Economic Development Strategies in Malaysia

Transcription

1 The answers provided here by Malaysia were received after SOM1 in February The reference for the original document is 2009/SOM1/011anx3 for Malaysia IAP Study Report Malaysian s Answers to Written Questions Received During the Peer Review Session Canada: Questions and Comments 1. Could Malaysia please list the specific restrictions which apply to FDI in the energy and natural resources industries? Is a list of such restrictions published? A liberal policy applies to investment in resource-based manufacturing industries, where 100% foreign equity is allowed. There are no restrictions imposed by the Federal Government on upstream activities in the mining sector. However, mining activities are subject to state government policies and regulations as these involve utilisation of state land, where there may be some restrictions to foreign participation. For example, 100% foreign equity in mining is allowed but it is necessary to have a Joint Venture with a local company as ownership of the land is only given to locals. The State Mineral Enactments of the various states provides details of approval processes for mining activities. For oil and gas, the Petroleum Nasional Berhad (PETRONAS), a wholly government-owned corporation is responsible for regulating upstream oil and gas activities. Foreign investment in the upstream oil and gas sector takes the form of production sharing contracts. Companies which want to engage in downstream operations in processing or refining of petroleum or manufacturing of petro-chemical products from petroleum must obtain special permission as stated in the Petroleum Development Act The IAP Study Report's chapter on Investment states that "Restrictions on equity and export for existing investments may be removed by MITI on request, based on the merits of each case." Could Malaysia please provide detail on the criteria by which requests for a waiver on equity restrictions are evaluated and approved? Are these criteria published?

2 Companies may seek a waiver on the equity and export condition, and flexibility will be given depending on the merits of each case. Criteria are made known to companies seeking a waiver. Evaluation is based on criteria such as level of investment, export activity, technology transfer, employment (skills and expertise), value-added and R&D activities. Japan: Comment on the IAP of Malaysia Chapter VI: Customs Procedures 1. According to the IAP report, Malaysia will implement a single inspection system with border economies, this system is introduced as the One Stop Border post in the 21st century Customs of WCO and it seems to be effective measure to reduce lead time for both economies. With regard to a single inspection system, would you provide us with the details such as following questions to share your experience? Because this system enables us to reduce lead time and accelerate clearance. 1) When will it start? 2) Does the authority in export side inspect? 3) Does the authority in export side report the inspection result to import side? 4) Are you considering joint inspection with other related ministries? The Single Inspection System implemented by Malaysia is not the same as the One Stop Border post mentioned by Japan. Malaysia's Single Inspection is located at two distance points i.e. one at the Thailand border (Sadao) and the other one at the Malaysia border (Bukit Kayu Hitam), and the inspection takes place at the export country. 1. It started on 1st June Yes, the authority in the export side inspects. 3. Yes, the authority in the export side (Export country) report the inspection result to the import side (import country) 4. Yes, Malaysia is considering joint inspection with other related ministries.

3 Republic of Korea : Questions 1. We are aware that the Malaysian government is making efforts to attract foreign investment through improving its investment environment. We would like to know whether there is a specific field of industry for which the Malaysian government particularly wishes to attract investment. If so, what incentives do you offer or plan to offer? The Third Industrial Master Plan (IMP3) has targeted twelve (12) industries in the manufacturing sector and eight services sub-sectors for further development. The 12 industries are: 1. Electrical and electronics 2. Medical devices 3. Textiles and apparel 4. Machinery and equipment 5. Metals 6. Transport equipment 7. Petrochemicals 8. Pharmaceuticals 9. Wood-based products 10. Rubber and rubber products 11. Oil Palm-based industry 12. Food processing and the eight Services sub-sectors are: 1. Business and professional services 2. Distributive trade 3. Education and training 4. Construction 5. Health services 6. Tourism services 7. Integrated logistics 8. ICT services The IMP3 has also identified niche areas for development from the industries identified. For example, niche areas in the electrical and electronics sector include high-tech industries such as nanotechnology, micro-micro-mechanical systems, photonics, wireless technologies and advanced display technology products. This

