U.S.-Malaysia FTA: Encouraging Signals

UNCLAS SECTION 01 OF 03 KUALA LUMPUR 000372

SENSITIVE

SIPDIS

DEPT FOR EEB/TPP/BTA AND EAP/MTS
DEPT PASS USTR FOR BARBARA WEISEL AND DOUGLAS BELL
USDA FAS FOR OA/BIG, ITP/AAD
COMMERCE FOR 4430/MAC/MICHAEL HOGGE
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: ECON ETRD EINV KIPR EAGR MY
SUBJECT: U.S.-Malaysia FTA: Encouraging Signals


Sensitive but Unclassified - Not for Internet Distribution

Summary and Introduction
--------------


1. (SBU) Senior Malaysian government officials reaffirmed
Malaysia's interest in continuing FTA negotiations during meetings
May 5 and 6 with Assistant USTR for Southeast Asia and the Pacific
Barbara Weisel. Senior MITI officials proposed another round in
July and noted the possibility of a follow-on round in the late
fall. The Malaysians expressed the desire to close out as many
chapters of the agreement as possible in the upcoming round and
signaled new potential flexibility in difficult areas such as
services and the possibility of scoping discussions on government
procurement. Despite the potential uncertainty created by
Malaysia's recent general elections, Malaysian officials remain
committed to the FTA negotiation process.

Chief Secretary Sidek Hassan
--------------


2. (SBU) The PM's Chief Secretary Sidek Hassan (the government's
highest ranking civil servant) acknowledged to AUSTR Weisel that
there were many difficulties yet to be resolved in the FTA
negotiations, including obtaining cabinet authority to negotiate
sensitive chapters. Nevertheless, Sidek repeatedly encouraged AUSTR
Weisel to keep the negotiations going. Sidek also acknowledged that
the leadership in Malaysia was currently focused on commodity
(particularly food grain) driven inflation and domestic politics,
but trade negotiations were still important.

Ministry of International Trade and Industry (MITI)
-------------- --------------


3. (SBU) In his meeting with AUSTR Weisel, MITI Secretary General
Dato' Abdul Rahman said that Minister Muhyiddin wanted to move
forward on FTAs in general. He also had personally signed off on
MITI's recommendation for holding another FTA negotiating round with
the U.S. in the July timeframe as well as a possible follow-on round
in the fall. AUSTR Weisel welcomed that and said both sides needed
to work toward closing out as many chapters as possible in July.
Rahman also noted that Malaysia had done preparatory work to develop
new flexibility in the services chapter, particularly with regard to
restrictions on foreign investment in the services sector. He
welcomed the EPU's efforts to inject rational policy thinking on the
liberalization of services into the FTA negotiations (see paragraph
5). Rahman said Minister Muhyiddin had specific concerns about
explaining how government procurement (GP) would benefit Malaysia
but was okay with the idea of open international tenders. He added
that the efforts of opposition controlled states to liberalize GP
could help put pressure on the Finance Ministry to move as well.
AUSTR Weisel said there were ways to deal with GP issues but
Malaysia's negotiators needed the authority to brainstorm on
possible approaches. Rahman responded that internal discussions on
liberalizing GP were being driven by Pemudah, the public/private
task force on business facilitation reform (which is chaired by
Chief Secretary Sidek). The reform process just needed some time and
he was hopeful that the cabinet would provide a broader mandate to
negotiate these chapters.


4. (SBU) MITI's Jayasiri, the working level lead for the
U.S.-Malaysia FTA talks, told AUSTR Weisel that the relevant
ministries continue to seek ways to bridge differences with the U.S.
on issues under negotiations, in anticipation of the next round of
talks. He said that MITI would seek revised cabinet mandate on
various issues, including on services and investment. On services,
Jayasiri said MITI continues to negotiate with other ministries to
deepen existing offers and to broaden offers to other sectors, such
as franchising (he said Malaysia would have new offers on
franchising as well as environmental services). Weisel welcomed the
progress, but emphasized that the U.S. continued to need a
comprehensive offer.

Economic Planning Unit (EPU) - A New FTA Role
--------------


5. (SBU) Datuk Dr. K. Govindan of EPU (the Prime Minister's economic
planning office) told AUSTR Weisel that EPU will be playing a more
active role in Malaysia's FTA negotiations. He noted that, although
MITI has long been the lead ministry on FTA talks, it could not
direct other agencies to take action. EPU planned to play such a
coordinating role, however, articulating to all relevant ministries

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the broader national interests in concluding free trade agreements.
Govindan cautioned that EPU is still getting up to speed on the
issues involving Malaysia's various pending FTA talks, and would
initially be more in a listening mode, but the agency planned to
eventually be directing economic policy. Govindan said EPU would be
studying previous U.S. FTAs, and expressed particular interest in
those agreements' coverage of government procurement, services, and
legal issues. Govindan noted that the services sector would be key
to Malaysia's future prosperity, and Malaysia should be looking at
FTAs to help make that sector more competitive.

