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2. Introduction to trade and investment regime
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2.1 Legislation on trade and investment

Malaysian legislation affecting foreign trade and investment mainly includes Customs Act, Customs Import Control Regulations, Customs Export Control Regulations, Customs (Rules of Valuation) Regulations, Plant Quarantine Act, Protection of New Plant Varieties Act, Countervailing and Anti-Dumping Regulations, Promotion of Investments Act, Guidelines for Foreign Investment, Exchange Control Act, Patents Act, and Communications and Multimedia Act.

As of 1 May 2005, the Drug Control Authority under the Ministry of Health in Malaysia put into effect the Drug Registration Guidance Document (Amendment) passed in April 2004. The amendment prescribes the mandatory requirement for the use of a hologram security device on medicinal products sold in Malaysia. It is applicable to all pharmaceutical and traditional products, locally manufactured or imported.

Starting from 1 July 2005, the Nutrition Labeling Regulation came into effect in Malaysia, requiring the compliance of more than 50 types of common consumer food with the enacted regulation.

2.2 Trade administration

2.2.1 Tariff system Import duties

Tariff is the major means of controlling imports in Malaysia. Imported goods are mainly subject to ad valorem duty though specific duty is levied on certain special products. Presently, while there are no import duties on most of imported raw materials, components and machinery, high tariff rates are levied on luxury goods such as automobiles, and goods produced by sectors that are protected in Malaysia. Mandated by the Customs Act, the Minister of Finance has the right to exempt certain bodies or products from import duties.

In compliance with the Association of Southeast Asian Nation (ASEAN) Free Trade Agreement, Malaysia lowered the import duties for a number of items, effective as of January 1, 2005. The import duties for CBU vehicles and CKD vehicles and components from other members of the ASEAN dropped to 20 percent and 0 percent respectively, and those from non-ASEAN countries to 50 percent and 10 percent respectively. Export duties

Export duties ranging from 5 percent to 30 percent are mainly imposed on commodities such as wild animals, logs, petroleum, and palm oil. Crude petroleum is subject to a flat rate duty of 20 percent.

2.2.2 Import administration

Imported items are classified into four categories: prohibited items; products requiring licenses, including poultry, beef, rice, sugar, and color copying machines, etc.; items subject to temporary import restrictions to protect a domestic industry, including milk, coffee, certain wire and cables, some iron and steel products, etc.; items that may be imported only after meeting specific criteria.

According to the Nutrition Labeling Regulation enacted by Malaysia as of 1 July 2005, proper nutrition labeling is required for imported food. The nutrition label should contain the content of vitamins, minerals, cholesterol, dietary fiber, and fatty acids. No medical terminologies are allowed to be used in the instructions on the label.

The regulation covers a total of over 50 kinds of common consumer food, including domestic and imported fine cereal products, all kinds of bakery products and desserts, dairy products, powdered milk, soft drinks including plant drinks, soy bean milk, and other drinks made of soy beans.

2.2.3 Export administration

Export control is conducted in Malaysia over three schedules: items prohibited from being exported, including weapons and ammunitions, corals, turtle eggs, rattan, etc.; goods subject to export licensing, including animals and animal products, rice, sugar, rubber, textiles, iron and steel, etc.; items which can be exported.

A special permit is required for the exportation of rubber, and quota control is exercised over the exportation of rubber wood. Due to the fact that there has been a shortage of raw materials for the furniture-making industry in Malaysia, the Government in June 2005 made a decision to impose an across-the-board ban on the exportation of rubber wood in order to increase the added value of goods made of wood. Those who had obtained the quota for the year were allowed to use quota in 2005. The ban was effective as of 1 January 2006.

2.3 Investment administration

The government of Malaysia is gradually liberalizing control over foreign investment by allowing foreign investors to establish wholly-owned businesses in certain sectors. Besides, there is no limit regarding the time for the withdrawal of investment. Furthermore, as of January 1, 2006, foreign banking institutions incorporated in Malaysia are allowed to establish up to 4 additional branches within one year.

2.3.1 Investment incentives

Investment incentives adopted by Malaysia include the reduction and exemption of income tax and investment tax as well as import duties and sales tax. To encourage foreign investment in the research and development of advanced and high technologies, the Malaysian Government has dedicated a special zone located in Kuala Lumpur where a Multimedia Super Corridor was established to attract foreign investors engaged in the development of electronic, information, and communications technologies, the production of such products, and the provision of technical services. Apart from the abovementioned preferential tax policies, the enterprises located in the Corridor also gets support in telecommunication fees, applying for research grants, getting listed in the local market, and raising fund overseas. To encourage local and foreign companies to invest in the manufacturing industry, the Malaysian Government provides such investment incentives as granting new industry status to those companies, providing bonus to the same amount of the investment and reinvestment tax.

2.3.2 Restrictive measures regarding foreign investment

The requirement for acquisition of properties is now more stringent for foreigners. According to the Guidelines for Foreign Investment issued by the Malaysia Foreign Investment Committee (FIC) in August 2004, acquisition of property(ies) with a total value of RM10 million and above or an entire building or property development project by foreigners has to be registered under a local company and will be subject to conditions for acquisition (including equity, employment, share capital and property development). The only exemption to the equity condition is when foreigners acquire industrial property for their own manufacturing operations. Multimedia Super Corridor (MSC) status companies can purchase any properties in the MSC area without the approval of the FIC, provided that the property is used solely for its operational activities.

2.4 Competent authorities

2.4.1 Major authorities responsible for trade administration

The Ministry of International Trade and Industry (MITI) is responsible for making and implementing trade-related rules and policies, exercising quota control, issuing import and export licenses for general products and motor vehicles. The Trade Practices Unit (TPU) under the MITI is in charge of anti-dumping and countervailing investigations. The Malaysian Customs supervise the importation and exportation of goods, collect duties, and provide information regarding import and export licensing and tariffs. Malaysian External Trade Development Corporation is responsible for promoting the export of finished and semi-finished goods as well as providing relevant export services.

Import and export licenses for products from different industries are issued by their competent authorities. For instance, the Ministry of Agriculture is responsible for plants and products of plant origin while the Atomic Energy Licensing Board is responsible for radioactive substances and radioactive instrument, the Malaysian Department of Veterinary Services is in charge of animals and animal products.

2.4.2 Major authorities in charge of investment administration

Bank Negara Malaysia is the major competent authority for investment administration. Key industrial projects involving overseas investment require the approval of Bank Negara Malaysia. The Malaysian Industrial Development Authority (MIDA) under the Bank is responsible for attracting foreign investment in the manufacturing industry. The Malaysia Foreign Investment Committee (FIC) is mainly responsible for examining and approving the proportion of foreign investment and for reviewing the applications regarding foreign investment in other manufacturing industries than furniture making.

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