4 is in tandem with Malaysia s focus on attracting high-technology, value-added and capital-intensive investments. Various incentives are offered in the form of Pioneer Status or Investment Tax Allowance for eligible investors involved in high-tech projects such as biotechnology, optoelectronics and aerospace, strategic projects and selected industries. The list of incentives can be obtained from MIDA s website: In addition, Malaysia is also promoting FDIs in economic corridor developments such as Iskandar Malaysia which is earmarked as the hub for the services sector namely the creative, educational, healthcare, financial, tourism and logistic industry. Other corridor developments being promoted are the East Coast Economic Region (ECER), Northern Corridor Economic Region (NCER) and the Sabah as well as Sarawak Economic Region. Investments in the Corridors are exempted from the FIC ruling. 2. According to the report, Malaysia allows the free transfer of capital. Are there any specific circumstances defined by Malaysian law under which the transfer of funds could be restricted? I would appreciate a detailed explanation of any national laws that provide emergency or temporary safeguard measures. In particular, please specify whether such safeguard measures are implemented on the basis of NT or MFN. In addition, please provide descriptions of previous cases where safeguard measures were implemented. At present, Malaysia does not have any national law that provides emergency or temporary safeguard measures in the services sector. 3. The expropriation of assets held by investors constitutes one of most serious problems that investors face. However, the report does not mention any legal framework concerning the expropriation of assets owned by foreign investors. Regarding the matter, please provide a legal explanation detailing the purpose of expropriation, calculation method for interest between the date of expropriation and the date of payment, payment currency, the process of compensation and interest payment and other information. The general principle with regards to expropriation is that expropriation should not be undertaken by either party except under the following circumstances when the measures are:

5 (a) (b) (c) taken for a lawful or public purpose and under due process of law; non-discriminatory; accompanied by provisions for the payment of prompt, adequate and effective compensation. Such compensation shall amount to the market value of the investments affected immediately before the measure of dispossession became public knowledge, and it shall be freely transferable in freely usable currencies from the Contracting Party. Any unreasonable delay in payment of compensation shall carry an interest at prevailing commercial rate as agreed upon by both parties unless such rate is prescribed by law. All measures of expropriation relating to land is as defined in the laws and regulations relating to land acquisition. Chapter III: Services 4. According to the report, the Malaysian government subjects foreigners to several regulations in the field of professional services. For example, only licensed Malaysian architects are permitted to submit architectural plans. Also, foreign accountants are required to register with the Malaysian Institute of Accountants (MIA) and registration requires citizenship or permanent residency as well as accounting qualification. We would like to know the Malaysian government s plans to liberalize this area. Most of the professionals such as engineers, architects, lawyers and accountants are regulated by the respective Boards and Councils and governed by relevant Acts such as Architect Acts 1967 and Engineers Act 1967, the Legal Profession Act The architectural sector is regulated by the Board of Architect and is governed by the Architects Act The Act stipulates that only Malaysians may submit architectural plans prior to being able to provide the service in Malaysia. Nevertheless, the industry supports foreign architects to work in collaboration with local architects in line with the International Union of Architects (UIA)'s Policy on Practice in a Host Nation. This would ensure that proper and effective understanding is given to legal, environmental, social, cultural and heritage factors. Accountancy is being offered in Malaysia s regional and bilateral FTAs. However, it is the Act s requirement for accountants to be registered with the Malaysian Institute of Accountant, which is a regulatory body in Malaysia, prior to being able to practice locally. Foreign accountants can practice if they: - possess qualifications as recognised by Accountants Act 1967;

