LIBERALISATION OF THE SERVICES SECTOR

This paper was presented by Ministry of International Trade and Industry (MITI), at the seminar On Liberalization of Forestry and Environmental Services in Malaysia, organized by the Institute of Foresters Malaysia (IRIM) and MSPC at the Forestry Department Peninsular Malaysia Headquarters in Kuala Lumpur on 12 March 2013.

LIBERALISATION OF THE SERVICES SECTOR

Importance of Services

●     Macro  economic targets for services sector under national development plans:

   Ø     GDP Contribution:

ü  IMP3 (2020)          - 59.7%

ü  NEM (2020)           - 67.3%

ü  RMK10 (2015)       - 61.0%

  

GDP Contribution

       2010 – 53.2 %

       2011 – 54.2 %

       2012 – 54.6 %

Investment in services

       2010 – RM36.7 billion

       2011 – RM70.4 billion 

       2012 – RM 117.55 billion

Government’s Initiatives

1. Liberalisation through commitments made at WTO, ASEAN, FTA
2. Unilateral liberalisation

- 27 services subsectors announced on 22 April 2009

    -17 services subsectors announced on 7 October 2012

3. Recommendations by PEMANDU SRI Lab 2011(include regulatory review and capacity building initiatives for selected sub-sectors)

Market Liberalisation:The Basic Concept

•  Difference between Unilateral and Binding Commitments;

•  In Goods sector; liberalisation is undertaken through:

           -reduction in tariff                                        -disbandment of Non-Tariff Barriers; and

-review of equity conditions imposed on foreign investments (equity = level of exports)

•  However, in the services sector, liberalisation is undertaken through four modes of delivery or supply:

Modes of supply 

Mode 1: Cross-border supply

A user in Malaysia receives services from abroad through its telecommunications or postal infrastructure. Such supplies may include consultancy or market research reports, tele-medical advice, distance training or architectural drawings.

Supplier Presence - Do not have to move

Mode 2: Consumption abroad

A Malaysian goes abroad as tourists, students or patients to consume the respective services.

Supplier Presence - Do not have to move

Mode 3: Commercial presence

The service is provided within Malaysia by a locally established affiliate, subsidiary or representative office of a foreign-owned and -controlled company (bank, hotel group, construction company etc.)

Supplier Presence - Move to another country

Mode 4: Presence of a natural person

A foreign national provides a services within Malaysia as an independent supplier (e.g. consultant, health worker) or employee of a services supplier (e.g. consultancy firm, hospital, construction company.

Supplier Presence - Move to another country

THE SUPPLY OF PROFESSIONAL SERVICES
Modes of Access

Mode 1 – Cross Border Trade

Many design services/payment are electronically transmitted

Mode 2 – Consumption Abroad

Many Clients already appoint foreign firms

Mode 3 - Commercial Presence

Currently not possible under the Professional Acts

Mode 4 – Presence of Natural Person

Currently not possible under the Professional Acts

(Except thro’ temporary registration)

Autonomous liberalisation

•  22 April 2009: immediate liberalisation of 27 services sub-sectors. This liberalisation is undertaken autonomously or unilaterally.

•  On 28 April 2009 PM also announced liberalisation of the financial sector by allowing up to five top international law firms with expertise in international Islamic finance to practice in Malaysia. These firms will only be allowed to offer legal services in international Islamic finance.

•  On 30 June 2009, PM announced comprehensive rationalisation of the investment guidelines administered by the Foreign Investment Committee (FIC).

LIBERALISATION OF 27 SERVICES SUB-SECTORS: 22 SEPTEMBER 2009 

1^st Package of Autonomous Liberalisation

The 27 services subsectors  liberalised in 2009 (up to 100% foreign equity):

1. Consultancy services related to installation of hardware
2. Software implementation services
3. Data processing services
4. Database services
5. Maintenance and repair services of computers
6. Other computer related services
7. All veterinary services
8. Welfare services delivered through residential institutions to old person and the handicapped
9. Welfare services delivered through residential institutions to children

10. Child daycare services
11. Vocational rehabilitation services for the handicapped
12. Theme park
13. Convention and exhibition centre
14. Travel agencies and tour operator services
15. Hotel and restaurant services (4&5 star hotels only)
16. Food serving services  (4&5 star hotels only
17. Beverage serving services ($&5 star hotels only)
18. Class C freight transportation services (private carrier license to transport own goods)
19. Sports event promotion and organisation services
20. Regional distribution centres
21. International procurement centres
22. Technical testing and analysis services
23. Management consulting services
24. Rental/ leasing services of ships (excludes cabotage and offshore trades)
25. Rental of cargo vessels without crew
26. Maritime agency services
27. Vessel salvage and refloating services

