Proposed Amendments to the Professional Acts

In Relation to Liberalisation of the Professional Services Sector

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Presented By:

Jaswinder SinghInternational Relations And ProfessionalDevelopment DivisionMinistry of Works

SCOPE

SERVICES SECTOR OVERVIEW

PROFESSIONAL SERVICES SECTOR

LIBERALIZATION

PROPOSED AMENDMENTS TO

PROFESSIONAL SERVICES ACT

CONCLUSION - THE WAY FORWARD

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Liberalisation benefits the economy by creating a conducive business environment...

WHAT ? HOW? WHY?

Liberalisation is Create a more Reduce relaxation of favorable government government investment involvement in restrictions, environment business and the usually in areas characterized by removal of of social or ease of barriers to doing economic conducting business policy business

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More investments

Maximise Operational

Efficiency

Full Equity Ownership

Liberalising enables more investments and maximizes efficiency leading to higher economic growth.

More investmentsECONOMIC GROWTHEase of

Profit Remittance

Less Restrictions on Business Operations

Ease of Inflow and Outflow

of Human Resource and

Materials

Driving Gears of Liberalisation

Growth Enablers

End State

KEY

4

Specific levers exist to accelerate the extent of liberalisation.

LEVERS

Liberalisation

Goods

Reduct-ion in tariffs

Removal of Non-

Tariff Barriers (NTBs)

Services

Cross-border trade

Consumptionabroad

Commercial presence

Movement of natural persons

LEVERS

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In tandem with speeding up Free Trade Agreements, Malaysia also needs to address internal barriers to economic growth.

Domestic regulations -impede entry of foreign

players

Monopolistic practices by domestic firms

Cumbersome procedures decreasing efficiency.

Limited participation from the private sector

BARRIERS TO ECONOMIC GROWTH

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Services sector pivotal to national growth, contributing 57.4% of Malaysia's Gross Domestic Product in 2009

GDP Contribution 2009

Services Sector Contribution to GDP

Services Other

Sectors,

Sector, Other 42.60% Services,

Finance and

57.40% 6.00%

insurance,

11.70% Government

Services, Real estate 7.70%

and business Utilities, services,

3.00% 5.30%

Transport and

storage, Wholesale 3.80% and retail

trade, 13.20% Accomodation Communication

and 4.20% restaurant,

2.50%

Source: Bank Negara Report 2009 7

Besides contributing substantially to GDP, the services sector employs 57.3% of Malaysia's workforce.

Malaysian Employment by Industry (2009)

Services sector employs about 6.3 Other

million of Services, Sectors, 42.70%

Malaysia's 57.3% workforce

as of end December 2009

Source: Malaysian International Trade and Industry Report 2009 8

Malaysia's competitiveness has not improved as fast as other countries - > leading to Malaysia's decrease in ranking

Global Competitiveness Index Rankings

0 Country Rank Score 3 3

5 2010- 2009- 2010- 2009--5 5 2011 2010 2011 2010 7

Singapore 3 3 5.48 5.55 10 -10 11 11 11 United States 4 2 5.43 5.59

12 Hong Kong 11 11 5.30 5.22

15 -15 United Kingdom 12 13 5.25 5.19

Australia 16 15 5.11 5.15 -20 20 21 21 Malaysia 26 24 4.88 4.87

24 Thailand 38 36 4.51 4.56 -25 26 25

Indonesia 44 54 4.43 4.26

-30 2007-2008 30 2008-2009 2009-2010 2010-2011 Rankings based on 12 pillars of competitiveness: 1) Institutions; 2) Infrastructure; 3) Macroeconomic stability; 4) Health and

Malaysia Singapore Hong Kong primary education; 5) Higher education and training; 6) Goods market efficiency; 7) Labor market efficiency; 8) Financial market sophistication; 9) Technological readiness; 10) Market size; 11) Business sophistication; and 12) Innovation

Sourced from Global Competitiveness Report 2010 - 2011 & 2008-2009 9

Malaysia's cross-border trade liberalisation efforts are predominantly focused within Asia Pacific and nearby regions.

