environment will remain fraught with uncertainty and that they need to remain vigilant. However, they feel that Malaysia's diverse economic structure, strong fundamentals and buffers built up over a number of years will hold it in good stead. 2 IMF Country Report No. 17/101.

15 The authorities reiterated their commitment to fiscal sustainability and the continuous improvement of fiscal policy through diversifying revenue, reviewing expenditure, improving the tax system, and monitoring and mitigating fiscal risks. Furthermore, according to the authorities, contingent liabilities, although considerable, do not pose a risk, as guarantees have been strategically provided to non-financial entities with healthy balance sheets. The authorities also emphasized that the flexible exchange rate would continue to adjust and absorb shocks and the current reserve level was adequate to smooth volatility. Banks continue to be well capitalized and have ample liquidity; they would be in a good position to deal with increased vulnerabilities relating to household and corporate debt. Monetary policy and exchange rate policy 1.8. The objective of monetary policy is "to maintain price stability while giving due regard to the developments in the economy" from the Bank Negara Malaysia, which in recent years has implied long-term inflation of about 3% with positive low real interest rates conducive to sustainable growth of the economy With a view to fostering growth against a relatively benign inflationary environment, the central bank, Bank Negara Malaysia (BNM), has pursued an accommodative monetary policy. BNM's main policy instrument is the overnight policy rate (OPR) After maintaining the OPR at 3.25% since July 2014, the BNM reduced it by 25 basis points to 3% in July 2016 and maintained it at that level following a review in September 2017, thereby reaffirming that, with the current level of the OPR, the degree of monetary accommodativeness is consistent with the policy stance to support growth in a stable price environment The IMF classifies Malaysia's exchange rate regime as "other managed". However, the authorities consider that, in practice, it is closer to "floating". As such, Malaysia has relied on the foreign exchange reserves and the flexibility of the exchange rate to cushion the impact on the economy of volatile capital flows and terms of trade shocks (fall in global commodity prices) The ringgit has depreciated by over 30% against the US dollar compared to its value in This was due mainly to large portfolio outflows in 2014, with the BNM allowing the exchange rate to adjust to these outflows. Additionally, the BNM also intervened in the foreign exchange market by using reserves to cushion the impact of the outflows and maintain orderly market conditions Inflation, as measured by the consumer price index, peaked at 3.2% in 2014; however, it has since moderated to 2.1%, which is at the lower end of the BNM's forecast range of 2-3%. Inflation declined mainly due to lower domestic fuel prices. Additionally, moderate domestic demand and a subdued external price environment also helped dampen domestic inflationary pressures. Fiscal policy During the review period, Malaysia continued to run a fiscal deficit, albeit at a declining rate, reaching 3.1% of GDP in The fiscal deficit being due entirely to development expenditure, as the balance on current revenue and expenditure remained positive Current revenue declined from nearly 21% of GDP in 2013, to around 17% of GDP in The decline came about as a result of a fall in oil and gas revenues, which was due to a decline in oil and gas prices. It is estimated that the fall in oil- and gas-related revenue was 3.7% of GDP over However, the impact of lower oil- and gas-related revenue was mitigated to a large extent by the introduction of the goods and services tax (GST) in 2015, which increased revenue by around 1.5% of GDP between 2014 and Current expenditure also declined from 20.7% of GDP to 17.1% of GDP over the review period. The reduction in expenditure came about due to the rationalization of untargeted fuel and other subsidies, which started in Additionally, spending optimization measures across 3 IMF Country Report No. 17/101.

16 ministries and agencies also helped reduce expenditure and sustain revenues, as did a reprioritization of programmes and projects with high multiplier effect coupled with lagged adjustment in the PETRONAS dividend As a result, total government debt declined to 52.7% of GDP in 2016, which is below the government's self-imposed limit of 55%. Structural reforms The authorities envisage sustaining growth and achieving high-income status by In this regard, the 11 th Malaysia Plan lays out a comprehensive reform agenda to transform Malaysia into a productivity-driven and knowledge-based economy The plan focuses on, inter alia: the labour market, education, skills productivity and innovation. Within the labour market, policies are geared towards increasing the female participation rate, through providing for more flexible work arrangements and creating more opportunities for women in all fields of education and jobs. In this regard, measures taken by the authorities include the launching of a portal (Flexworklife.my) in June 2013, which aims to build a network of employers and talent to optimize work-life integration. Furthermore, with a view to encouraging women to return to the workforce, the authorities launched a career comeback programme. It provides financial incentives for employers to implement programmes to recruit and retain women who have been on career breaks Under the plan, Malaysia has set a productivity growth target of 3.7% annually between 2016 and In this regard, efforts to boost productivity will focus on accelerating innovation and entrepreneurship and leveraging advancements in technology. The authorities stated that the measures envisaged include: restructuring the workforce by raising the number of high-skilled workers, tightening entry of low-skilled workers, and meeting demands of the future economy; strengthening the readiness of enterprises to effectively adopt and exploit technology and digital advantage, such as the Fourth Industry Revolution; addressing regulatory constraints and developing a robust accountability system to ensure effective implementation of regulatory reviews; and driving accountability in productivity performance through an effective governance mechanism Important gains have been made in access to, and gender equality in education. However, according to the authorities, the standard of education needs to be improved. In this regard, the Malaysian Education Blueprint is aimed at improving the quality of school education through curriculum transformation, improving the quality of teachers and increasing English proficiency. Additionally, efforts are also underway to make technical and vocational training more appealing. With a view to increasing productivity and efficiency, skill mismatches and the upskilling of female and elderly workers are also being addressed. As such, the Ministry of Education, has upgraded 80 vocational schools to vocational colleges since 2012 offering vocational courses and awarding students with the Malaysian Vocational Diploma (DVM). To date, over 90% of the graduates have gained employment in their related field According to the IMF, to move to a knowledge-based economy, policies should continue to encourage R&D, including through streamlining institutional arrangements. The authorities are in the process of finalizing a strategy to boost productivity and aim to double the share of R&D spending in GDP by 2020 from its 2012/13 level Balance of payments During the period under review, Malaysia's current account surplus declined from 3.5% of GDP in 2013 to 2.4% of GDP in 2016, reflecting a narrowing of the difference between gross national savings and gross national investment (Table 1.3). 4 IMF Country Report No. 16/ BNM Annual Report 2016.

17 Table 1.3 Balance of payments, (RM million) Current account balance 35, , , ,023.4 Goods and services balance 86, , , ,292.1 Goods balance 96, , , ,382.4 Exports 637, , , ,075.3 Imports 541, , , ,692.8 Services balance -9, , , ,090.4 Exports 132, , , ,313.1 Transportation 14, , , ,792.2 Travel 67, , , ,975.0 Imports 142, , , ,403.5 Transportation 38, , , ,305.2 Travel 38, , , ,448.7 Income balance -33, , , ,604.1 Compensation of employees -4, , , ,636.3 Investment income -29, , , ,003.9 Current transfers (net) -17, , , ,628.5 Capital account , Financial account -20, , , ,126.2 Direct investment -6, , , ,130.5 Malaysia's direct investment abroad -44, , , ,051.9 Direct investment in Malaysia 38, , , ,182.4 Portfolio investment -3, , , ,418.8 Assets -32, , , ,010.8 Liabilities 29, , , Financial derivatives Other investment -10, , , Public sector -3, , , ,032.6 Private sector -6, , , ,996.8 Net errors and omissions , , ,226.2 Overall balance of payments 14, , , ,778.5 Bank Negara Malaysia (Central Bank of Malaysia) online information. Viewed at: After rising to 4.4% of GDP in 2014, the current account surplus declined due to a fall in the surplus for trade-in-goods as import growth outpaced exports. The faster decline in the value of exports was caused by the fall in world commodity prices. However, export volumes rose due to higher demand from major trading partners and increased commodity production as earlier investment projects came on stream. The ringgit depreciation also helped mitigate some of the adverse price affects. Imports were less affected due to strong domestic demand, capacity expansion, and implementation of large infrastructure projects In ringgit terms, the services deficit almost doubled, from RM 9.6 billion to RM 19.1 billion, from 2013 to The increase in the deficit was due mainly to the higher usage of foreign professional, technical and engineering services particularly in the aviation, oil and gas, and utilities sectors Net payments in lieu of transport services have declined since 2014 on account of both lower payments and higher receipts of transport services, while the surplus on the travel account has narrowed, reflecting the higher number of Malaysians travelling abroad and a relatively slower increase in inbound travellers (Table 1.4). 6 BNM Annual Report 2016.

18 Table 1.4 Trade in services, Total credit (RM billion) % of total credit Maintenance and repair Construction Transport Travel Insurance and pension services Financial services Charges for the use of intellectual property n.i.e Telecommunications, computer, and information services Oher business services Personal, cultural and recreational services Government services Other a Total debit (RM million) % of total debit Maintenance and repair Construction Transport Travel Insurance and pension services Financial services Charges for the use of intellectual property n.i.e Telecommunications, computer, and information services Oher business services Personal, cultural and recreational services Government services Other a a Manufacturing services on physical inputs owned by others. Bank Negara Malaysia (Central Bank of Malaysia) online information. Viewed at: The income account continues to remain in deficit as incomes accrued to Malaysian companies investing abroad, particularly in the mining and services sectors, were impacted by weaker global demand, while foreign investors in Malaysia, particularly in the manufacturing sector, continue to earn sizable profits. Outflows of foreign worker remittances have also remained robust reflecting the increased reliance on foreign workers in the labour-intensive sectors of the economy The deficit on the financial account improved as direct investment in Malaysia rose while portfolio outflows declined from their peak in Furthermore, other investments recorded a surplus. The turnaround was due to loan repayments by non-resident financial institutions to Malaysian banks and the maturity of overseas deposits held by Malaysian banks. The slowdown in trade also resulted in lower trade credits. On the whole, the balance of payments recorded a surplus of around RM 15 billion in Consequently foreign exchange reserves rose to RM billion (US$94.5 billion) at the end of 2016 providing nearly nine months of retained import cover. 1.3 Developments in Trade and Investment Trends and patterns in merchandise and services trade As an extremely open and diverse economy that is well integrated into regional and global value chains, Malaysia is dependent on trade. Trade in goods and services, as a proportion of GDP, was nearly 130% in After peaking at over RM 113 billion in 2014, the trade in goods surplus 7 BNM Annual Report 2016.

19 declined to RM 101 billion in The decline was due to weak global demand and the fall in global commodity prices. On the other hand, the services deficit doubled during the review period mainly on the back of increased usage of foreign professional services Composition of merchandise trade Malaysia's export composition reflects the diversified nature of the economy. In 2016, manufacturing accounted for 68% of exports, while mining products (including crude oil and natural gas) and agriculture were responsible for 17.9% and 13.5% of exports respectively (Chart 1.1 and Table A1. 1). Chart 1.1 Product composition of merchandise trade, 2013 and 2016 Chart 1.1 Product composition of merchandise trade, 2013 and (a) Exports (f.o.b.) Other consumer goods 8.8% Textiles & clothing 2.8% Other electrical machines 5.2% Office machines & telecommunication equipment 27.7% Manufactures 60.6% Non-electrical machinery 3.7% Other 0.6% Palm oil & its fractions 5.4% Other agriculture 8.7% Agriculture 13.2% Mining 25.6% Other semi-manuf. 5.8% Chemicals 6.6% Fuels 22.3% Other mining 3.3% Textiles & clothing 3.3% Other electrical machines 6.1% Office machines & telecommunication equipment 30.4% Other consumer goods 10.8% Other 0.6% Palm oil & its fractions 4.8% Other agriculture 8.7% Manufactures 68.0% Agriculture 13.5% Mining 17.9% Fuels 14.0% Other mining 3.9% Chemicals 7.6% Other semi-manuf. 5.1% Non-electrical machinery 4.7% Total: US$228.3 billion Total: US$189.4 billion (b) Imports (c.i.f.) Transport equipment 7.1% Other electrical machines 5.7% Other 2.2% Other consumer goods 6.4% Agriculture 9.7% Mining 22.2% Fuels 16.2% Transport equipment 6.6% Other electrical machines 6.0% Other consumer goods 8.8% Other 1.8% Agriculture 10.4% Mining 15.3% Fuels 10.3% Other mining 5.0% Office machines & telecommunication equipment 21.9% Non-electrical machinery 7.9% Manufactures 65.9% Chemicals 9.0% Other semi-manuf. 4.2% Other mining 6.0% Iron & steel 3.6% Office machines & telecommunication equipment 23.9% Manufactures 72.5% Non-electrical machinery 8.8% Iron & steel 3.2% Chemicals 10.2% Other semi-manuf. 4.9% Total: US$205.8 billion Total: US$168.4 billion UNSD, Comtrade database (SITC Rev.3). UNSD, Comtrade database (SITC Rev.3).

20 During the period under review, the share of agriculture rose slightly. While prices fell significantly in US dollar terms, including for palm oil (Malaysia's main agricultural export), the depreciation of the ringgit helped boost export volumes. The decline in the share of mining exports, which comprise mainly oil and gas, was due to the decline in the global prices of these commodities. In contrast, the share of manufactured goods rose. Within manufactures, growth was driven by increased exports of electronic integrated circuits and micro assemblies, mainly semiconductors. Exports of these were boosted by the weaker currency, and the acquisition of advanced packaging technology for semiconductors, which is in line with moving up the value chain in manufacturing The structure of Malaysia's imports is also reflective of the diverse nature of the economy and its integration into value chains. During the review period, the share of primary products in imports declined due to a fall in global commodity prices (Chart 1.1 and Table A1. 2). On the other hand, the share of manufactures, particularly of electronic integrated circuits and micro assemblies, increased. These are used in semiconductor assembly and test production Direction of merchandise trade In 2016, Malaysia's main export destinations were Singapore, China, and the European Union. During the period under review, the shares of Singapore, the European Union, and the United States rose (Chart 1.2 and Table A1. 3). The share of the United States rose on the back of increased semiconductor exports, while those to Singapore and the European Union rose on the back of increased exports of optical and scientific products. In contrast, the shares of China and Japan declined. Malaysia's exports to China comprise manufactures, which are part of the regional supply chain, as well as palm oil and other non-oil commodities. The reason for the decline is a fall in commodity prices. Exports to Japan consist of mainly LNG. With the coming back online of nuclear power plants in Japan, demand for LNG has fallen resulting in its declining share.

21 Chart 1.2 Direction of merchandise trade, 2013 and 2016 Chart 1.2 Direction of merchandise trade, 2013 and (a) Exports (f.o.b.) China 13.5% Other ASEAN 3.9% Indonesia 4.6% Thailand 5.5% Japan 11.0% Hong Kong, China 4.3% India 3.6% Japan Australia 8.1% 4.1% Other Asia 45.9% ASEAN 28.0% Singapore 13.9% Middle East 3.4% Other Asia 9.5% EU % Other 5.5% United States 8.1% China 12.5% Other ASEAN 5.7% Indonesia 3.5% Thailand 5.6% Singapore 14.6% Hong Kong, China 4.8% Other Asia 40.8% ASEAN 29.4% India 4.1% Middle East 2.9% Australia 3.4% Other Asia 8.0% EU % Other 6.5% United States 10.2% Total: US$228.3 billion Total: US$189.4 billion (b) Imports (c.i.f.) Japan 8.7% Chinese Taipei 4.9% Korea, Rep. of 4.7% Japan 8.2% Chinese Taipei 6.0% Korea, Rep. of 5.2% China 16.4% Other Asia 7.4% China 20.4% Other Asia 7.2% Other Asia 42.0% Other 8.0% Other Asia 47.0% Other 6.7% Other ASEAN 4.1% Indonesia 4.3% Thailand 6.0% ASEAN 26.7% Singapore 12.4% Middle East 4.6% EU % United States 7.8% Other ASEAN 4.0% Indonesia 4.2% Thailand 6.1% ASEAN 24.6% Singapore 10.4% Middle East 3.9% EU % United States 8.0% Total: US$205.8 billion Total: US$168.4 billion UNSD, Comtrade database China remains Malaysia's largest import supplier followed by Singapore and the European UNSD, Comtrade database. Union (Chart 1.2 and Table A1. 4). During the period under review, the share of China rose significantly as did that of Asia as a whole. In contrast, the shares of Singapore, the European Union and ASEAN declined over the same period Trends and patterns in FDI Malaysia's relatively liberal foreign investment regime and ease of doing business have resulted in robust FDI inflows for a number of years (Chart 1.3). However, since 2014, FDI inflows have moderated due mainly to lower investments in the mining and manufacturing sectors. The

22 challenging global economic environment resulted in many large multinational corporations, especially in the electronics sector, undergoing restructuring and consolidation of their operations in Malaysia. Lower oil and gas prices also resulted in a decline in FDI in the upstream oil and gas industry. On the other hand, FDI in the services and construction sectors increased on the back of a large investment by China General Nuclear in 13 power plants in Malaysia and abroad, as well as continued expansion in the finance and insurance and the retail and wholesale trade services sectors. The ongoing residential and infrastructure projects such as those in the Klang Valley and Iskander Malaysia have also attracted FDI. The largest investors in Malaysia are Singapore, Japan, the Netherlands, China and the United States. Chart 1.3 Foreign Foreign direct direct investment investment, (US$ billion) (US$ billion) Left-hand scale: Right-hand scale: FDI inward stock FDI outward stock FDI inflow FDI outflow UNCTAD, UNCTAD, World World Investment Investment Report Report 2017 online 2017 online information. information The growth of the Malaysian economy has resulted in the growth of Malaysian companies, which have invested their earnings and savings abroad. As such, there is considerable direct investment abroad (DIA) by Malaysian companies. DIA is concentrated in the services sectors underscoring the growing regionalization of Malaysian companies in the finance, insurance, real estate and business services, information and communication, and utilities sub-sectors followed by sizable investments in the mining and agricultural sectors The bulk of DIA is channelled into regional economies namely: Singapore; Indonesia; and to a lesser extent Hong Kong, China; India; and Thailand. There is also considerable DIA in Canada and Australia. Furthermore, a considerable amount of DIA is invested in international offshore financial centres, where investible funds are pooled before being redirected to economic sectors in various locations.

23 TRADE AND INVESTMENT REGIMES 2.1 General Framework 2.1. Malaysia is a constitutional monarchy. The Constitution came into force in Malaysia is a federation of 13 states and 3 federal territories (Kuala Lumpur, Putrajaya, and Labuan). Since the previous Review in 2014, there has been no change to the constitutional and institutional framework The legislative authority of the Federation is vested in Parliament, consisting of the Yang di- Pertuan Agong (Head of State) and the two Houses of Parliament: the Senate (Dewan Negara) and the House of Representatives (Dewan Rakyat). The Dewan Negara is made up of 70 appointed members, and the Dewan Rakyat of 222 elected members. A law is made when a bill is passed by both Houses and has received royal assent from the Yang di-pertuan Agong, which is deemed given if the bill is not assented to within 30 days of presentation and publication in the Federal Government Gazette Each state has its own state constitution, executive council, and legislative assembly. Under Article 74 of the Constitution, Parliament has exclusive power to make federal laws over matters falling under the Federal List, and shared power (shared with the state legislatures) to make laws on matters under the Concurrent List in the Ninth Schedule. Matters falling under federal competence include: external affairs, trade, commerce, industry, shipping, fisheries, communications, and transport The executive power of the Federation is vested in the Head of State (Yang di-pertuan Agong) and exercisable by him or the Cabinet, which is presided over by the Prime Minister. The fifteenth and current Head of State began his reign on 13 December 2016, after being elected in October Malaysia's judicial system consists of: a. superior courts: the Federal Court, the Court of Appeal, the High Court in Malaya, and the High Court in Sabah and Sarawak; and b. subordinate courts: the sessions courts and the magistrates' courts Among the superior courts, the Federal Court is the highest and final court of appeal in Malaysia, followed by the Court of Appeal and the two high courts. The jurisdiction of the superior court is set out in the Court of Judicature Act 1964 (Act 91), whilst the jurisdiction of the subordinate courts is stipulated in the Subordinate Courts Act 1948 (Act 91). The superior courts and the subordinate courts do not have any jurisdiction in matters falling within the sphere of the Syariah courts. Syariah courts have jurisdiction only over Muslims in Malaysia on Syariah matters Treaties or international legal instruments (including WTO agreements) are not implemented automatically; appropriate national legislation is required to give the treaty force of law domestically According to the World Bank's Doing Business Report, in Malaysia in 2017, resolving a standard contract enforcement dispute took 425 days and cost 37.3% of the claim, placing it 42 nd out of 189 economies in the ease of enforcing contracts. 2 Its performance is better than the East Asia and Pacific average (560 days and 49.1% of the claim). 2.2 Trade Policy Formulation and Objectives Structure of Trade Policy Formulation 2.9. Trade and investment policies are formulated by the Ministry of International Trade and Industry (MITI). Key MITI agencies include the Malaysian Investment Development Authority 1 A native court deals with cultural practices of the Iban community in Sarawak. 2 World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [17/03/17].

24 (MIDA), taking the lead in promoting manufacturing and services sectors; the Malaysian External Development Corporation (MATRADE), responsible for export development and promotion activities; and the Malaysia Productivity Corporation (MPC), undertaking various activities related to monitoring and enhancing the productivity and competitiveness of the economy. Other agencies include: SME Corporation Malaysia, SME Bank, Malaysian Industrial Development Finance, Halal Industry Development Corporation, Malaysia Automotive Institute, and Malaysia Steel Institute MITI formulates industrial development, international trade, and investment policies and makes policy decisions in consultation with relevant stakeholders including: the Economic Planning Unit (EPU), responsible for developing Malaysia's five-year development plans; and the Performance Management and Delivery Unit (PEMANDU), responsible for implementing the Government's Economic Transformation Programme. A Fiscal Policy Committee (FPC), chaired by the Prime Minister and comprising key ministers and the central bank governor, was established in 2013 to formulate policies to strengthen public finance as well as to monitor progress with respect to fiscal sustainability and long-term macroeconomic stability. In May 2016, a Fiscal Risk and Contingent Liabilities Technical Committee a sub-committee of the FPC was established to update the FPC on the potential sources of fiscal risks Malaysia's ongoing reforms since 2007 under the Special Taskforce to Facilitate Business (PEMUDAH) have been a joint effort between the Government and the private sector to streamline regulatory frameworks, reduce business licensing requirements, and promote information technology use by government agencies. Malaysia was ranked 60 th out of 193 economies in 2016 by the United Nations in its e-government survey. 4 Information related to the Government is available at which is a gateway to multiple government online services. The Government applies a "No Wrong Door Policy", meaning that queries are forwarded to and answered by the relevant ministry and agency. Legislation related to investment, in various languages, is available on MIDA's website ( On 16 October 2014, the Guidelines on Public Consultation Procedures were launched by the Chief Secretary to the Government of Malaysia, serving as a reference for ministries and agencies in implementing public consultations. According to the Government, public consultation is one of the key tools to improve transparency, efficiency and effectiveness of regulation and is an important element of Regulatory Impact Analysis (RIA) 5. Regular dialogues and consultations with the business community, including chambers of commerce and industry associations, are undertaken by various ministries and agencies to obtain feedback from the private sector. For example, the Malaysia Productivity Corporation (MPC) coordinates ministries and agencies in the performance of RIAs The Malaysian Anti-Corruption Commission (MACC), established in 2009 under the MACC Act, is responsible for combating corruption through investigation, prevention and community action. The MACC has ratified the United Nations Convention against Corruption (UNCAC), and is involved in various bilateral, regional, and international cooperation efforts to combat corruption The Governance and Integrity Committee (JITU) was set up via a directive from the Prime Minister on 3 June 2014 to elevate the integrity enhancement efforts of the government administrative system in all federal and state government ministries, departments and agencies. The Auditor General's (AG) Dashboard and the Putrajaya Inquisition are further efforts to ensure greater transparency. The AG's Dashboard tracks and monitors the responses and actions taken by relevant government ministries, departments and agencies. Any issue that cannot be resolved at ministry/department/agency level is brought to the Putrajaya Inquisition. According to the Auditor General's report, from 2011 to 2015, a total of 4,904 cases were tracked and monitored through the AG's Dashboard. As at 14 June 2017, 4,145 issues were resolved, while the remaining issues are under due process for corrective and punitive actions. 3 MITI online information. Viewed at: [20/03/17]. 4 UNPACS online information. Viewed at: [20/03/17]. 5 A RIA is a system that analyses the positive and negative effects of proposed regulations at an early stage of policy-making. 6 OECD (2016), Malaysia: Economic Assessment Viewed at: [24/03/17].

25 Trade policy objectives The long-term policy document Vision 2020 sets Malaysia a target of achieving high-income country status by 2020, by sharply accelerating the growth of labour productivity to 3.7% per year on average from 2016 to 2020, from the average of 2% during the period The Economic Planning Unit (EPU) in the Prime Minister's Department developed the 11 th Malaysia Plan (11 th MP) for , as the final part of Vision The main aim of the 11 th MP is to rebrand Malaysia as a centre for high technology and global activities. Strategies in the next five years include strengthening investment in the manufacturing and services sectors, and promoting both domestic and foreign investment. It identified six strategic thrusts: a. enhancing inclusiveness towards an equitable society; b. improving well-being for all; c. accelerating human capital development for an advanced nation; d. pursuing green growth for sustainability and resilience; e. strengthening infrastructure to support economic expansion; and f. re-engineering economic growth for greater prosperity The 11 th MP also highlighted six "game changers" to accelerate Malaysia's development: unlocking the potential of productivity; lifting the bottom 40% of households towards a middleclass society; enabling industry-led technical and vocational education and training; embarking on green growth; translating innovation to wealth; and investing in competitive cities In addition, there are a number of sectoral plans with trade and investment policy tools to supplement the 11 th MP (Table 2.1). Table 2.1 Sectoral plans, and trade and investment tools Sectoral plans Third Industrial Master Plan Malaysia Education Blueprint Financial Sector Blueprint Services Sector Blueprint Logistics and Trade Facilitation Master Plan Trade and investment tools Focuses on manufacturing, services, and agriculture sectors. Strategic thrusts include: enhancing Malaysia's position as a major trading nation; generating investment in the targeted sectors; strengthening the role of the private sector; and creating a more competitive business environment Involvement of private sector in vocational education Greater flexibility was allowed in 2013 for foreign banking institutions Partnership programmes between large and small enterprises to facilitate knowledge transfer for SMEs; Establishing a consortium to strengthen the competitiveness of Malaysian service providers; Enhancing the Services Export Fund; Enhancing franchise development programmes to raise capabilities across a broad group of services providers; Introducing the Research Incentive Scheme; Establishing the Incentive Coordination & Collaboration Office for better incentive management Authorized Economic Operator (AEO) Programme; Mutual Recognition Arrangements (MRA); Strengthening the institutional and regulatory framework; Enhancing trade facilitation mechanisms; Developing infrastructure and freight demand; Strengthening technology and human capital; Internationalizing logistics services 7 OECD (2016), Malaysia: Economic Assessment Viewed at: [24/03/17].

26 Sectoral plans National Agrofood Policy National Commodity Policy SME Masterplan Trade and investment tools Promoting R&D, expanding international markets, and improving quality and safety Enhancing regional and international cooperation; Branding of quality, sustainable and environmental friendly commodity-based products; Encouraging compliance with international standards; Expanding markets; Participating in RTA negotiations Aiming at creating globally competitive SMEs. The Masterplan proposed an Action Plan to address challenges to SMEs. The Action Plan comprises six High Impact Programmes, and other complementary initiatives. 11 th MP, viewed at: [08/06/2017]; and information provided by the authorities Trade laws and regulations A number of laws and regulations have been amended or promulgated since In August 2015, the Malaysian Aviation Commission Act was promulgated. It came into force on 1 March The Malaysian Aviation Commission (MAVCOM) was established on the same day, pursuant to the Malaysian Aviation Commission Act, to regulate economic and commercial matters related to civil aviation in Malaysia The Companies Act 2016 (Act 777) was approved in The Companies Commission of Malaysia (CCM) is the main agency responsible for its implementation. The Act simplified the procedure to start a company. It applies a "no par value" regime, where companies are no longer required to state their authorized share capital, and a flat-rate fee is applied for incorporation (as opposed to ad valorem incorporation fees). It also contains several deregulatory measures to reduce the cost of doing business. In particular, it introduced new provisions to reform corporate insolvency provisions in the form of corporate rescue mechanisms: judicial management and corporate voluntary arrangement. According to PEMUDAH's annual report, the Focus Group on Resolving Insolvency helps raise public awareness of the new provisions and facilitate their smooth implementation Other legislative changes include: the Gas Supply (Amendment) Act 2016, which came into effect in January 2016; various amendments to the Food Regulations 1985 to, inter alia, harmonize with the Codex standard, and regulate the sale of alcoholic beverages; the amendment to the Malaysian Biofuel Industry Regulation 2014, to reduce dependency on fossil fuels for a greener environment and expand palm oil usage; and the implementation of the Import Legality Regulation under the Timber Legality Assurance System, to ensure all imported timber is from legal sources. 2.3 Trade Agreements and Arrangements WTO Malaysia is an active Member of the WTO, and grants at least MFN treatment to all trading partners. Malaysia is an observer to the plurilateral Government Procurement Agreement (GPA). Under the GATS, Malaysia made commitments in nine of the twelve sectors, and it is a signatory to the GATS protocols on telecommunications (Fourth Protocol) and financial services (Fifth Protocol). 10 It ratified the Protocol Amending the TRIPS Agreement in December In May 2015, Malaysia became the fifth Member to ratify the Trade Facilitation Agreement; before that, in July 2014, it notified the Preparatory Committee that Malaysia had designated all provisions under Category A, except Article 7.8 (Expedited Shipments) and Article 11.9 (Advance filing and processing of transit documentation and data prior to the arrival of goods) MAVCOM online information. Viewed at: [31/05/17]. 9 PEMUDAH (2016), Annual Report Viewed at: [23/05/17]. 10 WTO documents GATS/SC/52/Suppl.2, 11 April 1997; and GATS/SC/52/Suppl.3, 26 February WTO document WT/PCTF/N/MYS/1, 23 July 2014.

