MALAYSIAN TRADE MINISTER ON BILATERAL FTA AND APEC

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000983

SENSITIVE
SIPDIS

DEPT FOR EEB/TPP/BTA AND EAP/MTS, TREASURY FOR OASIA AND
IRS, STATE PASS FOR USTR - WEISEL AND BELL, STATE PASS FOR
FEDERAL RESERVE AND EXIMBANK, STATE FOR FEDERAL RESERVE SAN
FRANCISCO TCURRAN, USDOC FOR 4430/MAC/EAP/J.BAKER, USDA FAS
FOR OA/BIG, ITP/AAD, COMMERCE FOR 4430/MAC/MICHAEL HOGGE,
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: EAGR ECON ETRD KIPR MY PGOV EINV
SUBJECT: MALAYSIAN TRADE MINISTER ON BILATERAL FTA AND APEC


1. (SBU) Summary: Malaysia's Minister for Trade Muhyiddin
congratulated the Ambassador on the U.S. elections, noted
that Malaysia looked forward to continuing efforts to expand
trade and investment ties with U.S. and expressed the hope
that the U.S. would not shift to a more protectionist trade
stance in the face of the financial crisis and global
economic downturn. The Ambassador assured Muhyiddin that the
U.S. would continue engaging on a wide range of international
economic policy challenges. In the bilateral context, the
Ambassador told Muhyiddin, the best way for Malaysia to
foster stronger trade and investment ties was to send clear
signals to Washington conveying its willingness to negotiate
a high quality FTA, including tough areas like government
procurement and financial services. Muhyiddin said the
government was committed to economic reforms in key areas,
that change would take time, and that it would be helpful if
the U.S. was less ambitious. With regard to APEC, Muhyiddin
said Malaysia would be represented by the Deputy Prime
Minister at the Leaders Meeting. The trade agenda aside,
Muhyiddin said the GOM expected there would be substantive
discussion of international efforts to handle the financial
crisis and the global economic slowdown. End Summary.

TIME VS AMBITION


2. (SBU) Comment: Having a comfortable lead in his own
effort to gain UMNO Party support for his move into the
Deputy Prime Minister slot next March, Muhyiddin exuded ease
and confidence during the meeting. However, he was not as
well briefed by his staff on the status of our FTA talks as
might have been expected. He was under the impression that
preparations were still underway for a round at the end of
November, and had to be told that the timing of a future
round still depended on an evaluation of intersessional
progress of the FTA work plan. More importantly, while
Muhyiddin made it clear the Government of Malaysia sees the
economic necessity to move on domestic reforms that would
make Malaysia more competitive and help clear the path for
negotiating all aspects of a comprehensive FTA, its
continuing concern over domestic political sensitivities
drives its need for a longer timeframe for achieving that
goal or alternatively a "less ambitious outcome." Given that
Malaysia has such clear difficulties moving away from its
imbedded system of protectionist preferences for the Malay
majority so important to UMNO hardliners, it was somewhat
ironic that the Minister chose to express concern that the
new U.S. administration might shift to more protectionist
policy settings in an effort to preserve jobs at home. End
Comment.

WORKING TO KEEP ADDRESS INTERNATIONAL ECONOMIC ISSUES


3. (SBU) Minister Muhyiddin opened his meeting November 5
with Ambassador Keith by extending congratulations on the
just concluded U.S. elections. He emphasized that Malaysia
looked forward to continuing to work constructively with the
next U.S. administration to expand our bilateral trade and
investment ties. He also expressed the hope that the current
financial crisis and global economic slowdown would not
detract from the next administration maintaining an active
trade agenda. This was important, he noted, given that the
U.S. was Malaysia's largest export market, and Malaysia was
already facing a substantial weakening in its exports due to
the global economic downturn. Malaysia's GDP growth next
year, he added, had already been revised downward to 3.5
percent. The Ambassador made clear to Muhyiddin that the
consistent message from the USG was that "we are all in this
together" and he assured the minister that the U.S. would
continue working closely with other nations to address the
policy challenges presented by the financial crisis. He
pointed to the upcoming mid-November G-20 meeting in
Washington D.C. called for by President Bush as an ongoing
example of our active engagement.

