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R 040959Z MAY 06
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 6555
INFO RUEHWL/AMEMBASSY WELLINGTON 0504
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEHRC/USDA FAS WASHDC

C O N F I D E N T I A L KUALA LUMPUR 000809 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR FOR B. WEISEL AND J. JENSEN 
USDOC FOR 4430/MAC/EAP/J. BAKER 
TREASURY FOR OASIA 
 
 
E.O. 12958: DECL: 05/04/2016 
TAGS: ETRD EINV MY NZ
SUBJECT: THE MALAYSIA-NEW ZEALAND FTA TAKES A DETOUR 
 
REF: KUALA LUMPUR 0570 
 
Classified By: Economic Counselor Colin Helmer for reasons 1.5 B & D. 
 
¶1.  (C)  Summary:  New Zealand negotiators made progress in 
some areas in their latest FTA round with Malaysia, but 
encountered Malaysian stonewalling and even backtracking in 
others.  Problem areas included services, government 
procurement, environment and labor.  An NZ High Commission 
officer said the poor results came as a disappointment, as 
both sides planned for it to be the concluding round.  NZ 
officials speculate that Minister Rafidah may have instructed 
Malaysian negotiators to take a tougher line following a 
rough session in parliament, where she was forced to defend 
the government's plan to negotiate an FTA with the U.S.  We 
caution against drawing too close a parallel between the New 
Zealand experience and our upcoming FTA negotiations, but we 
may see more Malaysian posturing than we previously 
anticipated.  End summary. 
 
Advancing to the "Red Lines" 
---------------------------- 
 
¶2.  (C)  New Zealand and Malaysian negotiators held what was 
supposed to be their final FTA round the week of April 24, 
but failed to conclude an agreement.  According to an NZ High 
Commission officer, negotiators managed to complete ad 
referendum text regarding rules of origin, customs, 
intellectual property, sanitary and phytosanitary measures 
(SPS), economic cooperation, technical barriers to trade 
(TBT), and competition policy.  Text for the goods chapter is 
very near completion.  In other areas, however, Malaysian 
negotiators offered no flexibility and in some cases even 
backtracked on previous positions.  The NZ officer said 
Malaysian negotiators declared "red lines" so frequently that 
it became a joke within the New Zealand delegation that there 
would soon be a shortage of red ink in Malaysia. 
 
¶3.  (C)  In services, which New Zealand considers a key 
"offensive" area, Malaysian negotiators have been reluctant 
to accord most favored nation (MFN) status.  Malaysian 
officials insisted on a positive list approach and carved out 
all but a few areas that are not of interest to New Zealand. 
Malaysia's lead services negotiator only appeared for one of 
the five days of the round, leaving matters to less senior 
officers who proved unwilling to discuss alternatives. 
(Comment:  NZ negotiators wonder if her absence might have 
been intentional, as this Malaysian negotiator is known to be 
a "straight shooter."  We share their suspicion.) 
 
Backtracking to Nowhere 
----------------------- 
 
¶4.  (C)  The Malaysian team did not even bring a government 
procurement negotiator to the table this round, after having 
discussed procurement in previous rounds.  Similarly, 
Malaysia's lead negotiator announced that environment and 
labor could not be part of the agreement, after having 
negotiated text on these issues previously.  New Zealand 
officials who had traveled from Wellington with the 
expectation that they would be engaging on these matters, 
were left with nothing to do.  In the area of investment, 
Malaysian officials withdrew previous concessions, leaving a 
narrow package with "zero benefits" for New Zealand. 
 
¶5.  (C)  Overall, the NZ officer characterized the New 
Zealand team as "frustrated, disappointed and bruised" by the 
Malaysian approach to this round.  He said that there was a 
"dramatic change in the atmosphere" in this session, with 
Malaysian negotiators becoming increasingly wary of giving 
any ground.  He speculated that the change was due to a 
recent difficult session that MITI Minister Rafidah had in 
parliament.  With backbenchers and opposition members 
questioning the government's plan to negotiate an FTA with 
the U.S., Rafidah was forced to take a strong defensive 
stance that Malaysian interests would be protected.  NZ 
officials suspect that Rafidah gave instructions to the 
Malaysian team to take a tougher line in their negotiations 
to avoid concessions that could be seen as openings for the 
U.S. 
 
Where to Now? 
------------- 
 
¶6.  (C)  There has been no discussion of when the next 
Malaysian-NZ round might be held.  The NZ officer said that 
on his side the decision on where to go from here would be 
made at the political level in Wellington.  He thought it 
very unlikely that his government would agree to an FTA 
without greater access on services and some mention of 
environment and labor.  He observed that working level 
negotiators had taken the process a long way.  There is a 
significant amount of agreed text.  But he felt that further 
progress would require political level decisions:  either for 
New Zealand to settle for much less than it wanted, or for 
Malaysia to accord greater benefits than it currently appears 
willing to offer. 
 
Your Mileage May Vary 
--------------------- 
 
¶7. (C)  Comment:  New Zealand is facing the same difficulties 
as Australia (see reftel) in negotiating chapters on 
financial services and government procurement with Malaysia. 
Both countries recent experiences indicate that these will be 
challenging sectors for U.S. negotiators as well.  However, 
we would caution against drawing too close a parallel between 
what happened in the New Zealand-Malaysia negotiations and 
what might happen in our first FTA round.  As the NZ officer 
himself noted, Malaysia will respond differently to its 
largest trading partner and largest source of FDI, than it 
does to a small country like New Zealand.  That said we still 
may encounter more Malaysian posturing than we previously 
anticipated, should Rafidah feel the need to instruct her 
troops to be seen as standing up to the U.S. 
LAFLEUR