Final Report

FINAL REPORT

REDUCING UNNECESSARY REGULATORY BURDENS ON BUSINESS (RURB): TRANSPORT SERVICES

VOLUME II: TRANSPORTATION OF GOODS

31 December 2018 Page | i

Contents

Chapter 1 About the Review ...... 1

1.1 About the Review ...... 1

1.2 What MPC Has Been Asked To Do ...... 4

1.3 Scope of the Study ...... 7

1.4 Approach and Rationale of this Review ...... 18

1.5 Conduct of the Study ...... 20

1.6 Structure of the Report ...... 25

Chapter 2 Regulatory Burdens: Core Concept ...... 27

2.1 Introduction ...... 29

2.2 Why Regulation ...... 29

2.3 Reducing Unnecessary Regulatory Burdens ...... 32

2.4 Types of Unnecessary Regulatory Burdens ...... 33

2.5 Government Initiatives in Good Regulatory Practices ...... 37

Chapter 3 Industry Performance of Transport Services ...... 40

3.1 Transport Services ...... 43

3.2 Air Transport ...... 49

3.3 Land Transport ...... 53

3.4 Maritime Transport ...... 61

3.5 Rail Transport ...... 67

3.6 Value Chain and Regulations for Transport Services ...... 70

Chapter 4 Chemicals and Chemical Products Subsector ...... 75

4.1 Economic Performance of the C&C Subsector ...... 76

4.2 Value Chain and Regulations for C&C Products Subsector ...... 81

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4.2.1 Relationship between the Transport Services Sector and the Value Chain for the C&C Products Subsector ...... 83

4.2.2 Summary ...... 87

4.3 Regulatory Issues in Transport Services in the C&C Subsector ...... 88

Chapter 5 Machinery & Equipment Subsector ...... 114

5.1 Economic Performance of the M&E Subsector ...... 116

5.2 Value Chain and Regulations for Value Chain of M&E Subsector ...... 125

5.2.1 Relationship between the Transport Services Sector and the Value Chain for the M&E Subsector ...... 127

5.2.2 Summary ...... 129

5.3 Regulatory Issues in Transport Services in the M&E Subsector ...... 130

Chapter 6 Electric & Electronics Subsector ...... 173

6.1 Economic Performance of the Electric and Electronics Subsector ...... 175

6.2 Value Chain and Regulations for E&E Subsector ...... 180

6.2.1 Relationship between the Transport Services Sector and the Value Chain for the E&E Subsector ...... 181

6.2.2 Summary ...... 186

6.3 Regulatory Issues in Transport Services in the E&E Subsector ...... 188

Chapter 7 Agrofood Subsector ...... 207

7.1 Economic Performance of the Agrofood Subsector ...... 209

7.2 Value Chain and Regulations for Agrofood Subsector ...... 218

7.2.1 Relationship between the Transport Services Sector and the Value Chain for the Agrofood Subsector ...... 220

7.2.2 Summary ...... 225

7.3 Regulatory Issues in Transport Services in the Agrofood Subsector ... 227

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Appendix 1 – Issue Paper for C&C Products Subsector ...... 230

Appendix 2 – Issue Paper for M&E Subsector ...... 231

Appendix 3 – Issue Paper for E&E Subsector ...... 232

Appendix 4 – Issue Paper for Agrofood Subsector ...... 233

Appendix 5 – List of the Associations Interviewed for the Four (4) Subsectors ...... 234

Appendix 6 – Detailed Description of the Relevant Groups Relating to Transportation under MSIC 2008 ...... 235

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Disclaimer

This Report for Reducing Unnecessary Regulatory Burdens on Transport Services is prepared by Malaysia Productivity Corporation (“MPC”) from sources believed to be reliable. However, no responsibility is accepted by MPC, its employees, consultants, contractors and/or agents in relation to the authenticity, origin, validity, accuracy or completeness of, or for any errors in or omissions from, the information, statements, forecasts, misstatement, of facts, opinions and comments contained herein. No part of this publication may be reproduced, stored in retrieval system, or transmitted in any form or any means, electronics, mechanical, photocopying, recording or otherwise, without the prior written permission from MPC.

To the best of our knowledge, any use of information contained in this Report in which copyright exists was done by way of fair dealing and for permitted purposes. Any excerpt or extract from, or reference to or reproduction of any copyright work has been disclosed expressly and sufficiently and the title of such copyright work and its authorship have been acknowledged in this Report.

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ABBREVIATIONS

AFTA ASEAN Free Trade Agreement

AGPC Australian Government Productivity Commission

AP Approved Permit

BPRH Best Practice Regulation Handbook

CAAM Civil Aviation Authority of Malaysia

C&C Products Chemicals and Chemical Product

CEPT ASEAN Common Effective Preferential Tariff

DCA Department of Civil Aviation of Malaysia

DOSH Department of Occupational Safety and Health

EPU Prime Minister’s Department Economic Planning Unit

ERL Express Rail Link

E&E Electrical and Electronics

FLFAM Federation of Livestock Farmers Associations of Malaysia

GDP Gross Domestic Product

HAZMAT Hazardous Material

HCI Hydrochloric Acid

ICAO International Civil Aviation Organization

IILS International Integrated Logistics Services

JKJR Road Safety Department of Malaysia

JKN Jabatan Kesihatan Negeri

JPBM Fire and Rescue Department of Malaysia

JPJ Road Transport Department

KLIA Kuala Lumpur International Airport

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KTMB Keretapi Tanah Melayu Berhad

LRT Light Rail Transit

LSANK Kedah Water Resources Board

MATRADE Malaysia External Trade Development Corporation

MAVCOM Malaysian Aviation Commission

MBAM Master Builders Association Malaysia

MIDA Malaysian Investment Development Authority

Mid-Term Review Mid-Term Review of the 11th Malaysia Plan

MIMA Maritime Institute of Malaysia

MIROS Malaysian Institute of Road Safety Research

MITI Ministry of International Trade and Industry

MOF Ministry of Finance

MOH Ministry of Health

MOHA Ministry of Home Affairs

MOT Ministry of Transport

MPB Malaysia Productivity Blueprint

MPC Malaysia Productivity Corporation

MRT Mass Rapid Transit

MSIC 2008 Malaysian Standard Industrial Classification 2008

MyCC Malaysia Competition Commission

MyKKP Sistem Perkhidmatan Atas Talian JKKP

M&E Machinery and Equipment

NDPC National Development Planning Committee

NKEAs National Key Economic Areas

NLPTMP National Land Public Transport Master Plan

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NPDIR National Policy for the Development and Implementation of Regulations

NRSP National Regulatory Strengthening Programme

NTMs Non-tariff measures

OECD Organisation for Economic Co-operation and Development

PEMJ Pengguna Permohonan Baru Pemeriksaan Ulangan Jentera

PIAs Permit Issuing Agencies

PUSPAKOM Pusat Pemeriksaan Kenderaan Berkomputer

RAC Railway Assets Corporation

RIA Regulatory Impact Analysis

RIS Regulatory Impact Statement

SMEs Small and medium enterprises

SPAD Land Public Transport Commission

SSM Companies Commission of Malaysia

STK Surat Tawaran Kelulusan

TEUs Twenty-Foot Equivalent Units

VAT Value Added Tax

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CHAPTER 1

ABOUT THE REVIEW

Contents: About the review, what MPC has been asked to do, scope of the study, approach and rationale of the review, conduct of the study and structure of the report.

Key Points

1. Malaysia Productivity Corporation (“MPC”) has been mandated under the 10th Malaysia Plan to carry out comprehensive reviews on business regulations with the aim of modernizing such regulations and facilitating the ease of doing business in Malaysia. It has also been tasked to undertake programme on sectoral governance reform, which is a key policy lever in ensuring the development of the services sector under the 11th Malaysia Plan. The main goal of the sectoral governance reform is to create efficient and enabling policy environment, machinery that nurtures thriving and competitive sectors.

2. Reducing Unnecessary Regulatory Burdens on Business (“RURB”) study is one of the initiatives that could enhance the quality of existing regulations. It aims to provide recommendations to ministries and regulators on implementing Good Regulatory Practices (“GRP”) in developing, administrating and enforcing regulations to regulated entity. 3. This report is prepared to conduct RURB study for the Transport Services sector. The scope of this study includes (i) the medium of transport and (ii) the transportation activity. For the medium of transport, the study is limited to the four (4) main modes of road, rail, maritime, and air. As for the transportation activity, Malaysian Standard Industrial Classification 2008 (“MSIC 2008”) is used as a point of reference to understand the technical nature of transportation activities

4. For this study, MPC had decided to focus on the regulatory aspects of Transport Services in five (5) priority subsectors under the Malaysia Productivity Blueprint, as follows:

• Tourism; • Chemicals and Chemical Products; • Machinery and Equipment;

• Electrical and Electronics; and • Agrofood. 5. For the Tourism subsector, the study will consider transport services relevant to the carriage of passengers only, whereas for the other four (4) subsectors listed above, the study will consider transport services relevant to the transportation of goods. This report will solely focus on the transportation of goods. As for the study on carriage of passengers, it will be made in a separate report titled ‘Reducing Unnecessary Regulatory Burdens on Business (RURB): Transport Services - Volume I: Carriage of Passengers’. 6. The report is structured into seven (7) chapters as follows: • Chapter 1 - About the review • Chapter 2 – Core concept • Chapter 3 – Industry performance of transport services • Chapter 4 – Chemicals and chemicals products subsector • Chapter 5 - Machinery and equipment subsector • Chapter 6 - Electrical and electronics subsector • Chapter 7 – Agrofood subsector

1.1 About the Review

Y.A.B Tun Dr Mahathir Mohamad, at the inaugural meeting of the Malaysian Business Council held in Kuala Lumpur on 28 February 1991, stated that there can be no doubt that regulations are an essential part of the governance of society, of which the economy is a part. A state without laws and regulations is a state flirting with anarchy. What is not required is over-regulation although it may not be easy to decide when the Government is over regulating. Wisdom lies of course in the ability to distinguish between those laws and regulations which are productive of our societal objectives and those that are not.1

In order to attain the aspiration of an advanced nation that is inclusive and sustainable by 2020 as announced by Tun Dr Mahathir Mohamad during the 6th Malaysia Plan, Vision 2020 recognises the need for reform of regulations in attaining the goals of a developed nation. Since the implementation of the 6th Malaysia Plan till the current 11th Malaysia Plan, regulatory reform has been highlighted as one of the key components to achieve Vision 2020. Currently, under the 11th Malaysia Plan, the strategies include enhancing public sector productivity and accelerating regulatory reforms. At the national level, productivity-linked incentives will be introduced and regulatory reforms will be accelerated. As such, it is proven that Malaysia has been steadfast moving towards achieving Vision 2020 which is thus why this review is undertaken.

To this end, this study aims to review the stock of regulation and identify areas where regulation imposes unnecessary burdens on businesses and to identify regulatory and non-regulatory options that will reduce regulatory burdens in the transport services sector without compromising underlying policy objectives. It will also examine regulation and enforcement practices that might impede competition and productivity in the industry. Regulatory burdens arise from the costs imposed by regulation and enforcement that would otherwise not arise for businesses. Where requirements from regulation create a change in business behavior and practices, a regulatory burden can be said to exist. While it is usually necessary that some burden is placed on business for regulation to achieve its objectives, where it is poorly designed or its enforcement and administration is not properly executed, it may impose greater burdens than necessary.

1 ISIS, (Malaysia: The Way Forward (Vision 2020)), http://www.isis.org.my/attachments/Vision%202020%20complete.pdf 3

1.2 What MPC Has Been Asked To Do

Malaysia Productivity Corporation (“MPC”) has been mandated under the 10th Malaysia Plan to carry out comprehensive reviews on business regulations with the aim of modernizing such regulations and facilitating the ease of doing business in Malaysia. Regulations that contribute to improve national outcomes will be retained, while redundant and outdated regulations will be eliminated.

Under the 10th Malaysia Plan, MPC had been mandated to do the following:2

• Review existing regulations with a view to removing unnecessary rules and compliance costs. Regulations affecting National Key Economic Areas (“NKEAs”) will be prioritised;

• Undertake a cost-benefit analysis of new policies and regulations to assess the impact on the economy;

• Provide detailed productivity statistics, at sector level, and benchmark against other relevant countries;

• Undertake relevant productivity research (e.g. the impact of regulations on growth of small and medium enterprises (“SMEs”));

• Make recommendations to the Cabinet on policy and regulatory changes that will enhance productivity; and

• Oversee the implementation of recommendations.

This was followed by the 11th Malaysia Plan, where the focus is to accelerate economic growth and promote an economy that will be driven by high-value and knowledge-intensive activities, sectoral governance reforms, and enhancing internationalisation of products and services.3

2The Economic Planning Unit, Tenth Malaysia Plan, http://www.pmo.gov.my/dokumenattached/RMK/RMK10_E.pdf 3 Economic Planning Unit, Eleventh Malaysia Plan: Strategy Paper 18 – Transforming Services Sector http://epu.gov.my/sites/default/files/Strategy%20Paper%2018.pdf 4

Specifically, the Services Sector Blueprint (2015-2020)4 launched in 2015 mandated MPC to undertake initiatives on sectoral governance reform to remove structural barriers and outdated regulations through the following:

• Accelerating and increasing the efficiency of sectoral governance reform; and

• Ensuring that the best regulatory development practices are in place for new regulations by expanding and accelerating the adoption of the National Policy for the Development and Implementation of Regulations (“NPDIR”).

In 2017, the Malaysia Productivity Blueprint (“MPB”) was launched by the Prime Minister’s Department’s Economic Planning Unit (“EPU”) with the aim at raising the country's productivity to new heights. As Malaysia approaches its vision to become an advanced economy and inclusive nation by 2020, productivity improvement is critical for sustaining this positive trajectory. MPC spearheads the country’s effort to boost the productivity and competitiveness by undertaking the main role of facilitating the Government’s productivity agenda. MPB is a holistic approach on productivity improvements across the economy with emphasis on strong coordination and governance for implementation certainty and instilling productivity as a daily work culture to raise productivity of the nation.5

As a result of MPC’s focus primarily being service-centric, it has been decided that the theme for this study is to be on the services industry, specifically on Transport Services where this review process will draw on the expertise and perspectives of the public sector and private sector, which will help identify key issues and the appropriate solutions for such issues.

4 Kementerian Hal Ehwal Ekonomi, Rancangan Malaysia Kesebelas, http://www.epu.gov.my/documents/10124/284bf88c-1aa1-4e3a-b43e-3b4b91fa2d1b 5 MPC, Productivity Report 2016/2017, http://www.mpc.gov.my/wp-content/uploads/2017/05/Productivity-Report- 2017.pdf

After the 14th General Election on 9th May 2018, the Government published the Mid-Term Review of the 11th Malaysia Plan (“Mid-Term Review”), with new priorities and emphases, aims to reform existing policies and outline the revised socioeconomic targets for 2018-2020.6 The Mid-Term Review has taken into consideration the aspirations of the new Government, current economic challenges and global trends.

Pursuant to Strategy A4: Facilitating Ease of Doing Business, under the Mid- Term Review, good regulatory practices will be intensified to improve processes and procedures in increasing productivity and competitiveness. In addition, trade practices including non-tariff measures (“NTMs”) will be streamlined to facilitate trade.7 Improving regulatory and trade practices efforts to implement good regulatory practices will be intensified to address the complex regulatory framework, modernise business regulations and create a more favourable business climate.

On top of that, the application of the National Policy on the Development and Implementation of Regulations (“NPDIR”), which serves as a guideline on parameters and principles of good regulatory practice, will be extended to state government and local authorities. Existing efforts such as modernising business licensing, eliminating unnecessary regulatory burdens on business and reducing bureaucratic processes will be continued to lower compliance costs.

6Mid term review of the Eleventh Malaysia Plan 2016-2020, new priorities and emphases, https://www.talentcorp.com.my/clients/TalentCorp_2016_7A6571AE-D9D0-4175-B35D- 99EC514F2D24/contentms/img/publication/Mid-Term%20Review%20of%2011th%20Malaysia%20Plan.pdf 7 ibid

1.3 Scope of the Study

1.3.1 Transport Services

In order to undertake the study on Transport Services, it must firstly be determined what Transport Services entails. As the study aims to uncover regulatory burdens, similarly it would be appropriate to consider whether there is any legal definition in Malaysia as to what amounts to Transport Services. From the review of Malaysian law, there is no legal definition of Transport Services under the relevant legislations. In the absence of a legal definition, resort can thus be made to the everyday, ordinary use of the term in order to better understand the scope of Transport Services.

In this respect, the dictionary8 meaning of Transport Services has been defined to include two (2) fundamental aspects being:

• a vehicle or system of vehicles, such as buses, trains, etc. for getting from one place to another; and • the movement of people or goods from one place to another.

Based on the aforementioned definition, it is evident that the scope of Transport Services incorporates the medium of transport (being the vehicle or system of vehicles) and the activity undertaken in respect of transportation (being the act of transporting). Some examples of this concept are illustrated in Figure 1: Examples of the definition of Transport Services, for ease of understanding.

8 Cambridge Dictionary, https://dictionary.cambridge.org/dictionary/english/transportation

Figure 1: Examples of the definition of Transport Services

Medium of transport Transportation Activity

Excursion Bus Tour for tourists

Lorry Transfer of goods

Crane Lifting of goods

In addition to the above definition, the study has also assessed several other salient features of Transport Services as further detailed in the two (2) fundamental aspects of the definition adopted.

1.3.2 Medium of transport

As the medium of transport focuses on the vehicles or system of vehicles used to transport passengers/goods from one place to another, it must also be determined which modes of transport is relevant for the purposes of this study. As such, although one of the more common modes to naturally include in any transport service study would be road transport i.e. buses, lorries, taxis, etc., would this study also extend to include as an example, space transport? With guidance from MOT,9 the mode of transport focused on in this study can be limited to the four (4) main modes of transport comprising of air, maritime, road, and rail transport.

The four (4) main modes of transport identified for the purposes of this study can be seen illustrated in Figure 2: Four (4) Modes of transport, for ease of reference.

9 Ministry of Transport, http://www.mot.gov.my/en/about-mot/the-introduction-of-new. Note that based on MOT’s website, there would typically only be three (3) main modes of transport as rail transport would be a sub-set of road transport. However, for the purposes of this study, we have considered rail transport independently.

Figure 2: Four (4) Modes of transport

Air Rail

Road Maritime

1.3.3 Transportation activity

As mentioned above, a second aspect of Transport Services is to focus on the transportation activity. This means for example, when the activity of passenger air transport is of concern, what would the nature of such activity include? As a point of reference, it had been determined that the Malaysian Standard Industrial Classification 2008 (“MSIC 2008”)10, in particular Section H: Transportation as outlined below in Figure 3: MSIC 2008 would be of relevance for this study in order to among others better understand the technical facets of transportation activities.

10 MSIC (2008), https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf

Figure 3: MSIC 2008 on Transportation11

Section H: Transportation

Group Type of Transport

Group 491 Transport via railways

Group 492 Other land transport

Group 493 Transport via pipeline

Group 501 Sea and coastal water transport

Group 502 Inland water transport

Group 511 Passenger air transport

Group 512 Freight air transport

Group 522 Support activities for transportation

(Source: DOSM, MSIC 2008, https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2 _List%20of%20References/MSIC_2008.pdf )

Based on MSIC 2008 and using the example of passenger air transport, the standard provides guidance on the nature of such activity where passenger air transport includes, “transport of passengers by air over regular routes and on regular schedules, charter flights for passengers, scenic and sightseeing flights, renting of air-transport equipment with operator for the purpose of passenger transportation and general aviation activities such as transport of passengers by aero clubs for instruction or pleasure”.12

This illustration is reproduced in Figure 4: Group 511 Passenger air transport below, for ease of reference.

11 DOSM, MSIC 2008, https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf 12 ibid

Figure 4: Group 511 Passenger air transport

Class Item Description MSIC 2000

5110 51101 Transport of passengers by 62101 air over regular routes and Passenger on regular schedules air transport

51102 Non-schedule transport of 62209p passenger by air

51103 Renting of air-transport 62201p equipment with operator for the purpose of passenger transportation

(1) Includes: (a) Charter flights for passengers (eg: helicopter, etc.) (b) Scenic and sightseeing flights (c) General aviation activities (eg: transport of passengers by aero clubs for instruction or pleasure)

(DOSM, MSIC 2008, https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf )

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1.3.4 Key subsectors under the Malaysia Productivity Blueprint

Given that Transport Services in general is a broad industry, MPC had decided that the focus sector for the study will be aligned with the key subsectors inhibiting productivity growth identified in the MPB. The MPB had identified nine (9) priority subsectors and they collectively contribute to 30% of Malaysia’s GDP and 40% of total employment.13 The nine (9) priority subsectors are as follows:

• Retail and Food & Beverages; • Electrical and Electronics; • Chemicals and Chemical Product; • Agrofood; • Professional Services; • Tourism; • Communication and Technology; • Machinery and Equipment; and • Private Healthcare.

The nine (9) priority subsectors listed above have been selected based on five (5) main criteria being:

• the subsector’s productivity gap;

• impact on gross domestic product (“GDP”);

• percentage of workforce;

• readiness of the subsector to implement productivity improvement; and

• existing Government plans.

13 Productivity Wayup Malaysia, http://wayup.my/wp-content/uploads/MPB_Chapter-4-1.pdf

For this study, MPC had decided to focus on the regulatory aspects of Transport Services under five (5) priority subsectors in the MPB, being:

Chemical and Machinery Electrical Chemical and and Tourism Product Equipment Electronics Agrofood ("C&C ("M&E") ("E&E") Products")

(collectively, “Five (5) Subsectors”)

Why the Five (5) Subsectors?

It must be noted that the decision to focus on the Five (5) Subsectors (out of the total nine (9) subsectors under the MPB) was due to the overriding criteria of the study to be on Transport Services, hence the subsectors chosen extensively involved (i) the medium of transport and (ii) transport activity in the relevant subsector value chain.

As an example, the Tourism subsector was chosen because consistent with the definition of Transport Services adopted, it comprises of (i) various mediums of transport representing the four (4) main modes i.e. cars, planes, yachts, trains, etc. and (ii) includes a range of transport activities i.e. tours, excursions, point- to-point transfers, etc. In contrast, the subsectors omitted such as for example, Professional Services, Communication and Technology, and Private

Healthcare had little to no correlation to the definition and consequently, criteria of Transport Services adopted. Specifically using the Private Healthcare subsector as an example, the focus on Transport Services in the subsector is limited as the medium of transportation would be confined to ambulances (private/public) and helicopters only while the transport activity would be the transfer of patients only.

An illustration of the above explanation can be seen in Figure 5: Example of Tourism subsector vs Professional Healthcare subsector, for ease of understanding.

Figure 5: Example of Tourism subsector vs Professional Healthcare subsector

Subsector Mode of transport Transportation activity

Tourism Road (Cars, etc.) tours, excursions, point-to-

point transfers, etc.

Air (Plane, etc.) tours, excursions, point-to-

point transfers, etc.

Maritime (Yacht, etc.) tours, excursions, point-to- Included point transfers, etc. in the study Rail (Trains, etc.) tours, excursions, point-to- point transfers, etc.

Private Road (Ambulances only) transfer of patients only Healthcare Air (Helicopters only) transfer of patients only

Maritime (N/A) N/A

Rail (N/A) N/A Excluded from the study

1.3.5 Types of Transport Services

In considering the types of Transport Services, reference can be made to MSIC 2008 which identifies that transportation activity performed under each mode of transport would traditionally involve (i) the carriage of passengers and (ii) the movement of goods, as seen in the extract in Figure 6: Extract of MSIC 2008, Section H: Transportation and Storage.14

Figure 6: Extract of MSIC 2008, Section H: Transportation

Level MSIC 2008 Ver. 1.0

Division 5

Group 11

Class 20

Item 47

This section includes the provision of passenger or freight transport, whether scheduled or not, by rail, pipeline, road, water or air and associated activities such as terminal and parking facilities, cargo handling, storage, etc. included in this section is the renting of transport equipment with driver or operator.

Premised on the foregoing, it was determined that for the Tourism subsector, the study will consider Transport Services relevant to the carriage of passengers only. As for the other four (4) subsectors being C&C Products, E&E, M&E, and Agrofood, the study will consider Transport Services relevant to the transportation of goods only.

For ease of understanding, the types of transportation that will be considered for the Tourism subsector and the other four (4) subsectors are shown in Figure 7: Types of Transport Services.

14 MSIC (2008), https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf, page H-1

Figure 7: Types of Transport Services

Carriage of Passengers Tourism

C&C Products

M&E Transportation of Goods E&E

Agrofood

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In summation of the above description of Transport Services, the overall scope of this study is shown in Figure 8: Overall Scope of the Study.

Figure 8: Overall Scope of the Study

SCOPE OF TRANSPORT SERVICES STUDY

Key features include:

- includes (i) the medium of transport and (ii) the transportation activity

- for the medium of transport, the study is limited to the four Transport (4) main modes of road, rail, maritime, and air Services - for the transportation activity, MSIC 2008 is used as a point of reference to understand the technical nature of transportation activities

Five (5) C&C Tourism M&E E&E Agrofood Subsectors Products under MPB

Types of Carriage of Transportation of Goods Transport Passengers Services

For ease of reference, this report will solely focus on the transportation of goods, particularly for the four (4) subsectors. The discussion on the carriage of passengers, for the Tourism subsector will be made in a separate report titled Reducing Unnecessary Regulatory Burdens on Business (RURB): Transport Services - Volume I: Carriage of Passengers.

1.4 Approach and rationale of this review

The study will emulate the approach used by the Australian Government Productivity Commission (“AGPC”) as developed by a regulatory expert from the AGPC and established by MPC. After the regulatory issues of concern have been identified, the team will formulate feasible options for further deliberation, based on principles of good regulatory practice, and publish them in this report.

Further consultations with relevant stakeholders will take place in order to develop concrete recommendations that will reduce unnecessary regulatory burdens. These will be published in the final report. Figure 9 shown below summarizes the RURB methodology:15

Figure 9: RURB Methodology

(Source: Reducing Unnecessary Regulatory Burdens on Logistics Sector, http://www.mpc.gov.my/wp- content/uploads/2016/04/RURB-Logistics-Draft-Full-Report.pdf)

15 Reducing Unnecessary Regulatory Burdens on Logistics Sector, http://www.mpc.gov.my/wp- content/uploads/2016/04/RURB-Logistics-Draft-Full-Report.pdf

In conducting the review, MPC had assessed both written regulation and the administration and enforcement of regulations. With regards to written regulation, all types of legislative instruments used by the Malaysian Federal and State Governments as well as rules set by Local Governments, such as by-laws, guidelines, circulars, code or policies are potentially under review. The conditions contained in licenses, permits, consents, registration requirements and leases are also under review where they impose a compliance burden or restrict competition.

While it is usually necessary that some burden is placed on business for regulations to achieve its objectives, where it is poorly designed or its enforcement and administration is not done well, it may impose greater burdens than necessary. This review aims to identify areas where regulations can be improved, consolidated or simplified to reduce unnecessary burdens to the transport services without compromising underlying policy objectives. It will also examine regulations and enforcement practices that might impede competition and productivity in the industry.

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1.5 Conduct of the study

In preparing this report, this study had identified, reviewed, and analysed industry issues in relation to the current Transport Services legal framework from publicly available sources including but not limited to legal sources, reference materials, reports, newspapers, articles, studies, and etc., in which the value chain of each of the four (4) subsectors were prepared. Following initial analysis and consultations, MPC had released an Issue Paper for each of the four (4) subsectors to interested parties to prepare and participate in the review. The Issue Paper for each of the four (4) subsectors are appended in Appendix 1 to Appendix 4, accordingly.

MPC had provided various opportunities for interested parties to provide input including among others:

• Data and Information gathering: this review commenced with a period of collecting information from interested parties and other sources which began from early August 2018 and ran until the end of October 2018.

• Publishing the issue paper online: MPC had published the issue paper on www.mpc.gov.my in August 2018 to allow the interested parties to give comment and/or provide information on the study.

• Stakeholder engagement: MPC had also organized focus group meetings across the country with the relevant trade associations and industry players during the months of August 2018 to October 2018 to discuss and gather issues relating to unnecessary regulatory burdens on Transport Services.

• Meetings: MPC then held informal consultations with industry groups as well as with a number of companies and individuals to gather data, validate whether the issues identified are valid, identify further issues, and understand such concern, before releasing this report.

Therefore, based on the principles of good regulatory practice, MPC had prepared this report which outlines the issues raised by the key stakeholders, identify regulatory and non-regulatory options, for this short list, which might alleviate the regulatory burdens, including those which will enhance regulatory consistency across jurisdictions or reduce duplication and overlap in regulation or in the role of regulatory bodies, and recommend which options are the most suitable.

As the Government is continuously striving to maintain and enhance efficiency and competitiveness through private-sector driven and people-centred growth. Good regulatory practice is one of the proven instruments to harness national efforts and resources for competitiveness and sustaining economic growth.16 It ensures that all regulations are effective in addressing the desired public policy objectives and in serving the country in a balanced and equitable approach. Further explanation on the principles of good regulatory practice and government initiatives in good regulatory practice will be made in Chapter 2.

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16 Malaysia Productivity Corporation, What is Good Regulatory Practice (GRP)?, http://www.mpc.gov.my/good- regulatory-practice-grp/

Project Milestone

In preparing this report, this study had followed the methodology, and the timeline shown below:

Duration

The period of stakeholder engagement was from 1 August 2018 to 31 October 2018. This was conducted as follows:

• Town hall whereby MPC had a one-day engagement session with the M&E Productivity Nexus, and the members of the Malaysia Mobile Crane Owners Association in a hotel in Klang Valley to discuss on regulatory issues faced by the mobile crane operators in Malaysia; • One-to-one interviews whereby MPC had met in person with the stakeholders at their respective office in Klang Valley; • Focus group meetings with the relevant associations such as the Selangor Freight Forwarders and Logistics Association, and Association of Malaysian Hauliers, as well as industry players to discuss and gather issues relating to unnecessary regulatory burdens on Transport Services in Klang Valley and Sarawak;

• Public surveys whereby MPC had prepared and distributed questionnaires to the public and private sectors, with expertise or experience in the Transport Services for the four (4) subsectors in order for them to give their feedback and assist us in this study; and • Online consultation whereby MPC had released the Issue Paper to assist individuals and organizations to participate in this study on www.mpc.gov.my in August 2018. In the said Issue Paper, MPC had outlined the scope of the review, matters about which MPC are seeking comment and information, and information about how they can get involved in the review. The interested parties were allowed to make a submission (written or electronic) on the regulatory issues from a short letter on a single issue to a more substantial document covering a range of issues. The interested parties were also allowed to contact MPC if they wished to have a one-on-one meeting on this review.

The list of the associations interviewed for the four (4) subsectors is appended herewith in Appendix 5.

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Governance Structure

The governance structure of the RURB Transport Services consists of (i) Working Group of Government Reform (“WGGR”), (ii) representatives from the C&C Products Productivity Nexus, M&E Productivity Nexus, E&E Productivity Nexus, and Agrofood Productivity Nexus, as well as (iii) an external assessor.

The members of the WGGR consist of representatives from MPC, Ministry of International Trade and Industry (“MITI”), Ministry of Finance (“MOF”), Malaysia Investment Development (“MIDA”), Malaysia External Trade Development Corporation (“MATRADE”), Malaysia Competition Commission (“MyCC”), and Attorney General’s Chambers. The members of the WGGR meets once per month to endorse and provide high level input on this study. They also ensure timely completion of this study.

As for the four (4) subsectors Productivity Nexus listed above, the nexuses are established as one-stop centre that assists enterprises to boost productivity, increase innovation and capture growth opportunities. The representatives from the four (4) subsectors Productivity Nexus had provide technical input on the study by assisting in the stakeholder mapping, providing overview of issues related to the four (4) subsectors, and giving strategic direction in completing the study.

An external assessor was also appointed for this particular study to provide objective input on this report and to ensure compliance with MPC’s RURB methodology.

For ease of understanding, the governance structure of the RURB Transport Services can be seen below:

Overseeing Body Activity

WGGR • Endorse and provide high level input on the study/project • Ensure timely completion of study/project Four (4) • Provide technical input on the study/project i.e. stakeholder Subsectors mapping, Transport Services related issues, and strategic Productivity Nexus direction

External Assessor • Provide continuous, objective input on the report • Compliance with MPC’s RURB methodology

1.6 Structure of the Report

This report has been divided into four (4) main chapters being:

• Chapter 1 – About the Review highlights the rationale of the review and approach of this study.

• Chapter 2 – Core Concept presents the core concepts of regulatory burdens and the potential sources of unnecessary regulatory burdens in general.

• Chapter 3 - Industry Performance of Transport Services provides a statistical overview and growth trends of the country trade and on the contributions from Transport Services. Reference is made to the MSIC 2008 in defining the scope of Transport Services. This analysis reflects the importance of Transport Services in the national economy. It also presents the value chain to illustrate the extent of government regulatory requirements placed on businesses in these parts of the economy by looking at the national policy related to transport services sector and the governing Regulations, its regulatory framework, existing legislative and institutional arrangements, and mapping of the value chain to Regulations.

• Chapter 4 – C&C Products subsector provides a statistical overview and presents the value chain analysis of the C&C Products subsector. This Chapter also explains the relationship between Transport Services and C&C Products subsector, as well as the issues raised by the industry, and the options in reducing regulatory burdens for the C&C Products subsector.

• Chapter 5 – M&E subsector provides a statistical overview and presents the value chain analysis of the M&E subsector. This Chapter also explains the relationship between Transport Services and M&E subsector, as well as the issues raised by the industry, and the options in reducing regulatory burdens for the M&E subsector.

• Chapter 6 – E&E subsector provides a statistical overview and presents the value chain analysis of the E&E subsector. This Chapter also explains the relationship between Transport Services and E&E subsector, as well as the

issues raised by the industry, and the options in reducing regulatory burdens for the E&E subsector.

• Chapter 7 – Agrofood subsector provides a statistical overview and presents the value chain analysis of the Agrofood subsector. This Chapter also explains the relationship between Transport Services and Agrofood subsector, as well as the issues raised by the industry, and the options in reducing regulatory burdens for the Agrofood subsector.

CHAPTER 2 REGULATORY BURDENS: CORE CONCEPT

Contents: Purpose, why regulation, reducing unnecessary regulatory burdens, types on unnecessary regulatory burdens, Government initiatives in good regulatory practices.

Key Points

1. For the purpose of this study, review will be made on the regulations applicable to Transport Services. Regulations include both written law and the administration and enforcement of regulations. It also includes the conditions contained in licenses, permits, and registration requirements are also under review where they impose a compliance burden or restrict competition.

2. Government uses regulation as the means to address risks to society, the economy or the environment which are not adequately addressed by individuals and markets. However, where regulation is poorly designed or written or it is not administered or enforced well, it may impose greater burdens than necessary. As such poor governance is the principle cause of unnecessary regulatory burdens, resulting from poorly designed or written regulation and/or poor administration or enforcement regulation.