27 In WTO negotiations, Malaysia is a member of the following groups: Asian Developing Members, APEC, ASEAN, and the Cairns Group. 12 Malaysia is a participant in the WTO Information Technology Agreement (ITA), and is involved in the negotiations on the ITA expansion. As a result of the negotiations, about 88% of IT product tariff lines were eliminated on 1 July 2016 while the remainder will be completely phased out by July Malaysia is finalizing the details of its preferential treatment for LDCs' services providers in accordance with the 2013 Ministerial Declaration (Bali Package). It continues to participate in the discussion to find a solution on public stockholdings for food security purposes and develop a special safeguard mechanism Between March 2014 and October 2017, Malaysia was not involved in any new WTO dispute settlement cases either as a complainant or respondent. It participated as a third party in: a. the Australia Tobacco Plain Packaging complaint raised by Ukraine (DS434), Honduras (DS435), Dominican Republic (DS441), Cuba (DS458), and Indonesia (DS467); b. the EU Fatty Alcohols complaint by Indonesia (DS442); c. the India Solar Cells complaint by the United States (DS456); and d. the EU Biodiesel complaint by Argentina (DS473) Malaysia has submitted notifications to the WTO in a number of areas (Table 2.2). However, as at May 2017, notifications were outstanding in the areas of: agriculture (domestic support); quantitative restrictions; and customs valuation. It has not yet notified its MFN tariffs for 2016, nor has it submitted import data for It has not notified "any new, or any changes to existing laws, regulations or administrative guidelines which significantly affect trade in services", which it is obliged to notify under Article III:3 of the GATS. Table 2.2 WTO notifications, 1 November 2013 to 10 November 2017 Agreement Requirement/content Periodicity Agreement on Agriculture Articles 10 & Tables ES:1 and ES: Export subsidies Article 18.2 Tables DS:1 and DS:2 Domestic support Article 18.2 Table MA:2 imports under tariff quotas Articles 5.7 and 18.2 GATS Article III:4 and/or IV:2 Table MA.5 Special safeguard WTO document and date (latest document if recurrent) Annual G/AG/N/MYS/30, 14 February 2014 G/AG/N/MYS/35, 18 September 2015 G/AG/N/MYS/36, 5 April 2016 Annual G/AG/N/MYS/32, 23 July 2014 Annual G/AG/N/MYS/39, 13 July 2017 G/AG/N/MYS/34/Corr.1, 28 September 2015 G/AG/N/MYS/34, 27 March 2015 Annual G/AG/N/MYS/38, 4 July 2017 G/AG/N/MYS/37, 5 October 2016 G/AG/N/MYA/33, 24 March 2015 G/AG/N/MYA/31, 16 July 2014 Enquiry point Ad hoc S/ENQ/78/Rev.16, 22 April 2016 Article V:7(a) Regional trade agreements Ad hoc S/C/N/822, 24 August 2015 Agreement on Implementation of Article VI of the GATT 1994 (Anti-dumping) Article 16.4 Semi-annual reports of anti-dumping actions (taken within the preceding six months) Semi-annual G/ADP/N/300/MYS, 6 September 2017 G/ADP/N/294/MYS, 8 March 2017 G/ADP/N/286/MYS, 31 August 2016 G/ADP/N/280/MYS, 10 March 2016 G/ADP/N/272/MYS, 31 August WTO online information. Viewed at: [02/05/2017]. 13 European Commission (2016), The Expansion of the Information Technology Agreement: An Economic Assessment. Viewed at: [13/10/2017]. 14 APEC (2016), IAP update for Malaysia Viewed at: APEC/Achievements%20and%20Benefits/2016-Bogor-Goals [12/05/17].

28 Agreement Requirement/content Periodicity WTO document and date (latest document if recurrent) G/ADP/N/265/MYS, 15 April 2015 G/ADP/N/259/MYS, 10 October 2014 G/ADP/N/252/MYS, 23 January 2014 G/ADP/N/244/MYS/Rev.1, 19 November 2013 Agreement Implementation of Article XXIV:7(a) of the GATT 1994 (Free trade areas) Article XXIV of the GATT 1994 Free trade agreement between Malaysia and Turkey Ad hoc WT/REG379/N/1, 21 February 2017 Agreement on Rules of Origin Paragraph 4 of Annex II Preferential rules of origin under the FTA between Turkey and Malaysia Ad hoc G/RO/N/156, 21 July 2017 Understanding on the Interpretation of Article XVII of the GATT 1994 (State trading) Article XVII:4(a) State-trading activities Annual G/STR/N/16/MYS, 17 October 2016 G/STR/N/15/MYS, 29 October 2014 Agreement on Import Licensing Procedures Articles 5.1, 5.2, 5.3 Notification of an automatic import licensing Ad hoc G/LIC/N/2/MYS/8, 18 August 2017 G/LIC/N/2/MYS/7, 23 September 2016 Article 7.3 programme Replies to questionnaire on import licensing procedures G/LIC/N/2/MYS/6, 23 January 2014 Annual G/LIC/N/3/MYS/12, 5 December 2016 G/LIC/N/3/MYS/11, 10 March 2016 G/LIC/N/3/MYS/10, 6 November 2014 G/LIC/N/3/MYS/9, 24 January 2014 G/LIC/N/3/MYS/8, 23 January 2014 Agreement on Safeguards Article 12.1(a) Initiation of investigations Ad hoc G/SG/N/6/MYS/5, 2 June 2016 G/SG/N/6/MYS/4, 2 June 2016 G/SG/N/6/MYS/3, 14 September 2015 G/SG/N/6/MYS/2, 18 August 2014 Article 12.1(b) and 12.1(c) Findings, decisions Ad hoc G/SG/N/8/MYS/3/Suppl.1, G/SG/N/10/MYS/3/Suppl.1, G/SG/N/111/MYS/3/Suppl.1, 18 May 2017 G/SG/N/8/MYS/3, G/SG/N/10/MYS/3, 21 April 2017 G/SG/N/8/MYS/2/Suppl.1, G/SG/N/10/MYS/2/Suppl.1, G/SG/N/111/MYS/2/Suppl.1, 18 May 2017G/SG/N/8/MYS/2, G/SG/N/10/MYS/2, 21 April 2017 G/SG/N/8/MYS/1, G/SG/N/10/MYS/1, G/SG/N/11/MYS/1/Suppl.1, 1 July 2015 Article 12.4 Proposed provisional safeguard measure, footnotes Ad hoc G/SG/N/7/MYS/3, G/SG/N/11/MYS/3, 29 September 2016 G/SG/N/7/MYS/2, G/SG/N/11/MYS/2, 29 September 2016 G/SG/N/7/MYS/1, G/SG/N/11/MYS/1, 12 December 2014 Article 9.1 Footnote 2 Ad hoc G/SG/N/8/MYS/1, G/SG/N/10/MYS/1, Decision of the Committee on Safeguards G/SG/N/11/MYS/1/Suppl.1, 1 July 2015 Termination Ad hoc G/SG/N/9/MYS/2, 19 January 2016 Agreement on the Application of Sanitary and Phytosanitary Measures Article 7 and Laws, regulations and Annex B emergency measures Ad hoc G/SPS/N/MYS/40, 1 August 2017 G/SPS/N/MYS/39, 24 February 2017 G/SPS/N/MYS/38, 8 February 2017 G/SPS/N/MYS/37, 1 Sept 2015 G/SPS/N/MYS/36, 1 April 2015 G/SPS/N/MYS/35, 17 March 2015 G/SPS/N/MYS/34, 17 March 2015 G/SPS/N/MYS/33, 2 October 2014 G/SPS/N/MYS/32, 11 August 2014 G/SPS/N/MYS/31, 6 May 2014 G/SPS/N/MYS/30, 6 May 2014 G/SPS/N/MYS/29, 6 May 2014 G/SPS/N/MYS/28, 6 May 2014

29 Agreement Requirement/content Periodicity Agreement on Subsidies and Countervailing Measures Article 25.1 Article XVI:1 of the GATT 1994 and Article 25 of the SCM Agreement Full notification every three years; annual updating Agreement on Technical Barriers to Trade Articles 2.9, Proposed and adopted Ad hoc 2.10, and 5.6 technical regulations Agreement on Trade Facilitation WT/L/911 Notification of Category A superseded by commitments WT/L/931 WTO document and date (latest document if recurrent) G/SPS/N/MYS/27, 10 March 2014 G/SCM/N/315/MYS, 9 October 2017 G/SCM/N/284/MYS, 9 October 2017 G/SCM/N/253/MYS, 28 Nov : G/TBT/N/MYS/ : G/TBT/N/MYS/ : G/TBT/N/MYS/53-63 G/TBT/N/MYS/15/Rev : G/TBT/N/MYS/37-52, G/TBT/N/MYS/15/Rev.2, G/TBT/N/MYS/36/Rev.1 Ad hoc WT/PCTF/N/MYS/1, 23 July 2014 WTO Secretariat Regional and preferential agreements ASEAN Malaysia is a member of the Association of South East Asian Nations (ASEAN), which has component agreements on goods (ASEAN Trade in Goods Agreement ATIGA), services (ASEAN Framework Agreement on Services AFAS), and investment (ASEAN Comprehensive Investment Agreement ACIA). On 31 December 2015, the first phase of the ASEAN Economic Community (AEC) Blueprint 2015 was completed. The authorities stated that, through the progressive reduction in barriers to trade and investment, ASEAN is now offering an integrated market, closely linked economy, improved business environment, and enhanced connectivity. The AEC Blueprint also led to the narrowing of the development gap and the promotion of equitable development in the region. Under the AEC 2015, intra-asean import tariffs have been virtually eliminated and formal restrictions in the services sector gradually removed In November 2015, ASEAN leaders adopted the AEC Blueprint 2025 to create a highly integrated, cohesive, competitive and dynamic ASEAN. The focus of the AEC 2025 Blueprint is on innovation, promoting growth through raising productivity and working towards further reducing the development gap within the region. ASEAN leaders reaffirmed their commitment in two areas: internal integration and global economic engagement Internal integration is to be achieved through enhancing trade facilitation, among others. An ASEAN Trade Facilitation Joint Consultative Committee (ATF JCC) comprising representatives from the public and private sectors was established to accelerate work on trade facilitation and to implement mechanisms such as: a. ASEAN Single Window for customs clearance; b. ASEAN Self-Certification System: to be implemented by 2018, allowing Certified Exporters (CEs) to make export declarations with invoices; they will no longer be required to apply for ATIGA Form D, as the invoice declaration will enable their goods to benefit from preferential tariff concessions under ATIGA; c. ASEAN Trade Repository to document trade, customs law and procedures; d. ASEAN Solutions for Investments, Services and Trade (ASSIST), a consultative mechanism for expedited and effective resolution of problems encountered by ASEANbased enterprises on issues related to AEC implementation;

30 e. ASEAN Tariff Finder, a free online search tool to help businesses (especially MSMEs) to obtain information on the preferential tariffs under ATIGA, as well as other tariff-related information including rules of origin; f. ASEAN Customs Transit System (ACTS) to facilitate the movement of transit goods by road within ASEAN through computerization and online management of enquiries; and g. the harmonization of standards and technical regulations within ASEAN Efforts by ASEAN leaders to improve internal integration also involve: a. reducing trade and investment barriers, especially those often referred to as "behindthe-border measures" as well as burdensome regulatory procedures; b. enhancing connectivity with the implementation of the 2025 ASEAN Master Plan on Connectivity; and c. conducting active consultation and engagement with the private sector and other stakeholders As regards further strengthening ASEAN's global economic engagement, the authorities consider that one of the immediate priorities is to complete negotiations on the Regional Comprehensive Economic Partnership (RCEP) Agreement between ASEAN and six RTA partners (Australia, China, India, Japan, Republic of Korea, and New Zealand). 15 The authorities stated that early implementation of the RCEP will enable the business sector to tap into the huge potential of the 16 countries, which at the same time will contribute to global economic growth The AEC 2025 Consolidated Strategic Action Plan (CSAP) was endorsed by the ASEAN Economic Ministers and the ASEAN Economic Community (AEC) Council Ministers on 6 February The AEC 2025 CSAP complements the AEC 2025 Blueprint, by serving as a single reference document for the public to inform stakeholders of the key actions to be implemented under the ASEAN economic integration agenda from 2016 to 2025, and by allowing for more structured tracking and reporting of the implementation process As part of ASEAN, Malaysia is a signatory to RTAs with Australia and New Zealand, China, India, Japan, and the Republic of Korea. During the review period, the ASEAN India Agreement was expanded to cover trade in services (Table 2.3). The FTA between ASEAN and Hong Kong, China was concluded, and expected to be signed soon. Malaysia also has bilateral RTAs with: Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey. The Malaysia Turkey FTA (MTFTA) entered into force in 2015 (Table 2.3). Malaysia is negotiating with the European Union and the EFTA Concerning TPP negotiations, the authorities stated that in light of the US withdrawal, Ministers from the remaining 11 members are considering next steps. Malaysia will continue to engage with other TPP parties and decide the way forward after evaluating all the available options New RTAs Two new RTAs entered into force during the review period: ASEAN India Free Trade Agreement, and Malaysia Turkey Free Trade Agreement (Table 2.3). 15 ASEAN online information. Viewed at: [11/05/2017].

31 Table 2.3 Main features of new RTAs, ASEAN RTA ASEAN India Free Trade Agreement Date of signature 13/08/2009 (goods) 13/11/2014 (services) Entry into force 01/01/2010 (goods) 01/07/2015 (services) End of implementation period 2024 Coverage (selected features) Goods and services Malaysia's merchandise trade 2.4% of total imports; 4.1% of total exports with India (2016) WTO consideration status Factual presentation distributed (Goods: 2017; services: 2016) WTO document series WT/COMTD/RTA/8/1, 14 December 2016; and WT/REG372/1, 22 August 2016 BILATERAL RTA Malaysia-Turkey Free Trade Agreement (MTFTA) Date of signature 17/04/2014 Entry into force 01/08/2015 End of implementation period 2023 Coverage (selected features) Goods Malaysia's merchandise trade 0.2% of total imports; 0.9% of total exports with Turkey (2016) WTO consideration status Factual presentation not distributed WTO document series WT/REG379/N/1, 21 February 2017 WTO Secretariat, based on RTA Information System ( The Agreement between ASEAN and India on goods entered into force in 2010, while that on services entered into force in Regarding goods, key imports to Malaysia from India were chemicals and minerals, which along with base metals and vegetables accounted for about 65% of Malaysia's imports from India. 16 Machinery and minerals were important exports from Malaysia to India. Parties will reduce or eliminate tariffs under normal tracks (normal track 1 and 2), a sensitive track, a special products list (only for India), a highly sensitive list, and an exclusion list: a. normal track 1: Malaysia's tariffs under normal track 1 were reduced and eventually eliminated by the end of 2013; b. normal track 2: Malaysia's tariffs were reduced and eventually eliminated by the end of 2016; c. sensitive track: tariff rates above 5% were reduced to 5% by the end of 2016; for the remaining products subject to 5% duty, the rate was reduced to 4.5% when the Agreement entered into force; applied MFN tariff rates on 4% of the tariff lines in the sensitive track are to be eliminated by the end of 2019; d. highly sensitive list: tariff reduction as scheduled in Annex I of the Agreement; e. exclusion list: annual tariff review, which has not happened in practice yet At the end of the transition period (2019), 1,818 tariff lines (17.5% of total lines in the tariff schedule) will remain dutiable (Table 2.4), with an average final tariff rate of 13.3%. 17 The tariff lines that will remain subject to duty once the Agreement is fully implemented include: plastics and rubber; base metals; chemical products; textiles and clothing; and vehicles. 16 WTO document, WT/COMTD/RTA/8/1, 14 December WTO document, WT/COMTD/RTA/8/1, 14 December 2016.

32 Table 2.4 ASEAN India: Malaysia's tariff elimination and reduction commitments Duty phase-out period Duty liberalization Number of % of total lines in the lines tariff schedule 6, Number of lines Duty reduction % of total lines in the tariff schedule MFN duty free (2010) 01-Jan , Jan Jan Jan Dec Jan Jan Jan Dec Dec Remain dutiable 1, Total 10, , Factual Presentation: Free Trade Agreement between the ASEAN and India (Goods), report by the Secretariat, WT/COMTD/RTA/8/1, 14 December Malaysia's services schedule under this Agreement contains horizontal restrictions on: commercial presence in relation to acquisition, mergers and takeovers (limitations on market access); land-property and real estate; and incentives/preferences (limitations on national treatment). Horizontal commitments under Mode 4 are identical to those under the GATS, covering intra-corporate transferees, and others (including specialists; professionals with academic credentials, professional qualifications, experience and/or expertise; and business visitors) Regarding sector-specific commitments, comparing to its GATS commitments, Malaysia made improvements in, inter alia, computer and related services; construction and related engineering services; professional services; telecommunications services; and audiovisual services. It did not reproduce some of the specific commitments made under the GATS in: rental/leasing services without operators; some (other) business services; the whole financial sector; entertainment services; sporting and other recreational services; and some maritime transport services. Partial commitments were made in sectors and/or sub-sectors for which Malaysia has no GATS commitments, such as higher education services, and road transport services Under the Free Trade Agreement between Malaysia and Turkey, which entered into force in 2015, parties agreed that for originating goods under: 18 a. fast track: tariffs were to be eliminated on the date of entry into force of the FTA; b. normal track: tariffs were to be reduced and ultimately eliminated in four equal annual stages beginning on the date of entry into force of the FTA; c. sensitive track: tariffs were to be reduced and ultimately eliminated in six equal annual stages beginning on the date of entry into force of the FTA; d. highly sensitive track: tariffs were to be reduced and ultimately eliminated in nine equal annual stages beginning on the date of entry into force of the FTA; e. standstill: tariffs were to remain at the Base Rates; f. exclusion list: no obligation relating to tariffs; g. reduced duty: tariffs were to be reduced from the Base Rate to the mutually agreed reduced duty on the date of entry into force of the FTA; 18 MITI online information. Viewed at: %20Turkey/MTFTA_Main_Agreement.pdf [11/05/2017].

33 h. tariff quota: tariff quotas are set out in Appendix 3-B-1 and 3-B-2 of the FTA Currently, provisions in the MTFTA regulate trade in goods between Malaysia and Turkey. Its evolutionary clause stipulated that both parties agreed to begin negotiations in trade in services, and exploratory talks on investment, one year after the entry into force of the MTFTA. 19 The authorities indicated that these negotiations have not yet begun PTAs Malaysia receives GSP (Generalized System of Preferences) treatment from Japan (for 76 tariff lines), Norway, the Russian Federation, Belarus, and Switzerland Other agreements and arrangements Malaysia is a signatory to the Global System of Trade Preferences (GSTP) among Developing Countries, and grants a 10% preferential tariff for certain woven fabrics made of man-made fibres By the end of 2016, 40 countries had signed (among which, 31 ratified) the Framework Agreement on the Trade Preferential System of the Organization of the Islamic Conference (TPS- OIC). The Agreement entered into force in 2003, although it has not been operational. Under the TPS-OIC, 31 countries signed (among which, 18 ratified) the Protocol on the Preferential Tariffs Scheme, which entered into force in 2010; and 30 countries signed (among which, 18 ratified) the Rules of Origin, which entered into force in Malaysia also signed the Developing Eight Preferential Tariff Arrangement (D8-PTA), together with Bangladesh, Egypt, Indonesia, Iran, Nigeria, Pakistan, and Turkey. Malaysia lowered its tariffs under the D8-PTA from 2013 to 2016 (Section 3.1) As an APEC member, Malaysia has: a. fulfilled the commitments to eliminate or reduce import tariffs to 5% on the 54 products under the APEC Environmental Goods List 2012, which came into effect on 1 January 2016; b. co-led the project with the Philippines to integrate SME automotive suppliers into OEM (original equipment manufacturer) global value chains, and the GVC-SME Automotive Sector project which is a multi-year and 2-phase project to be completed in 2019; c. participated in the Core Drafting Group on the Collective Strategic Study on the Free Trade Area of the Asia-Pacific (FTAAP); d. contributed to the APEC Services Competitiveness Roadmap ( ), and undertaken discussions on the 14 APEC-wide actions identified under the Roadmap; e. contributed to the APEC SME O2O Initiative, which intends to facilitate the growth of SMEs through online-to-offline business models. 2.4 Investment Regime Overview According to the World Bank's Doing Business report, Malaysia ranked 23 rd among 190 economies in the world in 2017 in overall terms of the ease of doing business (22 nd among 189 economies in 2016). 21 During the review period, Malaysia made starting a business less costly by 19 WT/REG379/N/1, 21 February WTO online information. Viewed at: [11/05/17]. 21 World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [16/05/17].

34 reducing the company registration fees, but made it more difficult by requiring that companies with annual revenue of more than RM 500,000 register as GST payers (Section 3.3.1). Its ranking in terms of the ease of starting a business dropped significantly from 59 th in 2016 to 112 th in The World Economic Forum's (WEF) Global Competitiveness Report ranked Malaysia 25 th out of 138 economies in , down from 18 th out of 140 economies in The authorities stated that, despite the slide, Malaysia continued to be the highest ranked among developing Asian countries. 23 Its ranking in the WEF's Global Enabling Trade report improved from 38 th out of 134 economies in 2014 to 37 th out of 136 economies in The most problematic factors involved in doing business in Malaysia, as identified in the Global Competitiveness Report, include: access to financing, corruption, and inefficient government bureaucracy Since the previous review in 2014, there has not been any significant change to the legislative and institutional framework governing investment. Both domestic and foreign investment in Malaysia continues to be regulated under the Promotion of Investment Act (PIA) 1986, and the Industrial Co-ordination Act (ICA) The PIA sets out rules on corporate income tax relief for the establishment and development in Malaysia of certain economic activities, as well as for the promotion of exports. The ICA aims at maintaining orderly development and growth in Malaysia's manufacturing sector, and requires manufacturing companies of a certain size to be licensed The principal agency for the promotion of the manufacturing and services sectors (excluding financial services and utilities) in Malaysia remains the Malaysian Investment Development Authority (MIDA), which was incorporated as a statutory body under the Malaysian Industrial Development Authority Act. 26 MIDA evaluates applications for the following in relation to projects in manufacturing and related services sectors: manufacturing licences; fiscal and non-fiscal incentives; expatriate posts; duty exemptions on raw materials and components; and duty exemptions on machinery and equipment for the agricultural sector and selected services sectors MIDA acts as a focal point to coordinate applications related to investment projects through: a. a Taskforce on Investment, which streamlines programmes such as trade and investment missions, and collates investment figures in the manufacturing and services sectors; b. a Business Information Centre, and a Customer Service Centre, both of which were established to facilitate investors' enquiries relating to investment policies and procedures; c. an Advisory Services Centre, which stations representatives from government agencies such as Royal Malaysian Customs, Department of Immigration, Department of Labour, Telekom Malaysia Berhad, Tenaga Nasional Berhad, and Department of Environment, to assist investors; In 2017, for the first time, the Doing Business report collected data on Somalia, bringing the total number of economies covered to World Economic Forum (2017), The Global Competitiveness Report Viewed at: [17/05/17]. 23 MIDA (2017), 2016 Malaysia Investment Performance Report. Viewed at: FINAL%20MIPR2016% pdf [17/05/17]. 24 World Economic Forum (2016), The Global Enabling Trade Report Viewed at: [17/05/17]. 25 In accordance with the ICA, person(s) engaging in any manufacturing activity with shareholders' funds of RM2.5 million and above or employing 75 or more full-time paid employees must obtain a manufacturing licence. Manufacturing licences are issued automatically within seven days unless they relate to sensitive industries/activities: security, safety, health, environmental and religious considerations; projects proposed to be located in Sabah or Sarawak; or projects requiring approval under the Petroleum Development Act. Responses to manufacturing licence applications in these sensitive areas should be provided within four weeks. 26 MIDA online information. Viewed at: [17/05/17].

35 d. an Immigration Unit, set up in MIDA, which issues visas and work permits for expatriates and dependents in the manufacturing and services sectors; e. one-stop centres set up at state/regional government level to facilitate project implementation by assisting investors in obtaining licences, permits and approvals; f. investment promotion bodies at the federal and state levels, and economic corridors; and g. online enquiries/information According to MIDA, Malaysia continued to adopt a more focused and targeted approach to attracting quality investment in high technology, capital-intensive and knowledge-intensive industries; high value added industries; R&D activities; and in new growth areas. In line with the 11 th MP, MIDA focuses on promoting niche and more complex products for the manufacturing sector. In addition, the 11 th MP identified three catalyst subsectors (electrical and electronic products, machinery and equipment, and chemicals) and two growth subsectors (aerospace and medical devices). MIDA facilitated the setting up of Industry Advisory Panels (IAPs) for these subsectors and pharmaceuticals. Focus in the services sector is in the areas of principal hubs 27, logistics, and the ecosystem surrounding e-commerce, green technology, renewable energy, and waste management MIDA identified the following initiatives to improve the business environment: a. fine-tuning investment policies, as well as continuing collaboration and engagement with industry players and stakeholders to attract investment; b. direct cooperation between MIDA and agencies at federal and state levels in securing infrastructure facilities, expediting approvals relating to building plans, and business licences, and "handholding" and assisting investors in obtaining all necessary approvals for projects until they are operational; c. collaboration with MITI, MOF and Customs to simplify the mechanism to grant import duty and/or sales tax exemption on machinery, equipment, spare parts, consumables, prime movers and container trailers The Government is moving towards a more facilitative role in boosting investment. One of the major reforms implemented in recent years is the streamlining of the tax system. The sales and services tax (SST), which was charged at the manufacturing level only (not to the rest of the supply chain), was abolished and replaced with a single tax the goods and services tax (GST), which is applicable at all levels of the supply chain. 29 The Government is also working to reduce the time and costs of procedures by establishing online portals, and simplifying processes in areas such as starting a business, registering properties, and paying taxes, among others PEMUDAH, the public-private sector task force, continues to be responsible for identifying measures to improve the business environment in Malaysia. It launched the Business Licensing Electronic Support System (BLESS) in 2008, a virtual one-stop services centre that provides information and helps companies apply for licences or permits to start operating businesses in Malaysia. The number of licence applications through BLESS increased more than threefold from 25,047 in 2014 to 81,344 in A principal hub is a locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations to manage, control and support its key functions including management of risks, decision making, strategic business activities, trading, finance, management and human resources. 28 MIDA (2017), 2016 Malaysia Investment Performance Report. Viewed at: FINAL%20MIPR2016% pdf [17/05/17]. 29 APEC (2016), IAP update for Malaysia Viewed at: APEC/Achievements%20and%20Benefits/2016-Bogor-Goals [31/05/17].

