IMPORT RESTRICTIONS IN THE MALAYSIAN APPAREL & CLOTHING ACCESSORIES INDUSTRY

Transcription

1 IMPORT RESTRICTIONS IN THE MALAYSIAN APPAREL & CLOTHING ACCESSORIES INDUSTRY Research Paper November 2003 Executive Summary...1 Introduction...1 Manufacturers of Apparel & Clothing...3 Tariffs and Legislation...6 A. General...6 B. Import Duties On Apparel & Clothing...6 C. Other Taxes...7 D. AP (Import License) System...7 E. Countervailing And Anti-Dumping Legislation...9 ASEAN Free Trade Area (AFTA)...9 Executive Summary APs (or Import Licenses) are required to import apparel and clothing (A&C) into Malaysia only for a very limited range of articles In any event, with the impending liberalization of the industry under the WTO Agreement on Textiles and Clothing (ATC) the import quota system on A&C will be completely abolished, effective 1 January 2005 While all signatory countries to the ATC have undertaken to dismantle entry barriers to their markets, non-tariff import barriers still remain, e.g. in connection with the clearance of goods through customs, or discriminatory treatment of foreign products in terms of inspections, standards and certification requirements In view of market liberalization under AFTA, the Government is implementing several measures to increase the competitiveness of local manufacturing industries, including removing conditions on new and expansionary investment by foreigners Malaysia s textiles and clothing (T&C) sector, including the export sector, contracted significantly in 2002 due to falling prices and competition from lowcost countries, suggesting that Malaysian T&C firms need to look at relocating basic jobs to such countries Introduction The import of articles of apparel and clothing accessories (A&C) can be subsumed under the wider sector of textiles and clothing (T&C). 1

2 Historically, Malaysia s T&C industry has been protected by import tariffs and other taxes, as well as through the AP (Import License) system. However, in accordance with the impending liberalization of the T&C trade under the WTO Agreement on Textiles and Clothing (ATC) Malaysia s import quota system on textiles and apparel (which was established in1974) will be completely abolished, effective 1 January International trade in T&C has undergone substantial change in recent years. Traditionally, developing countries were suppliers of raw materials like cotton and silk to the factories of developed countries for use in fabrics and garments for their home markets, as well as for export. Due to the high labour cost, the firms in developed countries could not compete with importers and therefore sought and obtained the protection of tariff and nontariff barriers. T&C manufacturers in developed countries also had to invest abroad for overseas production to serve their home markets, and Asian countries benefited from this phenomenon through joint ventures. Now, with quota restrictions being phased out globally under the ATC, there would appear to be tremendous growth opportunities for the T&C industries of developing countries to replace their counterparts in developed countries. However, Malaysia s T&C sector, worth US$3.08 billion in 2002, was down 13% from the previous year due to falling prices. The country exported US$2.21 billion worth of T&C products, down 5.2 % from the previous year due to competition from low-cost countries like the Philippines, Laos, Vietnam and Cambodia. It should be noted that, especially with China s entry into the WTO, ASEAN s T&C industries will be forced like the firms in developed countries before them to relocate basic jobs to countries with lower-paid labor. About 40% of Malaysia s major garment manufacturers have already opened new factories in China, or in less developed countries such as Cambodia, which has focused on niche areas like women s knitted apparel. Also, the absence of upstream industries disadvantages ASEAN firms. China, India and Pakistan have their own domestic cotton industries, but ASEAN countries must import their raw materials. 1 In anticipation, the Malaysian government is encouraging the T&C industry to develop, register and promote their own brands, including promotion via e-business methods. International Trade & Industry Minister, Datuk Rafidah Aziz said her ministry will actively promote such brands at international trade fairs and exhibitions (Malaysian Textile Manufacturers Association, 23/7/03) 2

