THE MALAYSIA-NEW ZEALAND FTA TAKES A DETOUR

C O N F I D E N T I A L KUALA LUMPUR 000809

SIPDIS

SIPDIS

STATE PASS USTR FOR B. WEISEL AND J. JENSEN
USDOC FOR 4430/MAC/EAP/J. BAKER
TREASURY FOR OASIA


E.O. 12958: DECL: 05/04/2016
TAGS: ETRD EINV MY NZ
SUBJECT: THE MALAYSIA-NEW ZEALAND FTA TAKES A DETOUR

REF: KUALA LUMPUR 0570

Classified By: Economic Counselor Colin Helmer for reasons 1.5 B & D.


1. (C) Summary: New Zealand negotiators made progress in
some areas in their latest FTA round with Malaysia, but
encountered Malaysian stonewalling and even backtracking in
others. Problem areas included services, government
procurement, environment and labor. An NZ High Commission
officer said the poor results came as a disappointment, as
both sides planned for it to be the concluding round. NZ
officials speculate that Minister Rafidah may have instructed
Malaysian negotiators to take a tougher line following a
rough session in parliament, where she was forced to defend
the government's plan to negotiate an FTA with the U.S. We
caution against drawing too close a parallel between the New
Zealand experience and our upcoming FTA negotiations, but we
may see more Malaysian posturing than we previously
anticipated. End summary.

Advancing to the "Red Lines"
--------------


2. (C) New Zealand and Malaysian negotiators held what was
supposed to be their final FTA round the week of April 24,
but failed to conclude an agreement. According to an NZ High
Commission officer, negotiators managed to complete ad
referendum text regarding rules of origin, customs,
intellectual property, sanitary and phytosanitary measures
(SPS),economic cooperation, technical barriers to trade
(TBT),and competition policy. Text for the goods chapter is
very near completion. In other areas, however, Malaysian
negotiators offered no flexibility and in some cases even
backtracked on previous positions. The NZ officer said
Malaysian negotiators declared "red lines" so frequently that
it became a joke within the New Zealand delegation that there
would soon be a shortage of red ink in Malaysia.


3. (C) In services, which New Zealand considers a key
"offensive" area, Malaysian negotiators have been reluctant
to accord most favored nation (MFN) status. Malaysian
officials insisted on a positive list approach and carved out
all but a few areas that are not of interest to New Zealand.
Malaysia's lead services negotiator only appeared for one of
the five days of the round, leaving matters to less senior
officers who proved unwilling to discuss alternatives.
(Comment: NZ negotiators wonder if her absence might have
been intentional, as this Malaysian negotiator is known to be
a "straight shooter." We share their suspicion.)

Backtracking to Nowhere
--------------


4. (C) The Malaysian team did not even bring a government
procurement negotiator to the table this round, after having
discussed procurement in previous rounds. Similarly,
Malaysia's lead negotiator announced that environment and
labor could not be part of the agreement, after having
negotiated text on these issues previously. New Zealand
officials who had traveled from Wellington with the
expectation that they would be engaging on these matters,
were left with nothing to do. In the area of investment,
Malaysian officials withdrew previous concessions, leaving a
narrow package with "zero benefits" for New Zealand.


5. (C) Overall, the NZ officer characterized the New
Zealand team as "frustrated, disappointed and bruised" by the
Malaysian approach to this round. He said that there was a
"dramatic change in the atmosphere" in this session, with
Malaysian negotiators becoming increasingly wary of giving
any ground. He speculated that the change was due to a
recent difficult session that MITI Minister Rafidah had in
parliament. With backbenchers and opposition members
questioning the government's plan to negotiate an FTA with
the U.S., Rafidah was forced to take a strong defensive
stance that Malaysian interests would be protected. NZ
officials suspect that Rafidah gave instructions to the
Malaysian team to take a tougher line in their negotiations
to avoid concessions that could be seen as openings for the
U.S.

Where to Now?
--------------


6. (C) There has been no discussion of when the next
Malaysian-NZ round might be held. The NZ officer said that
on his side the decision on where to go from here would be
made at the political level in Wellington. He thought it
very unlikely that his government would agree to an FTA
without greater access on services and some mention of
environment and labor. He observed that working level
negotiators had taken the process a long way. There is a
significant amount of agreed text. But he felt that further
progress would require political level decisions: either for
New Zealand to settle for much less than it wanted, or for
Malaysia to accord greater benefits than it currently appears
willing to offer.

Your Mileage May Vary
--------------


7. (C) Comment: New Zealand is facing the same difficulties
as Australia (see reftel) in negotiating chapters on
financial services and government procurement with Malaysia.
Both countries recent experiences indicate that these will be
challenging sectors for U.S. negotiators as well. However,
we would caution against drawing too close a parallel between
what happened in the New Zealand-Malaysia negotiations and
what might happen in our first FTA round. As the NZ officer
himself noted, Malaysia will respond differently to its
largest trading partner and largest source of FDI, than it
does to a small country like New Zealand. That said we still
may encounter more Malaysian posturing than we previously
anticipated, should Rafidah feel the need to instruct her
troops to be seen as standing up to the U.S.
LAFLEUR