6 - registered as a member of MIA ; and - possess MIA Certificate of Practice. Additional licenses are required to provide auditing services from Ministry of Finance. 5. According to the report, applications for foreign equity exceeding 30% are granted on a case by case basis. If foreign investment is permitted to exceed 30%, is the foreign investor subject to any review procedures or public interest tests? If so, please explain in detail. Foreign investors will not be subjected to any review on procedures or public interest tests or further equity condition once their investment proposals has been approved. FIC s Guideline clearly stipulates that the requirement for all corporate transactions, foreign investors to have at least 30% Bumiputera equity participation except if it is expressly stated otherwise by the Government. The request for relaxation as well as flexibility and exemption on foreign equity participation may be given subject to the needs, requirement and approval of the respective and relevant Ministries. Chapter III: Services 6. The telecommunications industry requires huge amounts of initial investment. In order to facilitate this initial investment, is it possible to consider postponing the application of the 30% Bumiputra equity participation rate and increasing the foreign equity limit in the early stages of foreign investment? The request for relaxation as well as flexibility and exemption on foreign equity participation may be given subject to the needs, requirement and approval of the respective Ministries. (In this case Ministry of Energy, Water and Communications, Malaysia). The requirement of having at least 30% Bumiputera equity participation will be applied uniformly unless and except if it is expressly stated otherwise by the Government. The proposal to postpone the 30% Bumiputera equity particpation may be considered on a case by case basis.

7 Chapter III: Services Mexico : Questions Financial Services General policy Mexico welcomes the progress Malaysia is making to liberalize the financial services sector. The Financial Sector Master Plan (FSMP) and the Capital Market Master Plan (CMP) provide the framework for gradual liberalisation. Could Malaysia tell us to what extent does the gradual removal of some restrictions on incumbent foreign financial institutions (Phase II), have been reached? The Malaysian capital market is currently in Phase III of the CMP. In relation to non-bank financial institutions, the following liberalisation measures have been introduced: five new licences were issued to major foreign stock broking companies and another five new licenses were issued to foreign fund managers to establish operations in Malaysia. Foreign participants are permitted to own up 100% equity in these intermediaries; three new licenses were issued to international fund managers to establish Islamic fund management operations in Malaysia, while two more applications for Islamic fund management have been approved. Up to 100% foreign equity ownership is permitted for these Islamic fund management companies; there are no longer any restrictions on local stock broking companies employing foreign dealers representatives; foreign participants are now permitted to own up to 100% equity in futures brokers either through new licenses or by buying equity in existing operations; and there are no longer any restrictions on foreign ownership in investment advisory companies and venture capital companies. More recently, to encourage greater flow of funds from the Middle East to Malaysia, approval to establish a stock broking company in Malaysia has been issued to a foreign stock broking company. The license is one of the three stock broking licenses that are available to be issued to leading stock broking companies (100% foreign ownership allowed), as part of Malaysia s efforts to strengthen its position as an international

8 financial centre. Malaysia has remained pragmatic in liberalisation of financial services and policies are continually reviewed and modified or liberalised where it serves to the best of Malaysia s interest and the overall benefits are meaningful and significant. Malaysia also does not preclude the earlier implementation of certain measures including for the removal of restrictions on incumbent foreign financial institutions. Collectively, over Phases 1 and 2, restrictions on incumbent foreign financial institutions have been removed to a significant extent. Steps taken to allow greater operational flexibility to incumbent foreign financial institutions included: allowing locally-incorporated foreign banks to offer full range transactional internet banking services; removing the 50% limit on the maximum total credit facilities that could be obtained by non-resident controlled companies from locally-incorporated foreign banks (LIFBs); allowing commercial banks, including LIFBs, to provide factoring services as part of their commercial banking businesses or through subsidiaries which can have up to 100% foreign equity permitting LIFBs to establish a shared automated teller machine network; allowing LIFBs to establish up to four additional branches based on a pre-determined ratio of 1(market centres): 2(semi-urban): 1(non-urban) within one year from 1 January 2006; permitting life insurers, including foreign-owned life insurers to sell education and single investment-linked insurance policies denominated in foreign currencies; allowing foreign-owned insurers with foreign shareholding not exceeding 51% to open a maximum of two branch offices in one year; according greater operational flexibility to foreign Islamic banks and Islamic subsidiaries of the locally incorporated foreign banks to establish branches; and allowing LIFBs to establish Islamic banking subsidiaries with 100% foreign equity participation. Chapter III: Services Professional Services The sectoral report mentions that while few concrete measures to reduce restrictions affecting foreign professionals have taken place during the review period, Malaysia recognizes the need to modernise its legislation and practice pertaining to the recognition of foreign practitioners and is

