Malaysia will allow foreign automakers to build smaller cars in the country and seek to become a manufacturing hub for energy-efficient vehicles under a revised national automotive policy announced Monday.

The new policy ends national automaker Proton’s protection from foreign competition as Southeast Asia’s third-largest economy competes with Thailand for investment by giving non-Malaysian manufacturers the go-ahead to build energy-efficient cars with engines of 1.8L or less.

Until now, foreign car companies could build vehicles only with engines 1.8L or larger.

“The National Automotive Policy (NAP) 2014 announced today will transform Malaysia’s automotive industry to be one of the important components for our economy,” the government says in a statement.

The automotive industry contributed 30 billion ringgit ($9 billion) to the national gross domestic product in 2013 and employs about 550,000 workers.

The objectives of the new NAP include promoting a competitive and sustainable domestic automotive industry; making Malaysia the regional hub in production of energy-efficient vehicles; working to sustainably increase value-added activities; and supporting greater exports of vehicles and automotive components.

The NAP aims for at least 200,000 vehicles to be sold overseas, and for component exports to reach a minimum value of MYR10 billion ($3 billion) in 2020.

Central to this policy is the vision of Malaysia becoming an energy-efficient-vehicle hub.

“This encompasses strategies and measures to strengthen the entire value chain of the automotive industry and will also lead to environment conservation, high-income job creation, transfer of technology and creating new economic opportunities for local companies,” the statement says.

The global definition of EEV, it says, applies to vehicles that meet a set of specifications in terms of carbon emissions and fuel consumption. The term encompasses fuel-efficient gasoline vehicles, hybrids, electric vehicles and alternatively fueled vehicles such as those powered by compressed natural gas, liquefied petroleum gas, biodiesel, ethanol, hydrogen and fuel cells.

“Based on this vision, about 85% of vehicles produced in Malaysia in 2020 will be EEVs,” the statement says.