CLEAR SIGNALS NEEDED ON FTA


4. (SBU) With regard to developing our bilateral economic
relationship, Ambassador Keith said our bilateral FTA

KUALA LUMP 00000983 002 OF 002


negotiations provided the most effective means of achieving
significant gains for both sides. The Ambassador noted that
the last round in July had gone well but that additional work
needed to be done to set up the next round. He emphasized to
Minister Muhyiddin that the most important thing Malaysia
could do in this regard was to send the U.S. administration
clear signals that Malaysia was prepared to negotiate all
aspects of the FTA, including sectors that have proven
difficult for Malaysia such as government procurement and
financial services. Recent comments from the DPM on
Malaysia's willingness to reform Malaysia's restrictive "New
Economic Policy" and to liberalize services were good but the
GOM needed to be specific about these plans in terms of
content and timing to convince the U.S. government that a
quality agreement was achievable.


5. (SBU) Muhyiddin replied that Malaysia was keen to see the
FTA concluded and pointed out that the cabinet had already
approved a slightly expanded mandate (covering competition
policy) and that the cabinet would consider a wider
liberalization of and an expanded mandate for services in the
coming weeks. The NEP, he cautioned, was still a very
politically sensitive topic. He had been forced to publicly
elaborate on the DPM's comments, clarifying that the
government was only contemplating amendments where Malaysian
firms were already competitive. Muhyiddin said he understood
that Malaysia's protectionist measures undercut its economy
in the long-term and that Foreign Investment Committee
restrictions limited access to much-needed foreign
investment. Moreover, he said, it was clear to GOM that
other countries in the region like Thailand and Vietnam
catching up to Malaysia. Nevertheless, as much as we want to
move toward liberalization, the government felt it needed to
move gradually and carefully. He assured the Ambassador the
GOM realized it needed to review existing restrictions and
that it was doing so with the intention of removing
unnecessary barriers. As an example, Muhyiddin said, pending
cabinet approval, next week the government would release a
more rapid timetable for liberalization of certain services
called for under the ASEAN FTA. Still, he added, it would be
helpful if the US was "not too ambitious" in its goals for
the FTA. The Ambassador replied that the U.S. wanted an
agreement that was good for both sides but the U.S. was
determined to conclude comprehensive "quality" agreements and
that would not change.

MULTILATERAL AND REGIONAL DEALS AND APEC


6. (SBU) Noting that the Government of Malaysia was somewhat
concerned about protectionist rhetoric used during the U.S.
presidential election, Muhyiddin said Malaysia continued to
give priority to the Doha round. Although it was locked out
of the Green Room at the last WTO Ministerial, Malaysia hoped
that parties to the agreement would preserve what was agreed
on then and move forward. As for regional trade
arrangements, Malaysia's starting point was always ASEAN. As
far as Malaysia was concerned, he said, every option, whether
ASEAN plus 3, ASEAN plus six, or the FTAAP all were seen from
the point of view of ASEAN. Given the uneven levels of
development of member countries, Muhyiddin said, flexible
timelines and a building block approach were necessary for
progress. As for the FTAAP, it was a long-term project, but
Malaysia was supportive of the second stage study being done
by APEC member economies. Muhyiddin confirmed that he would
attend the APEC Trade Ministers meeting in Lima Peru and that
Foreign Minister Rais would attend the ministerial.
However, Deputy Prime Minister Najib (recently nominated as
the next President of UMNO) would stand in for the PM at the
Leaders Meeting. Muhyiddin said he expected discussions
would focus on the financial crisis and approaches to dealing
with the global economic slowdown.
KEITH