3. There are six (6) core principles for assessing regulations and its administration. The six (6) core principles are as follows:

• Have a proportionate and targeted response to the risk being addressed • Minimise adverse side-effects to only those necessary to achieve regulatory objectives at least cost. • Have a responsive approach to incentivize compliance with regulation. • Ensure all written regulations are consistent and that regulators interpret and apply them consistently. Avoid duplication and

overlap of regulations and regulators. • Adopt transparency criteria, so interested parties are regularly consulted, it is clear to businesses what their legal obligations are, and that all regulations are easily accessed by everyone. • Accountability so that businesses can seek explanations of decisions made by regulators, as well as appeal them and there are probity provisions in order to reduce corruption. 4. The Government has implemented the initiative on good regulatory practice with the launching of the document on National Policy on the Development and Implementation of Regulations on July 2013. This policy document applies to all federal government ministries, departments, statutory bodies and regulatory commissions. The policy document spells out the objective, operating principles, responsibilities, requirements and process for the regulatory process management. Under the said policy, a regulator has to carry out a regulatory impact analysis before introducing or amending any regulation. It is an essential feature of sound regulatory practice. Besides that, the Best Practice Regulation Handbook was launched to provide detail guidance on how to carry out best practice regulation. MPC had also published the Guidelines on Public Consultation Procedure, to provide a reference for Ministries and federal agencies in conducting their public consultation exercises.

2.1 Introduction

This chapter highlights the core concepts of regulatory burdens and their significance, the principles of good regulatory practice and government initiatives in good regulatory practice and generic poor regulatory practices, where all these would provide useful insights to guide the development of options in the subsequent chapter and complexity of regulations in the context of Transport Services.

2.2 Why Regulation?

Regulations include both written law and the administration and enforcement of regulations. With regards to written law, it includes (i) the Federal Constitution and the Constitutions of the States and subsidiary legislation made thereunder, (ii) Acts of Parliament and subsidiary legislation made thereunder, (iii) Ordinances and Enactments (including any federal or State law styling itself an Ordinance or Enactment) and subsidiary legislation made thereunder, and (iv) any other legislative enactments or legislative instruments which are in force in Malaysia or any part thereof.17 Thus, it includes both primary legislation and subsidiary legislation. Subsidiary legislation means any order in council, proclamation, rule, regulation, order, notification, by-law or other instrument made under any act of parliament, ordinance, enactment, or other lawful authority and having legislative effect.18 It also include all types of legislative instruments used by the Malaysian Federal and State Governments as well as rules set by Local Governments, such as quasi instruments, guidelines, circulars, code or policies are potentially under review. The conditions contained in licenses, permits, and registration requirements are also under review where they impose a compliance burden or restrict competition. (collectively, “Regulations”)

In general, the Government uses regulation as the means to address risks to society, the economy or the environment which are not adequately addressed

17 Section 3 of the Interpretation Acts 1948 and 1967 [Act 388] 18 Section 66 of the Interpretation Acts 1948 and 1967 [Act 388]

by individuals and markets. Regulations are essential to enhance governance and promote stability, productivity, progress and prosperity while at the same time protecting public health, safety and the environment. Many regulatory policies have already proved their worth, supporting structural reforms, entrepreneurship and market openness. While it is usually necessary that some burden is placed on business for regulation to achieve its objectives, greater burdens may as well be created when the regulation is poorly designed or written, poorly implemented or administrated, and where there is unnecessary regulatory duplication and inconsistency.

However, impacts should be assessed and regulations should be reviewed systematically to ensure that they meet their intended objectives efficiently and effectively in a changing and complex economic and social environment. Regulations should be periodically reviewed to ensure that the benefits of the regulation outweigh the costs, and that alternative arrangements cannot equally meet the objectives of the regulation with less effect on competition.

There are four (4) broad stages to writing and implementing regulation in Malaysia. The stages involved are as follows:

• ex ante analysis before new regulation is written;

• writing and ratifying/approving/issuing regulation;

• implementing, administering and enforcing regulation; and

• monitoring, reviewing and rewriting existing regulations.

As MPC has been mandated to carry out regulatory reviews to facilitate the ease of doing business in Malaysia, MPC will be looking at all the stages. For ease of reference, the four stages of making and implementing regulations are shown in Figure 10 below19:

Figure 10: Four Stages of Making and Implementing Regulations

(Source: MPC, A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf )

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19 MPC, A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf

2.3 Reducing Unnecessary Regulatory Burdens

Regulatory burdens arise from the costs imposed by regulation and enforcement that would otherwise not arise for businesses. Where requirements from regulation create a change in business behaviour and practices, a regulatory burden can be said to exist. While it is usually necessary that some burden is placed on business for regulation to achieve objectives, where regulation is poorly designed or written, or it is not administered or enforced well, it may impose greater burdens than necessary.

When a business has to interact with more than one regulator, either within or across jurisdictions, it may create additional burdens when the regulators use different approach to enforcement.

Regulations can adversely impact on businesses in various ways. Most fall under the following four (4) categories of cost impacts:20

• administrative and operational requirements, such as:

➢ reporting, record keeping

➢ getting legal advice, training

• requirements on the way goods are produced or services supplied, such as:

➢ prescriptions on production methods

➢ occupational registration requirements, requiring professionals to use particular techniques

• requirements on the characteristics of what is produced or supplied, such as:

➢ being required to provide air bags in all motor vehicles

➢ requiring teachers or trainers to cover particular topics

• lost production and marketing opportunities due to prohibitions, such as:

20 MPC, A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf

➢ when certain products or services are banned.

2.4 Types of Unnecessary Regulatory Burdens

It is usually necessary that some burden is placed on business in order for the objectives of regulation to be achieved. However, regulations may create unnecessary burdens on business where they are poorly designed and written; or they are poorly administered and enforced.21 The types of unnecessary regulatory burdens are as follows:22

• excessive coverage by a regulation - that is, the regulation affects more economic activity than was intended or required to achieve its objective (includes ‘regulatory creep’)

• subject-specific regulation that covers much the same issues as other generic regulation

• prescriptive regulation that unduly limits flexibility such as preventing businesses from:

➢ using the best technology

➢ making product changes to better meet consumer demand

➢ meeting the underlying objectives of regulation in different ways

• overly complex regulation

• unwieldy licence application and approval processes, excessive time delays in obtaining responses and decisions from regulators

• requests to provide more information than needed

• requests to provide the same information more than once

• rules or enforcement approaches that inadvertently result in businesses operating in less efficient ways

21 MPC, A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf 22 MPC 2014, page 14, Reducing Unnecessary Regulatory Burdens – A Guide to Reducing Unnecessary Regulatory Burdens: A Core Concept

• unnecessarily invasive regulator behaviour, such as overly frequent inspections or irrelevant or duplicative information requests

• an overlap or conflict in the activities of different regulators

• inconsistent application or interpretation of regulation by regulators.

Poor governance and lack of transparency and accountability are among the principal causes of unnecessary regulatory burden, resulting not only from poor designed or written regulation and/or poor administration or enforcement of the regulations. This frequently provides opportunities for corrupt practices. Corruption is the greatest obstacle to economic and social development around the world. To get rid of corruption, regulators must be highly transparent in their decision-making, administrative processes and delivery. As such, understanding how corruption creates uncertainty for businesses and undermines the achievement of government objectives will hopefully increase government and society’s resolve to eliminate the unnecessary burdens from arising from corruption.

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In order to improve the quality of regulations, the regulations must be made according to good practice principles. Some important characteristics of well written regulations are shown in Box 1 below:23

Box 1: Characteristics of Well-Written Regulations

1. the requirements placed on business are proportionate to the risk being regulated, in particular low risks are not addressed by imposing onerous requirements

2. the regulations make appropriate use of prescriptive, performance, in- principle and process-based requirements

3. the regulatory requirements are the minimum necessary to effectively achieve the objective(s) of the regulation

4. the regulations provide an adequate range of enforcement instruments to allow regulators some flexibility in addressing noncompliance

5. the regulations are consistent with other regulations and do not create conflict or duplication

6. the regulations are transparent, communicated effectively and readily accessible by everyone

7. the regulations place accountability requirements on the regulator such as reporting, appeal and review provisions including some that address probity

(Source: MPC (2014), A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp-content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf )

23 MPC (2014), A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, , http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf

Furthermore, it is crucial for Regulations and its administration to be assessed. The six (6) core principles for assessing Regulations and its administration are shown in Box 2 below24:

Box 2: Six Core Principles for Assessing Regulation and its Administration

Principle 1: Have a proportionate and targeted response to the risk being addressed

Principle 2: Minimise adverse side-effects to only those necessary to achieve regulatory objectives at least cost.

Principle 3: Have a responsive approach to incentivize compliance with regulation.

Principle 4: Ensure all written regulations are consistent and that regulators interpret and apply them consistently. Avoid duplication and overlap of regulations and regulators.

Principle 5: Adopt transparency criteria, so interested parties are regularly consulted, it is clear to businesses what their legal obligations are, and that all regulations are easily accessed by everyone.

Principle 6: Accountability so that businesses can seek explanations of decisions made by regulators, as well as appeal them and there are probity provisions in order to reduce corruption.

(Source: MPC (2014), A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp-content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf)

24 MPC (2014), A Guide to Reducing Unnecessary Regulatory Concepts: Core Concepts, http://www.mpc.gov.my/wp- content/uploads/2016/04/CORE-CONCEPT-BI-30_9-ver01.pdf

2.5 Government Initiatives in Good Regulatory Practices

The Government has implemented the initiative on the good regulatory practice with the launching of the document on National Policy on the Development and Implementation of Regulations (“NPDIR”) on July 2013.25 The NPDIR sets out the objective, operating principles, responsibilities, requirements and process for the regulatory process management. The NPDIR also specifically mandates MPC, through its responsibility to the National Development Planning Committee (“NDPC”), to implement the functions and assist in the coordination of the national policy.

Besides that, the Best Practice Regulation Handbook (“BPRH”)26 which was launched together with the NPDIR provides detail guidance on how to carry out best practice regulation – the systematic process to the development of regulations. Basically, a regulator has to carry out a Regulatory Impact Analysis (“RIA”) before introducing or amending any regulation that may impact upon businesses, investment, or trade. RIA is an essential feature of sound regulatory practice. It consists of a process of examining the likely impact of a proposed regulation and a range of alternative options which could meet the Government’s policy objectives. Regulatory Impact Statement (“RIS”) is a key requirement of the Government’s RIA process. RIS is a document prepared by the regulator in support of proposals for new regulations, following consultation with affected parties. It formalises and provides evidence of the key steps taken during the development of the proposal, and includes an assessment of the costs and benefits of each option considered. The RIS must be submitted to MPC, and later be presented to NDPC. The NDPC oversees the implementation of the NPDIR. It monitors RIS process, examines and endorses the adequacy of all RIS prior to submission for decision by the government. MPC is responsible for assessing the need for RIS and for performing a review of RIS for adequacy prior to submission to the NDPC. It also provides guidance

25 MPC, National Policy on the Development and Implementation of Regulations, http://www.mpc.gov.my/wp- content/uploads/2016/04/National-Policy-Book.pdf 26 MPC, Best Practice Regulation Handbook, http://www.mpc.gov.my/wp-content/uploads/2017/04/Best-Practice- Handbook-2013.pdf

to regulators in facilitating RIA and developing RIS. This RIA involves seven (7) core elements as shown in Figure 11 below.27

Figure 11: Seven Elements of Regulatory Impact Analysis (RIA)28

(Source: MPC, http://www.mpc.gov.my/smart-regulation/#1463342946125-ebd326f2-9f62)

27MPC, Good Regulatory Practice, http://grp.miti.gov.my/mitigrp/resources/Images/pages/Seven_elements_of_RIA.png 28 MPC, http://www.mpc.gov.my/smart-regulation/#1463342946125-ebd326f2-9f62

Once the RIS has been examined by NDPC, it will later be forwarded to the Cabinet, Minister or other authority responsible. RIA and public consultations were introduced in order to standardize the way that polices, laws and regulations are developed and improve overall regulatory quality. Under NDPIR, all Federal Government regulators must undertake RIA and present the RIS in the creation of all new regulations or review of regulations that relate to, or impact business, investments and trade, upon assessment by oversight body. The process is also applicable for voluntary adoption by state governments and local authorities. RIA will be applied in all ministries and agencies. The tool is to enable governments to make sound analysis, evidence-based decision making and ensure transparency in all new and amended regulations.

MPC has published the Guidelines on Public Consultation Procedures29 as public consultation is a central element of RIA. This guideline is part of MPC’s efforts to facilitate the implementation of the NPDIR and also supplements the BPRH. Much of the information is based on the practices and publications from various countries such as the OECD, the United Kingdom, and the Australian Government. The intention of this guideline is to provide a reference for Ministries and federal agencies in conducting their public consultation exercises. It will also clarify the role of the stakeholders involved in public consultation. For the general public, the information will provide them with better understanding on the transparency and democratic process of the Government when developing regulations that will affect them.

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29 MPC, Guideline on Public Consultation Procedures, http://www.mpc.gov.my/wp- content/uploads/2016/04/guidelinepublicconsultation.pdf

CHAPTER 3

INDUSTRY PERFORMANCE OF TRANSPORT SERVICES

Contents: Industry performance of the Transport Services, Transport Services, air transport, land transport, maritime transport, rail transport, and value chain and regulations for Transport Services

Key Points

1. The service sector in Malaysia has been recognised as a target in the 11th Malaysia Plan, 2016-2020 in conjunction with Malaysia’s move towards becoming a developed nation. In 2017 alone, a total of RM124,538.80 million domestic and foreign investment has been input in order to develop this sector. One of the key contributors to the sector’s labour productivity growth is attributed to the transportation and storage subsector. Under the 11th Malaysia Plan, the transportation and logistics sector remain as one of the priority investment area. Improving the roads, railways, and air services are expected to boost regional development and connectivity 2. Transportation and storage has contributed an added value of RM 41,998 million in 2017, which is 6.6% of the total contribution of the services sector in 2017. It has also recorded a steady GDP growth of 6.2% in 2017.30 The growth was driven by land transport, with more passengers on KTM’s electric train service and also intercity services, together with a sharp increase in traffic volume on tolled highways.31 This also increased the labour productivity growth of the services sector as its transportation and storage sub-sector recorded a 7.9% growth in 2017.32 Besides that, recorded an employment of 696,000 workers and a labour productivity of RM60,331.33 3. In the Global Enabling Trade Report 2016, Malaysia achieved good

30 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 31 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 32 MPC, Productivity Report 2017/2018, http://www.mpc.gov.my/wp-content/uploads/2018/07/apr-2018.pdf 33 MPC, Productivity Report 2017/2018, https://drive.google.com/file/d/10jE_MFSYmZnkeVNGqG4_GOpYp1ZgL4r1/view

rankings in the availability and quality of transport infrastructure, and availability and quality of transport services by placing 17th and 29th respectively out of 136 countries.34 With the forecasted economy growth, the need for better regulation of the Transport Service is ever more pressing in order to support its increasing demand. 4. The relevant Ministries generally involved with respect to Transport Services in relation to the four (4) subsectors include, among others, as follows:

• Ministry of Transport • Ministry of International Trade and Industry • Ministry of Finance • Ministry of Human Resource

5. Air Transport - For transportation of cargo by air, there is a 9% growth in the air cargo demand (measured in freight tonne kilometres) in 2017. This was more than double compared to previous year as the annual growth in 2016 was only 3.6%. The International Air Transport Association expects a healthy 4.5% growth in air cargo demand in 2018. 6. Land Transport – According to the Executive Summary on Logistics and Trade Facilitation Masterplan (2015-2020) the number of goods vehicles on the road in the country exceeded one million. 65% were small commercial vehicles of less than 5 tonnes. Between 2010 and 2015, Malaysia recorded a Compound Annual Growth Rate (“CAGR”) of 3.9% for road freight volume, with an expected 8.0% of total fright volume in 2020. Road freight played a pivotal role in the domestic distribution of freight and last-mile connectivity to seaports, airports and rail stations. 7. Maritime Transport - Port and shipping activities in Malaysia have shown a steady growth over the recent years. In 2014, particularly for

34 WEF, GETR, The Global Enabling Trade 2016, http://www3.weforum.org/docs/WEF_GETR_2016_report.pdf

transportation of freight, 98.5% of cargo volume was handled by sea, whereas the balance is transported by rail and air. Port Klang is accounted for the largest share of sea cargo throughput in Malaysia, handling 544 million tonnes or 39% of cargo volume in 2017. 8. Rail Transport - KTM operates freight train services daily of which about 80% are concentrated in the northern sector of Peninsular Malaysia. In order to focus more on containerised and long-haul cargo, KTM currently carries maritime containers, cement and food as main commodities. KTM was also recognised by the Malaysia Book of Records for the longest cargo service in South East Asia in 2016.

3.1 Transport Services

The service sector in Malaysia has been recognised as a target in the 11th Malaysia Plan, 2016-2020 in conjunction with Malaysia’s move towards becoming a developed nation.35 In 2017 alone, a total of RM124,538.80 million domestic and foreign investment has been input in order to develop this sector.36 With a projected economic growth between 5.5% and 6.3% annually up to 2020, a steady growth in all economic sectors, and expected trade growth of 4.7% annually up to 2020 backed by strong trade growth prospects in Asia,37 the service industry has to grow in tandem to support the influx of demand in order to support the growth of all other services.

The services sector accounted for the largest contribution to total GDP at 54.5% in 2017.38 Not only that, it also registered a high productivity growth of 5%, and recorded a significant growth in added value at 6.2%. As for employment, the services sector has recorded growth at 1.1%.

One of the key contributors to the sector’s labour productivity growth is attributed to the transportation and storage subsector. Under the 11th Malaysia Plan, the transportation and logistics sector remain as one of the priority investment area. Improving the roads, railways, and air services are expected to boost regional development and connectivity.39 Hence, after careful analysis of the regulatory burdens in the service sector, this report will focus on the Transport Services in relations to the Tourism subsector. For purposes of this study, this chapter will discuss solely on Transport Services with regards to transportation of passengers.

Transport Services in Malaysia can be classified according to mode of transport namely air, land, maritime, and rail, and what is carried or the services

35 MIDA, Services Sector, http://www.mida.gov.my/home/services-sector/posts/ 36 MIDA, Investment Data (Services Sector), http://www.mida.gov.my/home/investment-data-(services-sector)/posts/ 37 MOT, Logistics and Trade Facilitation Masterplan (2015-2020) http://www.mot.gov.my/en/Penerbitan%20Rasmi/Executive%20Summary%20Logistics%20and%20Trade%20Facilitatio n%20Masterplan.pdf 38 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 39 World Bank, Productivity Unplugged: The Challenges of Malaysia’s Transition into a High-Income Country, http://documents.worldbank.org/curated/en/185861527855417221/pdf/126781-WP-PUBLIC-P160562-World-Bank- Report-08-Productivity-Unplugged-FA-Full-Web.pdf

performed under each sector either the carriage of passengers or the movement of goods (freight), and also included postal and courier services.

Transportation and storage has contributed an added value of RM 41,998 million in 2017, which is 6.6% of the total contribution of the services sector in 2017. It has also recorded a steady GDP growth of 6.2% in 2017.40 The growth was driven by land transport, with more passengers on KTM’s electric train service and also intercity services, together with a sharp increase in traffic volume on tolled highways.41 This also increased the labour productivity growth of the services sector as its transportation and storage sub-sector recorded a 7.9% growth in 2017.42 Besides that, recorded an employment of 696,000 workers and a labour productivity of RM60,331.43

In the Global Enabling Trade Report 2016, Malaysia achieved good rankings in the availability and quality of transport infrastructure, and availability and quality of transport services by placing 17th and 29th respectively out of 136 countries.44 With the forecasted economy growth, the need for better regulation of the Transport Service is ever more pressing in order to support its increasing demand.

For the purposes of this study, Transport Services includes the activities as defined in the Malaysia Standard Industrial Classification 2008 (MSIC 2008).45 A detailed description of the relevant groups relating to transportation under MSIC 2008 is provided in Appendix 6.

It should be noted that the statistics presented for each transport industry may vary in detail and scope. The most recent statistics on transportation and

40 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 41 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 42 MPC, Productivity Report 2017/2018, http://www.mpc.gov.my/wp-content/uploads/2018/07/apr-2018.pdf 43 MPC, Productivity Report 2017/2018, https://drive.google.com/file/d/10jE_MFSYmZnkeVNGqG4_GOpYp1ZgL4r1/view 44 WEF, GETR, The Global Enabling Trade 2016, http://www3.weforum.org/docs/WEF_GETR_2016_report.pdf 45 MSIC (2008), https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf

storage on the DOSM’s official website were based on the report released in 2015.46

The relevant Ministries generally involved with respect to Transport Services in relation to the four (4) subsectors include, among others, the Ministry of Transport (“MOT”), Ministry of International Trade and Industry (“MITI”), Ministry of Finance (“MOF”), and Ministry of Human Resource. The other relevant ministries and/or agencies will be listed under the value chain of each of the four (4) subsectors.

Ministry of Transport

MOT is the main ministry in charge of Transport Services as it formulates and implement policies with regards to the Transport Services. There are various division under MOT, being (i) the Land and Logistics Division, (ii) Maritime Division, and (iii) Aviation Division.

The Land and Logistics Division plays an important role as a generator and driving the development and implementation or National Transport Policy. The main functions of the division are as follows47:

• To formulate policies on driving license, driving schools, vehicle registration, road safety and technical standards of vehicle conforming to international standards. • To formulate transport policies in order to increase the quality of land transport services; • Plan, coordinate and implement communication plans/promotions/publicity and engagement as well as achievements of the Ministry and its Agencies;

46 DOSM, Services Statistics on Transportation and Storage 2015, https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=325&bul_id=SXZTSnRmRitEcW9jaTNjdkhUWTE 4dz09&menu_id=b0pIV1E3RW40VWRTUkZocEhyZ1pLUT09 47 MOT, Logistics and Land Transport Division, http://www.mot.gov.my/en/about-mot/divisions-units/land-division

• To ensure policies/process aligned with National Key Result Area (NKRA) initiatives; • To develop an integrated rail transportation infrastructure network and multi-modalism; • To implement Malaysia obligation under the ASEAN agreement and cross border related to road and rail transportation;

• To ensure all rules under Railways Act 1991 [Act 463] and Road Transport Act 1987 [Act 333] are in line with current needs; • To monitor and coordinate infrastructure development projects in the rail- based transport sector; and • To formulate policies on fare rates for railway services.

Apart from that, the Maritime Division under the MOT is responsible for establishing maritime transport access within waters of Malaysia and routes that crosses national borders as well as coordinating the development of cruise tourism. The Maritime Division consists of six (6) units, namely Ports, Maritime Safety, Maritime Economic, Domestic Shipping Licensing, International Convention and Maritime Attaché Office in London.48 The Maritime Attaché Office is responsible to ensure the safeguard of the interest of Malaysia maritime sector in dealing in the International Maritime Organization. Malaysia Shipowners’ Association is the association that represents shipowners of Malaysian registered vessels.49

As for the Aviation Division, it is responsible for all civil aviation affairs in Malaysia. The functions of the division are as follows50;

• To plan and review related air services policies from time to time; • To expand international air services network through air negotiations; • To ensure the planning, building and maintenance of airport infrastructure is in accordance with the specified standards; and

48 MOT, Maritime Division, http://www.mot.gov.my/en/about-mot/divisions-units/maritime-division 49 ibid 50 MOT, Aviation Division, http://www.mot.gov.my/en/about-mot/divisions-units/aviatioan-division

• To ensure that all existing air transport / aviation rules and regulation are in accordance with the guidelines as stipulated by the International Civil Aviation Organisation (ICAO).

Further discussion on the agencies under the purview of MOT, as well as the regulations under its purview will be made below, under the respective mode of transport.

Ministry of International Trade and Industry

MITI is listed as one of the Ministries regulating the Transport Services because it is one of the permit issuing agencies under the Customs Act 1967 [Act 235]. In order to import and/or export certain goods, one need to apply for Approved Permit (“AP”).51 There are several Ministries that issue AP but for the purpose of this study, focus will be made on MITI because it is the Ministry in charge of issuing AP particularly for vehicle, and heavy machinery.

Ministry of Finance

MOF is listed herein because its agency, the Royal Malaysian Customs is the government agency in charge of collecting custom duties in Malaysia. Custom duty is a tax levied on imports by Customs to raise state revenue and/or protect domestic industries from overseas competitors.52 All goods dutiable on import are put through custom duty pursuant to Custom Duties Order 2017.

51 MITI, FAQ – Approved Permit (AP), http://www.miti.gov.my/index.php/pages/view/2096 52 MPC, Chapter Five: Logistics Stakeholder, http://www.mpc.gov.my/wp-content/uploads/2016/04/CHAPTER-5.pdf

Ministry of Human Resource

Ministry of Human Resource is listed herein because its department, the Department of Occupational Safety and Health (“DOSH”) is one of the main regulators in charge of the M&E subsector. In order to operate mobile cranes in Malaysia, one has to register such cranes with DOSH, and apply for a certificate of fitness for the said cranes. The applicable regulations are the Factories and Machinery Act 1967 [Act 139] and Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970.

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3.2 Air Transport

Air transport provided in Malaysia covers both passenger and freight air transport. Based on the MSIC 2008, freight air transport includes non- scheduled transport of freight by air, renting of air transport equipment with operator for the purpose of freight transportation and transport freight by air over regular routes and on regular schedules.53

Non-scheduled transport of cargo by air means air transport services performed by airlines to carry cargo on an unscheduled or charter basis. A crucial component of the air transport services is the airport that handles both departure and arrival and carriage. In order to accommodate the needs of both local and foreign passengers and airline operations, Malaysian Airports have been equipped with world-class services, facilities and capacity.

For transportation of cargo by air, there is a 9% growth in the air cargo demand (measured in freight tonne kilometres) in 2017. This was more than double compared to previous year as the annual growth in 2016 was only 3.6%.54 The International Air Transport Association (“IATA”) expects a healthy 4.5% growth in air cargo demand in 2018.55 The total number of domestic and international cargo handled by airport in Malaysia from 2008 to 2017 is shown below:

Figure 12: Transport Statistics Malaysia 2017 (year to year)56

Year Domestic Cargo International Cargo (Tonnes) (Tonnes) 2008 160,730 761,667 2009 141,812 655,746 2010 166,325 745,089 2011 170,511 723,226 2012 167,272 712,460

53 MSIC 2008 ver 1.0. http://msic.stats.gov.my/bi/carianInteraktif.php?validation_code=2§ion=H&division=51&group1=SilaPilih 54 https://www.nst.com.my/business/2018/02/330947/iata-optimistic-over-global-air-freight-outlook-2018 55 http://www.theedgemarkets.com/article/iata-expects-45-growth-air-cargo-demand-2018 56 MOT, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia%202017.pdf

2013 168,369 728,859 2014 181,531 805,883 2015 192,549 766,492 2016 188,949 684,485 2017 189,291 758,900 (Source: MOT, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia% 202017.pdf)

The World Bank Group has reported that the infrastructure of our airports have outperformed our peer countries due to its heavy investment in the 9th Malaysia Plan.57 In the World Economic Forum Travel and Tourism Competitiveness Report 2017, it rated the aviation infrastructure in Malaysia with a score of 4.5 out of 6 based on the quality of the aviation infrastructure, the quantity of air traffic services (available seat kilometres and flights per capita) and the number of operating airlines and the number of airports per capita.58 In the Global Competitiveness Index 2016-2017, Malaysia has ranked 24th for Infrastructure whereby the quality of airport infrastructure was ranked 20th out of 138 countries.59

A report by InterVISTAS Consulting Inc. on the current and future economic benefits within Asia Pacific’s commercial air transport projected a total of 1,018,300 jobs to be directly/indirectly/induced by the air transport sector by 2035 in Malaysia.60

57 World Bank Group, Productivity Unplugged The Challenges of Malaysia’s Transition into a High-Income Country, http://documents.worldbank.org/curated/en/185861527855417221/pdf/126781-WP-PUBLIC-P160562-World-Bank- Report-08-Productivity-Unplugged-FA-Full-Web.pdf 58 World Economic Forum, Travel and Tourism Competitiveness Report 2017, bit.ly/2LLzb3m 59 WEF, The Global Competitiveness Report 2016–2017, http://www3.weforum.org/docs/GCR2016- 2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_FINAL.pdf 60 InterVISTAS, Asia Pacific Air Transport: Current & Future Economic Benefits- December 2015, https://www.nqr.gov.in/sites/default/files/InterVISTAS%20report%20for%20IATA%20- %20Asia%20Pacific%20Commercial%20Air%20Transport%20%281%29_3.pdf

Air Transport Service Regulators/Agencies

Civil Aviation Authority of Malaysia

Air transport service in Malaysia is regulated by the Civil Aviation Authority of Malaysia (“CAAM”) (previously known as the Department of Civil Aviation of Malaysian (“DCA”) which is established to provide safe, efficient and orderly flow of air transportation, and to regulate aviation activities in Malaysia.61 The Civil Aviation Authority of Malaysia Act 2017 [Act 788]62 sets out the functions of CAAM, which covers the current duties and functions of the Director General of CAAM, extends further to include but not limited to safeguarding the civil aviation industry against unlawful interference, co- operating with any local and foreign authority in charge of investigating aircraft accidents and serious incidents, and providing technical and consultancy services relating to civil aviation. The rapid expansion of Malaysia’s aviation and air transport industries is largely due to the pragmatic approach taken by CAAM in ensuring compliance to standards and recommended practices of the International Civil Aviation Organization (“ICAO”).63 It oversees the implementation, monitoring and enforcement of the safety standards including airworthiness, air traffic management and aviation security.64

How does CAAM regulate businesses?

CAAM ensures compliance to the standards of ICAO and, monitors and enforces the safety standards by imposing regulations, directives and guidelines on air transport operators.

61 CAAM, Agency Policy, http://www.dca.gov.my/about-dca/dca-safety-policy/ 62 Civil Aviation Authority of Malaysia Act 2017 [Act 788] 63 DCA, Director General of Civil Aviation, http://www.dca.gov.my/about-dca/director-general-of-civil-aviation/ 64 MOT, Safety Standards, http://www.mot.gov.my/en/aviation/safety-standards

Malaysian Aviation Commission

The Malaysian Aviation Commission (“MAVCOM”) was established under Malaysian Aviation Commission Act 2015 [Act 771],65 and it functions as an independent economic regulator to the civil aviation industry in Malaysia with the objectives of promoting a commercially viable, consumer-oriented and resilient civil aviation industry which supports Malaysia's economic growth and prospect.66 It regulates economic matters relating to the civil aviation industry, provides a mechanism for protection of consumers, provides a mechanism for dispute resolution between aviation industry players, administer and manage air traffic rights, and advise the Government, administer and manage routes under public service obligations. 67 In order to achieve its aim, it has the recently approved Malaysian Aviation Consumer Protection Code 2016 to assist it in promoting consumer rights.68

How does MAVCOM regulate businesses?

MAVCOM regulates economic matters pertaining civil aviation which includes protection of consumers. Thus, air transport operators will have to refer to MAVCOM’s licensing and registration procedures, and directives on air traffic rights etc in order to carry out their operations.

The role of MAVCOM differs from those of MOT and CAAM. MAVCOM is the economic regulator that oversees commercial and economic matters, and is the independent adviser to the MOT on economic matters pertaining to civil aviation. MOT is responsible for industry policy-making and government-to- government discussions (including to spearhead bilateral or multilateral negotiations on traffic rights), while CAAM regulates technical and safety matters for Malaysia’s civil aviation industry.69

65 Malaysian Aviation Commission Act 2015 [Act 771] 66 FlySmart, Malaysian Aviation Commission, https://flysmart.my/en/about-mavcom/ 67 MAVCOM, Who We Are, https://www.mavcom.my/en/who-we-are/ 68 The Edge Markets, Mavcom defends its role, http://www.theedgemarkets.com/article/mavcom-defends-its-role 69 MAVCOM, Waypoint, https://www.mavcom.my/wp-content/uploads/2018/05/Waypoint-Malaysian-Aviation-Industry- Outlook-May-2018.pdf

3.3 Land Transport

The road transport services include urban and suburban passenger land transport, other passenger land transport and freight transport by road.

For freight transport by road, it includes logging haulage, stock haulage, refrigerated haulage, heavy haulage, bulk haulage including haulage in tanker trucks (i.e. palm oil tanker), haulage of automobiles, transport of waste and waste materials, without collection or disposal, furniture removal, renting of trucks with driver, and transport of water, liquids and etc. by trucks.70

Malaysia's road networks span across the nation most densely in the Peninsular but at less dense rate in East Coast of the peninsular and at a modest rate at Sabah and Sarawak. This slow rate has been a pressing issue for Sabah and Sarawak which can be seen from the demand for road network development across Sabah and Sarawak, especially with the growing rate of the services sector which includes transportation in these states.71 Comparing Sabah and Sarawak with the west coast of the Peninsular Malaysia, the North South Expressway linking the northern-most point, Bukit Kayu Hitam to the southern-most point, Johor Bahru was completed in 1994.72 This is in contrast to the development of the Pan Borneo Highway, the link for the East Malaysia region which is only scheduled to be completed in June 2021.73

The network mostly includes paved and various expressways (accessible through toll-rates) that links the urban, suburban and interurban cities and towns and in the countryside the roads tend to be trunk road of either single or dual-carriage way. The vast majority of vehicles on the roads in the freight transportation sector include lorry, heavy-load trucks and trailers for bulk or containerized carriages and smaller vehicles for mail transports.

70 SIC Codes, Class 4923 https://www.siccodes.net/classification/class/4923 71 DOSM, The Performance of State's Economy, 2017, https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=449&bul_id=L25EUXQxbWdBaEVoWXU5aTFQ WUpNdz09&menu_id=TE5CRUZCblh4ZTZMODZIbmk2aWRRQT09 72 Hari Ini Dalam Sejarah, Perasmian Penyempurnaan Lebuhraya Utara-Selatan, https://web.archive.org/web/20160119122333/http://hids.arkib.gov.my/readarticle.php?article_id=8503 73 NST, Pan Borneo project will continue, says Baru Bian, https://www.nst.com.my/news/nation/2018/09/407139/pan- borneo-project-will-continue-says-baru-bian

Malaysia’s transport and storage subsector’s growth was mainly supported by the land transport segment which GDP rose 6.8% in 2017.74 The overall market condition for trade transport is expected to increase in recent years. The Malaysia Automotive Association noted that there are a total number of about 28 million vehicles on our roads as of June 2017.75 With growing disposable income among the population, vehicle ownership for both passenger and commercial is on the rise. The figure below shows the summary of new passenger and commercial vehicle registered in Malaysia for the year 2013 to 2017.

