High 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 M$50 (US$18) per kilogram, plus five percent ad valorem. While this policy significantly reduces leaf imports, the high tariffs appear to have the greatest impact against cheaper, lower quality leaf from non-U.S. suppliers. (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 lower quality domestic tobacco.) In a new development, the government recently proposed an import quota of 1.5 million kilograms for flue-cured tobacco. If implemented, this quota could have a negative impact on U.S. tobacco exports to Malaysia of at least US$10 million annually. Cigarettes are taxed at a rate of M$126 (US$46) per kilogram.

Heavy Import Duties on High Value Food Products:

Duties

for processed and high value products, such as canned or fresh fruits, breakfast cereals, snackfoods, and many other processed foods, range between 30 and 50 percent. In contrast, virtually all Malaysian agricultural exports to the U.S. enter duty free under GSP provisions.

High Import Duties on Alcoholic Beverages: Tariffs on all alcoholic beverages have been raised sharply under the 1992 budget. Of particular interest to U.S. exporters are higher duties of M$18.50 (US$6.73) per liter on wine and M$6.00 (US$2.18) per liter on beer. The new duties will force up retail prices, will have a significant negative impact on imports, and could even induce substantial black market activities.

Discriminatory Sales Tax: Malaysia's sales tax is a single-stage tax levied on locally produced goods ex-factory and on imported goods at the point of entry, rather than at the retail level as in the United States. In order to broaden the tax base, the Ministry of Finance announced in the 1988 budget a substantial reduction in the sales tax exemptions for foodstuffs. With the 1989 budget, the Ministry moved to tax additional high-value food products. The five percent sales tax adversely affects U.S. fruit and vegetable exports in particular because the sales tax is not being collected from many local producers of identical or similar goods. Most farmers and many small-scale enterprises in Malaysia are outside the tax system whereas taxes are easily collected on imported goods.

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.

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Now, however, similar bans have been implemented in those states as well. Chicken part imports into Malaysia could increase significantly if the ban were removed. Since the implementation of the ban, a significant domestic poultry industry has developed and Malaysia now exports large quantities of poultry meat to Singapore and Japan.

Discriminatory Rice Import Policy: Because subsidized local production satisfies only part of domestic demand, the National Rice Authority (Lembaga Padi Negara or LPN) imports substantial quantities of rice. LPN is also the sole legal importer of rice. Purchases generally are made on the government-to-government basis characteristic of some Asian countries, notably Thailand. This government-to-government transaction structure places private U.S. suppliers at a considerable disadvantage.

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 many 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. Foreign banks are currently not permitted to open new branches or establish off-site automated teller machines. Foreign-controlled companies are required to obtain 60 percent of their local credit from local banks. Despite these restrictions, foreign banks account for more than 25 percent of commercial bank assets. No new insurance or foreign banking licenses are being granted. Foreign shareholdings in insurance companies are limited to 30 percent without government approval. However, the two largest insurance companies are 100 percent foreign-owned (one American) and dominate the life insurance market, but there are pressures on these firms to divest. The government has announced that foreigners may hold up to 49 percent of the equity of a stockbroking firm and said it would consider requests for majority foreign ownership.

Standards: Malaysia has extensive standards and labelling requirements, but these appear to be implemented in a 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, telecommunication equipment must be "type approved" by the Department of Telecommunications. Pharmaceuticals must be registered with the Ministry of Health. In addition, the Standards and Industrial Research Institute of Malaysia

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(SIRIM) provides quality and other standards approvals.

Government Procurement: Malaysian government policy requires countertrade provisions on government tenders above M$1 million. Below M$1 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 (M$50 million or less) are restricted to local firms.

6. Export Subsidies Policies

Malaysia offers several export subsidies. 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 6 percent. The lender then rediscounts the loan to Bank Negara at 4 percent interest. In 1990, loans totaling M$13.9 (US$5.1) billion were extended under the ECR scheme. Of this amount, M$3.47 (US$1.3) billion (25 percent of the total) went to cover exports of animal oils and fats (mainly palm oil), followed by M$2.84 (20 percent) for mechanical and electrical goods, and M$1.4 billion (10 percent) for textiles. The government is in the process of creating a new low-cost (subsidized) export credit scheme designed for developing countries importing Malaysian palm oil.