Agriculture
--------------


6. (SBU) AUSTR Weisel passed an updated market access offer to
Ministry of Agriculture Deputy Secretary General Dato' Ibrahim bin
Muhamad. She noted that the U.S. remained concerned about Malaysia's
latest offer, which continues to omit coverage of some tariff lines
(such as certain tobacco products) and also does not bring all
tariff lines to zero at some future date (most notably regarding
alcoholic beverages). Weisel noted that overall the agriculture
chapter negotiations had made progress, and both sides should
endeavor to largely complete the chapter this year. Ibrahim noted
that other ministries have jurisdiction on certain items in the
agriculture offer (Plantations Ministry for tobacco, Finance
Ministry for alcoholic beverages). (Note: Weisel raised the
alcoholic beverages offer separately with Finance Ministry Deputy
Secretary General Dato' Ibrahim Mahaludin, who promised to pass our
concerns to his ministry's tax office).


7. (SBU) Ibrahim was open to the U.S. and Malaysian teams meeting to
discuss the current offers in advance of the next round, so that the
chapter could be closed at that round, provided both sides could
identify a mutually acceptable time and venue before July. Weisel
also raised U.S. concerns about Malaysia's restrictive proposals on
certifying U.S.-origin Halal meat, Malaysia's proposed inspection
fees for foreign meat plants, and implementation of Malaysia's new
biotech labeling law.

Competition Policy and IPR
--------------


8. (SBU) Ministry of Domestic Trade and Consumer Affairs (MDTCA)
Secretary General Dato' Mohd Zain bid Mohd Dom told AUSTR Weisel
that the ministry continued to work towards potential parliamentary
approval of Malaysia's domestic competition law by the end of 2008.
MDTCA continued to solicit the views of other ministries, the
business sector, and NGOs as it completed the draft bill. Zain noted
that MDTCA's unusually transparent approach to drafting the bill
preceded the ground-breaking March elections, and added that the new
Minister of Domestic Trade, Datuk Shahrir Abdul Samad, was a
reformer who strongly supported transparency in government
operations to the extent possible. Although the new government was
weaker than before, Zain noted that it was taking transparency and
good governance more seriously, which would encourage progress this
year.


9. (SBU) Weisel welcomed news of the new bill's progress. She
reiterated that the U.S. continued to seek inclusion of competition
policy in the FTA, and in particular a chapter that would apply to
all commercial entities, including Malaysia's government linked
companies. She underscored that the U.S. was not wedded to a
particular template and wished to craft an original chapter with
Malaysia. Zain noted that his ministry would welcome capacity
building assistance once it came time to implement the new law.


10. (SBU) Weisel told Zain that the U.S. welcomed the progress on
the IPR chapter that had been achieved over the course of the FTA
talks. Both sides should consider some quiet conversations to work
out possible tradeoffs that would bring the chapter to conclusion,
hopefully by the summer 2008 round. Zain agreed that it would be
helpful to the overall FTA progress for both sides to agree on as
many areas as soon as possible in order to encourage progress on the
remaining difficult issues.

Government Procurement
--------------


11. (SBU) Although Ministry of Finance Deputy Secretary General
Dato' Ibrahim Mahaludin told AUSTR Weisel that the Cabinet mandate
opposing negotiation of a government procurement chapter in the FTA
still stood, he suggested that the ministry might be able to engage

KUALA LUMP 00000372 003 OF 003


in informal discussions with the U.S. He attributed the outlook of
the new cabinet, as well as the recent attention to reforming
government procurement (in particular at the state level),as
instrumental in creating an atmosphere that would allow such a
discussion with the U.S. Weisel suggested that both sides find a way
to discuss the real sensitivities and how they might be addressed;
once a mandate to negotiate a GP chapter was approved, both sides
would thus be better able to put together a text in a relatively
short period.

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


12. (SBU) AUSTR Weisel's meetings with Malaysian government
officials revealed unexpectedly strong support for continued FTA
negotiations with the United States, including the scheduling of
another round mid-summer. Chief Secretary Sidek encouraged
continued talks, though he noted that the Cabinet had not considered
any FTA-related issues in recent months. MITI officials broached
the idea of a next round, asking us "when" another round would
occur, not "if". The EPU's intended new role in overseeing
Malaysia's FTA negotiations is very welcome, given the consistent
difficulties MITI has experienced over the years in conveying the
broad national interest of achieving FTAs to ministries whose
interests are primarily parochial. Time will tell how successful EPU
will be in overcoming those narrow interests.


13. (SBU) The Finance Ministry's new (albeit limited) openness to
discussing government procurement was particularly striking; the
meeting was hastily requested by the Finance Ministry in the course
of Weisel's visit, after our earlier efforts to secure such a
meeting had been rebuffed. Like GP, competition appears to be
another formerly "no go" issue for which Malaysia is reconsidering
at least informal discussions with U.S. negotiators. Although
completion of the FTA in 2008 remains a long shot, Malaysia appears
willing to push for revised Cabinet positions in many areas that
would encourage the conclusion of a number of FTA chapters, perhaps
even by the July round.


14. (U) AUSTR Barbara Weisel has cleared this cable.

KEITH