MINISTRY OF INTERNATIONAL TRADE 2018

1 REPORT2018 MINISTRY OF INTERNATIONAL TRADE AND INDUSTRY MALAYSIAISSN 0128-7524 June 2019 Copyright MINISTRY of INTERNATIONAL TRADE and Industry Malaysia 2019 All rights reserved. No part of this book may be reproduced, stored in retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission in writing of the Publisher. Content is correct at the time of purchase this publication or for other information please contact:Senior DirectorStrategic Planning DivisionMinistry of INTERNATIONAL TRADE and Industry MalaysiaLevel 22, MITI TowerNo. 7, Jalan Sultan Haji Ahmad Shah50480 Kuala Lumpur, MalaysiaTel : +603 6200 0252 Fax : +603 6206 4059 Email : : and Printed by:MPH Group Printing (M) Sdn BhdNo. 31 Jalan 2/148 ATaman Sungei Besi Industrial Park57100 Kuala Lumpur, MalaysiaPrice: OF INTERNATIONAL TRADE AND INDUSTRY MALAYSIAMITI REPORT 2018 IIFOREWORDMINISTRY OF INTERNATIONAL TRADE AND INDUSTRY MALAYSIAMITI REPORT 2018 IIIA new Malaysia emerged following the 14th General Election in May 2018 which paved the way to reform and restructure in overcoming global challenges.

2 The Government refined Malaysia s focus through the Mid-Term Review of the Eleventh Malaysia Plan (MTR-11MP) 2016 - 2020. Pillar VI of the MTR-11MP that focuses on strengthening economic growth is aligned with the MINISTRY of Intenational TRADE and Industry's (MITI) vision to make Malaysia the preferred investment destination and among the most globally competitive trading this first policy document, the Government outlined new priority areas that take into account the challenging global economic environment. Measures to further strengthen the economy include driving productivity, promoting quality investment, embarking on initiatives for industries to move up the value chain, strengthening exports and emphasising a fiscal consolidation path to ensure sustainability in the medium 2018 , total TRADE continued to be resilient, expanding by to trillion compared with trillion in 2017. Malaysia witnessed the greatest achievements in terms of TRADE surplus in 2018 , which widened by to billion, registering the fastest growth rate in 10 years, as well as the largest TRADE surplus since 2012.

3 This was the 21st consecutive year of TRADE surplus since 1998, driven by total exports almost reaching the RM1 trillion mark. Despite uncertainties in the global environment, exports rose by to reach a value of billion, surpassing the forecast export growth of in the MINISTRY of Finance s Economic Outlook 2019. Imports increased by to billion. The significant increase in total TRADE was contributed by significantly higher TRADE with Malaysia s major trading partners including Hong Kong, which expanded by worth billion, and the People s Republic of China (PRC) by worth the investment front, Malaysia's private investments approved in the manufacturing, services and primary sectors recorded billion in 2018 , a increase against billion in 2017. Total foreign investments more than doubled, accounting for of approved investments at RM58 billion against billion in 2017. Realised private investments measured in terms of Gross Fixed Capital Formation (GFCF) stood at billion as compared to billion in 2017, an increase of Considering the incremental total growth from 2017 to 2018 , Malaysia is certainly on track to achieve the 11MP s revised target of of average growth of real private investment by the year October 2018 , MITI launched the Industry4 WRD National Policy on Industry to transform local companies in the manufacturing sector and manufacturing related services.

4 Through the Industry4 WRD policy, MITI will continue to push for digitalisation of manufacturers by initiating readiness assessment and intervention programmes that will encourage companies to embrace Industry systematically. Furthermore, work plans have been initiated for the New Industrial Master Plan 2021 - 2030 as well as for intensifying efforts to strengthen sectoral growth, facilitate structural reforms and provide quality infrastructure. The inclusion of new agencies under MITI, namely the Department of Standards Malaysia, SIRIM Berhad, MIMOS Berhad, Export-Import Bank of Malaysia Berhad and InvestKL, will further complement as well as bring about diverse capabilities and institutional strengths. Moving forward, Malaysia is aiming towards an economic growth rate of between and for 2019, taking into account the challenging external environment. The manufacturing sector is projected to grow at per annum, underpinned by the shift towards high value-added, diverse and complex products.

