Identifier
Created
Classification
Origin
07KUALALUMPUR1172
2007-07-20 07:27:00
CONFIDENTIAL
Embassy Kuala Lumpur
Cable title:  

KHAIRY AND UMNO YOUTH FOCUS ON FTA, PALESTINE IN

Tags:  PGOV PREL PINR ECON ETRD EAGR EINV MY 
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VZCZCXRO7870
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #1172/01 2010727
ZNY CCCCC ZZH
P 200727Z JUL 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC PRIORITY 9673
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHHMUNA/CDR USPACOM HONOLULU HI PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 KUALA LUMPUR 001172 

SIPDIS

SIPDIS

STATE FOR EAP/MTS
STATE PASS USTR FOR BARBARA WEISEL

E.O. 12958: DECL: 07/20/2027
TAGS: PGOV PREL PINR ECON ETRD EAGR EINV MY
SUBJECT: KHAIRY AND UMNO YOUTH FOCUS ON FTA, PALESTINE IN
JULY 18 LUNCH WITH AMBASSADOR


Classified By: Ambassador Christopher J. LaFleur for reasons 1.4 (b and
d).

Summary
-------
C O N F I D E N T I A L SECTION 01 OF 03 KUALA LUMPUR 001172

SIPDIS

SIPDIS

STATE FOR EAP/MTS
STATE PASS USTR FOR BARBARA WEISEL

E.O. 12958: DECL: 07/20/2027
TAGS: PGOV PREL PINR ECON ETRD EAGR EINV MY
SUBJECT: KHAIRY AND UMNO YOUTH FOCUS ON FTA, PALESTINE IN
JULY 18 LUNCH WITH AMBASSADOR


Classified By: Ambassador Christopher J. LaFleur for reasons 1.4 (b and
d).

Summary
--------------

1. (C) Khairy Jamaluddin, influential son-in-law of PM
Abdullah, underscored his oft-publicized concerns about the
FTA, in particular regarding agriculture and government
procurement, during the Ambassador's July 18 lunch for
leaders of UMNO Youth, an important component of the dominant
United Malays National Organization party. Khairy took
exception to any attempt to adjust long-standing government
preference policies for ethnic Malays and argued that an FTA
would tip the terms of trade unfairly in the U.S. favor. The
Ambassador attempted to dispel misconceptions about the rice
trade and impact on Malay preferences, while encouraging
Khairy to focus on an FTA's long term positive effects to the
Malaysian economy. Khairy described the Malay grassroots
concern over Palestine. He also explained UMNO's process for
selecting candidates. Another leader confirmed current UMNO
Youth Chief Hishammuddin's intention to seek an UMNO vice
president position. UMNO Youth leaders expressed their
support for U.S. Embassy public affairs programming, such as
the English language teaching assistants, joint cultural
activities and the International Visitor Program. If PM
Abdullah remains in office long enough, the astute and
palpably ambitious Khairy may well be able to consolidate his
political position and become a long-term force in Malaysian
politics. End Summary.

Lunch for Youth Leaders
--------------


2. (SBU) The Ambassador hosted a lunch on July 18 for UMNO
Youth leaders, led by UMNO Deputy Youth Chief Khairy
Jamaluddin, the ambitious and influential advisor to his
father-in-law PM Abdullah Badawi. UMNO Youth Secretary Abdul

Rahman Dahlan and seven other Youth leaders accompanied
Khairy, while A/DCM, polchief, econoff and FSN political
specialist joined the Ambassador.

Khairy Highlights FTA Concerns
--------------


3. (SBU) Much of the lunch conversation revolved around the
proposed U.S.-Malaysia free trade agreement (FTA). Khairy
underscored his oft-publicized concerns about the FTA, in
particular regarding agriculture and government procurement.
He said Malaysian rice farmers remained anxious about the
possibility of increased competition from U.S. rice imports.
The Ambassador countered that an FTA was unlikely to make
U.S. rice much more competitive in Malaysia, given Malaysia's
preference for rice varieties not typically grown in the
U.S., as well as continued strong competition from other
Asian suppliers. He added that the U.S. and Malaysian
agriculture sectors were largely complementary and thus
should both benefit from an FTA. Responding to Khairy's
concern that U.S. sanitary/phytosanitary measures constituted
a non-tariff barrier that would impede Malaysian agricultural
exports, the Ambassador assured him that negotiators were
working to ensure the harmonization of such measures under
the FTA to the benefit of exporters in both countries.