3 Regionalizing operations could assist the longer-term prospects of Malaysian T&C firms, but, at the same time, it could choke the domestic industry if downstream suppliers in Malaysia start to collapse 2. The ATC, which emerged at the Uruguay Round, is applicable to all the members of WTO. Under the ATC, 10-year phase-out of the bilateral agreements that made up the Multi-Fibre Agreements (MFAs) proceeds in three stages. Importing countries will liberalise 16 percent of their textile imports on 1 January 1995; 17 percent in 1998; 18 percent in 2002; and the remaining 49 percent, on 1 January Quantities of imports under quota were given annual rates of growth based on formulae similar to the MFA formulae, but the quotas increase at a faster rate than under the MFA. Under Article 7 of the ATC, all signatory countries have undertaken to dismantle entry barriers to their markets. However, a lot still needs to be done in many developing countries. Although these countries, including Malaysia, have considerably reduced their tariff rates, non-tariff import barriers still remain, e.g. in connection with the clearance of goods through customs, or discriminatory treatment of foreign products through additional inspections, and stricter standards or certification requirements than for domestic products. Manufacturers of Apparel & Clothing See Table 20 Large Manufacturers By Sales 2 Seow Hon Cheong, Malaysian Knitwear Manufacturing Association president and director of Trans Pacific Industries, a manufacturer of sleepwear for a US company (quoted in Asia Wall Steet Journal, 6/10/03) 3

4 20 Large Manufacturers By Sales RM Millions Year of Incorporation Products 1. Berjaya Group Berhad 7, Finishing of textiles, knitting mills, garments 2. Perusahaan Chan Choo Sing Sdn Bhd Jackets, wearing apparels (children), dresses, blouses, shirts (Polo), nightwear (ladies), pants, nightwear (men), tops, track suits 3. Ansell Malaysia Sdn Bhd Surgical gloves for microsurgery (latex/neoprene), examination gloves (latex/powder free/powdered/neoprene), surgical gloves (latex/neoprene), surgical gloves (latex/powdered), surgical gloves (latex/non-powdered), gloves industries (low particulate) 4. Prolexus Berhad Jackets, jogging suits (woven knitted), long pants, pants, short pans, ski wear, baby woven, children woven, knitted sets, dress, adult knitted, woven shorts, woven pants, adults Polo shirt, baby romper 5. MWE Spinning Mills Sdn Bhd Garments (ski-wear), garments (sportswear), fabrics (dyed), grey fabric (knitted), yarns (cotton), yarns (dyed), yarns (polyester), yarns (rayon), yarns blended in (hanks and corns) 6. United Sweethearts Garment Sdn Bhd Apparel 7. TCCM Dewhirst Sdn Bhd Made-up garments 8. Maxter Glove Manufacturing Sdn Bhd Surgical gloves (latex/powder free), surgical gloves (latex/sterile), non-latex exam gloves, examination gloves (latex/sterile), examination gloves for dental, examination gloves (latex/non-sterile) 9. Berjaya Bandertex Sdn Bhd Finishing of textiles, knitting mills, garments 10. Classita (M) Sdn Bhd Bodysuits, brassieres, camisoles, girdles, lingerie, nightwear, panties, undergarments (ladies) 11. Maser Webbing Industries Sdn Bhd Jackets for camping, protective suits, raincoats, camping equipment, webbings equipment 4

5 20 Large Manufacturers By Sales RM Millions Year of Incorporation Products 12. Ghim Li Fashion (Malaysia) Sdn Bhd Garments (infant sets), garments (dresses), garments (jogging sets) 13. Takaso Rubber Products Sdn Bhd Baby feeding bottles, baby soothers, condoms, soother holders, baby powders, wearing apparels (infant), baby teats 14. G.B. Industries Sdn Bhd Household gloves, industrial gloves 15. Maga Textile (M) Sdn Bhd Garments, track suits 16. Kim Fashion Knitwear (M) Sdn Bhd Socks, tights, caps, gloves (fabric), shawls 17. Skiva Holdings Sdn Bhd Undergarments (ladies) 18. Nyok Lan Garments Sdn Bhd Undergarments (lingerie), briefs (men), infant wear, children wear, T-shirts 19. Perusahaan Sindi Sdn Bhd Bags (cosmetics), inflatable plastic products, swim suits, bag (toiletry) 20. Puspamara Sendirian Berhad Uniforms, wearing apparels Compiled from FMM Malaysian Industries Directory

