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3. Barriers to trade
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3.1 Tariff and tariff administrative measures

Simple average applied ad-valorem tariff for 2005 in Malaysia is 8.1 percent.

3.1.1 Tariff peak

Tariff peak still exists in certain sectors. The proportion of tariffs exceeding 15 percent still accounts for nearly one quarter of all tariffs. Tariff protection is high for automotives, textiles, clothing and leather products, food and beverages with rates exceeding 20 percent on 16.9 percent of tariff lines.

3.1.2 Tariff escalation

Tariff escalation can be manifested in the tariff policy. For instance, zero tariff rate is applied to cocoa while a 15 percent rate is levied on cocoa preparations; there is no tariff on cotton while a 10 percent rate is imposed on textile yarn and a 20 percent rate is on cotton knitwear and clothing.

3.1.3 Tariff quotas

Altogether 19 categories of imports involving 73 tariff lines are subject to TRQ control in Malaysia. These products include swine products, poultry products, milk, eggs, round cabbage, coffee beans, sugar and tobacco. The tariff rates beyond access commitment are subject to high ad valorem or specific duty, the highest ad valorem duty up to 160 percent.

3.2 Import restriction

In Malaysia, approximately 27 percent of the total tariff lines, mainly with regard to animal and vegetable products, wood, machinery, vehicles and transport equipment, are subject to non-automatic import licensing administration. All imports of heavy machinery for construction need approval from MITI, which will be given only if this machinery is not available locally. This has turn out to be an obstacle impeding Chinese products of the abovementioned kind from entering the market of Malaysia, over which the Chinese side expresses concern.

3.3 Discriminatory taxes and fees on imported goods

In 2005, following the reduction of import tariffs for CBU vehicles and CKD vehicles and components, the Malaysian Government increased the automobile excise taxes to a level between 60 percent and 250 percent. Proton and Perodua, two local automakers received a 50 percent tax rebate on excise taxes and other local manufacturers also received tax rebates to different extents.

The tax rebate practice only applicable to domestic automakers is an unfair treatment to imported automobiles, which is against the National Treatment principle of the WTO. Therefore, the Chinese side expresses concern over the matter.

3.4 Technical barriers to trade

The importation of traditional Chinese medicine containing Borneol and Fu Zi is banned. Restrictions are imposed on the indication on the packaging or advertisement of such functions as cancer-preventing, contraceptive, libido boosting, diabetes or rheumatism treatment. Besides, before a Chinese medicine enters the market, the exporter must be represented by a locally- incorporated company in the registration and application process with the Drug Control Authority (DCA). During the process, the exporter shall reveal the prescription to the DCA. The medicine can only be imported and sold with MAL's permit. Having a medicine registered in Malaysia is a complicated and protracted process, which has increased the cost and risk of the exportation of traditional Chinese medicine. The Chinese side expresses concern.

3.5 Sanitary and phytosanitary measures

According to relevant regulations, importers must obtain import licenses from the Malaysian Department of Veterinary Services under the Ministry of Agriculture or from the Malaysian National Quarantine Bureau for the importation of poultry and livestock products. Besides, all meat, processed meat products, poultry, eggs, and egg products must receive Halal certification. The certificate is issued on the joint recommendation of the Malaysian Department of Veterinary Services and the Department of Islamic Development Malaysia (JAKIM) following an on-site inspection. It is reported by relevant enterprises that the Halal certification process is confusing and lacks transparency. The Chinese side expresses concern over the matter.

3.6 Government procurement

Malaysia is not a signatory to the plurilateral WTO Government Procurement Agreement. The Malaysian government policy calls for procurement to support national objectives, such as encouraging greater participation of the bumiputeras (indigenous Malays), in the economy, transfer of technology to local industries, reducing the outflow of foreign exchange, creating opportunities for local service-oriented companies, and enhancing Malaysia's export capabilities. Therefore, foreign companies do not have the same opportunity as some local companies to compete for procurement contracts and on many occasions only when they formed partnership with local companies could they participate in the government procurement biddings. The Chinese side hopes that competent authorities of Malaysia will create a level playing field for government procurement biddings.

3.7 Barrier to trade in services

3.7.1 Financial and telecommunications services

While allowing foreign individuals to acquire shares in local insurance companies or banking institutions, there are limits imposed on foreign shareholding, which is 30 percent and 51 percent for banking institutions and insurance firms respectively. With regard to telecommunications services, foreign investors shall acquire no more than 49 percent of the shares of a local telecommunications company. Besides, foreign investors are required to obtain approval from authorities in charge of energy, telecommunications, and postal services in Malaysia.

3.7.2 Fishery

Foreign vessels are subject to fishing licensing control in Malaysia and there are a number of restrictions. First, foreign vessels are required to pay a certain amount of licensing fee for fishing in waters within the territory of Malaysia. Additional restrictions may be attached to the license by the Head of the Fishery Authority, such as the requirements for employing local Malays, transferring fishing technologies as desired, accepting inspectors sent by the Malaysian Government, and paying for the cost incurred by the Government for sending the inspectors.

3.7.3 Legal services

Foreign law firms may not operate in Malaysia except as minority partners with local law firms, with their stake in any partnership limited to 30 percent. Foreign lawyers may not practice Malaysian law or operate as foreign legal consultants, nor may they affiliate with local firms or use their international firm's name. Their scope of service is limited to advice concerning home country and international law.

3.7.4 Construction services

Foreign architectural firms may not have Malaysian architectural firms as registered partners. A foreign architectural firm may operate in Malaysia only as a joint-venture participant in a specific project with the approval of the Board of Architects. Foreign architects may not be licensed in Malaysia but are allowed to be managers, shareholders, or employees of Malaysian firms.

3.7.5 Engineering services

There are harsh regulations in Malaysia regarding the provision of engineering services by foreigners. Foreign engineers may be licensed by the Board of Engineers only for specific projects, and must be sponsored by the Malaysian company carrying out the project. The license is only valid for the duration of a specific project. Besides, foreign engineering companies may collaborate with a Malaysian firm, but the Malaysian company is to design and is required to submit the plans for domestic approval.

3.7.6 Labor services

The Government of Malaysia restricts the employment of non- local residents in Malaysia and monitors the recruitment procedure of the enterprises so as to maintain a set ratio between local labor and foreign labor. Malaysia hasn't opened its labor market to general labor services from China and exercised a strict control over the number of employees as well as skilled and unskilled labor sent from China to Chinese companies in Malaysia. And it is difficult for the Chinese to obtain work permit. All these have created an unfavorable environment for China to provide labor services in Malaysia, over which the Chinese side expresses concern.

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