Multi-Lateral FTAs*: China, Australia, Republic of Korea, ASEAN members

Bi-Lateral FTAs: Chile, Pakistan

Both Multi-Lateral & Bi-Lateral FTAs: Japan, New Zealand, India

* Under ASEAN membership

CURRENT FREE TRADE AGREEMENTS OF MALAYSIA 10

However, Singapore has a more global reach.

Multi-Lateral FTAs*: Iceland, Norway, Switzerland, Liechtenstein, Chile, ASEAN members

Bi-Lateral FTAs: Panama, Jordan

Both Multi-Lateral & Bi-Lateral FTAs: Peru, US, Japan, New Zealand, India, China, Republic of Korea, Australia

* Under ASEAN membership. Except EFTA under EFTA-Singapore FTA. Members of EFTA include Iceland, Norway, Switzerland, and Liechtenstein

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Liberalisation will help enable Malaysia achieve high-income nation status by 2020.

Services contribution to GDP

Singapore

GDP (per capita, USD)

60000

70-80% contribution in USA developed nations

40000

Japan EU

20000 58% contribution in Malaysia*

Malaysia

China India

Indonesia

0

30% 40% 50% 60% 70% 80%

% Services Contribution to GDP

*Sourced from 10 th Malaysia Plan 12

Steps need to be taken to tap the potential of the services sector.

How it needs to be done ? What needs to be done ?

Progressive Relaxation of Relax or remove entry barriers

Policies Simplify and streamline processing

Current GNI Review regulatory framework

per capita (2009) Establish clear and fair standards

RM23,700 or USD6,700

Projected GNI Per capita

(2020) RM48,000 or USD15,000 Capacity building

Transitioning to a developed economy

Sourced from ETP (Pg 105) Roadmap and IMP3

WILL DRIVE

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But it is important for Malaysia to strike a balance between Liberalisation and National Interest.

? PROS

Opportunity for Malaysia to compete

CONS internationally, -contributing to GDP growth

and generating foreign exchange Foreign providers crowd out domestic

Improves the overall business providers environment

Potential outflow of money from Introduction of international best practices, better 1.

Malaysia - with foreign providers and skills and technology

Entry of foreign service providers can lead to better 2.

services for domestic consumers Increased risk of financial instability 3. Improve the performance and competitiveness of

domestic service providers due to increased exposure to global economic events Attract foreign direct investment into the country 4.

Risk of brain drain

Risk of environmental degradation

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Three focus sectors were identified - healthcare, education and professional services.

GNI Contribution: RM15.2 bil Healthcare

Historical Growth Rate: 8.8%

GNI Contribution: RM27.1 bil Education

Historical Growth Rate: 6.8%

GNI Contribution: RM19.5 bil Professional Services

Historical Growth Rate:7.9%

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-2 0 2 4 6 8 10

Health services and products

Professional services

Telecommunications

Financial services

Education

Tourism

Wholesale and retail

Palm oil and related products

Agriculture

OGE & Petroleum

Electrical and Electronics

2000 – 2009 Historical Growth Rate Malaysia

Historically professional services is the second fastest growing

sector among other services.

Sourced from ETP Roadmap 16

Professional services comprises regulated and unregulated sectors.

Regulated Sector are sectors Unregulated Sector are sectors which are

governed by Acts of Parliament. not governed by any Acts.

PROFESSIONAL SERVICES

Regulated Sectors

> Accounting, Auditing, Book Keeping & Tax Consultancy

> Legal

> Architectural

> Engineering

> Urban Planning

Unregulated Sectors

> Landscape Architecture

> Integrated Engineering Services

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Sub-sectors such as Legal, Accounting, Engineering and Architecture is perceived to be restricted... Thus more attention is needed here

BUSINESS OPERATIONS

INFORMATION LEGAL ACCOUNTING ENGINEERING ARCHITECTURE OTHER

TECHNOLOGY SERVICES SERVICES SERVICES SERVICES SERVICES

SERVICES

Operations and Entry is Perceived to be Restricted Not Conducive to Growth

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Why liberalise the services sector?

