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U.S. DEPARTMENT OF STATE
MALAYSIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             MALAYSIA

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                    1992      1993      1994 1/

Income, Production and Employment:

Real GDP (1978 prices)            36,498    39,237    41,744
Real GDP Growth (pct.)               7.8       8.3       8.5 2/
By Sector:
  Agriculture                      6,052     6,241     6,235
  Manufacturing                   10,533    11,814    13,089
  Mining/Petroleum                 3,172     3,102     3,108
  Utilities                          757       849       942
  Construction                     1,418     1,569     1,723
  Whole and Retail Trade           4,378     4,788     5,172
  Financial Services               3,767     4,188     4,541
  Government Services              3,712     3,869     3,967
  Other Services                   2,709     2,860     2,971
Net Exports of Goods & Services   -1,709       136       503
Real Per Cap GDP (1978 base)       1,962     2,065     2,197
Labor Force (000s)                 7,370     7,627     7,846
Unemployment Rate (pct.)             3.7       3.0       2.9

Money and Prices:

Money Supply (M2/pct.)              19.1      22.1      21.9  3/
Base Interest Rate (pct.)            9.5       8.5      7.84
Gross Nat. Savings/GNP (pct.)       33.3      32.7      32.3
Inflation (CPI) (pct.)               4.7       3.6       3.8
Exchange Rate (avg USD/RM)          2.55      2.57      2.62

Balance of Payments and Trade:

Merchandise Exports               39,573    46,057    55,194 5/
  Exports to U.S. (FAS)            8,293    10,568    11,413
Merchandise Imports               36,200    42,869    52,950 5/
  Imports from U.S. (CV)           4,396     6,061     6,550
Aid from U.S.                        1.5       0.3       0.3
Aid from Other Countries             N/A       N/A       N/A
External Debt                     16,784    20,121    24,431
  Public Sector                   12,667    14,163    16,995
  Private Sector                   4,117     5,959     7,436
Debt Service Payments (paid) 4/    1,995     2,184       N/A
Official Net Reserves 5/          18,068    29,741    31,184
Merchandise Trade Balance          3,373     3,188     2,244 5/
  Trade Balance With U.S.          3,897     4,507     4,863


N/A--Not available.

1/ Malaysian Government estimates.
2/ Calculated in ringgit to avoid exchange rate changes.
3/ U.S. Embassy estimates.
4/ Excluding prepayments.
5/ 1994 data to August only.



1.  General Policy Framework

    Malaysia has a relatively open, market-oriented economy and
real GDP growth ranged between 6 percent and 8 percent from
1964-1984.  Since independence in 1957, the Malaysian economy
has shown sustained growth and has diversified away from the
twin pillars of the colonial economy:  tin and rubber.  In
1985-1986, the collapse of commodity prices led to Malaysia's
worst recession since independence, with real GDP growth a
negative 1 percent and nominal GNP falling 11 percent.  Since
then, the economy has rebounded, led by strong growth in both
foreign and domestic investment and exports of manufactures
with real GDP growing at an average rate of over 8 percent.  In
1994, real GDP growth is expected to reach 8.5 percent. 
Malaysia's 1995 Federal budget, tabled in Parliament October
28, 1994, introduced 2,600 tariff cuts and additional fiscal
policy changes.

    While the government plays a diminishing role as a producer
of goods and services, it continues to hold equity stakes
(generally minority shares) in a wide range of domestic
companies.  These entities are rarely monopolies; instead, they
are one (generally the largest) player among several
competitors in a given sector.  However, government-owned
entities are major players in some sectors, particularly
plantations and financial institutions.  Since 1986, the
government has been privatizing many entities, including
telecommunications, the national electricity company, the
national airline and the government shipping firm.  The
government sold off its remaining shares in Malaysia Airlines
Systems (MAS) in August 1994 and MAS is being reorganized to
improve profitability.  Seaports and government hospitals and
pharmaceutical supply centers are in various stages of
privatization.