Figure 13: Summary of New Passenger & Commercial Vehicle Registered in Malaysia for the Year 2013 to December 201776

Year Passenger Cars Commercial Vehicles

2013 576,657 79,136

2014 588,341 78,124

2015 591,298 75,376

2016 514,545 65,579

2017 514,679 61,956

* Note:

i. Passenger Vehicle industry reclassified in January 2007 and includes all passenger carrying vehicles. i.e. Passenger Cars, 4WD/SUV, Window Van and MPV models. ii. Commercial Vehicles also reclassified on 1 January 2007 and include Trucks, Prime Movers, Pick-up, Panel Vans, Bus & Others.

(Source: MAA, Info Summary, http://www.maa.org.my/info_summary.htm)

74 Treasury, Economic Performance and Prospects, http://www.treasury.gov.my/pdf/economy/er/1718/chapter3.pdf 75 Paul Tan, Vehicle registrations in Malaysia hit 28.2 million units, https://paultan.org/2017/10/03/vehicle-registrations- in-malaysia-hit-28-2-million-units/ 76 MAA, Info Summary, http://www.maa.org.my/info_summary.htm

According to the Executive Summary on Logistics and Trade Facilitation Masterplan (2015-2020) the number of goods vehicles on the road in the country exceeded one million. 65% were small commercial vehicles of less than 5 tonnes.77 Between 2010 and 2015, Malaysia recorded a Compound Annual Growth Rate (“CAGR”) of 3.9% for road freight volume, with an expected 8.0% of total fright volume in 2020.78 Road freight played a pivotal role in the domestic distribution of freight and last-mile connectivity to seaports, airports and rail stations.

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77 MOT, Logistics and Trade Facilitation Masterplan http://www.mot.gov.my/en/Penerbitan%20Rasmi/Executive%20Summary%20Logistics%20and%20Trade%20Facilitatio n%20Masterplan.pdf 78 PWC, Logistics in Malaysia: Market overview and M&A trends October 2018, https://www.pwc.com/my/en/assets/blog/pwc-my-deals-strategy-logistics-in-malaysia.pdf

Land Transport Service Regulators/Agencies

The agencies under MOT involved in land transport include among others the Road Transport Department (“JPJ”),79 Malaysian Institute of Road Safety Research (“MIROS”),80 and Road Safety Department of Malaysia (“JKJR”).81 Other related authorities involved in land transport include, among others, the Land Public Transport Commission (“SPAD”)82.

Road Transport Department83

JPJ objectives include regulating the registration and licensing of motor vehicles in a systematic, reliable and innovative manner, as well as to enforce and administer the road transport law with integrity and commitment to create a society that has a culture of adherence to the rules of the road. It also establishes and administer the road transport law with the commitment to produce competent, law abiding and prudent drivers of motor vehicles, together with monitor and administer motor vehicle safety standards with efficiency and integrity to meet the needs of the environment and the country's automotive industry.84 According to the Road Transport Act 1987 [Act 333],85 the enforcement and regulatory duties are under the roles and responsibilities of JPJ including issues relating to driving license, vehicle registration, vehicle technical specifications and road traffic enforcement.

How does JPJ regulate businesses?

JPJ is involved with the regulation of motor vehicles and road safety. It regulates among others, the conduct of drivers, registration and licensing of motor vehicles, and monitors the vehicle safety standards.

79 JPJ, http://www.jpj.gov.my/ 80 MIROS, https://www.miros.gov.my/1/ 81 JKJR, http://www.jkjr.gov.my/ms/ 82 Suruhanjaya Pengangkutan Awam Darat, http://www.spad.gov.my/ 83 JPJ http://www.jpj.gov.my/ 84 JPJ, Misi, Visi dan Objektif, http://www.jpj.gov.my/en/web/main-site/visi-misi-dan-objektif 85 Road Transport Act 1987 [Act 333]

Malaysian Institute of Road Safety Research86

As for MIROS, it serves as a central repository of knowledge and information on road safety. The findings derived from research and evidence-based intervention programmes provide the basis for the formulation of new strategies, legislations, policies, and enforcement measures, governing road safety at the national level. It also principally engaged in research, whereby MIROS collaborates closely with local and international government agencies and private bodies to further the cause of road safety. In 2014, the ASEAN Transport Ministers appointed MIROS as the ASEAN Road Safety Centre. The aims of this centre are to promote and provide knowledge on road safety issues among ASEAN Member States which includes road traffic laws and regulations, data management, standards development, and road safety awareness and education.87

How does MIROS regulate businesses?

MIROS conducts research on the road transport in Malaysia. Thus, its findings are used to implement enforcement measures etc. It indirectly affects the regulatory burdens of businesses as it provides the basis for the regulations.

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86 MIROS, https://www.miros.gov.my/1/ 87 Miros, About Us, https://www.miros.gov.my/1/page.php?id=10

Road Safety Department of Malaysia88

As for JKJR, it was established on 15 September 2004 as a leader in road safety advocacy to increase the awareness of road users on the importance of road safety and ultimately reduce deaths and injuries caused by road traffic crashes. It is an agency responsible for advocacy programs and road safety education.89 JKJR is also the Secretariat to the Road Safety Council of Malaysia.90 It plan, formulate, implement and coordinate road safety policies/plan/regulations. Besides that, it coordinates road safety programmes involving other agencies and coordinate and implement road safety campaigns at national level to educate road users.91

How does JKJR regulate businesses?

JKJR handles road safety and its projects. It is not directly involved in the economical/business regulatory segment.

Land Public Transport Commission92

SPAD acts as the central authority for managing all aspects of public transport. SPAD which is directly under the purview of the Prime Minister is responsible for drawing up public transport policies, plans and regulations covering all aspects of land public transport. Since its establishment, SPAD has injected a new impetus into public transport planning by introducing public transport master plans for both the country as well as for localised regions.93 The master plans comprehensively detail SPAD and Government’s goals and vision for public transport, while at the same time specifying accompanying initiatives designed to raise the overall level of service and safety standards of public transport. This includes enforcement initiatives, which not only cover public

88 JKJR, http://www.jkjr.gov.my/ms/ 89 Road Safety Department of Malaysia, Vision, Mission and Objective, http://www.jkjr.gov.my/en/about-us/vission- mission-and-objective.html 90 Road Safety Department of Malaysia, Background, http://www.jkjr.gov.my/en/about-us/background.html 91 Road Safety Department of Malaysia, Role and Function, http://www.jkjr.gov.my/en/about-us/function-and-roles.html 92 Suruhanjaya Pengangkutan Awam Darat, http://www.spad.gov.my/ SPAD, Overview, http://www.spad.gov.my/about-spad/overview

transport operators, but also commercial vehicles on the road. Following the enactment of Land Public Transport Act 2010 [Act 715],94 SPAD took over the functions of the Commercial Vehicle Licensing Board, Department of Railways and the tourism vehicles licensing function of the Ministry of Tourism in Peninsular Malaysia. At present, the Commercial Vehicle Licensing Board, Department of Railways and the Ministry of Tourism continue to exercise their role of authority in Sabah and Sarawak.95

SPAD plans, regulates, and enforces all matters relating to land public transport and has jurisdiction over Peninsular Malaysia. The three (3) main functions of SPAD are planning power, regulatory power, and enforcement power.96

• Planning power - Establishing a master plan to ensure a comprehensive, integrated and sustainable infrastructure development. • Regulatory power - Monitoring and regulating standard of performance of the industry’s operators through licensing. • Enforcement power - Encompassing powers to audit, investigate, compound/suspend/revoke operators' licenses. Additionally, to seize and auction vehicles for offenses relating to the illegal use of vehicles. SPAD has been mandated to introduce a 20-year National Land Public Transport Master Plan (“NLPTMP”) which provides strategic direction and guiding principles that all parties can adopt as they prepare local implementation plans to improve the delivery of public transport services. Among its plans is the National Regulatory Strengthening Programme (“NRSP”) which aims to revise procedures with regards to licensing. It has also recognised the need to better the coordination of multiple agencies and authorities involved in regulation. Among its sector plans under its institutional frameworks includes the excursion and tourist bus sector plan which will examine the day excursion, tours and private hire markets that have significant overlaps with tourism which has not been implemented.

94 Land Public Transport Act 2010 (Act 715) 95 SPAD, Overview, http://www.spad.gov.my/about-spad/overview 96 SPAD, What We Do, http://www.spad.gov.my/about-spad/what-we-do

It should be noted that starting from January 2019, SPAD will be disbanded and replaced with a new agency called the Land Public Transport Agency (“APAD”) under the Ministry of Transport, taking over most of the functions of SPAD. 97 APAD is created to better manage the functions and development policies of the country’s land transport sector, which was previously under SPAD. Moving forward and to avoid overlapping in power, JPJ will be authorised to conduct enforcement under the Land Public Transport Act 2010. JPJ would also issue licences and permits for land public transport operators, tour and cargo vehicles at its existing counters.98 The Minister of Transport, YB Anthony Loke Siew Fook stated that with the reorganisation, several laws would need to be amended or repealed altogether. He further stated that the Suruhanjaya Pengangkutan Awam Darat Act 2010 [Act 714] would be repealed, and that the Land Public Transport Act 2010 [Act 715] would need to be amended to decentralized SPAD’s power to the MOT, APAD and JPJ.99

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97 The Star, School bus operators in the dark over permit applications, https://www.thestar.com.my/news/nation/2018/12/20/fzbus201218/#IOKmBZaDzlw3wfYD.99 98 The Star, Loke: SPAD to be swapped for APAD, https://www.thestar.com.my/news/nation/2018/06/07/loke-spad-to- be-swapped-for-apad-new-agency-to-better-manage-and-develop-land-transport-sector-says/#keR9fSXzc4XMC05x.99 99 ibid

3.4 Maritime Transport

Maritime transport in Malaysia can be divided into either sea and coastal passenger/freight transport or inland passenger/freight water transport.100

For sea and coastal freight transport, it involves the transport of freight overseas and coastal waters, whether scheduled or not, and transport by towing or pushing of barges, oil rigs. Inland water transport includes transportation of passenger/freight via rivers, canals, lakes and other inland waterways transport of passenger/freight inside harbours and ports, commerce oriented.101

Malaysia has a total of seven major Federal ports namely Port Klang, Johor Port, Port of Tanjung Pelepas, Kuantan Port, Penang Port, Bintulu Port and Kemaman Port. Meanwhile, the ports in Sabah and Sarawak are under the jurisdiction of the State Government of Sabah and Sarawak respectively.102

Between 2010 and 2015, Malaysia recorded an annual growth of 4.8% for sea freight volume.103 In order to meet Malaysia’s expectation to become a major maritime trade hub, the MOT had taken great measure to equip Malaysia with world class international seaports and container hubs, such as Port Klang, Pelabuhan Tanjung Pelepas and other regional ports.

Port and shipping activities in Malaysia have shown a steady growth over the recent years. In 2014, particularly for transportation of freight, 98.5% of cargo volume was handled by sea, whereas the balance is transported by rail and air.104 Port Klang is accounted for the largest share of sea cargo throughput in Malaysia, handling 544 million tonnes or 39% of cargo volume in 2017.

100 MSIC 2008, http://msic.stats.gov.my/bi/carianInteraktif.php?validation_code=2§ion=H&division=50&group1=SilaPilih 101ibid 102 MOT, Ports in Malaysia, http://www.mot.gov.my/en/maritime/ports-in-malaysia 103 PWC, Logistics in Malaysia: Market overview and M&A trends October 2018, https://www.pwc.com/my/en/assets/blog/pwc-my-deals-strategy-logistics-in-malaysia.pdf 104 MOT, Logistics and Trade Facilitation Masterplan http://www.mot.gov.my/en/Penerbitan%20Rasmi/Executive%20Summary%20Logistics%20and%20Trade%20Facilitatio n%20Masterplan.pdf

The positive growth of Port Klang is attributed to many factors, including its efficient and productive terminal operators, strong support of Port Klang’s shipping and logistics community and also the port’s supply driven port facilities, together with advanced state of the art cargo handling equipment.105 Total cargo throughput at ports in Malaysia from 2008 to 2017 can be seen below:

Figure 14: Transport Statistics Malaysia 2017 (year to year)106

Year Excluding Including Transhipment Transhipment (Tonnes) (Tonnes) 2008 329,029 414,952 2009 302,253 395,284 2010 352,014 449,787 2011 386,288 497,695 2012 384,666 500,578 2013 392,932 510,815 2014 412,556 541,744 2015 437,343 570,401 2016 445,401 569,120 2017 420,269 544,711

(Source: MOT, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia%20201 7.pdf )

105 https://www.thestar.com.my/business/business-news/2017/01/18/port-klang-to-move-up-one-spot-in-container- league/ 106 MOT, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia%202017.pdf

Two (2) of Malaysia’s ports are ranked in the top 20 container ports in the world. Port Klang is currently ranked 11th in the World Container League ranking after recording growth of 10.8% in Twenty-Foot Equivalent Units (“TEUs”) operated in 2016 whereas Pelabuhan Tanjung Pelepas in Johor was also ranked 17th.107

Maritime Transport Service Regulators/Agencies

The agencies in charge of maritime include the Marine Department of Malaysia, Maritime Institute of Malaysia (“MIMA”), Malaysian Maritime Enforcement Agency (“MMEA”) and respective port operators. This list of regulators is not exhaustive as respective states have its respective state authorities/regulators as well.

Marine Department Malaysia

Maritime Department Malaysia objectives are to establish a safe, secure and systematic sea communication system, and marine conservation towards quality development of national maritime policy.108 Their other function includes to ensure safe navigation of merchant vessels, provide services to merchant vessels such as ship inspection, certification, registration and licensing; provide services to ships navigating in Malaysian waters and ports, together with supervise examinations of seafarers. 109

How does the Marine Department regulate businesses?

The Marine Department is in charge of providing the regulations and guidelines with regards to registration and licensing of sea vessels.

107http://www.mot.gov.my/en/YBM%20Speeches/Year%202017/Speech%20by%20Minister%20of%20Transport%20Ma laysia%20at%20Malaysia%20World%20Maritime%20Week%202017.pdf 108 Jabatan Laut Malaysia, Profile, http://www.marine.gov.my/jlmeng/Contentdetail.asp?article_id=221&category_id=2&subcategory_id=2 109 Jabatan Laut Malaysia, Profile, http://www.marine.gov.my/jlmeng/Contentdetail.asp?article_id=221&category_id=2&subcategory_id=2

Maritime Institute of Malaysia

MIMA110 is a policy research institute set up by the Malaysian Government to look into matters relating to Malaysia's interest at sea, and to serve as a national focal point for research in the maritime sector. MIMA takes a comprehensive approach in dealing with maritime issues. Its role is to deal with national, regional and global maritime matters affecting Malaysia. MIMA is therefore expected to contribute towards a meaningful, comprehensive and cogent national maritime policy for Malaysia. One key task of MIMA is to complement the efforts of the various government agencies involved in the maritime sector by mobilising expertise to assist and support them in national maritime policy planning and implementation. MIMA’s role will be both advisory and consultative. MIMA will provide advice and second opinions to Government agencies and other relevant organisations. MIMA also has the task of promoting the free exchange of ideas on all maritime matters. 111

How does MIMA regulate businesses?

MIMA is a research institute akin to MIROS, on matters of maritime. Thus, its findings are used to implement enforcement measures etc. It indirectly affects the regulatory burdens of businesses as it provides the basis for the regulations.

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110 MIMA, http://www.mima.gov.my/ 111 Marine Department Malaysia, Profile http://www.marine.gov.my/jlmeng/Contentdetail.asp?article_id=221&category_id=2&subcategory_id=2&subcategory2_i d=0#.W6rltRMzZsN

Port Authorities

The agencies in charge under the MOT in charge of ports in Malaysia include the Port Klang Authority, Johor Port Authority, Kuantan Port Authority, Bintulu Port Authority, Penang Port Commission, and Kemaman Port Authority. 112 The administrations of ports in Malaysia are regulated under the various legislations enacted for those purposes and each Act in return establishes a port authority to observe and regulate the port’s day-to-day management. Each major port in Malaysia is governed by the following Port Authority:

Figure 15: Local Port Authorities in Malaysia

Major Ports Local Authorities Related Acts

Penang Port Penang Port Commission Penang Port Commission Act 1955

Port Klang Port Klang Authority

Johor Port Johor Port Authority

Port of Tanjung Johor Port Authority (Tanjung

Pelepas Pelepas) Port Authorities Act 1963

Kuantan Port Kuantan Port Authority Kemaman Port Kemaman Port Authority

Malacca Port Malacca Port Authority

Teluk Ewa Port Teluk Ewa Port Authority

Bintulu Port Bintulu Port Authority Bintulu Port Authority Act 1981

(Source: MOT, Ports in Malaysia, http://www.mot.gov.my/en/maritime/port-of-malaysia)

112 MOT, Ports in Malaysia, http://www.mot.gov.my/en/maritime/port-of-malaysia

The major port operations have been privatized to the following operators:

Figure 16: Major Port Operators

Major Ports Ports Operator

Port Klang - North Port Northports Sdn Bhd - West Port Westports Sdn Bhd Johor Port Johor Port Sdn Bhd

Kuantan Port Kuantan Port Consortium Sdn Bhd

Bintulu Port Bintulu Port Sdn Bhd

Tanjung Pelepas Port Port of Tanjung Pelepas Sdn Bhd

Pulau Pinang Port Penang Port Sdn Bhd

(Source: MOT, Ports in Malaysia, http://www.mot.gov.my/en/maritime/port-of-malaysia)

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3.5 Rail Transport

Rail transport services include urban and suburban railway passenger transport service and freight transport by inter-urban, suburban and urban railways. In Malaysia, the rail transport includes heavy rail (including high-speed rail), light rail transit (“LRT”), express rail link (“ERL”), mass rapid transit (“MRT”), funicular rail and monorail.113 Heavy rail is mostly used for intercity (urban, suburban and interurban) passenger and freight transport as well as some urban public transport, while the LRT, ERL, MRT, and monorail are used for intra-city urban public transport in Klang Valley. Currently, the only high-speed rail linking Kuala Lumpur with the Kuala Lumpur International Airport is the ERL. In Malaysia, the sole funicular railway line is located in Penang.114

The railway network in Malaysia covers most of the 11 states in Peninsular Malaysia. As for the East Malaysia, only the state of Sabah has railways.115 Major operators of the railway network in Malaysia include the Prasarana Malaysia Berhad that operates the RapidKL network and Keretapi Tanah Melayu Berhad (“KTMB”).116

KTM operates freight train services daily of which about 80% are concentrated in the northern sector of Peninsular Malaysia. In order to focus more on containerised and long-haul cargo, KTM currently carries maritime containers, cement and food as main commodities. KTM was also recognised by the Malaysia Book of Records for the longest cargo service in South East Asia in 2016.117The freight Traffic for KTMB from 2008 to 2017 can be seen below118:

113 UTHM, Appraisal on Malaysian Rural Rail Transit Operation & Management System: Issues & Solution In Integration , http://eprints.uthm.edu.my/6527/1/348.pdf 114 UTHM, Appraisal on Malaysian Rural Rail Transit Operation & Management System: Issues & Solution In Integration , http://eprints.uthm.edu.my/6527/1/348.pdf 115 Asia Trade Hub, Malaysia-Railways, https://malaysia.asiatradehub.com/Infrastructure/1475/Railways 116 Rapid KL, Corporate Information, https://www.myrapid.com.my/corporate-information 117 SPAD, http://www.spad.gov.my/land-public-transport/rail/freight-services-ktm 118 Ministry of Transport, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia%202017.pdf

Figure 17: Transport Statistics Malaysia 2017

Year Freight (Tonnes) Km (Tonnes) 2008 4,825 1,350,398 2009 5,233 1,384,107 2010 5,432 1,482,685 2011 5,915 1,535,474 2012 6,096 1,564,294 2013 6,621 1,759,633 2014 7,135 1,741,462 2015 6,206 1,474,357 2016 5,991 1,349,376 2017 5,617 1,233,642

(Source: Ministry of Transport, Transport Statistics Malaysia 2017, http://www.mot.gov.my/en/Statistik%20Tahunan%20Pengangkutan/Transport%20Statistic%20Malaysia%202017.pdf )

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Railway Transport Service Regulators/Agencies

Railway Assets Corporation

The railway networks are coordinated and regulated by the Railway Assets Corporation (“RAC”).119 RAC is a federal statutory body under the Ministry of Transport of Malaysia which was established under the Railways Act 1991 [Act 463].120 Duties and responsibilities of RAC are to execute the entrusted responsibilities to develop and redevelop railway infrastructures so that the substitute company (“KTMB”) can give full attention to the railway operations and services in the country; and to finance railway infrastructure development using sources gathered from various activities such as rental, lease and Government allocations.121

How does RAC regulate businesses?

RAC is established as a Government agency to help develop the railway industry in Malaysia to be at par with the railway industry in fully developed countries. RAC also functions as the caretaker and business planner to govern and interpret railway assets into valuable property capable of generating continuous income for the Government.

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119 Railway Assets Corporation, http://www.rac.gov.my/ 120 Railways Act 1991 (Act 463) 121 Railway Assets Corporation, Corporate Info, http://www.rac.gov.my/index.php/pages/view/1

3.6 Value Chain and Regulations for Transport Services

Air Road Maritime Rail

• Scheduled Airline • Bus • Boat • Heavy rail

• Non-scheduled Airline • Car • Cruise • Light rapid transit • Helicopter • Lorry • Ferry • Mass rapid • Air cargo • Van • Jetski transit • Truck • Yacht monorail • Mobile cranes • Container vessel • Cable car • Refrigerated truck • General cargo vessel • Refrigerated lorry

• Reefer ship

• Refrigerated container

Ministry • Ministry of Transport • Ministry of International Trade and Industry • Ministry of Finance • Ministry of Human Resource

Mode (Air) Regulators/Agencies Regulations • Civil Aviation Authority of Malaysia (CAAM) Air

• The Malaysian Aviation Commission • Airport and Aviation Services (Operating Company) (MAVCOM) Act 1991 [Act 467]

• Aviation Offences Act 1984 [Act 307] • Carriage by Air Act 1974 [Act 148]

• Civil Aviation Act 1969

• Civil Aviation Authority of Malaysia Act 2017 [Act 771]

• International Interests in Mobile Equipment (Aircraft) Act 2006 [Act 659]

• Malaysian Aviation Commission Act 2015 [Act 771]

Mode (Road) Regulators/Agencies Regulations

• Land Public Transport Commission (SPAD) • Road Transport Act 1987 [Act 333] Malaysian Institute of Road Safety Research Act 2012 • Road Transport Department Malaysia (JPJ) • [Act 748] • Malaysian Institute of Road Safety Research (MIROS) • Suruhanjaya Pengangkutan Awam Darat Act 2010

• Royal Malaysian Customs [Act 714] • Department of Occupational Safety and Health • Land Public Transport Act 2010 (SPAD) [Act 715] Malaysia • Commercial Vehicle Licensing Board Act 1987

[Act 334]

• Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015 • Tourism Industry Act 1992 0Act 482] • Tourism Vehicles (Licensing and Control of Tourism Vehicles) Regulations 2000 • Panduan Dasar Pelesenan Suruhanjaya Pengangkutan Awam Darat • Customs Act 1967 (Revised 1980) [Act 235]

• Customs Duties Order 2017 • Customs (Prohibition of Imports) Order 2017 • Factories and Machinery Act 1967 [Act 139] • Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970

Mode (Maritime) Regulators/Agencies Regulations

• Maritime Institute of Malaysia • Carriage of Goods by Sea Act 1950 (Revised 1994)

• Maritime Department of Malaysia [Act 527] • Malaysian Maritime Enforcement Agency • Port Authorities Act 1963 (Revised 1992) [Act 488] • Respective Ports Operators • Ports (Privatization) Act 1990 (Revised 1992) [Act 422]

• Merchant Shipping Ordinance 1952 [Ord 70/1952]

• Boat Rules 1953 [L.N. 312/1953]

• Malaysian Maritime Enforcement Agency Act [Act 633]

• Federation Light Dues Act 1953 (Revised 1981)

[Act 250]

• Free Zones Act 1990 [Act 438]

• Merchant Shipping (Liability and Compensation for Oil and Bunker Oil Pollution) Act 1994 [Act 515]

• Petroleum (Safety Measures) Act 1984 [Act 302]

• Langkawi International Yacht Registry Act 2013 [Act 630]

• Penang Port Commission Act 1955 (Revised 1974)

[Act 140]

• Bintulu Port Authority Act 1981 [Act 243]

Mode (Rail) Regulators/Agencies Regulations

• Railway Assets Corporation (RAC) • Railways Act 1991 [Act 463]

• Railways (Successor Company) Act 1991 [Act 464]

CHAPTER 4

CHEMICALS AND CHEMICAL PRODUCTS SUBSECTOR

Contents: Economic performance of C&C Products Subsector, value chain and regulations for C&C Products Subsector, and regulatory issues in Transport Services in the C&C Products Subsector.

Key Points

1. This chapter discusses on the economic performance of the C&C Products subsector including among others, its productivity performance, and its export and import values. 2. Having exported C&C Products to countries such as China, Hong Kong, Japan, Singapore, Thailand and United States, the growth of the chemical subsector has contributed to the rise in GDP and translated into greater employment opportunities. The C&C Products subsector presently accounts for 2% of the nation’s GDP and constitutes 0.8% of total employment. In 2017, exports of C&C Products rose 28% year on year to RM62.59 billion. While there are a wide range of chemical products in the market, emphasis is placed on basic chemicals as it is the production expertise in Malaysia. 3. The second section focuses on the value chain and regulations for the C&C Products subsector. The C&C Products subsector consists of five (5) key stages being (i) raw material provide; (ii) supplier; (iii) manufacturer; (iv) distributor; and (v) end user. It also discusses on the relevant industry, regulator/agencies, regulations and stakeholders related to C&C Products subsector. 4. The third section focuses on and analyses the issues raised by the industry. The industry has raised many concerns but the issues that are in line with the RURB concept are as follows: • Lengthy processing time to approve Goods Vehicle license; • Prescriptive regulation that limits marking tape to be yellow and red colour only; • Insufficient emergency response plan (training of drivers) to circumvent mishaps.

4.1 Economic Performance of the C&C Subsector

Malaysia’s Chemicals and Chemical Products (“C&C Products”) subsector has been identified as one of the priority subsectors by MPC as recognised in Chapter 1. The C&C Products subsector covers various chemical products extending to pharmaceuticals, medicinal chemicals and botanical products. It encompasses of 8.9% of Malaysia’s total export for manufactured goods.

Chemical has been identified as one of the catalytic subsectors under 11th Malaysia Plan to spur the development of other sectors.122 The chemical industry in Malaysia can be broadly classified into the following categories: Petroleum products and natural gas, chemicals and chemical products, and plastic products.

Based on MSIC 2008, C&C Products subsector consists of manufacturing of C&C Products such as basic chemicals, fertilizers and nitrogen compounds, plastics and synthetic rubber in primary form. The non-exhaustive list of C&C Products manufactured in Malaysia includes liquefied or compressed inorganic industrial or medical gases, basic organic chemicals, inorganic compounds, other basic chemicals n.e.c., fertilizers, associated nitrogen products, plastic in primary forms, synthetic rubber and mixtures of synthetic rubber and natural rubber or rubber–like gums.

Other chemical products include manufacture of pesticides and other agrochemical products, paints, varnishes and similar coatings ink, printing ink, soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations, photographic plates, writing and drawing ink and other chemical products n.e.c. The full list of other chemical products can be seen in below.123

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122 Chemical and Petrochemical. Retrieved from http://www.miti.gov.my/miti/resources/1._Chemical_and_Petrochemical_Industry_.pdf 123 DOSM, MSIC 2008, https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of%20Refer ences/MSIC_2008.pdf

Division 20: Manufacture of Chemicals and Chemical Products

This division includes the transformation of organic and inorganic raw materials by a chemical process and the formation of products. It distinguishes the production of basic chemicals that constitute the first industry group from the production of intermediate and end products produced by further processing of basic chemicals that make up the remaining industry classes.

GROUP 201 Manufacture of basic chemicals, fertilizer and nitrogen compounds, plastics and synthetic rubber in primary forms This group includes the manufacture of basic chemical products, fertilizers and associated nitrogen compounds, as well as plastics and synthetic rubber in primary forms.

GROUP 202 Manufacture of other chemical products This group includes the manufacture of chemical products other than basic chemicals and man-made fibres. This includes the manufacture of a variety of goods such as pesticides, paints and inks, soap, cleaning preparations, perfumes and toilet preparations, explosives and pyrotechnic products, chemical preparations for photographic uses (including film and sensitized paper), gelatines, composite diagnostic preparations, etc.

GROUP 203 Manufacture of man-made fibres This group includes manufacture of synthetic or artificial filament tow, manufacture of synthetic or artificial staple fibres, not carded combed or otherwise processed for spinning, manufacture of synthetic or artificial filament yarn, including high-ten

Having exported C&C Products to countries such as China, Hong Kong, Japan, Singapore, Thailand and United States, the growth of the chemical subsector has contributed to the rise in GDP and translated into greater employment opportunities. The C&C Products subsector presently accounts for 2% of the nation’s GDP and constitutes 0.8% of total employment. In 2017, exports of C&C Products rose 28% year on year to RM62.59 billion.124

While there are a wide range of chemical products in the market, emphasis is placed on basic chemicals as it is the production expertise in Malaysia.125 Basic chemicals are a broad chemical category that includes polymers, bulk petrochemicals and intermediates, other derivatives and basic industrials, inorganic chemicals and fertilizers.126 Manufacturing basic chemicals and chemical products involves the handling and disposal of many different types of toxic waste.127

Polymers includes polyethylene (PE), polyvinylchloride (PVC), polypropylene (PP) and polystyrene (PS), which are chemicals used in the production/manufacturing processes for packaging, home construction, containers, appliances, piping, transportation, toys and games.128 Petrochemicals and intermediates are primarily made from liquefied petroleum gas (LPG), natural gas and crude oil. Typical large- volume products include ethylene, propylene, benzene, toluene, xylene, methanol, vinyl chloride monomer (VCM), styrene, butadiene and ethylene dioxide. These chemicals are the starting points for most polymers and other organic chemicals as well as much of the specialty chemicals category.129

Other derivatives and basic industrial chemicals includes synthetic rubber, surfactants, dyes and pigments, turpentine, resins, carbon black, explosives and rubber products. Inorganic chemicals include salt, chlorine, caustic soda, acids (such as nitric acid, phosphoric acid and sulfuric acid), titanium dioxide and hydrogen peroxide. Fertilizers includes phosphates, ammonia and potash chemicals.130

In the most recent Survey of Manufacturing Industries by DOSM published in 2015, the manufacture of basic chemicals, fertilizers and nitrogen compounds, plastics and

124Malaysian Investment Development Authority. (n.d.). Retrieved from http://www.mida.gov.my/home/5484/news/riding- malaysia%E2%80%99s-export-heroes/ 125 EMIS, Malaysia Chemical Sector Report 2018/2019, https://www.emis.com/php/store/reports/MY/Malaysia_Chemical_Sector_Report_20182019_en_601602104.html 126 PSG, Basic Chemicals, https://www.psgdover.com/en/market-overview/defining-the-market/basic-chemicals 127 SIRIM QAS, Chemical & Material, http://www.sirim-qas.com.my/business-sector/chemical-material 128 PSG, Basic Chemicals, https://www.psgdover.com/en/market-overview/defining-the-market/basic-chemicals 129 PSG, Basic Chemicals, https://www.psgdover.com/en/market-overview/defining-the-market/basic-chemicals 130 PSG, Basic Chemicals, https://www.psgdover.com/en/market-overview/defining-the-market/basic-chemicals

synthetic rubber in primary forms reached a gross output of RM 62.6 billion, contribution 6.2% to the manufacturing industry. Among the dominant market players in the production of basic chemicals includes the CCM Chemical Berhad,131 Petronas Chemicals,132 Malay-Sino Chemical Industries Sdn Bhd133 and BASF Malaysia.134

In CCM Berhad’s 2017 Annual Report,135 it mentioned its focus on their core polymers businesses. Its polymer operations produced a turnover of RM84.3 million in 2017.

The basic chemical industry ecosystem and its value chain can be seen below:136

Figure 18: Basic Chemical Industry Ecosystem

(Source: MPC, Productivity Report 2017/18, http://www.mpc.gov.my/wp-content/uploads/2018/07/apr-2018.pdf)

131 CCM Chemical Berhad, https://www.ccmberhad.com/ 132 Petronas Chemicals, http://www.petronaschemicals.com.my/Our-Company/Pages/About-Us.aspx 133 Malay-Sino, http://www.malay-sino.com.my/ 134 BASF Malaysia, https://www.basf.com/my/en/products-and-industries/chemicals.html 135 CCM Berhad, Chemical Company of Malaysia Berhad Annual Report 2017, https://www.ccmberhad.com/documents/54282/642784/CCM+AR2017_RET954- 1452P_Hires_20180423%408.50PM.pdf/ee4fbe7a-addf-4c0c-84c6-263e9c8e10c9 136 MPC, Productivity Report 2017/18, http://www.mpc.gov.my/wp-content/uploads/2018/07/apr-2018.pdf

In undertaking the study, focus will be made on the transportation of basic chemicals. Considering the dangerous nature of these basic chemicals, the transportation of it has to be properly secured to minimise its environmental and health impact. Thus, the Road Transport (Construction and Use) (Dangerous Goods Vehicle) Rules 2015 (“Road Transport Rules 2015”) is of extremely vital in order to ensure its proper construction.

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4.2 Value Chain and Regulations for C&C Products Subsector

Downstream Raw Material Basic Chemical Product Distributor End User Provider Manufacturers Manufacturers

Key Stages Raw Material Basic Chemical Downstream Distributor End-User Provider Manufacturers Product Manufacturers (To convert basic chemicals to consumer products) Industry • Raw Material • Manufacturing • Product • Logistics • Everyday Producers (e.g. Companies (e.g. Companies Companies consumers Salt Industry) Chlorine/Caustic • Hauliers • Businesses Soda Synthesis) • Manufacturing Companies Regulators/ • Department of Occupational Safety and Health • Road Transport Department Malaysia

Agencies • Ministry of Human Resources (JPJ) • Ministry of Transport • Ministry of Health • Land Public Transport Commission (SPAD) • Jabatan Kesihatan Negeri Regulations • Factories Act 1967 [Act 139] • Occupational Safety and Health Act 1994 Related to the • Poison Act 1952 [Act 366] [Act 514] C&C Products • Land Public Transport Act 2010 [Act 715] • Occupational Safety and Health Subsector • Motor Vehicles (Construction and Use) Vehicles (Classification, Labelling and Safety Data Carrying Dangerous Goods Rules 2015 Sheet of Hazardous Chemicals) • SIRIM MS 828:2011 Regulations 2013 • Land Public Transport Act 2010 [Act 715] • Occupational Safety and Health (Use and • Panduan Dasar Pelesenan SPAD Standards of Exposure of Chemicals • Guidebook on Approval of Vehicle Types Hazardous to Health) Regulations 2000 (Amendment) 2015 Relevant • Chemical Industries Council of Malaysia • Malaysian Freight Forwarders Stakeholder • Chemical Company of Malaysia Berhad • BASF Malaysia Related to the • Petronas Chemicals C&C Products Subsector

4.2.1 Relationship between the Transport Services Sector and the Value Chain for the C&C Products Subsector

The Value Chain for C&C Products Subsector consists of five (5) key stages being:

• stage (1) raw material provider, which can be defined as the provider of substance used in the production of basic chemicals (in this case, we will take the example of salt for the production of Chlorine);

• stage (2) basic chemical manufacturer, which can be defined as a person, company or organization that manufactures the basic chemical (e.g, Chlorine);

• stage (3) downstream product manufacturer, which can be defined as an entity that makes goods through a process involving the already produced basic chemicals, usually on a large scale with different operations divided among different workers;

• stage (4) distributor, which can be defined as a person, company or organization that supplies the produced goods to shops and companies; and

• stage (5) end user, which can be defined as the person, company or organization that uses a particular goods, making them the ultimate consumer of a finished goods.