Push Factors

• International bilateral and multilateral government commitments

Pull Factors• Creation of a competitive

environment

• Improvement of quality

• Accessibility of wider choice and more expertise

• More competitive pricing

• Competitive and comparative regional advantages

• Regulated by Acts of Parliament

• Greatest potential to contribute to higher GDP and GNI per capita

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Risks and Challenges

Flooding of local market with cheaper foreign

professionals may create unemployment among

local professionals.

Lower foreign standards with

competitive prices may lead to adoption of

lower local standards., which may create

hazards.

If equity of professional firms is open to all, then

professionals may compromise on their

integrity.

In a ‘free market’, the consumer may not be sufficiently protected where standards and

quality may be compromised.

Risks and challenges to liberalising the professional services sector in Malaysia.

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To ensure that local professionals can withstand any destabilising and debilitating effects from the entry of foreign professionals.

To protect the public against hazards of sub standards by foreign imports.

To safeguard local and national policies so that they are not negatively affected.

Governing Acts need to be established or amended to accommodate liberalisation but yet safeguard public interest.

Capacity building programmes for local professionals to strengthen their competitiveness, e.g. Continuous Professional Development Programme.

Safeguard Measures

There is a need to ensure that liberalisation promotes economic growth as intended and that domestic measures are in place.

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Consumers benefit from wider choices

and cheaper services.

MRAs will allow access to foreign

markets.

Increased opportunities for

exports of professional services.

Foreign expertise not locally available enhance local capabilities.

Enhancing technology transfer

from foreign experts.

Multi-national and local companies can set up professional

services firms.

High tech and emerging services

industries will inculcate a

knowledge-based economy.

Opportunities

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The Professional Services Acts have been amended several times

QUANTITY SURVEYORS ACT

1967(ACT 487 )

REGISTRATION OF ENGINEERS ACT

1967(ACT 138)

ARCHITECTS ACT 1967(ACT 117)

LIST OF AMENDMENTS

19721973197419811984198920012002

19721973197419872002

19721973197419791988199219942002

TOTAL AMENDMENTS

8 5 8

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Liberalisation Commitments

Professional Services Sector

AFAS Threshold for Equity

2008 : 49%

2010: 51%2015: 70%

AFAS 8th Package(Current offer)

Architectural (CPC 8671) : 30%

Engineering (CPC 8672) : 30%

Integrated Eng (CPC 8673) : 30%

Surveying Services (CPC 86753) : 30%

Cabinet Decision14 November 2008 2012 : 100%

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Provisions to be amended

Section

7 Restrictions on unregistered persons, etc

7A Single Disciplinary Practice (SDP)

7B Multidisciplinary Practice (MDP)

10 Qualifications for registration

10A Registration of Temporary professionals

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How Service is Provided

• Individual Service Provider

• Single Disciplinary Practice (SDP)

– Sole Proprietorship

– Partnership

– Body Corporate

• Multi Disciplinary Practice (MDP)

– Body corporate that provides at least two professional services

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Proposed Amendments

BQSM BEM LAM

Graduate Route 3 – 4 years 4 – 5 years

2 yearsExperience Route 2 – 3 years 1 year

Provisional QS

Professional QS

Consultant QS

Graduate Engineer

Professional Engineer

PEPC

Graduate Architect

Architect

1st Tier

2nd Tier

(1) REGISTRATION

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Foreign Equity Limitations

Professional Firms

BEM LAM BQSM

Now After Now After Now After

SDP

Sole Proprietorship

Partnership

Body Corporate

MDP 30% 100% 30% 100% 30% 100%

Main28

BEM LAM BQSM

(2) EQUITY

SDP 100% FOREIGN EQUITY• Open to All

• Currently Not allowed

100% FOREIGN EQUITY• 60%: Registered with LAM• 40%: registered with other recognised boards