36 The Government has been making efforts to modernize Malaysia's business licensing system. The authorities indicated that, to date, 799 licences at the federal level have been reviewed, among which 454 licences were streamlined and simplified, and 214 licences were made accessible online through BLESS. The Malaysia Productivity Corporation (MPC) conducted sectoral regulatory reviews to reduce unnecessary regulatory burdens on business. Areas being reviewed include: logistics, medical professionals, professional services to the construction industry, and construction. The MPC, in line with the Malaysia Productivity Blueprint launched in May 2017, has been tasked with reducing any non-tariff measures that impede business growth to improve the logistics sector The circular on the National Policy on the Development and Implementation of Regulations (NPDIR) was issued on 15 July According to this, all federal ministries and agencies are required to implement good regulatory practice (GRP) and undertake regulatory impact assessment (RIA) in developing new and amending regulations. This is to ensure that regulations are developed according to best international practice in regulatory management Malaysia has also been developing regional development hubs such as the Malaysian Vision Valley, and education business parks Foreign investment regime Malaysia's laws governing investment do not provide general principles and rules for foreign participation in local businesses. Malaysian incorporated companies, whether locally or foreignowned, are eligible for incentives if they invest in promoted activities (Section 3) The Government continued to reduce foreign investment restrictions during the review period. Restrictions on quantity surveying services were lifted in January 2016, bringing to 45 the total number of services sub-sectors (such as medical services, education, and legal services, among others) that have had their foreign investment restrictions lifted since Malaysia liberalized foreign equity restrictions on credit rating agencies in 2017, and unit trust management companies in Currently there is no foreign equity restriction in the capital market except for a 70% cap on investment banks Restrictions on foreign investment in fisheries, energy, telecommunications, finance, and transport, remain. For example, as the time of the previous review, foreign equity in power generation is allowed up to 49%, while for electricity distribution, only up to a 30% stake in a designated franchise is generally allowed. The Ministry of Transport set foreign equity ceilings for domestic airline companies at 49%, with the same ceiling permitted for convention and exhibition centres with a seating capacity below 5, Foreign participation in public-private-partnership projects is in general limited to a maximum of 25% of its share capital. For projects of strategic and national importance, foreign ownership is required to be widespread to ensure that no single foreign party has a dominant influence on the company Some of Malaysia's policies supporting the ethnic Malay community (Bumiputera) may affect FDI. First, acquisitions of properties valued at RM 20 million or more from Bumiputeras and government agencies by foreigners or local people must obtain approval from the Economic Planning Unit. Second, foreign-owned companies and local companies, with predominantly Malaysian-based operations that are seeking listing on the Malaysian Stock Exchange must allocate at least 12.5% of their public spread during initial public offering (enlarged issues and paid-up capital) to Bumiputera investors at the point of their listing. Third, foreign-owned hypermarkets must maintain 30% of Bumiputera equity; according to the authorities, this is to encourage local business partners to absorb knowledge and skills from foreign retailers As of July 2017, Malaysia had signed 64 investment guarantee agreements (IGAs). All contain provisions for investor-state dispute settlement through arbitration using the rules under the International Centre for Settlement of Investment Disputes (ICSID), United Nations 30 PEMUDAH (2017), Annual Report on Modernisation of Regulations Viewed at: [23/05/17]. 31 TPR Malaysia TPR Malaysia

37 Commission on International Trade Law (UNCITRAL), Kuala Lumpur Regional Centre for Arbitration (KLRCA), or other fora Malaysia has double taxation agreements (DTAs) in force with 74 jurisdictions. Since 2014, one DTA has been signed (between Malaysia and the Slovak Republic). It entered into force on 14 March 2016.

38 TRADE POLICIES AND PRACTICES BY MEASURE 3.1 Measures Directly Affecting Imports Customs procedures, valuation, and requirements 3.1. Customs procedures remain managed by the Royal Malaysian Customs Department (RMCD) under the Customs Act 1967, and no significant changes have been made to its legislative or institutional framework since the previous trade policy review of Malaysia in Customs procedures are automated: import declarations, duty assessment, payment of duties, and customs release are submitted electronically. The issue of most import licences is paperless, and they can be submitted electronically with customs declarations. However, to date, Customs has no facility to enable electronic submission of other supporting documents (e.g. invoice, bill of lading) with the import/export declaration. In 2017, there were 59 authorized economic operators (AEOs) in Malaysia, up from 48 in Registered AEOs are encouraged to conduct electronic transactions for better security management in the supply chain. 1 For importers registered as AEOs, automatic release at Customs takes one minute In 2017, Malaysia stood at 60th in the ranking of 190 economies on the ease of trading across borders. To import, it takes 72 hours and US$321 to conduct border compliance, and 10 hours and US$60 to conduct documentary compliance (Table 3.1). Documents required are: import declaration, commercial invoice, packing list, bill of lading, and certificate of origin. Importers file a declaration with Customs, while additional declarations are required for taxable goods valued over RM 20,000. Malaysia's rank was lower than that of the Republic of Korea (32nd), Singapore (41st), Hong Kong, China (42nd), and Japan (49th), but higher than the regional average (East Asia and Pacific). 2 Table 3.1 Import time and cost, 2017 Indicator Malaysia East Asia and Pacific Time to import: border compliance (hours) Cost to import: border compliance (US$) Time to import: documentary compliance (hours) Cost to import: documentary compliance (US$) World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [12/06/17] Malaysia ratified the WTO Trade Facilitation Agreement (TFA) in May 2015, and notified that it designated all provisions under Category A with some exceptions (Section 2.3.1). It is party to the World Customs Organization Revised Convention on the Simplification and Harmonization of Customs Procedure (Revised Kyoto Convention) Malaysia ranked 37th out of 136 countries in the World Economic Forum's Enabling Trade Index in 2016, and 17th in its availability and quality of transport infrastructure sub-index. 3 According to the OECD trade facilitation indicators, as of 2015 (the latest year for which data are available), Malaysia performed better than the averages of Asian and upper-middle-income countries in the areas of fees and charges, harmonization and simplification of documents, automation, streamlining of procedures, and governance and impartiality. 4 Its performance for information availability and both internal and external border agency cooperation is below the averages of Asian and upper-middle-income countries. 1 Malaysia International Trade Repository online information. Viewed at: [13/06/17]. 2 World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [12/06/17]. 3 World Economic Forum (2016), The Global Enabling Trade Report Viewed at: [12/06/17]. 4 OECD Trade Facilitation Indicators Malaysia: Trade-Facilitation-Indicators.pdf [13/06/17].

39 To facilitate trade, the Government: simplified document requirements for the issuance of landing permits for domestic charter flights; reduced unnecessary regulatory supply chain requirements for the processed food industry; removed requirements from MAQIS (Malaysian Quarantine and Inspection Services) for the issuance of import and export permits for agricultural products, including processed food; established the National Single Window, the Malaysian National Trade Repository portal, and the ASEAN Trade Repository Portal. In addition, the authorities stated that other major trade facilitation initiatives include: a. setting up a Trade Facilitation Cluster Working Group as the national trade facilitation committee, to coordinate and monitor trade facilitation efforts so as to ensure compliance with the WTO's TFA; b. revival of the ASEAN Trade Facilitation Joint Consultative Committee to conduct trade facilitation reforms with the aim of strengthening cooperation, reducing transaction costs, and promoting efficient trade among ASEAN members; c. implementing the ASEAN Single Window, which is a regional initiative connecting and integrating national single windows by enabling the electronic exchange of cross border documents among ASEAN members; and d. Pilot testing the ASEAN-wide Self-Certification Scheme, which is to be realized by 2018 (Section ) To date, smuggling remains a concern, despite the value of seized items decreasing by 38% from 2014 to 2016 reflecting enhanced enforcement initiatives to mitigate this problem. In 2016, the value of seized merchandise was RM million, equivalent to 0.26% of total merchandise imports. Major items included drugs, cigarettes, vehicles, alcoholic beverages, and firecrackers Complaints against customs decisions may be made to the Director General of Customs, and appeals may be lodged with the Customs Appeal Tribunal, the Minister of Finance, and the High Court. To date, 118 cases have been lodged with the Customs Appeal Tribunal, among which, 25 were lodged after Customs valuation is based on the Customs (Rules of Valuation) Regulations 1999, amended in 2000, and is largely determined in accordance with the WTO Agreement on Customs Valuation. Transaction value based on the c.i.f. price is used for most imports. If this method cannot be used, valuation is based on the transaction value of identical or similar goods, the deductive value, the computed value or flexible valuation. 6 The Minister of Finance approves the minimum value of goods recommended by the Customs Valuation Management Section. Regarding the valuation of passenger cars and motorcycles, Customs is reviewing its practices to adopt the transaction value method Rules of origin Malaysia has no national law governing rules of origin for imports, and it does not maintain any non-preferential rules of origin. Preferential rules apply to imports under preferential trading arrangements and FTAs (sections and 2.3.2), and are generally based on two criteria: a. Wholly obtained or produced, for natural products; b. Substantial transformation: comprising the value added method, the change in tariff classification at HS 2-digit, 4-digit or 6-digit levels, specified process of manufacture involving products such as textiles and chemicals, or a combination of the above. 5 Details of the appeal cases are available online at: [28 /09/17]. 6 Customs (Rules of Valuation) Regulations. Viewed at: [13/06/17].

40 Tariffs As part of the national budget process, Malaysia's tariff schedule is reviewed annually. Regular reviews of the tariff structure and tariff rates are held through dialogues between the authorities and the business community Malaysia's implementation of its Uruguay Round tariff binding was achieved in As during the previous review period, about 20% of its tariff lines are unbound, and the simple average bound rate is 11.0% for agricultural products (WTO definition) and 16.5% for nonagricultural products. Malaysia's bound tariffs are in HS 02 nomenclature Applied MFN tariff In 2017, Malaysia's tariff schedule is based on HS 2017 nomenclature, comprising 11,690 lines at the 10-digit level. Almost all rates (99%) are ad valorem; duty-free lines account for 56.2% of all tariff lines, while ad valorem rates higher than 0% account for 42.8% (Table 3.2). Among the 116 tariff lines with non-ad valorem rates, 64 lines carry specific rates, 50 lines carry compound rates, and 2 lines carry alternate rates. Table 3.2 Malaysia's tariff structure, 2013 and 2017 MFN applied Simple average rate (%) HS HS WTO agricultural products WTO non-agricultural products Duty-free tariff lines (% of all tariff lines) Simple average of dutiable lines only Tariff quotas (% of all tariff lines) Non-ad valorem tariffs (% of all tariff lines) Domestic tariff "peaks" (% of all tariff lines) a International tariff "peaks" (% of all tariff lines) b Nuisance applied rates (% of all tariff lines) c Standard deviation Total number of tariff lines 9,417 11,690 Ad valorem rates (> than 0%) 3,255 5,001 Duty-free rates 6,079 6,573 Specific rates Compound rates Alternate rates 2 2 a Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate. b International tariff peaks are defined as those exceeding 15%. c Nuisance rates are those greater than zero, but less than or equal to 2%. Note: Calculations exclude in-quota rates and specific rates and include the ad valorem part of compound and alternate rates. The 2013 tariff is based on HS 12 and the 2017 tariff is based on HS 17 nomenclature. WTO Secretariat calculations, based on data provided by the authorities The simple average applied MFN rate went up from 5.6% in 2013 to 7.5% in 2017; it went up for both agricultural (WTO definition) and non-agricultural products, from 2.9% to 3.3%, and from 6% to 8%, respectively. These changes reflect both the nomenclature change, and changes in the tariff structure as a large number of duty-free lines were merged into other tariff lines during the tariff transposition process (from HS 2012 to HS 2017) (Table A3. 1, and Chart 3.1). In particular: 7 For details of tariff bindings, see WTO document, WT/TPR/S/292/Rev.2, 8 April 2014.

41 the number of tariff lines under chapter 44 (wood and articles of wood) was reduced from 1,477 in 2013, to 405 in 2017, and the simple average rate of tariffs for these products rose from 1.1% to 4.3%; and the number of tariff lines under chapter 87 (vehicles and parts thereof) was increased from 356 in 2013, to 1,245 in 2017, and the simple average tariff rate for these lines went up from 19.9% to 23%. Chart Average Average applied applied MFN tariff MFN rates, tariff by HS rates, section, by 2013 HS section, and and % 20% MFN 2013 MFN % 10% 5% 0% Total 01 Live animals & products 02 Vegetable products 03 Fats & oils 04 Prepared food, beverages 05 Mineral products 06 Chemicals & products 07 Plastic & rubber 08 Hides & skins 09 Wood & articles 10 Pulp, paper, etc. 11 Textiles & articles 12 Footwear, headgear 13 Articles of stones 14 Precious stones, etc. 15 Base metals & products 16 Machinery 17 Transport equipment 18 Precision instrument 19 Arms & ammunition 20 Miscellaneous manufacturing 21 Works of art, etc. Note: 2013 tariff is based on HS12 nomenclature; 2017 tariff is based on HS17. Calculations exclude inquota the and ad valorem specific part rates of compound and include and alternate the ad rate. valorem part of compound and alternate Note: 2013 tariff is based on HS12 nomenclature; 2017 tariff is based on HS17. Excluding in-quota and specific rates. Including rates. WTO WTO Secretariat Secretariat calculations, calculations, based on online based data on provided online by data the provided authorities. by the authorities The number of different tariff rates changed from 19 in 2013 to 25 in Ad valorem tariff rates range from zero to 60% (ceramic glazed wall tiles) for industrial products and 90% (round cabbage) for agricultural products (Chart 3.2). Rates of over 30% now apply to 0.9% of tariff items (up from 0.6% in 2013). Average tariffs are highest for transport equipment (simple average tariff rate of 21.5% in 2017), and articles of stone (17.8%) (Chart 3.1).

42 Chart 3.2 Distribution of MFN tariff rates, 2013 and 2017 Chart 3.2 Distribution of MNF tariff rates, 2013 and 2017 Number of tariff lines 7,000 6,000 (64.6%) (56.2%) MFN 2013 Total number of lines: 9,417 MFN 2017 Total number of lines: 11,690 5,000 4,000 3,000 2,000 1,000 0 (9.0%) (10.6%) (1.0%) (0.8%) (5.9%) (6.0%) (8.6%) (6.7%) (5.1%) (3.0%) (4.7%) (2.1%) (2.8%) (10.1%) (0.6%) (0.9%) (0.5%) (0.4%) Duty free 5% >5%<10% 10% 15% 20% 25% 30% >30%-90% Specific rates Note: For 2013 For and , and respectively 2017 respectively, 0.1% and % % of total and lines 0.2% are not of total shown lines as they are correspond not shown to sporadic as they rates correspond falling in to between sporadic the main rates tariff falling rates (eg. in 3%, between 17%, 22%). the main 2013 tariff rates is based (e.g. on HS12 3%, nomenclature; 17%, 22%) tariff tariff is based is based on HS17. on Excluding HS12 in-quota nomenclature; and specific rates Including tariff is the based ad valorem on HS17. part of Calculations compound and exclude alternate in-quota rate. Figures and in specific brackets rates refer to the percentage and include of total the lines. ad valorem part of compound and alternate rates. Figures in brackets refer to the WTO percentage Secretariat calculations, of total lines. based on online data provided by the authorities. WTO Secretariat calculations, based on online data provided by the authorities Non-ad valorem duties, mainly applied to agricultural products, may conceal high tariff protection. According to WTO Secretariat calculations, in 2017 the calculable ad valorem equivalents Chart 3.[1] (AVEs) Tariff distribution of the non-ad by type valorem of duty, duties 2017 in general fall in the range from 0.2% (clove cigarettes) to 465% (certain manufactured tobacco) (Chart 3.3). Chart 3.3 Tariff distribution by type of duty, 2017 Ad valorem duty 42.8% Non-ad valorem duty 1.0% Specific duty 0.5% 64 tariff lines: 1 = pineapples 58 = alcoholic beverages 5 = cigarettes and cigars Duty free 56.2% Compound duty 0.4% 50 tariff lines: 20 = edible fruit 29 = tobacco products 1 = remelting scrap ingots Alternate duty 0.02% 2 lines: 1certain paper 1certain fans WTO Secretariat calculations, based based on on data data provided provided by the by authorities. the authorities The dispersion of MFN tariff rates, as reflected by the standard deviation, increased slightly from 9.5% in 2013 to 10.9% in As a proportion of all tariffs, "domestic tariff peaks", defined as those exceeding three times the overall simple average applied rate, declined. During the same period, the proportion of tariffs exceeding 15% increased. The number of lines with a tariff rate at 30% accounted for 10.1% of all tariff lines in 2017, up from 4.7% in 2013 (Chart 3.2).

43 Malaysia's tariff quotas continue to be applied to 27 tariff lines at the HS 10-digit level; according to the authorities, this is to meet the requests of domestic small producers. The type of products is the same as in 2013, although the number of lines increased from 20 to 27, due to nomenclature change and splitting of lines. The products covered include live swine and poultry, poultry and pork meat, liquid milk and cream, and round cabbage. In-quota rates range from zero (round cabbages) to 25% (pork), while out-of-quota rates range from 20% to 90% (round cabbages). Quotas are allocated on a first-come-first-served basis to importers. Based on MA2 notification in 2015, the quota filling rate ranged from 0% to 278% (Section 4.1) Duty concessions/exemptions Import duty exemptions continue to be applied to manufacturing companies on raw materials and components used in the manufacture of goods for export, and for machinery and equipment not available in Malaysia but used directly in the manufacturing process The authorities indicated that in 2016, revenue forgone from import duty and GST relief was US$5.2 billion, equivalent to 22% of total tariff revenue Tariff preferences Malaysia's preferential tariffs for intra-asean trade remain under the ASEAN Harmonized Tariff Nomenclature (AHTN) 2017 classification system, which consists of 11,690 ten-digit lines. Malaysia transposed ATIGA into HS 2017, and is undertaking a transposition exercise for its preferential tariff commitments under all ASEAN regional RTAs and MAFTA from HS2012 to HS The simple average rates under all preferential arrangements are lower than the simple average MFN rate, although the averages among arrangements are different, ranging from 0.1% to 7.4% (Table 3.3). Table 3.3 Summary analysis of Malaysia's preferential tariffs, 2017 Total WTO agriculture WTO nonagriculture Average (%) Range (%) Dutyfree rates (%) Average (%) Dutyfree rates (%) Average (%) Dutyfree rates (%) MFN ASEAN Trade in Goods Agreement (ATIGA a - HS17) ASEAN - Australia New Zealand FTA (AANZFTA - HS12) ASEAN - China FTA (ACFTA HS12) ASEAN - India FTA (AIFTA HS07) ASEAN - Japan (AJCEPA - HS07) ASEAN - Korea, Rep. of FTA (AKFTA - HS12) Malaysia - Australia FTA (MAFTA HS12) Malaysia - Chile FTA (MCFTA HS07) Malaysia - India CECA (MICECA HS07) Malaysia - Japan EPA (MJEPA HS07) Malaysia - New Zealand FTA (MNZFTA - HS07) Malaysia - Pakistan CEPA (MPCEPA - HS07) Malaysia - Turkey FTA (MTFTA HS12) PTA-D8 b (HS12)

44 a b Note: Including Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Viet Nam. Including Bangladesh, Egypt, Indonesia, Iran, Nigeria, Pakistan and Turkey. Calculations exclude in-quota rates and specific rates and include the ad valorem part of compound and alternate rates. Preferential tariffs in various HS nomenclatures were adjusted by the Secretariat into HS17 for calculation purposes. WTO Secretariat calculations, based on data received by the authorities Other charges affecting imports The authorities stated that no fees are imposed by Customs for customs procedures Import prohibitions, restrictions, and licensing Import prohibitions and licensing requirements are regulated under the Customs (Prohibition of Imports) Order 2017, which came into force in April 2017, while the Customs (Prohibition of Imports) Order 2012 was revoked at the same time. 8 The order contains four schedules, according to which, some goods are absolutely prohibited while some are prohibited from importation except under an import licence (Table 3.4). Table 3.4 Import prohibition and licensing schedules Schedule First schedule Second schedule Part I Part II Part III Third schedule Part I Part II Part III Fourth schedule Part I Part II Description Goods absolutely prohibited from importation Conditional prohibition except under import licence Conditional prohibition except under import licence, and does not apply to specified free zones Conditional prohibition except under import licence, and shall not apply to Labuan, Langkawi, Tioman and specified free zones Conditional prohibition except in the manner provided for Conditional prohibition except in the manner provided for, and shall not apply to the free commercial zone Conditional prohibition, except in the manner provided for, for goods controlled under the International Trade in Endangered Species Act 2008 Conditional prohibition except conforming to the Malaysian standards or other standards approved by the Malaysian authorities and in the manner provided for Conditional prohibition except conforming to the Malaysian standards or other standards approved by the Malaysian authorities and in the manner provided for, and does not apply to the free commercial zones Customs (Prohibition of Imports) Order Import permits cannot be changed or amended, and cannot be re-used In January 2014, the Government decided that the "approved permits" (AP) system governing the importation and distribution of foreign-built or assembled cars, trucks, and motorcycles, which forms part of the National Automotive Policy (NAP), was to be continued with some additions: i.e. opening to more entrepreneurs to venture into this business. The policy for franchise APs, as guided under the NAP, remains. 9 8 Customs (Prohibition of Imports) Order 2017 (P.U. (A) 103), 1 April Viewed at: [20/06/17]. 9 WTO document, WT/TPR/S/292/Rev.1, 8 April 2014.

45 Prohibitions (first schedule) Malaysia prohibits imports of a number of products, on religious, security, health, and environmental protection and safety grounds. It prohibits the importation of logs, wood in the rough, wood roughly squared or half squared but not further manufactured, and baulks, from Indonesia. Another 14 major product categories are absolutely prohibited from importation from all countries. These include: some broadcast receivers; comb or comb chunk (the authorities stated that the pest risk analysis conducted on this product revealed high risks of infestation pests with adverse effects); lightening arresters containing radioactive material; liquid-filled type electric heating bags, cushions, pillows, pouches or pads using alternating current (AC) or AC and direct current (AC/DC); new pneumatic snow tyres and new retreaded snow tyres for all types of vehicles; poisonous chemicals and minerals; certain animal feed; sodium arsenite; and substances covered under the Montreal Protocol Import licensing (second, third, and fourth schedules) Second schedule According to the Customs (Prohibition of Imports) Order 2017, part I of the second schedule lists products that are prohibited from importation except under an import licence. All goods originating from (and exporting to) Israel are subject to import (and export) licensing requirements. Imports of 16 product categories from all countries require an import licence (Table 3.5). Table 3.5 Import licensing Description of product Automatic licensing All goods from Israel No MITI Sugar (including cane and beet sugar, chemically pure sucrose, fructose and glucose) Radar apparatus, radio navigational aid apparatus, including other parts and accessories; parabolic antenna including other parts and accessories Chassis fitted with engines, for motor vehicles of heading 87.02, 87.03, 87.04, or Chassis not fitted with engines, for motor vehicles of heading 87.02, 87.03, 87.04, or Bodies (including cabs) for motor vehicles falling within headings 87.02, 87.03, 87.04, or Motor-cycles, auto-cycles (including mopeds), electric powered motorcycles, motorised bicycles and cycles fitted with an auxiliary motor (excluding side cars) Road tractors for semi-trailers (including prime movers), completely built-up, old Special purpose motor vehicles, other than those principally designed for the transport of persons or goods (for example breakdown lorries, crane lorries, concrete-mixer lorries, road sweeper lorries, spraying lorries, mobile workshops, mobile radiological units), excluding fire fighting vehicles Used brakes and servo-brakes including used brake pad, and brake lining, for motor vehicles of headings 87.01, 87.02, 87.03, 87.04, 87.05, 87.09, and 87.11; All kinds of reusable batteries (accumulators) for motor vehicles of headings 87.01, 87.02, 87.03, 87.04, 87.05, 87.09, and Yes Yes Yes Yes Yes Yes Ministry/Department/Statu tory Body issuing licence Ministry of Domestic Trade, Cooperatives and Consumerism SIRIM Berhad Unmanufactured tobacco; tobacco refuse No National Kenaf, Tobacco Board, and Department of Agriculture (Peninsular Malaysia, Labuan, Sabah and Sarawak) Yes Yes No MITI MITI MITI MITI MITI MITI MITI

46 Description of product Automatic licensing Trichloroethane (Mythyl chloroform) Yes MITI Optical disc mastering and replicating machines and parts thereof Toxic chemicals and their precursors covered under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction 1993 (CWC) Substances structurally derived from Phenethylamine and their salts Hydrochlorofluorocarbons (HCFCs) covered under the Montreal protocol, Annex C- Group 1 Flat-rolled products of other alloy steel, of a width of 600 mm or more No Yes No Yes Yes Ministry/Department/Statu tory Body issuing licence Ministry of Domestic Trade, Cooperatives and Consumerism MITI Pharmaceutical Services Division, Ministry of Health Department of Environment MITI Customs (Prohibition of Imports) Order Viewed at: [20/06/17]. And information provided by the authorities Part II of the second schedule lists products under "conditional prohibition except under import licence, and does not apply to specified free zones". Currently, this list is identical to the list under Part I According to Part III of the second schedule, some iron and steel products are prohibited from importation except under an import licence; these do not apply to Labuan, Langkawi, Tioman, and specified free zones. Import licences for these products are issued by MITI. Malaysia notified that, effective from 1 August 2017, import licence requirements for 181 tariff lines of iron and steel products had been abolished Third schedule Part I of the third schedule lists products prohibited from import except in the manner provided for in this schedule. These products are mainly subject to licensing requirements on SPS grounds. The products are animals and animal products, plant and plant products, as well as agricultural products such as pasta, rice, flour, vegetables, coffee, soil including earth, food products, solid waste, logs and wood in the rough from all countries (except Indonesia), wood and articles of wood, radioactive materials and irradiating apparatus, baby feeding bottles, ceramic tableware and kitchenware, tobacco and manufactured tobacco, alcohol, stones, and water Licences may be issued by the Malaysian Quarantine and Inspection Services (MAQIS), Department of Agriculture (DOA), Department of Wildlife and National Park, Food Safety and Quality Division of the Ministry of Health, Department of National Solid Waste Management, Ministry of Home Affairs, Pesticide Board under the DOA, and Atomic Energy Licensing Board. On a number of products, inspection is required before an import licence is issued At the federal level, relevant legislation refers to: Malaysian Quarantine and Inspection Services Act 2011, Plant Quarantine Regulations 1981, Wildlife Conservation Act 2010, Atomic Energy Licensing Act 1984, Radiation Protection (Licensing) Regulations 1986, and Atomic Energy Licensing (Exemption) (Low Activity Radioactive Material) Order 2002, among others. For importation into Sabah and Sarawak, import permits are issued by the relevant authorities, and inspections and approvals granted by relevant authorities there This schedule also lists a number of products, the importation of which requires licences issued by various agencies for different reasons: a. bullet-proof suits, pepper spray, arms and ammunition, fireworks; their importation must be accompanied by an import permit or an approval letter issued by the Chief Police Officer; 10 WTO document, G/LIC/N/2/MYS/8, 18 August 2017.