Stage (1) - Raw Material Provider

For stage (1) raw material provider, air transport service is not applicable because the raw material provides normally do not transport salt by air.

The maritime transport service identified includes private shipping companies that provide the transportation of raw materials by container vessels or general cargo vessels. The companies include Evergreen Marine Corporation (M) Sdn. Bhd., Cosco Shipping Lines Sdn. Bhd., and Wan Hai Lines (M) Sdn. Bhd.

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The road transport service identified includes private shipping companies that transport salt by road using trucks. As raw materials are a large commodity in Malaysia, there are various companies with different logistic preferences.

Although there is no restriction to transport raw materials by rail, raw material providers in Malaysia would usually use other more efficient modes of transportation.

In summary, the transport service applicable to the first stage of the Value Chain for the C&C Products Subsector is as follows:

Air Maritime Road Rail

Transport Transport Transport Transport

Stage (1) – x ✓ ✓ ✓

Raw Material Provider

Stage (2) – Basic Chemical Manufacturer

Although there is no restriction to transport basic chemicals by air or maritime transport, basic chemical manufacturers in Malaysia normally do not transport basic chemicals by air or maritime transport due to its various hazardous nature.

The road transport service identified includes private shipping companies that transport basic chemicals by road using trucks. As there are various companies producing various types of basic chemicals, the road transport services used is vast and inconclusive.

Due to its volatile and dangerous chemical nature, many of the basic chemicals (i.e. chlorine) is transported via rail.

In summary, the transport service applicable to the second stage of the Value Chain for the C&C Products Subsector is as follows:

Air Maritime Road Rail Transport Transport Transport Transport

Stage (2) – x x ✓ ✓ Basic Chemical Manufacturer

Stage (2) - Basic Chemical Manufacturer, Stage (3) - Downstream Product Manufacturer, Stage (4) – Distributor and (5) – End User

Stage (2) basic chemical manufacturer, Stage (3) downstream product manufacturer, (4) distributor and (5) end user are being considered together because they use the same mode of transport to transport the end product. As some basic chemicals are also packaged for end users, the same modes of transport are used. The basic chemical manufacturer, downstream product manufacturer and distributor will normally hire a third party to transport the end product/basic chemicals from one end to the other.

For stage (2) basic chemical manufacturer, stage (3) manufacturer, (4) distributor, and (5) end user, the companies that specialise in transporting end products/chemicals by air includes Cynotex, Keppel Logistics and Rhenus Logistics.

The maritime transport service identified includes companies that specialize in transporting end products by general cargo vessels such as Ancom Berhad, Rhenus Logistics, Keppel Logistics and Agility.

The road transport service identified includes private companies that specialize in transporting basic chemicals such as Ancom Berhad, Sanchem Logistics, DHL and Keppel Logistics.

Although there is no restriction to transport end products/basic chemicals, the key players in Malaysia normally do not transport basic chemicals by rail as it is no longer as reactive/sufficiently dangerous to be a cargo hazard.

In summary, the transport service applicable to the second, third, fourth and fifth stage of Value Chain for the C&C Products Subsector are as follows:

Air Maritime Road Rail Transport Transport Transport Transport

Stage (2) – x ✓ ✓ x Basic Chemical Manufacturer Stage (3) – x ✓ ✓ x Downstream Product Manufacturer

Stage (4) – x ✓ ✓ x Distributor

Stage (5) - x ✓ ✓ x End User

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4.2.2 Summary

In summary, the Value Chain of the C&C Products Subsector consists of five (5) key stages being (1) raw material provider, (2) basic chemical manufacturer, (3) downstream product manufacturer, (4) distributor, and (5) end user.

For stage (1) raw material provider, the mode of transport applicable for the transportation of raw materials is maritime and road transport only as air and rail transport are not used in the industry. In this respect, the industry relies on shipping companies that provide the transportation of salt by using container vessels or general cargo vessels (maritime) and trucks (road).

For stage (2) basic chemical manufacturer, (3) downstream product manufacturer, (4) distributor, and (5) end user, the mode of transport applicable for the transportation of basic chemicals are air, maritime and road with the exception of rail (in most cases). In this respect and similar to the above, the industry relies on shipping companies that provide the transportation of basic chemicals by container vessels or general cargo vessels (maritime) and trucks (road).

In summary, the Transport Services Sector applicable for the Value Chain of the C&C Products Subsector can be seen in the table below:

Stage (1) - Stage (2) - Stage (3) - Stage (4) - Stage (5)

Raw Basic Downstream Distributor – Material Chemical Product End-User Provider Manufacturer Manufacturer

Air X x ✓ ✓ ✓

Maritime ✓ ✓ ✓ ✓ ✓

Road ✓ ✓ ✓ ✓ ✓

Rail x ✓ x x x

Legend:

✓ Applicable

x Not applicable 87

4.3 Regulatory Issues in the Transport Services Sector for the C&C Subsector

This chapter captures the regulatory issues and areas of concern raised during a series of engagements with Transport Services providers in the C&C subsector. The objective of the study is to identify the regulatory burdens in relation to Transport Services related to C&C Products in Malaysia. Responses and industry recommendations were recorded from stakeholders based on the list of questions as outlined in the Issue Paper. In this Chapter, validation will be made on the regulatory issues and areas of concern raised by the stakeholders, and the various possible options of regulatory or non-regulatory solutions recommended will be highlighted.

Methodology

Unnecessary regulatory burdens can be categorized to include, among others:

• prescriptive regulations that unduly limit flexibility such as preventing businesses from making changes to meet customer demand; • overly complex regulation, unwieldy license application and approval processes; • excessive time delays in obtaining responses; or • duplicative information requests.

Under each of the issues highlighted are the various possible options/alternatives of regulatory and non-regulatory solutions recommended. Good regulatory practices require consideration of different options for achieving the desired objectives. They include take no action/continue as is; self-regulation, quasi-regulation, co-regulation and explicit government regulation. Issues and concerns raised by the respondents are analysed in order to propose recommendations in order to assist in resolving the regulatory issues raised. The impacts of Acts, regulations, government’s requirements and approaches taken in different countries are also discussed in this chapter to assist in formulating such recommendations.

Issue No. 1: Lengthy processing time to approve Goods Vehicle license One of the issues highlighted by the industry is the lengthy processing time taken by SPAD to approve new Goods Vehicle license application. At present, the industry contends that the processing time by SPAD may typically take around three (3) months. In the past, the industry stated that the processing time by SPAD could even be as long as three (3) to six (6) months to approve such application.

Regulations

In order to operate a goods vehicle, one has to obtain a Goods Vehicle license from SPAD. The relevant provisions under Land Public Transport Act 2010 [Act 715] are reproduced below:

Section 2 of the Land Public Transport Act 2010 [Act 715] - Interpretation

Section 2. Interpretation

"goods vehicle" is defined as follow

(a) any motor vehicle constructed or adapted for use for the carriage of goods or a trailer so constructed or adapted; or

(b) any motor vehicle or a trailer not so constructed or adapted when used for the carriage of goods solely or in addition to passengers;

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Section 51 of the Land Public Transport Act 2010 [Act 715] – Requirements for operator’s license

51. Requirement for operator's licence

(1) Subject to sections 194 and 195, no person shall operate or provide a goods vehicle service using a class of goods vehicles for the carriage of goods- (a) for hire or reward; or (b) for or in connection with any trade or business, unless he holds an operator's licence issued under this Chapter. (2) For the purposes of this Chapter, a person is deemed to be operating or providing a goods vehicle service if he- (a) uses or drives a goods vehicle of a class of goods vehicles himself; or (b) employs one or more persons to use or drive a goods vehicle of a class of goods vehicles, to operate or provide a goods vehicle service, and- (a) he owns the said goods vehicle; or (b) he is responsible, under any form of arrangement with the owner or lessor of the said goods vehicle to manage, maintain or operate such goods vehicle. (3) An operator's licence issued under this Chapter shall only entitle the holder of the operator's licence to operate or use one class of goods vehicle. (4) A person may hold one or more operator's licences issued under this Chapter. (5) Subsection (1) does not apply to the use of any goods vehicle or class of goods vehicles as may be prescribed. (6) Subject to subsection (5), a person, other than a company or corporation, who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine of not less than two thousand ringgit but not more than ten thousand ringgit or to imprisonment for a term not exceeding one year or to both. (7) Subject to subsection (5), a company or corporation which contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred thousand ringgit.

Analysis

Based on feedback from the industry, the primary reason for the delay is because approval of new Goods Vehicle license applications would need approval from an internal approving committee. The problems with the approving committee, as informed by the industry, are as follows:

• The approving committee infrequently meets, thereby delaying any decision until a meeting is held; • There is no transparency with the decisions of the approving committee, therefore the decisions are arbitrarily made; and • There is no information on the approving committee, therefore its role and function are not clear.

The client charter pertaining to the approval of application of such license is not available online. The industry contends that processing time of three (3) months is very lengthy in order to process a license. As the client charter for Goods Vehicle license is unavailable, taking the processing time for excursion busses of thirty-five (35) days previously mentioned in the chapter on Tourism subsector as the benchmark, this duration in practice is wholly unreasonable.

Option No. 1: Continue as is

There is the option of continuing as is and not instituting changes. However, delaying in approving the relevant license may result in economic losses for the Goods Vehicle operators that cannot operate unless the necessary approval is granted. Hence, it creates a financial loss to the industry as they cannot transport the relevant goods. In the long run, this will damage the reputation of the industry as a whole, as both the operators and regulator will appear inefficient in not addressing this issue.

Option No. 2: Improving internal efficiency of approving license applications

SPAD has to improve the internal efficiency of the process involved in approving the license applications. There should be a client charter for the approval of such license. The internal processes should also be made public in order to increase transparency and gain public confidence of SPAD.

Recommendation This study recommends Option No. 2: Improving the internal efficiency of approving license applications.

Feedback from SPAD

On this issue, SPAD agreed that the processing time to approve new Goods Vehicle license application in lengthy as it has to be approved by SPAD’s Licensing Committee. In relation to the Licensing Committee, SPAD highlighted that previously, the Licensing Committee consists of the members of SPAD, being (i) the Chairman of SPAD; (ii) the Chief Executive Officer; (iii) not more than five representatives of the Government; and (iv) not less than three but not more than five other members. The Licensing Committee will sit once every two (2) weeks, subject to the availability of the members. All of the members must attend the meeting, and it must be chaired by the Chairman of SPAD only. Therefore, the application process is dependent on committee’s availability and approval.

However, the structure of the Licensing Committee mentioned above has been changed whereby the Licensing Committee meeting can be chaired either by the Chairman or the acting Chairman. The meeting can also be attended by alternate members in order to ensure a full quorum. For ease of understanding, the differences between the old and the new structure of the Licensing Committee is are shown below:

Structure of the Licensing Structure of the Licensing Committee (Old) Committee (New) Licensing • the Chairman of APAD; • the Chairman of APAD; Committee • the Chief Executive Officer; • the Chief Executive Officer; Members • not more than five • not more than five representatives of the representatives of the Government; and Government; and • not less than three but not • not less than three but not more than five other more than five other members. members. Quorum All of the members must attend Meeting can be attended by the meeting to ensure a full alternate members in order to quorum ensure a full quorum Meeting Once every two (2) weeks, Once every two (2) weeks, subject to the availability of the subject to the availability of the

members members (but alternate members can attend to ensure full quorum) Chairman The meeting must be chaired by The meeting can be chaired the Chairman of APAD only either by the Chairman or the acting Chairman*

*under APAD, the equivalent designation is Director General as there is no Chairman

Therefore, the processing turnaround time for the application of Goods Vehicle license will be faster.

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Issue No. 2: Prescriptive regulation that limits marking tape to be yellow and red colour only

The current marking tape specifications for lorries/trucks are too prescriptive as only tapes in yellow and red markings are allowed. This is burdensome as the industry contends that the price of the tape with yellow and red markings sold in Malaysia are too expensive, compared to other countries which allow for white marking tape to be used as well.

Regulations

According to the Guidebook on Approval of Vehicle Types (Amendment) 2015, reflective marking tape used must be in accordance with (i) United Nation Regulations No. 104 on Retro-reflective Markings, and (ii) SIRIM MS 828:2011 - Road Vehicles: Rear and Side Marking Specification.137

For ease of reference, the relevant regulation is reproduced below:

Schedule 1 of the Guidebook on Approval of Vehicle Types (Amendment) 2015

SCHEDULE 1: Type Approval Performance Requirements

(G/N - Machinery/Commercial Vehicle)

Item No. Subject Vehicle National Actual Date of Category Acceptance Compliance Approval (Construction (Performance) & Use Rules 1959)

20 Retro- 02, 03, 04 MS 828

reflective UN R104.00 markings for heavy and long vehicles

137 Bahagian Kejuruteraan Automotif, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2017, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2017

Based on United Nation Regulations No. 104 on Retro-reflective Markings, reflective marking materials can be in white, yellow or red.138 The relevant provision under the United Nation Regulation No. 104 on Retro-reflective Markings is reproduced below, for ease of reference:

Annexure 6 of Regulation No. 104 - Uniform Provisions Concerning the Approval of Retro-Reflective Markings for Vehicles of Category M, N and O139

Annexure 6. Colourmetric Specifications

(1) Retro-reflective marking materials (class C) shall be white, yellow or red. Retro-reflective distinctive markings and/or graphics (classes D and E) may be

of any colour. As for SIRIM MS 828:2011, it is the Malaysian Standard that specifies requirements for retro-reflective markings (light reflector) on the rear and sides of commercial vehicles. The requirements include design, colorimetric, photometric and mechanical properties. Through implementation of the SIRIM MS828:2011, JPJ has made rear and side conspicuity marking (light reflectors) compulsory.140 As such, the tape must carry the “MS 828:2011 SIRIM logo mark”. Based on the engagement with JPJ officers, it was highlighted that based on SIRIM MS828:2011, the marking tape must be yellow and red in colour.

This is further reiterated under PUSPAKOM’s reflected marking guideline which shows the colour used for marking tapes, as follows:

138 Bahagian Kejuruteraan Automotif, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2015, http://www.mot.gov.my/SiteCollectionDocuments/Darat/akta/Garis%20Panduan%20VTA%20(Pindaan)%202015.pdf 139 https://publications.europa.eu/en/publication-detail/-/publication/6959566a-ab51-11e3-86f9-01aa75ed71a1 140 Tritech, MS828:2011 SIRIM Ceritified Commercial Vehicles Rear & Side Markings - Light Reflectors, http://www.tritech.com.my/main/list/ms8282011-sirim-ceritified-commercial-vehicles-rear-amp-side-markings---light-reflectors- 14

Figure 19: Reflector Marking Guideline by PUSPAKOM141

Reflector i. BDM 3500 kg and above ii. Reflector size for Jenis I (JI) complied MS 828:2011 iii. Must have SIRIM logo MS 828:2011 iv. Fitted at rear left and right v. Can be fitted by rivet or screw

Analysis

As part of the ongoing efforts in reducing road accidents involving commercial vehicles, all commercial vehicles with a laden weight of over 3,500kg require the installation of reflective strips that is certified to SIRIM MS 828:2011.142 Based on an article published on MIROS’s website titled Rear End Markers for Heavy Vehicles in Malaysia: Current Situation and Way Forward, more than 6000 people are killed in road accidents in Malaysia every year, and approximately 1000 of these fatalities are car occupants and motorcyclists, killed in collision involving rigid and articulated type’s trucks.143 In the dark, many heavy vehicles do not become visible to other road users until they are dangerously close. Therefore, one of the essential elements of heavy vehicles safety is a good visibility in traffic. Marking tapes play a significant

141 PUSPAKOM, Bus Inspection Guidelines, http://www.puspakom.com.my/wp-content/uploads/2018/04/Bas-050218-Eng.pdf 142 Motor Trader, PUSPAKOM’s advisory on reflective stickers for commercial vehicles, https://www.motortrader.com.my/news/puspakoms-advisory-on-reflective-stickers-for-commercial-vehicles/ 143 MIROS, Rear End Markers (REM) For Heavy Vehicles In Malaysia: Current Situation And Way Forward, https://www.miros.gov.my/1/publications.php?id_event=131&idxs_page=4&searchPage=84

role to increase the visibility of heavy vehicles to other motorists, especially during dark and bad weather condition. Based on the requirements under SIRIM MS 828:2011, marking tapes must be in red and yellow in colour. The figure below shows the minimum vales of the coefficient of retro-reflection or photometric value for yellow, white, and red. The marking is more useful and conspicuous to other drivers if the photometric value is lesser.144

Figure 20: Minimum photometric values for yellow, white and red colour

Based on the table above, it is shown that the yellow and red colour has lesser photometric values, as compared to the white colour. Hence, the colours were chosen to make the vehicle more conspicuous to other drivers, so that they are aware of the presence of other vehicles on the road.

Upon clarification with an officer in the Department of Standards of Malaysia, it was highlighted that the requirements under SIRIM MS 828:2011 were developed by a committee in the Department of Standards Malaysia, consisting of various regulators and also non-governmental organizations. Currently, the red and yellow marking tape is only sold by two (2) manufacturers in Malaysia, being 3M Malaysia and Orafol Reflective Solutions because only the marking tapes manufactured by them

144 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf

meet the MS 828: 2011 standard. There are no other marking tapes in the market that are compliant with the standards and have such SIRIM certification.145

Currently, the 3M reflective stickers are available from 3M authorized distributors, dealers and can also be purchased at major PUSPAKOM centres nationwide. They are priced around RM70 per set (for one (1) vehicle) and bulk purchase price is also available for fleet operators who will require large quantities for their vehicles.146 There are no other reflective strips in the market that are compliant with the SIRIM standard. However, it should be noted that there are cheaper counterfeit marking tapes in the market that are not compliant to the SIRIM standard. The usage of counterfeit markings may not be fully functional to warn other drivers that they are closing in on a heavy vehicle. It will be dangerous to the other road users who are travelling at night time and they are at risk to be involved in rear end crashes especially with lorries and trucks that are using noncompliant markers.147

Option No. 1: Continue as is

There is the option of continuing as is and not instituting changes. This is because the strict requirement of yellow and red were made to ensure the marking is conspicuous even in low contrast conditions during the day or night (as evidenced by the low photometric value).

In addition, the markings sold in Malaysia are only RM70 per set (for one vehicle). Although the industry contends that the price is expensive, it should be noted the marking tapes that comply with SIRIM MS 828:2011 are made using materials of highest quality and are designed with durability in mind, to be able to withstand the weather conditions in Malaysia and should theoretically, last longer and be replaced less frequently. It features a full cube technology with efficient optics that will provide brighter markings for road users as compared to non-compliant reflective stickers.148

145 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf 146 Motor Trader, PUSPAKOM’s advisory on reflective stickers for commercial vehicles, https://www.motortrader.com.my/news/puspakoms-advisory-on-reflective-stickers-for-commercial-vehicles/ 147 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf 148 Autoworld, 3M Malaysia Launches Reflective Stickers For Commercial Vehicles, http://autoworld.com.my/news/2016/12/08/3m-malaysia-launches-reflective-stickers-for-commercial-vehicles/

Option No. 2: Allow the industry to use other marking tapes (colour)

European countries have adopted the standards imposed by United Nations Regulations No. 104 on Retro-reflective Markings by allowing for the marking tapes to be in white, yellow, or red. In the United Kingdom, the Department for Transport states that preference for colours is yellow to the side and red to the rear.149 The reflective marking tapes in the United Kingdom range from £18 to £25 (for 12.5m)150. Australia also follows the United Kingdom with United National Regulations No. 104 for heavy vehicle visibility tape for its safety on the road151. The preference for colours is white for the front, yellow to the side, and red to the rear. The price for the marking tapes in Australia is around $40 (for 50mm x 20mm).152

Therefore, based on the international standards, marking tapes can either be red, yellow, or white. As such, the Department of Standard should allow the industry to use other marking tapes (colour), being white. The industry should not be restricted to use red and yellow only.

Option No. 3: To review the standard under SIRIM MS 828:2011

There are only two (2) approved tape manufacturers in Malaysia as other manufacturers were not able to comply with the standard under SIRIM MS 828:2011. Hence, even if white tape were allowed to be used, it would similarly have to comply with the SIRIM standard and as such, would be at a similar rate as the other approved yellow and red tape in the market.

Due to the low number of approved tape manufacturers in Malaysia, there is a higher demand in contrast to the supply in the product supply chain in which the same causes the market of tape manufacturers to be uncompetitive. This subsequently results in the price of the marking tapes to be expensive. Therefore, it maybe timely to review the standards imposed on tape manufacturers in order to open up the market to other manufacturers who previously were not able to comply to such

149 ECE104 Regulation explained https://multimedia.3m.com/mws/media/1534947O/conspicuity-ece104-pdf.pdf 150 MDP Supplies, Conspicuity Tape, https://www.mdpsupplies.co.uk/conspicuitytape.asp 151 Liberty Signs, Heavy Vehicle Visibility Tape for Road Safety, https://www.libertysigns.com.au/heavy-vehicle-visibility-tap/ 152 Seton Australia, 3M 983 Reflective Vehicle Marking Tapes - 50mm x 3m, https://www.seton.net.au/3m-983-reflective- vehicle-marking-tapes.html

standard. By doing so, it will boost the competition to produce better quality tapes and in turn, reduce the price of the marking tapes.

Recommendation

This study recommends Option No. 3: To review the standard under SIRIM MS828:2011, in order to allow other suppliers and manufacturers to be able to comply with the standard and subsequently enter the approved marking tape market. By doing so, it will boost the competition to produce better quality tapes and consequently, reduce the price of the marking tapes.

Feedback from JPJ

The representatives from JPJ had confirmed that based on MS 828:2011, the approved marking tapes must be in yellow and red colour only.

Feedback from SIRIM

In this respect, SIRIM highlighted that currently, there are no plans to review the standard under SIRIM MS828:2011. SIRIM further highlighted that the standard was developed by a committee under the Department of Standard Malaysia. The stakeholders include various regulators and also non-government organizations (including transport related associations). As such, the relevant stakeholders have been consulted prior to developing such standard in Malaysia.

SIRIM has also confirmed the fact that the approved marking tape is only sold by two (2) manufacturers in Malaysia, being 3M Malaysia and Orafol Reflective Solutions because only the marking tapes manufactured by such manufacturers meet the MS 828: 2011 standard. Hence, SIRIM confirmed that there are no other marking tapes in the market that are currently compliant with the standards and have such SIRIM certification. SIRIM also highlighted that only the two companies mentioned above have applied to be certified under SIRIM and completed the various inspections/tests in order to obtain accreditation.

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As for the price of the marking tapes, SIRIM explained that the price is determined by the tape manufacturers themselves, being around RM70 per set based on market demand.

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Issue No. 3: Insufficient emergency response plan (training of drivers) to circumvent mishaps The next issue highlighted by the industry players is that there is insufficient emergency response plan by the Government, particularly on training of drivers to circumvent any mishaps involving the transportation of dangerous goods on land.

Regulations

For ease of reference, the definition of dangerous goods vehicle, and dangerous goods under the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015,153 are provided below:

2. Interpretation In these Rules —

"dangerous goods" means referring to the materials listed in First Schedule;

“class of dangerous goods" means referring to the classes listed in Second Schedule;

"dangerous goods vehicle" means any goods vehicle constructed or adapted for the carriage of dangerous goods;

Other relevant regulations include Section 4, 5, 6, and 7 of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015. For ease of reference, the regulations are reproduced below:

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153 Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

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Section 4 of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

4. Transportation of dangerous goods

Any dangerous goods vehicles travelling by road shall —

a) be constructed in compliance with all the requirements and procedures established under United Nations Economic Commission for Europe (hereinafter referred to as the "UNECE") Rule 105, Uniform Provisions Concerning the Approval of Vehicles used for the Transportation of Dangerous Goods;

b) have been designed in accordance with the vehicle plan or general arrangement drawings which have been approved by the Director General;

c) be used only for the carriage of dangerous goods in accordance with the class which have been approved by the Director General in the vehicle plan or general arrangement drawings;

d) be constructed and used in accordance with any requirements of the Director General concerning the construction, use, precaution steps that need to be implemented to ensure the safety of the public in connection therewith, the process of loading and unloading of dangerous goods cargo.

Section 5 of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

5. Safety equipment

Any dangerous goods vehicles shall be equipped with such equipment as specified in the Third Schedule.

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Section 6 of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

6. Emergency information plate (1) Any dangerous goods vehicle shall be fitted with emergency information plate as specified in the Fourth Schedule. (2) Information on the emergency information plate shall (a) be display all information clearly; (b) correspond to the dangerous goods being carried as specified in the First Schedule. (3) Emergency information plate shall be – (a) made of weather resistant material and will not deform; (b) always in rigid condition. (4) Emergency information plate shall be affixed in a vertical plane on each of the rear, left and right which is clearly visible on the body of dangerous goods vehicles. (5) If the emergency information plate cannot be permanently affixed to the body of dangerous goods vehicles, the emergency information shall be — a) affixed to the body of the dangerous goods vehicles using adhesive; or b) displayed by using frame which is permanently affixed to the body of dangerous goods vehicles.

Section 7 of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

7. Special approval for transportation of dangerous goods Class 1 or Class 7 (1) Any dangerous goods vehicles carrying dangerous goods Class 1 or Class 7 shall obtain prior written approval from the relevant authorities. (2) For the purposes of these Rules, the relevant authorities means — (a) For Class 1, Ministry of Defense, Ministry of Home Affairs, and the Department of Occupational Safety and Health; (b) For Class 7, Ministry of Health Malaysia, Malaysia Nuclear Agency and the Department of Occupational Safety and Health.

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Fourth Schedule of the Motor Vehicles (Construction and Use) (Vehicles Carrying Dangerous Goods) Rules 2015

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Analysis

Notwithstanding the various regulations stated above such as having the dangerous goods vehicle plan approved by the Director General, equipped the dangerous goods vehicle with safety equipment, as well as making it compulsory for the emergency information plate to be fitted on dangerous Goods Vehicle, the regulation is silent as to the training of drivers. One cannot rule out the possibility of spillages and accidental releases of hazardous substances during the transportation of dangerous goods. Thus, with proper training, such accidents can be effectively contained and the damage to the environment and danger to the health and safety of public minimised.154

As an example, if there is any acid spillage in Malaysia, one will contact the Hazardous Material (“HAZMAT”) team from the Fire and Rescue Department of Malaysia (“JBPM”) as they have been trained to handle chemical spillage. This is pursuant to the National Security Council (Directive No. 20), which is reproduced below:

10. Chemical Radiological and Nuclear Accident

Disaster response due to chemical, radiological and nuclear accidents and hazardous materials is handled by the Fire and Rescue Department of Malaysia (JBPM) as the rescue agency in handling this disaster.

However, the industry players contend that the drivers should also have basic training on chemical spillage before they are allowed to transport dangerous goods in order to contain such occurrences. The industry highlighted that there are cases whereby the drivers use water to contain the chemical spillage, and this has worsen the situation as one needs to use, as an example, foam to contain the chemical spillage. The industry also highlighted the following:

• hydrochloric acid is used extensively in the industry to "pickle" (treat and cleaning) steel and pH correction in the industrial wastewater treatment

154 National Environment Agency, Management of Hazardous Substances, https://www.nea.gov.sg/our-services/pollution- control/chemical-safety/hazardous-substances/management-of-hazardous-substances

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process. It is corrosive and its fumes can cause burns and respiratory, skin and eye irritation if mishandled.155

• When transporting dangerous goods involving bitumen, the driver needs to know that if there is any leakage, the whole area that is affected must be vacated.

Therefore, the drivers should be able to identify the classes of dangerous goods, recognize and identify the hazard/handling labels applicable to dangerous goods, recognize and identify dangerous goods package use and package specification markings, and familiarize with emergency procedures.

On a related note, Malaysia does have such training/course titled “Transportation of Dangerous Goods by Road” conducted by the National Institute of Occupational Safety and Health. The course fee is RM800 per person where the topics covered include the following156:

• Introduction to Dangerous Goods; • Regulatory Requirement and Guidelines;

• Classification of Dangerous Goods;

• Risk Assessment;

• Hazard Communication;

• Transfer (safety during load and unload); and

• Road Safety.

However, it is not mandatory for drivers to attend such training. Furthermore, a driver can transport dangerous goods so long as they have obtained a valid carrier’s license (as discussed in Issue No. 1). Therefore, the industry strongly feels that it is important for the drivers to have some form of minimum training in relation to the transportation of dangerous goods.

155 Chemical Company of Malaysia Berhad, Accident Causes ‘Chemical Spill’ In Pasir Gudang, https://www.ccmberhad.com/press- releases?p_p_id=56&p_p_lifecycle=0&p_p_state=maximized&p_p_mode=view&_56_groupId=54282&_56_articleId=616991&_ 56_version=1 156 National Institute Of Occupational Safety And Health http://www.niosh.com.my/images/CourseContent/NCP/NIOSH-PDD- TDGR.pdf

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Option No. 1: Continue as is

There is the option of continuing as is and not instituting changes. However, Malaysia is amongst the highest risk country in Asia for road transport operations.157 Most truck accidents are as a direct result of drivers action or inaction. It should be noted that competently trained drivers are the single biggest factor in reducing road risk.158

Option No. 2: Introduce mandatory training for drivers transporting dangerous goods

A short term solution is to introduce mandatory course for drivers transporting dangerous goods. For example in Australia, if one is involved in transporting dangerous goods in New South Wales, he must have appropriate training.159 Not only that, the driver also must possess a dangerous goods driver licence and dangerous goods vehicle licence is required if the vehicle is carrying any quantity of dangerous goods in a receptacle with a capacity of more than 500 litres is carrying any receptacle containing more than 500 kilograms of dangerous goods.160 A current dangerous goods driver licence issued by any state or territory is recognised throughout Australia, and allows you to drive a dangerous goods vehicle in New South Wales.

Another notable country highlighted by the industry with strong emergency response plan is Singapore whereby it is mandatory to provide training for drivers to provide emergency response to accidental chemical release during transportation. Based on the Fire Safety Act (“FSA”) and the Environmental Pollution Control Act (“EPCA”), drivers transporting hazardous materials including hazardous substance as stipulated under EPCA and its regulations are required to be competently trained in preventing and mitigating accidental releases. From April 2003, both the Civil Defence Academy (premier training institution of the Singapore Civil Defence Force), and the PSA Institute offer the Hazardous Materials Drivers Course. Not only that, all drivers who are assigned to transport hazardous substances on the roads in

157 Chemical Industries Council of Malaysia, http://www.cicm.org.my/index.php/2-uncategorised 158 ibid 159 NSW Environment Protection Authority, Licensing and Training, https://www.epa.nsw.gov.au/your-environment/dangerous- goods/licensing-training 160 ibid

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Singapore are required to carry a valid Hazardous Materials Transportation Driver Permit.161

Hence, taking into account the measures taken by Australia and Singapore, the long- term solution is to introduce a dangerous goods license in Malaysia. However, the Government should conduct a detailed study to determine the feasibility of such license in Malaysia.

Recommendation

In order to increase Malaysian occupational safety standards to meet international standards, this study recommends Option No. 2: Introduce mandatory training for drivers transporting dangerous goods subject to conducting a detailed study to determine the feasibility of introducing mandatory training for drivers transporting dangerous goods (short term solution) and dangerous goods licensing (long term solution) in Malaysia. emergency response plan (training of drivers)

Feedback from JPJ JPJ agreed that there are no mandatory emergency response training of drivers to circumvent any mishaps involving the transportation of dangerous goods and the requirement for a dangerous goods license in Malaysia. They highlighted that currently, there are no plans to introduce mandatory emergency response training for drivers transporting dangerous goods and the requirement for a dangerous goods license. However, JPJ qualified that a more detailed study would need to be conducted to determine among others the feasibility of introducing such mandatory training and license.

Feedback from DOSH DOSH acknowledged the fact that under law, there is currently no legal requirement imposing such an obligation for drivers to undertake emergency response training in transporting dangerous goods. Nonetheless, DOSH shared that there is currently an initiative together with other agencies such as JPJ, MIROS, JBPM and etc. to

161 National Environment Agency, Emergency Response Training for Drivers, https://www.nea.gov.sg/our-services/pollution- control/chemical-safety/emergency-response-training-for-drivers

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introduce a special license for transporters carrying hydrocarbon products. However, such initiative is still at preliminary discussion stage in which one of the matters discussed is to expand the scope of the special license to regulate other dangerous goods.

DOSH also shared that notwithstanding the lack of mandatory emergency response training, they had observed an industry practice where certain subcontractors when providing service to multinational corporations and/or government-linked companies would typically contractually comply with higher standards then mandated under Malaysian law which includes having an emergency response plan in place and/or mandatory emergency response training. Therefore, in such circumstances, the multinational corporations and/or government-linked companies would self-regulate by introducing higher standards and best practices adopted from their international experience into the local industry.

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Other issues

Issue No. 1: Inconsistency in pharmaceutical regulations in different States One of the issues brought up by the industry players is the inconsistency in the interpretation of pharmaceutical regulations in different States. This inconsistency is with regards to the licensing procedure for the purchase of Hydrochloric Acid (“HCl”) in different States. For example, the industry players stated that the licensing procedure to buy HCl in Selangor differs from Johor as the licence required in Selangor must be obtained for each and every purchase whereas in Johor, a licence is valid for one (1) calendar year (January-December), irrespective of the number of purchases. The industry highlighted that in Johor, the industry does not have to acquire a new license every time they want to purchase the HCI. The differences between the procedure to buy HCI for the two States can also be seen in the figure below:

Figure 21: Differences between the procedures to buy HCI in Selangor and Johor State Procedure to buy HCI Selangor • One must obtain a new license for each and every purchase

Johor • One must obtain one (1) license only and it is valid for one (1) calendar year

Regulation

Based on the Poisons Act 1952 [Act 366], HCI can only be sold by a licensed wholesaler to a person licensed to retail such poison. The relevant provisions are reproduced below:

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Section 2 of the Poisons Act 1952 [Act 366] - Interpretation Section 2. Interpretation "poison" means any substance specified by name in the first column of the Poisons List and includes any preparation, solution, compound, mixture or natural substance containing such substance, other than an exempted preparation or an article or preparation included for the time being in the Second Schedule; "Poisons List" means the Poisons List set out in the First Schedule as amended from time to time in accordance with section 6.