    Malaysia supports global trade liberalization measures and
encourages direct foreign investment, particularly in
export-oriented manufacturing and high technology products.  It
has been very active in the Uruguay Round negotiations and
ratified the agreement on September 6, 1994.  Multinational
corporations control a substantial share of the manufacturing
sector.  U.S. and Japanese firms dominate the production of
electronic components (Malaysia is the world's third largest
producer of integrated circuits), consumer electronics, and
electrical goods.  Foreign investors also play an important
role in petroleum, textiles, vehicle assembly, steel, cement,
rubber products, and electrical machinery.

    Fiscal Policy:  The government follows a prudent and
conservative fiscal policy, with a surplus in its operating
account.  With the intention of improving the investment
climate, the government reduced the corporate income tax rate
by two percentage points from 34 to 32 percent in the 1994
budget and reduced it by another two percentage points, to 30
percent, in the 1995 budget.

    Monetary Policy:  Malaysian monetary policy is aimed at 
controlling inflation while providing adequate liquidity to
stimulate economic growth.  Monetary aggregates are controlled
by the central bank through its influence over interest rates
in the banking sector, open market operations and,
occasionally, changes in reserve requirements.


2.  Exchange Rate Policy

    While the value of the Malaysian currency, the ringgit
(RM), is considered to be market determined, the Malaysian
government has intervened to offset significant upward pressure
on the currency when such pressure was perceived as a sign of
excessive foreign exchange speculation.

    In late 1993, following a prolonged period of strong
capital inflows (and upward pressure on the ringgit which was
resisted), the government of Malaysia intervened aggressively
in the market, bringing the value of the ringgit down nearly
six percent against the U.S. dollar in just a few weeks.

    By mid-January 1994, the policy of aggressive intervention
was abandoned and the set of controls were soon abandoned as
well, and the currency was allowed to gradually return to its
early December 1993 value against the U.S. dollar.  The current
monetary authorities believe the controls introduced
distortions that were not desirable in the longer term.

    Payments, including repatriation of capital and remittance
of profits, are freely permitted.  Payments to countries
outside Malaysia may be made in any foreign currency other than
the currency of Israel.  No permission is required for payments
in foreign currency up to RM10,000 (approximately $3,818). 
Individual foreign exchange transactions above RM10,000
required an exchange control license.  For transactions up to
RM10 million ($3.8 million), a license is issued by any
commercial bank upon request without reference to the
controller of foreign exchange (part of Bank Negara).  An
individual transaction in excess of RM10 million requires
approval of the controller.  Individuals and companies may now
hold foreign currency accounts in resident commercial banks,
but only the first tier banks can offer such accounts.


3.  Structural Policies

    Pricing Policies:  Most prices in Malaysia's economy are
market-determined but the government controls prices of some
key goods, notably fuel, public utilities, motor vehicles,
rice, flour, sugar and tobacco.  Citing concerns about
inflation, it added 25 items temporarily to the price control
list on October 16, 1994.  Those price controls are slated to
be lifted as of June 10, 1995.  Overall tariffs average about
10 percent on a trade-weighted basis and import licenses are
required for a small range of goods, e.g., poultry, tobacco and
plastic resins.  In the 1993 budget, the federal government
lowered or eliminated tariffs on over 600 items in an attempt
to defuse domestic inflation, and took similar action for the
same reason on over 500 items in the 1994 budget.  On October
28, 1994 the government announced it would reduce import
tariffs on another 2,600 items in the 1995 budget, largely to
meet its commitments in the Uruguay Round and the Association
of South East Asian Nations (ASEAN) Free Trade Agreement (AFTA).

    The agricultural sector, however, does contain some
restrictive tariffs and nontariff barriers which distort
trade.  For example, the government fixes farm-gate prices for
rice and tobacco at levels above world prices to encourage
domestic production and to boost depressed rural incomes.  It
also sets the selling price for rice below the farm-gate price,
but still above market levels.  Despite this price incentive,
local rice production does not meet demand and the government
imports large quantities of rice.  It uses profits from sales
of cheaper imported rice to offset the subsidies for rice
producers.  In the case of tobacco, the government presses
cigarette manufacturers to use a high proportion of locally
grown tobacco.  Imports of tobacco are restrained by high
import duties and controlled through import licenses.