47 b. toxic and hazardous waste; their importation requires approval from the Director General of Environmental Quality; c. amusement machines are imported with a letter of approval from the Ministry of Finance; d. rough diamonds must be imported with a Kimberley Process Certificate issued by the exporting party; e. substances covered under the Rotterdam Convention are imported with a letter of consent issued by the Department of Environment In addition, the importation of second-hand materials, such as used pneumatic tyres and used retreaded pneumatic tyres of rubber, requires a letter of approval from SIRIM Berhad. Used household electronics including televisions, washing machines, cloth dryers, refrigerators, air conditioners, and personal computers, must be accompanied by a letter of approval from Environmental Quality, and must be inspected by a competent authority or certification body or any other relevant agency Part II of the third schedule lists goods that may not be imported into Malaysia except in the manner provided for; however, these requirements do not apply to free commercial zones. These products include: cigarettes that must meet packaging requirements to contain health information; apparatus or equipment for the brewing of beer at home, which must be accompanied by a letter of approval; beer, wine, vermouth and other wine of grapes, other fermented beverages, ethyl alcohol, spirits and liqueurs, etc., for which every bottle, can, keg or other container of the goods must be affixed with a tax stamp Part III of the third schedule applies to goods in transit controlled under the International Trade in Endangered Species Act They include: any terrestrial animal; any marine animal; any terrestrial plant excluding timber species; and any timber species, as specified in the appendices of the International Trade in Endangered Species Act Goods in transit must be accompanied by a valid export or re-export permit/licence/certificate, or a written permission in accordance with the CITES, issued by the competent authority of the country of export or reexport. Where required by the country of import, these goods must obtain a valid import permit/licence/certificate or a written permission, in accordance with the CITES, issued by the competent authority of the country of destination Fourth schedule Under part I of the fourth schedule, goods may not be imported into Malaysia except those conforming to the Malaysian standards or other standards approved by the Malaysian authorities and in the manner provided for in the schedule. These include cement; ceramic products; and plastic flushing cisterns equipped with mechanism. Their importation must be accompanied by a certificate of approval, or a letter of exemption, issued by or on behalf of the Chief Executive of the Construction Industry Development Board (CIDB), certifying that the import conforms to the approved Malaysian standards Part II of the fourth schedule lists goods for which importation is subject to TBT requirements; these requirements do not apply to free commercial zones (Table 3.6). Table 3.6 Imports subject to TBT requirements Description of product Iron and steel products Aluminium products Electrical apparatus or accessories Import requirement Construction Industry Development Board (CIDB), or SIRIM Berhad (nonconstruction) Construction Industry Development Board (CIDB), or SIRIM Berhad (nonconstruction) Suruhanjaya Tenaga, or the equivalent counterpart in the case of certain states (Sarawak), certifying that the specified domestic electrical apparatus conforms to the Malaysian or IEC standards, or British standards, or any other

48 Description of product New pneumatic tyres and new retreaded pneumatic tyres, of rubber Toys, games and children's bicycles Apparatus or equipment to be attached to or connected to a public communication network or system Radio communication apparatus or equipment in the frequency band up to 420 THz Flowers, vegetables, coconuts, fruits, coffee, spices, groundnuts, sugar cane Construction products Non-rechargeable cells and primary batteries Apparatus or equipment which are integrated with a communications module for connecting to a public communications network or for radio communications utilizing the frequency band up to 420 THz Liquid-filled type electric heating bag, cushion, pillow, punch or pad filled with liquid, using 3-pin inlet alternating current (AC) or AC and direct current (AC/DC) Motorcyclists' safety helmets Some wheat flour Gas discharge headlamp including gas discharge bulb for motor vehicles New brake lining or brake pad Vehicle alarm system and immobilizer for motor vehicles Import requirement equivalent standards approved by the Suruhanjaya Tenaga Must comply to the standards as prescribed under the Motor Vehicles (Construction and Use) Rules 1959; imports must be accompanied by: - E-mark and certificate issued by the World Forum for Harmonization of Vehicles Regulation; or - DOT mark and certificate issued by the US National Highway Traffic Safety Administration; or - MS mark and certificate issued by a certification agency or testing agency which is recognized/accredited by the Department of Standards Malaysia. Importation must be accompanied by: - certificate of conformance (COC) issued under the Consumer Protection Act 1999; - notification form or a letter of clarification A certificate of approval issued by SIRIM QAS International Sdn. Bhd. Import must be certified to the Malaysian standards, or international standards, or technical codes, or technical declarations, subject to the Communications and Multimedia Act 1998 A certificate of approval issued by SIRIM QAS International Sdn. Bhd. Import must be certified to the Malaysian standards, or international standards, or technical codes, or technical declarations, subject to the Communications and Multimedia Act 1998 A certificate of conformity of agricultural produce, issued by MAQIS, and inspection and approval by MAQIS (SPS measures) A certificate of approval, or a letter of exemption, by the Chief Executive Officer of the Construction Industry Development Board (CIDB) A certificate of conformance, a notification form, or a letter of clarification, issued by the Controller of Consumer Affairs, under the Consumer Protection Act 1999 A certificate of approval issued by SIRIM QAS International Sdn. Bhd. Import must be certified to the Malaysian standards, or international standards, or technical codes, or technical declarations, subject to the Communications and Multimedia Act 1998 A certificate of approval issued by the Suruhanjaya Tenaga or the equivalent counterpart in Sarawak, certifying that the product conforms to the Malaysian standard, or IEC standard, MS IEC Comply to standard as prescribed under the Motor Vehicles (Construction and Use) Rules 1959, governed by the Road Transport Department, and the importation is accompanied by: E-Mark and certificate; or MS Mark and certificate, issued by relevant authorities A letter of consent, by the Ministry of Domestic Trade, Cooperatives and Consumerism Comply to the standards under the Motor Vehicles (Construction and Use) Rules 1959, and E-Mark and certificate Comply to the standards under the Motor Vehicles (Construction and Use) Rules 1959, E-Mark and certificate, or MS mark and certificate Comply to the standards under the Motor Vehicles (Construction and Use) Rules 1959, E-Mark and certificate, or MS mark and certificate

49 Description of product New seat for motor vehicles Speed monitoring device for motor vehicles Wheat flour for human consumption Import requirement Comply to the standards under the Motor Vehicles (Construction and Use) Rules 1959, and E-Mark and certificate Comply to the standards under the Motor Vehicles (Construction and Use) Rules 1959, and E-Mark and certificate Certificate of approval issued by SIRIM QAS International Sdn. Bhd. Customs (Prohibition of Imports) Order Viewed at: [20/06/17]. And information provided by the authorities Anti-dumping, countervailing, and safeguard measures Anti-dumping (AD) and countervailing duties (CVD) continue to be regulated under the Countervailing and Anti-Dumping Duties Act 1993, and the Countervailing and Anti-Dumping Duties Regulations 1994, both of which have not been amended since the previous review in MITI is responsible for the administration of legislation on AD and CVD in Malaysia Since its last Review, Malaysia has submitted semi-annual reports on anti-dumping actions to the WTO (Table 3.7). According to the notifications, the number of investigation initiations reached its peak in 2015, while the number of definitive anti-dumping measures reached its peak in In 2014, seven measures were terminated, and in 2016, one measure was terminated. Table 3.7 Anti-dumping investigations and measures imposed, _1 2014_2 2015_1 2015_2 2016_1 2016_2 2017_1 Investigation initiations Reviews/other subsequent proceedings Definitive anti-dumping measures in force Refund request Termination of measures WTO Secretariat, based on Malaysia's notifications to the WTO From 2014 to 30 June 2017, imports from nine Members were affected (Table 3.8). AD duties were applied mostly on biaxially oriented polypropylene film and steel wire rod, among others. Table 3.8 Definitive anti-dumping measures in force, by country and product, June _1 2014_2 2015_1 2015_2 2016_1 2016_2 2017_1 Canada China Indonesia Republic of Korea Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei) Thailand Viet Nam Philippines United States

50 _1 2014_2 2015_1 2015_2 2016_1 2016_2 2017_1 Total: Products: Steel wire rod Biaxially oriented polypropylene film Electrolytic tinplate Polyethylene terephthalate Hot rolled coil Prepainted, painted or colour coated steel coils Cold rolled coils of alloy and non-alloy steel Cellulose fibre reinforced cement flat and pattern sheets Fibre cement board New print Stranded wire Total: WTO Secretariat, based on WTO notifications To date, Malaysia has not taken any countervailing measures Safeguards are regulated under the Safeguards Act of 2006, most recently amended in 2012, and the Safeguards Regulations Malaysia notified to the WTO that during the review period ( ): four safeguard investigations were initiated, all concerning steel products; three provisional measures, and three definitive measures were applied; and one investigation was terminated (Table 3.9). Table 3.9 Initiation of safeguard investigations, provisional measures, final measures, and termination Investigation initiations, provisional measures, final measures, and termination Investigation initiations Products concerned Date of initiation Agency applied for safeguard investigation Steel wire rod, deformed bar in coil 29 May 2016 Malaysia Steel Association Steel concrete reinforcing bar 28 May 2016 Malaysia Steel Association Hot rolled coils 11 September 2015 Megasteel Sdn. Bhd. Hot rolled steel plate 18 August 2014 Ji Kang Dimensi Sdn. Bhd. Provisional safeguard measures Products concerned Provisional safeguard duty Exceptions Hot rolled steel plates 23.93% of c.i.f. price for 200 days, from 14 December 2014 Steel concrete reinforcing bars 13.42% of c.i.f price for 200 days, from 26 September 2016 Imports from developing countries that are less than 3% individually are not subject to the provisional safeguard measures, except imports from China, Ukraine, the Republic of Korea, Indonesia, and Singapore Imports from developing countries that are less than 3% individually are not subject to the provisional safeguard measures, except imports from China

51 Investigation initiations, provisional measures, final measures, and termination Steel wire rod and deformed bar in coil 13.90% of c.i.f price for 200 days, from 27 September 2016 Imports from developing countries that are less than 3% individually are not subject to the provisional safeguard measures, except imports from China, the Republic of Korea, and Singapore Finding a serious injury or threat thereof caused by increased imports Products concerned Definitive safeguard measures Steel wire rods and deformed bar in coils 15 April April 2018: 13.90% 15 April April 2019: 12.90% 15 April April 2020: 11.90% Steel concrete reinforcing bars 14 April April 2018: 13.42% 14 April April 2019: 12.27% 14 April April 2020: 11.10% Hot rolled steel plate 2 July July 2016: 17.40% 2 July July 2017: 13.90% 2 July July 2018: 10.40% Applicable to: Imports from all sources globally except developing countries with imports less than 3% individually and LDCs Imports from all sources globally except developing countries with imports less than 3% individually and LDCs Imports from all sources globally except developing countries with imports less than 3% individually and LDCs Termination of investigation with no safeguard measures imposed Products concerned Hot rolled coils Initiation and termination of investigation Investigation initiated in September 2014, terminated on 8 January 2016 Reasons for termination Imports of the product have not caused serious injury or threat of serious injury to the domestic industry. WTO notifications. 3.2 Measures Directly Affecting Exports Customs procedures and requirements Since the previous Review in 2014, there has not been any significant change to export procedures in Malaysia. To export, it takes 48 hours and US$321 to conduct border compliance, and 10 hours and US$45 to conduct documentary compliance (Table 3.10). Documents required to export are: customs export declaration, commercial invoice, packing list, bill of lading, and certificate of origin. 11 Export declarations may be made by the owner, exporter, consignor or an agent authorized and approved by Customs. 11 World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [12/06/2017].

52 Table 3.10 Export time and cost, 2017 Indicator Malaysia East Asia and Pacific Time to export: border compliance (hours) Cost to export: border compliance (US$) Time to export: documentary compliance (hours) Cost to export: documentary compliance (US$) World Bank (2017), Doing Business 2017 Malaysia. Viewed at: [12/06/17] Export proceeds must be repatriated to Malaysia in full as per the sales contract, within six months from the date of export. They may be received in foreign currencies (except for the currency of Israel) or in ringgit from an external account. Exporters may retain up to 25% of their export proceeds in foreign currency and may reconvert the remaining 75% to ringgit (at zero bidoffer spread if conversion is undertaken on the same day) Taxes, charges, and levies A number of products remain subject to export duties. In 2017, out of 11,690 tariff lines at the HS 10-digit level, 217 lines are subject to export duties. Most of the rates are ad valorem, ranging from 4.5% to 20% (Section 4.1). Ten lines have specific rates (live plants, certain seeds, and rattans) (Table 3.11). The authorities stated that export taxes are levied to ensure sufficient supply of raw materials for domestic downstream industries, and for food security purposes. Export duties are applied on the f.o.b. value of the goods. Table 3.11 Malaysia export duties, 2017 Number Export duty Description of products of lines rates 10 Specific rate Live plants, certain seeds, rattans % Crude palm oil 2 5% Palm nuts and kernels suitable for sowing 20% Palm nuts and kernels not suitable for sowing % Wood in the rough (108 lines), and certain unwrought lead, and lead waste and scrap 21 10% Palm kernel oil; crude petroleum oil; ferrous waste and scrap; copper waste and scrap; master alloys of copper; nickel mattes; nickel oxide sinters; not alloyed nickel; nickel alloys; aluminium waste and scrap 69 5% Certain live animals; palm nuts, palm kernel oil (refined, bleached, deodorized (RBD)); slag, ash and residues; silver; platinum; refined copper, unwrought; unwrought zinc Information provided by the authorities The number of products subject to export duties declined significantly, from 482 lines (HS 9-digit level) in 2014, to 217 lines (HS 10-digit level) in This was due partly to the merging of tariff lines during the transposition exercise. As the number of products subject to export duties was reduced, Malaysia's revenue from export duties fell from RM billion in 2012 to RM 980 million in In addition, a cess of 0.2% of the export value is charged to manufacturers of rubber products (Section 4.1) Export prohibitions, restrictions, and licensing Similar to import licensing requirements, export prohibitions and licensing requirements are regulated under the Customs (Prohibition of Exports) Order 2017, which came into force in April 2017, at which time the Customs (Prohibition of Exports) Order 2012 was revoked. 13 This order 12 BNM online information. Viewed at: [29/09/17]. 13 Customs (Prohibition of Exports) Order 2017 (P.U. (A) 102), 31 March Viewed at: [30/06/17].

53 contains three schedules, according to which, some goods are absolutely prohibited while some are prohibited from exportation except under an export licence (Table 3.12). Table 3.12 Export prohibition and licensing schedules Schedule First schedule Second schedule Third schedule Part I Part II Description Goods absolutely prohibited from exportation Conditional prohibition except under export licence Conditional prohibition except in the manner provided for Conditional prohibition, except in the manner provided for, for goods controlled under the International Trade in Endangered Species Act 2008 Customs (Prohibition of Exports) Order Export prohibitions (first schedule) According to the first schedule, goods absolutely prohibited for exportation are: poisonous chemicals and minerals; and substances covered under the Montreal Protocol Export licensing (second and third schedules) The second schedule lists goods that are prohibited for export except under an export licence (Table 3.13). Table 3.13 Export licensing Description of product All goods to Israel Unrooted cuttings, budwood, budded stumps, seedlings and seeds, of rubber, for sowing or planting Oil palm living tissues/fruits/seeds or nuts/pollens Oils and fats of palm oil Pineapple slips Pineapple, fresh, chilled and preserved by freezing Bamboo, rattans, wood, logs, charcoal, timber, etc. Minerals, ores, coal, lignite, peat, coke, etc. All kinds of natural sands Slag and hardhead of tin Military clothing, headgear, footwear, and other textile articles Sugar Cement clinker Portland cement Waste and scrap Recovered (waste and scrap) paper or paperboard Toxic chemicals and their precursors covered under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction 1993 (CWC) Acetyl bromide Acetyl chloride Chemicals/substances covered under the 1988 United Ministry/Department/Statutory Body issuing licence Ministry of International Trade and Industry Ministry of Plantation Industries and Commodities Ministry of Plantation Industries and Commodities Malaysian Palm Oil Board Malaysian Pineapple Industries Board Malaysian Pineapple Industries Board Malaysian Timber Industry Board and corresponding agencies in Sabah and Sarawak Ministry of Natural Resources and Environment Ministry of Natural Resources and Environment Ministry of Natural Resources and Environment Ministry of Defence Ministry of International Trade and Industry Ministry of Domestic Trade, Cooperatives and Consumerism Ministry of Domestic Trade, Cooperatives and Consumerism Ministry of Domestic Trade, Cooperatives and Consumerism Ministry of International Trade and Industry Ministry of International Trade and Industry Ministry of International Trade and Industry Pharmaceutical Services Division, Ministry of Health Pharmaceutical Services Division, Ministry of Health Pharmaceutical Services Division, Ministry of

54 Description of product Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances Hydrochlorofluorocarbons (HCFCs) covered under the Montreal Protocol, Annex C Group 1 Mercury (Hg) and mercury compounds covered under the Minamata Convention on Mercury Ministry/Department/Statutory Body issuing licence Health Department of Environment Pharmaceutical Services Division, Ministry of Health Customs (Prohibition of Exports) Order 2017 (P.U. (A) 102), 31 March Viewed at: /AL14609 [30/06/17] Part I of the third schedule lists products prohibited from export except in the manner provided for: a. products subject to licensing requirements on SPS grounds, such as animals and animal products, plants and plant products, agricultural and food products including rice and flour; b. arms and ammunition, antiquities or heritage items, toxic and/or hazardous waste, pesticides, radioactive chemical elements and others, rough diamonds, tributyltin compounds including preparations, diesel fuel, petrol, LPG; and c. used household electronics such as TV sets, washing machines, cloth dryers, refrigerators, air conditioners, personal computers, hand phones and mobile phones In accordance with relevant legislation (Malaysian Quarantine and Inspection Services Act 2011, Wildlife Conservation Act 2010, Control of Supplies Act 1961, Arms Act 1960, National Heritage Act 2005), export permits are issued by: Malaysian Quarantine and Inspection Services (MAQIS); Department of Wildlife and National Parks; Ministry of Domestic Trade, Cooperatives and Consumerism; Chief Police Officer; Commissioner of Heritage; Pesticides Board under the Department of Agriculture; Director General of the Department of the Atomic Energy Licensing Board; among others. For importation into Sabah and Sarawak, export permits are issued by relevant authorities, and inspections and approvals granted by relevant authorities there Part II of the Third Schedule lists goods which may not be exported from Malaysia except in the manner provided for, as they are the goods controlled under the International Trade in Endangered Species Act 2008 (Act 686). These include any terrestrial animal, any marine animal, any terrestrial plant excluding timber species, and any timber species as specified in the appendices of the Third Schedule of the International Trade in Endangered Species Act 2008 (Act 686). For exportation from peninsula Malaysia and Labuan, an export permit is required. The permit is issued by: Department of Wildlife and National Parks Peninsular Malaysia, Department of Fisheries Malaysia, Department of Agriculture Malaysia, and the Malaysian Timber Industry Board, respectively Export support and promotion Export support Malaysia provided support in the form of statutory income tax exemption to exporters based on the value of increased exports: a. Manufacturing companies or companies engaged in the production of fresh and dried fruits, fresh and dried flowers, ornamental plants, and ornamental fish benefited from a tax exemption on their statutory income equivalent to 10% of the value of increased exports. b. Manufacturing companies were eligible for tax exemption on statutory income equivalent to 10% or 15% of the value of increased exports, provided that the goods exported attained at least 30% or 50% value-added, respectively.

55 c. Locally owned manufacturing companies with Malaysian equity of at least 60% were eligible for tax exemption on statutory income equivalent to 30% of the value of increased exports, provided that the company achieved a significant increase in exports; this rate was raised to 50% in case the company succeeded in penetrating new markets, and to full tax exemption if it achieved the highest increase in export in its category. d. Exemption on 70% of statutory income tax equivalent to 50% of the value of increased exports was given to companies in selected services sectors, i.e. legal, accounting, architecture, marketing, business consultancy, construction management, building management, office services, healthcare, education, plantation, management, publishing, information and communication technology, engineering, printing, and local franchise Tariff and tax concessions As during the previous review period, tariff drawbacks were granted in respect of imports of raw materials and components used for the manufacture of approved products for export. Imported goods re-exported within 12 months of the day import tariffs were paid are granted a drawback of up to 100%, subject to the Customs Act Free trade zones and other measures In 2017, there were 21 free industrial zones (FIZs) and 18 free commercial zones (FCZs) in Malaysia. They were set up to facilitate operations of export-oriented companies For companies to be located in FIZs, and for them to benefit from import duty and other tax reductions or exemptions, they must fulfil the following requirements: a. To be located in a FIZ, a company must export at least 80% of its output; a company may obtain approval from the National Investment Committee in MITI and Customs to reduce its export performance requirement to 60%. b. FIZ companies benefit from import duty exemptions if they achieve 40% of local content value; when the local content value does not reach 40%, the company may still benefit from import duty exemptions if it can prove that the non-originating raw material had undergone substantive transformation in producing the end products Prior to 1 April 2015, any goods, from overseas or within Malaysia, and services of any description, except those prohibited by law, may be brought into, produced or provided in the zones without payment of any tariffs, excises, sales or service taxes. On 1 April 2015, GST was introduced, and is payable on the goods imported into a FIZ, although it is not chargeable on the supply and removal of goods made within and between free zones. Effective from 1 July 2017, the supply of prescribed services by a company operating in a free zone, directly in connection with goods for export, is exempted from GST if these services fall entirely within the business capacity and the goods are exported within 60 days upon completion of the services. The prescribed services include: manufacturing services; building construction and modification services to ships and aircrafts; maintenance, repair and overhaul activities of floating structure; services to install, repair, clean, restore, and modify the goods; blending homogenizing, heating, and other related activities in the oil and gas industry Exporters operating in licensed manufacturing warehouses (LMWs) may benefit from the same benefits as those operating within a FIZ. In 2017, 2,096 companies were operating in LMWs Export promotion The agency responsible for export promotion activities remains the Malaysian External Trade Development Corporation (MATRADE) under MITI. Its core services include: a. Exporter development training programmes, Export Excellence Awards, and client services, to equip Malaysian companies with knowledge and skills to meet the challenges in global trade;

56 b. Export promotion participation in trade missions, specialized marketing missions, international trade fairs, and business matching programmes. Being the national agency for trade promotion, MATRADE is often the reference point for enquiries and visits by foreign importers. The agency's role is to match them with compatible local partners who can offer the products and services they seek; c. Trade and market information dissemination of timely and relevant information as well as market intelligence, to give Malaysian companies the competitive edge in international trade; d. Trade advisory and support providing general, market and product advisory services MATRADE has been providing grants to exporters: a. The Market Development Grant (MDG), 15 a financial support facility, was suspended from 1 April The MDG provided up to RM 200,000 per company in the form of reimbursable grants, to assist small and medium-sized enterprises (SMEs), service providers, trade and industry associations, chambers of commerce and professional bodies, to undertake export promotion activities. According to its guidelines, companies with government equity and government-linked companies were excluded from this grant. To be eligible, SMEs must be incorporated in Malaysia and have at least 60% equity owned by Malaysians. b. The Service Export Fund (SEF) provides assistance to Malaysian service providers to expand and venture into the international market. This assistance is in the form of a reimbursable grant and soft loans, and for the period amounts to up to RM 3 million per company (grant), and RM 5 million per company (soft loan). 16 All services sectors are eligible to apply, except tourism and financial sectors. All companies incorporated in Malaysia under the Companies Act 1965 are eligible to apply for this fund if 60% or more of its equities are owned by Malaysians. Government-linked and majority owned companies are excluded from this assistance Export finance, insurance, and guarantees Export-Import Bank of Malaysia Berhad (MEXIM), a development financial institution, is responsible for promoting investment and the export of goods and services from Malaysia as well as facilitating the entry of Malaysian companies into new markets, particularly to the nontraditional market. MEXIM is a wholly owned subsidiary of the Minister of Finance Incorporated. Current facilities offered by MEXIM include: conventional and Islamic banking facilities (crossborder financing, trade finance, and guarantees); insurance and takaful (short-/medium-/longterm insurance). Rates fixed to lending are subject to credit assessment, and mainly charged at cost of fund plus an added spread MEXIM's total assets were RM 15.9 billion in 2016, up by 8% from Total disbursement grew to RM billion, up by 14.3% from Total gross loans and financing assets closed at RM 13.1 billion by the end of 2016, up by 7% from MARTRADE online information. Viewed at: [04/07/17]. 15 MARTRADE online information. Viewed at: [04/07/17]. 16 MARTRADE online information. Viewed at: [04/07/17]. 17 MEXIM (2016), Annual Report Viewed at: [04/07/17].

57 Measures Affecting Production and Trade Taxation and incentives Tax structure Total tax reached RM billion in 2016, equivalent to less than 14% of GDP (Table 3.14). More than 60% of Malaysia's tax revenues came from direct taxes, although their share dropped from 77% in 2013 to 65% in Among all direct taxes, the share of petroleum income tax to total tax revenue declined significantly, from 19% to 5%, reflecting falling oil prices internationally. Table 3.14 Structure of direct and indirect tax revenue, Total tax revenue (RM million) 155, , , ,343.3 Share of GDP (%) Direct taxes (% of total tax revenue) Companies income tax Petroleum income tax Individuals income tax Stamp duties Other Indirect taxes (% of total tax revenue) Export duties Import duties Excise duties GST n.a. n.a Sales tax Services tax Other n.a. Not applicable. Bank Negara Malaysia online information; and information provided by the authorities Indirect taxes A significant change to Malaysia's tax structure was the implementation of a goods and services tax (GST) of 6% from 1 April 2015, to streamline the previous consumption taxes. The GST replaced the sales tax (levied mainly at 5% and 10% on both local products and imported items except those that were to be re-exported), and services tax (levied at 6% on services sold or provided by prescribed establishments) GST is levied and charged only if the business is GST-registered. It is mandatory for a company to register once it reaches the registration threshold of RM 500,000. A business is not liable to be registered if its annual turnover of taxable supplies does not reach a prescribed threshold, although it can apply to be registered voluntarily GST is zero rated on, inter alia, essential food items such as rice, sugar, meat, fish, chicken, vegetables, flour, cooking oil, eggs; livestock supplies such as cows, goats, poultry; medicaments and medical gases in the National Essential Medicines List (NEML); and reading materials such as exercise books, children books, and dictionaries. Additionally, the authorities stated that the supply of goods or services to be exported is subject to zero-rated GST GST is exempted on: land for residential or agricultural purposes or general use; buildings or premises used for residential purposes; investment in precious metals; financial services; education services; child care services; healthcare services; and transport services, among others GST online information. Viewed at: [28/07/17]. 19 GST online information, Goods and Services Tax (Exempt Supply) Order Viewed at: pdf [28/07/17].

58 In the budget speech 2016, the Minister of Finance explained that, contributions from Petroliam Nasional Berhad (PETRONAS) vary considerably because of global crude oil prices. When crude oil prices averaged US$100 per barrel in 2014, revenue from PETRONAS dividend and petroleum tax revenue totalled RM 66.6 billion. When crude oil prices declined to around US$50 per barrel in 2015, the contribution from PETRONAS and oil-related sectors were RM 47.2 billion, and continued to fall to RM 31 billion in The collection from GST helped to cover a major portion of the shortfall. Based on the Government's calculation, if GST was not implemented and the Government had to rely on sales and services tax as before, government revenue would be lower by RM 21 billion, and the fiscal deficit would have increased to 4.8% (not the target of 3.1% in 2016) According to a study conducted by the OECD, the GST rate at 6% is low by international standards. Moreover, the number of exempt or zero-rated items is significant and increasing, which reduces compliance and creates distortions. The OECD suggested reducing the number of exempt or zero-rated items and strengthening tax enforcement to reduce tax leakage in the short term, and increasing the rate of GST over the medium term. 21 The authorities stated that the Government has taken efforts to improve the policy and administration of GST since its implementation in One of the efforts taken is to establish cooperation among government agencies in information sharing, auditing, and enforcement. GST policy has also been improved to accommodate and facilitate businesses. The Government considers the GST structure in Malaysia is not much different from other countries, and benchmark studies were conducted before its implementation Excise duties apply to both imported and locally manufactured goods: motorcars, four-wheel drives, motorcycles, intoxicating liquor, and cigarettes: a. 10%-105% for motorcars and electric cars; b. 75%-105% for four-wheel-drive vehicles; c. 10%-30% for motorcycles and electric motorcycles; d. RM per 100% volume per litre, and 15% ad valorem to RM 450 per 100% volume per litre for "intoxicating" liquor; e. RM 0.40 per stick for cigarettes Excise duty rates are the same for locally produced and imported goods As at the time of the previous Review, individual taxi owners (since 2012) and car-rental operators (since 2002) were exempt from excise duties on the purchase of locally produced "national cars" while tour operators benefited from a 50% reduction for purchases of locally assembled four-wheel-drive cars. The authorities indicated that the measure is partly aimed at reducing the cost of car rentals to tourists and reducing the cost of public transportation, so as to spur tourism activity The share of import tariffs to total tax revenue remained relatively stable during the review period, while the share of export taxes declined by half, from 1.2% in 2013 to 0.6% in This is in line with the drop in the number of products subject to export duties (Section 3.2.2) Direct taxes Direct taxes account for 65% of total tax revenue in Malaysia. More than half of direct taxes come from company income tax, which is a tax on profits of companies. Companies with paid-up capital of up to RM 2.5 million are subject to a company income tax of 18% on taxable income up 20 BNM online information, 2016 Budget. Viewed at: [05/07/17]. 21 OECD (2016), OECD Economic Surveys Malaysia, p. 46.

59 to RM 500,000, with the excess taxed at 24%. All other companies (resident and non-resident) are subject to a company income tax at a rate of 24% About one-fourth of direct tax comes from personal income tax. Resident individuals with chargeable income (after deduction of personal reliefs) of more than RM 5,000 per year are subject to personal income tax with rates ranging from 1% to 28%. Both resident individuals with chargeable income of more than RM 1 million, and non-resident individuals, are subject to a personal income tax at a rate of 28%. The top marginal tax rate for very-high-income earners 28%, remains well below top rates of between 45% and 55% in high-income countries; the OECD considers that this provides scope for a further increase to raise revenue while maintaining the country's attractiveness to investors and skilled workers The tax on income from upstream petroleum activities (petroleum income tax) applies at a rate of 38% (Section 4.3). The share of petroleum income tax to total tax revenue has been declining, and accounted for about 5% of total tax revenue in Tax incentives Malaysia continues to provide tax incentives, both direct and indirect, under the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Excise Act 1976, and Free Zones Act Direct tax incentives grant partial or total relief from income tax for a specified period, and incentives on indirect taxes are in the form of exemptions from import tariffs, and excise duties. GST relief has been given to certain goods under the GST Relief Order Main incentives Tax incentives continued to be implemented mainly through the pioneer status and investment tax allowance (ITA) schemes. Eligibility for pioneer status and the ITA is based on: level of value-added, technology used, and industrial linkages. Companies engaging in activities listed as "promoted activities & products", 25 which cover agricultural, manufacturing, hotel and tourism, or other industrial or commercial sectors, may be granted "pioneer status", or "ITA" incentives (Table 3.15). Applications are dealt with by the Malaysian Investment Development Authority (MIDA) In 2015 and 2016, pioneer status was granted to 271 company projects involving investments of RM 14.7 billion, down from 434 company projects involving investment of RM 32.9 billion in 2011 and The Government granted ITAs to 47 projects involving investments of RM 49.1 billion in 2015 and 2016, compared to 50 projects involving investment of RM 11.8 billion in 2011 and Table 3.15 Tax incentives Pioneer status ITA investment tax allowance Tax incentives 5-year partial exemption from company income tax: the company pays tax on 30% of its statutory income, with the exemption period commencing from its production day A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure occurred. Note Unabsorbed capital allowances and accumulated losses incurred during the pioneer status period may be carried forward and deducted from the post-pioneer income of the company The company can offset this allowance against 70% of its statutory income. Any unutilized allowance can be carried forward to subsequent years until fully utilized. The remaining 30% of its statutory income is taxed at the prevailing company tax rate. MIDA online information. 22 MIDA online information. Viewed at: [06/07/17]. 23 OECD (2016), OECD Economic Surveys Malaysia, p MIDA online information, "Invest in Malaysia". Viewed at: [07/07/17]. 25 MIDA online information, "List of promoted activities and products which are eligible for consideration of pioneer status and investment tax allowance under the Promotion of Investment Act 1986". Viewed at: [07/07/17].

