SCENESETTER FOR VISIT TO MALAYSIA BY DEPUTY U.S.

C O N F I D E N T I A L SECTION 01 OF 03 KUALA LUMPUR 000061 SIPDIS DEPT PASS TO USTR: AMBASSADOR MARANTIS E.O. 12958: DECL: 01/28/2020 TAGS: ECON ETRD PROG PREL MY SUBJECT: SCENESETTER FOR VISIT TO MALAYSIA BY DEPUTY U.S. TRADE REPRESENTATIVE AMBASSADOR MARANTIS Classified By: Classified by Deputy Chief of Mission Robert G. Rapson f or reason 1.4 (b and d) Summary and Introduction -------------- ¶1. (C) Ambassador Marantis, Embassy Kuala Lumpur warmly welcomes your visit to Malaysia, which comes at a moment of opportunity in U.S.-Malaysia relations. In his nine months in office, Prime Minister Najib Tun Razak has demonstrated a more pragmatic and action-oriented approach than his predecessor and he appears to be more inclined to move Malaysia at least some distance toward the international mainstream on issues of importance to the United States. In this context, our efforts are focused on expanding the trade and investment dimensions of our ties, continuing our good security cooperation with Malaysia, and deepening our partnership on key global issues, including Malaysia's diplomacy towards Iran and Afghanistan. Robust trade and investment ties remain the solid foundation of our relationship with Malaysia, our 18th largest trading partner. Malaysia is studying the Trans Pacific Partnership Initiative, but has given no indication yet as to whether or not it will seek to participate. ¶2. (SBU) During your visit, we suggest you focus on the following themes and objectives with your Malaysian counterparts: -- Reiterate the USG,s commitment to economic growth through trade liberalization; -- Highlight the priority the Administration is giving to the Trans Pacific Partnership initiative, and the role that the TPP will play in promoting economic competitiveness and trade opportunities in the region; -- Encourage Malaysia, when it's ready, to engage TPP members about process and requirements for joining. End Summary and Introduction. The Broader Relationship in Context -------------- ¶3. (SBU) Robust trade and investment ties remain the solid foundation of our relationship with Malaysia, our 18th largest trading partner (bilateral trade totaled USD 44 billion in 2008). The GOM has been an important partner on counterterrorism when it serves Malaysia's own security interests, and we enjoy expanding law enforcement cooperation as well as evolving military-to-military ties. Mil-mil engagement continues to expand in frequency and quality, as is evidenced by the increase in ship visits over the last four years, from approximately six per year to over 27 in ¶2009. Malaysia already hosts a regional Humanitarian Assistance / Disaster Relief (HA/DR),and we have been working to improve our disaster relief cooperation. Our people-to-people ties build on decades of Malaysian students studying in America (5,400 Malaysian students studied in the U.S. during in 2007-2008). On the environmental front, we anticipate that Malaysia will eventually support the Copenhagen accord. The emergence of new administrations in both our countries has provided expanded opportunities to pursue vigorous public outreach to often-skeptical, but now more receptive, Muslim Malay audiences. Najib and His Cabinet Seek Better U.S.-Malaysia Ties -------------- -------------- ¶4. (C) PM Najib has a more nuanced sense than his predecessor, Abdullah Badawi, of international politics as well as Malaysia's place in the region and the world. Najib places a priority on foreign relations beyond Malaysia's traditional reference points of the Non-Aligned Movement (NAM) and the Organization of the Islamic Conference (OIC). Although it would be inapt to describe Najib as pro-Western, the UK-educated Prime Minister recognizes the benefits to Malaysia of engaging the U.S., sustaining access to our market and U.S. investment, along with rapidly developing ties to China and India, and of participating in international institutions. He has given explicit instruction to his cabinet to improve relations with the U.S. Over the past year, and with the advent of the new U.S. administration, we have seen an uptick in the tempo of our senior-level bilateral interactions, to include the President's extended phone conversation with Najib in June, Foreign Minister Anifah's meeting with Secretary Clinton in DC in May, Deputy Secretary Steinberg's visit to Kuala Lumpur in September, and Special Advisor Einhorn's visit in October. The Economy and Trade Relations with the U.S. KUALA LUMP 00000061 002 OF 003 -------------- ¶5. (SBU) The global recession led to dramatic declines in exports and investment in 2009 in Malaysia. Malaysia's economy was estimated to have contracted by three percent in 2009 and is expected recover slowly in 2010. Hence, the political stakes are high for Najib, who must ensure that the economy continues to provide growth and prosperity to a large middle class. Najib has used the recession to push forward some economic reforms designed to improve Malaysia,s competitiveness and Najib recognizes that more reforms are needed. This potentially presents opportunities for our trade and investment agenda specifically with regard to market access issues related to government procurement and competition policy, among others. ¶6. (SBU) While it is not yet ready to join, Malaysia is interested in discussions related to the Trans-Pacific Partnership regional trade agreement. If it decided to join, it could make use of much of the work done during the U.S.