9 committed to further liberalisation of professional services. Efforts undertaken in the past three years should be considered positive steps towards a longer term goal of progressively removing restrictions which hinder professional services trade. We would appreciate if Malaysia could indicate whether specific improvements in licensing and requirements in the professional services market have been planned. Professionals such as engineers, architects, lawyers and accountants are regulated by the respective Boards and Councils and governed by relevant Acts such as Architect Acts 1967 and Engineers Act 1967, the Legal Profession Act Currently, reviews are being planned to update the Acts for professional services where necessary. Chapter III: Services Architectural services The report mentions that foreign architectural firms are required to form joint ventures in a specific project with the approval of the Board of Architects in order to operate in Malaysia. Firms are not permitted to register as partners of Malaysian firms or to be registered in Malaysia, but may be involved in Malaysian firms as managers, shareholders or employees. Only licensed Malaysian architects are permitted to submit architectural plans. On the other hand, Malaysia supports facilitation of mobility of architects through MRAs of qualifications among APEC economies. Please clarify if there would be flexibility in the near future for architects from APEC economies to submit architectural plans. We would like to hear additional information regarding Malaysia s plans to further liberalize its architectural services. The architectural sector is regulated by the Board of Architect and is governed by the Architects Act The Act stipulates that only Malaysians may submit architectural plans prior to being able to provide the service in Malaysia. Nevertheless, the industry welcomes foreign architects to work in collaboration with local architects in line with the International Union of Architects (UIA)'s Policy on Practice in a Host Nation. This would enable that proper and effective understanding is given to legal, environmental, social, cultural and heritage factors. Chapter III: Services Health services Malaysia has noted that it may consider improving the capacity of foreign medical specialists and therapists to provide healthcare services in Malaysia in the near future, depending on the need and demand. We would like to know if Malaysia could indicate whether any other improvements in the health

10 services market have been planned. Yes, Malaysia is considering improvements such as removing the limitation on types of specialties allowed in themedical specialty services offer. Maritime transport The report mentions that the government has plans to establish a single central agency to coordinate port development and regulate licensing of port operators. The proposed agency will replace the five current residual port authorities and will regulate licensing of all private port and terminal operating companies currently licensed by the port authorities. A draft bill on the agency has been prepared by the Ministry of Transport however, as of October 2008 it was still to pass through the Parliament. Please explain what requirements foreign operating companies must meet to obtain a license. All International Ports in Malaysia have been privatized. Investments can be made in the existing port operators as long as they fulfill the requirements and approved by FIC and Privatisation Committee in the Economic Planning Unit. 4. Investment 1. Could Malaysia indicate the advances that have been made in the revision of the Foreign Investment Committee (FIC) Guidelines to improve transparency? And, where can we obtain further information on this? Improvements to the FIC guidelines are considered based on views, proposals and consultation with the relevant stakeholders. Further improvements to the guidelines are aimed at encouraging FDIs through adopting more investor-friendly measures. Information on FIC guidelines can be obtained from FIC s website at or the FIC s Secretariat at the following address: The Secretary Foreign Investment Committee Economic Planning Unit, Prime Minister s Department Level -1, Block B5, Federal Government Administrative Centre PUTRAJAYA, MALAYSIA Tel. No. : /2944/2916