60 In 2017, Malaysia notified its pioneer status and investment tax allowance programmes to the WTO Committee on Subsidies and Countervailing Measures, covering a period between 2014 and More favourable incentives More favourable tax reliefs may be granted to companies engaged in the following manufacturing activities: strategic projects of national importance, e.g. heavy capital investment, and high-tech projects; specialized machinery and equipment; automotive industry; and utilization of oil palm biomass (Table 3.16). SMEs and small-scale companies may also obtain more favourable incentives. Eligibility criteria include: local R&D expenditure, level of technology as measured by a managerial, technical and supervisory (MTS) index, and the level of skill development. Table 3.16 More favourable tax incentives - manufacturing High technology companies Strategic projects SMEs Small-scale companies Specialized machinery and equipment Automotive industry - Critical and high value-added parts and components and production - Hybrid and electric vehicles and related infrastructure Tax incentives Pioneer status with income tax exemption of 100% of the statutory income for five years; or ITA of 60% of the qualifying expenditure. The allowance can be utilized to offset against 100% of the statutory income Pioneer status with income tax exemption of 100% of the statutory income for 10 years; or ITA of 100% of the qualifying expenditure. The allowance can be utilized to offset against 100% of the statutory income A reduced company income tax of 20% on chargeable income of up to RM 500,000 Pioneer status with income tax exemption of 100% of the statutory income for five years; or ITA of 60% of the qualifying expenditure. The allowance can be utilized to offset against 100% of the statutory income Pioneer status with income tax exemption of 100% of the statutory income for 10 years; or ITA of 100% of the qualifying expenditure. The allowance can be utilized to offset against 100% of the statutory income Pioneer status with income tax exemption of 100% of the statutory income for 10 years; or ITA of 100% of the qualifying expenditure for 5 years. The allowance can be utilized to offset against 100% of the statutory income 100% ITA or pioneer status for 10 years; Customized training and R&D grants in addition to the existing grants; 50% exemption on excise duty for locally assembled/manufactured vehicles or Eligibility criteria Proposed product/activity must be listed in the Promoted Products/Activities for High Technology Companies The percentage of local R&D expenditure to gross sales is at least 1% on an annual basis. Scientific and technical staff having degrees or diplomas with a minimum five years' experience in related fields must comprise at least 15% of the company's total workforce. Value-added must be at least 40%. Products or activities of national importance. Generally involve heavy capital investment with long gestation periods, having high level of technology, generating extensive linkages, having significant impact on the economy. Companies resident in Malaysia with a paid up capital of ordinary shares of RM 2.5 million or less, and such companies cannot be controlled by another company with a paid up capital exceeding RM 2.5 million. Companies incorporated in Malaysia with shareholders' fund not exceeding RM 2.5 million, and having 60% - 100% Malaysian equity. Value added must be at least 40%; and percentage of managerial, technical and supervisory staff (MTS Index) to total workforce must be at least 25%. Companies manufacturing transmission systems, brake systems, airbag systems, and steering systems. 26 WTO documents, G/SCM/N/315/MYS, G/SCM/N/284/MYS, 9 October 2017.

61 Utilization of oil palm biomass Tax incentives provision of grant under the Industrial Adjustment Fund; 100% pioneer status for 10 years or ITA of 100% for 5 years, for the manufacturing of selected critical components supporting hybrid and electric vehicles Pioneer status with income tax exemption of 100% of the statutory income for 10 years; or ITA of 100% of the qualifying expenditure. The allowance can be utilized to offset against 100% of the statutory income Eligibility criteria Value added must be at least 60%; MTS staff ratio must be at least 25%. MIDA online information, "Invest in Malaysia". Viewed at: [07/07/17] Similarly, more favourable incentives are given to companies engaged in certain services activities, such as: the hotel and tourism projects; Mines Wellness City (MWC) developers/managers/operators; environmental management; establishment of waste eco parks; research and development; training; promotion of healthcare travel; integrated logistics services; cold chain facilities; gas and radiation sterilization services; principal hubs; industrial design services; and industrial area management. Companies providing services in less developed areas are also eligible for these more favourable incentives Incentives on indirect taxes In addition to direct tax incentives such as company income tax reductions or exemptions, incentives on indirect taxes may take the form of reductions or exemptions from import tariffs, and excise duties Import tariff exemptions may be considered for raw materials/components, regardless of whether the finished products are meant for the export or domestic market. If the finished products are for the domestic market, full exemption from import duty on raw materials and components that are not produced locally may be considered. Import duty exemption is given to medical devices that are imported for the purpose of kitting or producing complete procedural sets, provided that these medical devices are not manufactured locally. Import tariff exemption is also given to machinery and equipment used directly in the manufacturing process and not produced locally Companies in manufacturing, agriculture and listed services activities may be considered for import duty exemption for raw materials, components, and machinery and equipment. Aerospace companies undertaking maintenance, repair and overhaul activities (MRO) are eligible for import duty exemption on raw materials, components, machinery and equipment, spares and consumables. Effective 1 January 2016, a company undertaking aerospace MRO activities, once approved under the Approved Trade Scheme (ATS), is entitled to GST relief Other support measures, and SMEs Support in various forms has been provided at the sectoral level to, inter alia, agriculture, energy, manufacturing, and services (Section 4). In 2014, the Government removed the fuel subsidies (i.e. petrol and diesel), as well as subsidies on sugar. However, subsidies for liquefied petroleum gas (LPG) and diesel for fisheries and public transport sectors were maintained (Section 4.3) Malaysia has been providing funds to encourage R&D, promote SMEs, and boost the production and use of green technology, among others. The Domestic Investment Strategic Fund aims at leveraging outsourcing activities and acquisition of technology by companies in certain priority sectors (e.g. aerospace, medical devices, pharmaceuticals, advanced electronics, machinery and equipment, renewable energy, and related services); these companies must be at 27 MIDA online information, Incentives for the Services Sector. Viewed at: [31/07/17].

62 least 60% Malaysian owned. The Strategic Investment Fund and the High Impact Project Fund have been providing grants and soft loans to the manufacturing sector The Green Technology Financing Scheme, whose application period was extended to the end of 2017 and funding increased to RM 3.5 billion, provided soft loans to boost the production and use of green technology. The Government subsidized 2% of the interest rate under this scheme, and provided a guarantee of 60% on the amount of financing. The objective is to support greentechnology-based projects in obtaining financial assistance from the financial institutions Based on the 2016 Economic Census, SMEs accounted for 98.5% of total business establishments in Malaysia. The SME Masterplan aimed at raising SMEs' contribution to GDP from 32.7% in 2012 to 41% by 2020, their share of employment from 59% in 2010 to 65% in 2020, and their share in total exports from 19% to 23% during the same period. In 2016, their contribution to GDP was 36.6%, share of employment reached 65.3%, and exports accounted for 18.6% of total exports Various forms of support have been provided to SMEs, to facilitate their access to financing, develop human capital, improve infrastructure, promote innovation and technology adoption, and increase market access. In addition to tax incentives, export support has been provided to SMEs (Section ), and they have been permitted to deduct their patent and trademark registration costs from company income tax (Section 3.3.7). SMEs are also eligible for different forms of funds, and soft loans: a. The Central Bank's Fund for Small and Medium Industries 2 (FSMI2), and the New Entrepreneur Fund 2 (NEF2). Both funds were channelled through financial institutions to SMEs as soft loans at rates ranging from 4% to 6%. b. Financing provided by SME Bank to micro enterprises through various financing programmes, including through loans to SMEs at interest rates (or profit margins for Islamic products) ranging from 4% to 8.85%. c. A RM 10 billion fund under the Working Capital Guarantee Scheme for SMEs, to facilitate their access to working capital: the scheme guarantees up to a maximum of 70% of the loan. As the cap of the loan is RM 5 million, the scheme guarantees up to RM 3.5 million to qualified companies Other funding allocations are: a. Special funding allocations for seed capital if they are at least 51% Malaysian owned; b. The Global Technology Fund (GTF), which aims at building local technology champions, promoting foreign investment and improving the digital innovation eco-system, offers up to 50% funding to total costs of a project, or RM 2 million, whichever is lower Standards and other technical requirements Since the previous Review in 2014, there has not been any major change to the institutional and legislative framework regarding standards. The Standards of Malaysia Act 1996 (Act 549), most recently amended in 2012, is the law governing matters relating to standardization and accreditation activities in Malaysia. The Act established the Department of Standards Malaysia (Standards Malaysia, or DSM), under the Ministry of Science, Technology and Innovation, as Malaysia's national standardization and accreditation body. Standards Malaysia is responsible for implementing the standards component of the Strategic Reform Initiatives Competition Standards & Liberalization (SRI CSL) under the Economic Transformation Programme, to enhance the quality of Malaysian products and services The Competition, Standards and Liberalization (CSL) Strategic Reform Initiative (SRI) seeks to develop an efficient and competitive business environment and culture that support Malaysia s goal of becoming a high-income nation by 2020.

63 The Act additionally established a Standards and Accreditation Council (MSAC) as the advisory body on standardization and accreditation to the Minister of Science, Technology and Innovation. The Council established four advisory committees on standardization and accreditation: the National Standards Committee (MyNSC), the National IEC Committee (MyENC), the National Accreditation Committee (NAC), and the National Good Laboratory Practice Committee (My GLPC). Standards Malaysia also established sector-based industry standards committees (ISC) to oversee the technical work related to standardization for the specific sectors Standards Malaysia has appointed SIRIM Berhad, a wholly state-owned company, to coordinate standards development activities in Malaysia, and to represent Malaysia in international standardization activities. Amendment of Act 549 allowed Standards Malaysia to appoint more standards development agencies (SDAs), apart from SIRIM Berhad, to expedite the development of Malaysian Standards Except those referred to in legislation, Malaysian standards (MS) are voluntary. By 30 June 2017, there were 5,284 MS (6,381 in 2012) in place. The authorities stated that this reflected its effort to focus on establishing standards with high impact on the public including Malaysian industries, rather than focusing on the number of standards. The main product categories were chemicals and materials (12.3%); power generation, transmission and distribution (8.4%); electrical and electronics equipment and accessories (6.9%); food and food products (6.7%); buildings, construction and civil engineering (6.6%); and medical devices and facilities for healthcare (6.2%) The Government continues to make efforts to align Malaysian standards with international standards. As of 30 June 2017, 60% of MS were aligned with international standards (59.8% in 2014), and 54% were identical (57.5% in 2014). The highest levels of alignment were in electrical and electronics equipment and accessories; power generation, transmission and distribution; medical devices and facilities for healthcare; and chemicals and materials As of February 2017, 510 or 9.7% (6.5% at end 2012) of all MS were compulsory. 30 The main categories of products with compulsory standards are electrical products, building and construction materials The Government aims to make Malaysia a hub for halal food products. All meat, processed meat products, poultry, and egg products, domestically produced or imported, must receive halal certification from the Department of Islamic Development Malaysia (JAKIM) or any foreign halal certification body recognized by JAKIM prior to importation and distribution in Malaysia. Other than swine, the slaughtering of animals and production of animal-based products for export to Malaysia must be conducted according to halal requirements. The Department of Veterinary Services (DVS), in collaboration with JAKIM, inspects slaughterhouses and processing plants overseas periodically, to ensure compliance with Malaysia's import requirements Standards Malaysia remains Malaysia's only national accreditation body. It gives official recognition in the form of accreditation to organizations with established competence to provide conformity assessment services for the certification of management systems (e.g. certification of quality management systems according to ISO 9001 and certification of environmental management systems according to ISO 14001), product certification, testing, calibration, and inspection. It operates four categories of accreditation schemes, as well as the Good Laboratory Practice Compliance Programme based on the OECD principles (Table 3.17). According to Standards Malaysia's online information, its accreditation system is in accordance with international standards MS ISO/IEC to ensure that the accreditation services provided are impartial, non-discriminatory, and credible Standards Malaysia online information, Standards MS status. Viewed at: [10/07/17]. 30 Standards Malaysia online information, Summary of MS Mandatory as of Feb Viewed at: [10/07/17). 31 Standards Malaysia online information, Accreditation Overview. Viewed at: [10/07/17].

64 Table 3.17 Accreditation Laboratory Accreditation Scheme of Malaysia (SAMM) Accreditation of Certification Bodies (ACB) Malaysia Inspection Bodies Accreditation Scheme (MIBAS) Malaysia Proficiency Testing Accreditation Scheme (MyPTP) Good Laboratory Practice Compliance Programme (GLP CP) Accreditation scheme of both testing and calibration laboratories Accreditation scheme for certification bodies operating Management System Certification and Product Certification (including Halal products certification) A unified national inspection bodies accreditation scheme, multi-disciplinary in its scope Accreditation scheme for proficiency testing providers A compliance programme for Good Laboratory Practice based on OECD GLP Information provided by the authorities Malaysia participates in the activities of the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC). 32 Malaysia, through Standards Malaysia, is a signatory to various regional and international arrangements: such as the Asia Pacific Laboratory Accreditation Cooperation MRA (APLAC MRA), the Pacific Accreditation Cooperation MRA (PAC MRA), the International Laboratory Accreditation Cooperation MRA (ILAC MRA), and the International Accreditation Forum MRA (IAF MRA). There are a number of accreditation schemes, including the Accreditation of Certification Bodies Scheme; Malaysia Inspection Bodies Accreditation Scheme; the Good Laboratory Practice Compliance Programme; and the Laboratory Accreditation Scheme of Malaysia The procedure for developing standards remains the same as at the time of the previous Review. Foreign interests are considered in the adoption of new or revised standards through the "public comment" procedures on draft standards, which are accessible on the Standards Malaysia and SIRIM Berhad websites Malaysia made 44 notifications of technical regulations to the WTO between January 2014 and 12 October The agencies with the largest number of notifications were: the Food Safety and Quality Division under the Ministry of Health (19 notifications), Ministry of Domestic Trade, Cooperatives and Consumerism (6), Malaysian Communications and Multimedia Commission (8), Energy Commission (3), Ministry of Transport (3), MITI (2), National Pharmaceutical Control Bureau (2), and the Ministry of Plantation Industries and Commodities (1) Products notified cover: food; alcoholic beverages and liquor; communications equipment; electronic products; pharmaceutical products; parts and accessories of vehicles; iron, steel and aluminium products; wood; salt; toys; pre-packaged products; and generic products. In almost all notifications, the period for comment was 60 days Sanitary and phytosanitary requirements Both the legislative and institutional framework on SPS measures has remained largely unchanged since the previous Review in The relevant laws and regulations include: the Malaysian Quarantine and Inspection Services Act 2011 (effective in 2012); the Plant Quarantine Act 1976; the Plant Quarantine Regulations 1981; the Animal Act 1953 (Revised 2006); the Fisheries Act 1985; the Biosafety Act 2007; the Food Act 1983; the Food Regulations 1985; and the Food Hygiene Regulations In particular, the Food Regulations 1985 were amended a few times, to harmonize the food additive provisions with the Codex Standard, and to reflect probiotic cultures. 32 Malaysia participates in the Council, Technical Management Board, and various technical committees and sub-committees of ISO, and various technical committees and sub-committees of the IEC. 33 WTO documents G/TBT/N/MYS/37-77, G/TBT/N/MYS/15/Rev.2 Rev.3, G/TBT/N/MYS/36/Rev.1, excluding notifications contained in documents with the symbols "Add" and/or "Corr". 34 In one notification made in 2014 regarding toys, the comment period was defined as 90 days (G/TBT/N/MYS/15/Rev.2). 35 WTO document, WT/TPR/S/292/Rev.2, 8 April 2014.

65 Since 2014, there have not been any changes to SPS-related matters concerning the importation of animals and animal products, plants and plant products, food, LMOs and GMOs, among others. Their importers must obtain an import licence or permit on SPS grounds (Section ). Relevant agencies issue import licences or permits in accordance with the relevant legislation. The Ministry of Agriculture and Agro-Based Industry's (MOA) Department of Agriculture (DOA), Department of Veterinary Services (DVS), and Department of Fisheries (DOF) are responsible for matters relating to plants, animals and animal products, and fisheries, respectively. The Ministry of Health (MOH), through its Food Safety and Quality Division, is responsible for food safety matters including inspection and enforcement related matters. The Malaysian Quarantine and Inspection Services (MAQIS), which operates as a one-stop centre, provides quarantine services and certification for imports and exports, as well as inspection of and enforcement relating to food and relevant matters Between January 2014 and 12 October 2017, 14 notifications were submitted under the WTO Agreement on Sanitary and Phytosanitary Measures. Most notifications (9) were submitted by the Food Safety and Quality Division under the MOH, covering inter alia food, pesticide residues, flour, infant formula for medical purposes, fish, and raw cleaned edible birdnest. Four notifications were made by the Plant Biosecurity Division under the Department of Agriculture. Products concerned were: plants and plant products, including fresh fruits of mangosteen, betel leaves, chilies, and durian. 36 The objectives of these SPS measures were food safety or plant protection related. One notification was made by the Department of Fisheries, concerning temporary emergency measures for the importation of live tilapia fish (from 24 July 2017 for a period of six months) In the context of the WTO Committee on Sanitary and Phytosanitary Measures, during the review period ( ), there was one concern raised by Brazil on Malaysia's import restrictions related to the approval of poultry meat export plants. 37 In July 2015, Brazil raised its concern regarding Malaysia's delay in approving Brazilian poultry meat export plants, and the lack of definition of the applicable international sanitary certification. Malaysia replied that, following an inspection result, one export plant was approved while the other three were rejected as they failed to comply with the Malaysian halal standard Malaysia is a member of the Codex Alimentarius Commission, the World Organisation for Animal Health (OIE), and a contracting party to the International Plant Protection Convention (IPPC) In accordance with the Biosafety Act 2007, the National Biosafety Board (NBB) evaluates and approves living modified organisms (LMOs) before releasing them to the market. The Genetic Modification Advisory Committee (GMAC) provides advice to the NBB. Importers must obtain approval from the Ministry of Agriculture and Agro-Based Industry for imported seeds regardless of whether they are conventional or GM seeds. Currently the NBB only approves applications for LMO in or for food, feed and processing (FFP) Mandatory labelling requirements for food and food ingredients obtained through modern biotechnology were stipulated in the Food Regulations 1985 which were gazetted in A fouryear grace period was given, and it was enforced on 9 July Competition policy and price controls Competition policy Legal framework Malaysia's Competition Act was introduced in 2010 and came into force on 1 January Its competition authority, the Malaysia Competition Commission (MyCC), was established in Since the previous TPR of Malaysia in 2014, there have been no major changes to the legal and institutional framework governing competition policy except the publication of several new implementation guidelines issued by the MyCC. [13//07/17]. 36 WTO documents, G/SPS/N/MYS/ WTO online information. Viewed at:

66 The Competition Act 2010 addresses two types of competition issues: anti-competitive agreements, and the abuse of dominant market positions. It covers all commercial activities, both within and outside Malaysia, that have negative or anti-competitive effects in relevant markets in Malaysia. It prohibits any anti-competitive agreements, either horizontal or vertical, in particular hard-core cartels, such as agreements for price fixing, sharing markets, controlling production and bid rigging. The Act also sets out examples of conduct that may amount to an abuse of dominance and are therefore prohibited: price discrimination, predatory behaviour such as using below cost pricing to eliminate competition, refusing to supply, tied selling, and buying up scarce goods or resources required by a competitor but not needed for its own use Malaysia is the only country in ASEAN with a competition law that does not provide for merger and acquisition control. An economic survey conducted by the OECD in 2016 therefore suggests that the coverage of the Act should broaden to include merger control. 38 Currently, Malaysia has no plans to introduce any amendments to the Act The Act does not apply to activities that involve an exercise of governmental authority or are carried out pursuant to the principle of "solidarity" or to the purchase of goods or services not intended for resale or resupply. The principle of solidarity covers activities for purely social objectives, e.g. the provision of medical care by the Government. The Act also exempts certain sectors from the scope of its application, noticeably the communications and multimedia sectors, the electricity and piped gas industries, and the aviation sector, which are governed by separate sectoral regulations respectively 39 However, the lack of consistency on key concepts of competition between the Competition Act and relevant sectoral acts, and the lack of any evidence of enforcement of competition policy by sectoral regulators have constrained the effectiveness of the competition policy regime in the country. 40 Efforts are under way to improve collaboration and consistency. For example, the MyCC holds a Special Committee Meeting on Competition with sector regulators twice a year to discuss and review competition issues with a view to ensuring that their policies are consistent with the Act. 41 Since 11 May 2017, the MyCC has also been conducting an online consultation on the Proposed Block Exemption for Vessel Sharing Agreements and Voluntary Discussion Agreements in Respect of Liner Shipping Services The Act also sets out exceptions for many types of hard-core cartels for SMEs, even if they are competitors. Specifically, it stipulates that when the combined market share of relevant SMEs is below 20%, their agreements would be exempted from investigation as they are unlikely to have an anti-competitive effect. These types of agreements may include joint purchasing, exclusive distribution or tying. These agreements are not permitted if they are between a large enterprise and an SME since the effect on the market may be greater Institutional framework and enforcement The MyCC is the only authority empowered to implement and enforce the provisions of the Competition Act 2010, carrying out functions such as: investigating alleged infringements; issuing guidelines on the enforcement of the Act; acting as advocate for competition matters; conducting general studies on competition-related issues or studies on particular sectors of the Malaysian economy; and informing and educating the public regarding the ways in which competition may benefit consumers Since the entry into force of the Competition Act in 2012, the MyCC has issued six Guidelines, namely, Guidelines on Complaints Procedures (2 May 2012), on Market Definition (2 May 2012), on Anti-competitive Agreements (2 May 2012), on Abuse of Dominant Position (26 July 2012), on Financial Penalties (14 October 2014), and on the Leniency Regime 38 OECD, OECD Economic Surveys: Malaysia Viewed at: 39 The communications and multimedia sectors are governed by the Communications and Multimedia Act 1998, the energy sector by the Energy Commission Act 2001, and the aviation industry by the Civil Aviation (Amendment) Act 2015, respectively. 40 OECD, OECD Economic Surveys: Malaysia Viewed at: 41 The sector regulators involved are: i) Central Bank of Malaysia (BNM); ii) Malaysia Communications and Multimedia Commission (MCMC); iii) Land and Public Transport Commission (SPAD); iv) Securities Commission Malaysia (SC); v) Energy Commission (EC); vi) National Water Services Commission (SPAN); vii) Malaysian Aviation Commission (MAVCOM); and viii) Intellectual Property Corporation of Malaysia (MyIPO).

67 (14 October 2014). The Guidelines on the Abuse of Dominant Position stipulate that a market share of above 60% is a strong indicator, although not the only indicator, that the business holds a dominant position. It is currently drafting the Guidelines on the Treatment of Intellectual Property and plans to conduct a series of public consultations on the draft with stakeholders and through the MyCC's website in early The increasing number of complaints received by the MyCC reflects the rising awareness of the Competition Act among consumers and the business community. The total number of complaints received grew from 8 in 2012 to 75 in 2015, and 51 in Of these, 48 related to anti-competitive agreements, and 20 to the abuse of market dominant positions. The sectors concerned were: petroleum sales and services, medical services, government services, government procurement, public transportation, auto accessories, livestock, information technology, tourism and insurance. The MyCC has concluded a total of 19 anti-competitive investigations, among which, five infringements were found (Table 3.18). The infringements mainly concerned anti-competitive agreements in the form of price fixing. Table 3.18 Number of complaints, investigations and findings, Number of complaints Number of investigations Number of infringements Number of non-infringements Information provided by the authorities The Competition Appeal Tribunal was established in 2012 to hear appeals against decisions made by the MyCC. For instance, in 2014, one decision made by the MyCC concerning the Malaysian Airline System and AirAsia was brought to the Competition Appeal Tribunal. The Tribunal found that the relevant companies' conduct had not infringed the Competition Act. Three appeals have been made since Any enterprise found infringing the Act will face a potential fine of up to 10% of its worldwide turnover. A leniency regime is available for cases where an enterprise has admitted its involvement in an infringement of any prohibition of horizontal agreement and provided information or another form of cooperation to the MyCC (as recommended by various international organizations). This can significantly assist the investigation. The leniency regime would lead to a reduction of up to a maximum of 100% of any penalties which would otherwise have been imposed, but does not include any other legal consequences of civil proceedings In addition to infringement investigation, competition advocacy and capacity-building were also the focus of the MyCC's work in the past few years. It organized 31, 48 and 28 advocacy programmes, in 2014, 2015 and 2016, respectively, involving private and public sectors nationwide Nonetheless, there continues to be doubts about the effectiveness of the regime. The autonomy and independence of MyCC and the role and involvement of Ministry of Domestic Trade, Cooperatives and Consumerism, which determines the MyCC's budget, are a concern for the OECD, which has pointed out that the MyCC has less than desirable expertise and employs too few experienced economists. 43 It recommends that the MyCC intensify its enforcement activities to achieve effective deterrence, increase awareness and build stakeholder confidence International cooperation Some bilateral/regional free trade agreements, such as the Japan Malaysia Economic Partnership Agreement, the ASEAN Australia New Zealand Free Trade Agreement, the Malaysia New Zealand FTA, and the Malaysia Australia FTA, include provisions on competition. 44 The MyCC became a member of the International Competition Network (ICN) in June 2011 and participates in 42 The Malaysia Competition Commission's website is: 43 OECD, OECD Economic Surveys: Malaysia Viewed at: 44 The Trans-Pacific Partnership (TPP) also contains provisions on competition.

68 its events regularly. At the regional level, Malaysia participates in the ASEAN Experts Group on Competition (AEGC) and the annual ASEAN Competition Conference (ACC), which aim to develop capacity and a forum for discussion on competition policies in the region. It successfully hosted the 7 th ASEAN Competition Conference on 8 and 9 March Price and supply controls In accordance with the Control of Supplies Act 1961, general purpose flour and cooking oil are subsidized and subject to ceiling prices set by the Government. 45 The authorities indicated that liquefied petroleum gas (LPG) is also a subsidy product Under the Price Control and Anti-Profiteering Act 2011, the MDTCC (Ministry of Domestic Trade, Cooperatives and Consumerism) set maximum prices for manufacturing, producing, wholesaling or retailing certain goods and services including essential goods, which are basic necessities for daily consumption. Once specific goods are declared as price-controlled goods with a fixed maximum price, any person who sells these goods at a higher price commits an offence under the Price Control and Anti-Profiteering Act. There are two types of price controls: price controls throughout the year (on petrol, diesel, LPG, face masks, and sugar); and seasonal price controls (on chicken, eggs, fish, prawns, onions and vegetables, before/during/after a festival) State trading, government-linked enterprises, and privatization State trading Malaysia notified to the WTO that within the meaning of Article XVII:4(a) of GATT 1994, Padiberas Nasional Berhad (BERNAS) acts as a state trading enterprise for rice importation BERNAS carries out non-commercial activities on behalf of the Government, such as: a. conserving, maintaining and managing the national paddy/rice stockpile; b. purchasing paddy from paddy farmers at the guaranteed minimum price as determined by the Government from time to time; c. acting as the buyer of last resort for paddy farmers; d. managing the disbursement of subsidies to paddy farmers under the Paddy Price Subsidy Scheme; and e. managing the Bumiputera Rice Millers Schemes BERNAS also conducts commercial activities, such as paddy seed production, paddy farming, paddy procurement and rice processing, distribution and trading of rice and its products, and rice importation Through its privatization agreement, BERNAS is the only company permitted to import rice into Malaysia. The distribution of imported rice in the country is by direct sales to wholesalers which in turn distribute rice to retailers. Its exclusive right on rice importation was extended until 10 January Government-linked companies (GLCs) GLCs are controlled by government-linked investment companies (GLICs) such as Khazanah Nasional (the Government's sovereign wealth fund), Permodalan Nasional Berhad (PNB), or the Employees Provident Fund (EPF). GLCs and GLICs remain a significant part of the economy. They accounted for an estimated 5% of the national workforce and were the main service providers in key strategic industries and services, including electricity, telecommunications, postal 45 MDTCC online information. Viewed at: [03/08/17]. 46 WTO document, G/STR/N/16/MYS, 17 October 2016.

