Problems relating to Trade and Investment on Malaysia
1. Restrictions on entry of foreign capitals |
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Issue |
Issue details |
Requests |
Reference |
| (1) Restricted Foreign Capital Contribution Rate in Non-Manufacturing Sectors | - Restrictions on foreign investment is being liberalised in quite a few business sectors. While foreign investment into Government of Malaysia (GOM) (Foreign Investment Commission=FIC) Guideline has put 30% cap on foreign investment into power industry, on a case-by-case basis, GOM has been deregulating the cap on foreign capital ratio. In October 2011, Premier Najib Razak announced deregulation by stages the cap on 17 business sectors in the service industry, including private hospitals, medical-dental services, construction, engineering, financial- accounting service, legal service, courier service, education, training, telecommunication services, etc. - MITI issues manufacturing licences by industrial adjustment under the Promotion of Investment Act 1986 and the Income Tax Act 1967. MITI allows 100% foreign capital contribution in most business sectors excepting the followings that still remain: -- On 27 June 2009, deregulation on foreign capital control was released on the enterprises in financing and insurance sectors, raising the foreign capital ratio from 49% to 70% as regards Investment Bank, Islamic Bank, Insurance Co., and Takaful Insurance. However, foreign capital ratio remains unchanged at 30% on the domestic commercial banks and 20% on single foreign capitals. -- On 30 June 2009, FIC repealed "Guideline on the Acquisition, Merger/Takeover of Properties by Local and Foreign Interests" and FIC was dissolved. However, the capital terms will remain valid as to the existing enterprises on the licences and approvals already issued by the respective competent authorities. |
- It is requested that GOM: -- approves 100% foreign capital ratio on enterprises in non-manufacturing sectors (NMS), and -- repeals or deregulates local capital participation requirement and its guideline in NMS. - It is requested that GOM: -- authorises 100% foreign capital contribution on non-manufacturing sector, and -- repeals the requirement for local capital participation in non-manufacturing sector, -- repeals the Guidelines, and -- effects further deregulation. |
- Foreign Investment Committee Guideline on the Acquisition of Interests - Ministry of Domestic Trade, Cooperative and Consumerism (MDTCC) (Guidelines) - Foreign Investment Committee Guideline on the Acquisition of Interests, Mergers and Take-Overs by Local and Foreign Interests (amended) of 1 January 2008 |
| (Action) - On 26 July 2004, Datuk Mustapha Mohamed, Minister in The Prime Minister's Office, announced that GOM would not review the requirement for the 30% Bumiputera capital ratio in the non-manufacturing sectors, since this requirement forms the most important state policy. - On 1 December 2004, Ministry of Domestic Trade and Consumer Affairs implemented "Guideline for Foreign Investors' Entry into the Distribution Service Sector", which provides, among others, for the list of prohibited sectors for FFEs' entry, and restrictions on both the floor space in various distribution sectors and the numbers of stores. The list expressly prohibits an FFE's entry into supermarket (having more than 400sq.m and less than 2,000sq.m of floor space), mini-market (less than 400sq.m), food store, newly established 24-hour convenience store, newspaper shop, general shop, pharmacy of traditional medicine, petroleum station, traditional market roadside stand, etc. - Industrial Master Plan 2006-2020 released in August 2006 lays down the target share ownership by Bumiputera - From 18% in 2004 to 20-25% by 2010, and 30% by 2020. - Secretary Effendi of Office of Prime Minister announced that the share ownership of Bumiputra in 2005 was 21.8%. - On 8 October 2011, Premier Najib Razak announced that he would deregulate capital restrictions in stages from 2012 on the 17-Service Sectors, including the 17-Sub-Service Sectors, such as Private Hospitals, Medical/Dental Specialist Services, Architectural Services, Engineering Services, Accounting/Taxation Services, Courier Services, Legal Services, Technical and Vocational Schools, and Telecommunications, Moreover, in addition to repeal of restrictions, tax preferential measures would be made in Hotel/Educational/Tourism Industries, Research & Development. Thus, governmental support will be intensified upon Service Industries that would propel the economic growth. |
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| (Improvement) - On 30 April 2000, the foreign capital equity ratio in the domestic communication industry was raised to 61% (from 30% to 49% in February 1998, and from 49% to 61% in April 1998), on conditions that:1) the ceiling is lowered to 49% within 5 years, and 2) foreign-funded enterprises will procure funds from overseas. - As regards the manufacturing sector, GOM improved the foregoing restrictions, by authorising the IPC functions to a 100% FFEs. - On 2 My 2003, GOM published its economy stimulating policy and reviewed the Guideline issued by Foreign Investment Committee:-- Up to 70% by foreign capital has been approved excluding the 30% for Bumiputera (which requirement is applied also to the criteria for listing in the KLSE Stock Exchange).