LIBERALISATION OF 17 SERVICES SUB-SECTORS: 7 OCTOBER 2011

The 17 services subsectors to be liberalised in phases in 2012 to allow up to 100% foreign equity are as follows:

1. Telecommunication services (Network Service Provider and    Network Facilities Provider licences)
2. Telecommunication services (Applications Service Provider licence)
3. Courier services
4. Private hospital services
5. Medical specialists services
6. Dental specialists services
7. Private higher education institution with university status
8. International school
9. Technical and vocational secondary education services
10. Technical and vocational secondary education services (for students with special needs)
11. Skills training centre
12. Accounting and taxation
13. Architectural services
14. Engineering services
15. Legal services
16. Departmental stores and specialty stores

17. Incineration services

Status of implementation

2^nd Package of Autonomous Liberalisation

No. of Sectors 17 + 1

Implemented 15 (83%)

In Progress 3 (17%)

Implemented

Telecommunications – ASP

International Schools

Tech & Vocational Schools

Tech & Vocational Schools – Special Needs

Private Hospitals

Departmental & Specialty Stores

Incineration Services

Accounting /Taxation

Skills Training Centers

Courier Services

In Progress

Legal Services

Private Universities

Medical Specialist Services

Dental Specialist Services

Telecommunications (NSP & NFP)

Architectural Services

Engineering Services

Quantity Surveying Services*

12 SERVICES SECTOR FOR LIBERALISATION

In AFAS, WTO and FTAs, following the CPC Codes:

•    Business services

•    Retail trade

•    Cultural and recreation

•    Education

•    Transport/logistics

•    Telecommunication (ICT)

•    Healthcare

•    Finance

•    Construction

•    Environment

•    Tourism

•    Logistics

Equity target and parameters

PRIORITY SECTORS

End date for Liberalisation 2010 

e-ASEAN (ICT), Tourism, Healthcare         -2010

Logistics                                                     -2013  

NON-PRIORITY SECTORS(Other services)  -2015

Foreign (ASEAN) equity participation

2010  - 49% by 2006,  -   51% by 2008,  -70% by 2010

2013  - 49% by 2008,  -   51% by 2010,  -70% by 2013

2015  - 30% by 2006,  - 49% by 2008,  - 51% by 2010

*construction: not less than 51% by 2008

Services negotiations in the wto

•   Services negotiations undertaken on “request-offer” approach, on bilateral and plurilateral basis.

•    Liberalisation of commitments of members are multilateralised (applicable to all Members).

Free trade agreements (ftas) – SERVICES RELATED

Completed and/ or in Force:

Regional FTA :ASEAN-China, ASEAN-Korea, ASEAN-Australia/New Zealand

Bilateral FTA : Malaysia-Japan, Malaysia-Pakistan, Malaysia-New Zealand, Malaysia-India, Malaysia-Australia

On going Negotiations:

Regional FTA : ASEAN-Japan, ASEAN-India, TPP

Bilateral FTA : Malaysia-Turkey, Malaysia-EU, Malaysia-Chile

Issues & Challenges

LIBERALISATION

•      Ministries / Agencies are not prepared to make higher commitments

•      Most stakeholders in the services sectors are not fully aware of the impact of services liberalisation.

   DOMESTIC REGULATIONS

•      Acts and Regulations governing business and professionals services require review.

•    Ministries/Agencies/State authority to identify domestic regulations that inhibit potential foreign investments and business opportunities.

TRANSPARENCY OF RULES AND REGULATIONS

RELIABLE INFORMATION/DATA

•      CHANGE IN MIND-SET REQUIRED : Mind-set change required in the public and private sector to look at the services sector as a business.

STRATEGIC ACTION

•      An overseeing body, known as the Malaysia Services Development Council (MSDC), has been set up to monitor and coordinate the work of ministries implementing the liberalisation programme.

–     Review the Domestic Regulation.

–     Capacity Building Programme for SMEs.

–     Dedicated Promotions and Targets.

–     Data Collection and Profile of the Services Sub-Sectors.

–     Awareness and Outreach Programme.

CONCLUSION  
-Attracts foreign investments, specialised expertise and technology.
-Add new capacity in services.  
-Fill-in vacuum in sub-sectors not available in the country 
-Opportunities for domestic joint ventures

-Collaboration in overseas ventures.

— - Advantage as a “first mover”.

— - Expand out of domestic market and enter into regional or global markets.

— - Provide legal certainty, in sub-sectors where Malaysia already practice an open regime.

—- Inject competitiveness.