    Tax Policies:  Income taxes, both corporate and individual,
are the largest single source of revenue for the government,
accounting for about 40 percent of government revenue. 
Indirect taxes, comprising export and import duties, excise
taxes, sales taxes, service taxes and other taxes account for
about 35 percent of government revenue.  The remainder of
government revenue comes largely from profits of state-owned
enterprises and petroleum taxes.  In 1994, the government
reduced the income tax rate on petroleum companies from 45 to
40 percent, and lowered the export tax on crude oil from 25 to
20 percent.  Sales taxes on imported food products are
uniformly collected at the port of entry while competing
domestic goods can escape the equivalent tax rates.  However,
the government has stepped up efforts to fine domestic
manufacturers that evade sales taxes.

    Regulatory Policies:  The Government encourages foreign and
local private investment.  Currently, a foreign investor can
hold 100 percent of the equity in a Malaysian subsidiary if it
exports at least half of its output, has at least 50 percent
value-added domestically (or, failing that, has RM50 million --
about $19 million -- in foreign-funded assets), and does not
produce items that compete with those now being made for the
local market.

    For companies exporting less than 50 percent of output,
foreign equity is generally limited to a 51 percent share. 
Since the mid-1980s foreign investors have been able to buy a
maximum of 30 percent equity in firms in the insurance and
banking sectors.  However, some existing firms have been
allowed to retain their equity positions, including 100 percent
foreign ownership.


4.  Debt Management Policies

    Malaysia has strong credit ratings in international
financial markets and its public and private companies have no
difficulty accessing funds.  Malaysia's medium and long-term
foreign debt is expected to stand at $24.0 billion at the end
of 1994, about 20 percent of GDP.  Malaysia's debt service
ratio declined from a peak of 18.9 percent of gross export
earnings in 1986 to 5.7 percent in 1993.


5.  Significant Barriers To U.S. Exports

    Import Tariffs on Tobacco:  To encourage greater use of
local tobacco in cigarettes and to maintain high domestic leaf
prices, the government levies heavy import tariffs.  The
present import duty for unmanufactured tobacco is RM50 ($20)
per kilogram, plus five percent ad valorem.  While this policy
reduces leaf imports, the greatest impact appears to affect the
cheaper, lower quality leaf from suppliers other than the
United States.  Since the duty on imported leaf tobacco does
not vary by quality, it is more economical to import high-grade
U.S. leaf to blend with domestic tobacco.  In 1992, the
government first proposed an import quota for flue-cured
tobacco.  Although, Malaysia manages the quota rather
liberally, cigarette manufacturers are forced to buy up all the
locally produced tobacco which is generally considered to be
very low quality.  Cigarettes are taxed at a rate of RM162
($64.8) per kilogram.

    Duties On High Value Food Products:  Duties for processed
and high value products, such as canned fruit, snack-foods, and
many other processed foods, range between 20 and 30 percent. 
In the 1994 budget, import duties on most fresh fruit and food
items were reduced to between 10 and 30 percent.  The abolition
or reduction in duties for numerous other food products
announced in the 1995 budget should have a positive impact on
imports of items such as tree nuts, citrus fruit, dairy,
livestock and poultry products.

    Plastic Resins:  In December 1993, tariffs were increased
for a five year period from 2 to 30 percent (for non-ASEAN
countries) and from 1 to 15 percent (for ASEAN countries) on
plastic resins.  In 1994, when tariff protection alone did not
provide the amount of protection desired, the government
instituted a licensing system for plastic resins to give
protection to the domestic industry for a five year period. 
U.S. firms utilizing resins in their manufacturing process have
complained the system limits their ability to source the
products they want and has resulted in significant price
hikes.  U.S. manufacturers of resins say their ability to sell
to Malaysia has been sharply curbed.  The government says it
has implemented a transparent form of protection for a specific
period of time and will review the situation regularly.