-- The approval basis of FIC concerning the acquisition of the shares in the local business entities by a foreign capital has been raised from the current MR5 million to MR310 million. - GOM has authorized 100% foreign capital ownership to the enterprises that have acquired the MSC (Multimedia Super Corridor), IPC (International Procurement Centre), RDC (Regional Distribution Centre), OHQ (Operational Headquarters) and to those that have acquired the R&D Incentives. - In August 2006, Central Bank of Malaysia (BNM) deregulated the restrictions on foreign capital ratio from 30% to 49% - In March 2007, Prime Minister Abdullah Badawi announced selective discontinuation of the Bumiputera Policy capital share restrictions in the 6 service sectors (creative industry, education service, financial consultation, consulting, medical, distribution and tourism related services) in order to promote direct investment in the Iskandar Development Region (IDR), Johor Baru. - On 22 April 2009, Najib Tun Razak, Prime Minister and concurrently Minister of Finance released the liberalisation programme of the service industry that authorises 100% foreign capital participation in computer related service, social/health service, tourism, private cargo road transport, business service, etc. in total of 27 business sectors. It instantly repealed the regulations requiring minimum 30% Bumiputera capital contribution. - On 30 June 2009, Najib Tun Razak, Prime Minister and concurrently Minister of Finance: (1) Repealed instantly "FIC's Guideline On The Acquisition Of Interests, Mergers And Take-Overs By Local And Foreign Interests", (2) Repealed Foreign Capital Restrictions concerning capital construction for listed enterprises set forth by FIC (namely, minimum 30% Bumiputera capital contribution requirement) (3) Exempted FIC's approval on property transactions of less than 20 million Malaysian ringgit. (4) Deregulated foreign capital participation for example by raising foreign capital contribution rate from 49% to 70%, investment trust companies and securities exchange companies. - On 6 January 2010, GOM repealed the capital contribution restriction in distribution service sector, enabling 100% foreign capital investment, provided, however, that, GOM prohibits foreign investment in the 11 business sectors, including supermarket/mini-market, convenience stores, etc. while it continues to apply the 30% Bumiputera capital contribution rule on hypermarket. In 2009, foreign direct investment into distribution service sector climbed to 56.1%, marking the highest sector for foreign investment liberalisation. Foreign investment has been especially active into OHQ, IPC, RDC, etc. that enjoy tax preferential measures, followed by multimedia- Super-Corridor of 29% and Manufacturer Related Support Service of 29%. - Deregulation on foreign investment has gradually spread in wider business sectors. The 30% cap on the foreign capital participation in electric power industries has been gradually deregulated on a project-by-project basis. |
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| (2) Non-Manufacturing Business Sectors Closed to Foreign Capital Participation | - Ministry of Domestic Trade, Co-operatives & Consumerism (MDTCC) issued on 12 May 2010, "Guidelines on Foreign Participation in the Distributive Trade Services" (MDTCC Guidelines) that reflects GOM's deregulation policy on foreign capital contribution. The scope of non-manufacturing enterprises covered under MDTCC Guidelines is broad, including distribution and services, dispensing with the 30% Bumiputera capital requirement, excluding hypermarket/superstore, permitting 100% foreign capital contribution. The following sectors remain prohibited to foreign capitals: -- Supermarket/mini market (of less than 3,000 sq.m in sales floor space) -- Food store/general sales ship -- Newspaper vending stores, sundry goods stores -- Pharmaceuticals shops (handling traditional herbs and Chinese medicines) -- Petrol station -- Wet market and sidewalk (pavement) shop -- Projects related to national strategic interest -- Fabric shop, restaurant (not high class), bistro, jewellery dealer, etc. |
- It is requested that GOM: -- authorises 100% foreign capital in enterprises in non-manufacturing sector, -- repeals the Guideline requiring local capital participation in enterprises in non-manufacturing sector, and -- deregulates the Guideline further. |
- Guidelines on Foreign participation in The Distributive Trade Services Malaysia |
| (3) Exclusion of Tobacco from ISDS provision in Investment Chapter of TPP | - Malaysia and the U.S. proposed exclusion of specified industries (tobacco industry) from the ISDS (Investor-State Dispute Settlement) provision in investment chapter of TPP agreement (reported information). Such exclusionary treatment afforded to a specific product (tobacco) under TPP agreement will likely materially damage international trade and investment promotion intended under TPP. Its impact is broad and substantial, discouraging economic activities of individuals and groups or their investors in the TPP signatory countries. Its impact is broad and substantial. | -It is requested that GOJ will take the full account of the issues in the left column and takes step to prevent exclusionary treatment afforded to the specified products under TPP agreement. | |
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