100% FOREIGN EQUITY• Majority by the BoD• Remaining: PQS/ CQS / others

MDP 100% FOREIGN EQUITY• Open to All

• Currently limited to 30%

100% FOREIGN EQUITY• 70%: professional services• 30%: Others allied to the professional services

100% FOREIGN EQUITY• 70%: professional services• 30%: Others allied to the professional services

(3) BOARD OF DIRECTORS

PEPC

• Currently OnlyMalaysian Citizens/PR

Architect

• Currently OnlyMalaysian Citizens/PR

CQS

Currently OnlyMalaysian Citizens/PR

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BEM LAM BQSM

(4) OTHERS

Citizenship Open to all Open to all Open to all

Temporary Registration Of Foreign Professionals

Deleted Retained Deleted

Submission PEPC Only Architects orForeign Architects

Only a PQS or CQS

Residency 180 days 180 days Needs to be “residing in Malaysia”

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IMPLICATIONS

• Non-discrimination of local and foreignprofessionals

• Proposed tier system(s) aligned withinternational practices

• Recognition of qualified and experiencedprofessionals via expedited registrationprocesses

• Competency exams to ensure the quality ofservices rendered

International Relations and Professional Development Division

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The Way Forward

WBS TasksMar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr

11 11 11 11 11 11 11 11 11 11 12 12 12 12

1 Professional Acts (Architects Act, Registration of Engineers Act, Quantity Surveyors Act)

1.1 Clear policy issues

1.2Presentation to Y.B. Minister of

Works

1.3 Final amendments and revision

1.4Forward Final Draft to AGC for

Approval

1.5 Endorsement by Cabinet

1.6 Endorsement by Parliament

1.7 Gazette

1.8Implementation of the Amended

Acts32

THANK YOU

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Conclusion

• The fulfilment of:

– Full liberalisation by 2012 under theRoadmap set by the Government

–100% foreign equity

–Mobility of professionals

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Equity

Main

• Malaysia to become a regional engineeringhub, thereby attracting increased levels of FDIand knowledge workers

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Leveraging on professional services for economic growth.

To become the To tap the To achieve rank * * * regional hub for potential of 10 in world bank niche areas in professional ease of doing professional services as a key business index services enabler of by 2020(current ASPIRATIONS

business rank 21)

Enhancing Malaysia's BENEFITS TO Increases Gross Support Growth of

Attractiveness as an THE National Income Business in Malaysia ECONOMY Investment Hub

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Perceived Hidden Impediments

Restrictions

• Directors are required to be registered professionals.

• Formation of local subsidiaries.

• Foreign equity in local firms and joint ventures.

• Equity and capital raising by foreign professional services firms.

• Firms’ Board and management composition.

• Marketing and advertising for professional services firms.

• Conditions on employment of expatriates.

• Pre-qualification (restrictive) requirements which are difficult for foreign firms to meet.

Competitive

• Mandatory requirement for membership of local professional institutions.

• Government assistance to local professional services firms.

• Tender biddings, which are biased against foreign firms.

• Imposition of local content rules which favours local services providers

• Design local quality specifications and non-recognitions of foreign standards.

• Dispute regulation mechanism that favours local firms.

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Issues from PEMANDU’s Lab1) To allow equity in ECPs to be held by non-

engineering professionals

Pros

• Enable ECPS to become public listed companies

• Malaysia as a regional engineering hub

• Encourage investment and employment in high tech and emerging technologies

• Aligned with worldwide practices

Cons

• Tendency to act unprofessionally

• Less appointment of consultants

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2) All suppliers to be registered as a business entity

Pros

• Ensure liability and accountability

• Prevent foreign professionals from providing services from their home country

• Safeguard public interest

Cons

• Individual service providers are allowed under the current act. This right should be maintained.