    Protective Tariffs for Kraftpaper:  In April 1994 the
government raised tariffs on imported kraftpaper (used in
making cardboard boxes) to between 20 and 30 percent, depending
on the category.  These tariff increases are to be phased out
over a maximum of five years and are subject to review every
two years.  Following this action local manufacturers have
raised prices three times, affecting U.S. firms using cardboard
boxes for packing their export products.  U.S. suppliers of
kraftpaper to Malaysia have complained that they are losing
sales.

    High Import Duties On Alcoholic Beverages:  For the first
time in many years the tariffs on all alcoholic beverages
remain unchanged in both the 1994 and 1995 budgets.  Duties of
wine and beer remain at RM228 ($91.2) per decaliter and RM74 
 ($29.6) per decaliter respectively.

    Ban on Imports of Chicken Parts:  In 1983, the government
effectively closed Peninsular Malaysia to imports of chicken
parts by ceasing to issue veterinary import permits.  The ban
was implemented because the European Economic Community
allegedly was dumping chicken parts into the Malaysian market. 
Until January of 1991, the East Malaysian states of Sabah and
Sarawak maintained separate import regimes for poultry products
which permitted the import of U.S. chicken.  Now, however,
similar bans have been implemented in those states as well. 
Since the implementation of the ban, a significant domestic
poultry industry has developed and Malaysia now exports
relatively large quantities of live poultry and poultry meat to
countries such as Singapore and Japan.  Although import
licenses are still required, import duties for poultry and
poultry products were abolished in the 1995 budget and Malaysia
has committed to opening its market to a modest import quota
under the Uruguay Round of the GATT.

    Rice Import Policy:  Because subsidized local production
satisfies only part of domestic demand, the National Rice
Authority (Lembaga Padi Negara or LPN), as the sole legal
importer, brings in substantial quantities of rice.  Purchases
generally are made on a government-to-government basis, which
places private U.S. suppliers at a considerable disadvantage. 
A proposal to "corporatize" LPN is still being considered after
years of debate.

    Import Licenses:  Malaysia makes limited use of import
licensing.  In the few sectors subject to licenses, i.e.,
requiring approved permits, U.S. exports have not been
significantly impaired.  Some technical licenses (e.g., for
electrical products and telephone equipment) exist, but they
are administered fairly and do not appear to constitute
nontariff barriers.

    Service Barriers:  Malaysia protects most service sectors. 
Foreign lawyers, architects, etc., are generally not allowed to
practice in Malaysia.  Television advertisements must be
largely produced in Malaysia with Malaysian performers unless
an exception is obtained.  Wholly-owned U.S. travel agencies,
air courier services, motion picture and record distribution
companies are permitted.

    Financial Services:  Banking, insurance and stockbroking
are all subject to government regulation which limits foreign
participation.  No new banking licenses are being granted for
either local or foreign corporations in the onshore market. 
Foreign-controlled companies are required to obtain 60 percent
of their local credit from local banks.  Under the terms of the
1987 Banking and Finance Act, all foreign-controlled banks were
required to convert their Malaysian branch offices to locally
incorporated subsidiaries by September 31, 1994.  Foreign
shareholdings in insurance companies are limited to 30 percent
without government approval.  However, there are ten insurance
companies which are 100 percent foreign owned (one U.S.) and
another eight have foreign equity in excess of 50 percent. 
Foreigners may hold in aggregate up to 49 percent of the equity
in a stockbroking firm.  Currently there are 11 stockbroking
firms which have foreign ownership and 20 representative 
offices of foreign brokerage firms.

    Standards:  Malaysia has extensive standards and labeling
requirements, but these appear to be implemented in an
objective, nondiscriminatory fashion.  Food product labels must
provide ingredients, expiry dates and, if imported, the name of
the importer.  Electrical equipment must be approved by the
Ministry of International Trade and Industry,
telecommunications equipment must be "type approved" by the
Department of Telecommunications and aviation equipment must be
approved by the Department of Civil Aviation.  Pharmaceuticals
must be registered with the Ministry of Health.  In addition,
the Standards and Industrial Research Institute of Malaysia
(SIRIM) provides quality and other standards approvals.