Poison List, First Schedule APPENDIX POISON LIST Hydrochloric acid

Section 15 of the Poisons Act 1952 – Sale of poisons by wholesale

(1) No poison shall be sold by wholesale except by a licensed wholesaler in accordance with the terms and conditions of his licence. (2) No poison shall be sold by a licensed wholesaler except to- (a) a person licensed to retail such poison; (b) a purchaser outside Malaysia to whom such poison is to be immediately exported on sale; (c) another licensed wholesaler; (d) the owner or the manager acting on behalf of the owner of any estate for the purpose of the business of such estate or for enabling such owner, or his manager acting on his behalf, to comply with any requirements made by or under any written law with respect to the medical treatment of persons employed on such estate; or (e) a professional person or tradesman for the purpose of such person's or trademan's profession or trade and not for resale; (f) a registered medical practitioner or a registered dentist for the treatment of his patients or a veterinary surgeon for the treatment of any animal which such surgeon is employed to treat; (g) a licensed pharmacist; (h) a Government Department, local authority or public body; (i) a hospital, infirmary, dispensary or veterinary hospital maintained by the Government of Malaysia or any State Government or by any local authority or out of public funds or by a charity approved by an order, whether general or special, of the Director General of Health; (j) a person or institution concerned with scientific education or research or chemical analysis for the purpose of such education, research or analysis.

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Analysis

Based on the provisions listed above, HCI can only be sold to a person who is licensed under the Poisons Act 1952 [Act 366]. Thus, it is clear under the regulations that to purchase a poison i.e. HCl, the purchaser has to be duly licensed.

Notwithstanding the foregoing, the issue remains to be addressed on whether the license is required for each and every purchase or can be obtained for annual purchases. In this respect, the officers from Jabatan Kesihatan Negeri (“JKN”) of various States and the Ministry of Health (“MOH”) have been contacted in order to identify the correct interpretation of the law. The licence required by businesses for the sale/purchase of HCl is the Poison Licence Type B, which is reiterated on JKN’s website.162

To this end, the relevant officers in JKN Selangor and Johor stated that the licensing procedure for the purchase of HCI for the different States are actually applied uniformly in which, each licence is valid for a period of one (1) calendar year i.e. from January to December. Thus, there is no issue with regards to the inconsistency pertaining to the licensing procedure for the purchase of HCI in different States as the practice to have an annual license has been confirmed by the regulators.

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162 JKN Johor, Panduan Permohonan Lesen Racun Dibawah Akta Racun 1952, http://jknjohor.moh.gov.my/bmv/modules/mastop_publish/?tac=92

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CHAPTER 5

MACHINERY & EQUIPMENT SUBSECTOR

Contents: Economic performance of M&E Subsector, value chain and regulations for M&E Subsector, and regulatory issues in Transport Services in the M&E Subsector.

Key Points

1. This chapter discusses on the economic performance of the M&E subsector including among others, its productivity performance, and its export and import values. For this particular study, the mobile crane industry is put on focus as there are still many challenges being faced by mobile crane operators including, among others: • competition from foreign crane operators, primarily from Singapore and China; • lack of skilled talents, including operators and technicians; • maintenance of cranes and related assets; • safety issues related to crane operation and inspection; and • lack of common industrial standards for the operation, safety and inspection certification of mobile cranes 2. The second section focuses on the value chain and regulations for the M&E subsector. The M&E subsector consists of five (5) key stages being (i) raw material provide; (ii) supplier; (iii) manufacturer; (iv) distributor; and (v) end user. It also discusses on the relevant industry, regulator/agencies, regulations and stakeholders related to M&E subsector. 3. The third section focuses on and analyses the issues raised by the industry. The industry has raised many concerns but the that are in line with the RURB concept are as follows: • Unduly high import duties for mobile cranes; • Unreasonable age limit imposed on importation of mobile cranes; • Excessive time delays in getting mobile cranes inspected by regulators; • Frequent requirement to conduct inspections upon dismantling; and • Tedious requirement to cancel certificate of fitness inspection

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manually. 4. Apart from the issues listed above, this section also highlighted other issues raised by the industry, including issues that do not comply with the RURB concept.

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5. 1 Economic Performance of the M&E Subsector

Due to its cross-cutting linkages with various economics segments such as the manufacturing and services sectors, M&E industry is one of the catalytic subsectors identified under the 11th Malaysia Plan to spur the country’s economic transformation to greater prosperity.163

Based on MSIC 2008, the M&E subsector is classified based on the economic activities of this sector in Malaysia. This industry includes the manufacture of machinery and equipment that act independently on materials either mechanically or thermally or perform operations on materials (such as handling, spraying, weighing or packing), including their mechanical components that produce and apply force, and any specially manufactured primary parts. It also includes the manufacture of fixed and mobile or hand-held devices, regardless of whether they are designed for industrial, building and civil engineering, agricultural or home use. Apart from that, the manufacture of special equipment for passenger or freight transport within demarcated premises also belongs to this industry.164

In short, there are four (4) main subsectors under M&E. The four (4) main subsectors under M&E is shown in the figure below.165

Figure 22: Four (4) main subsectors under M&E

Subsector Description

A Specialised Machinery & Equipment for Specific Industries

• refers to manufacturing of M&E and related parts which are specifically designed and customised for use in a specific industry or process, eg: oil & gas, electrical & electronics, packaging, agriculture, etc

163http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_ v6.pdf 164 Machinery and Equipment Industry Profiling and Value Chain, Malaysia Productivity Corporation 165 Wayup, M & E Nexus (Malaysia Productivity Blueprint – MPB), http://wayup.my/wp-content/uploads/Roadshow- Machinery-and-Equipment-Productivity-Subsector-En.-Sangaran.pdf

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B General Industrial Machinery & Equipment, Components and Parts

• refers to manufacturing of general purpose M&E and related parts which cover a broad category of products such as heating & cooling equipment, material handling equipment, factory automation, tools & apparatus, pumps, compressors, transmission shafts, etc.

C Power Generating Machinery & Equipment

• refers to manufacturing of M&E and related parts for power generation which comprises mainly of steam of other vapour- generating boiler, turbines, engines and motors, etc

D Machine Tools and Metalworking Machinery

• refers to manufacturing of machine-tools and related parts for working metal or other materials

(Source: Wayup, M & E Nexus (Malaysia Productivity Blueprint – MPB), http://wayup.my/wp- content/uploads/Roadshow-Machinery-and-Equipment-Productivity-Subsector-En.-Sangaran.pdf)

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Currently, there are 1,418 companies in the M&E industry across these multiple sectors.166 In 2017, the M&E subsector has contributed to 2.6% of the manufacturing sector’s total added value. With the subsector’s employment of 93,000 workers, it represents 3.8% of the total manufacturing workforce.167

As for productivity performance, M&E subsector has increased by 4.7% with the registered productivity level of RM75,825 in 2017. The subsector encompasses high technology manufacturing and modern services sectors that utilize high skilled talents with high wages. M&E subsector is also among the largest and strongest in ASEAN.168

In terms of export, the M&E subsector has contributed 4.3% or RM40.2 billion to the total manufacturing export in 2017. In the period of 2012 to 2016, export has grown strong with CAGR of 8.4%. The amount of export is expected to grow at an average annual growth rate of 4.1% to reach RM43 billion in 2020. General- purpose and specific-purpose machineries are the major contributors to the export with the GAGR of 6.9% and 12.1%, respectively. Major export destination includes China, Indonesia, USA, Thailand, and Singapore.169

The total of imports has also increased from RM31.9 billion in 2000 to RM65.1 billion in 2017.170 Imports are mainly for advanced, high-tech machines and components and some general M&E that are not available in Malaysia. Importation of such machineries is usually made from China, Japan, USA, Germany, and Singapore.

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166 Machinery and Equipment, http://www.mida.gov.my/home/machinery-and-equipment/posts/ 167 Machinery and Equipment Industry Profiling and Value Chain, Malaysia Productivity Corporation. 168 ibid 169 http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_v6. pdf 170 ibid

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The total percentage of exports and imports for the M&E subsector can be seen in the figure below:

Figure 23: Total percentage of exports for the M&E subsector from the year 2012 until 2017171

EXPORTS Sub-Sectors 2012 2013 2014 2015 2016 2017 Major Distributions RM bil (US$ bil.) Power 2.2 2.0 2.3 2.6 2.6 3.4 Singapore, Generating (0.7) (0.7) (0.7) (0.7) (0.6) (0.8) USA, Japan, M&E Germany, UK M&E for 8.6 9.8 10.7 14.5 15.2 16.2 Singapore, Specific (2.9) (3.3) (3.1) (4,1) (3.5) (2.6) USA, Japan, Industries Indonesia, Thailand Metalworking 1.2 1.3 1.7 1.6 1.5 2.0 Singapore, M&E (0.4) (0.4) (0.5) (0.5) (0.3) (0.5) Hong Kong, Japan, USA General 13.2 14.2 15.3 17.6 18.4 18.6 Singapore, Industrial (4.4) (4.7) (4.4) (5.0) (4.3) (4.1) Hong Kong, M&E, Japan, USA, Components Australia and Parts TOTAL 25.2 27.3 30.0 36.3 37.7 40.2 (8.4) (9.1) (8.6) (10.4) (8.4) (10.3)

(Source: MIDA, Malaysia’s Machinery & Equipment and Engineering Supporting Industries, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_v6.pdf)

171 MIDA, Malaysia’s Machinery & Equipment and Engineering Supporting Industries, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_v6.pdf)

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Figure 24: Total percentage of exports for the M&E subsector from the year 2012 until 2017172

IMPORTS Sub-Sectors 2012 2013 2014 2015 2016 2017 Major Sources Power RM bil (US$ bil.) Generating 10.7 10.9 11.0 11.7 14.3 15.1 USA, M&E (3.6) (3.6) (3.1) (3.3) (3.3) (3.9) Japan, Singapore, China, Thailand M&E for 8.6 9.8 10.7 14.5 15.2 16.2 Japan, Specific (2.9) (3.3) (3.1) (4,1) (3.5) (2.6) Germany, Industries USA, Taiwan, Singapore Metalworking 4.8 4.2 4.2 3.9 3.6 4.6 Japan, M&E (3.6) (3.6) (3.1) (3.3) (3.3) (1.2) Germany, USA, Taiwan, Singapore General 21.9 23.1 23.1 26.7 29.9 33.7 Japan, Industrial (3.6) (3.6) (3.1) (3.3) (3.3) (8.6) USA, M&E, Germany, Components Singapore, and Parts Taiwan TOTAL 52.9 54.5 54.6 59.5 65.1 78.5 (17.7) (18.1) (15.6) (17.0) (15.1) (20)

(Source: MIDA, Malaysia’s Machinery & Equipment and Engineering Supporting Industries, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_v6.pdf )

172 MIDA, Malaysia’s Machinery & Equipment and Engineering Supporting Industries, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20180809160358_M&E%202018_v6.pdf)

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From the figure shown above, the general industrial M&E is the largest subsector and export contributor in Malaysia. As such, this study will be focusing on such subsector, particularly on mobile cranes as it is widely used in a range of MSIC industries and has evolved in tandem with the industrial development of the country.

Pursuant to MSIC 2008, M&E activities include among others, the manufacture of M&E, repair and installation of M&E, rental and leasing of machinery, as well as other specialized construction activities. For ease of reference, the relevant codes under the MSIC 2008 are listed below:

MANUFACTURE OF GENERAL-PURPOSE MACHINERY

• 28110 Manufacture of engines and turbines, except aircraft, vehicle and cycle engines • 28120 Manufacture of fluid power equipment • 28130 Manufacture of other pumps, compressors, taps and valves • 28140 Manufacture of bearings, gears, gearing and driving elements • 28150 Manufacture of ovens, furnaces and furnace burners • 28160 Manufacture of lifting and handling equipment • 28170 Manufacture of office machinery and equipment (except computers and peripheral equipment) • 28180 Manufacture of power-driven hand tools with self-contained electric or non-electric motor or pneumatic drives • 28191 Manufacture of refrigerating or freezing industrial equipment • 28192 Manufacture of air-conditioning machines, including for motor vehicles • 28199 Manufacture of other general-purpose machinery n.e.c.

MANUFACTURE OF SPECIAL-PURPOSE MACHINERY

• 28210 Manufacture of agricultural and forestry machinery • 28220 Manufacture of metal-forming machinery and machine tools • 28230 Manufacture of machinery for metallurgy • 28240 Manufacture of machinery for mining, quarrying and construction • 28250 Manufacture of machinery for food, beverage and tobacco processing • 28260 Manufacture of machinery for textile, apparel and leather production • 28290 Manufacture of other special-purpose machinery n.e.c

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REPAIR AND INSTALLATION OF MACHINERY AND EQUIPMENT

• 33110 Repair of fabricated metal products • 33120 Repair and maintenance of industrial machinery and equipment • 33131 Repair and maintenance of the measuring, testing, navigating and control equipment • 33132 Repair and maintenance of irradiation, electro medical and electrotherapeutic equipment • 33133 Repair of optical instruments and photographic equipment • 33140 Repair and maintenance of electrical equipment except domestic appliances • 33150 Repair and maintenance of transport equipment except motorcycles and bicycles • 33190 Repair and maintenance of other equipment n.e.c. • 33200 Installation of industrial machinery and equipment

RENTAL AND LEASING OF OTHER MACHINERY, EQUIPMENT AND TANGIBLE GOODS

• 77301 Renting and operational leasing, without operator, of other machinery and equipment that are generally used as capital goods by industries • 77302 Renting and operational leasing of land-transport equipment (other than motor vehicles) without drivers • 77303 Renting and operational leasing of water-transport equipment without operator • 77304 Renting and operational leasing of air transport equipment without operator • 77305 Renting and operational leasing of agricultural and forestry machinery and equipment without operator • 77306 Renting and operational leasing of construction and civil-engineering machinery and equipment without operator • 77307 Rental and operational leasing of office machinery and equipment without operator • 77309 Renting and leasing of other machinery, equipment and tangible goods

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n.e.c.

OTHER SPECIALIZED CONSTRUCTION ACTIVITIES

• 43901 Construction of foundations, including pile driving • 43902 Erection of non-self-manufactured steel elements • 43903 Scaffolds and work platform erecting and dismantling • 43904 Bricklaying and stone setting • 43905 Construction of outdoor swimming pools • 43906 Steam cleaning, sand blasting and similar activities for building exteriors • 43907 Renting of construction machinery and equipment with operator (e.g. cranes) • 43909 Other specialized construction activities, n.e.c

Based on MSIC 2008, other specialized construction activities also include renting of construction machinery and equipment with operator, such as cranes. The mobile crane industry is important as mobile cranes are needed to support various industrial sectors, including construction, transportation, oil and gas, manufacturing.173 It should be noted that there are no mobile cranes manufacturers in Malaysia. Mobile cranes are also sourced from Japan, Europe and the US (particularly for the large capacity crawler cranes).174 With the nation’s fast-paced development, the growing market demand for more cranes has seen China emerge as a source for new mobile cranes due to its cost and availability. In Malaysia, the mobile crane operators will normally lease the mobile crane for short or long-term hire, where lifting services are required.

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173 http://wayup.my/wp-content/uploads/YKS-MMCOA-Productivity-Strategy-Road-Map-8.August.pdf 174 ibid

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For this particular study, the mobile crane industry is put on focus as there are still many challenges being faced by mobile crane operators including, among others:175

• competition from foreign crane operators, primarily from Singapore and China;

• lack of skilled talents, including operators and technicians;

• maintenance of cranes and related assets;

• safety issues related to crane operation and inspection; and

• lack of common industrial standards for the operation, safety and inspection certification of mobile cranes.

Despite the common and long-standing use of mobile cranes in construction, there are still many issues that plague the industry. Hence, this study is aimed to identify areas where regulation can be improved, consolidated or simplified to reduce unnecessary burdens in the M&E subsector, with a focus on mobile cranes.

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175 http://wayup.my/wp-content/uploads/YKS-MMCOA-Productivity-Strategy-Road-Map-8.August.pdf

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5.2 Value Chain and Regulations of the M&E subsector

Based on our research, the typical Value Chain for the M&E sub-sector is represented in the diagram below:

Raw Material Supplier Manufacturer Distributor End User Provider

Compliance with regulatory requirements affects all of these stages and is often treated as one of the processes involved in the transport services industry. More often than not, the parties involved in the Transport Services Sector encounter problems/issues over complying with the regulatory requirements.

The Value Chain of the M&E subsector consisting of the relevant industry, regulator, primary legislations and related stakeholders as follows:

Key Stages Raw Material Provider Supplier Manufacturer Distributor End User

Industry • Supplier of Mobile Crane • Industrial • Companies that specializes in Rental, Sale, Service and Repair of Mobile Crane Sectors that uses Mobile Cranes (i.e.: construction,

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transportation, oil and gas, manufacturing sector) Regulator/Agencies • Ministry of International Trade and Industry • Malaysian Investment Development • Royal Malaysian Customs Department Authority • Ministry of Finance • Construction Industry Development Board • Ministry of Human Resources (CIDB)

• Department of Occupational Safety and Health Malaysia

Regulations • Customs Act 1967 [Act 235] • Factories and Machinery Act 1967 [Act 139] Related to the M&E • Customs Duties Order 2017 • Factories and Machinery (Notification, Subsector • Customs (Prohibition of Imports) Order 2017 Certificate of Fitness and Inspection)

(Mobile Crane) Regulations

Relevant • Malaysia Mobile Crane Owners Association Stakeholder • Machinery and Equipment Productivity Nexus Related to the M&E

Subsector

(Mobile Crane)

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5.2.1 Relationship between the Transport Services Sector and the Value Chain for the M&E Subsector

The Value Chain for M&E Products Subsector consists of five (5) key stages being:

• stage (1) raw material provider, which can be defined as the provider of substance used in the production of basic chemicals (in this case, this study will take the example of steel for the production of mobile cranes); • stage (2) supplier, which can be defined as a person, company or organization that supplies goods (in this case, the raw material used in the production of mobile cranes); • stage (3) manufacturer, which can be defined as an entity that makes the mobile cranes through a process involving raw materials, usually on a large scale with different operations divided among different workers; • stage (4) distributor, which can be defined as a person, company or organization that supplies the produced mobile cranes to shops and companies; and • stage (5) end user, which can be defined as the person, company or organization that uses a particular goods, making them the ultimate consumer of a finished goods.

Stage (1) - Raw Material Provider, Stage (2) – Supplier, Stage (3) - Manufacturer, Stage (4) - Distributor, and Stage (5) - End User

It should be noted that Malaysia does not have any mobile cranes manufacturers. The industry will import mobile cranes from overseas, namely from China, Japan, and Europe. As such, stage (1) - raw material provider to stage - (5) end user, are being considered together because they use the same mode of transport to transport mobile cranes. The industry will normally hire a third party to transport the end product from one end to the other by maritime and/or road transport.

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The industry does not transport mobile cranes by air due to its size. Although there are no restrictions in transporting mobile cranes by rail, the key players in Malaysia does not utilise rail transport.

The maritime transport service identified includes companies that specialize in transporting mobile cranes by general cargo vessels such as Tat Hong Holdings Ltd, Conceptum Logistics and Crane Worldwide Logistics Sdn Bhd.

The road transport service includes private companies that specialize in transporting mobile cranes such as Tat Hong Holdings Ltd, Conceptum Logistics, Crane Worldwide Logistics Sdn Bhd and Kee Han Transport Sdn Bhd.

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5.2.2 Summary

In summary, the transport service applicable to the first until the fifth stage of Value Chain for the M&E Subsector are as follows:

Stage (1) Stage Stage (3) - Stage (4) - Stage (5) – - (2) - Manufacturer Distributor End User Raw Supplier Material Provider

Air x x x x x

Maritime ✓ ✓ ✓ ✓ ✓

Road ✓ ✓ ✓ ✓ ✓

Rail x x x x x

Legend:

✓ Applicable

x Not applicable

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5.3 Regulatory Issues in the Transport Services Sector for the M&E Subsector

This chapter captures the regulatory issues and areas of concern raised during a series of engagements with Transport Services providers in the M&E subsector. The objective of the study is to identify the regulatory burdens in relation to Transport Services related to mobile cranes in Malaysia. Responses and industry recommendations were recorded from stakeholders based on the list of questions as outlined in the Issue Paper. In this Chapter, validation will be made on the regulatory issues and areas of concern raised by the stakeholders, and the various possible options of regulatory or non-regulatory solutions recommended will be highlighted.

Approach

Unnecessary regulatory burdens can be categorized to include, among others:

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Issue No. 1: Unduly high import duties for mobile cranes One of the main issues highlighted by the industry players is that the current import duties for importation of mobile cranes are too high being thirty per-centum (30%) of the purchase price. Due to the high costs of brand-new mobile cranes, particularly from Germany (Europe) which is around RM5 million per crane (amounting to RM1,500,000 in duties per crane), mobile crane operators would typically seek to import used mobile cranes from Japan and China instead, because the mobile cranes imported from such countries are exempted from custom duties. However, it should be noted that all cranes manufactured in Japan and China are of small and medium capacities and sizes. As such, the industry contends that the high custom duties constrain the import of bigger, powerful, and stronger mobile cranes from Germany in Malaysia.176

Regulation

The Customs Duties Order 2017 provides the applicability and rates of custom duties for mobile cranes (classified as crane lorries - 8705.10.00 00). The relevant provisions are reproduced below, for ease of reference:

Section 2 of the Customs Duties Order 2017 - Custom Duties

Section 2. Customs duties

(1) Subject to subparagraph (3), import duties shall be levied on, and paid by the importer, in respect of goods described in columns (1), (2) and (3) of the First Schedule imported into Malaysia, at the full rates specified in column (5) of the First Schedule.

(2) In the case of goods described in columns (1), (2) and (3) of the First Schedule subject to tariff rate quota as specified in column (5) of the First Schedule, import duty shall be levied at the specified rates in column (5) of Appendix B to the First Schedule, as determined by the agency specified in column (6) of Appendix B to the First Schedule.

(3) In the case of goods subject to import duty imported on or with any person

176 Fieldlens, The World’s Biggest, Most Powerful Cranes https://fieldlens.com/blog/building-better/biggest-cranes/

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entering Malaysia or in the baggage of such person and is intended for non- commercial use (except motor vehicles, alcoholic beverages, spirits, tobacco and cigarettes) a customs duty at a flat rate of ten percent ad valorem shall be levied on and paid by the importer on such goods.

(4) Export duties shall be levied on and paid by the exporter in respect of the goods described in columns (1), (2) and (3) of the First Schedule exported from Malaysia, at the rates specified in column (6) of the First Schedule.

Section 3 of the Customs Duties Order 2017 - Interpretation of rates shown in the First Schedule

Section 3. Interpretation of rates shown in the First Schedule

Unless otherwise specified, the rates levied under subparagraphs 2(1), (2) and (4) shall —

(a) where the rate of the duty levied is specified as a percentage, be calculated according to the percentage of the value of the goods as determined under the Act; and

(b) where the rate of the duty levied is specified as a sum of money, be calculated according to the sum of money specified upon every unit specified in column (4) of the First Schedule.

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First Schedule, Chapter 87 of the Customs Duties Order 2017 - Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof

Heading Subheading Description Unit of Rate of Duty Quantity (1) (2) (3) Import Export (4) (5) (6)

87.05 Special purpose motor vehicles, other than those principally designed for the transport of

persons or goods (for example, breakdown lorries, crane lorries, fire fighting vehicles, concrete-mixer lorries, road sweeper lorries, spraying lorries, mobile workshops, mobile

radiological units)

8705.10.00 00 - Crane lorries u 30% 0%

8705.20.00 00 - Mobile drilling derricks u 30% 0%

8705.30.00 00 - Fire fighting vehicles u 30% 0%

Analysis

At present, the industry highlighted that there are more than 30,000 mobile cranes in Malaysia. However, 90% of the cranes are imported used cranes from Japan and China. Currently, mobile cranes, particularly truck cranes imported from Japan and China enjoy zero per-centum (0%) custom duties, based on the ASEAN Free Trade Agreement (“AFTA”). As part of its commitment under AFTA, Malaysia has eliminated eliminate import duties of 2,123 products under ASEAN Common Effective Preferential Tariff (“CEPT”) Scheme beginning January 1, 2010. As such, it would be cheaper to purchase used cranes from such countries as compared to purchasing brand new mobile cranes from Europe.

The industry contends that the productivity and efficiency of these cranes are not as good as brand-new mobile cranes from Germany because the latter manufacturers bigger, higher-quality cranes and also manufactures the most powerful mobile crane ever built. It also manufactures the longest telescopic boom in the world, which extends fully to 100 meters and can lift up to 1200 metric tons.177

177 Fieldlens, The World’s Biggest, Most Powerful Cranes https://fieldlens.com/blog/building-better/biggest-cranes/

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The industry contends that although the Government has encouraged the industry to purchase brand new mobile cranes, the industry finds it difficult to do so considering the high custom duties imposed on the importation of brand-new cranes from Germany. Notwithstanding the high custom duties imposed, the industry contends that they are interested in purchasing brand new cranes from Germany as the cranes have higher quality, bigger capacity and larger in size compared to the cranes from China and Japan.

Based on the labour productivity performance of the main economic sectors in Malaysia for 2017 shown in Figure 25 below, the construction sector is at the lower end of the productivity spectrum with the registered labour productivity growth of 2.4% only. This is due to the fact of low level of industrialization and mechanization. The industry also contends that as the result of the high custom duties imposed on mobile cranes, Malaysia has become a dumping ground of mobile cranes (90% of the mobile cranes in Malaysia are imported used cranes from Japan and China).

Figure 25: Sectoral Labour Productivity Performance of Main Economic Sectors178 Economic Sector 2016 2017 11MP Target Agriculture RM51,289 RM51,988 3.6% (-4.9%) (1.4%) Mining RM1,133,372 RM1,210,832 1.1% (15.1%) (6.8%) Manufacturing RM106,307 RM110,858 2.6% (3.6%) (4.3%) Construction RM39,298 Rm40,242 9.6% (10.0%) (2.4%) Services RM69,534 RM73,030 4.1% (4.2%) (5.0%)

(Source: Malaysia Productivity Report 2017/2018, http://www.mpc.gov.my/productivity-performance/)

178 Malaysia Productivity Report 2017/2018, http://www.mpc.gov.my/productivity-performance/

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The call for the Government to reduce import tax has been a long-standing issue where for example the Master Builders Association Malaysia (‘’MBAM’’) has been appealing to the Government to reduce the custom duties on heavy machinery and spare parts used in the construction sector since 2005.179 This is due to the fact that profit margins within the competitive construction sector were already tight to begin with as Malaysian currency has weakened, and made the cost of construction even higher.180 This has also been reiterated by an article in the Building & Investment Magazine as it was claimed that the “high import duty rates may create unnecessary burdens to the importers, eventually causing a domino effect on the overall construction costs which have to be absorbed by the end users’’.181 Although it is understood that the aim of custom duties are to protect domestic industries from overseas competitors, the industry’s request is only for a reduction of the duties on machineries that are not manufactured in Malaysia.182

In this respect, Malaysian Mobile Crane Owner’s Association contends that Malaysia does not have any mobile cranes manufacturers and the construction sector has to rely completely on the import of mobile cranes from overseas to meet demand. The supplier of mobile cranes in Malaysia would import mobile cranes from overseas, and would rent such cranes. Considering that 90% of the mobile cranes in Malaysia are used mobile cranes, the reduction in import tax would allow the industry to not only expand and improve efficiency but would also increase the safety of the equipment, as older machinery may have a higher safety risk due to metal fatigue.183

Furthermore, in contrast to other ASEAN jurisdictions as highlighted in Figure 26 below, it is evident that the custom duties for mobile cranes in Malaysia as of 2017 is considerably higher than all of the other ASEAN countries, with the exception of Thailand.

179 NST, Reduce import duty on heavy machinery & spare parts: MBAM appeals, https://www.nst.com.my/news/2015/09/reduce-import-duty-heavy-machinery-spare-parts-mbam-appeals 180 ibid 181 Building & Investment, May-June 2017, Duty Import Exemption on Heavy Construction Machinery – Go or No Go?, https://www.researchgate.net/profile/Chee_Hung_Foo4/publication/321096979_Duty_Import_Exemption_on_Heavy_Constructi on_Machinery-Go_or_No_Go/links/5a0d33e9aca2729b1f4d81b7/Duty-Import-Exemption-on-Heavy-Construction-Machinery- Go-or-No-Go.pdf 182 NST, Reduce import duty on heavy machinery & spare parts: MBAM appeals, https://www.nst.com.my/news/2015/09/reduce-import-duty-heavy-machinery-spare-parts-mbam-appeals 183 ibid

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Figure 26: Comparison of tariff rates for selected heavy construction equipment184

Machine HS Code ASEAN Country

Malaysia Indonesia Thailand Vietnam Philippines Cambodia Singapore

Escavator HS 8429.52.000 5 10 5 0 1 15 0

Loader HS 8429.51.000 5 10 5 0 1 15 0

Dozer HS 8429.11.000 20 10 1 0 1 15 0

Concrete HS 9705.40.000 30 5 40 15 3 15 0 mixer truck

Concrete HS 8474.31.000 20 2.5 10 2 5 15 0 mixer

Tower crane HS 8426.20.000 5 5 3 0 1 15 0

Gantry crane HS 8426.19.200 10 5 5 0 1 15 0

Overhead HS 8426.11.000 20 5 5 5 1 15 0 crane

Crawler crane HS 8426.49.000 5 5 5 0 1 15 0

184 Building & Investment, May-June 2017, Duty Import Exemption on Heavy Construction Machinery – Go or No Go?, https://www.researchgate.net/profile/Chee_Hung_Foo4/publication/321096979_Duty_Import_Exemption_on_Heavy_Construction_Machinery- Go_or_No_Go/links/5a0d33e9aca2729b1f4d81b7/Duty-Import-Exemption-on-Heavy-Construction-Machinery-Go-or-No-Go.pdf

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Mobile crane HS 8705.10.000 30 5 40 0 3 15 0

Rough terrain HS 8426.41.000 5 5 5 0 1 15 0 crane 0

Telehandler HS 8705.10.000 5 5 5 0 1 15 0

Construction HS 8428.10.100 5 7.5 6.5 7.5 1 15 0 hoist

Grader HS 8429.40.110 25 10 5 5 1 15 0

Shuttle bus HS 8428.39.000 5 7.5 5 3.3 1 15 0

(Source: Building & Investment, May-June 2017, Duty Import Exemption on Heavy Construction Machinery – Go or No Go?, https://www.researchgate.net/profile/Chee_Hung_Foo4/publication/321096979_Duty_Import_Exemption_on_Heavy_Construction_Machinery- Go_or_No_Go/links/5a0d33e9aca2729b1f4d81b7/Duty-Import-Exemption-on-Heavy-Construction-Machinery-Go-or-No-Go.pdf)

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Option No. 1: Continue as is

To maintain the current import duties for mobile cranes as the duties or tariff is a source of income for the Government185. However, in maintaining this, the industry would continue to only import used mobile cranes from China, and Japan instead of purchasing brand new cranes from Germany. The latter produces the biggest and most powerful mobile cranes in the world. Our research has shown that the use of technological advances has marked the transition of the construction sector, from being labour-intensive to technology-intensive. Furthermore, proper use of such machinery can contribute to economy, quality, safety, speed, and timely completion of a project.186

Option No. 2: Review the import duties/tariff Another option is to review the import duties imposed on importing brand new mobile cranes. It should be noted that mobile cranes are not manufactured in Malaysia and thus, the industry relies completely on the importation of mobile cranes. Benchmarking the other ASEAN countries as seen above, it is evident that the custom duties for the import of mobile cranes in Malaysia are high. Import duties are imposed to generate government revenue, and also aim to protect domestic industries from overseas competition. Considering that there are no mobile crane manufacturers in Malaysia, the Government should consider reducing the custom duties in order for the industry to import brand-new high-quality mobile cranes from Germany. Furthermore, recent literature shows that the potential losses from dismantling the taxes are not substantial. As an example, the total revenue generated from the taxation of machineries only equalled to 0.16% of the country’s tax revenue. As such, there would appear to be minimal impact on government revenue should the custom duties for mobile cranes be reduced. However, it must be streamlined with the policy to import such cranes.

As an alternative, Malaysia may enter into bilateral agreement with Germany to increase economic growth by eliminating tariffs and other trade taxes. This gives companies within both countries a price advantage.

185 Import Duty, https://www.investopedia.com/terms/i/import-duty.asp 186 Building & Investment, May-June 2017, Duty Import Exemption on Heavy Construction Machinery – Go or No Go?, https://www.researchgate.net/profile/Chee_Hung_Foo4/publication/321096979_Duty_Import_Exemption_on_Heavy_Construction_Mac hinery-Go_or_No_Go/links/5a0d33e9aca2729b1f4d81b7/Duty-Import-Exemption-on-Heavy-Construction-Machinery-Go-or-No-Go.pdf

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Option No. 3: Tax exemption for import of mobile cranes Allow for full tax exemption for the import of mobile cranes (classified as crane lorries - 8705.10.00 00), similar to Vietnam and Singapore. It may be argued that tax exemption is not feasible as a permanent solution as custom duties is a form of Government revenue. However, it should be noted that there is an exemption from custom duties and sales tax on M&E used directly in the manufacturing process and not produced locally. The application for such exemption should be submitted to MIDA.187 However, no such exemption is given on M&E used for construction, and other sectors.

Option No. 4: Government to provide incentives for the industry to purchase brand new mobile cranes Alternatively, the Government may consider providing incentives for the industry to purchase brand new mobile cranes. These incentives can be in the form of subsidies, funding or other forms of financial support (including interest free or low interest loans). As Malaysia is still undergoing growth, there will still be demand for the use of mobile cranes as it is one of the primary machineries used in construction. At present, the import duties imposed on mobile cranes results in high cost of construction machinery and overall cost of running a business in Malaysia. Malaysia is now on the clock to reduce the nation’s dependency on foreign labour as the 11th Malaysia Plan marches towards year 2020. Therefore, the way forward for the construction sector is by automation. As such, Government should consider to give incentives to industry players to invest in new and high-quality mobile cranes. No incentives are currently given to industry players to invest in new machinery.