11 Fax No. : Could Malaysia indicate if its BITs have provisions for National Treatment? If so, under what conditions and circumstances is NT provided? Malaysia does not accord NT in its BITs. 3. Could Malaysia indicate if its BITs have provisions on compensation to foreign investors in the event of expropriation? If not, what criteria apply in this case? Malaysia s BITs text has the Article on Expropriation which covers measures that are taken for lawful or public purpose, non-discriminatory and accompanied by provisions for the payment of prompt, adequate and effective compensation. 4. Could Malaysia indicate if its BITs have provisions on disputes between investors and the host economy? If it does, how deepen is the discipline treated? Malaysia s BITs have an article on the Settlement of Investment Disputes between a Contracting Party and an investor of the other Contracting Party which covers the procedures for settlement or arbitration by investors who have suffered loss and damage. 5. Could Malaysia indicate a brief reference of their current BIT Program? Malaysia has BITs with 72 countries. Negotiations are being undertaken to review and update some existing BITs as well as negotiations on new BITs. Chapter XII: Mobility of Business People Mobility of Business People Could you kindly explain how does your economy determine the business person status of a petitioner to be an ABTC cardholder?

12 Applicants for ABTC are required to provide information of the company that they are employed in, such as annual and financial report, corporate profile and information of their company s business interest/activities in APEC economies. Chapter VIII: Competition Policy Competition Policy In the attached Annex3 it is mentioned that the Fair Trade Practices Commission will be under the jurisdiction of another government institution. What about the possibility of establishing an independent competition authority? The proposal to have an independent Commission is being considered. Even if is established as independent Commission, for budgeting purposes, it will have to be housed at a Government agency and may be independent in terms of decision making. Chapter III: Services ABAC s comments on the IAP of Malaysia. Clause : Financial Services 1. REIT manager is now at 70% foreign ownership and 30% bumi, we suggest this to be opened to 100% foreign ownership (for non-islamic funds also). Malaysia takes note of ABAC s comments. As part of ongoing efforts to enhance market competitiveness and efficiency in the capital market, Malaysia is committed to gradual and progressive liberalisation in the capital market sector, which include the real estate investment trust industry consistent with broad national policy objectives. Chapter III: Services Clause : Professional Services 1. We suggest Real estate service companies performing property management, leasing and marketing to be opened to foreign companies which have the relevant track record and experience, instead of 100% local licensed valuers. This is needed for REIT managers as the interest is aligned if the assets are maintained & marketed by the related parties. Malaysia takes note of this proposal and will consider progressive liberalisation in this area.

13 Clause 3.4 : Investment 1. We suggest to allow foreign shareholder s loan to be capped at RM 150 mil without having to approach central bank for approval. This is applicable for real estate investment which is capital intensive. At present, subject to central bank the permissible amount is RM 50 Mil. The rules applied on investment abroad (including investment in real estate) are prudential in nature, aimed at safeguarding economic and financial stability. These rules complement the overall macroeconomic policies and are implemented in a transparent and pragmatic manner. The rules are progressively reviewed to enhance business efficiency and investment opportunities for foreign-owned corporations. No limits on investing abroad are applied on corporations in Malaysia, whether Malaysian or foreign-owned, that do not have domestic ringgit borrowing when they use their own ringgit or their own foreign currency funds for such investments. Corporations in Malaysia, including foreign-owned corporations, are free to fund their investment abroad using foreign currency borrowing up to RM100 million equivalent in aggregate on a corporate group basis. Corporations raising funds by listing shares through Initial Public Offer on the main board of Bursa Malaysia (the Malaysian Stock Exchange) are also free to use the proceeds from the listing, for investments abroad. The RM50 million limit (in aggregate for each corporate group per calendar year) is applied only to foreign-owned corporations in Malaysia with domestic ringgit borrowing who wish to fund their investment abroad from the conversion of ringgit. The same limit is applied to Malaysian-owned corporations. 2. Consider giving 100% foreign ownership for real estate investment without FIC s 2 years restriction and subjected to renewal. Projects that are in office, industrial and retail sector should be opened to foreign 100% participation to inject innovation and create choices for end customers and corporations.