69 services, airlines, airports, public transport, banking and financial services. 47 GLCs have delivered large-scale infrastructure projects as well. Furthermore, public trust funds (via EPF and PNB) were invested in many GLCs and are therefore reliant on their performance A 10-year GLC Transformation Programme ( ) was launched in 2004/05, to turn GLCs into stronger and more resilient and competitive companies. The programme covered five federal-owned GLICs (EPF, Khazanah, LTAT (Armed Forces Fund Board), LTH (Lembaga Tabung Haji), and PNB), as well as the larger GLCs termed as G Under the programme, GLCs increased their collaboration with the private sector, and divested non-core and non-competitive assets. The Programme also made efforts to dilute the role of the "Government" in these Government-linked companies, and push for the set-up of a good regulatory environment. Regarding procurement, the Procurement Guidelines and Best Practices aimed to minimize rent seeking behaviours in procurement policies; for example, one amendment eliminated the requirement of obtaining approval from the Ministry of Finance for GLC procurement contracts larger than RM 100 million, thus reducing bureaucracy and potential rent seeking GLCs and GLICs "graduated" from their transformative process when the Programme was completed in July The Putrajaya Committee on GLC High Performance (PCG) stated that GLCs show a strong 10-year track record in delivering financial performance, catalysing nationbuilding, and benefiting all stakeholders. In particular, from FY2004 to FY2014: a. G-20's market capitalization grew almost three times, with total shareholder return growing 11.1% per annum; b. G-20 net profit grew at a compounded annual rate of 10.2%; c. G-20 made RM billion worth of domestic investment, and employed 225,050 Malaysians in 2014; and d. G-20 contributed RM billion in dividends and RM 63.5 billion in taxes Privatization The privatization programme stipulates that bumiputeras should hold at least 30% equity of a privatized entity. Foreign participation is limited to 25% of total equity, although up to 49% may be permitted on a case-by-case basis. All privatized projects are subject to Malaysia's development policies and the Privatization Master Plan with regards to foreign participation The authorities stated that public-private-partnership (PPP) has been pivotal in Malaysia's growth and economic development since the early 1980s. To date, Malaysia has implemented 852 PPP projects in various sectors, and the Government has saved a total of RM billion The UKAS (Public Private Partnership Unit under the Prime Minister's Office) functions as the central agency in coordinating PPP in Malaysia. It has developed several guidelines pertaining to PPP and privatization. PPP arrangements are reviewed and revised regularly by the Government to improve their implementation Government procurement Overview Government procurement plays a significant role in the country's socio-economic development. According to the authorities' estimate, the size of Malaysia's government 47 PCG (2015), GLC Transformation Programme Graduation Report. Viewed at: [21 July 2017]. 48 The G-20 list comprises 17 GLCs due to various mergers, demergers and other corporate exercises over the years. A list of these 17 companies is available at the Khazanah website ( 49 PCG (2015), GLC Transformation Programme Graduation Report. Viewed at: [21 July 2017]. 50 UKAS online information. Viewed at: [03/10/17].

70 procurement (acquisition of goods, services and works by the federal, state and local governments and statutory bodies, not including purchases by government-linked companies) remained stable during the period under review, with the annual amount reaching RM 92.8 billion in 2016 (Table 3.19), representing 12.6% of Malaysia's GDP in Malaysia's government procurement took place mostly at the federal government level. In 2016, 80.5% of the annual procurement contract value was conducted by federal entities. In terms of categories, development expenditure was the main area, which accounted for 68% of the total government procurement value in These figures do not include procurement by government-linked companies (GLCs), which, in Malaysia, are not governed by the same set of rules and regulations as government agencies and statutory bodies. Table 3.19 Government procurement value by public sector, (RM million) Types of procurement a Federal government a) goods and services expenditure b) development expenditure 34,259 39,503 36,373 40,768 29,702 45,000 State government development expenditure 7,826 8,094 10,354 Local government development expenditure 1,511 1,603 1,732 Statutory bodies' development expenditure 8,479 7,306 5,983 Total 91,578 94,144 92,771 a Estimate. The Malaysian authorities' estimates, based on the Ministry of Finance, Economic Report 2016/2017, Statistical Tables 6.1, 6.3, 6.10, 6.11 and 6.12, published on 21 October 2016 (document can be accessed at: Its government procurement regime remains a decentralized system. Due to the decentralized nature, no data on annual purchases by procurement method and origin are available from the authorities. Foreign suppliers are not allowed to participate in domestic tenders; international tenders are called if there are no domestically produced supplies or services available Government procurement is considered by the authorities as an important tool to support Malaysia's National Development Policy and Vision 2020, i.e. bringing the country towards being a high-income nation by Malaysia became an observer of the WTO Committee on Government Procurement in The authorities are of the view that Malaysia is unlikely to join the WTO GPA in the near future due to domestic policy considerations The legal framework and government procurement system Malaysia maintains a decentralized government procurement system whereby procurement exercises are delegated to procurement entities at different levels of government. The Ministry of Finance has the main responsibility for government procurement at the central government level, while at the local government levels, the responsibility falls under Chief Ministers in respective states The Financial Procedure Act 1957 (Revised 1972) remains Malaysia's main legal instrument for financial matters including government procurement, and the Treasury Instructions detail financial and accounting procedures. Other relevant legislation includes the Government Contract Act 1949 (Revised 1973), the Ministerial Functions Act 1969, the Delegation of Powers Act 1956, and the 1 Treasury Circular (1Pekeliling Perbendaharaan or 1PP) Government procurement has traditionally been used as a tool to support Malaysia's socioeconomic and development objectives, including: (i) promoting the growth of local industries by 51 Malaysia participated in the Trans-Pacific Partnership (TPP) negotiations and offered related commitments on government procurement at the central government level (the TPP government procurement text is modelled largely on the revised WTO Agreement on Government Procurement (GPA)). 52 The 1PP can be accessed at:

71 encouraging the maximum utilization of local materials and resources; (ii) encouraging and supporting greater participation of the bumiputera in the national economy; (iii) enhancing the capabilities of local industries via technology transfers; (iv) creating opportunities for local serviceoriented industries such as freight and insurance; and (v) achieving other socio-economic and development objectives To ensure that all procurement principles, policies, rules and procedures are strictly adhered to, Malaysia has established procurement boards in all federal ministries to consider and decide on tenders above RM 500,000. For goods and services above RM 50 million and works above RM 100 million for ministries and departments, and for tenders above RM 100 million for statutory bodies, final decisions are made by the Ministry of Finance Government procurement is divided into domestic tenders and international tenders. In domestic tenders, preferences are provided for bumiputera suppliers. The margin of preference for bumiputera supplies has remained unchanged since For goods and services contracts between RM 100,000 and RM 15 million, bumiputera suppliers receive a margin of preference between 2.5% and 10% which is inversely proportional to value. For purchases exceeding RM 15 million, no price preferences apply. Furthermore, preferential treatment is given to bumiputera manufacturers for locally produced goods; the margin is up to 10% for contracts valued below RM 10 million, up to 5% for contracts valued at between RM 10 million and RM 100 million, and up to 3% for contracts valued above RM 100 million Foreign suppliers are not allowed to participate in domestic tenders. International tenders will be invited for goods and services if there are no domestically produced supplies or services available. For specific works, if domestic contractors do not have the expertise and capability, tenders may be called on a joint-venture basis between domestic and foreign contractors to encourage the transfer of technology. When a joint venture is not possible, international tenders for works may be called Malaysia has been implementing an offset policy for strategic procurement since 1980s. The offset policy, known as the Industrial Collaboration Programme (ICP), was reviewed in December The revised policy consists of three categories: (i) the Economic Enhancement Programme (EEP), which is applied to procurement from local companies as the prime contractor for contracts above RM 100 million; (ii) offset applied to procurement from foreign suppliers for contracts above RM 50 million; and (iii) counter trade applied to procurement from foreign suppliers for contracts above RM 50 million The objective of ICP is to enhance the country's industrial, technological and overall economic capability with the aim of further increasing national competitiveness and supporting the high-income society agenda. Specific ICP programmes are also guided by Vision 2020, the Five- Year Development Plans, the National Policy on Science, Technology and Innovation, and other related government policies. Malaysia aims to make the ICP a mandatory requirement for strategic and high-value procurement. Currently, ICP programmes have been implemented in the aerospace, rail, automotive, energy, weaponry, maritime and ICT sectors The Malaysia ICP Executive Committee was established at the Ministry of Finance in 2014 as a platform to oversee, provide strategic directions and approvals, and integrate various programmes planned, initiated and implemented in Malaysia. 53 The Ministry of Finance also established a Technology Depository Agency (TDA) as the ICP authority to manage and coordinate all ICP implementation in Malaysia. An ICP Committee must be formed at the agency level upon initiation of an ICP. In parallel with the submission of tenders, the bidders are required to submit ICP proposals in responding to relevant requirements. The proposals will be evaluated by the ICP Committee and considered as one of the main criteria in selecting the winner of contract. The selected contractors are required to sign the procurement contract and the ICP agreement simultaneously An ICP may take place in the form of helping the recipients: develop their capacity; manufacture products related to the procured equipment; jointly develop and enjoy new technology and know-how; use local products; access the global market via the offset provider's network; and attract FDI. 53 The ICP can be accessed at:

72 The Government is also committed to venture into green procurement as one of the mechanisms to minimize the impact on the environment. The Green Government Procurement (GGP) initiative has been implemented in stages since 2014 under the Short-Term Action Plan. 54 The initiative is monitored by the GGP Steering Committee and the Working Committee and is cochaired by the Ministry of Energy, Green Technology and Water and the Ministry of Finance. The 11th MP stated a target of 20% green government procurement by The implementation of GGP at 12 ministries and their agencies in 2016 has resulted in a cumulative value of green procurement totalling RM 482 million. Furthermore, 20 product groups were approved by the GGP Steering Committee in The GGP Long-Term Action Plan is being finalized to replace the Short-Term Action Plan. In 2017, GGP implementation was expanded to all government agencies with the requirement for each ministry to incorporate green specification into the procurement of GGP product groups Malaysia maintains a supplier registration system. Any suppliers intending to participate in government procurement of goods and services must register with the Ministry of Finance. For construction works, they must register with the Contractors and Entrepreneurs Development Division (Bahagian Pembangunan Kontraktor dan Usahawan BPKU) of the Ministry of Works and the Construction Industry Development Board Malaysia (CIDB). While the former is authorized to issue the Bumiputera status certification for qualified contractors, the latter's role is to ensure that suppliers and contractors are bona fide and possess the capability to provide goods or services, or to carry out works. The authorities believe that the system enables the government to take disciplinary action and impose penalties on contractors who do not perform according to contract Procurement policies of GLCs are approved by their respective Board of Directors and based on best practices. However, GLCs are encouraged to procure from local sources with a view to supporting local and national economic development Procurement methods and the use of e-procurement Procurement methods to be used in individual procurement vary, depending on the contract value. The three most commonly used methods are direct purchase, quotation, and open tendering: a. For procurement of supplies and services up to RM 20,000, procuring entities are allowed to purchase directly from any known supplier consistently supplying goods and services at acceptable quality and reasonable prices. The registration requirement is exempted. For procurement of works up to RM 20,000, procuring entities are allowed to purchase directly from a contractor who is registered with the Contractor Service Centre and the CIDB. b. For procurement of supplies and services above RM 20,000 and up to RM 500,000, procuring entities are required to invite quotations (minimum number five). c. For procurement of works, supplies and services above RM 500,000, open tendering processes are used. Open tenders must be advertised in the MyProcurement portal with an option to advertise in local newspapers In addition, selective tendering is used to address specific concerns such as security, or when the number of registered companies is very limited. Limited tendering, as an exception to the Government Procurement Regulations and subject to Ministry of Finance approval, may be applied based on strict criteria (i.e. security, uniformity, urgency and sole-sourcing) Despite the overall decentralized nature, products for common use, such as office equipment, furniture and computer software, are centrally purchased. Suppliers for Central Contracts or Panel Contracts are selected through open tenders or negotiated tenders with the participation of domestic suppliers only. The Federal Central Contract and Panel Contract lists are published. When a Federal Central Contract or Panel Contract has been made for a particular item, 54 Information on the GGP initiative can be accessed at: (i) (ii) and (iii)

73 all procuring entities, either at the federal level or state level, are required to purchase from these contracts. The Central Contracts aim at promoting domestic products and developing local vendors Malaysia's e-procurement system was established in According to the authorities, it has greatly enhanced transparency and efficiency in procurement. The MyProcurement portal information centre is the main platform allowing for public access to information related to the government procurement regime including rules and regulations, tender advertisements, and results of recent tenders of each ministry. During the period under review, the MyProcurement portal was upgraded to allow for the publication of the results of direct negotiation deals and other government procurement details. Quotations and tender-related documents are available to the public in the interest of transparency A new eperolehan (ep) system, an online transaction and reporting platform for federal government users and registered suppliers, is to be implemented from Purchase orders or contract orders can be issued through this platform for all types of procurement methods, whether direct purchase, quotation or tendering. The e-catalogue in the ep system enables suppliers to promote their goods and services in the form of an electronic catalogue which may be accessed from any device with Internet access. Based on the statistics published on the e-p portal, more than 110,000 suppliers were registered with the Ministry of Finance in June In 2016, government agencies fulfilled more than million procurements, with a total value of RM billion, through the system Integrity and bid challenges review mechanism Public accountability, transparency, value for money, open and fair competition and fair dealing are the general principles pursued by Malaysia's government procurement system to achieve good governance. Efforts were taken by the Government to promote transparency and integrity in government procurement. The Governance and Integrity Committee initiated the establishment of the Integrity Units in all federal and state government agencies to promote greater transparency in government procurement. Heads of Integrity Units are appointed certified officers trained by the Malaysian Anti-Corruption Academy In addition, the Ministry of Finance introduced its Guidelines for the Implementation of the Integrity Pact in Government Procurement in Under the Guidelines, both procuring entities and bidders are required to sign an Integrity Pact. By signing this Pact, both parties undertake not to pay, offer, demand or accept bribes; collude with competitors to obtain the contract; or engage in such abuses while carrying out the contract. The Government is entitled to terminate a contract at any time when corruption or illegal activities are found The Auditor General is given the authority under project agreements to conduct an oversight review in order to give audit opinions or reports to the respective executive committees or steering committees. This oversight review function is performed concurrently with project implementation. Such projects include the Mass Rapid Transit and the Pan-Borneo Highway. Any project worth RM 100 million and above will be given priority to be audited Malaysia offers bidders a number of channels for complaint. A failed bidder may complain to the procuring agency, which may cancel a tender if it finds any irregularities. The bidder may also complain to the Public Complaints Bureau, the Malaysian Anti-Corruption Commission, or the Public Accounts Committee. In addition, the Compliance and Accreditation Section under the Government Procurement Division of the Ministry of Finance monitors adherence to procurement rules, and may also set up special task forces to investigate complaints, when necessary. Remedial actions are also available through civil proceedings provided by the Civil Law Act (1956) and the Government Proceeding Act (1956). The authorities indicate that they are planning to establish an independent bid challenge review mechanism in the coming years. 55 Malaysia's Bogor Goals Progress Report (as at 30 September 2016). Viewed at: [03/08/17].

74 Intellectual property rights Overview The principal agency responsible for IPR policy development and administration remains the Intellectual Property Corporation of Malaysia (MyIPO). It handles both industrial property and copyright protection. MyIPO examines and registers industrial property (patents, trademarks, industrial designs, and geographical indications), provides advisory services, provides information on IP and statistical data, provides training programmes, conducts patent agent examinations, and organizes awareness programmes In 2014, MyIPO introduced an IP Renewal One-Stop Centre the Renewal Lounge to provide information on procedures and fees of IP renewal. In June 2014, an initial IPR Marketplace Portal was launched to enable IP owners to conduct potential transactions such as IP sale licensing, merchandising and/or franchising of their IP rights. MyIPO also collaborates with Universiti Malaysia Sarawak to introduce IP courses for undergraduate students In September 2015, Malaysia launched its IP Monetization Roadmap , aiming to cultivate a mindset of viewing IP as an asset with financial value and returns. The Roadmap underlines three strategies: transforming IP into financial assets; mobilizing IP assets; and enhancing IP Marketplace to become a trading hub for IP. The Government allocated RM 200 million in 2013 to an IP financing scheme under Malaysian Debt Ventures. To date, it has provided financing for 12 companies Since the previous Review in 2014, there has not been any significant change to Malaysia's legislative framework on IPR protection. The Government is reviewing the Patent Act 1983, Trade Marks Act 1976, and the Copyright Act The main IP laws remain: a. Copyright Act 1987, most recently amended in 2012; b. Patents Act 1983, most recently amended in 2006, and the Patents Regulations, most recently amended in 2011; c. Trade Marks Act 1976, most recently amended in 2002, and the Trade Marks Regulations, most recently amended in 2011; d. Geographical Indications Act 2000, most recently amended in 2002, and the Geographical Indications Regulations, most recently amended in 2013; e. Industrial Designs Act 1996, most recently amended in 2013; f. Trade Descriptions Act 2011; g. Protection of New Plant Varieties Act 2004; and h. Layout-Designs of Integrated Circuits Act Malaysia is a member of a number of WIPO-administered treaties (Table 3.20). The Government is considering acceding to the Madrid Protocol concerning the international registration of marks, and the Budapest Treaty regarding the international recognition of the deposit of microorganisms for patent procedures. The authorities stated that, as acceding to international treaties requires amendment to the relevant acts and regulations, Malaysia is in the midst of amending the Trade Marks Act 1976 and the Patents Act 1983, to include provisions relating to the Madrid Protocol and the Budapest Treaty respectively Malaysia ratified the Protocol Amending the TRIPS Agreement on Public Health in December Also in 2015, MyIPO and WIPO signed a Service Level Agreement, aiming at strengthening strategic cooperation to set up a Technology and Innovation Support Centre (TISC), [24/07/17]. 56 WIPO online information. Viewed at:

75 which will host a Patent Library in Malaysia. MyIPO signed a MOU to establish TISC Host Institutions with 12 higher learning institutions (universities or polytechnics) and one research institution. The programme aims to provide easy access to innovation and technological information, as well as to disseminate best practices and experiences among TISC Host Institutions, through various workshops and training programmes. Table 3.20 WIPO-administered treaties WIPO-administered treaties Entry into force date for Malaysia WIPO Copyright Treaty December 2012 WIPO Performance and Phonograms Treaty December 2012 Nice Agreement Concerning the Intellectual Classification of Goods and September 2007 Services for the Purposes of the Registration of Marks Vienna Agreement Establishing an International Classification of the Figurative September 2007 Elements of Marks Patent Co-operation Treaty August 2006 Berne Convention for the Protection of Literary and Artistic Works October 1990 Convention Establishing the World Intellectual Property Organization January 1989 Paris Convention for the Protection of Industrial Property January 1989 WIPO online information. Viewed at: [24/07/17] Malaysia also signed some IP-relevant bilateral treaties: a. Comprehensive Economic Cooperation Agreement between India and Malaysia, entered into force in 2011; b. Agreement on Comprehensive Economic Partnership among Japan and Member States of the Association of Southeast Asian Nations, entered into force in 2009; c. Agreement between Japan and Malaysia for an Economic Partnership, entered into force in 2006; d. Agreement between Malaysia and Chile on the Promotion and Protection of Investment, entered into force in 1995; 57 e. As well as other agreements such as the Malaysia-Pakistan Closer Economic Partnership Agreement; the Malaysia New Zealand FTA; the ASEAN Australia New Zealand FTA; the Malaysia Chile FTA; the Malaysia Australia FTA; and the Malaysia Turkey FTA Malaysia has been providing incentives for domestic companies to acquire industrial property rights: when computing income tax, resident companies may deduct the costs of acquiring IP rights from foreigners (patents, designs, models, plans, trademarks, or brands, and other similar rights) Compulsory licensing provisions are applied to patents, layout designs of integrated circuits, and copyrights and related rights. There have been no changes to provisions on compulsory licensing, and no compulsory licences have been granted since Under the Patents Act 1983, parallel imports are allowed. There are no provisions restricting parallel imports that relate to copyrights. With regards to trademarks, in general, the Trade Marks Act and its Regulations do not prohibit parallel importation. However, in practice, it seems that only the registered proprietor of a mark in Malaysia has the right to import goods carrying that registered mark, unless it can be proven that the parallel good bearing the same mark has a connection or association with the registered proprietor in Malaysia For industrial property rights, the duration of protection remains the same as at the time of the previous Review: [24/07/17]. 57 WIPO online information. Viewed at:

76 a. 20 years from the date of filing for patents, and 10 years (renewable for two further five-year consecutive terms) from the date of filing for utility models; b. 10 years upon registration for trademarks, renewable indefinitely for ten-year periods; c. 10 years of protection from the date of filing for registered geographical indications (GIs), renewable indefinitely for ten-year periods; 58 d. 20 years or 25 years (for trees and vines/perennial plants) from the filing date of the application for a plant variety that is new, distinct, uniform, and stable; e. 15 years from the date of application for a plant variety that is bred or discovered and developed by a local community or indigenous people, if it is new, distinct, and identifiable; f. 25 years for industrial designs; g. 10 years for a layout-design of an integrated circuit, from the date the layout-design is first commercially exploited in Malaysia or elsewhere; h. 15 years after the date the layout-design is created, notwithstanding the commercial exploitation Under the Trade Marks Act, a proprietor of a well-known trademark may take action in court to prevent third parties using their well-known marks in Malaysia without their consent. The Registrar may also prevent the registration of a mark that is identical or nearly resembles the wellknown mark The legislation on trade secrets remains the same as described in the previous Review: there is no formal registration process for trade secrets or confidential information. 59 The Ministry of Health stipulated that data for pharmaceuticals containing new chemical entities are protected for five years, and second indications are protected for three years. For a new drug product containing a new chemical entity, the period of test data protection is calculated from the date the product is first registered or granted marketing authorization and data exclusivity/test data protection in the country of origin, or in any country recognized and deemed appropriate by the Director of Pharmaceutical Services. For a second indication of a registered drug product, the period of test data protection is calculated from the date the second indication is first approved and granted data exclusivity/test data protection in the country of origin, or in any country recognized and deemed appropriate by the Director of Pharmaceutical Services In 2017, the pendency period was 26 months for patents and 8 months for trademarks. Following the introduction of expedited examination in 2011, it takes 20 months (from the date of filing a request) for a patent to be granted under the expedited procedures, and 6 months 3 weeks for a trademark to be granted under the expedited procedures. Non-residents made many more applications for patents, trademarks, and industrial designs, while residents in general made more applications for utility models (Table 3.21). Table 3.21 IPR data Residents a Non-residents a Abroad a Patent applications ,199 6,006 1, ,353 6,267 1, ,272 6,455 1, ,279 6,176.. Patent grants , , , GIs are protected regardless of whether or not they are registered. 59 For details of trade secrets protection, please see WTO document, WT/TPR/S/292/Rev.2, 8 April

77 Residents a Non-residents a Abroad a ,980.. Utility model applications Trademark applications ,705 17,520 5, ,400 19,171 5, ,940 19,983 4, ,527 20,580.. Trademark registrations ,777 17,202 3, ,467 16,961 4, ,529 18,271 3, ,686 20,120.. Industrial design applications , , , Industrial design registrations , , , Not available. a A resident filing refers to an application filed in Malaysia by a Malaysian resident; a non-resident filing refers to an application filed by a foreign applicant; an abroad filing refers to an application filed by a Malaysian resident at a foreign office. WIPO Statistical Country Profiles Malaysia. Viewed at: [24/07/17] Registration is not required for a copyright to be protected. Copyright owners may voluntarily notify and deposit a copy of the work eligible for copyright with MyIPO. The period of protection for literary, musical or artistic works is the life of the author plus 50 years Enforcement Fines and penalties on IPR infringing cases remain unchanged since IPR enforcement in Malaysia is mainly the responsibility of the MDTCC (Ministry of Domestic Trade, Cooperatives and Consumerism). Goods detained at the border by Customs are handed over to the MDTCC for further action. At the border, Customs officers have an ex officio duty to detain or suspend the release of goods that are deemed to be infringing IPRs on copyrights and trademarks. The Customs Intelligence Centre collects data on seizures by the Enforcement Division of Customs. Main categories of goods confiscated at the border are: clothes, leather goods, liquor and beer, and mobile phones and accessories IPR-related cases are handled by the Intellectual Property Court, and the Copyright Tribunal. Since the previous review in 2014, no cases have been brought to the Copyright Tribunal The MDTCC has been making efforts to combat the distribution of counterfeit goods, by: establishing working relationships with overseas enforcement agencies including Interpol; establishing and strengthening cooperation between MDTCC and trademark owners; strengthening and mobilizing the Special Taskforce Combating Counterfeit Goods, which involves various government agencies and trademark owners; increasing the monitoring of business-related websites and social media; strengthening cooperation with Customs to increase enforcement action at the border. 60 For details of fines and penalties, please refer to WTO document, WT/TPR/S/292/Rev.2, 8 April 2014.

78 MyIPO has also been making efforts to improve IPR enforcement. For example, in 2015, the 2nd Global IP Valuation Conference was held in Malaysia as a platform to enhance understanding on IP valuation among stakeholders; in March 2016, the Government introduced an IP Filing Fund under the 11th MP, which aims at encouraging and assisting youth, students and local communities to file IPs. MyIPO also provides various training programmes such as the IP summer camp, IP Funtastic Programme, and other IP awareness programmes.

79 TRADE POLICIES BY SECTOR 4.1 Agriculture, Forestry, and Fisheries Agriculture Features 4.1. In 2016, agriculture (including rubber), forestry, and fishing contributed 8.1% to GDP, a decline from 10.2% in The value of agricultural, forestry and fishing production fluctuated over the 2010 to 2016 period, between RM 83 billion in 2010 and RM 106 billion in The importance of agriculture varies considerably from one state to another, being over 20% of GDP in Kelantan, Pahang, Perlis, and Sabah, less than 2% in Selangor and the Federal Territory of Labuan, and negligible in Kuala Lumpur and Putrajaya In 2015, agriculture accounted for 11.4% of employment with 1.61 million people employed in the sector down from 1.75 million in Of the 1.61 million people employed in agriculture, 646,400 are non-citizens most of whom work in the palm and rubber plantations About 43% of the total contribution to GDP from agriculture, rubber, forestry, and fishing is from palm oil, about 14% from fruits and vegetables, 13% from livestock, and 12% from fishing (Chart 4.1). Chart 4.1 Contribution to GDP from agriculture, rubber, forestry, and fishing Chart 4.1 Contribution to GDP from agriculture, rubber, forestry, and fishing (RM million) (RM million) 120, ,000 80,000 60,000 40,000 20,000 Forestry and logging Fishing Other livestock Poultry Other crops Paddy Fruit and vegetables Rubber Oil palm Note: figures figures are are estimates; estimaste; figures figures are provisional. are provisional. Department of of Statistics Malaysia. Malaysia Malaysia is a major producer of several products. According to the FAO, in 2013, Malaysia was the second biggest producer of palm oil, palm fruit and palm kernels, the sixth biggest for natural rubber, the seventh for pepper (piper spp), and the tenth for coconuts The structure of agricultural production in Malaysia can be divided into two categories: estates and individual small holdings. The estates are owned by corporations or public land development agencies with holdings of not less than 100 acres (40.47 ha) and are involved in the production of industrial crops such as palm oil, rubber, or cocoa. The estates account for most of the palm oil and a significant proportion of rubber and cocoa. The average farm size for small 1 Department of Statistics, Malaysia (2017), National Accounts - Gross Domestic Product 2016, 19 May. Viewed at: [October 2017]. 2 Department of Statistics, Malaysia (2016), Selected Agricultural Indicators 2016, December. Viewed at: [October 2017]. 3 Department of Statistics, Malaysia (2016), Selected Agricultural Indicators 2016, December. Viewed at: [October 2017]. 4 FAOStat online database. Viewed at: [October 2017].

80 holders is about 1.5 ha. Small holders account for nearly all food production, while many are also involved in industrial crops Agriculture trade 4.6. In 2016, Malaysia had a surplus in trade in agricultural products 6 with exports of US$22.4 billion and imports of US$14.5 billion. In addition, exports of rubber and articles thereof 7 were US$5.8 billion and imports were US$2.9 billion. The principal agricultural exports are palm oil (40% of agricultural exports in 2016), animal and vegetables fats and oils (8%), and coconut oil (4%). Imports are more diversified: in 2016, sugar, the biggest import, accounted for 6% of agricultural imports followed by maize, food preparations n.e.s., and cocoa beans (5% each) (Table 4.1). Table 4.1 Exports and imports of agricultural products and rubber, (US$ million) Exports Top 4 partners TOTAL 228, , , ,414 Singapore, China, United States, Japan Total agricultural exports 25,450 26,234 22,017 22,383 of which 1511 Palm oil and its fractions, not chemically modified 12,289 11,995 9,501 9,064 India, China, Netherlands, Pakistan 1516 Animal or vegetable fats and oils and their fractions, not further 1,942 1,946 1,553 1,735 China, United States, Turkey, Netherlands prepared 1513 Coconut (copra), palm kernel or babassu oil, not chemically modified 843 1, Netherlands, China, United States, Turkey 1905 Communion wafers, empty cachets of a kind suitable for pharmaceutical use, sealing wafers, rice paper and similar products 2106 Miscellaneous edible preparations // Food preparations n.e.s Singapore, China, Thailand, Indonesia Australia, Indonesia, China, Singapore 1804 Cocoa butter, fat and oil Japan, United States, 1901 Food preparations containing less than 5 % by weight of cocoa, n.e.s Roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof 2202 Waters, containing added sugar or other sweetening matter or flavoured, and other non-alcoholic beverages, not including fruit or vegetable juices of heading Margarine; edible mixtures fractions of different fats or oils of this Chapter, other than of heading Germany, Canada Philippines, Brunei Darussalam, Indonesia, Singapore China, Thailand, Singapore, Indonesia Singapore, Indonesia, Papua New Guinea, China Australia, Thailand, Iraq, Singapore Rubber exports 40 Rubber 8,285 6,942 6,237 5,761 United States, China, Germany, Japan 4015 Rubber articles of apparel 3,391 3,312 3,384 3,209 United States, Germany, Japan, Brazil 4001 Natural rubber in primary forms 2,228 1,398 1, China, Germany, Iran, United States 4002 Synthetic rubber in primary form China, Thailand, Indonesia, Sri Lanka 5 Ministry of Agriculture and Agro-Based Industry (2009), Overview of the Agriculture Sector in Malaysia, presentation. 6 For the purposes of this section of the report, agricultural products are those set out in Annex I of the Agreement on Agriculture where fish and fish products are under HS 2012 headings 02840, 03, , , , , 1504, 1603, 1604, 1605, and Trade in fisheries products is addressed in Section HS heading 40.