4. (C) Khairy underscored the particular sensitivity within
Malaysia on the inclusion of government procurement in the
FTA. Long-standing preference policies for ethnic Malays
were a key component of such procurement, and the government
could not accept any attempt by the U.S. to limit such
policies. The Ambassador responded that the oft-repeated
assertion that the U.S. intended to seek changes or even
abolishment of the preference policies was not true, adding
that the U.S. also incorporated preference policies within
its own federal government procurement programs that it would
seek to preserve under the FTA. He asserted that Malaysia
could benefit substantially from access to the significant
U.S. government procurement market that would come with an
FTA.


5. (C) Khairy briefly raised a number of other concerns
about the FTA. He claimed U.S. investors would have a leg up
on Malaysians under the FTA in any potential investment
dispute; econoff countered that the FTA would include dispute
settlement provisions that would be similar to those used by
the WTO, and that were designed to be impartial and applied
infrequently. Khairy alleged that an FTA would turn the
terms of trade in the U.S.'s favor, and attract U.S.

KUALA LUMP 00001172 002 OF 003


investors who would reap substantial profits on the backs of
ordinary Malaysians, similar to what he claimed had occurred
in Singapore following implementation of its FTA with the
U.S. The Ambassador encouraged Khairy to focus instead on
the long term positive effects to the Malaysian economy from
an FTA with the U.S, such as the growth of higher-paying jobs
and the training of young Malaysians in the new,
higher-value-added industries that were precisely those
Malaysia needed to attract in the face of growing competition
from rapidly developing Asian neighbors. While Khairy
signaled he remained skeptical, he concluded that he could
agree to an FTA "in principle" but insisted that the details
of any agreement would be critical.

Grassroots Concerns about Palestine, Middle East
-------------- ---


6. (C) Beyond the FTA, Khairy explained that at the UMNO
grassroots constituents continued to be concerned about
events and trends in the Middle East, with Palestine and Iraq
as key issues, along with the War on Terror and U.S policies.
He said he had read the latest National Intelligence
Estimate report on Iraq and added the report contends that
Iraq war has increased Islamic radicalism, and has made the
terror threat around the world worse contrary to U.S. policy
objectives. UMNO members believe Malaysia, as OIC Chairman,
should play a more "influential" role in the Middle East.
Khairy, however, expressed his disappointment that,
"Washington does not seem to consider and take note of
Malaysia as a moderate voice." The Ambassador explained U.S.
policy toward Palestine, and highlighted the importance of
responsible governments assisting countries like Afghanistan
and Iraq to overcome their formidable difficulties. He
emphasized that as a successful Muslim-majority country,
Malaysia could assume an important role in this regard.

UMNO Internal Developments
--------------


7. (C) Khairy explained that UMNO Youth leaders are
currently involved in the UMNO divisional meetings that would
elect delegates to the annual UMNO general assembly in
November. Fortunately, UMNO did not face the same
contentious issues as last year, Khairy said, a clear
reference to Mahathir's challenge in 2006. In response to
the Ambassador's question, Khairy said he believed UMNO would
not provide live transmission of its 2007 convention in order
to avoid the controversy of last year (when live broadcast of
UMNO's chauvinistic rhetoric provoked concerns among
non-Malays). He explained that UMNO and the other parties
had to be seen as aggressively defending the interests of
their respective ethnic groups, but behind closed doors "the
parties don't talk like that to each other."


8. (C) Khairy explained UMNO's internal procedures for
selecting national and state-level candidates, describing a
process of bargaining between UMNO divisions, chief ministers
in each state, and the Prime Minister/UMNO President who
holds the final say. He commented that there would not be
much "horse trading over seats" among UMNO's coalition
partners for the coming general election as all parties would
adhere to the seat allocations from the 2004 general
election. He argued that UMNO's concessions to its non-Malay
coalition partners, such as nominating a Malaysian Indian
Congress party member to run in a Malay majority area,
represented laudable inter-ethnic politics, but this went
largely unappreciated by outside observers.