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3) Mandatory professional indemnity insurance

Pros

• Safeguard public interest and provide recourse in the case of compensation

• Aligned with worldwide practices

Cons

• PII is not mandatory under the current act so the status quo should be retained

• Costly for SMEs, which form 90% of all ECPs in Malaysia

• Market forces to decide based on clients’ needs

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4) Requirement of Professional Competency Examinations• Rigorously test mastery of local and regulatory engineering practices

• To be conducted by BEM’s Examination and Qualification Committee to ensure integrity and credibility

5) Selection of consultants based on Quality Based Selection System (QBS)• Concerns on the current appointment process

• QBS is thorough and fair

• QBS will increase local service providers’ level of competence

6) Equal treatment to professionals practising in both East and West Malaysia• Non-discrimination

• Encourage mobility of professionals 41

Registration Process - BQSM

GRADUATE ROUTE

Provisional QS

Professional QS(PQS)

Consultant QS(CQS)

• 2 – 3 years local experience• Assessment

• 1 year local experience• Assessment

EXPERIENCE ROUTE

Provisional QS

Professional QS(PQS)

Consultant QS(CQS)

• 1 - 2 years local experience• Assessment

• 1 year local experience• Assessment

TOTAL = 3 - 4 YEARS TOTAL = 2 – 3 YEARS

APPENDIX A

Main42

Graduate

Registration Process - BEM

Graduate

Professional Engineer

Professional Engineer with a Practising

Certificate(PEPC)

• Experience• Assessment

GRADUATE ROUTE

TOTAL = 4 - 5 YEARS

• Assessment

Professional Engineer

Professional Engineer with a Practising

Certificate(PEPC)

EXPERIENCE ROUTE

TOTAL = 1 YEAR

• Assessment

APPENDIX B

Main43

Registration Process - LAM

Graduate

Graduate Architect

Architect

• Experience

• Experience• Assessment

TOTAL = 2 YEARS

APPENDIX C

Main44

Registration Process - prior to amendment

• Registration is limited to qualified local professionals or permanent residents of Malaysia

• Foreign professionals are only allowed to be registered as temporary professionals

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Registration Process- after amendment

• Open to foreign professionals

• BQSM and BEM introduce a two-tier system:– First Tier: registered as a professional

– Second Tier: registered as a consultant

• BQSM and BEM introduce two routes:– Graduate Route

– Experience Route

• LAM introduces one standard registrationroute

International Relations and Professional Development Division

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Registration Process- after amendment

Board RouteRegistered

Professsional(1st Tier)

Registered Consultant (2nd Tier)

BEM

Graduate 3 – 4 years 5 – 6 years

Experience Immediately 2 – 3 years

BQSM

Graduate 2 – 3 years 3 – 4 years

Experience 1 – 2 years 2 – 3 years

LAM Standard 2 years

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Countries that are able to attract world class talent have clearly improved their competitiveness ranking.

Scale of liberalisation vs world competitiveness ranking by country

Scale of Liberalisation

14

12

2 10 3

8 5

6

4

10

Scale of liberalisation

2

is a combined consideration of

0

entry, operations and business

Malaysia Australia Singapore Hong Kong

development.

Entry Restricitions Immigration World Competitiveness Ranking

Please see appendix for Source : IMD ranking, World Bank ranking

scale of liberalisation 48

Progressive liberalisation to achieve targets.

Growth End Objective Contribute To Propellers

To become the Targeted GNI regional hub for Legal Per capita niche area in

By (2020) professional services Accountants RM48,000 or like accounting

USD15,000 To untapped Engineers

potential of professional services

Architecture as a key enabler of business

Urban Planning To achieve rank 10 in world bank ease of doing business index

Landscape by 2020(current rank Architecture 21)

Liberalisation 49

There are two key challenges: declining manpower and the lack of capacity to compete that can be addressed through liberalisation measures

How will Liberalisation help? Issues and Challenges

Creating greater ease for both local and Declining manpower

foreign professionals to practice in Malaysia

Industry comprises many small An open market

firms which lack capacity to fosters consolidation among local players

complete

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