MALAYSIA HOPES TO KEEP FTA NEGOTIATIONS IN PLAY

C O N F I D E N T I A L SECTION 01 OF 02 KUALA LUMPUR 001101 SIPDIS STATE PASS USTR -- WEISEL AND BELL STATE PASS FEDERAL RESERVE AND EXIMBANK STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN SINGAPORE PASS TO SBAKER USDOC FOR 4430/MAC/EAP/M.HOGGE TREASURY FOR OASIA AND IRS GENEVA FOR USTR E.O. 12958: DECL: 12/18/2018 TAGS: ETRD ECON PGOV MY SUBJECT: MALAYSIA HOPES TO KEEP FTA NEGOTIATIONS IN PLAY REF: KUALA LUMPUR 1013 Classified By: Deputy Chief of Mission Robert G. Rapson for reasons 1.4 (b) and (d) ¶1. (C) Summary: According to senior Ministry of Trade and Industry (MITI) officials, Deputy Prime Minister Najib told the Malaysian cabinet that concluding the Malaysian-U.S. bilateral FTA was at the top of his agenda. MITI officials say Najib told cabinet members he hoped Malaysia could conclude the FTA prior to next year's APEC Leaders' Meeting in Singapore to increase the chances for a Presidential visit to Malaysia at the end of November. MITI officials note that the DPM, who is expected to become the Prime Minister in March of 2009, already has pressed for cabinet support to broaden Malaysia,s negotiating mandate and is positioned to do more to wrap up the agreement. MITI understands that concluding the agreement by November 2009 is a &tall order8 but notes Malaysia,s willingness to put the bilateral negotiations on an accelerated schedule if that is amenable to the incoming U.S. administration. End Summary. ¶2. (C) Comment: MITI senior officials here are reiterating Malaysia,s desire to continue working toward concluding the FTA with the incoming administration next year. Their statements echo the DPM,s comments to the Ambassador at their recent meeting (reftel). Malaysia clearly wants to move forward on the negotiations and the DPM apparently is trying to create more negotiating room for his team to operate. However, Malaysia needs to demonstrate much more flexibility on core economic policies like racial preferences for the Malay majority. The Embassy has made that point to senior negotiators on numerous occasions. End comment. ¶3. (C) MITI Secretary General Rahman told Econcouns December 17 that Deputy Prime Minister Najib Razak, the future prime minister, informed members of cabinet in a recent Economic Council meeting following his return from the APEC Leaders' Meeting that he was determined to conclude the bilateral FTA negotiations with the U.S. by November 2009. Rahman said this clearly would be a &tall order8 but Najib had made it clear that MITI should be prepared to hold monthly negotiating sessions if necessary to bring the negotiation to a successful conclusion by the desired date. ¶4. (C) Rahman emphasized that this desired ramp-up in the pace of the negotiations followed on the cabinet,s decision to expand Malaysia,s negotiating mandate to formally include competition policy and added flexibility in the services negotiation. Beyond that, Rahman said, DPM also had made it clear that Malaysia was ready to keep negotiating on even the most difficult issues. While Malaysia,s standing position was that certain items like bumiputera preferences were non-negotiable, the DPM supported drawing up a road map to address outstanding concerns. Rahman added that the DPM was prepared to press the cabinet to move beyond the limited mandate to brainstorm on government procurement, financial services, labor and environment. With the DPM preparing to step up to be the next Prime Minister, Rahman said he hoped it was clear that the DPM,s pro-FTA stance was a major positive. Econcouns acknowledged this but reminded Rahman that the most powerful signal the GOM could send to the incoming U.S. administration of Malaysia,s serious intent to conclude the FTA would be a clear statement that its negotiators had a full cabinet mandate to negotiate across all the chapters of the FTA. ¶5. (C) MITI Deputy Secretary General Rebecca Fatima told Econcouns in a separate conversation December 12 that during Cabinet,s recent Economic Committee discussions on the FTA which she attended, DPM Najib was forceful and sincere in his expressed commitment to concluding the FTA. She said it grew in part from DPM Najib,s general desire to strengthen ties with the U.S. as well as his pro-liberalization economic views which he shared with his brother Nazir Razak, the CEO of local bank CIMB, as well as other close economic advisors. According to Dr. Rebecca, DPM Najib and other cabinet members at the meeting were specific about their desire to conclude the FTA prior to the 2009 APEC Leaders' Meeting in KUALA LUMP 00001101 002 OF 002 Singapore. The DPM and other cabinet members were hopeful that having an FTA to sign would increase the chances that the incoming president would agree to visit Kuala Lumpur following the leaders' meeting. ¶6. (C) In addition to pushing the Cabinet and Ministries to speed up work on the FTA, Dr. Rebecca told Econcouns that the DPM also recently had asked Malaysian industry leaders to begin lobbying again to broaden support across Malaysia for the FTA. The Federation of Malaysian Manufacturers, she said, was already holding discussions with its members to see what kind of promotional efforts could be carried out in this regard. Dr. Rebecca emphasized that she expected the DPM would redouble his efforts to deliver the FTA once he became PM in March 2009. She noted that the DPM was making this push with the full understanding that Malaysia needed broader economic reform, including in politically tough areas like government procurement. Significant inter-Ministerial work on services and investment was underway at the behest of the DPM. The Ministry of Finance, she noted, already was moving on some government procurement reform measures like expanding competitive bidding through open tenders, as well as more transparent, competitive bidding on tenders restricted to bumiputera. In addition, Dr. Rebecca cautioned that as the DPM positioned Malaysia to make important concessions, he would expect to see negotiating gains for Malaysia in the FTA as well. He could not afford to settle for a one-sided deal that left him looking weak. KEITH