VZCZCXRO7436
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #0997/01 3500802
ZNR UUUUU ZZH
R 160802Z DEC 09
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 3584
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1788

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000997 
 
SIPDIS 
 
DEPT FOR EB/TPP/MTA: B Nafziger 
DEPT PASS USTR: K Ehlers 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EFIN PREL WTO MY
SUBJECT: MALAYSIA'S REVISED NATIONAL AUTO POLICY (NAP) FAILS TO 
REMOVE KEY RESTRICTIONS 
 
Summary and Comment 
------------------- 
 
¶1. (SBU) In October 2009, GOM announced revisions to its National 
Auto Policy (NAP), in effect since 2005, which will be implemented 
in January 2010. The revised NAP lifts the freeze on some 
Manufacturing Licenses, and reduces intra-ASEAN duties and excise 
taxes, and sets aside tax exemptions for high-value added exports. 
However, the policy extends the Approved Permit (AP) system for 
another 10 years (effectively extending quota restrictions), expands 
import restrictions especially on used vehicles, and does not 
significantly change subsidies to the industry. 
 
¶2. (SBU) Comment: U.S. firms will find little to cheer about in the 
changes to the NAP because there is no significant departure from 
the past in terms of opening up the market for imports or reducing 
subsidies to the "national" auto makers.  Importers of passenger 
vehicles complain that the measures Malaysia maintains are 
protectionist, opaque, and potentially inconsistent with Malaysia's 
obligations under the WTO.  According to one American manufacturer's 
regional representative, the NAP, even after these revisions, 
seriously restricts the ability of importers to compete on a level 
playing field.  The key policy preferences for bumiputera ownership 
and high local content remain in place.  The small liberalization 
measures, i.e. duty and excise reductions, are mostly in categories 
where "national" brands do not compete, or where the infrastructure 
does not exist (i.e. electric cars).  End Summary and Comment. 
 
National Auto Policy (NAP) - Objectives 
--------------------------------------- 
 
¶3. (U) Malaysia has protected its automobile manufacturing industry 
from foreign competition using both high tariffs and nontariff 
barriers for the past 20 years.  Even for cars produced in Malaysia, 
Malaysian government policies distinguish between "national" cars, 
(e.g., domestic producers Proton and Perodua) and "non-national" 
cars, which include most vehicles manufactured in Malaysia by 
non-Malaysian owned firms. 
 
¶4. (U) Malaysia's current National Auto Policy (NAP) has been in 
effect since 2005.  The NAP framework is intended to encourage 
increased foreign investment in Malaysia's auto sector, while 
simultaneously strengthening national carmakers Proton and Perodua. 
 
¶5. (U) The NAP Framework's five major objectives have been: 
"-- to promote a competitive and viable automobile sector, in 
particular national car manufacturers; 
-- to become a regional hub for manufacturing, assembly and 
distribution for automotive vehicles; 
-- to enhance value added and local capabilities in the automotive 
sector; 
-- to promote export-oriented Malaysian manufacturers as well as 
component and parts vendors; 
-- to promote competitive and broad-based Bumiputera participation 
in vehicle manufacturing, distribution and importation as well as in 
component and parts manufacturing." 
 
Review of the NAP 
----------------- 
 
¶6. (U) In November 2008, the (then) Deputy Prime Minister Najib 
Razak (currently prime minister) announced that the GOM would review 
the NAP to potentially liberalize the sector.  In October 2009, the 
GOM announced the completion of its review of the NAP.  The new 
measures will be implemented in January 2010. 
 
¶7. (U) According to the Ministry of International Trade and Industry 
(MITI), the primary objectives of the review were to ensure the 
long-term viability and competitiveness of the industry, and to 
ensure that consumer interests, safety, and the environment were 
protected.  Additional objectives included promoting new and 
existing investment, promoting utilization of the latest technology, 
and continued expansion of  bumiputra participation in the industry. 
 
 
¶8. (U) Based on the review, the GOM introduced 18 new policy 
measures or revisions.  The policy measures covered adjustments to 
licensing, duties, incentives, technology, environment, safety, 
standards, and the Approved Permits (AP) system. 
 
Manufacturing Licenses 
---------------------- 
 
¶9. (U) The NAP lifts the freeze on Manufacturing Licenses for luxury 
vehicles, pick-up trucks, commercial vehicles, hybrid electric 
 
KUALA LUMP 00000997  002 OF 002 
 
 
vehicles, and motorcycles with engine capacity over 200 cc.  Also, 
there will not be any bumiputra equity requirements imposed on new 
manufacturing licenses.  The current freeze on new licenses for 
rebuild activities, however, will remain in force. 
 
Duty and excise taxes selectively reduced 
----------------------------------------- 
 
¶10. (U) The new policy reduces the intra-ASEAN duty rate from 5 
percent to zero by January 2010.  Electric / hybrid vehicles will be 
exempt from duty and the excise tax reduced to 50 percent (from the 
usual 105 percent).  Duties and excise taxes for other imports from 
non-ASEAN countries will remain unchanged. 
 
Tax exemptions for high value added exports 
------------------------------------------- 
 
¶11. (U) The revised NAP increases the income tax exemption for 
high-value added exports of vehicles and parts.  Tax exemption on 
statutory income is based on the percentage increase in value-added 
of exports: if the value-added is at least 30 percent, 30 percent of 
the value is exempt from income tax (as compared to the previous 10 
percent); if the value-added exceeds 50 percent, 50 percent is 
exempt (as compared to the previous 30 percent). 
 
Gazette prices expanded to used vehicles 
---------------------------------------- 
 
¶12. (U) Malaysia currently uses gazette prices (determined by MITI) 
for the purpose of computing the duty on the value of new imported 
vehicles.  In that past, importers of used vehicles have reportedly 
under-declared the value of used cars.  The NAP addresses this 
problem by establishing gazette prices for imported used motor 
vehicles. 
 
Approved Permit (AP) system extended 
------------------------------------ 
 
¶13. (U) Malaysia's Approved Permit (AP) process, which restricts 
importing cars to government approved permit holders, is intended to 
favor Bumiputera (ethnic Malay's and members of native tribes) by 
enabling Bumiputera to set up automobile sales and service 
operations.  Instead, the AP process has become a lucrative "middle 
man" operation, where many Malay AP holders sell their permits to 
non-Malays and keep the cash.  According to MITI statistics, 156 
companies out of 254 have lost their APs since 1986 because of 
misuse or resale of their APs.  This system adds thousands of 
dollars to the retail cost of imported cars. 
 
¶14. (U) The revised NAP extends the planned phase-out of AP system 
to 2020 (from the previous planned 2010), and maintains the minimum 
70 percent bumiputera equity requirement for prospective importers. 
(NOTE:  GOM announced in January 2009 that they planned to extend 
the deadline for the phase-out, but probably not more than five 
years.)  The revised NAP also further restricts importation of used 
vehicles, by terminating the open APs for used vehicles by December 
31, 2015. 
 
Automotive Development Fund (ADF) 
--------------------------------- 
 
¶15. (U) Malaysia's fiscal stimulus package set aside USD56 million 
for Malaysia's Automotive Development Fund.  The purpose of the fund 
is to support the development of Malaysian auto manufacturers and 
auto dealers.  Under the revised NAP, both the ADF and separate 
Industrial Adjustment Fund (IAF) will continue providing soft loans, 
grants and subsidies.  The stated purpose of ADF is to "improve 
competitiveness of parts and components manufacturers through soft 
loans and grants," whereas the IAF grants are made available to 
"companies that create significant economic contribution." 
 
KEITH