Currently, MIDA only provides incentives to existing locally-owned companies that reinvest in the production of heavy machinery. The incentives include as follows:

• Pioneer Status with income tax exemption of 70% (100% for promoted areas) on the increased statutory income arising from the reinvestment for a period of five (5) years. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or

187 Malaysian Investment Development Authority, Malaysia Investment in the Manufacturing Sector – Policies, Incentives and Facilities, http://www.mida.gov.my/env3/uploads/Publications_pdf/MalaysiaInvestment_Policies_Icentives_Facilities/MIMSed2008(E).pdf

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• Investment Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% (100% for promoted areas) of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.188

Recommendation

This study recommends Option No. 2: Reduce the import duties/taxes to contra the high custom duties. In order to sustain the construction and development demand in a developing nation such as Malaysia, the building industry requires adequate infrastructure in order to support its growth. Considering that 90% of the mobile cranes in Malaysia are used mobile cranes, the reduction in import tax would allow the industry to not only expand and improve efficiency but would also increase the safety of the equipment, as older machinery may have a higher safety risk due to metal fatigue.

The Government should consider reducing the import duties in order for the industry to import brand-new high-quality mobile cranes from Germany, considering that there are no mobile crane manufacturers in Malaysia. Besides that, Malaysia’s current custom duties are disproportionately high as compared to most of the other ASEAN countries. Thus, it is a feasible and reasonable option to be implemented in order to alleviate the business burdens faced by the construction sector. However, the Government should conduct a detailed study to determine the feasibility of reducing the custom duties on the importation of mobile cranes.

As an alternative, to enter into bilateral agreement with Germany, particularly for mobile cranes subsector, as we do not have any local manufacturers. By having such agreement, it would specifically reduce the duty for Germany as an exemption for Most Favored Nation (“MFN”) but still be able to retain the current rate prescribed, for other countries and heavy machineries.

188 Malaysian Investment Development Authority, Malaysia Investment in the Manufacturing Sector – Policies, Incentives and Facilities, http://www.mida.gov.my/env3/uploads/Publications_pdf/MalaysiaInvestment_Policies_Icentives_Facilities/MIMSed2008(E).pdf

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Feedback from MITI

On this note, MITI has confirmed that the current import duties for importation of mobile cranes are thirty per-centum (30%) of the purchase price. MITI highlighted that certain machineries are imposed with high import duties to protect the local industry. Specifically for mobile cranes, MITI commented that a more detailed study would need to be conducted to determine the need of using German-made mobile cranes. Mobile cranes imported from Japan and China enjoy zero per-centum (0%) custom duties, based on the AFTA. As such, a detailed study (i.e.: comparison between German-made mobile cranes against mobile cranes made in Japan/China) in terms of among others its productivity, specification, and vehicle life cycle should also be made.

MITI also highlighted that for specific projects that require the usage of high-tech machineries, the machineries can also be imported through a temporary import facility (i.e. without paying for the custom duties) in order to reduce the cost of unnecessary purchase and/or bearing the maintenance cost of high-end mobile cranes. Temporary import facility may be applied for the temporary importation of goods without payment of customs duty/tax with a security being given to the satisfaction of the Director General of Customs and with a view to subsequent re- exportation in consistent with the provision of Section 97 Customs Act 1967.

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Issue No. 2: Unreasonable age limit imposed on importation of mobile cranes Apart from paying high taxes to import mobile cranes, the industry highlighted that they also have to obtain an import license known as the Approved Permit (“AP”) from MITI to import mobile cranes.

One of the requirements of an AP is that it is only granted to machinery and equipment that is not available locally and is less than five (5) years old. The industry contends that due to the high costs of brand new mobile cranes, the industry would typically seek to import second-hand mobile cranes instead. However due to the age limitation, the industry cannot import mobile cranes that are above five (5) years old.

Regulation

The Customs (Prohibition of Imports) Order 2017 provides the applicability of the conditional prohibition exception under import licence for mobile cranes. The relevant provisions are reproduced below, for ease of reference:

Section 3 of the Customs (Prohibition of Imports) Order 2017 - Part I of the Second Schedule, Conditional prohibition except under import licence

3. Part I of the Second Schedule - Conditional prohibition except under import licence

(1) The importation into Malaysia of goods specified in columns (2) and (3) of Part I of the Second Schedule, originating from the countries specified in column (4) of Part I of the Second Schedule is prohibited, except under an import licence—

(a) issued by the Director General; or

(b) issued by the proper officer of customs appointed by the Director General to act on his behalf at the ministry, department or statutory body as specified in column (5) of Part I of the Second Schedule, and subject to such conditions specified in the import licence.

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Part I, Item 13 of the Second Schedule, Customs (Prohibition of Imports) Order 2017 – Goods which is prohibited to be imported into Malaysia except under an import license and shall not apply to the specified free zones

(1) (2) (3) (4) (5)

Item Description of Chapter/Heading/Subheading Country Ministry/Department/Statutory No. Goods Body Issuing Licence

13. Ships derricks; 8426.11.00 00, All Ministry of International Trade cranes, including countries and Industry 8426.12.00 00, cable cranes; mobile lifting frames, 8426.19.20 00, straddle carriers and 8426.19.90 00, works trucks fitted 8426.20.00 00, with a crane (excluding palfinger 8426.30.00 00, fully hydraulic 8426.41.00 00, compac, hydraulic 8426.49.00 00 loading cranes, gantry cranes and 8426.91.00 00, crawler cranes) 8426.99.00 00

[Am. PU(A) 225/2017: 02]

Section 4 of the Customs (Prohibition of Imports) Order 2017 - Part II of the Second Schedule, Conditional prohibition except under import licence and does not apply to specified free zones

Section 4. Part II of the Second Schedule - Conditional prohibition except under import licence and does not apply to specified free zones

(1) Subject to subparagraph (2), the importation into Malaysia of goods specified in columns (2) and (3) of Part II of the Second Schedule, originating from the countries specified in column (4) of Part II of the Second Schedule is prohibited, except under an import licence—

(a) issued by the Director General; or

(b) issued by the proper officer of customs appointed by the Director General to act on his behalf at the ministry, department or statutory body as specified in

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column (5) of Part II of the Second Schedule, and subject to such conditions specified in the import licence.

Part II, Item 9 of the Second Schedule, Customs (Prohibition of Imports) Order 2017 – Goods which is prohibited to be imported into Malaysia except under an import license and shall not apply to the specified free zones (1) (2) (3) (4) (5)

Item Description of Chapter/Heading/Subheading Country Ministry/Department/Statutory No. Goods Body Issuing Licence

9. Special purpose 87.05 (excluding 8705.30.00 All Ministry of International Trade motor vehicles, other 00) countries and Industry than those principally designed for the transport of persons or goods (for example breakdown lorries, crane lorries, concrete-mixer lorries, road sweeper lorries, spraying lorries, mobile workshops, mobile radiological units) excluding fire fighting vehicles

Based on the regulations listed above and on MITI’s website, mobile crane/crane lorries are classified as a heavy machinery and is subject to AP. In this respect, the AP only extends to heavy machinery that is less than five (5) years old. As such, the importation of heavy machinery that is more than five (5) years old is prohibited. The relevant information on MITI’s website is reproduced and highlighted below:

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Figure 27: Heavy machinery subject to AP189

Heavy Machinery Corresponding HS Codes

Tower Cranes 8426.20.0000

Overhead travelling cranes 8426.11.0000 Mobile Lifting Frame (Straddle Carrier) 8426.12.0000 8426.19.1000 8426.19.9000

Portal or pedestal jib cranes (Recovery/Derrick Crane, Pillar Jib 8426.30.0000 Cranes) Self-propelled/Other (Rough Terrain 8426.41.0000 Crane, Hydraulic Crane) 8426.49.0000 Mounting on road vehicles (Hydraulic Crane, Truck-Mounted Crane, Jet 8426.91.0000 Grabber, Knuckle Boom Cranes) 8426.99.0000

Mobile Crane

Crane Lorries 8705.10.0000 Mobile Driller/Drilling Derricks 8705.20.0000 Concrete mixer lorries 8705.40.0000 Street cleaning vehicles, cesspool 8705.90.5000 emptiers; mobile clinics; spraying lorries of all kinds > 21 Tons 8705.90.0000 Skylift/ Skymaster/ Aerial Platform/ Manlift/ Mobile Generator Truck/ Zoom Lift Truck/ Mount Boom Lift/ Mount Boom Lift Truck sahaja

All Dump Trucks & Crawler Carriers 8704.10.0000 (with Gross Vehicle Weight > 35 Tons) 8704.21.0000

Prime Mover (used) 8701.20.0000

189 MITI, Approved Permit, http://www.miti.gov.my/index.php/pages/view/3796

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Heavy Machinery Specific Import Condition190 Tower Cranes - Brand New Crane made within one year of Date of Manufacture - Used Tower Cranes are not allowed for importation (even temporarily) All Heavy Machinery/ Cranes except - Must be within 5 years of Tower Cranes Manufacturing Date (Source: MITI, Approved Permit, http://www.miti.gov.my/index.php/pages/view/3796)

Analysis

As seen above, there is a requirement to obtain an AP from MITI in order for the industry to import mobile crane/crane lorries with the specific import condition that it must be within five (5) years of its manufacturing date. It was highlighted by the industry that the age limit to import mobile cranes is deemed to be unreasonable as it restricts the options of second-hand mobile cranes/crane lorries to be imported. Most of the second-hand mobile cranes sold in the market are more than five (5) years of age.

Based on the analysis done on the age limit of mobile cranes in other countries, the findings show that, mobile cranes/crane lorries can generally last up to twenty-five (25) to thirty (30) years. The standards in some countries researched are as follows:

• especially cranes that are manufactured in Germany which are equipped with the latest technology and economic in-use feature; 191

• In New York, a twenty-five (25) year age limit was introduced on mobile cranes operating in the city;192 and

• In Singapore, the Occupational Safety and Health Division (OSHD) has produced a table limiting the allowable years of service of mobile cranes

190 MITI, Approved Permit, http://www.miti.gov.my/index.php/pages/view/3796 191 Liebherr, Global technology and innovation leader, https://www.liebherr.com/en/int/products/mobile-and-crawler- cranes/mobile-cranes/mobile-crane-technology/mobile-crane-technology.html 192 Cranes Today, NYC introduces 25 year age limit, http://www.cranestodaymagazine.com/news/nyc-introduces-25-year-age- limit-4147743/

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based on its maximum capacity.193 As such, the age limit of mobile cranes in Singapore is between twenty (20) to thirty (30) years. However, the Commissioner for Workplace Safety and Health may grant extension for cranes to be used beyond the maximum allowable years of service if it meets the extension criteria.194 The figure is reproduced below for ease of reference:

Figure 28: Maximum Allowable Years of Service from the Year of Manufacture

Design Safe Working Load Maximum allowable years of service

(Maximum Capacity) from the year of manufacture

50 tons and below 20

Above 50 tons but not more than 100 25 tons

100 tons and above 30

Thus, allowing only the import of mobile cranes within five (5) years of its manufacturing date is not fully utilizing the potential of mobile cranes because based on feedback from the industry and research on the lifespan of mobile crane in other countries, the operational lifespan of a crane is typically twenty (20) to thirty (30) years. Notwithstanding the research undertaken in other countries, it should be highlighted that the age limit set by the countries listed above is in relation to the usage of mobile cranes and not the age limit to import mobile cranes. There is no publicly available information as to the age limit to import mobile cranes in such countries.

Option No. 1: Continue as is

To maintain the condition for mobile cranes to only be imported within five (5) years of its manufacturing date. While this import condition is burdensome and limiting on

193 WSHC, Limit on the Years of Service of Mobile Cranes, https://www.wshc.sg/files/wshc/upload/cms/file/20070327- 31%20Limit%20on%20the%20Years%20of%20Service%20of%20Mobile%20Cranes%20Extension%20Criteria%20for%20the %20Service%20Life%20of%20Mobile%20Cranes.pdf 194 WSHC, Limit on the Years of Service of Mobile Cranes, https://www.wshc.sg/files/wshc/upload/cms/file/20070327- 31%20Limit%20on%20the%20Years%20of%20Service%20of%20Mobile%20Cranes%20Extension%20Criteria%20for%20the %20Service%20Life%20of%20Mobile%20Cranes.pdf

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the crane businesses due to the cost and lifespan of the mobile cranes, having this requirement would encourage the industry to purchase newer mobile cranes instead. As explained under Issue No. 1: Unduly high import duties for mobile cranes, manufacturers in Malaysia will typically purchase second hand mobile cranes. Cranes that remain in operation for a prolonged period of time are more susceptible to stress and fatigue, on top of the fact that news cranes have advanced safety features and reduced maintenance needs. Increasingly, cranes manufactured tend to be electric rather than diesel. This makes them less noisy and more environmentally friendly with fewer emissions195. As such, to avoid Malaysia becoming a dumping ground for old, inefficient and unsafe cranes, the present age limit should be maintained.

Option No. 2: Increase the age limit condition

To increase the age limit regarding the import of mobile cranes to more than five (5) years. As explained above, mobile cranes/crane lorries can generally last up to twenty (20) to thirty (30) years where limiting importation of mobile cranes within five (5) years of its manufacturing date could limit and not fully utilize its potential.

Option No. 3: Eliminate the age limit condition To completely eliminate the condition requiring mobile cranes imported to be within five (5) years of its manufacturing date. However, it is not a feasible option as unscrupulous businesses may take advantage of the lack of age limit and import cranes that are old due to its cost. This may affect the occupational safety and health hazards in the current construction industry in Malaysia, and potentially turn Malaysia into a dumping ground for old cranes.

195 “Mayor Boomberg and Buildings Commissioner Limandri Announce New Legislation to Limit the Age of Cranes Operating in New York City” accessed at https://www1.nyc.gov/office-of-the-mayor/295-13/mayor-bloomberg-buildings -commissioner- limandri-new-legislation-limit-age-of

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Recommendation

This study recommends Option No. 1: Continue as is. The use of old mobile cranes, does not only compromise on safety, but also is seen to be less environmentally friendly196. The industry believes that the age-limit, while not without some setbacks, is necessary in ensuring that Malaysia will no longer be a dumping ground for old used mobile cranes from overseas. It would also encourage the use of newer, more advanced cranes in the industry. However, it is also crucial for the Government to review the import duties/taxes on the importation of mobile cranes to ensure that it would be economically viable for the industry to import newer, more advanced and safer cranes.

Feedback from MITI MITI has confirmed that the industry have to obtain an AP from MITI to import mobile cranes. MITI has also confirmed that one requirement of an AP is that it is only granted to machinery and equipment that is not available locally and is less than five (5) years old.

On this note, MITI informed the meeting that they are similarly agreeable with the proposed recommendation to continue as is with the five (5) year limitation due to safety reasons. One consideration as MITI highlighted is that warranties for machineries would normally last up to five (5) years only from the date of manufacturing. Thus, the age limit to import mobile cranes is imposed to ensure occupational safety and to avoid dumping of used mobile cranes into Malaysia.

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196 “Mayor Boomberg and Buildings Commissioner Limandri Announce New Legislation to Limit the Age of Cranes Operating in New York City” accessed at https://www1.nyc.gov/office-of-the-mayor/295-13/mayor-bloomberg-buildings -commissioner- limandri-new-legislation-limit-age-of

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Issue No. 3: Excessive time delays in getting mobile cranes inspected by regulators The industry highlighted that in order to operate a mobile crane, one has to register the crane with the Department of Occupational Safety and Health (“DOSH”). Once it is registered, a certificate of fitness will be issued on the cranes. The certificate of fitness is only valid for fifteen (15) months and the operator has to ensure the cranes are inspected before the expiry of such license. The main issue raised by the industry is the lengthy time taken by DOSH to inspect such cranes after a request for inspection is made by the operator. The industry players contends that typically DOSH would only inspect such cranes five (5) to six (6) months after the application for inspection has been made.

Regulation

The Factories and Machinery Act 1967 and Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations, 1970 provides for the requirements for inspections and its applicability on mobile cranes by DOSH. The relevant provisions are reproduced below, for ease of reference:

Section 19 of the Factories and Machinery Act 1967 – Certificate of fitness

Section 19. Certificate of fitness

(1) No person shall operate or cause or permit to be operated any machinery in respect of which a certificate of fitness is prescribed, unless there is in force in relation to the operation of the machinery a valid certificate of fitness issued under this Act.

(2) In the case of any contravention of subsection (1) an Inspector shall forthwith serve upon the person aforesaid a notice in writing prohibiting the operation of the machinery or may render the machinery inoperative until such time as a valid certificate of fitness is issued.

(3) Certificates of fitness issued under this Act shall be in the forms respectively prescribed, and shall be valid subject to this Act, for such period as may be prescribed.

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(4) A certificate of fitness in respect of any machinery which is being dismantled or repaired or is damaged for any reason shall terminate upon such dismantlement, repair or damage, but the Chief Inspector may exempt any machinery from the application of this subsection if in his opinion the machinery will not cause any danger to any person or property.

(5) For the purpose of subsection (4)-

"damage" means any physical defect caused to any machinery during operation or otherwise which may affect the strength and integrity of the machinery during subsequent operation;

"dismantle" means to undo any part of any machinery which may affect the strength, integrity or functional capability of that machinery;

"repair" means any work done to make good any part of any machinery which has been damaged.

(6) Any person who contravenes subsection (1) shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding one hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

Section 10 of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations, 1970 – Machinery requiring certificate of fitness

10. Machinery requiring certificate of fitness

(1) The owner of every steam boiler, unfired pressure vessel or hoisting machine other than a hoisting machine driven by manual power shall hold a valid certificate of fitness in respect thereof so long as such machinery remains in service.

(2) A certificate of fitness for every steam boiler, unfired pressure vessel and hoisting machine shall be as Forms A, B and C in the Sixth Schedule to these regulations.

(3) The period of validity of every certificate of fitness shall ordinarily be fifteen calendar months from the date of inspection or such longer period not exceeding three years as the Chief Inspector in his discretion may consider appropriate:

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Provided where any steam boiler, unfired pressure vessel or hoisting machine is out of service for a long period immediately subsequent to an inspection by reason of dismantling or repair of any defect the Inspector may issue a certificate effective from the date when such machinery is replaced in service.

(4) Where the components of any combination of unfired pressure vessel, hoisting machine are so interconnected that it would be unreasonable to issue certificates of fitness for each component the Chief Inspector may direct that one certificate of fitness be issued to cover the combination of components.

(5) The certificate shall be in the form prescribed for that component of the combination which, in the opinion of the Chief Inspector, is the most appropriate and the inspection fee shall be charged accordingly.

Section 14 of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations, 1970 – Regular inspection

14. Regular inspection

(1) After an initial inspection every factory and every machinery shall be inspected at regular intervals by an Inspector so long as such factory remains in operation or such machinery remains in use.

(2) The regular interval shall ordinarily be fifteen months subject to such extension not exceeding thirty-six months in any particular case as may be authorised by the Chief Inspector in his discretion, and the regular inspection shall ordinarily be carried out during the fifteen months following the month in which the last inspection was made or where the interval has been extended by the Chief Inspector during the month following the expiry of the extended interval.

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Section 15 of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations, 1970 - Postponement of regular inspection

15. Postponement of regular inspection

(1) An Inspector may postpone a regular inspection of a factory or machinery if he cannot conveniently carry it out on or about the due date or after the occupier or the owner requests a postponement for some good and sufficient reason provided that the inspection shall not without the approval of the Chief Inspector be postponed for a period of more than three months after the date due or in the case of machinery which requires a certificate of fitness on the date on which the validity of such certificate expires.

(2) An Inspector may in his discretion advance the date of the regular inspection of any factory or machinery provided that such date shall in no case be earlier than the first day of the twelfth month following the month in which the last inspection was made.

(3) An Inspector may reduce the interval between inspections of any factory or machinery at the request of the occupier of the owner or where in the opinion of the Inspector the rate of deterioration of the factory or machinery or the nature of work carried on in the factory is such that a shorter interval between inspections is necessary or in the case of machinery requiring a certificate of fitness, he is not able to issue a certificate of fitness in respect thereof for the ordinary period of validity.

Section 25 of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations, 1970 – Issue of certificate of fitness

25. Issue of certificate of fitness

Following the inspection of every steam boiler, unfired pressure vessel and hoisting machine other than a hoisting machine driven by manual power and on payment of the prescribed fee the Inspector shall where he is satisfied that such machinery complies with the provisions of the Act and the regulations relating thereto, issue the appropriate certificate of fitness:

Provided that where any steam boiler, unfired pressure vessel or hoisting machine is

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out of service for a prolonged period immediately subsequent to an inspection by reason of dismantling or repair of any defect, the Inspector may issue a certificate operative from the date when such machinery is replaced in service.

Analysis

For ease of understanding, the guideline to obtain a certificate of fitness is shown below197:

Figure 29: Guideline to Obtain Certificate of Fitness

Registration for the Certificate of Fitness/PMA License for The Crane - All hoist/cranes using electricity are needed to register with DOSH or JKKP. - Once the crane/cranes are registered with DOSH/JKKP, the certificate of fitness will be issued to the relevant party. The Certificate of Fitness for the crane will expire every 15 months. It is the responsibility of the owner to get their cranes serviced before the expiry. - If the machine is not in tip top condition DOSH/JKKP will have the right not to renew the certificate of fitness for the cranes. - Below is the summary of the steps that are to be taken during the registration process:

Steps to register the Jib Crane/Crane/Monorail Below 4 Ton.

Prepare and submit full set of documents for new certificate of fitness registration.

(Jib-crane/crane/monorail)

Job scope:

i) To prepare drawing and calculation for the jib crane/crane/monorail. ii) To send the drawing and calculation for PE endorsement. iii) To send the drawing and calculation to JKKP STATE OFFICE. iv) To arrange the JKKP officer to site and inspect the jib- crane/crane/monorail. v) To follow-up with the JKKP officer for the certificate of fitness.

Steps to register the Jib Crane/Crane/Monorail Above 4 Ton.

197 http://www.ppicrane.com/jkkp_registration.html

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Prepare and submit full set of documents for new certificate of fitness registration.

(Jib-crane/crane/monorail)

Job scope:

i) To prepare drawing and calculation for the jib crane/crane/monorail. ii) To send the drawing and calculation to Putrajaya for design approval. iii) To send the drawing and calculation to JKKP STATE OFFICE. iv) To arrange the JKKP officer to site and inspect the jib crane/crane/monorail. v) To follow-up with the JKKP officer for the certificate of fitness.

(Source: http://www.ppicrane.com/jkkp_registration.html)

Hence, based on the provisions listed above, a certificate of fitness is required in order to operate mobile cranes in Malaysia. The certificate of fitness is only valid for fifteen (15) months. In order to renew the certificate of fitness, the industry has to get their cranes inspected by DOSH. DOSH will only renew the certificate of fitness once inspection is made.

The industry would typically submit online the application to request for inspection two (2) to three (3) months before the expiry of the certificate of fitness. However, the industry complained that it will normally take DOSH around three (3) to six (6) months from the date of the request to conduct the inspection. More often than not, the inspection will only be made after the certificate of fitness has expired. Based on the feedback by the industry, the primary reason for the delay is because DOSH does not have enough staff to conduct the inspection.

Due to the lengthy time taken by DOSH to inspect the cranes, the industry could not operate the mobile cranes as their PMA has expired. From a pecuniary point-of-view, being unable to use mobile cranes would definitely be economically damaging and produce unnecessary burdens on the construction businesses as the operators are unable to carry out their operations without the mobile cranes.

The application for inspection can be made online on http://mykkp.dosh.gov.my/ and is managed by DOSH’s headquarters. The inspection will then be done by the DOSH officers at the State where the cranes are located. Although there is no specific KPI

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on the inspection process, based on the client charter for State DOSH offices as shown below, it should only take twenty-five (25) days for DOSH to renew a crane operators’ certificate.

Figure 30: Client Charter for State DOSH Offices198

No. Client Charter Duration

1 Issuance of permission for repair works of certified 7 days machinery within 7 working days

2 Certification of engine drivers within 30 working days 30 days

3 Certification of scaffold erectors within 7 working days 7 days

4 Issuance of permit to install (PTI) for factories and 25 days installations within 25 working days

5 Registration of factories and installations within 25 25 days working days

6 Registration of certified machinery within 25 working days 25 days

7 Investigation of:

i. Complaints within 3 working days 3 days

ii. Fatal accidents within 24 hours 24 hours

8 Registration of building operations or construction 14 days engineering works within 14 working days

9 Issuance of crane operator certificate

i. New registration within 7 working 7 days days

ii. Renewal within 25 working days 25 days

(Source: http://www.dosh.gov.my/index.php/en/about-us/client-charter/dosh-state-office-client-charter)

Option No. 1: Continue as is

There is the option of continuing as it is and not instituting changes. However, delaying in inspecting the mobile cranes will result in economic losses for the operators as they cannot renew their license to operate such cranes, without having their mobile cranes inspected. The current time taken for DOSH’s officers to inspect the cranes, as mentioned above, is unduly long and unreasonable on the industry

198 http://www.dosh.gov.my/index.php/en/about-us/client-charter/dosh-state-office-client-charter

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especially considering that operators have applied in advance for inspections to be carried out.

Option No. 2: Allow third parties to inspect the machinery

Based on the reason for lengthy time taken by DOSH to inspect the cranes given by the industry (lack of personnel from DOSH), it is a reasonable to allow certified and qualified third parties to act as inspectors on behalf of DOSH in order to comply with the industry demand. In Australia, inspections must be carried out by, or under the supervision of, a competent person who (i) has acquired through training, qualifications or experience the knowledge and skills to carry out a major inspection of the plant and is registered under a law that provides for the registration of professional engineers, or (ii) is determined by the regulator to be a competent person. Therefore, DOSH could allow third parties, deemed competent (i.e.: professional engineers), to inspect the machinery.

Option No. 3: Improving internal efficiency of DOSH’ officers

DOSH has to improve the internal efficiency of their officers in inspecting the mobile cranes. Based on preliminary checks, there appears to be no client charter for inspection of mobile cranes. However, based on the general client charter on DOSH’s website, it normally takes them twenty-five (25) days to renew crane operator certificate. As such, it should not take DOSH three (3) to six (6) months to conduct the inspection. Based on the recommendation by the industry, one (1) to two (2) months should be sufficient for the officers to conduct such inspection.

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Option No. 4: Increase the duration of certificate of fitness

Under Section 10(3) of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970, the period of validity of every certificate of fitness shall ordinarily be fifteen (15) calendar months from the date of inspection or such longer period not exceeding three (3) years as the Chief Inspector in his discretion may consider appropriate. As such, DOSH has power to increase the duration of the certificate of fitness from being renewed every fifteen months to three years. Hence, to lessen the burden for the industry in renewing the certificate of fitness every fifteen (15) months and getting the mobile cranes inspected, the duration of the certificate of fitness could potentially be increased.

Recommendation

This study recommends Option No. 2: Allow third parties to inspect the machinery in order to reduce the current regulatory burdens on businesses. Based on the reason for lengthy time taken by DOSH to inspect the cranes given by the industry (lack of personnel from DOSH), it is reasonable to allow certified and qualified third parties to act as inspectors on behalf of DOSH in order to comply with the industry demand. The current duration to inspect is too long and can be addressed through these options without compromising the safety/industry standards of operation.

Feedback from DOSH

DOSH has clarified that the reference to the client charter is incorrect as the crane operator certificate is the approval given to the operator and not the KPI for the inspection of the mobile crane. DOSH also shared that the internal KPI for the inspection of the mobile crane is thirty (30) days from the date of payment.

DOSH also highlighted that there were roughly 400,000 machineries which includes the 28,000 mobile cranes in which DOSH had about only 180 officers Malaysia wide to conduct inspections. As a result, DOSH agreed with Option 2, being to outsource inspection to third parties in which preliminary discussions had already taken place

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with the Ministry of Finance on various models to implement such suggestion. However, DOSH highlighted that it is likely for the cost of inspection to increase, should the inspection be conducted by third parties.

Furthermore, in relation to Option 4, being to increase the validity of the certificate of fitness, DOSH explained that several large operators had obtained such certificates beyond the fifteen (15) months period (for seventy five (75) months) as they were able to show that adequate monitoring and management systems were in place. DOSH highlighted that if operators could meet the requirements of a special scheme inspection (risk based inspection) under the Factories and Machinery (Special Inspection Scheme) (Risk-based Inspection) Regulations 2014, operators could then determine for themselves the validity period of the certificate of fitness based on existing risks.

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Issue No. 4: Frequent requirement to conduct inspection upon dismantling of cranes Another issue highlighted by the industry is the frequent requirement to conduct inspections upon dismantling. The industry contends that it is troublesome because of the requirement to conduct inspections on mobile cranes each time a mobile crane is dismantled and re-assembled from one point to another, although it is being used for the same project.

Regulation

The Factories and Machinery Act 1967 provides for the requirement for general inspections and its applicability on mobile cranes, including inspections on mobile cranes that are dismantled and re-assembled by DOSH. The relevant provisions are reproduced below, for ease of reference:

Section 19 of the Factories and Machinery Act 1967 – Certificate of fitness

Section 19. Certificate of fitness

(3) Certificates of fitness issued under this Act shall be in the forms respectively prescribed, and shall be valid subject to this Act, for such period as may be prescribed.

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danger to any person or property.

(5) For the purpose of subsection (4)-

"damage" means any physical defect caused to any machinery during operation or otherwise which may affect the strength and integrity of the machinery during subsequent operation;

"dismantle" means to undo any part of any machinery which may affect the strength, integrity or functional capability of that machinery;

"repair" means any work done to make good any part of any machinery which has been damaged.

Analysis As shown above, a certificate of fitness in respect of any machinery which is being dismantled for any reason shall terminate upon such dismantlement.199 As a result, inspections on mobile cranes are required each time a mobile crane is dismantled, in order for the operators to obtain the certificate of fitness. The industry highlighted that it is troublesome to do so because although the mobile crane is used for the same project (i.e. to install pillars at different intervals for the LRT project), the mobile crane has to undergo inspection each time a mobile crane is dismantled and re- assembled. The industry contends that it is troublesome because it is commonplace for mobile cranes to be dismantled and re-assembled multiple times in a single project. As such, the same mobile crane has to undergo inspection again, although it is used for the same project and for a limited purpose since the last inspection. Such requirement imposes unnecessary burden for the operator to apply for the inspection as well as increases the cost of operations with the need to pay for such inspections. Furthermore, as discussed under Issue No. 3 above, it takes a long time for DOSH to inspect such cranes after a request for inspection is made by the operator. Hence,

199 Section?

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a longer certification process will result in unnecessary delay in the overall project and/or construction works.200

Option No. 1: Continue as is

There is the option of continuing as is and not instituting changes. However, it will impose unnecessary burden on the mobile crane operators to apply and pay for inspections on their mobile cranes, particularly if their mobile cranes are being used for the same project.

Option No. 2: Allow for automatic exemption if the machine is used for the same project

Based on Section 19 of the Factories and Machinery Act 1967, the Chief Inspector may exempt any machinery from the application of this subsection (i.e.: certificate of fitness terminated if the machinery is being dismantled), if in his opinion the machinery will not cause any danger to any person or property. However, the industry contends that applying for such exemption and getting such application granted by DOSH would take some time. As such, it will result in economic losses for the operators as they are unable to use the mobile cranes until the exemption is granted. Therefore, the industry proposed for DOSH to allow for automatic exemption if the machine (i.e.: mobile crane) is used for the same project.

Option No. 3: Remove the requirement for re-inspection on machine that has been dismantled

The requirement under Section 19(4) of the Factories and Machinery Act 1967 should be removed, to allow for certificate of fitness to be valid even if the machine has been dismantled. The industry contends that the certificate of fitness should be valid in accordance with the period of validity of every certificate of fitness (i.e.: fifteen (15) calendar months from the date of inspection). By doing so, the industry do not have to re-apply for certificate of fitness and request for inspection, whenever they dismantled their mobile cranes. However, it may be dangerous to remove this

200 Malaysia Productivity Corporation, http://www.mpc.gov.my/wp-content/uploads/2016/04/Chapter-7.pdf

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requirement because dismantling may affect the strength, integrity or functional capability of such mobile crane.

Recommendation This study recommends Option No. 2: Allow for exemption if the machine is used for the same project in order to reduce the current regulatory burdens on businesses.

Feedback from DOSH

DOSH confirmed that the provision highlighted did impose such an obligation, although re-enforced the availability of the exception under the provision where operators can apply to be exempted from having to carry out inspection each time such cranes were dismantled and re-assembled for a project, which would be assessed on a case-by-case basis.

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Issue No. 5: Tedious requirement to cancel certificate of fitness inspection manually

Another issue highlighted by the industry pertaining to the certificate of fitness is the tedious requirement imposed on such operators to contact the relevant officer in charge of the inspection in order to apply for a cancellation of such inspection. The industry stated that if applicant wants to apply for a cancellation of inspection, the onus would be on the applicant to find the relevant officer in charge of their inspection by contacting him/her through telephone and only such officer himself/herself would have to manually cancel the inspection on DOSH’s system and database.

Analysis

Based on the Manual Pengguna Permohonan Baru Pemeriksaan Ulangan Jentera (“PEMJ”), application for inspection of machineries can be made online on Sistem Perkhidmatan Atas Talian JKKP (“MyKKP”). The online system is shown below:

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(Source: http://mykkp.dosh.gov.my/manual/PEMJ/UM_PEMJ_Pemohon.pdf)

However, there is no publicly available information if the applicant can apply for a cancellation of such inspection online. The industry highlighted that once they have made the application to inspect the cranes online, they can only cancel the inspection by finding the officer in charge, and ask the officer to manually cancel the inspection. As an example, the industry contends that there are instances when they would need to cancel an inspection if they are awarded a project in another State, and hence, have to transfer the mobile cranes to such State (i.e.: if the applicant keyed in the location of the crane is in Selangor, the inspection must be done in Selangor, and not in another State). As a result, the operators are unable to change the location of the inspection and cancel the request for inspection online.

Option No. 1: Continue as is

The first option would be to continue as is and not undertake any changes. However, it will only impose unnecessary burden on the industry to manually find the relevant officer in charge of such inspection. The industry would have to contact such officer to explain or inform them about the cancellation. It is tedious because the industry contends that they would typically have to call many times until they get hold of such officer.

Option No. 2: Update the online system

MyKKP’s online system should be updated to allow an all-encompassing online application system, with options to change the details pertaining to the inspections (i.e.: the location of inspection and etc.), and cancel such inspections. As the industry can apply for inspection of cranes on MyKKP’s website, the option for updating and cancelling such inspection should also be made available. With regards to todays’ technological advancement, this option should be considered in order to have a better communication between DOSH and the industry.

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Recommendation

This study recommends Options No. 2: Update the online system in order to reduce the current regulatory burdens on businesses. It will only impose unnecessary burden on the industry find the relevant officer in charge of the inspection and manually cancel such inspection.