9. (C) Youth secretary Abdul Rahman Dahlan stated that
current UMNO Youth Chief Hishammuddin Tun Hussein would very
likely vie for a seat as one of three UMNO vice presidents,
thus vacating the top position in UMNO Youth. Hishammuddin
currently is making the rounds to officiate at UMNO
divisional meetings to better establish his credentials for a
vice presidential slot.

Interest in Public Affairs Programming
--------------


10. (U) The Youth leaders expressed interest in the
Embassy's successful English Language Teaching Assistant
program in the state of Terengganu, and hoped the program
could be expanded to other states. They also valued the U.S.
International Visitor Program and appreciated that the
Embassy had sent a number of their members to the United
States for under this mechanism. They recalled U.S. Embassy

KUALA LUMP 00001172 003 OF 003


support for a recent cultural event and hoped for more joint
cultural activities in the future. The Ambassador encouraged
close contacts between UMNO Youth and Embassy offices, and
the Youth leaders said they wished to continue the dialogue
with U.S. diplomats.

Comment
--------------


11. (C) UMNO Youth represents a pivotal group in Malaysian
politics, as it serves as the springboard for most future
UMNO leaders and acts as the party's most aggressive defender
of Malay rights and privileges. This was our first meeting
with Khairy since he led a rambunctious street demonstration
against Secretary Rice's visit nearly one year ago. Khairy's
well-publicized opposition to some US policies
notwithstanding, the reality is that our scheduling of this
event was delayed by his extended vacation in the United
States this summer (and his wife, the PM's daughter, remained
behind to take a seminar). There is no question that this
classic son of the cosmopolitan Malay elite is carefully
shaping his political profile to bolster his efforts to take
over the UMNO Youth leadership, faux street radicalism
included. In this, he follows the well-worn course of other
ambitious young Malay politicians, including Hishammuddin and
past UMNO Youth President, and now Deputy PM, Najib.
However, Khairy has even greater need to reinforce his street
cred with the Malay grassroots to counter the enmity of many
more senior UMNO politicians resentful of Khairy's meteoric
rise and oft-rumored manipulation of his father-in-law. In
this respect, it was obvious that UMNO Youth officials did
not include Mukhriz Mahathir in their delegation, despite his
position as international relations bureau chief, owing to
the rivalry between Khairy and Mahathir's son. Mukhriz'
absence was further evidence that the Mahathir family's
political strength has waned following the former-PM's
failure to depose his successor last year.


12. (c) Although Khairy unquestionably owes the speed of his
ascent largely to his marriage, the fact remains that he is
one of the most articulate and politically astute operators
of his generation. The Oxford-educated Khairy comes across
as well-spoken and well-read, but also as sharp-edged and
unnecessarily acerbic, especially in addressing familiar
targets of Malay intellectuals (such as U.S. Middle East
policy). At the same time, he frequently voices admiration
about U.S. democracy and closely follows U.S. political
developments (as well as other facets of American life; his
most recent newspaper column was a paean to the Apple iPhone
he acquired in LA last month). However, at 31, Khairy has
yet to acquire the ease, self-confidence and political polish
exuded by current Youth Chief (and Education Minister)
Hishammuddin. If PM Abdullah continues in office for several
more years, as now appears likely, Khairy may well have
enough time to consolidate his position. If so, this
palpably ambitious young man could be a major factor in
Malaysian politics for decades to come.


13. (C) Not surprisingly, Khairy approaches the FTA with an
eye on the potential near-term implications to his political
ambition, rather than the more intangible long-term benefits
that an FTA would bring to Malaysia. His skepticism about
the FTA is politically popular, and contrasts with the
government's infrequent and somewhat hapless attempts to
promote the FTA (leaving the Embassy in the position of
having to explain to Malaysians why the FTA will benefit
Malaysia). Although we do not expect Khairy to abandon his
public skepticism, we believe he will be more amenable to
standing aside following the next elections and we will
continue to push our views with this influential group of
UMNO Youth leaders.


LAFLEUR