81 Imports Top 4 partners TOTAL 205, , , ,375 China, Singapore, Japan, United States Total agricultural imports 15,706 16,352 15,264 14,466 of which 1701 Sugar and chemically pure sucrose, in solid form Brazil, Australia, Thailand, Guatemala 1005 Maize (corn) Argentina, Brazil, United States, Pakistan 2106 Food preparations n.e.s Singapore, United States, Indonesia, China 1801 Cocoa beans Ghana, Cõte d'ivoire, Papua New Guinea, Indonesia 1513 Coconut (copra), palm kernel or babassu oil, not chemically modified Indonesia, Thailand, Philippines, Papua New Guinea 0202 Meat of bovine animals, frozen India, Australia, New Zealand, Brazil 2304 Oil-cake and other solid residues, resulting from the extraction of soyabean oil 1901 Food preparations containing less than 5 % by weight of cocoa, n.e.s Onions, shallots, garlic, leeks and other alliaceous vegetables, fresh or chilled 2208 Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 % vol Argentina, China, United States, India Singapore, Thailand, Philippines, Netherlands China, India, Netherlands, Pakistan France, United Kingdom, Singapore, China Rubber imports 40 Rubber 4,745 3,586 3,096 2,881 Thailand, Rep. of Korea, Japan, Viet Nam 4001 Natural rubber in primary forms 2,482 1,873 1,307 1,164 Thailand, Côte d'ivoire, Viet Nam, Philippines 4002 Synthetic rubber in primary form Rep. of Korea, Other Asia (n.e.s.), Japan, United States 4011 New pneumatic tyres of rubber Thailand, Indonesia, China, Viet Nam UNSD Comtrade Domestic policies 4.7. Responsibility for agricultural policy is divided between a number of ministries and government agencies including: The Ministry of Agriculture and Agro-based Industry (MOA) is the principal ministry responsible for the development of the agro-food and agro-business sectors. Under, or within, the Ministry there are eight agencies and four departments. In addition, there are several statutory bodies mandated to provide specific services relating to research and development, and improving efficiency; The Ministry of Plantation Industries and Commodities is responsible for policies relating to palm oil, rubber, cocoa, pepper, kenaf, tobacco, and timber and timber products. Under the Ministry are a number of agencies responsible for implementing policy and providing services to each product, such as the Malaysian Palm Oil Board (MPOB), the Malaysian Palm Oil Certification Council (MPOCC), and the Malaysian Palm Oil Council (MPOC); The Ministry of Natural Resources and Environment; and The Ministry of Regional and Rural Development The government-owned Agro Bank, which was corporatized in 2008 under the Bank Pertanian Malaysia Berhad Act No. 158 of 2008, continues to provide financial services to agriculture while expanding its operations beyond farming to cover upstream and downstream activities including processing, storage, marketing, and services (Table 4.2). The bank's strategic plan aims to reduce

82 its dependence on government funds and the target ratio for government funds to depositors' funds was 24:76 by 2016 compared to 26:74 in In addition to general banking services, the bank also provides low-profit rate financing to customers under a number of government schemes (Section ). Table 4.2 Agrobank financing for agriculture, (RM million) Sector Oil palm 1, , , , Rubber Other crops 1, , , , Fishery Forestry Livestock Other ago-based processing Support sector 2, , , , Total 6, , , , Malaysian authorities Agricultural policy is set out in several documents, including the Economic Transformation Programme, the National Agrofood Policy (NAP), the National Commodity Policy (NCP), and the 11 th Malaysia Plan (11MP) for Under the Economic Transformation Programme, the Agriculture National Key Economic Area (NKEA) focusses on selected sub-sectors with high-growth potential (aquaculture, seaweed farming, edible birds' nests, herbal products, fruits and vegetables, and premium processed foods) along with the paddy rice and livestock sub-sectors. In addition, palm oil and rubber are addressed separately. The Programme sets out 14 Entry Point Programmes for agriculture which focus on transforming a traditionally small-scale production-based sector into a large-scale agribusiness industry. Another 12 Entry Point Programmes have been established for palm oil and rubber with targets for job creation and value of output The NAP follows the three National Agricultural Plans that covered the period 1984 to 2010 and covers the sectors MOA is responsible for and the associated processing industry. The objectives of the NAP are (i) to ensure food safety and food security, (ii) to develop the agrofood industry into a competitive and sustainable industry, and (iii) to increase incomes of producers and entrepreneurs. Among the strategic directions to achieve these objectives are self-sufficiency targets for crops, livestock, and fish where self-sufficiency is defined as domestic production as a percentage of production + exports imports +/- changes in stocks (Table 4.3). Table 4.3 Self-sufficiency forecasts in NAP and actual levels (%) Projection Actual Projection Actual Projection Crops Rice Fruits Vegetables Livestock Beef Mutton Poultry Pork Eggs Milk Fish for food National Agrofood Policy (Table 2-14), MP11, Malaysian authorities. 8 Cambridge IF Analytica (2016), Agrobank Charting a New Path to Sustainable Growth. Viewed at: XrKB-AQFggiMAA&url=http%3A%2F%2Fwww.cambridge-ifa.net%2Fcases%2Fagrobankstudy.pdf&usg=AFQjCNFNKPdgjE6XNgTdIwhZspYLtuJLow [October 2017].

83 The National Commodity Policy covers the products under the responsibility of the Ministry of Plantation Industries and Commodities and provides a strategic direction for the development of these sub-sectors. Like the NAP, the NCP sets out a number of strategic directions which include: strengthening and modernizing the commodities industries; modernization of production and processing; diversification to higher value-added products; generation of new sources of revenue; enhancing competitiveness and market expansion; accelerating the development of smallholders and entrepreneurs; and improving human capital The modernization of agriculture is part of the sixth Strategic Thrust under 11MP (Reengineering economic growth for greater prosperity). The strategies set out in the Plan include improving productivity and incomes for farmers, fishers, and small holders; promoting training and encouraging young agricultural entrepreneurs; improving institutional support and extension services; building capacity of cooperatives and farmers' associations; improving market access and logistics support; improving access to finance; and improving performance-based incentives and certification programmes. Under the strategy of intensifying performance-based incentives, the Plan states that existing input-based subsidies will be gradually replaced by performance-based incentives to encourage compliance of farmers and smallholders with the Malaysian Good Agricultural Practices (MyGAP) certification and other certifications such as the Malaysian Sustainable Palm Oil (MSPO) and the Malaysian Timber Certification Scheme Selected sub-sectors Palm oil Oil palm is the biggest agricultural product in Malaysia in terms of value of production, almost equal to the total value of all other agriculture, forestry, and fishing products put together and contributing about 3.5% to GDP in 2016 (compared to 8.1% for agriculture, rubber, forestry, and fishing in total). The area under cultivation and the total production of fresh fruit bunches increased steadily up to 2015 but fell in Of the 5.7 million ha under cultivation, 84% was in estates and the remainder in small holdings (Table 4.4). Palm oil is processed into a wide range of food and feed, and non-food products from crude palm oil, to stearin and olein, to bio-fuels (both as biomass and biodiesel), and RBDPO used in cleaning products A number of companies (25) account for a large part (24%) of the area under cultivation and most of the processing sector. These companies are vertically integrated enterprises with international operations and some are part of larger diversified companies. They include Sime Darby Plantation (part of the Sime Darby Group), Felda Global Ventures Holdings (which was initially the commercial arm of the Federal Land Development Authority), IOI Corporation Berhad (part of the IOI Group), Glenealy Plantations Sdn Berhad (part of the Samling Group), Genting Plantations Berhad, and Kuala Lumpur Kepong Berhad. Table 4.4 Oil palm, selected indicators, Value of crude palm oil production (RM million) Quantity produced (000 tonnes fresh fruit bunches) Area under cultivation (000 ha) of which ,900 60,876 51,922 45,562 46,876 42,987 45,948 83,918 93,815 93,265 95,729 96,067 98,344 86,325 4,854 5,000 5,077 5,230 5,392 5,643 5,738 Estates (000 ha) 4,203 4,302 4,385 4,482 4,585 4,760 4,804 Small holdings ( ha) Employment , , , ,351.. Not available. Department of Statistics Malaysia and Malaysia authorities. 9 Prime Minister's Department (2015), Eleventh Malaysia Plan Anchoring Growth on People, pp to 8-26.

84 In addition to, or as part of the Ministry of Plantation Industries and Commodities, there are a number of public agencies responsible for policy development and implementation for palm oil including the Malaysian Palm Oil Board (MPOB), the Malaysian Palm Oil Council (MPOC), and the Malaysian Palm Oil Certification Council (MPOCC) MPOB was established in 2000 under the Malaysian Palm Oil Board Act No. 582 of 1998 and is the principal government agency responsible for developing and promoting national objectives and policies for the oil palm industry, including research and development, training, and regulation The Malaysian Palm Oil Council (MPOC), incorporated in 1990, is responsible for promoting palm oil and its derivatives, including trade opportunities The Malaysian Palm Oil Certification Council (MPOCC) began operations in 2014 as an independent non-profit organization established to develop the Malaysian Sustainable Palm Oil (MSPO) Certification Scheme. The MPOCC is responsible for setting standards, developing certification systems, and other processes relating to sustainable production and processing of palm oil. Two types of certificates are issued by accredited certification bodies that conduct thirdparty verification audits: oil palm management certification for responsible management of palm oil plantations, small holdings and palm oil processing facilities; and supply chain certification for entities that process, trade or manufacture palm oil from certified oil management units. At July 2017, total certified planted area was 245,079 ha In addition to general taxes such as corporation tax and the goods and services tax, plantations may be liable for a windfall profit levy, collected by the Malaysian Royal Customs Department, which replaced a cess on production. The windfall profit levy rate is charged whenever the average monthly crude palm oil price is greater than RM 2,500 in Peninsular Malaysia or RM 3,000 in Sabah and Sarawak: In Peninsular Malaysia, the tax is 3% of the average monthly crude palm oil price in excess of RM 2,500 multiplied by the monthly production of fresh fruit bunches in tonnes. In Sabah and Sarawak, the tax is 1.5% of the average monthly crude palm oil price in excess of RM 3,000 multiplied by the monthly production of fresh fruit bunches in tonnes In addition, an export duty is applied which is set each month based on the average market price for crude palm oil (Table 4.5). For September 2017, the crude palm oil price for the purposes of setting the export duty rate was RM 2, per tonne; therefore, the export duty was 5.5% for that month. Table 4.5 Export duty rate (after partial duty exemption) Crude palm oil market price RM per tonne Export duty % Less than 2, ,250-2, ,401-2, ,551-2, ,701-2, ,851-3, ,001 3, ,151-3, ,301-3, Greater than 3, MPOB online information. Viewed at: [October 2017] There are about 644,522 oil palm small holders (less than ha) in Malaysia who may qualify for a number of incentive schemes including the Replanting Subsidy for Oil Palm 10 Malaysian Palm Oil Board online information. Viewed at: [October 2017]. 11 Malaysian Palm Oil Certification Council online information. Viewed at: [October 2017].

85 smallholders (TSSPK), Oil Palm Smallholders New Planting Scheme (TBSPK), Smallholding Maintenance Assistance (CPC) and Cantas Discount Scheme (SKIDIC). Under the replanting and new planting schemes, small holders can receive about RM 7,500 per ha in peninsular Malaysia or RM 9,000 in Sabah and Sarawak. From (the period under the 10 th Malaysia Plan): 56,910 small holders with a total of 132,829 ha received planting assistance; 918 small holders with less than 2.5 ha received about RM 500 per month under the CPC; and 2,772 small holders received a discount of RM 1,000 for harvesting machines (called cantas). The 2017 budget allocation for replanting of oil palm was RM 40 million The National Biofuel Policy of 2006 aims to promote sustainable energy sources, to reduce dependency on fossil fuels, and to improve palm oil prices. Biofuels, using crude palm oil as the feedstock, are to be used for transport, industry, and for export. Under the Biofuel Industry Act of 2007, MPIC introduced a requirement to blend diesel with 5% biodiesel (B5) starting in 2011 in some regions and extended to the whole country by end In 2015, the B7 blend was implemented throughout Malaysia and B10 is to be implemented in About 360,000 tonnes of crude palm oil were used to produce 525 million litres of biodiesel for blending with petroleum diesel in There are no specific direct incentives to consumers or the industry under the programme. Rubber Although the value of production, quantity produced, and area under rubber cultivation are lower than in the mid-2000s, partly due to a shift to oil palm cultivation, rubber still represents over 7% of the GDP of agriculture, forestry and fishing, and the manufacturing of rubber products in Malaysia is an important source of employment. Small holdings represent over 90% of the area under rubber trees (Table 4.6). Table 4.6 Rubber, selected indicators, Cultivation Quantity produced (000 tonnes) Area under cultivation (000 ha) 1,020 1,027 1,041 1,057 1,066 1,079 1,072 of which Estates (000 ha) Small holdings (000 ha) Employment 10,805 10,885 12,456 12,046 12,360 11,636 10,264 Manufactured locally produced rubber products Sales value (RM million) 12,965 14,614 16,145 16,449 15,779 16,948 17,123 of which Tyres, inner tubes (RM million) 1,893 1,883 1,948 1,823 1,845 1,924 1,891 Retreaded tyres (RM million) Rubber gloves (RM million) 7,785 8,483 9,831 10,001 9,693 10,369 10,493 Other rubber goods (RM million) 3,727 3,986 4,108 4,414 4,114 4,457 4,534 Employment 61,278 60,694 66,880 70,049 70,216 71,206 75,366 Department of Statistics Malaysia, Malaysian Rubber Board Statistics Over the same period of mid-2000s to 2015, imports of natural rubber increased and then stabilized at about 0.9 to 1 million tonnes reflecting the continuing growth of the processing industry and the use of imported raw materials (Table 4.1). In 2015, there were about 300 companies in Malaysia making a wide variety of rubber products, although over 80% of rubber consumption went into making latex products, mostly rubber gloves. The total sales value of locally manufactured rubber goods was about RM 17 billion, of which RM 10.4 billion was rubber gloves and RM 2 billion tyres and inner tubes The Ministry of Plantation Industries and Commodities is responsible for policy development for the rubber industry, and the Malaysian Rubber Board, established in 1998, is responsible for assisting in policy development and implementing policy from the cultivation of trees, to the 12 EY (2016), Budget 2017 Malaysia, Volume 4 Issue 3 24 October. 13 USDA (2016), Malaysia Biofuels Annual 2016, GAIN Report Number MY6004, 27 July. Viewed at: [October 2017]. 14 Malaysian Rubber Board (2016), Natural Rubber Statistics Viewed at: [October 2017].

86 extraction and processing of its raw rubber, to the manufacture of rubber products and the marketing of rubber and rubber products. A number of institutions operate under the MRB including the Rubber Research Institute of Malaysia, the Malaysian Rubber Research and Development Board, the Malaysian Rubber Exchange and Licensing Board, and the Malaysian Rubber Export Promotion Council The policy objectives under the Economic Transformation Programme are set out in four Entry Point Projects: to increase productivity; encourage replanting; increase global market share for latex gloves to 65% by 2020; and ensure the commercialization of Ekoprena and Pureprena (Green Rubber) as raw materials for the production of high-end rubber products, such as ecofriendly green tyres Under the Rubber Production Incentive (RPI) scheme, registered small holders are compensated whenever the average monthly price falls below a threshold. The compensation equals the difference between the average price and the threshold, up to a maximum amount. In 2015, RM 100 million was allocated to the scheme, RM 200 million in 2016, and RM 250 million in 2017 (Table 4.7). 16 Table 4.7 Rubber production incentive, 2015, 2016 and Threshold SMR 20 (RM per kg f.o.b.) Farm gate (RM per kg cup lump) Incentive (RM per kg cup lump) Min Max Min Max Min Max Peninsular Sabah Sarawak Total budget allocation (RM million) Malaysian Rubber Board, Rubber Journal Asia, and EY (2016), Budget 2017 Malaysia, Volume 4 Issue 3 24 October, and Malaysian authorities In addition to the Rubber Production Incentive scheme, grants for replanting and new planting by small holders of RM 9,000 to RM 14,000 per ha are available with a total budget allocation, in 2015, of RM 97 million for replanting and RM 110 million for new planting A cess on exports of 0.2% of the export value is charged to the manufacturer of rubber products (except rubber-based shoes, tyres, and inner tubes). In addition, a cess of RM 0.04 per kg is charged on natural rubber sold to manufacturers in Peninsular Malaysia, and on natural rubber (inclusive of unvulcanised compounded rubber and unvulcanised rubber in other forms (HS Headings 4005 and 4006 respectively)) exported or transferred out of Peninsular Malaysia. 18 Livestock The value of livestock production has increased steadily over the past few years reaching RM 18,528 million in 2015, partly due to increasing production but also to rising prices. Most ruminant production is based in small holder farms, sometimes mixed with rubber and palm planting (Table 4.8) The non-ruminant subsector (chickens and pigs) is more developed in terms of production capacity and scale, and is operated by larger enterprises using feedstuffs. The feedstuffs include locally available products, such as palm kernel cake and other palm by-products, but most are 15 Ministry of Trade and Industry online information. Viewed at: [October 2017]. 16 Malaysian Rubber Board online information. Viewed at: [October 2017]; Rubber Journal Asia (2016), Malaysia launches rubber production incentive scheme this month, 25 July. Viewed at: [October 2017]; EY (2016), Budget 2017 Malaysia, Volume 4 Issue 3 24 October. 17 Performance Management and Delivery Unit (PEMANDU) (Department of the Prime Minister) (2015), Economic Transformation Programme - Annual Report 2014, p Viewed at: [October 2017]. 18 Malaysian Rubber Board (Cess) Order 2009, PU(A) 317.

87 imported. From , imports of animal feeds (not including unmilled cereals) 19, have ranged from 1.7 to 2.1 million tonnes, and imports of soy beans 20 (most of which are used for poultry feed 21 ) from 0.6 to 0.8 million tonnes (Table 4.1). 22 Table 4.8 Livestock indicators, Value of production (RM million) Total 9,853 10,368 11,262 11,610 13,446 14,788 16, ,528 of which Poultry 5,183 5,359 5,776 5,950 6,868 7,414 8,499 9,534 Beef ,032 1,142 1,265 1,412 Pork 1,729 1,826 2,074 2,047 1,969 2,049 2,402 2,526 Eggs 2,092 2,225 2,359 2,614 3,275 3,873 4,350 4,752 Milk Quantity of production (000 tonnes unless otherwise stated) Poultry meat 1,163 1,202 1,296 1,290 1,374 1,458 1,584 1,633 Beef Mutton Pork Eggs Milk (million litres) Note: Milk production data are for milk for human consumption only. Department of Veterinary Services. Viewed at: [October 2017] The MOA is responsible for developing policy and legislation for the livestock industry. In addition, a number of government agencies are also responsible for implementing policy in specific areas, such as the Department of Veterinary Services for animal health and production Under the National Agrofood Policy , policy is focused on improving efficiency and increasing production, including production of feedstuffs. This includes disease control objectives to achieve foot and mouth disease free status through a vaccination programme and brucellosis and bovine tuberculosis free status through a culling programme, as well as measures to maintain disease free status for avian influenza and nipah virus and containment of Newcastle disease. Small-scale slaughtering is to be phased out and central slaughtering plants established to ensure halal requirements are adhered to, as well as for health, sanitary, and environmental protection reasons. 23 Rice Rice production, yield per hectare, and the area under cultivation increased steadily each year from 2008 to 2014, with a slight decline in 2015 (Table 4.9), as the Government has continued to prioritize the subsector under the NAP. Rice production is carried out by small holders operating average plots of about 2 ha 24 mostly in the "granary areas" established under earlier agricultural plans. 19 SITC Rev.4 heading SITC Rev.4 heading USDA (2017), Malaysia Oilseeds and Products Annual 2017, GAIN Report Number MY7003, 29 March. Viewed at: [October 2017]. 22 UNSD Comtrade online database. Viewed at: [October 2017]. 23 Ministry of Agriculture and Agro-Based Industry (2011), National Agrofood Policy , p Performance Management and Delivery Unit (PEMANDU) (Department of the Prime Minister) (2010), Economic Transformation Programme, p. 519.

88 Table 4.9 Rice, selected indicators, Cultivation Value of production (RM million) 1,765 1,883 1,849 1,934 1,950 1,953 2,136 2,042 Quantity produced (000 tonnes) 2,353 2,511 2,465 2,579 2,599 2,604 2,849 2,723 Planted area (000 ha) Department of Statistics Malaysia, FAOStat, and Malaysian authorities Policy formulation and preparation of legislation relating to rice are the responsibility of the MOA. Under the MOA, there are several agencies responsible for the development of rice, including the Department of Agriculture, MARDI, and the Farmers Organization Authority. In addition, there are a number of agencies responsible for overseeing the granary areas: Muda Agriculture Development Authority (MADA); Kemubu Agricultural Development Authority (KADA); Northwest Selangor Integrated Agricultural Development Project (PBLS); Integrated Agricultural Development Project (IADA) Seberang Perak; IADA Penang; IADA KETARA; IADA KERIAN; IADA Kemasin Semerak; IADA Rompin; IADA Pekan; IADA Batang Lupar: and IADA Kota Belud Policy under the NAP is focused on increasing productivity and quality of paddy rice, effective mechanization, and use of by-products, as well as improving management of the national stockpile, restructuring incentives and subsidies for paddy and rice and strengthening management of paddy and rice institutions Under a privatization agreement in 1996, the formerly state-owned company, the National Paddy and Rice Ltd Company (BERNAS) agreed with the Government to a set of duties and obligations which include: the management of the national rice stockpile; the purchase of paddy from paddy farmers at the guaranteed minimum price; acting as buyer of last resort for paddy farmers; managing the disbursement of the subsidies to all registered paddy farmers; managing bumiputera rice millers' schemes; and promoting consumer interests to achieve a fair and stable price and ensure sufficient supply of rice. 26 The agreement also gives BERNAS the sole right to import and distribute rice for the Malaysian market. According to the authorities, the existing agreement will be maintained until January BERNAS has been notified to the WTO as a state trading enterprise under Article XVII of GATT 1994 and the Understanding on the Interpretation of Article XVII The stockpile operated by BERNAS for the Government was set at 292,000 tonnes in According to the authorities, with effect from 1 August 2016, the Government has set the stockpile operated by BERNAS at 150,000 tonnes In addition to the Guaranteed Minimum Price of RM 1,200 per tonne (increased from RM 750 per tonne in 2014), a range of support measures are available for rice producers including direct payments for each tonne produced, a number of input subsidies, and a rice millers subsidy (Table 4.10). 29 In 2016, the total cost of the rice subsidy programmes was reported to be 25 Ministry of Agriculture and Agro-Based Industry (2011), National Agrofood Policy , p BERNAS (2017), Notice of Extraordinary General Meeting, 2 March, p. i. Viewed at: [October 2017]. 27 WTO document G/SR/N/16/MYS, 17 October OECD (2017), Building Food Security and Managing Risk in Southeast Asia, OECD Publishing, Paris. p.111. Viewed at: [October 2017]; and Caballero-Anthony M, Teng P, Lassa J, Nair T, Shrestha M, Public Stockpiling of Rice in Asia Pacific, Nanyan Technological University, NTS Report 2016, p. 38. Viewed at: [October 2017]. 29 MARDI (2015), Policies and Economic Development of Rice Production in Malaysia, 17 March. Viewed at: [October 2017]. Vengedasalam D, Harris M, MacAulay G (2011), Malaysian Rice Trade and Government Interventions, paper presented to the 55 th Annual Conference of the Australian Agricultural and Resource Economics Society, 8-11 February Viewed at: [October 2017].

89 approximately RM 1 billion per year 30 and RM 1.3 billion was allocated in 2017, which was 46% of the total allocation to agriculture (Table 4.11). 31 Table 4.10 Incentives for rice production 2009, 2014, and Budget allocation RM million Budget allocation RM million Budget allocation RM million Price subsidy RM 248.1/tonne 448 RM 248.1/tonne 480 RM 300/tonne 507 Fertilizer subsidy NPK mixed 240 kg/ha 240 kg/ha 240 kg/ha Organic 80 kg/ha 80 kg/ha 80 kg/ha Yield increase RM 650/tonne 40 RM 650/tonne incentive increase increase Paddy production incentive Ploughing RM 100/ha RM 100/ha RM 100/ha Fertilizer RM 140/ha RM 140/ha RM 140/ha Additional fertilizer 150 kg/ha kg/ha kg/ha 240 Pesticides/herbicides RM 200/ha 173 RM 200/ha 140 RM 200/ha 130 Rice Millers Subsidy Peninsular Malaysia RM 750/tonne RM 750/tonne 0 Sabah & Sarawak RM 600/tonne RM 600/tonne 0 Sabah & Sarawak subsidy 150 a 0 0 RM /ha 70 b Note: a: Difference between wholesale price and purchase cost of rice imports. b: Hill paddy fertilizer in Sabah and Sawarak. Malaysian authorities, MARDI (2015) and Vengedasalam D, et al Trade policy On average, tariffs on agricultural tariff lines (WTO definition), with a simple average of 3.3%, are lower than on non-agricultural tariff lines (simple average 8.0%). Furthermore, over two-thirds of agricultural tariff lines are duty free and the range of tariffs (the standard deviation is 8.2) is less than on non-agricultural tariff lines. However, these figures exclude 64 tariff lines with specific duties (58 of which are alcoholic beverages, 5 cigarettes and cigars, and one for pineapples). The ad valorem equivalents of these tariff rates vary from 0.2% (clove cigarettes) to 465% (certain manufactured tobacco) (Section ) Malaysia has reserved the right to use the special agricultural safeguard for 71 tariff lines but the SSG has never been invoked Malaysia has commitments relating to 19 tariff quotas for a range of meat and animal products as well as cabbages, unroasted coffee beans, wheat flour, sugar, and tobacco. The most recent notification for imports under tariff quotas was for calendar years 2014 and 2015, and the previous one for For , an applied tariff regime operated where the quotas were not opened and the applied tariff on all imports did not exceed the in-quota tariff. From 2008 to 2015, nine quotas were applied (10 in 2011) one of which was a combination of three scheduled quotas for poultry meat and offal. In some cases, a quota was opened for more than the scheduled quantity. Actual imports within tariff quotas varied from one product to another and from one year to another, for example: For live poultry chickens (HS ); 30 Caballero-Anthony M, Teng P, Lassa J, Nair T, Shrestha M, Public Stockpiling of Rice in Asia Pacific, Nanyan Technological University, NTS Report 2016, p. 40. Viewed at: [October 2017]. 31 EY (2016), Budget 2017 Malaysia, Volume 4 Issue 3 24 October. 32 WTO documents G/AG/N/MYS/3, 16 April 1996; G/AG/N/MYS/9, 10 December 1997; G/AG/N/MYS/15, 14 September 2000; G/AG/N/MYS/16, 19 July 2005; G/AG/N/MYS/17, 20 January 2006; G/AG/N/MYS/21, 19 November 2008; G/AG/N/MYS/23, 20 March 2009; G/AG/N/MYS/27, 16 March 2010; G/AG/N/MYS/28, 27 March 2012; G/AG/N/MYS/31, 16 July 2014; G/AG/N/MYS/33, 24 March 2015; and G/AG/N/MYS/37, 5 October WTO document G/AG/N/MYS/39, 13 July 2017; G/AG/N/MYS/34, 27 March 2015; G/AG/N/MYS/34/Corr.1, 28 September 2015; and G/AG/N/MYS/39, 13 July 2017.

90 the scheduled quota is 1,943,125 animals; the actual quota opened varied from 1,943,128 in 2008 to 2,195,275 in 2015 ; and in-quota imports varied from zero in 2008, 2009, and 2012 to 53,645 in 2015; and For milk and cream (HS , , and ); the scheduled quota is 1,000,000 litres; the actual quotas opened varied from 6,620,000 litres in 2008 to 8,922,473 in 2015; and in-quota imports varied from 341, in 2014 to 8,110,007 litres in According to the authorities, quota allocation is on a first-come-first-served basis Support levels The total budgetary outlay for agriculture in 2017 was about RM 2.8 billion under a variety of programmes (Table 4.11). However, this includes research but does not include the value of border measures, such as tariffs, and does not take account of the taxes and fees paid for production and/or export of some commodities. Table 4.11 Budget outlay for agriculture, 2017 (RM million) 2017 Rice subsidies 1,300 Production of palm oil, rubber, cocoa, pepper 286 Rubber small holders rainy season subsidy 260 Rubber small holders production incentive 250 Fishers living allowance 250 Food distribution 140 Palm oil quality, replanting, roads 100 Young agricultural entrepreneurs 100 Palm oil research 50 Palm oil small holders replanting 30 Palm oil small holders upgrading roads 20 EY (2016), Budget 2017 Malaysia, Volume 4 Issue 3 24 October The last notification of agricultural support to the WTO was in 2014 for calendar years 2008 to According to these notifications, all support measures are in the Green Box category or are input subsidies to resource-poor farmers as provided for under Article 6.2 of the Agreement on Agriculture. Most support is for the price stabilization and guaranteed minimum price schemes for paddy farmers and drainage and irrigation facilities. The fertilizer subsidy scheme notified as a measure that meets the criteria of Article 6.2 is only for paddy farmers. The value of support under different measures varies from one year to another, particularly in 2009 when support for the price stabilization and guaranteed minimum price schemes, and drainage and irrigation, increased compared to earlier years before declining in 2010 (Chart 4.2). 34 WTO documents: G/AG/N/MYS/34, 27 March 2015; and G/AG/N/MYS/34/Corr.1, 28 September 2015.