14 Under the current Guidelines, any proposed acquisition of asset (fixed) or interest by any means which will result in ownership or control passing to a foreign interest requires the approval of the FIC. Acquisition of office, industrial and retail units for own business purposes will not be subjected to any condition (equity or formation of a local company). However, purchasers will have to register the properties/units under a locally incorporated company acquired for purposes other than the above (such as rental and for investment) and no equity condition will be required for the incorporation. Approval may be denied if the acquisition, disposal or dealing of land or any interest in land, property and real estate is undertaken for speculative or non-productive purpose or for purposes which may conflict with the interest of the States. Chapter I: Tariffs New Zealand : Questions 1) New Zealand welcomed the Ministry of International Trade and Industry's notification of 4 December that import licensing requirements would be removed for 27 tariff lines covering iron and steel products, on a temporary basis. New Zealand would appreciate further information from Malaysia as to whether it intends to make these measures permanent and whether it intends to remove import licensing requirements for additional tariff lines in other sectors. If so, is there a time-line for doing so? Import licensing requirement is in line with WTO licensing agreement and the objective of licensing is for monitoring as well as data collection purposes. Malaysia will continue to monitor and review these measures on a continuous basis. Chapter I: Tariffs 2) New Zealand commends Malaysia for the measures announced in its 2009 Budget to eliminate or reduce tariffs on 494 items, with effect from 29 August Does Malaysia intend to eliminate or reduce tariffs unilaterally on additional tariff lines and, if so, in which sectors? Is there a timetable for further tariff liberalisation? Reduction and elimination of tariffs is one of Malaysia s unilateral liberalisation efforts to make industry more competitive. Currently, 66.5 per cent of tariff lines are already at 0-5 per cent tariff. The Special Advisory Committee on Tariffs (SACT) reviews

15 tariffs on products on a regular basis with a view to reduce or eliminate, as appropriate. Chapter I: Tariffs 3) New Zealand noted that Malaysia implemented TRQs across 18 tariff lines in Can Malaysia confirm whether this is intended to be a temporary measure? New Zealand would be interested in receiving further background on the decision to implement these measures. TRQ on the 18 tariff lines is in line with the Uruguay Round of commitments. Malaysia only started implementing TRQ on the 18 tariff lines from 1 April Chapter III: Services 4) Recent Ministry of International Trade and Industry press releases have indicated that Malaysia intends to introduce further measures to progressively liberalise its services sectors, in addition to measures already announced as part of Malaysia's response to the deteriorating global economic conditions. We understand these measures might include liberalisation of select Foreign Direct Investment requirements. Can Malaysia provide further details, including time-lines, on specific liberalisation initiatives it intends to introduce in the services sector, including Foreign Direct Investment conditions? The Government has established a Cabinet Committee on Services Liberalisation to address the development and liberalisation of services sectors. Liberalisation of services is an on-going exercise and the Committee will look into details such as sub-sectors and time-lines for liberalisation. decisions are made by the Government. Details would be provided once Question from Singapore: Communication Services (Audio-visual)

16 Chapter III: Services Can Malaysia share what measures, including regulatory policies, that have been put in place or are in the planning stages for moving terrestrial FTA broadcasters to a digital platform? The framework for the migration of analog to digital signal for FTA was developed in A trial involving the government broadcast channel on digital platform was conducted and successfully completed in September The next trial will involve the government and private broadcast station as well as the content provider, network infrastructure provider and Set Top Box manufacturer/importer within a targeted population. A national rollout for digital FTA is targeted by January 2012 and all analog FTA will be terminated by 2015.