6 Tariffs and Legislation A. General In line with international practice, Malaysia adopts the Harmonized Nomenclature Coding System developed by the World Customs Organization. As at August 2003, the Customs Duties Order 1996 (revoking the 1988 Order of the same name) and the Customs (Prohibition of Imports) Order 1998 (revoking the 1988 Order of the same name) were the principal instruments of tariff protection in Malaysia. The 1996 Order implements the ASEAN Common Effective Preferential Tariff (CEPT) and ASEAN Preferential Tariff Arrangement (PTA). CEPT provides for lower tariff rates or customs duties on exports between CEPT Member States. The PTA gives preferential tariff treatment to products originating from ASEAN states only. CEPT is still the major instrument moving ASEAN towards the establishment of a free trade area. It requires that the tariff rates of products included in the scheme be ultimately reduced to 0-5%. On the other hand, PTA only requires that, whatever tariff rates are applied by an ASEAN country on imports from the rest of the world, a margin of preference be given to ASEAN partners. Concessions offered under CEPT are on a reciprocal basis only, while the concessions under PTA are on an ASEAN MFN basis. The number of products included in CEPT is much larger than that covered in the PTA. Also, CEPT includes provisions for the elimination of quantitative restrictions, non-tariff barriers and other cross-border measures. PTA products can enjoy CEPT concessions if the products are in the inclusion lists (normal or fast track) of the exporting and importing countries, but the products must still have a minimum of 40% ASEAN content. B. Import Duties On Apparel & Clothing Description Tariff Code (Sub-heading) Rates of Duty Articles of apparel and clothing accessories, knitted or crocheted Articles of apparel and clothing accessories, not knitted or crocheted % % Source: Malaysian Trade Classification and Customs Duties Orders 6

7 C. Other Taxes A 10 percent sales tax applies to almost all A&C products manufactured, or imported into and sold, in Malaysia. D. AP (Import License) System In order to import some categories of A&C an AP (or Import License) must be obtained from the Ministry of International Trade and Industry (MITI). Based on quotas, the system effectively limits imports of A&C. However, the range of A&C requiring import licenses is very limited (see Table). Malaysia also maintains import bans on goods from a limited number of countries, including Israel. The 1998 Order (see above) prohibits imports, except under Import License and/or other express conditions, as follows (Table): 7

8 Import Prohibition Description (Selected Products) Tariff Code (HS Code) Country of Origin ASEAN CEPT Rate of Duty ASEAN PTA Rate of Duty Licensing Authority 1. Absolute No items of interest 2. Except under No items of interest Import License 3. Except under Import License for protective measures Kain sarong batik , , Except under Permit 5. Except under Permit from Free Commercial Zones to Principal Customs Area 6. Except conforming to Malaysian Standard and under Permit No items of interest No items of interest No items of interest All countries 5% 50% Ministry of International Trade & Industry 8

9 The prohibitions in categories (2), (3) and (5) do not apply to importation into the free commercial zones, as established under the Free Zones Act Also, the prohibitions under category (3) do not apply to importation into the duty-free ports of Labuan, Langkawi and Tioman. Goods in transit, except those under category (1), are exempt from the 1998 Order. Import Licenses (Application Form JK69) must set out, among others, a full description of the goods, place of origin, purpose of import, tariff code number, tariff unit, quantity, unit cost (c.i.f.) and total value (c.i.f.). E. Countervailing And Anti-Dumping Legislation The Countervailing and Anti-Dumping Duties Act 1993 ( the Act ) and the Countervailing and Anti-Dumping Duties Regulations 1994 ( the Regulations ) empower a designated investigating authority to take remedial action against unfair trading by foreign manufacturers/exporters and to provide a framework for investigating allegations of injury caused by dumped or subsidized imports. (Essentially, dumping is cross-border price discrimination wherein an exporter charges more in its home market than in the targeted export market.) Malaysia s rights and obligations in this area are covered by the WTO Agreements on Anti-Dumping and Subsidies & Countervailing Measures. The Trade Practices Division (TPD) of the Ministry of International Trade and Industry was established in early 1994 to implement and enforce the Act and the Regulations, which came into force on 28 April As at 14 November 2003, Malaysian has taken no anti-dumping or countervailing action against another country in the A&C (or T&C) sector 3. ASEAN Free Trade Area (AFTA) Under AFTA, a maximum of 5% import tax applies to goods imported from any of the elder six ASEAN countries, namely, Malaysia, Singapore, Thailand, Indonesia, the Philippines and Brunei. (The remaining four, Cambodia, Vietnam, Laos and Myanmar, are on an extended timetable.) To qualify for the low tariff under AFTA, relevant imports must satisfy the local content requirement, i.e. at least 40% of the product s content must originate from any single / cumulative ASEAN member-state(s) SCSG Corporate Services Sdn Bhd 3 9