    Government Procurement:  Malaysian government policy
requires countertrade provisions on government tenders above
RM1 million.  Below RM1 million, countertrade is welcomed and
even encouraged, but not required.  (Most government tenders
require that countertrade be offered as an alternative.) 
Incentives exist for local procurement.  Many smaller civil
construction projects (RM50 million or less) are restricted to
local firms.


6.  Export Subsidy Policies

    Malaysia offers several export allowances.  The most
important is the Export Credit Refinancing (ECR) scheme
operated by the Central Bank.  Under the ECR, commercial banks
and other lenders provide financing to exporters at an interest
rate of seven percent for both post-shipment and pre-shipment
credit.

    Malaysia also provides tax incentives to exporters,
including double deduction of expenses for:

      overseas advertising and travel;
      supply of free samples abroad;
      promotion of exports;
      maintaining sales office overseas;
      export market research.


7.  Protection of U.S. Intellectual Property

    Malaysia is a member of the World Intellectual Property
Organization (WIPO) and, as of October 1, 1990, the Berne
Convention for the protection of literary and artistic works,
and the Paris Convention.

    The Trade Description Act of 1976, the Patent Act of 1983,
the Copyright Act of 1987, and the Copyright (Amendment) Act of
1990 have greatly strengthened protection for intellectual
property in Malaysia.  Under the Copyright (Amendment) Act of
1990, and the accompanying accession to the Berne Convention,
Malaysia now provides copyright protection to all works (inter
alia video tapes, audio material, and computer software)
published in countries that are members of the Berne Convention
regardless of when the works are first published in Malaysia. 
Police and legal authorities have been responsive to requests
from U.S. firms for investigation and prosecution of copyright
infringement cases, though illegal videotapes continue to be
widely available.

    Patents registered in Malaysia generally have a duration of
15 years but may have a longer duration under certain
circumstances.  A person who has neither his domicile nor
residence in Malaysia may not appear before the patent
registration office or institute a suit except through a local
patent agent.  With regard to trademarks, "where any person has
registered or applied for protection of any trademark in any
foreign state designated by the Malaysian Government, such
person shall be entitled to registration of this trademark in
Malaysia provided that application for registration is made
within six months from the date of registration in the foreign
state concerned."  Trademark infringement has not been a
problem in Malaysia for U.S. companies.  Patent protection is
also good.


8.  Worker Rights

    a.  The Right to Organize and Bargain Collectively

    Unions may organize workplaces, bargain collectively with
an employer, form federations, and join international
organizations.  There were 519 unions registered in Malaysia as
of June 30, 1994, of which 60 percent are enterprise-level
unions, and twelve percent of the work force are members of
trade unions.  The Trade Unions Act's definition of a trade
union restricts it to representing workers in a "particular
trade, occupation, or industry or within any similar trades,
occupations, or industries."  A trade union for which
registration has been refused, withdrawn or cancelled is
considered an unlawful association.  Strikes are legal and
relatively few (18 strikes in 1993).  Government policy limits
the formation of unions in the electronics sector to in-house
unions.

    Collective bargaining is the norm in Malaysian industries
where workers are organized.  Malaysia's system of conciliation
and arbitration seeks to promote negotiation and settlement of
issues without industrial action.  Malaysian law, especially
the Industrial Relations Act, effectively restricts collective
bargaining rights through compulsory arbitration.  There are
1,600 collective bargaining agreements and 90 percent of
approximately 550 trade disputes referred to the Industrial
Court are settled annually.  Through legislative amendment, the
government is eliminating an exemption for firms granted
"pioneer" status which protected them from union demands for
terms of employment exceeding those specified in the Employment
Act of 1955.

    b.  Prohibition of Forced or Compulsory Labor

    There is no evidence that forced or compulsory labor occurs
in Malaysia, for either Malaysian or foreign workers.  In
theory, certain Malaysian laws, which date to pre-independence,
allow the use of imprisonment with compulsory labor as a
punishment for persons expressing views opposed to the
established order or who participate in strikes.  The 
government maintains that the constitutional prohibition on
forced or compulsory labor renders these laws without effect.