Malaysia also provides tax incentives to exporters, including the following:

Abatement of adjusted income for exports provides for an abatement equal to 50 percent of the proportion of sales represented by exports (e.g., if 60 percent of sales are exported, then adjusted income would be reduced by 30 percent).

An export allowance of five percent of the FOB value of export sales is granted to trading companies exporting products manufactured in Malaysia.

Double deduction for export credit insurance premiums provides a double deduction from income for export credit insurance premiums paid to a company approved by the Ministry of Finance.

Double deduction for promotion of exports provides for double deductions from income for expenses of overseas advertising, export market research, preparation of tenders for sales abroad, supply of technical information abroad, supply of free samples abroad, participation in overseas trade shows approved by the Ministry of Trade and Industry, public relations services abroad, overseas travel expenses (up to air fare and M$200 per diem), and maintaining overseas sales offices.

Two important tax law changes introduced in the 1992 budget affect the exporter tax incentives of abatement of adjusted income for exports and the export allowance. As of tax year 1993, the abatement will be applied to statutory income (adjusted income less a capital consumption allowance)

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of the company instead of the adjusted income. Heretofore available to all exporters, this incentive will be available only to manufacturing companies which are 70 percent owned by Malaysians and whose businesses are situated in free trade zones. Similarly, the export allowance will be available only to trading companies that export manufactured goods and to exporters of agricultural produce which are 70 percent owned by Malaysians and whose businesses are situated in free trade

zones.

A third tax law change introduced with the 1992 Budget concerns the five percent allowance granted to trading companies exporting products manufactured in Malaysia. allowance, too, is scheduled for termination in tax year 1993.

1.

Protection of U.S. Intellectual Property

That

Malaysia is a member of the World Intellectual Property Organization and, as of October 1, 1990 the Berne Convention for the Protection of Literary and Artistic Works. Malaysia is not a member of the Paris or Universal copyright conventions.

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 (including 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.

Patents registered in Malaysia generally have a duration of 15 years but may have longer duration under certain circumstances. A person who has neither his domicile nor residence in Malaysia may not proceed 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 is not a problem in Malaysia for U.S. companies. Patent protection is also good.

8. Worker Rights

a. The Right of Association

With some limitations, unions may organize workplaces, bargain collectively with an employer, form federations, and join international organizations. The Trade Unions Act's definition of a trade union restricts it to representing workers in a "particular trade, occupation, or industry or

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within any similar trades, occupations, or industries." The Director General of Trade Unions has considerable latitude in deciding whether or not to register a trade union in Malaysia. The Director General also has the power, under certain circumstances, to withdraw the registration of a trade union. A trade union for which registration has been refused, withdrawn or cancelled is considered an unlawful association. While strikes are legal and do occasionally occur, critics claim that this right in practice is restricted. Actions by the Government have limited the formation of unions in the electronics sector to "in-house" unions.

b.

The Right to Organize and Bargain Collectively

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.

In 1991 the International Labor Organization (ILO) asked the Government to remove legal restrictions on the right to bargain in pioneer industries, in the public sector, and on dismissals without notice. Despite the existence of antiunion discrimination laws, there have been a number of instances in which union activists have been dismissed, allegedly for engaging in union activities. The ILO examined two such complaints in 1991 and is awaiting the Government's response. Redress through the Industrial Court is slow.

C. Prohibition of Forced or Compulsory Labor

Malaysia laws allow the use of imprisonment with required forced labor as a punishment for persons expressing views opposed to the established order or participating in strikes. The Government maintains that these laws have no force. There is no indication that forced or compulsory labor is practiced in Malaysia.

d. Minimum Age for Employment of Children

The Children and Young Persons (Employment) Act of 1966 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. Effectively enforced laws prohibit children from working more than six hours per day, more than six days per week, or at night.

The Employment Act of 1955 sets working conditions. Minimum standards of occupational health and safety are set by law and enforced by the Ministry of Labor. No national minimum wage legislation exists, but certain classes of workers are covered by minimum wage laws.

f. Rights in Sectors with U.S. Investment

The largest U.S. investment in Malaysia is in the