LIBERALISATION IN SERVICES SECTOR

Outline Overview of Malaysia’s Services Industry Modes of Supply Liberalisation of the Services Sector Malaysia’s Position in AFAS, WTO, FTAs Issues pertaining to Services

Overview of Malaysia’s Services Industry The Services Sector has been targeted as the new engine of growth under IMP3. Total share of services in Malaysia’s GDP has grown by 9.7 per cent to 53.6 per cent in 2007 (Non-Government 46.7%) from 52.0 per cent in 2006 (Non-Government 45.3 %). IMP3 targets an increase in the GDP contribution from 50.5 per cent in 2005 to 59.7 per cent by 2020 to be achieved through: an annual average investment of RM45.8 billion; and an annual average growth of 7.5 per cent during the period.

IMP3 Targets IMP3 Targets 2007 2006 2005 GDP Contribution (%) 59.7   IMP3 Targets 2007 2006 2005 GDP Contribution (%) 59.7 (Y 2020) 46.7 45.3 44.6 GDP Growth (% p.a.)  7.5 p.a. construction: 5.7%) 9.7 7.2 5.4 Investments (billion)  RM45.8 (p.a. RM65.4 RM55.5 RM57.7

Trade Performance of the Services Sector Jan-June 2008 (RM bil.) 2007 (RM Bil.) % Growth 2006 2005 Total Trade* 98.25  192.2 16.0  165.7 21.6 153.5  Exports* 49.88  96.8 7.9  79.6 10.9 71.8  Imports* 48.37  95.4 10.8  86.1 5.4 81.7  Trade Balance* 1.51  1.4 n.a  (6.5) n.a (8.6) *Based on DOS and covered 3 categories: travel, transport and others.

Modes of Supply of Services In the Trade in Goods, liberalisation is undertaken through: reduction in tariffs; and disbandment of Non-Tariff Barriers (NTBs). In the services sector, liberalisation is undertaken through four modes of supply:

4 Modes of Supply MODES CRITERIA SUPPLIER PRESENCE Mode 1: Cross-border trade Service delivered within the territory of the Member, from the territory of another Member. The advancement of technology has made this possible. E.g. internet (e-trading) Service supplier not physically present within the territory of another Member Mode 2: Consumption abroad Service delivered outside the territory of the Member to a service consumer of the another Member. It involves the consumer traveling to the country in which the service is produced. E.g. tourism and education services.

4 Modes of Supply MODES CRITERIA SUPPLIER PRESENCE Mode 3: Commercial presence Service delivered by a service provider of one country through commercial presence in another country. E.g. FDIs Service supplier physically present within the territory of another Member Mode 4: Movement of natural persons Service delivered by a service personnel of one country who travels to another country to provide the service. E.g. services provided by expatriates, business and professionals and foreign workers.

Liberalisation of Malaysia’s Services Sector Liberalisation in the services sector is currently being undertaken in: ASEAN: through the ASEAN Framework Agreement on Services – AFAS (full liberalisation to be undertaken by 2015 and logistics 2013); WTO: through progressive liberalisation (General Agreement on Trade in Services -GATS); bilateral and regional FTAs: through progressive liberalisation and binding of commitments in GATS. 9

Preparation for Liberalisation of Services Sector Strengthen domestic regulations For non-regulated sectors, self-regulation is advised or if required, to advise the Government on regulatory requirements Review regulations that impede services exports Identify issues that impede the growth and development of services sub-sectors. Issues can be addressed in the MSDC for long-term competitiveness

Preparation for Liberalisation of Services Sector Propose incentives that can assist the industry to become more competitive. Incentives are currently available through MATRADE and SMIDEC Undertake mergers and acquisitions to strengthen the industry Pursue MRAs with trading countries, in particular within ASEAN and FTA partner countries Build local capacity and identify niche markets in areas where we have comparative advantage Explore market access opportunities abroad through partnerships

COMMITMENTS IN AFAS

AFAS Signed in 1995 - to enhance and strengthen cooperation among service suppliers in ASEAN; and - progressively liberalise trade in services among ASEAN countries through reduction/elimination of restrictions. AFAS adopts the structure and approach of General Agreement on Trade in Services (GATS) .

Progress of Services Liberalisation Under AFAS Four Rounds of Services Negotiations have been completed: - First Round (1996-1998): 1st Package – 1997; 2nd Package – 1998. - Second Round (1999-2001): 3rd Package. - Third Round (2002-2004): 4th Package. - Fourth Round (2005-2007): 5th Package – 2006; 6th Package – 2007. 7th Package signed at the end of 2008.

Equity Targets and Parameters (Mode 3) PRIORITY SECTORS (ICT, tourism, healthcare, air travel and logistics) OTHER SECTORS (including professional services) 2008 51% 49% 2010 70% 2013 (Logistic Services) 2015

SERVICES NEGOTIATIONS IN WTO

Services Negotiations in the WTO: Covered by the General Agreement on Trade in Services (GATS) of the WTO. Main objectives of GATS: - increased transparency and predictability of rules and regulations on trade in services; and - promote progressive liberalisation in services through successive rounds of negotiations. Services negotiations undertaken on “request- offer” approach, on bilateral and plurilateral basis. Liberalisation of commitments of members are multilateralised (applicable to all Members)

Market Access Negotiations Developed countries seek ambitious market access commitments and want: - Members to bind existing autonomous liberalisation - foreign equity ownership of at least 51% Developing countries want: - progressive liberalisation of services sectors - market opening in sectors where they have export interest

Malaysia’s Position Prepared to undertake commitments under the principle of progressive liberalisation Finalising the second revised Offer under Doha Round, encompassing 11 sectors and covering 85 sub-sectors.

FREE TRADE AGREEMENTS (FTAs)

Approach to Services Negotiations in FTAs Based on the principle of progressive liberalisation, commensurate with capacity of industry. WTO plus Based on domestic consultations – liberalisation to benefit domestic stakeholders Cooperation elements added where relevant for capacity building and transfer of knowledge/technology

FTAs Signed Bilateral: Malaysia-Japan Economic Partnership Agreement (MJEPA) Malaysia-Pakistan Comprehensive Economic Partnership Agreement (MPCEPA) ASEAN + Dialogue Partners (where services packages have been concluded): ASEAN - China (ACFTA) – 1st package ASEAN - Korea (AKFTA) – Korea yet to ratify

ISSUES PERTAINING TO SERVICES

A need for all Ministries to prepare a road-map for liberalisation of services under their respective purview A need for a coordinated approach for the development of the services sector e.g. through Malaysia Services Development Council (MSDC) To undertake outreach programmes to stakeholders To assist export-ready companies To compile comprehensive data on services To review of existing rules and regulations

THANK YOU