Feedback from DOSH

In relation to this issue, DOSH has confirmed that inspections cannot be cancelled on the MyKKP system. DOSH explained that once an application for inspection was made, the applicant would have to sign off on a declaration that all information submitted was among others true and accurate. Once this was done, the application process would commence internally where it would among others be (1) endorsed by ‘minit Pengarah’ (2) endorsed by ‘minit Ketua Seksyen’ and (3) the inspection be distributed and assigned to the inspection officer in charge.

However, DOSH shared that if an applicant intends to cancel such application, they would only need to write in to DOSH without any implication or penalty. The rationale behind restricting online cancellations is to (1) deter applicants from cancelling, especially once the process has been initiated considering the limited number of inspection officers at DOSH and (2) to minimize the usage of the platform by ‘intermediaries’ who apply for inspections for and on behalf of the operators.

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Other issues

Based on the engagement with the stakeholders, there are several issues which had been brought up which do not comply with the RURB core concept. As such, the issues will be listed herein. The issues highlighted by the stakeholders that do not conform to the RURB concept are as follows:

• Unfair competition between local and foreign mobile crane operators; and • Different safety standards to operate mobile cranes imposed by the employers.

Issue No. 1: Unfair competition between local and foreign mobile crane operators

The industry contends that there is unfair competition between local and foreign mobile crane owners. This is because the local mobile crane owners have to pay custom duties to import mobile cranes, apply for an AP and undergo other related procedures to import mobile cranes and parts unlike foreign companies who are exempted from those procedures due to their ‘temporary project’ status. This is because local mobile cranes owners have argued that foreign contractors bring in their own cranes in Malaysia by abusing a system of ‘temporary import facility’. As such, the local industry is affected because the foreign mobile crane operators will not engage the service of local mobile crane operators.

Regulation

The Customs Act 1967 (Revised 1980) [Act 235] provides for importation of goods without payment of duty if it is imported temporarily with a view to subsequent re- exportation. The relevant provision is reproduced below:

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Section 97 of the Customs Act 1967 (Revised 1980) – Relief from duty on goods temporarily imported

Section 97. Relief from duty on goods temporarily imported

Where the Director General is satisfied that goods are imported only temporarily with a view to subsequent re-exportation, he may permit the goods to be delivered on importation without payment of duty subject to the payment of a deposit equivalent to not less than the amount of duty which would be payable if the goods were imported for home use or security being given to the satisfaction of the Director General for the payment of such duty, and such deposit shall be refunded or such security discharged if the goods are re-exported within three months of the date of importation or within such further period as the Director General may allow.

Based on Royal Malaysian Customs Department’s official website, the goods eligible for temporary import is shown below201:

1. Goods eligible for Temporary import 1.1 motor vehicle or motor cycle driven in under item 21 Custom Duties (Exemption) Order 1988, item 49 Excise Duties (Exemption) Order 1977 and item 21 Schedule B Sales Tax (Exemption) Order 2008 1.2 motor vehicle and motor cycle registered in Labuan and Langkawi to be brought into Principal Customs Area [item 21A Custom Duties (Exemption) Order 1988, item 49A Excise Duties (Exemption) Order 1977 and item 29 Schedule B Sales Tax (Exemption) Order 2008 1.3 goods imported for repair purpose [item 52 Custom Duties (Exemption) Order 1988 and item 50 Schedule B Sales Tax (Exemption) Order 2008 1.4 goods imported for theatrical and musical purpose [item 65 Custom Duties (Exemption Order) 1988 and item 57 Schedule B Sales Tax (Exemption) Order 2008] 1.5 goods imported under the provision of Section 97 Customs Act 1967. Source: http://www.customs.gov.my/en/ip/Pages/ip_tif.aspx

201 http://www.customs.gov.my/en/ip/Pages/ip_tif.aspx

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This is further reiterated under Item 38, Schedule I of the Customs Duties (Exemption) Order 2017 shown below:

No. Persons Goods Exempted Conditions Certificate to be Exempted signed by

38. The Goods imported (or (i) That the goods The importer importer transported from are imported Labuan) for repairs and re- and subsequently exported by re-exported (or the same returned to Labuan) route; (ii) That the import and re-export are registered by the proper officer of customs at the place of import and re-export.

Analysis

The industry highlighted that the foreign mobile crane operators would normally import mobile cranes by applying for a temporary import facility, by stating that the mobile cranes are imported for repair purpose. Pursuant to item 38, Schedule I of the Customs Duties (Exemption) Order 2017, goods that are imported for repairs and subsequently re-exported are exempted from custom duties. Thus, the foreign mobile crane operators would use this provision to import their own mobile cranes in Malaysia. The industry contends that although the foreign mobile crane operators state that they were importing the cranes for repair purposes, they would also subsequently use it for construction projects. It is unfair to the local industry because the foreign operator will not engage their service. Furthermore, they are also exempted from paying taxes, unlike the local industry. The industry requested for us

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to highlight this issue because they believe that the regulator is not aware of the fact that the foreign mobile crane operators are using the temporary import facility to import mobile cranes and use it for work.

As there are a number of mobile crane operators in Malaysia, the regulation should be stricter in the sense that the foreign contractor should not be allowed to bring their own equipment in Malaysia, unless it is not available in Malaysia. The foreign contractors should use local services, instead of importing their own machineries. Government should stop the issuance of temporary import facility to foreign contractors to import their own construction equipment and machineries should the types and capacities of such equipment and machineries are available in Malaysia. In order to do so, the Government should consult the relevant associations to determine if such equipment is available in Malaysia. If such equipment is unavailable in Malaysia, Government should liaise and check if the industry is willing to purchase the particular equipment to service and satisfy their construction needs.

However, for the purposes of this study, this as a non-issue because there is no regulatory burden imposed on the industry. It is merely an alleged abuse of regulations by the foreign contractors. There is no data publicly available on such abuse and as such, this study recommends to validate the issue with relevant regulator, particularly the Royal Malaysian Customs Department.

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Issue No. 2: Different safety standards to operate mobile cranes imposed by the employers

The industry highlighted that each multinational company that engages their service for supply of cranes have different safety standards. As such, when the companies engage their service, the operators have to go through various forms of house training and tests imposed by such companies. These companies include, among others, Gamuda Berhad, IJM Corporation Berhad, Sunway Berhad, and PETRONAS to name a few.

The operators have argued that not only is it burdensome in having to comply to multiple standards (in addition to the regulatory standards under law), but they would also have to incur costs to ensure compliance with the various trainings/test imposed by such organizations. As such, the suggestion from the operators is for DOSH to set up a compulsory standard safety course to operate mobile cranes in order to streamline the safety requirements in Malaysia.

Analysis

Based on the foregoing, this a non-RURB issue based on the following:

• Safety standards are generally in the public interest because the operator will gain greater awareness of an operator’s responsibilities, safety rules and regulations. Without the proper training, crane operators can hurt themselves or others when an accident occurs and can be fined severely according to the relevant regulations;

• The safety standard imposed by the multinational companies is a contractual obligation between the company and the operators. As such, if the operators wish to be awarded with contracts from such multinational companies, they would typically need to comply with the standards of the employer; and

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• DOSH already set up a compulsory standard safety course to operate mobile cranes. By virtue of Section 26(1) of the Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970, all the cranes must be operated by certified operators. As such, all mobile crane operators are required to register with the DOSH before they are allowed to operate mobile cranes. The operators must undergo Crane Operator course at training centre recognised by DOSH to ensure that their skill level would increase and to enable them to learn and handle the crane correctly and safely.202

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202 Department of Safety and Health, http://www.dosh.gov.my/index.php/en/operator-crane-training-centre

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CHAPTER 6

ELECTRIC & ELECTRONICS SUBSECTOR

Contents: Economic performance of E&E Subsector, value chain and regulations for E&E Subsector, and regulatory issues in Transport Services in the E&E Subsector.

Key Points

1. This chapter discusses on the economic performance of the E&E subsector including among others, its productivity performance, and its export and import values. 2. In 2016, the E&E industry was the leading sector in Malaysia's manufacturing sector, contributing significantly to the country's exports (36.6%) and employment (25.3%). Malaysia was the world's seventh largest exporter of E&E products, valued at RM287.7 billion. The E&E sector also contributed 23.4% to Malaysia's GDP in 2016 and created more than 780,000 jobs for Malaysians. 3. The second section focuses on the value chain and regulations for the E&E subsector. The E&E subsector consists of five (5) key stages being (i) raw material provide; (ii) supplier; (iii) manufacturer; (iv) distributor; and (v) end user. It also discusses on the relevant industry, regulator/agencies, regulations and stakeholders related to E&E subsector. 4. The third section focuses on and analyses the issues raised by the industry. The industry has raised many concerns but the issues that are in line with the RURB concept are as follows: • Lengthy processing time to approve Goods Vehicle license; and • Prescriptive regulation that limits marking tape to be yellow and red colour only. 5. The industry has also raised other non-RURB issues. For information purposes, the issues faced by the industry, among others, are as follows: • Restriction for drivers not to drive more than eight (8) hours per

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day; and • Uneven playing field between local company and foreign company to apply for customs forwarding agent license.

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6.1 Economic Performance of the Electric and Electronics Subsector

In 2016, the E&E industry was the leading sector in Malaysia's manufacturing sector, contributing significantly to the country's exports (36.6%) and employment (25.3%). Malaysia was the world's seventh largest exporter of E&E products, valued at RM287.7 billion.203 The E&E sector also contributed 23.4% to Malaysia's GDP in 2016 and created more than 780,000 jobs for Malaysians.204 E&E manufacturers in Malaysia have continued to move-up the value chain to produce higher value-added products by intensification of research and development efforts and outsource non-core activities domestically. Based on the latest Malaysia’s top 5 export and import products for 2018, E&E still remains to be on top of the chart. The figure that shows the Malaysia’s top 5 export and import products for 2018 is shown below:

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203The Star. (n.d.). Retrieved from https://www.thestar.com.my/business/business-news/2017/04/25/e-and-e-industry- posts-20-pct-growth-in-first-two-months-of-2017/#ZqSudEA5ZH07RaSs.99The 204Malaysia External Trade Development Corporation. (n.d.). Retrieved from http://www.matrade.gov.my/en/about- matrade/media/press-releases/3833-electrical-electronics-key-sector-to-create-global-champions

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Figure 31: Malaysia’s Top 5 Export & Import Products for 2018205

Products Total of Export Total of Import Products Products

(in RM Billion) (in RM Billion)

E&E 380.81 261.65

Petroleum Products 76.39 86.20

Chemicals & Chemical 57.72 82.73 Products

• Palm Oil 27.01 42.87 Agriculture Product (for exports) • Machinery, Equipment & Parts (for import)

Manufacturers of 44.67 46.11 Metal

(Source: Malaysia External Trade Development Corporation. (n.d.). Retrieved from http://www.matrade.gov.my/en/about-matrade/media/press-releases/3833-electrical-electronics-key-sector-to-create- global-champions)

The E&E industry in Malaysia can be categorised into four (4) subsectors.206 The first subsector is consumer electronics where it includes manufacturer of LED television receivers, audio visual products such as blu-ray disc players/recorders, digital cameras, digital home theatre systems, and electronics games consoles. Secondly is the electronic components subsector which includes semiconductor devices, passive components, printed circuits and other components such as media, substrates and connectors. Within the electronic components subsector, the semiconductor devices have been the

205 Malaysia External Trade Development Corporation. (n.d.). Retrieved from http://www.matrade.gov.my/en/about- matrade/media/press-releases/3833-electrical-electronics-key-sector-to-create-global-champions 206Malaysian Investment Development Authority. (n.d.). Retrieved from http://www.mida.gov.my/home/electrical-and- electronic/posts/

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leading contributor in the performance of exports for the E&E industry. Up to 2017, there were more than 50 companies producing semiconductors devices.207 In 2016, the electronic components subsector became the second largest subsector with approved investments of RM3.9 billion.

Thirdly is the industrial electronics subsector which includes multimedia and information technology products such as computers and computer peripherals, telecommunications equipment and office equipment. The last subsector is the electrical subsector which includes solar related products and household appliances such as air-conditioners, refrigerators, ovens, washing machines and vacuum cleaners. The electrical subsector is the largest subsector, comprising 44.4% of the total investments approved in the E&E sector for 2016.

Higher exports of E&E products were seen for photosensitive semiconductor devices, parts and accessories for office machines, computers and data processing equipment, apparatus for transmission, domestic vacuum cleaners, parts for electronic integrated circuits as well as, apparatus for transmission or reception of voice, images and other data for the consumer electronics industry including smart phones, computer tablets, televisions, audio and visual equipment.208

The top local E&E companies in Malaysia include among others Carsem (M) Sdn Bhd, Unisem (M) Bhd, SilTerra Malaysia Sdn Bhd, Inari Amerton Berhad, Dominant Opto Technologies Sdn Bhd and Globetronics Group.209 The top ten (10) E&E multinational corporations in Malaysia includes Western Digital Group, Panasonic Group, Intel Group, Samsung Group, Flextronics, HP Malaysia Manufacturing Sdn Bhd, Dyson Manufacturing Sdn Bhd, First Solar Malaysia Sdn Bhd, Infineon Group and OSRAM Opto Semiconductors Malaysia Sdn Bhd.210

207 http://seasiaems.com/wp-content/themes/SEasiaEMS/assets/sea-ems-media-kit.pdf 208Department of Statistic Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/uploads/files/5_Gallery/2_Media/4_Stats@media/1_General%20News/2016/Borneo_Post _160416_EE_A_gateway_to_Malaysias_trade.pdf 209 Ministry of International Trade and Industry. (n.d.). Retrieved from http://www.miti.gov.my/miti/resources/6._Electrical_and_Electronics_Industry_.pdf 210ibid

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A council member of the Malaysian Chamber of Mines highlighted that the most common material used in making E&E products is refined copper whereby it will be used to form wires, conductors, circuitory and etc. The basic raw material of all copper products is copper cathode plates of 99.99% purity. There is no copper mine and copper smelter operating in Malaysia at this moment.

Besides copper, the raw material used in making E&E products include silica (to make solar panels), chemicals in the form of liquid and gas (for wafer fabrication), high grade industrial steel (for automotive/machinery and equipment) and lithium ion (to produce battery).

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6.2 Value Chain and Regulations for E&E Subsector

Raw Material Supplier Manufacturer Distributor End User Provider

Key Stages Raw Material Supplier Manufacturer Distributor End-User Provider

Industry • Mining • Supplier • Factories • Logistics • Wholesalers Companies Companies • Manufacturing Companies • Retail Markets • Manufacturing Companies • Distributor Companies Companies

Regulator/Agencies • Ministry of International Trade and Industry • Ministry of Finance • Ministry of Energy, Science, Technology, • Royal Malaysian Customs Department Environment and Climate Change • Atomic Energy Licensing Board • Ministry of Domestic Trade and Consumer Affairs Regulations • Mineral Development Act 1994 [Act 525] • Customs Act 1967 (Act 235) Related to the E&E • National Land Code 1965 [Act 56] • Strategic Trade Act 2010 (Act 708)

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subsector • Electricity Supply Act 1990 [Act 447] • Consumer Protection Act 1999 [Act 599]

Relevant • Malaysian Chambers of Mines Stakeholder • Electrical and Electronics Association of Malaysia Related to the E&E • Semiconductor Fabrication Association of Malaysia subsector • Asean Port Association Malaysia • Federation of Malaysian Freight Forwarders (FMFF) • Persatuan Syarikat Perindustrian Bebas Pulau Pinang (Frepenca) • Kulim Technology Park Corporation (KTPC) • Kulim Industrial Park Tenant Association (KITA) • Malaysian Freight Forwarders

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6.2.1 Relationship between the Transport Services Sector and the Value Chain for the E&E Subsector

The Value Chain for E&E Subsector consists of five (5) key stages being (1) raw material provider, (2) supplier, (3) manufacturer, (4) distributor, and (5) end-user. stage (1) raw material provider, which can be defined as the mining company involves in extraction of valuable minerals or other geological materials from the earth (in this case, copper); stage (2) supplier, which can be defined as a person, company or organization that supplies goods (in this case, they import copper plates and supplies it to the manufacturer); stage (3) manufacturer, which can be defined as an entity that makes a good through a process involving raw materials, usually on a large scale with different operations divided among different workers; stage (4) distributor, which can be defined as a person, company or organization that supplies the produced goods to shops and companies; and stage (5) end user, which can be defined as the person, company or organization that uses a particular goods, making them the ultimate consumer of a finished goods.

Stage (1) - Raw Material Provider For stage (1) raw material provider, air transport service is not used by raw material providers in Malaysia to transport copper as copper is too heavy to be transported by air.

The maritime transport service includes private shipping companies that transport copper using dry bulk cargo ships. Typically, the raw material provider will hire private shipping companies to transport copper to Malaysia. The private shipping companies include SGS Malaysia, DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd., TNT Express Worldwide (M) Sdn. Bhd. and Mine Logistics Sdn. Bhd.

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For road and rail transport service, such services are not available in Malaysia as there are no copper mines in Malaysia and therefore, no raw material provider of copper in Malaysia. Hence, copper is usually imported to Malaysia by ships as explained above.

In summary, the transport service applicable to the first stage of the Value Chain for the E&E Subsector is as follows:

Air Maritime Road Rail

Transport Transport Transport Transport

Stage (1) – x ✓ x x

Raw Material Provider

Stage 2 – Supplier

For stage (2) supplier, air transport service is not used by the supplier to transport copper as copper is too heavy to be transported by air.

The maritime transport service includes private companies that transport copper products using dry bulk cargo ships. As discussed above, suppliers of copper in Malaysia will normally manufacture the raw material and produce copper products. The supplier and manufacturer of the copper products will then transport it to the manufacturer of the E&E products for the latter to use it to manufacture E&E products. The suppliers of copper in Malaysia includes, among others, Tawin Holdings Berhad, Tesomac Sdn. Bhd., Metrod Holdings Berhad, Alpha Industries Sdn. Bhd., PM Copper Wire & Cables Sdn. Bhd., and Mitsui Copper Foil (Malaysia) Sdn. Bhd. Typically, the supplier will hire private companies to transport copper products by ships. The private shipping companies include SGS Malaysia, DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW

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Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd., TNT Express Worldwide (M) Sdn. Bhd. and Mine Logistics Sdn. Bhd.

The road transport service identified includes private companies that transport copper products by using trucks. The private companies include SGS Malaysia, DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd., TNT Express Worldwide (M) Sdn. Bhd. and Mine Logistics Sdn. Bhd.

The rail transport service identified includes railway operators that transport copper products by train. Currently, only Keretapi Tanah Melayu Berhad (“KTMB”) operates freight train services daily of which about 80% are concentrated in the northern sector of Peninsular Malaysia. KTM Cargo provide cargo services that are reliable and safe, with a network that is highly accessible from seaports, and inland Container Depot (ICD) as well as urban and rural areas. In line with the strategy to focus more on containerised and long-haul cargo, KTM Cargo now carries maritime containers, cement and food as main commodities. KTMB MMC Cargo Sdn. Bhd. in collaboration with MMC Ports is responsible for developing rail freight business. In summary, the transport service applicable to the second stage of the Value Chain for the E&E Subsector is as follows:

Air Maritime Road Rail Transport Transport Transport Transport

Stage (2) – x ✓ ✓ ✓ Supplier

Stage 3 – Manufacturer, Stage 4 – Distributor, and Stage 5 – End User Stage (3) manufacturer, (4) distributor and (5) end user are being considered together because they use the same mode of transport to transport the E&E products. The manufacturer, distributor and end user will normally hire a third party to transport the E&E products from one end to the other.

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For stage (3) manufacturer, (4) distributor and (5) end user, the air transport service identified includes private companies that provides the transportation of E&E products using air cargo. The private companies include MASKargo, SGS Malaysia, DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd., TNT Express Worldwide (M) Sdn. Bhd. and Mine Logistics Sdn. Bhd.

The maritime transport service identified includes private companies that provides the transportation of E&E products using container vessels. The private companies include SGS Malaysia, DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd., TNT Express Worldwide (M) Sdn. Bhd. and Mine Logistics Sdn. Bhd.

The road transport service identified includes commercial companies that provide transportation of E&E products by road using cargo lorries, containers, or trucks. The companies that provide such service includes SGS Malaysia Sdn. Bhd., DHL, Sumiso (Malaysia) Sdn. Bhd., Hitachi Transport System (M) Sdn. Bhd., KGW Logistics (M) Sdn. Bhd., Mitsui-Soko (M) Sdn. Bhd., CJ Century Tech Sdn. Bhd. and TNT Express Worldwide (M) Sdn. Bhd. Not only that, the industry also includes the E&E companies as they have their own transport such as vans and lorries to deliver the E&E products. The E&E companies that provide transportation of their own products include Inari Technology Berhad, Dominant Opto Techologies Sdn.Bhd., Globetronics Group, Sankyu Malaysia Sdn. Bhd., TNK Electronic Manufacturing Sdn. Bhd., Fictron Industrial Supplies Sdn. Bhd., Philips Malaysia Sdn. Bhd., Sharp Electronics (Malaysia) Sdn. Bhd., Hager Malaysia, and Panasonic Manufacturing Malaysia Berhad.

The rail transport service that transports E&E Products includes railway operator that provides the transportation of such goods by train, which is KTMB, as explained above.

In summary, the transport service applicable to the third, fourth and fifth stage of the Value Chain for the E&E Subsector are as follows:

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Air Maritime Road Rail

Transport Transport Transport Transport

Stage (3) – ✓ ✓ ✓ ✓

Manufacturer

Stage (4) – ✓ ✓ ✓ ✓

Distributor

Stage (5) - ✓ ✓ ✓ ✓

End User

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7.2.2 Summary The Value Chain of the E&E Subsector consists of five (5) key stages being (1) raw material provider, (2) supplier, (3) manufacturer, (4) distributor, and (5) end user.

For stage (1) raw material provider, the mode of transport applicable to the industry relies heavily on the maritime transport service, which includes commercial companies that provide transportation of copper by dry bulk cargo ships.

For stage (2) supplier, the mode of transport applicable to the industry covers each transport service except for air transport. This is because the industry includes private companies that provide transportation of copper products using dry bulk cargo ships (maritime), trucks (road) and trains (rail).

For stage (3) manufacturer, (4) distributor and (5) end user, the mode of transport applicable to the industry covers each transport service. This is because the industry includes private companies that transport of E&E products using air cargo (air), container vessels (maritime), cargo lorries, containers or trucks (road) and trains (rail).

In summary, the Transport Services Sector applicable to the Value Chain for the E&E Subsector can be seen in the table below:

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Stage (1) - Stage Stage (3) - Stage (4) - Stage (5) -

Raw (2) - Manufacturer Distributor End-User Material Supplier Provider

Air x x ✓ ✓ ✓

Maritime ✓ ✓ ✓ ✓ ✓

Road x ✓ ✓ ✓ ✓

Rail x ✓ ✓ ✓ ✓

Legend:

✓ Applicable

x Not applicable

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7.3 Regulatory Issues in the Transport Services for the E&E Subsector

This chapter captures the regulatory issues and areas of concern raised during a series of engagements with Transport Services providers in the E&E subsector. The objective of the study is to identify the regulatory burdens in relation to Transport Services related to E&E in Malaysia. Responses and industry recommendations were recorded from stakeholders based on the list of questions as outlined in the Issue Paper. In this Chapter, validation will be made on the regulatory issues and areas of concern raised by the stakeholders, and the various possible options of regulatory or non-regulatory solutions recommended will be highlighted.

Methodology

Unnecessary regulatory burdens can be categorized to include, among others:

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Regulations

In order to operate a goods vehicle, one has to obtain a Goods Vehicle license from SPAD. The relevant provisions under Land Public Transport Act 2010 [Act 715] are reproduced below:

Section 2 of the Land Public Transport Act 2010 [Act 715] - Interpretation

Section 2. Interpretation

"goods vehicle" is defined as follow

(c) any motor vehicle constructed or adapted for use for the carriage of goods or a trailer so constructed or adapted; or

(d) any motor vehicle or a trailer not so constructed or adapted when used for the carriage of goods solely or in addition to passengers;

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Section 51 of the Land Public Transport Act 2010 [Act 715] – Requirements for operator’s license

51. Requirement for operator's licence

(1) Subject to sections 194 and 195, no person shall operate or provide a goods vehicle service using a class of goods vehicles for the carriage of goods- (c) for hire or reward; or (d) for or in connection with any trade or business, unless he holds an operator's licence issued under this Chapter. (2) For the purposes of this Chapter, a person is deemed to be operating or providing a goods vehicle service if he- (a) uses or drives a goods vehicle of a class of goods vehicles himself; or (b) employs one or more persons to use or drive a goods vehicle of a class of goods vehicles, to operate or provide a goods vehicle service, and- (c) he owns the said goods vehicle; or (d) he is responsible, under any form of arrangement with the owner or lessor of the said goods vehicle to manage, maintain or operate such goods vehicle. (3) An operator's licence issued under this Chapter shall only entitle the holder of the operator's licence to operate or use one class of goods vehicle. (4) A person may hold one or more operator's licences issued under this Chapter. (5) Subsection (1) does not apply to the use of any goods vehicle or class of goods vehicles as may be prescribed. (6) Subject to subsection (5), a person, other than a company or corporation, who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine of not less than two thousand ringgit but not more than ten thousand ringgit or to imprisonment for a term not exceeding one year or to both. (7) Subject to subsection (5), a company or corporation which contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding two hundred thousand ringgit.

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Analysis

Option No. 1: Continue as is

Option No. 2: Improving internal efficiency of approving license applications

SPAD has to improve the internal efficiency of the process involved in approving the license applications. There should be a client charter for the approval of such

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license. The internal processes should also be made public in order to increase transparency and gain public confidence of SPAD.

Recommendation This study recommends Option No. 2: Improving the internal efficiency of approving license applications.

Feedback from SPAD

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the meeting to ensure a full alternate members in order to quorum ensure a full quorum Meeting Once every two (2) weeks, Once every two (2) weeks, subject to the availability of the subject to the availability of the members members (but alternate members can attend to ensure full quorum) Chairman The meeting must be chaired by The meeting can be chaired the Chairman of APAD only either by the Chairman or the acting Chairman*

*under APAD, the equivalent designation is Director General as there is no Chairman

Therefore, the processing turnaround time for the application of Goods Vehicle license will be faster.

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Issue No. 2: Prescriptive regulation that limits marking tape to be yellow and red colour only

Regulations

For ease of reference, the relevant regulation is reproduced below:

Schedule 1 of the Guidebook on Approval of Vehicle Types (Amendment) 2015

SCHEDULE 1: Type Approval Performance Requirements

(G/N - Machinery/Commercial Vehicle)

Item No. Subject Vehicle National Actual Date of Category Acceptance Compliance Approval (Construction (Performance) & Use Rules 1959)

20 Retro- 02, 03, 04 MS 828

reflective UN R104.00 markings for heavy and long

211 Bahagian Kejuruteraan Automotif, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2017, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2017

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vehicles

Based on United Nation Regulations No. 104 on Retro-reflective Markings, reflective marking materials can be in white, yellow or red.212 The relevant provision under the United Nation Regulation No. 104 on Retro-reflective Markings is reproduced below, for ease of reference:

Annexure 6 of Regulation No. 104 - Uniform Provisions Concerning the Approval of Retro-Reflective Markings for Vehicles of Category M, N and O213

Annexure 6. Colourmetric Specifications

(2) Retro-reflective marking materials (class C) shall be white, yellow or red. Retro-reflective distinctive markings and/or graphics (classes D and E) may be

of any colour. As for SIRIM MS 828:2011, it is the Malaysian Standard that specifies requirements for retro-reflective markings (light reflector) on the rear and sides of commercial vehicles. The requirements include design, colorimetric, photometric and mechanical properties. Through implementation of the SIRIM MS828:2011, JPJ has made rear and side conspicuity marking (light reflectors) compulsory.214 As such, the tape must carry the “MS 828:2011 SIRIM logo mark”. Based on the engagement with JPJ officers, it was highlighted that based on SIRIM MS828:2011, the marking tape must be yellow and red in colour.

This is further reiterated under PUSPAKOM’s reflected marking guideline which shows the colour used for marking tapes, as follows:

212 Bahagian Kejuruteraan Automotif, Garis Panduan Kelulusan Jenis Kenderaan (Pindaan) 2015, http://www.mot.gov.my/SiteCollectionDocuments/Darat/akta/Garis%20Panduan%20VTA%20(Pindaan)%202015.pdf 213 https://publications.europa.eu/en/publication-detail/-/publication/6959566a-ab51-11e3-86f9-01aa75ed71a1 214 Tritech, MS828:2011 SIRIM Ceritified Commercial Vehicles Rear & Side Markings - Light Reflectors, http://www.tritech.com.my/main/list/ms8282011-sirim-ceritified-commercial-vehicles-rear-amp-side-markings---light-reflectors- 14

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Figure 32: Reflector Marking Guideline by PUSPAKOM215

Reflector vi. BDM 3500 kg and above vii. Reflector size for Jenis I (JI) complied MS 828:2011 viii. Must have SIRIM logo MS 828:2011 ix. Fitted at rear left and right x. Can be fitted by rivet or screw

Analysis

As part of the ongoing efforts in reducing road accidents involving commercial vehicles, all commercial vehicles with a laden weight of over 3,500kg require the installation of reflective strips that is certified to SIRIM MS 828:2011.216 Based on the article published on MIROS’s website, more than 6000 people are killed in road accidents in Malaysia every year, and approximately 1000 of these fatalities are car occupants and motorcyclists, killed in collision involving rigid and articulated type’s trucks.217 In the dark, many heavy vehicles do not become visible to other road users until they are dangerously close. Therefore, one of the essential elements of heavy vehicles safety is a good visibility in traffic. Marking tapes play a significant role to

215 PUSPAKOM, Bus Inspection Guidelines, http://www.puspakom.com.my/wp-content/uploads/2018/04/Bas-050218-Eng.pdf 216 Motor Trader, PUSPAKOM’s advisory on reflective stickers for commercial vehicles, https://www.motortrader.com.my/news/puspakoms-advisory-on-reflective-stickers-for-commercial-vehicles/ 217 MIROS, Rear End Markers (REM) For Heavy Vehicles In Malaysia: Current Situation And Way Forward, https://www.miros.gov.my/1/publications.php?id_event=131&idxs_page=4&searchPage=84

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increase the visibility of heavy vehicles to other motorists, especially during dark and bad weather condition. Based on the requirement under SIRIM MS 828:2011, marking tapes must be in red and yellow in colour. The figure below shows the minimum vales of the coefficient of retro-reflection or photometric value for yellow, white, and red. The marking is more useful and conspicuous to other drivers if the photometric value is lesser.218

Figure 33: Minimum photometric values for yellow, white and red colour

Based on the table above, it is shown that yellow and red colour have lesser photometric values, as compared to white colour. Hence, the colours were chosen to make the vehicle more conspicuous to other drivers, so that they are aware of the presence of another vehicle on the road.

The officer in the Department of Standards of Malaysia stated that the requirements under SIRIM MS 828:2011 were developed by the committee in the Department of Standards Malaysia, consisting of various regulators, and also non-government organizations. Currently, the red and yellow marking tape is only sold by two (2) manufacturers in Malaysia, being 3M Malaysia and Orafol Reflective Solutions because only the marking tapes manufactured by them meet the MS 828: 2011

218 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf

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standard. There are no other marking tapes in the market that are compliant with the standards and have such SIRIM certification.219

Currently, the 3M reflective stickers are available from 3M authorized distributors, dealers and can also be purchased at the major PUSPAKOM centres nationwide. They are priced around RM70 per set (for one (1) vehicle), and bulk purchase price is also available for fleet operators who will require large quantities for their vehicles.220 There are no other reflective strips in the market that are compliant with SIRIM standard. However, it should be noted that there are cheaper counterfeit marking tapes in the market, that are not compliant to SIRIM standard. The usage of counterfeit markings may not fully functional to warn other drivers that they are closing in on a heavy vehicle. It will be dangerous to the other road users who are travelling at night time and they are at risk to be involved on the rear end crashes especially with the lorries and trucks that are using noncompliance markers.221

Option No. 1: Continue as is

There is the option of continuing as is and not instituting changes. This is because the strict requirement of yellow and red were made to make the marking be conspicuous even in low contrast condition for day and night time. The markings sold in Malaysia are only RM70 per set (for one vehicle). Although the industry contends that the price is expensive, it should be noted the marking tapes that comply with SIRIM MS 828:2011 are made using materials of highest quality and are designed with durability in mind, to be able to withstand the weather conditions in Malaysia. It features a full cube technology with efficient optics that will provide brighter markings for road users as compared to non-compliant reflective stickers.222

219 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf 220 Motor Trader, PUSPAKOM’s advisory on reflective stickers for commercial vehicles, https://www.motortrader.com.my/news/puspakoms-advisory-on-reflective-stickers-for-commercial-vehicles/ 221 Assessing retro-reflective markers (RRMs) usage on heavy vehicles with respect to MS 828:2011, https://www.matec- conferences.org/articles/matecconf/pdf/2017/04/matecconf_aigev2017_01033.pdf 222 Autoworld, 3M Malaysia Launches Reflective Stickers For Commercial Vehicles, http://autoworld.com.my/news/2016/12/08/3m-malaysia-launches-reflective-stickers-for-commercial-vehicles/

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Option No. 2: Allow the industry to use other marking tapes (colour)

European countries have adopted the standards imposed by United National Regulations No. 104 on Retro-reflective Markings by allowing for the marking tapes to be in white, yellow or red. In United Kingdom, the Department for Transport states that preference for colours is yellow to the side and red to the rear.223 The reflective marking tapes in United Kingdom range from £18 to £25 (for 12.5m)224. Australia also follows the United Kingdom with United National Regulations No. 104 for heavy vehicle visibility tape for its safety on the road225. The preference for colours is white for the front, yellow to the side, and red to the rear. The price for the marking tapes in Australia is around $40 (for 50mm x 20mm).226

Therefore, based on the international standards, marking tapes can either be red, yellow, or white. As such, Malaysia should allow the industry to use other marking tapes (colour), being white. The industry should not be restricted to use red, and yellow only.

Option No. 3: To review the standard under SIRIM MS 828:2011

There are only two (2) approved tape manufacturers in Malaysia as other manufacturers were not able to comply with the standard under SIRIM MS 828:2011.

Due to the low number of tape manufacturers in Malaysia, there is a higher demand in contrast to the supply in the product supply chain in which the same causes the market of tape manufacturers to be uncompetitive. This subsequently results in the price of the marking tapes to be expensive. Therefore, it is timely to review the standard imposed on tape manufacturers in order to open up the market to other manufacturers who previously were not able to comply to such standard. By doing so, it will boost the competition to produce better quality tapes and reduce the price of the marking tapes.