5 Meanwhile, the services sector is geared to sustain growth momentum at an average of of GDP growth. MITI and agencies will continue to work together with stakeholders and ensure Malaysia remains on track towards becoming a developed nation. YB DATUK DARELL LEIKINGM inister of INTERNATIONAL TRADE and Industry Malaysia MITI REPORT 2018 IVTABLE OF CONTENTCHAPTER 1 ECONOMIC SCENARIO 2018 INTERNATIONAL ECONOMIC ENVIRONMENT 2 THE MALAYSIAN ECONOMY 6 Box Article : Rise of Re-Export Activities 9 CHAPTER 2 TRADE PERFORMANCE 2018 OVERVIEW 12 Exports 14 Imports 14 Box Article : MATRADE s Exports Promotion Programme 16 FREE TRADE AGREEMENTS 17 Free TRADE Agreement Currently in Force 17 Box Article : ASEAN Economic Community Championship of ASEAN 2018 19 Preferential Certificates of Origin 21 Updates on Free TRADE Agreement Negotiations 22 CURRENT TRADE PRACTICES 24 Measures Related to Malaysia TRADE Remedies 24 Compliance to Financial Action Task Force s INTERNATIONAL Standard 24 Development of Toolkit under Expert Working Group 25 TRADE Facilitation 25 Strategic TRADE (Strategic Items) (Amendment) Order 2018 25 Permit Application 25 CURRENT INVOLVEMENT 26 Development at the World TRADE Organisation 26 TRADE Policy Review 28 WTO Disputes 28 WTO Capacity Programmes 28 APEC 2018 : Harnessing Inclusive Opportunities, Embracing the Digital Future 29 Box Article.

6 Gearing Up for APEC 2020 30 World Economic Forum on ASEAN 2018 31 Commonwealth Senior TRADE Officials Meeting 2018 31 Bilateral Relations 32 ISSUES AND CHALLENGES 36 Palm Oil Issue 36 VMITI REPORT 2018111 MITI REPORT 2018 VICHAPTER 3 INVESTMENT PERFORMANCE 2018 OVERVIEW 38 POLICY INITIATIVES TO ENHANCE QUALITY INVESTMENTS 40 Box Article : Facilitation / Services offered to Investors by Malaysian Investment Development Authority 41 APPROVED INVESTMENTS 42 Manufacturing Sector 42 Services Sector 45 Primary Sector 46 APPROVED MANUFACTURING PROJECTS BY OWNERSHIP AND LOCATION 46 IMPLEMENTATION OF APPROVED MANUFACTURING PROJECTS 49 TRADE AND INVESTMENT FACILITATION 50 Box Article : Facilitation / Services offered to Investors by InvestKL 51 WAY FORWARD 52 CHAPTER 4 INDUSTRIAL DEVELOPMENT 2018 OVERVIEW 54 PERFORMANCE OF THE MANUFACTURING SECTOR 54 National Policy on Industry : Industry4 WRD 57 Electrical and Electronics 58 Machinery and Equipment 59 Chemicals and Petrochemicals 59 Aerospace 60 Medical Devices 61 Pharmaceuticals 62 Iron and Steel 63 Automotive 63 Shipbuilding and Ship Repair (SBSR)

7 65 Rail 66 Textile, Apparel and Footwear 66 Food Processing 66 PERFORMANCE OF THE SERVICES SECTOR 67 Investment in the Services Sector 68 TRADE Performance of the Services Sector 68 Revenue and Employment in the Services Sector 69 Health, Education and Arts, Entertainment and Recreation 69 Professional Services and Real Estate Agents 693753 VIIMITI REPORT 2018 CHAPTER 5 PRODUCTIVITY AND COMPETITIVENESS DEVELOPMENT 2018 OVERVIEW 84 PRODUCTIVITY PERFORMANCE 84 Sectoral Productivity Performance 84 INTERNATIONAL COMPETITIVENESS 86 World Bank Doing Business 2019 86 Global Competitiveness Report 2018 87 World Competitiveness Yearbook 2018 88 PRODUCTIVITY NEXUS 89 Showcase on innovation for Productivity 2018 91 NATIONAL POLICY ON GOOD REGULATORY PRACTICE 91 Implementing GRP at the State Level 92 National Convention on Good Regulatory Practice 2018 92 Unified Online Public Consultation 93 Good Regulatory Practice in ASEAN 94 REVIEW ON NON-TARIFF MEASURES 95 Making a Mark in Multilateral Trading Engagements 95 Malaysia s Policies and Measures at the WTO 96 Initiatives on Reviewing Non-Tariff Measures 97 Participating Ministries 98 Role of NTMs in Enhancing Productivity 99 PROGRESS OF SERVICES SECTOR BLUEPRINT 70 FUTURE GROWTH AREAS IN SERVICES 71