    c.  Minimum Age of Employment of Children

    Employment of children is covered by the Children and Young
Persons (Employment) Act of 1966, which stipulates that no
child under the age of 14 may be engaged in any employment
except light work in a family enterprise or in public
entertainment, work performed by the government in a school or
training institution, or employment as an approved apprentice. 
The Ministry of Human Resources maintains a staff to enforce
regulations prohibiting children from working more than 6 hours
per day, more than 6 days per week, or at night.  However,
according to non-governmental organizations, there may be as
many as 75,000 children between the ages of 10-14 working
full-time, mostly on plantations.

    d.  Acceptable Conditions of Work

    The Employment Act of 1955 sets working conditions, most of
which are at least on a par with standards in industrialized
countries.  The new Occupational Safety and Health Act was
promulgated in February 1994 and covers all sectors of the
economy except the maritime sector and the military.  Other
laws provide for retirement programs and disability and
workman's compensation benefits.  No comprehensive national
minimum wage legislation exists, but certain classes of workers
are covered by minimum wage laws.  Plantation and construction
work is increasingly being done by contract foreign workers. 
Working conditions for contract workers often are significantly
below those of direct hire workers.  In addition, many of the
immigrant workers, particularly illegal ones, may not have
access to Malaysia's system of labor adjudication.  The
government has implemented programs to provide plantations with
legal foreign workers, largely to prevent the exploitation of
illegal workers.

    e.  Rights in Sectors with U.S. Investment

    The largest U.S. investment in Malaysia is in the petroleum
sector.  One U.S. company has two subsidiaries operating in
Malaysia.  One subsidiary, which is 100 percent owned by its
U.S. parent, handles offshore oil and gas production.  The
other subsidiary, which is 65 percent owned by the U.S. parent
and 35 percent by a range of Malaysian individuals and
institutions, refines and markets oil products in Malaysia. 
Employees at both companies are represented by the National
Union of Petroleum and Chemical Industry Workers (NUPCIW),
which has negotiated collective agreements with management. 
Some employees, however, have broken away from the NUPCIW and
formed a separate in-house union.  Pay and benefits at both
companies are considered excellent.

    The second largest concentration of U.S. investment in
Malaysia is in the electronics sector, especially the
manufacture of components, such as semiconductor chips and
various discrete devices.  (Electronic components are
Malaysia's largest single manufactured export.)  Wages and
benefits are among the best in Malaysian manufacturing.  Twenty
U.S. electronic components manufacturers operate 25 plants in
Malaysia, employing more than 52,000 Malaysian workers.

    Although there is no legal prohibition against organizing
unions in the electronics industry, government policy
effectively discouraged any unionization in this sector until
1988.  The Director General of Trade Unions ruled in the 1970s
that the Electrical Industry Workers Union (EIWU) could not
organize workers in the electronics sector, as the two
industries are different.  Other attempts to organize a
national union for the electronics industry failed on similar
grounds during the 1980s.  The Government registered several
company (or enterprise-level) unions in the electronics sector
during the late 1980s and early 1990s.  At present, workers at
seven electronics companies are represented by enterprise-level
unions.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

                    (Millions of U.S. dollars)
                                                                
              Category                          Amount          

Petroleum                                               303
Total Manufacturing                                   1,079
  Food & Kindred Products                   (1)
  Chemicals and Allied Products              49
  Metals, Primary & Fabricated                8
  Machinery, except Electrical              (1)
  Electric & Electronic Equipment           858
  Transportation Equipment                    0
  Other Manufacturing                       149
Wholesale Trade                                          92
Banking                                                  96
Finance/Insurance/Real Estate                           332
Services                                                  2
Other Industries                                         25
TOTAL ALL INDUSTRIES                                  1,928    

(1) Suppressed to avoid disclosing data of individual companies
Source: U.S. Department of Commerce, Bureau of Economic
Analysis

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