223 ECE104 Regulation explained https://multimedia.3m.com/mws/media/1534947O/conspicuity-ece104-pdf.pdf 224 MDP Supplies, Conspicuity Tape, https://www.mdpsupplies.co.uk/conspicuitytape.asp 225 Liberty Signs, Heavy Vehicle Visibility Tape for Road Safety, https://www.libertysigns.com.au/heavy-vehicle-visibility-tap/ 226 Seton Australia, 3M 983 Reflective Vehicle Marking Tapes - 50mm x 3m, https://www.seton.net.au/3m-983-reflective- vehicle-marking-tapes.html

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Recommendation

This study recommends Option No. 3: To review the standard under SIRIM MS828:2011, to allow other suppliers and manufacturers to be able to comply with the standard and subsequently enter the market. By doing so, it will boost the competition to produce better quality tapes and reduce the price of the marking tapes.

Feedback from JPJ

The representatives from JPJ had confirmed that based on MS 828:2011, the approved marking tapes must be in yellow and red colour only.

Feedback from SIRIM

In this respect, SIRIM highlighted that currently, there are no plans to review the standard under SIRIM MS828:2011. SIRIM further highlighted that the standard was developed by a committee under the Department of Standard Malaysia. The stakeholders include various regulators and also non- government organizations (including transport related associations). As such, the relevant stakeholders have been consulted prior to developing such standard in Malaysia.

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As for the price of the marking tapes, SIRIM explained that the price is determined by the tape manufacturers themselves, being around RM70 per set based on market demand.

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Other issues

• Restriction for drivers not to drive more than eight (8) hours per day; and • Uneven playing field between local companies and foreign companies to apply for customs forwarding agent license.

Issue No. 1: Restriction for drivers not to drive more than eight (8) hours per day

The Industry contends that the restriction for drivers not to drive more than eight (8) hours per day is burdensome, considering the traffic jam and the time taken by drivers to load and/or unload the goods on their vehicles. As an example, the Industry highlighted that for a trip from Kuala Lumpur to Malacca, a minimum of RM1,500 needs to be made a day in order for the hauliers to cover their operating costs. As such, it is difficult for the Industry to sustain their business as a result of having to hire more than one driver in order to transport the goods.

Regulation Based on paragraph 3.5.1 of the Occupational Safety and Health Industry Code of Practice for Road Transport Activities 2010 issued by Department of Occupational Safety and Health (“DOSH”), an employer shall provide a driving hour and working hour system for drivers. This matter should be given due attention because the driver’s potential to feel tired after a long bout of driving will be rather high and may give rise to risks and pose a danger to driving. The matters that need to be considered but subject to the prevailing acts if applicable are as follows:

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(a) non-stop driving for a maximum of four (4) hours; (b) total of eight (8) hours of driving per day (maximum); (c) total of twelve (12) hours of work per day (maximum); (d) thirty (30) minutes of rest per four (4) hours of journey; (e) one (1) day of rest after every six (6) days of work; and (f) a minimum of twelve (12) hours of rest before starting first journey.

Analysis

The requirement is imposed to ensure that the driver takes enough rest and avoid fatigue due to long driving hours which may lead to loss of concentration and thus, may increase accident risk. The driver has the responsibility to take reasonable care for the safety and health of himself and of other persons who may be affected by his acts or omissions at work.227

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227 DOSH, Occupational Safety and Health Industry Code of Practice for Road Transport Activities 2010, http://www.dosh.gov.my/index.php/en/legislation/codes-of-practice/transportation/589-01-code-of-practice-for-road- transport-activities-2010/file

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Issue No. 2: Uneven playing field between local companies and foreign companies to apply for customs forwarding agent license

An issue was raised in relation to the ownership requirements to be a customs forwarding agent. In order for a company to operate as a customs forwarding agent, the company must among others obtain the relevant licences from the Royal Malaysian Customs Department (“Customs”) in accordance with the Customs Act 1967 [Act 235]. One of the requirements imposed by Customs is that the local logistics provider shall have at least fifty-one percent (51%) Bumiputera equity interest, directorship, management and supporting staffs in its organization. Prior to 2012, companies must fulfil this requirement in order for them to obtain such license from Customs directly. However, from 2012 onwards, one may be exempted from such requirement if they obtain the International Integrated Logistics Services (”IILS”) status from the Malaysian Investment Development Authority (“MIDA”). The industry highlighted that this is unfair because it is difficult for local companies to achieve the ILLS status.

Analysis.

Eligible companies can apply for the IILS status and upon approval be issued the customs forwarding agent licence by Customs, without having to fulfil the Bumiputera equity restriction as there is no equity condition imposed by MIDA under the IILS.228 However, local companies that were issued with such license prior to 2012 still have to fulfil the Bumiputera equity restriction in order for them to renew such license.

The Industry highlighted that it is unfair because foreign companies can easily obtain the IILS status from MIDA and circumvent the Bumiputera equity restriction. Although the local companies can similarly circumvent such Bumiputera equity restriction by obtaining the IILS status from MIDA, the Industry contends that it is difficult for them as they have to fulfil other stringent

228 MIDA, Logistics Services, http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20140215090539_04%20Logistics.p df

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requirements imposed by MIDA (i.e.: manage at least twenty (20) units of commercial vehicles and five thousand (5,000) square meters of warehouse space). The requirements imposed by MIDA are listed under the Guidelines for Applying for ILLS Status. For ease of reference, the Guideline is reproduced below:

Guidelines for Applying for ILLS Status

Qualifying Criteria:

• Local incorporation under the Companies Act 1965.

• Must undertake the following three (3) principal activities:

o Warehousing

o Transportation

o Freight forwarding, including customs clearance

and at least one of the following activities:

o Distribution

o Other related and value-added logistics services/activities

o Supply chain management

• Manage at least:

o 20 units of commercial vehicles; and

o 5,000 sq. metres of warehouse space.

• Employ majority Malaysians and preference must be given to local professionals.

• Use Malaysia as a hub for logistics supply chain services in the region.

• Having good networks with logistics service providers abroad in order

to provide seamless integrated logistics services for the regional

market.

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• Substantial usage of ICT infrastructure throughout the logistics chain and value-added activities.

• Compulsory attendance to the Customs Agent course conducted by the Royal Malaysian Customs Department.

Based on the foregoing, the Industry proposed for the Government to lower or remove the Bumiputera equity requirement for locally-owned freight forwarding agents to renew their license with Customs to assist them in competing on a level playing field against their foreign counterparts. However, this is a non- RURB issue because it is matter of policy set by the Ministry of Finance.

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CHAPTER 7

AGROFOOD SUBSECTOR

Contents: Economic performance of Agrofood Subsector, value chain and regulations for Agrofood Subsector, and regulatory issues in Transport Services in the Agrofood Subsector.

Key Points

1. This chapter discusses on the economic performance of the Agrofood subsector including among others, its productivity performance, and its export and import values. 2. The agriculture sector has steadily become an important contributor to GDP, employment, export revenue, export tax and duty, as well as the economic and rural development. The agriculture sector stood at 8.1% or RM89.5 billion to the GDP in 2016. The agriculture sector can be broken down into two (2) subsectors, namely industrial commodities and agrofood. 3. Agrofood comprises of three main subsectors, including crops subsector, livestock subsector, and fisheries subsector. In 2015, the number of establishments operating in the agriculture sector was 11,628 establishments with an annual growth of 5.7%. In undertaking this study, we will focus on livestock subsector, particularly poultry (ie: chicken) because poultry farming industry is the main contributor to the livestock subsector and poultry are intensively reared in Malaysia. The number of establishments operating in the poultry farming industry was 662 establishments in 2015. The production of chicken/duck egg recorded the highest increase compared to other livestock products, by 6.5%. In 2015, there were 1,613,900 tonnes of poultry meat products, increasing from 1,572,800 tonnes in 2014. Additionally, the self-sufficiency ratio of poultry meat in 2017 was 98.2%, the second-highest after chicken/duck egg (113.7%). Furthermore, the per capita consumption of poultry meat was the highest recorded, at 52.0 kilogrammes per year, followed by chicken/duck egg (22.2 kg a year), and pork (16.3 kg a year). In 2017,

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52.71 million live birds were exported; and approximately 15,000 m/ton chicken meat in cutting were exported. 4. The second section focuses on the value chain and regulations for the Agrofood Subsector. The Agrofood Subsector consists of five (5) key stages being (i) production; (ii) harvesting; (iii) processing and storage; (iv) distribution, packaging and handling; and (v) wholesale and retail market. It also discusses on the relevant industry, regulator/agencies, regulations and stakeholders related to Agrofood subsector. 5. The third section focuses on and analyses the issues raised by the industry. The industry has raised many concerns but the issues are non- transport services issues. For information purposes, the issues faced by the industry, among others, are as follows: • Legal matters with the Department of Director General of Lands and Mines; • Clear guidelines for the livestock industry operations; • Animal cruelty and safety; and • Insufficient Government facilitation.

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7.1 Economic Performance of the Agrofood Subsector

Malaysia has the advantage of a favourable climate for producing a wide variety of agricultural products. The agriculture sector has steadily become an important contributor to GDP, employment, export revenue, export tax and duty, as well as the economic and rural development.229 The agriculture sector stood at 8.1% or RM89.5 billion to the GDP in 2016.230

Based on the MSIC 2008, agriculture sector can be divided into three (3) groups. Firstly, is the crop and animal production, hunting and related services activities. It also includes forestry and logging, together with fishing and aquaculture. The full list can be seen below:

AGRICULTURE, FORESTRY AND FISHING

01 Crops and animal production, hunting and related service activities

Division Group Description

011 Growing of non-perennial crops

012 Growing of perennial crops

013 Plant propagation

014 Animal production

015 Mixed farming

016 Support activities to agriculture and post-harvest crops activities

017 Hunting, trapping and related service activities

02 Forestry and logging

021 Silviculture and other forestry activities

022 Logging

229The Star. (n.d.). Retrieved from https://www.thestar.com.my/business/business-news/2011/04/09/agriculture- becoming-major-contributor-to-gdp/ 230Malaysia, D. o. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=72&bul_id=MDNYUitINmRKcENRY2FvMmR5TW dGdz09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09

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023 Gathering of non-wood forest products 024 Support services to forestry

03 Fishing and aquaculture

031 Fishing

032 Aquaculture

Besides that, agriculture sector can be broken down into two (2) subsectors, namely industrial commodities and agrofood. Oil palm was a major contributor to the GDP of agriculture sector at 43.1% followed by other agriculture (19.5%), livestock (11.6%), fishing (11.5%), forestry & logging (7.2%) and rubber (7.1%). With the statistics shown below, it can be evidently seen that the GDP share of agriculture in Malaysia has dropped significantly since its independence. This is largely due to the drop in Malaysia’s palm oil production compared to the 1960s as Malaysia was the world’s largest palm oil exporter. Today’s agriculture sector is much more diversified. Although palm oil is still a major focus, its social and environmental impact has caused the Malaysian Government to pledge to limit plant oil expansion.231

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231 Morales, Alex (18 November 2010). "Malaysia Has Little Room for Expanding Palm-Oil Production, Minister Says". Bloomberg

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Figure 34: Malaysia – GDP Share of Agriculture 1960-2016 Year GDP Value 1960 43.72 1961 45.38 1962 42.97 1963 35.12 1964 33.27 1965 31.01 1966 31.54 1967 31.60 1968 31.34 1969 33.14 1970 32.58 1971 28.43 1972 28.26 1973 28.94 1974 32.47 1975 30.72 1976 29.4 1977 28.21 1978 26.39 1979 24.88 1980 23.03 1981 21.82 1982 21.5 1983 20.22 1984 20.35 1985 20.28 1986 20.18 1987 19.96 1988 20.07

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1989 18.08 1990 15.22 1991 14.36 1992 14.57 1993 13.79 1994 13.66 1995 12.95 1996 11.68 1997 11.10 1998 13.31 1999 10.84 2000 8.6 2001 8.01 2002 8.98 2003 9.31 2004 9.27 2005 8.26 2006 8.61 2007 9.99 2008 9.97 2009 9.22 2010 10.09 2011 11.45 2012 9.79 2013 9.11 2014 8.87 2015 8.46 2016 8.66 2017 8.78

(Source: The Global Economy, Malaysia – GDP Share of Agriculture, https://www.theglobaleconomy.com/Malaysia/Share_of_agriculture/)

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The Agrofood industries need to focus on the development of high value commodities and activities as contribution to the national GDP. Special emphasis will be given to the development of industries related to bird’s nest, cattle and goat, aquaculture, seaweeds, ornamental fish, herbs and spices, premium fruits and vegetables, mushrooms, and floriculture.232 The goal of Agriculture NKEA is to contribute to the increase in gross national income (“GNI”) amounting to RM21.44 billion by 2020. In addition, the creation of 74,000 additional jobs is targeted within the period.233

Agrofood comprises of three main subsectors, including crops subsector, livestock subsector, and fisheries subsector.234 Crops subsector consists of production of among others, fresh fruit brunches (oil palm), paddy, natural rubber, cocoa beans, fruits and vegetables. The livestock subsector consists of among others, poultry, goat, cattle, buffalo, swine and sheep. In 2016, the number of poultries, goat, buffalo and cattle increased while swine and sheep showed a decrease. The third subsector is the fisheries subsector whereby it consists of marine fish, freshwater aquaculture and brackish water aquaculture.235

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232 The New Malaysian National Agrofood Policy: Food Security and Food Safety Issues 233 Ibid 234Abu Dardak, R. (2018, April 9). FFTC Agricultural Policy Platform. Retrieved from http://ap.fftc.agnet.org/ap_db.php?id=853&print=1 235Department of Statistics Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=72&bul_id=MDNYUitINmRKcENRY2FvMmR5TW dGdz09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09

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Figure 35: Malaysia: Ex-Farm Value of Livestock Products (RM Million), 1998-2017

Commodity Beef Mutton Pork Poultry Eggs Milk Raw Total Meat hides Year and skins Value of Livestock Products (RM Million) 1998 213.56 12.01 1,592.06 2,746.30 1,223.48 43.33 3.23 5,833.97 1999 239.86 14.95 711.97 2,868.78 1,249.98 45.64 3.15 5,134.33 2000 218.26 15.36 1,128.72 2,933.79 1,247.23 40.08 2.91 5,586.35 2001 283.38 18.60 1,269.69 3,064.45 1,224.53 40.88 5.28 5,906.81 2002 328.12 23.38 1,253.50 3,506.14 1,281.63 48.75 3.32 6,444.84 2003 394.90 33.91 1,078.63 3,774.05 1,373.35 49.74 5.95 6,710.53 2004 464.59 33.51 1,428.80 4,135.06 1,512.58 52.79 6.43 7,633.76 2005 535.41 37.06 1,701.91 4,369.38 1,544.60 52.96 7.16 8,248.48 2006 580.74 40.61 1,836.68 4,616.15 1,621.36 61.62 7.85 8,765.01 2007 637.04 50.46 1,371.52 4,904.16 1,968.27 79.17 8.61 9,019.23 2008 696.67 55.52 1,728.64 5,183.12 2,091.65 87.56 9.42 9,852.58 2009 768.22 61.29 1,825.73 5,258.91 2,225.11 118.37 10.38 10,368.01 2010 847.11 67.66 2,073.62 5,776.21 2,358.62 127.29 11.45 11,261.96 2011 889.47 77.8 2,047.04 5,949.50 2,614.35 134.68 12.02 11,724.86 2012 1,031.76 146.12 1,969.86 6,867.61 3,274.63 144.82 12.26 13,446.06 2013 1,141.57 151.39 2,048.88 7,413.53 3,872.76 57.62 12.36 14,698.11 2014 1,264.13 148.88 2,041.82 8,499.07 4,349.46 68.16 13.94 16,745.46 2015 1,411.72 144.52 2,526.06 9,534.28 4,752.04 80.23 17.13 18,465.98 2016 1,486.65 165.70 2,370.12 10776.05 5,190.09 84.50 18.06 20,091.17 2017 1,636.36 175.55 2,707.42 11,270.19 5,400.78 94.70 21.27 21,396.17

(Source: FLFAM, Malaysia: Ex-Farm Value of Livestock Products (RM Million), 1998-2017, http://flfam.org.my/images/Statistics/statistics_6_1f.jpg)

The figure above shows the trends of the production of livestock products in Malaysia from 2005 to 2014. Most of all product output has increased during that period. The beef products have increased by around 78% (from 29,000m/ton in 2005 to 52,000m/ton in 2014), mutton (213% from 1,400 m/ton to 4,500 m/ton), poultry meat (53% from 980,000 m/ton to 1,500,000 m/ton) and eggs 62% (443 million m/ton to 718 million m/ton). While pork production decreased by 1% for the same period (from 218,000 m/ton to 215,000 m/ton).

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In 2015, the number of establishments operating in the agriculture sector was 11,628 establishments with an annual growth of 5.7%.236 In undertaking this study, we will focus on livestock subsector, particularly poultry (i.e.: chicken) because poultry farming industry is the main contributor to the livestock subsector and poultry are intensively reared in Malaysia. The number of establishments operating in the poultry farming industry was 662 establishments in 2015.237 The production of chicken/duck egg recorded the highest increase compared to other livestock products, by 6.5%. In 2015, there were 1,613,900 tonnes of poultry meat products, increasing from 1,572,800 tonnes in 2014.238 Additionally, the self-sufficiency ratio of poultry meat in 2017 was 98.2%, the second-highest after chicken/duck egg (113.7%). Furthermore, the per capita consumption of poultry meat was the highest recorded, at 52.0 kilogrammes per year, followed by chicken/duck egg (22.2 kg a year), and pork (16.3 kg a year).239 In 2017, 52.71 million live birds were exported; and approximately 15,000 m/ton chicken meat in cutting were exported. 240

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236Department of Statistics Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=403&bul_id=Z24yWDltRHI4T2J3cTQ5RHlzRWVJ Zz09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09 237Department of Statistics Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=405&bul_id=bEkvWDRrSWw4OGttVTduamVmW VN5UT09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09 238 Department of Statistics Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=72&bul_id=T2Z3NkhLSFk2VjZ5dkdUL1JQUGs4d z09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09 239 Department of Statistics Malaysia. (n.d.). Retrieved from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=164&bul_id=ZE12RXM2SDM1eGRxRXR3bU0xR ThrUT09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09 240 Federation of Livestock Farmers’ Associations of Malaysia. Retrieved from http://www.flfam.org.my/index.php/industry-statistics#

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Based on MSIC 2008, raising of poultry includes the following241:

Crops and Animal Production, Hunting and Related Service Activities

Group 014: Animal production

Item Description

01461 Raising, breeding and production of chicken, broiler

01462 Raising, breeding and production of ducks

01463 Raising, breeding and production of geese

01464 Raising, breeding and production of quails

01465 Raising and breeding of other poultry n.e.c.

01466 Production of chicken eggs

01467 Production of duck eggs

01468 Production of other poultry eggs n.e.c.

01469 Operation of poultry hatcheries

Thus, poultry farming industry consists of raising, breeding and production of poultry. Malaysia is a net exporter of poultry, churning 1.5 million chickens a day worth RM10 billion a year but only 7% is exported. In 2016, Malaysia has imported 56.13 m/ton chicken meat and exported only 13.94 m/ton poultry meat. Malaysia has also exported 57.39 million live birds.242

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241 DOSM, MSIC 2008, https://www.dosm.gov.my/v1/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/2_List%20of% 20References/MSIC_2008.pdf 242 (n.d.). Retrieved from http://flfam.org.my/images/Statistics/statistics_8_1ei.jpg

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Figure 36: Trends of Livestock Product Output in Malaysia (2005-2014)

Item Description of the trend of livestock product output (2005 – 2014) in percentage (%) and Metric tons (m/ton)

Mutton Increased by 213% (from 1,400m/ton to 4,500m/ton)

Beef Increased by around 78% (from 29,000m/ton to 52,000m/ton)

Pork Decreased by 1% (from 218,000m/ton to 215,000m/ton)

Poultry Increased by 53% (from 980,000m/ton to 1,500,000m/ton) Meat

Eggs Increased by 62% (from 443 million m/ton 718million m/ton)

(Source: Majid. R, Livestock Industry in Malaysia, https://www.slideshare.net/RazakMajid/livestock-industry-in- malaysia)

The overall production of this industry has expanded steadily, in line with the growth of local demand and exports to some countries. Malaysia currently exports live birds and processed poultry to Singapore and some Middle East country. Singapore being the largest poultry export market where over 1.716 million live birds were exported every day in 2014. Malaysia is taking advantage of its geographical proximity to penetrate Singapore’s market. Production has increased every year due to high productivity and capital expenditure. The figures shown above look at the growth of Malaysia’s meat production and the fluctuation of its price. As seen in the supply and demand graph, the production yearly growth rate is relatively stagnant, thus, not corresponding to the demand curve, indicating a price hike may be inevitable in the future. However, a few years back, most players in the industry faced a margin squeeze due to over-capacity. This problem has been reduced due to a growing Malaysia population and slower industry capacity growth rate.243

243 Malaysia Poultry Industry Overview, https://klse.i3investor.com/blogs/donkeystocks/115619.jsp

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7.2 Value Chain and Regulations for the Agrofood subsector

Distribution, Harvesting and Processing and Wholesale and Production Packaging, and Transport Storage Retail Markets Handling

Key Stages Production Harvesting Processing and Distribution, Wholesale and Storage Packaging and Retail Markets Handling

Industry • Poultry • Poultry • Processors • Packaging • Grocery stores farming farming • Machinery companies and companies companies suppliers • Logistic supermarkets • Logistic companies • Food and companies beverage companies Regulator/Agencies • Department of Veterinary Services Malaysia

Regulations • Animals Act 1953 (Revised 2006) [Act 647] Related to the • Animal Welfare Act 2015 [Act 772]

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Agrofood • Feed Act 2009 [Act 698] Subsector Food Act 1983 [Act 281]

Relevant • Farmers’ Organization Authority (FOA) Stakeholder • Federation of Livestock Farmers’ Associations of Malaysia Related to the

Agrofood Subsector

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7.2.1 Relationship between the Transport Services Sector and the Value Chain for the Agrofood Subsector

The Value Chain for the Agrofood Subsector consists of five (5) key stages being:

Stage (1) production can be defined as the process whereby the eggs are produced by commercial laying hens and it will either be processed as part of commercial egg or sent to hatcheries;

Stage (2) harvesting can be defined as the process of hatching, raising, breeding and production of poultry i.e. chicken; stage (3) processing and storage can defined as the process whereby the poultry are taken directly from the farms whereby they are unloaded from their transport crates, slaughtered, plucked, cleaned, cooled, and graded; stage (4) distribution, packaging and handling can be defined as the process whereby the processed poultry will be packaged and labelled nicely to be distributed to wholesale and retail market; stage (5) wholesale and retail market which can be defined as the business whereby in which the processed poultry are sold to the public.

Stage (1) – Production

For stage (1) production, the relevant mode of transport applicable for the transportation of eggs is only the road transport as air, maritime and rail transport are not used for the transportation of eggs.

The road transport service includes private companies that transport eggs by road. The most common method of transporting eggs is by road transport vehicles, usually lorries. The companies identified to provide such service includes Leong Hup International Sdn. Bhd., CAB Cakaran Corporation Berhad and Charoen Pohphand Holdings (Malaysia) Sdn. Bhd. The eggs are usually transported in temperature- controlled incubators, so that the internal condition of the egg is suitable for the growth and development of the chick.

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In summary, the transport service applicable to the first stage of the Value Chain for the Agrofood Subsector is as follows:

Air Maritime Road Rail

Transport Transport Transport Transport

Stage (1) – x x ✓ x

Producer

Stage (2) – Harvesting

For stage (2) harvesting, the air transport service industry includes airline operators that provide transportation of live poultry by air cargo. For example, airlines such as MASKargo offer transportation of live animals, including poultry. Other airline operators include Maju Senja Sdn. Bhd., Demand Total Logistics Sdn. Bhd., NCT Group and MYGM Sdn. Bhd.

For maritime transport service, although there is no restriction to transport live poultry by water, the stakeholders in the poultry farming industry normally do not transport live poultry by water. There are available livestock carriers, either specifically built new or converted from container ships in Malaysia, but they are mainly used in the live export of sheep, goats and cattle.

The road transport service identified includes private companies that transport live poultry by road. The most common method of transporting live poultry in Malaysia is by road motor vehicle (usually lorries). The companies identified to provide such service includes NCT Group, Leong Hup International Sdn. Bhd., CAB Cakaran Corporation Berhad, Farm’s Best Food Industries Sdn. Bhd., Charoen Pohphand Holding (Malaysia) Sdn. Bhd. and Scania (Malaysia) Sdn. Bhd. The live poultry is transported in plastic cages. About 1.5 million live poultry are transported daily by land and most are transported at night to reduce heat stress.244

244 (n.d.). Retrieved from http://www.oie.int/eng/AW2012/presentations/PTT%20Session%202/2.6.%20Jamaluddin.pdf

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Although there is no restriction to transport live poultry by rail, the stakeholders in the poultry farming industry normally do not transport live poultry or processed poultry by rail.

In summary, the transport service applicable to the second stage of the Value Chain for the Agrofood Subsector is as follows:

Air Maritime Road Rail

Transport Transport Transport Transport

Stage (2) – ✓ x ✓ x

Harvesting

Stage (3) – Processing and Storage, Stage (4) – Distribution, Packaging and Handling and Stage (5) - Wholesale and Retail Market

Stage (3) processing and storage, stage (4) distribution, packaging and handling, and stage (5) wholesale and retail market are being considered together because it is the general practice that the private companies that process the poultry food will proceed to package, distribute and transport the processed poultry to the wholesale and retail market. Therefore, the mode of transportation is the same throughout the board.

For stage (3) processing and storage, stage (4) distribution, packaging and handling, and stage (5) wholesale and retail market, the air transport service includes airline operators that provide transportation of processed poultry by air cargo such as MASKargo, Gold Cold Transport Sdn. Bhd., Maju Senja Sdn. Bhd., EH Utara Holdings Sdn. Bhd., MS Global Freight Solution Sdn. Bhd., AV Air & Sea Freight Sdn. Bhd., Demand Total Logistics Sdn. Bhd., NCT Group and Tasco Berhad. Air cargo is the best way to transport goods that require special attention and fast delivery to prevent decay, spoilage or destruction. Due to its nature, perishable cargo often requires handling procedure and special packaging that minimise the temperature variations during storage and transportation.

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For stage (3) processing and storage, stage (4) distribution, packaging and handling, and stage (5) wholesale and retail market, the maritime transport service also includes companies that transport processed poultry by using refrigerated shipping such as reefer ships or refrigerated carrier, which are also known as reefers to transport the products to their intended destination as the goods transported are perishables. The companies identified include, among others, Integrity Logistics Sdn. Bhd., Gold Cold Transport Sdn. Bhd., EH Utara Holdings Sdn. Bhd., MS Global Freight Solution Sdn. Bhd., AV Air & Sea Freight Sdn. Bhd., Demand Total Logistics Sdn. Bhd., NCT Group and Tasco Berhad.

For stage (3) processing and storage, stage (4) distribution, packaging and handling, and stage (5) wholesale and retail market, the road transport service includes companies that transport processed poultry using refrigerated trucks and lorries as the goods transported are perishable. The companies include among others, CAB Cakaran Corporation Berhad, Farm’s Best Food Industries Sdn. Bhd., Charoen Pokphand Holding (Malaysia) Sdn. Bhd., Scania (Malaysia) Sdn. Bhd., AV Air & Sea Freight Sdn. Bhd., RS Speedy Logistics Services, Demand Total Logistics Sdn. Bhd., SGS Malaysia Sdn. Bhd., MS Global Freight Solution Sdn. Bhd., NCT Group, Cynotex Sdn. Bhd., IGLO (M) Sdn. Bhd., EH Utara Holdings Sdn. Bhd., Tasco Berhad, Logistics Service: Refrigerated Truck Rental Service Malaysia, Gold Cold Transport Sdn. Bhd., Pengangkutan S.O.S Sdn. Bhd., Bengteng Truckking Services Sdn. Bhd. and Teoh Company Logistics (M) Sdn. Bhd. Not only that, for stage (5) wholesale and retail markets, it also includes retail markets that provides delivery service to deliver the processed poultry bought on their website directly to the individual who purchased it. The retail markets that provide such service include Tesco Stores (Malaysia) Sdn. Bhd. (Tesco Online) and Trendcell Sdn. Bhd. (Jaya Grocer).

Although there is no restriction to transport live poultry and processed poultry by rail, the stakeholders in the poultry farming industry normally do not transport live poultry or processed poultry by rail. In summary, the transport service applicable to the third, fourth and fifth stage of the Value Chain for the Agrofood Subsector is as follows:

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Air Maritime Road Rail

Transport Transport Transport Transport

Stage (3) – ✓ ✓ ✓ x

Processing and Storage

Stage (4) – ✓ ✓ ✓ x

Distribution,

Packaging and Handling

Stage (5) - ✓ ✓ ✓ x

Wholesale and Retail Market

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7.2.2 Summary

The Value Chain of the Agrofood Subsector consists of five (5) key stages being (1) production, (2) harvesting, (3) processing and storage, (4) distribution, packaging and handling, and (5) wholesale and retail market.

For stage (1) raw material provider, the industry identified only covers the road transport service. This is because egg is typically transported by farmers by using lorries (road).

For stage (2) harvesting, the industry identified only covers the air and road transport service. This is because live poultry is typically transported by farmers in air cargo (air) or by using lorries (road). stage (3) processing and storage, (4) distribution, packaging and handling, and (5) wholesale and retail market, our observation is that the industry identified covers each mode of transport service except for rail transport. This is because processed poultry is typically transported in refrigerated air cargo (air), refrigerated reefer ships or carriers (maritime) and refrigerated trucks and lorries (road).

In summary, the Transport Services Sector applicable to the Value Chain of the Agrofood Subsector can be seen in the table below:

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Stage (1) - Stage (2) - Stage (3) - Stage (4) - Stage (5) - Production Harvesting Processing Distribution, Wholesale and Storage Packaging and Retail and Markets Handling

Air x ✓ ✓ ✓ ✓

Maritime x x ✓ ✓ ✓

Road ✓ ✓ ✓ ✓ ✓

Rail x x x x x

Legend:

✓ Applicable

x Not applicable

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7.3 Regulatory Issues in Transport Services for the Agrofood Subsector

Based on the meeting held between MPC, the Agrofood Productivity Nexus, and the Federation of Livestock Farmers Associations of Malaysia (“FLFAM”) on 30th of August 2018, the study has been informed that there are no regulatory issues pertaining to transport services of poultry and/or import/production of feed.

However, there are several non-transport services issues highlighted by the industry. The issues faced by the industry, among others, are as follows:

• Legal Matters with the Department of Director General of Lands and Mines – the industry finds it difficult to meet the requirements in order to obtain the relevant license (to use land as agriculture land) from the Department of Director General of Lands and Mines. In particular, the industry contends there are no clear and standardised guidelines to obtain a license in order to set up a farm. Furthermore, in order to build chicken coop, the industry highlighted that some requirements imposed are irrelevant (i.e. the need to build the place for workers to stay in the agriculture land). As the license has to be applied for on a yearly basis, some players may face the possibility of not obtaining the renewed license to continue their operation because of the stringent requirements imposed. This circumstance results in failure of achieving the return on their investment, unsuccessful application of bank loans to kick off their business, and an inability for these players to pay their debts resulting in the subsequent closure of their business. • No Clear Guidelines for the Livestock Industry Operations – the industry highlighted that there are no guidelines for the livestock industry operations. An issue has emerged as a consequence of establishing farms for different livestock that are next to each other. There is no clear guideline for the industry to refer to whenever the pollution of one farm

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spreads to the neighbouring farm with a different type of livestock. It causes uncertainty to the players for determining the boundaries of their lands for different livestock use. Not only that, lack of guidelines has detrimentally affected livestock during transportation. As an example, if the vehicle breaks down during transporting livestock, the drivers are not prepared for emergency procedures. This has led to among others livestock dying due to insufficient ventilation. Previously, there was a guideline proposed under the auspices of the ASEAN Food Handling Bureau in 1980s but it has yet to be adopted in Malaysia. • Animal Cruelty and Safety – The main reason for the death of livestock during transportation is the lack of proper guidelines and regulations regarding animal welfare. There is no particular regulation or guideline on livestock transportation except the one for general transport produced by the Road Transport Department. As a result, the industry players would typically transport livestock in the most convenient manner disregarding the likelihood of causing injury or undue suffering to such livestock i.e. transporting livestock in a confined case without proper ventilation, stuffing large numbers of livestock in a small cage, etc. The industry players opt not to use artificial ventilation or to invest in equipment that enhances the livestock welfare despite their availability in the market. As this will incur high operation costs and potentially low return on investment after purchasing such equipment, industry players would rather take the risk of transporting livestock in such inhumane ways in the absence of explicit regulations regarding animal welfare. • Insufficient Government Facilitation – The industry highlighted that there is insufficient Government support in facilitating the growth and maintenance of the industry. For example, taking Thailand as a benchmark, over the past four decades, Thailand’s poultry sector has transformed itself from backyard farming into a leading poultry exporter.245 The industry contends that one of the main reasons is

245 Kingdom of the Netherlands, The Poultry Sector in Thailand, https://www.rvo.nl/sites/default/files/2016/12/FACTSHEET-POULTRY-SECTOR-IN-THAILAND.PDF

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because the Government of Thailand allows the importation of highly skilled foreign talents in the livestock industry and agriculture (especially from Cambodia) whereas Malaysia only utilises unskilled local or foreign workers.246 Apart from that, the industry does not have much opportunity for international export due to stricter sanitation requirements imposed by other countries such as Japan. The industry recommended for the Government to facilitate trading across borders for the industry.

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246BNI Multimedia Group, Thai gov’t announces list of allowed jobs, restricted jobs for migrant workers, https://www.bnionline.net/en/news/thai-govt-announces-list-allowed-jobs-restricted-jobs-migrant-workers

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APPENDIX 1 – ISSUE PAPER FOR C&C PRODUCTS SUBSECTOR

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APPENDIX 2– ISSUE PAPER FOR MACHINERY & EQUIPMENT SUBSECTOR

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APPENDIX 3 – ISSUE PAPER FOR E&E SUBSECTOR

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APPENDIX 4 – ISSUE PAPER FOR AGROFOOD SUBSECTOR

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APPENDIX 5 – LIST OF THE ASSOCIATIONS INTERVIEWED FOR THE FOUR (4) SUBSECTORS

No. Associations

1. C&C Products Productivity Nexus

2. Chemical Industries Council of Malaysia

3. M&E Productivity Nexus

4. Malaysia Mobile Crane Owners Association

5. Selangor Freight Forwarders and Logistics Association

6. Association of Malaysian Hauliers

7. E&E Productivity Nexus

8. Federation of Malaysian Freight Forwarders in Sarawak

9. Selangor Freight Forwarders and Logistics Association

10. Association of Malaysian Hauliers

11. Agrofood Productivity Nexus

12. Federation of Livestock Farmers Associations of Malaysia

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APPENDIX 6- DETAILED DESCRIPTION OF THE RELEVANT GROUPS RELATING TO TRANSPORTATION UNDER MSIC 2008

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