U.S.-MALAYSIA FTA - GOM WORKING BEHIND THE SCENES

C O N F I D E N T I A L KUALA LUMPUR 001763

SIPDIS

SIPDIS

STATE PASS USTR FOR BARBARA WEISEL, JERI JENSEN
USDOC FOR 4430/MAC/EAP/BAKER
TREASURY FOR OASIA

E.O. 12958: DECL: 09/20/2016

TAGS: ETRD EINV EAGR MY
SUBJECT: U.S.-MALAYSIA FTA - GOM WORKING BEHIND THE SCENES


Classified By: Deputy Chief of Mission David Shear for Reason 1.5 (b)


1. (C) Summary. The new Deputy Secretary General for Trade
in the Ministry of International Trade and Industry (MITI)
assured econoffs that Malaysian negotiators would soon obtain
Cabinet approval to address the key substantive issues in our
bilateral FTA talks. She said MITI was engaging in extensive
interagency discussions out of the public eye to iron out
interagency differences and make Cabinet approval more
straightforward. She acknowledged the importance of
inter-sessional work, but said this must wait for cabinet
approval first. She confirmed that Malaysian negotiators
understand that U.S. TPA legislation imposes a real deadline,
but observed that the accelerated schedule runs counter to
Malaysia,s preferred way of doing business. She speculated
that the U.S. and Malaysia would be able to reach agreement
on goods market access and investment with relative ease, but
said devising a mutually acceptable approach to services
would continue to challenge negotiators. Our sense is that
MITI is finding the Malaysian inter-agency process more
difficult than expected, but that the government,s
commitment to the negotiations remains firm. End summary.


2. (C) Rebecca Fatima Sta Maria, MITI,s new Deputy Secretary
General for Trade, assured econoffs in a get-acquainted
meeting September 20 that Malaysian officials are working
hard behind the scenes to move the FTA process forward.
Rebecca said MITI is engaging in extensive discussions with
other relevant ministries to iron out issues, with the goal
of presenting to the cabinet a draft paper on negotiating
authority that could be approved by ministers without
difficulty. She claimed that MITI was "almost there" in
terms of finalizing a draft. She also noted that MITI is
working more closely with Parliament given its increasing
attention to the FTA process. She suggested such engagement
would be beneficial over the long run, but slowed the
bureaucratic process to a certain extent.


3. (C) Econ Counselor underscored the importance of
inter-sessional work to ensure a productive third round, and
noted in particular the U.S desire to exchange market access
offers. Rebecca said that Malaysia understood that
inter-sessional work was important, though it would continue
to be constrained until after cabinet approval of the draft
paper granting negotiating authority. Econ Counselor
suggested that there might be non-controversial areas that
could be discussed in advance of the Cabinet approval, such
as currently stalled efforts to hold a DVC on biotechnology
regulatory systems. Rebecca took the idea on board, but
appeared visibly uncomfortable with the idea of talking in
advance of the Cabinet ruling. (Comment: MITI officials
clearly want to avoid activities that might be construed as
presuming on the Cabinet,s prerogatives.)


4. (C) Econ Counselor stressed that TPA expiration is a
genuine deadline that would necessitate a lot of work on both
sides in order to reach an agreement by early 2007. Rebecca
responded that the GOM recognizes the tight negotiating
schedule that TPA imposes, but added that it is forcing
Malaysia to accelerate its consideration of many issues that
it would prefer to deliberate over time. She added that some
Malaysian negotiators were taken aback by the urgent tone in
some earlier negotiating sessions, which "grated" on
Malaysian feelings. She underscored the Malaysian preference
for seeking mutual agreement through gradual persuasion,
which of course is a time-consuming process.


5. (C) Rebecca provided her personal view on several FTA
issues from the perspective of an official who is relatively
new to the process (though she said she has been involved
behind the scenes in developing the Malaysian position on the
investment chapter). She speculated that both sides would be
able to reach agreement on goods market access issues with
relative ease, given Malaysia,s generally low-tariff
approach to most goods. She also suggested that Malaysia
would accept a negative list approach in the investment
chapter. However, she said that devising a mutually
acceptable approach to negotiating a services chapter would
continue to pose a challenge.


6. (C) Comment: Rebecca emphasized the depth and
extensiveness of the Malaysian inter-agency consultations,
and the pains MITI officials are taking to ensure that all
parties are on board with the paper that will be submitted to
the Cabinet. Our sense is that this process has proved more
difficult than expected, and undoubtedly was complicated by
the recent turnover in leadership at MITI. However, she also
made clear that MITI expects a smooth passage through Cabinet
once inter-agency differences are ironed out. This
reinforces the message that we have been hearing from other
corners, notably in Prime Minister Abdullah,s comments to
the press in New York, that the government,s commitment to
the negotiations remains firm.
LAFLEUR