-Malaysia Free Trade Agreement negotiations. In a meeting on November 17, Ministry of International Trade and Industry (MITI) Secretary General Rahman told visiting AUSTR Weisel that the Government of Malaysia understood that the U.S. would be shifting its emphasis from bilateral to regional trade negotiations. Rahman noted that MITI had been preparing a paper to present to Cabinet seeking a mandate on key outstanding issues related to concluding the bilateral FTA and would now revise that paper to also raise questions related to participation in the TPP. While Malaysia had not yet considered seriously whether it would be interested in joining the TPP, Rahman said he believed, given the U.S. shift to a regional focus and the participation of countries such as Vietnam, Malaysia needed to consider this course. MITI contacts told Embassy officials that intergovernment deliberations are ongoing, and that while the number of ministries opposing TPP is small, some of them are very vocal in their concerns. Competition Policy and IPR Reforms Coming Soon -------------- - ¶7. (SBU) Ministry of Domestic Trade and Consumer Affairs Secretary General Zain told Weisel that Malaysia had already done a lot of work towards the goals of the original U.S.-Malaysia FTA. He said that the new competition policy law would likely be tabled in the parliament "early next year." Government-linked companies would not be exempted under the new law and the "competition commission" established by the law would be independent, with limited Ministry oversight. Reviewing Malaysia's progress in IPR reforms, Zain said that Malaysia was in the process of amending several acts, referring to the camcording law, and possible changes to the data exclusivity in pharmaceutical and medical product approval process. He said that Malaysia would meet the standards that the U.S. had been seeking in our bilateral FTA by the end of 2010. Government Procurement -------------- ¶8. (SBU) Commenting on possible liberalization of government procurement, Zain noted that the domestic policy process for consideration of changes is proceeding, but of all the areas of economic policy reform, it was the most politically sensitive and "would not be an easy task." Domestic Politics -------------- ¶9. (C) The broader domestic context is more settled than a year ago, but worrisome factors are still embedded in the system. Najib came to power as Prime Minister in April 2009 in the midst of domestic political discord that raises long-term questions regarding the continued dominance of his ruling UMNO party, in power since independence in 1957. He replaced former PM Abdullah Badawi, who was eased out after the ruling National Front (BN) coalition lost its near-perpetual two-thirds majority control of Parliament--and five of 13 states--in the March 2008 general elections. Najib successfully presided over the October 2009 UMNO national convention, which bolstered his leadership, but is finding it challenging to identify and implement popular political reform measures while maintaining UMNO's tight control over state levers of power and patronage. Opposition leader Anwar Ibrahim remains at risk of imprisonment over what most observers would agree are politicized charges of sodomy; his trial begins on February 2. Malaysia has a long record of religious tolerance, but non-Muslims are concerned about what they see as creeping Islamization of Malaysian society. A KUALA LUMP 00000061 003 OF 003 contentious issue in January was whether non-Muslim Malay-language religious publications could use the word "Allah" to refer to God, which has lead to widespread public discord and, from January 8-11, arson attacks on at least twelve Christian churches in five different states. The government recently made three sets of arrests in connection with the attacks. Foreign Policy: UN, Middle East/Iran, and ASEAN -------------- --- ¶10. (C) Malaysia's foreign policy is not well aligned with that of the United States. Instead, it is Non-Aligned Movement (NAM)-centric which leads Malaysia to vote opposite the U.S. position on almost all important UN issues. Malaysia claims to enforce the letter of UNSCR resolutions, but it has not entered into the spirit of putting pressure on Iran to relinquish its nuclear weapons development programs. U.S. support for Malaysia joining the Somalia anti-piracy Contact Group was a useful start to moving Malaysia toward more engagement in multilateral security structures. Malaysia is a leading member of ASEAN, and could play a more positive role in Southeast Asian conflict resolution and ASEAN's approach to Burma to bring about democratic change in that country. The one foreign policy issue that resonates most profoundly with the Malaysian public is the Israel-Palestine conflict, where predominantly Muslim Malaysians (55 percent of the population) identify with the Palestinians and criticize U.S. support of Israel. Non-proliferation and Export Control Law -------------- ¶11. (C) The GOM supports the Non-Proliferation Treaty (NPT) regime, with emphasis on the need for all countries to denuclearize. Malaysia claims to enforce the letter of UNSCR resolutions, but it has not entered into the spirit of putting pressure on Iran to relinquish its nuclear weapons development programs, perhaps primarily due to the widespread public perception here that Iran's denial of a weapons program can be taken at face value. We remain concerned that Malaysia remains a key transit point for proliferation activities. Equally of concern has been the lack of momentum in passage of an export control law, which is critical for Malaysia to be able to take the kind of actions we want to stem growth in transshipments of sensitive technologies to UN proscribed entities. Most recently, we are paying close attention to the recent disclosure that two F-5 jet engines have disappeared. The disappearance of the engines, whose use and distribution is regulated by an agreement between the U.S. and Malaysia, could be a simple case of graft, but we cannot discount the possibility that they were smuggled to a third country like Iran. The GOM is investigating and has indicted two individuals. KEITH