91 Chart 4.[] domestic support in Malaysia, Chart 4.2 Domestic support in Malaysia, Article 6.2 Investment and input support (RM million) (RM million) 1,400 Green Box ,200 1, Price stabilization and guaranteed minimum price Extension services Marketing Research and development Drainage and irrigation facilities WTO WTO notifications. notifications A number of Government programmes are operated by Agrobank to provide finance to the agriculture and fishing sectors. The profit rates charged by Agrobank for the loans to farmers under mandated programmes is 3.75%, which tends to be significantly lower than the profit rates charged by commercial banks (Table 4.12). Table 4.12 Financing scheme funds operated by Agrobank, (RM million) Fund Note Fund for Food To enhance food production and reduce dependency 1, (3F) on imports; Merged with DPUP 1 in May 2014 Oil Palm Replanting Replanting oil plantations Micro Enterprise Fund Micro financing for selected eligible micro entrepreneurs Commercial To finance the commercial agro-based industry n.a Agriculture Fund Agriculture Entrepreneur Fund 1 (DPUP 1) To enhance food production and reduce dependency on imports n.a Agriculture Entrepreneur Fund 2 (DPUP 2) Agriculture Entrepreneur Fund 3 (DPUP 3) To stimulate growth of farming activities involving up and downstream activities To stimulate growth of farming activities involving up and downstream activities n.a n.a. n.a Special Relief Facility For farmers affected by flooding in December 2014 n.a. n.a Bumiputera Financing facilities to Bumiputera entrepreneurs, 51.1 n.a. n.a. n.a. Commercial and Industrial Community Scheme farmers, fishers and other related institutions; Merged with DPUP 1 in May 2014 Paddy Credit Scheme To encourage the paddy industry; Merged with DPUP 76.7 n.a. n.a. n.a. 1 in May 2014 Food Production Credit Scheme Merged with DPUP 1 in May n.a. n.a. n.a. Fishery Boat Financing Scheme To modernize facilities with the fishery industry, promote deep sea and high sea fishing industry; Merged with DPUP 1 in May 2014 To encourage the involvement of graduates in the agriculture sector; Merged with DPUP 1 in May 2014 To encourage investment in the agricultural industry; Merged with DPUP 1 in May n.a. n.a. n.a. Entrepreneur Scheme for Graduates 6.0 n.a. n.a. n.a. Financing for Small 73.0 n.a. n.a. n.a. and Medium Size Industries Non-Food Production To enhance primary and tertiary agricultural 22.6 n.a. n.a. n.a. Credit Scheme activities; Merged with DPUP 1 in May 2014 Total 1, , , ,887.6 n.a. Not applicable. Malaysian authorities, and Agrobank annual reports 2015 and Viewed at: [October 2017].

92 Fisheries Features Although fisheries contributed only about 1% to GDP in 2016, seafood products are an important source of food with consumption over 50 kg per person per year. There were about 132,305 people working on licensed fishing vessels in 2016, of which about 27% were non- Malaysian (Table 4.13). 35 Table 4.13 Selected indicators, Contribution to GDP (RM million) Fishing 9,036 9,687 10,893 11,367 12,312 12,181 12,654 Marine 5,997 6,441 6,989 7,505 8,105 8,007 8,545 Aquaculture 3,039 3,246 3,904 3,862 4,207 4,175 4,109 Employment Working on licensed 129, , , , , , ,305 vessels Aquaculture n.a. n.a 52,273 47,689 47,174 44,857 n.a. n.a. Not available. Department of Statistics Malaysia, Department of Fisheries In quantity terms, marine capture has been relatively stable over 2010 to Aquaculture has declined, although it remained considerably higher than in the early years of the 21 st century. Inland capture has also remained fairly stable, although it is very small compared to marine capture or aquaculture (Table 4.14). 36 Table 4.14 Marine and inland capture fishing and aquaculture, tonnes Inland capture Marine capture 1,386 1,398 1,397 1,433 1,377 1,476 1,487 1,462 1,490 of which Not identified Indian mackerels n.e.i. Indian scad Shrimps, prawns Tunas, bonitos, billfishes Molluscs Aquaculture of which Whiteleg shrimp Barramundi Tilapias and other cichlids Groupers n.e.i Mangrove red snapper Torpedo-shaped catfishes n.e.i. US$ million Aquaculture a , of which Whiteleg shrimp Barramundi Tilapias and other cichlids Groupers n.e.i Mangrove red snapper Torpedo-shaped catfishes n.e.i a FAO FishStat does not have data for the value of marine catch. FAO FishStat online database. Viewed at: [October 2017]. 35 Department of Fisheries (2017), Annual Fisheries Statistics 2015, Table FAO FishStat online database. Viewed at: [October 2017].

93 In 2015, there were 56,211 registered fishing vessels in Malaysia, of which nearly 3,000 were small unpowered vessels, 36,425 were powered by outboard motors and 16,740 by inboard motors. The majority of vessels are quite small, less than 39 horsepower (Table 4.15). The most common type of fishing gear for outboard powered vessels is gill/drift nets, followed by hooks and lines. For inboard powered vessels, the most common type of gear is trawl nets, followed by gill/drift nets. 37 Table 4.15 Malaysia's fishing fleet, 2015 Horsepower Inboard Outboard Unpowered 3,046 Less than to , to ,212 12, to ,878 8, to , to , to , (150 hp plus) 150 to , to , to plus 2,053 Total 16,740 39,471 Department of Fisheries (2017), Annual Fisheries Statistics 2015, Tables 2.2 and Trade According to UNSD Comtrade, in 2016 Malaysia had a deficit for trade in fish and fish products 38 with imports of US$916 million and exports of US$662 million. Both imports and exports declined in US dollar terms since 2013 when they were US$1,037 million and US$772 million respectively. Exports of crustaceans (mostly shrimps), preparations from fish eggs, and frozen fish other than frozen fillets, and molluscs (mostly cuttlefish) represented more than threequarters of exports of fish and fish products. Imports of frozen fish (other than frozen fillets), fresh fish (other and fish fillets), molluscs (mostly cuttlefish), and fish fillets represented 68% of imports (Table 4.16). Table 4.16 Exports and imports of fish and fish products, (US$ million) Top 4 partners Exports Total exports of fish and fish products of which 0306 Crustaceans, fit for human consumption Singapore; Viet Nam; Australia; China 1604 Caviar and caviar substitutes prepared from fish eggs 0303 Fish, frozen, excluding fish fillets and other fish meat of heading Molluscs, fit for human consumption Singapore; Australia; Hong Kong, China, Indonesia Viet Nam, Thailand, China, Indonesia Viet Nam; Japan; Singapore; Korea, Rep. of 0304 Fish fillets and other fish meat Japan; United States; Singapore; Australia 37 Department of Fisheries (2017), Annual Fisheries Statistics 2015, Tables 2.2 and Viewed at: [October 2017]. 38 For the purposes of this paragraph, fish and fish products are those under HS 2012 headings 02840, 03, , , , , 1504, 1603, 1604, 1605, and

94 Top 4 partners Imports Total imports of fish and fish products 1,037 1, of which 0303 Fish, frozen, excluding heading China; Viet Nam; Indonesia; Japan 0302 Fish, fresh or chilled, excluding heading Indonesia; Norway; Thailand; Japan 0307 Molluscs, fit for human consumption China; Indonesia; Japan; Viet Nam 0306 Crustaceans, fit for human consumption Indonesia; China; India; Myanmar 0304 Fish fillets and other fish meat Viet Nam; Indonesia; China; United States UNSD Comtrade Policy The Department of Fisheries in the MOA is responsible for development and implementation of policy and legislation, including management of fisheries and related matters. The Department also provides technical support for marine and freshwater fisheries and aquaculture. In addition, there are several agencies responsible for specific aspects of fisheries and aquaculture: Under the Department, the Fisheries Research Institute of Malaysia is responsible for research; The Fisheries Development Authority of Malaysia is responsible for promoting and developing fishery enterprises and marketing along with the Fishermen's Associations and Fisheries Cooperatives; The Malaysia Maritime Enforcement Agency is responsible for the protection of the Malaysian Maritime Zone including air and coastal surveillance, management of maritime training institutions, and maritime search and rescue; and For Sabah, the Department of Fisheries Sabah is responsible for developing policies for the state The principal legislation on fisheries is the Fisheries Act No. 317 of 1985 and accompanying regulations. Under the Act, a licence from the Department of Fisheries is required for all fishing activity and marine water-based aquaculture projects Under the Fisheries Act, the Minister of Agriculture and Agro-based Industry may make regulations relating to the management and development of fisheries resources, including: licensing of vessels; specifications for vessels; fishing gear licensing; prohibited fishing methods, areas, and species; closed seasons; etc. Fishing areas are defined by zones defined by distance from shore with fishing in each zone restricted by size and type of vessel (Table 4.17). In-land aquaculture regulations are issued by the authorities of the states.

95 Table 4.17 Fishing zones in Malaysia Up to 1 June 2014 A B C C2 C3 Distance from Nautical to EEZ High seas shore miles Vessel size GRT Less than 40 Less than plus 70 plus Vessel type Traditional gear Trawlers/ purse seiner Trawlers/ purse seiner Trawlers/ purse seiner Purse seiners/tuna long line From 1 June 2014 for west coast Peninsular Malaysia Refugia a A B C C3 Distance from shore Nautical miles High seas Vessel size GRT Less than 40 Less than plus 70 plus Vessel type Aquaculture Traditional gear/ anchovy purse seine Trawlers/ purse seiners Trawlers/purse seiners Purse seiners/tuna long line a Kedah, Pulau Pinang, Perak, and Selangor only. Department of Fisheries online information. Viewed at: [October 2017]; Department of Fisheries (2015), National Plan of Action for the Management of Fishing Capacity in Malaysia (Plan 2), p. 31, and Presentation to the Stakeholders Consultation on Regional Cooperation in Sustainable Fisheries Development Towards the ASEAN Economic Community 1 March 2016, Bangkok The general policies and strategies for fisheries are set out in the Economic Transformation Programme, the National Agrofood Policy (NAP), and the 11 th Malaysia Plan (11MP) for (Section ). In addition, specific policies for the subsector are set out in the Strategic Plan of the Department of Fisheries , the National Plan of Action (NPOA) for the Management of Fishing Capacity , and the NPOA to Prevent, Deter and Eliminate Illegal Unreported and Unregulated Fishing Among the strategies for modernizing agriculture in 11MP, is the statement that fishers' associations will be given incentives, through special schemes, to assist their members in buying deep-sea vessels. 39 The NAP includes a section on sustainable modernization and transformation of the capture fisheries industry which projects an increase in marine catch to 1.76 million tonnes by 2020, of which 620,000 tonnes would be from deep sea fishing. The NAP also emphasises the sustainable development of capture fisheries through effort and gear restrictions and compliance with international measures such as the FAO Code of Conduct for Responsible Fisheries 1995, Agreement on Port States Measures to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing (IUU Fishing) and EC Regulation 1005/ The fishing capacity plan is the second such plan and highlights a number of strategies to improve sustainable management of fisheries by addressing current problems including: overcapacity is to be addressed through a moratorium on new licences for vessels and gear in the coast zone, regular assessment of fishing capacity and resources, adjustment of effort to match the maximum sustainable yield, and cancellation of licences for non-performing vessels; overfished resources are to be managed through the establishment of fish refuges, closed seasons for specified areas, a revised zoning system (Table 4.18), and an individual quota system based on total allowable catches; gear specifications are to be developed, the impact of management measures assessed, data collection and dissemination improved, regulations on foreign fishers working on local vessels strengthened; monitoring and surveillance are to be improved, including measures to prevent fishing in prohibited zones, and foreign vessels in the EEZ; and 39 Prime Minister's Department (2015), Eleventh Malaysia Plan Anchoring Growth on People, p Ministry of Agriculture and Agro-Based Industry (2011), National Agrofood Policy , pp

96 public awareness of the need for conservation and management is to be improved, including stakeholder participation in resource management activities According to the authorities, the Plan to Prevent, Deter and Eliminate IUU Fishing was developed in accordance with the International Plan of Action to Prevent, Deter, and Eliminate Illegal, Unreported and Unregulated Fishing (IPOAIUU) which was adopted by the Committee on Fisheries and endorsed by the FAO in The Plan notes that Malaysia currently applies a vessel monitoring system (VMS), applies reporting requirements for catch and effort, monitors fish landings, and conducts vessel and gear inspections. Furthermore, catch and effort reports are compared to the VMS as well as landing and trade data to confirm accuracy. As all vessels and fishing gear must be licensed and all vessels must carry identification markings, inspections can confirm compliance with the terms of the licences. All foreign fishing vessels are required to notify the Malaysian authorities before entering Malaysian waters and may only fish or undertake fishingrelated activities if authorized to do so under an international fishery agreement between Malaysia and the government of the other country, or between Malaysia and the international organization to which such a vessel belongs to or to which such vessel is registered, and under a permit issued by the Director-General of Fisheries From 2006 to 2015, on average, 800 cases per year were taken to the courts for offences committed by domestic fishing vessels under the Fisheries Act. In addition, a small number of cases were taken to the courts against foreign vessels (two were detained or prosecuted in 2015), one of which resulted in a fine of RM million and seizure of the cargo, which was auctioned for RM 5 million The Government provides a number of supports to the fisheries sector including fuel subsidies, living allowances, and catch incentives: The living allowances were increased in 2015 from RM 200 per month: to RM 300 for fishers fishing in Zone A; and to RM 250 for Zones B and C; The catch incentives for fishers vary with the Zone and exclude by-catch; Zone A (petrol): RM 0.10 per kg up to RM 150 per month; Zone A (diesel): RM 0.10 per kg up to RM 350 per month; Zone B: RM 0.10 per kg up to RM 750 per month; Zone C: RM 0.10 per kg up to RM 1,500 per month; and Zone C2: RM 0.20 per kg up to RM 5,000 per month. Table 4.18 Government spending on fisheries, (RM million) Fuel subsidy Living allowances Catch incentives Other support programmes Malaysian Authorities According to one report, the value of the subsidies varies depending on the type of fishing and the zone of operation. For Zone A fishers, 38% of an average total income of RM 2,118 per month is from subsidies (18% of income is from the fuel subsidy). For Zone C fishers, 28% of the average total income of RM 20,881 is from subsidies (24% of income is from the fuel subsidy). 42 The authorities also pointed out that the fuel subsidy is only available to eligible fishers in Zones A, B, and C and that larger commercial vessels are not eligible. 41 Department of Fisheries (2015), National Plan of Action for the Management of Fishing Capacity in Malaysia (Plan 2). 42 Ali J, Abdullah H, Noor MSZ, Viswanathan KK, Islam GN (2017), The Contribution of subsidies on the Welfare of Fishing Communities in Malaysia, International Journal of Economics and Financial Issues 7(2), p Viewed at: [October 2017].

97 For aquaculture, state governments designate Aquaculture Industrial Zones (both on land and in water) for commercial-scale aquaculture projects, including seaweed. In 2015, there were 49 sites covering more than 28,000 ha. The Federal Government's role is focused on general planning and technical support. 4.2 Mining and Energy Mining and quarrying According to the Department of Mineral and Geoscience Malaysia, minerals and mining (not including petroleum and natural gas) represented about 0.5% of GDP, or RM 5,389 million, in 2016, having increased steadily since 2010 (RM 3,653 million). However, it remains small compared to crude oil and natural gas which were close to RM 100 billion in In 2016, there were 11,081 people engaged in the mineral mining and quarrying subsectors, with 5,029 in the mineral mining subsector and the others in quarrying. Among minerals, bauxite was biggest in 2015 but declined sharply in 2016, reportedly as a result of a government moratorium which was first imposed in January 2016 for three months and extended several times, most recently in June 2017 for a further six months. The moratorium was not a total ban on bauxite-related activities as transport to ports and export from bauxite stockpiles was permitted (Table 4.19). Table 4.19 Mining and quarrying production, Contribution to GDP Other mining & RM million 4,000 6,257 5,762 6,928 7,375 7,191 5,389 quarrying and supporting services Minerals Bauxite 000 tonnes , RM million Gold kg 3,766 4,219 4,625 3,823 4,308 4,732 2,249 RM million Tin tonnes 2,668 3,340 3,725 3,697 3,777 4,125 4,158 RM million Iron ore 000 tonnes 3,558 8,006 12,144 12,134 9,615 1,625 1,914 RM million 424 1,616 1,822 1,699 2, Energy minerals Coal 000 tonnes 2,397 2,916 2,951 2,907 2,688 2,559 1,333 RM million Quarrying Aggregates 000 tonnes 101, , , , , , ,073 RM million 1,637 2,011 1,863 2,528 2,440 2,766 2,263 Limestone 000 tonnes 22,431 21,832 23,534 18,069 23,948 24,164 25,431 RM million Sand & gravel 000 tonnes 30,698 37,339 28,592 35,577 29,862 40,578 45,820 RM million Silica sand 000 tonnes 932 1, ,244 1,923 9,003 5,408 RM million Malaysian authorities; and Malaysianminerals.com. Viewed at: 6 [October 2017] In trade terms, exports of non-energy minerals and coal (HS headings 25, 26, and ) tend to vary considerably from one year to another as exports of bauxite (HS 2606) were US$2 million in 2013, US$707 million in 2015, and US$151 million in In addition, some products are imported and exported in similar quantities and values, such as copper ores and concentrates and iron ores and concentrates (Table 4.20).

98 Table 4.20 Imports and exports of non-petroleum minerals, (US$ million) HS heading Imports Coal, briquettes 1,855 1,568 1,313 1, Iron ores and concentrates, including roasted iron pyrites 2609 Tin ores and concentrates Products from distillation of coal tar, mostly aromatic constituents 2616 Precious metal ores and concentrates Portland cement, aluminous cement, slag cement, supersulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers 2704 Coke and semi-coke Copper ores and concentrates HS heading Exports Iron ores and concentrates, including roasted iron pyrites 2707 Products from distillation of coal tar, mostly aromatic constituents 2616 Precious metal ores and concentrates Aluminium ores and concentrates Copper ores and concentrates Portland cement, aluminous cement, slag cement, supersulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers 2517 Pebbles, gravel, broken or crushed stone Limestone used for the manufacture of lime or cement UNSD Comtrade The Ministry of Natural Resources and Environment is responsible for general policy, and for preparing and implementing legislation relating to mining and quarrying. In 2009, the National Mineral Council and the National Forestry Council were disbanded and the National Land Council took over their responsibilities to oversee development of the sector and coordinate policy among central and state authorities. Policy is set out in the National Mineral Policy of January 2009 which aims for the expansion of the sector through a conducive business climate for exploration and extraction while emphasizing sustainable development and environmental protection. 43 The Eleventh Malaysia Plan also emphasizes the sustainable development of minerals The principal laws relating to minerals are the Mineral Development Act No. 525 of 1994 (where "mineral" does not include petroleum or rock material), the Petroleum Mining Act No. 95 of 1966 (covering petroleum) and the National Land Code Act No. 56 of (covering rock material). In addition, each state has its own legislation relating to mining activities One of the objectives of the National Mineral Policy is the efficient, effective and transparent implementation of harmonized state mineral laws and the application by the states of a model mineral agreement between the state and the investor. All the states in Malaysia, except Sarawak, have promulgated new mineral laws based primarily on the template, the content of which was approved by the National Land Council. In Sarawak, the existing law was amended to bring it into line with the National Minerals Policy. Under these state laws, each state may grant licences for prospecting, exploration, and mining Exploration licences may be granted for areas between 400 and 20,000 ha for a maximum of 10 years with a possible extension of 5 years. Prospecting licences may be granted for periods 43 Ministry of Natural Resources and Environment (2009), National Mineral Policy 2 Towards Sustainable Mining. 44 Prime Minister's Department (2015), Eleventh Malaysia Plan Anchoring Growth on People, p Under the National Land Code, rock material is defined as: "any rock, gravel, common sand, common earth, common laterite, loam, common clay, soil, mud, turf, peat, coral, shell, and any other rock materials within or upon any land, and includes processed materials therefrom".

99 of up to 2 years with a possible extension of 2 years. Mining licences may be granted for the expected life of the mine or 21 years, whichever is shorter, with the possibility of renewal. An environmental impact assessment is required for mines of 250 ha or more (Table 4.21). There are no restrictions on foreign companies participating either in their own right, through equity in a local company, or through joint ventures with a local company or companies. Table 4.21 Mineral licences issued, Exploration Prospecting Mining lease Proprietary mining Malaysian authorities Under the states' mineral laws there are no provisions relating to appeals if the state authority has refused an application for an exploration, prospecting or mining licence; a new application is required. For renewal of a mining lease, the applicant may appeal to the state authority if dissatisfied with the authority's decision. In all cases, an appeal to the courts is possible The annual revenue tax rate imposed on mining corporations having a paid-up capital of more than RM 2.5 million is 24% (with effect from year of assessment 2016). As for corporations having a paid-up capital of less than RM 2.5 million, the revenue tax rate is 18% (with effect from year of assessment 2017) for the first RM 500,000 and 24% for the remaining balance (with effect from year of assessment 2016). Generally, mining operators are required to pay 5% of the value of the mineral extracted to the relevant states on a monthly basis. However, such rates may vary according to the type, weight and volume of the minerals extracted, as assessed by the state Energy Energy supply and consumption have continued to increase over the 2010 to 2016 period both in total and per capita. The main source of energy supply is natural gas, followed by petroleum and coal. Supply from renewable sources (including biodiesel and hydropower) did increase during this period and accounted for 4.7% of total supply in Transport is the main energy consumer, accounting for about 45% of total consumption (Table 4.22). Table 4.22 Primary energy supply and consumption, (Thousand tonnes oil equivalent (ktoe)) a Total primary supply Natural gas 35,447 35,740 38,648 39,973 40,113 39,364 40,702 Petroleum 25,008 26,903 29,502 32,474 33,422 29,165 30,157 Coal and coke 14,777 14,772 15,882 15,067 15,357 17,406 17,998 Biodiesel Hydropower 1, ,150 2,688 3,038 3,582 3,704 Biomass Biogas Solar Total 76,809 79,289 86,495 90,731 92,486 90,188 93,254 Final energy consumption by fuel type Natural gas 6,254 8,515 10,206 10,076 9,641 9,566 9,910 Petroleum products 24,403 23, ,191 29,517 28,699 29,732 Coal and coke 1,826 1,759 1,744 1,539 1,709 1,778 1,842 Biodiesel Electricity ,235 10,011 10,590 11,042 11,375 11,785 Total 41,476 43,455 49,290 51,584 52,209 51,807 53,672 Final energy consumption by sector Industrial 12,928 12, ,496 13,162 13,989 14, Athsani RAA (undated), Legal framework of mining industry in Malaysia, AZMI & Associates. Viewed at: [October 2017]. Malaysianminerals.com online information. Viewed at: [October 2017].

100 a Transport 16,828 17,070 19,757 22,357 24,327 23,435 24,279 Residential and commercial 6,951 6,993 7,065 7,403 7,459 7,560 7,832 Non-energy use 3,696 6,377 7,497 7,277 6,217 5,928 6,141 Agriculture 1, ,053 1,051 1, Note: a: Estimate. Malaysian authorities Energy policy relating to upstream oil and gas is the responsibility of the Economic Planning Unit (EPU) and PETRONAS. The Malaysia Petroleum Resources Corporation, created in 2011 under the Prime Minister's Office, was set up to assist investment by domestic and international oil and gas companies with the objective of making Malaysia the principal oil hub for the Asia-Pacific region Other aspects of energy policy are the responsibility of the Ministry of Energy, Green Technology and Water. The Energy Commission of Malaysia, which reports to the Ministry and the EPU, is responsible for regulating the electricity supply and piped gas supply industries in Peninsular Malaysia and Sabah and the State Electrical Inspectorate is responsible for regulating the electricity sector in Sarawak Under the Economic Transformation Plan, a number of Entry Point Projects (EPPs) have been identified which aim to increase the value of the oil, gas, and energy sector against a forecast decline of 2% per year in oil and gas production as resources are exhausted. The EPPs are: sustaining oil and gas production through rejuvenation of existing fields, development of small fields, and by intensifying exploration; enhancing downstream growth by building a regional storage and trading hub and increasing demand in Peninsular Malaysia for gas, and increasing petrochemical output; making Malaysia a hub for oil field services by attracting multinational oil companies to set up in Malaysia and make it their regional base for operations, promoting export by domestic companies, and developing technological capabilities and capacity through strategic partnerships and joint ventures; and building a sustainable energy platform for growth through improved energy efficiency and the development of alternative energy sources by increasing solar, nuclear, and hydroelectric power capacity The Eleventh Malaysia Plan (MP11) emphasizes energy efficiency, the development of renewable energy sources, more efficient recovery of gas and oil, and improvement in infrastructure. It also states that piped gas and compressed natural gas subsidies are to be reduced while petrol and diesel prices will continue to be regulated. The National Energy Efficiency Action Plan (NEEAP) was approved by the Government in January 2016 with several initiatives, including: promotion of 5-star rated appliances; Minimum Energy Performance Standards (MEPS); energy audits and energy management in buildings and industries; Promotion of cogeneration facilities; and energy efficiency building design Petroleum and gas Petroleum and gas remain very important to the economy of Malaysia, as crude oil and condensate, natural gas, and refined petroleum products contributed about 10.5% to GDP and about 14% to government revenues in 2016 (down from 12.7% and 30% respectively in 2014) PEMNDU (2010), Economic Transformation Programme A Roadmap For Malaysia, pp Department of Statistics Malaysia (2017), Annual Gross Domestic Product , 19 May.

101 New discoveries and improved extraction mean reserves of crude oil are keeping pace with production and proved reserves were estimated to be 5.8 billion bbl at end-2014 compared to 6.1 billion bbl in Gas reserves, on the other hand, have continued to increase, reaching 52 trillion standard cubic feet (scf) in 2014 even though production has continued to increase (Table 4.23). 49 Table 4.23 Oil and gas production and use, Oil Contribution to GDP (RM million) Crude and condensate 46,171 51,299 52,654 51,429 51,906 46,853 46,367 Refined petroleum products 28,022 33,881 37,325 36,468 38,156 34,151 32,288 Reserves (billion bbl) n.a. Production (bbl per day) Consumption (bbl per day) Gas Contribution to GDP (RM million) 39,969 40,596 44,001 46,658 51,102 49,561 50,248 Reserves (trillion scf) n.a. n.a. Production (billion cubic m) 5,930 5,931 6,007 6,271 6,331 6,136 6,536 Consumption (billion cubic m) n.a. Note: Not available. bbl barrel. scf standard cubic feet. Malaysian authorities; Energy Commission (2017), Malaysia Energy Statistics Handbook 2016; and BP (2017), BP Statistical Review of World Energy June Malaysia has a trade surplus in gas and petroleum products, although it has considerable imports, some of which are refined in Malaysia and exported. Over the period , the total value of exports of petroleum and petroleum products, and natural gas 50 declined from US$51 billion to US$26 billion, while the value of imports declined from US$31 billion to US$16 billion. However, import and export quantities increased over this period (Chart 4.3) as the fall in prices for oil and gas drove the decline in trade values. In 2016, the main destinations for exports of petroleum, petroleum products and natural gas were Singapore, Japan, China, and Australia. Fitch Ratings (2016), Malaysia Budget Signals Stability Despite Low Oil Revenue, [Press Release] 25 Oct. Viewed at: [October 2017]. 49 Energy Commission (2017), Malaysia Energy Statistics Handbook BP (2017), BP Statistical Review of World Energy June HS 2012 headings to

102 Chart 4.3 Exports and imports of petroleum and petroleum productions, and natural gas, (US$ million, 000 tonnes) Note: HS Crude oil. HS Petroleum oils, light oils and preparations. HS Petroleum oils, other. HS Natural gas. Other all other tariff lines under HS headings to UNSD Comtrade Under the objective to make Malaysia the principal hub for oil and gas in the Asia Pacific, the Johor Petroleum Development Corporation (JPDC) was established in 2012 as a wholly owned subsidiary of the Malaysian Petroleum Resources Corporation (MPRC). The JPDC is responsible for planning and coordinating oil and gas development in the state of Johor which includes the development of a site for the oil refineries, naphtha crackers, and petrochemical plants as well as