8 The Malaysian Digital Content and Creative Technology Industry 71 Data Centres 72 Global Business Services 72 Traditional and Complementary medicine 72 Short Term Accommodation 73 Manufacturing Related Services 73 HIGHLIGHTS OF THE NATIONAL SERVICES SECTOR SUMMIT 2018 74 DIGITAL ECONOMY IN THE CONTEXT OF MALAYSIA 75 National eCommerce Council 76 Digital Free TRADE Zone 78 INTERNATIONAL Engagement Related to eCommerce 78 CROSS-CUTTING ECOSYSTEM 79 Industry Talent Requirements 79 INDUSTRY OUTLOOK 2019 81 Manufacturing 81 Services 82 Digital Economy 8283 INDUSTRY EXCELLENCE AWARD 2018 100 Box Article : Raising National Productivity and Competitiveness through MIMOS Homegrown Technology 102 CHAPTER 6 ECONOMIC PROSPECTS 2019 GLOBAL ECONOMY 106 Box Article : Brexit 109 REGIONAL OUTLOOK 113 ASEAN 113 Europe 114 Middle East North Africa Pakistan 116 Africa 117 MALAYSIA 122 CHAPTER 7 MITI AND AGENCIESOVERVIEW 126 Box Article : Enhancing Industry Competitiveness through Standards Malaysia 129 Box Article : Technology innovation and Quality Assurance led by SIRIM 130 Box Article : Innovating Malaysia for 4IR by MIMOS Berhad 131 Box Article.

9 Expanding Frontiers by EXIM Bank 133 Box Article : Attracting MNCs Regional Services Hub by InvestKL 135 MITI REPORT 2018 VIII105125 CHAPTERECONOMIC SCENARIO 20181 MITI REPORT 20182 INTERNATIONAL ECONOMIC ENVIRONMENTThe global economy remained on the upside in 2018 despite expanding at a slower pace of (2017: ) as compared to the previous year. Major and emerging economies experienced moderate economic growth amid market uncertainties, TRADE tension, volatility in commodity prices, fluctuation in financial markets, monetary normalisation in the United States of America (US) and geopolitical conflicts. In March 2018 , the US announced tariff hikes on imported washers and solar panels, originating from countries that the US had TRADE deficit with, including Malaysia. The US had actively used tariff rate hikes on some countries which caused currencies and confidence levels to fall. For instance, the US-Turkey conflict increased tariff rates on imported products from Turkey.

10 On the contrary, the US economy expanded faster than expected in 2018 , amidst the tax cuts for individuals and businesses in 1Q18 via the Tax Cuts and Jobs Act of 2017. Optimism among consumers and business players in the US rose firmly and translated into strong economic growth at (2017: ). Tax cuts as well as strong economic growth, rising inflationary pressure and full-employment condition provided the Fed room to raise the interest rate by four times in 2018 . EXHIBIT GROWTH (%) As interest rates in the US rose, the greenback currency appreciated strongly in 2018 and indirectly put pressure on other global currencies. Economies sensitive to foreign exchange movements, had also increased the interest rates in tandem with the US Federal Reserve to avoid currency depreciation and significant capital outflows. Hong Kong, Turkey, Indonesia and the Philippines were among : * Indonesia, Malaysia, Philippines, Thailand and VietnamSource: World Economic Outlook, April 2019, IMF 2010 2011 2012 2013 2014 2015 2016 2017 2018 WORLD ECONOMIES AREA * MARKET & DEVELOPING ECONOMIES 1 ECONOMIC SCENARIO 20183 EXHIBIT BANK POLICY RATE BY SELECTED ECONOMIES (%) GDP Growth of the People s Republic of China (PRC) remained at in 2018 (2017: ), the lowest growth rate ever recorded since 1990.