VZCZCXRO7252
RR RUEHCHI RUEHDE RUEHDIR RUEHDT RUEHHM RUEHNH
DE RUEHKL #0569/01 0870704
ZNR UUUUU ZZH
R 280704Z MAR 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 8854
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHAM/AMEMBASSY AMMAN 0085
RUEHAK/AMEMBASSY ANKARA 0084
RUEHLB/AMEMBASSY BEIRUT 0021
RUEHDM/AMEMBASSY DAMASCUS 0030
RUEHTV/AMEMBASSY TEL AVIV 0141
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 KUALA LUMPUR 000569 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR WEISEL, JENSEN 
 
E.O. 12958: N/A 
TAGS: ETRD MY PREL XF GCC
SUBJECT: MALAYSIA UPGRADING ITS MIDDLE EAST TRADE RELATIONS 
 
Sensitive But Unclassified 
 
Summary and Introduction 
------------------------- 
 
¶1. (SBU) Recent visits of senior Malaysian government 
officials to the Middle East have highlighted Malaysia,s 
interest in expanding its trade and investment ties with the 
region, seemingly in parallel with Malaysia's new diplomatic 
focus on West Asia.  Malaysian trade with the region is 
growing strongly, and Malaysia hopes to maintain such growth 
by promoting sectors in which it has strong expertise, in 
particular the construction of large infrastructure projects. 
 Malaysia is reinvigorating its long-moribund joint trade 
committees in the region, is leading attempts to reach a 
trade preferential system among members of the Organization 
of the Islamic Conference (OIC), and recently suggested the 
time had come for it to consider FTA negotiations with the 
Gulf Cooperation Council (GCC) countries.  Despite the recent 
strong growth and the high-level attention, however, 
Malaysia,s trade with the region constitutes less than 4% of 
its total trade.  The United States and countries in East and 
Southeast Asia will remain Malaysia's principal trade and 
investment partners for the foreseeable future. End Summary. 
 
¶2. (U) Senior Malaysian government officials, including the 
Prime Minister, Deputy Prime Minister and several other 
ministers, have promoted stronger economic ties with the 
Middle East on recent visits to that region.  Trade Minister 
Rafidah Aziz returned to the region in late March for a 
follow-up trade and investment mission to the UAE, Qatar, 
Bahrain and Saudi Arabia.  Though these trips apparently were 
scheduled some time ago, and the PM is traveling frequently 
to the region given his position as chair of the Organization 
of the Islamic Conference (OIC), these visits reflect the 
increasing economic importance of the region to Malaysia. 
 
Fast-Expanding Two-Way Trade 
---------------------------- 
 
¶3. (U) According to Malaysian government statistics, two-way 
trade between Malaysia and West Asia (which it defines as the 
countries of the Arabian Peninsula, as well as Iran, Iraq, 
Syria, Jordan, Lebanon, and Turkey) amounted to 29.5 billion 
Malaysian ringgit (approximately USD 8.5 billion) in 2006, an 
increase of over 30 percent from 2005.  Imports from West 
Asia to Malaysia increased by 40.4% while Malaysian exports 
to the region increased by 20.8% in 2006 compared to 2005. 
Malaysia,s largest trading partner in the region is the 
United Arab Emirates, accounting for 30.6% of Malaysia,s 
trade with the region, followed by Saudi Arabia (27.1%), Iran 
(9.8%), Oman (9.4%), Turkey (6.7%), and Kuwait (4.4%).  The 
region,s largest single exporter to Malaysia is Saudi Arabia 
(with 42.3% of the region,s exports), while the UAE is the 
largest importer from Malaysia (45.2% of Malaysian exports to 
West Asia). 
 
The PM Pushes Trade and Investment Opportunities 
--------------------------------------------- --- 
 
¶4. (U) Prime Minister Abdullah Badawi,s late February visit 
to Syria included an announcement that Syria is seeking 
Malaysia,s participation in completing the remaining 60 
kilometers of the Damascus Ring Road, a project reportedly 
worth 2.5 billion Malaysian ringgit (USD 714 million). 
Abdullah also announced other Malaysian-Syrian joint ventures 
worth 1.8 billion Malaysian ringgit (USD 515 million) in the 
areas of real estate development and higher education. 
Malaysian Works Minister Samy Vellu further noted that Syria 
was seeking Malaysian participation in the design of a new 
international airport and the construction of low cost houses 
as well as hospitals. 
 
¶5. (U) At Abdullah,s subsequent stop in Yemen, both 
countries announced the establishment of a joint trade 
committee (JTC) to facilitate bilateral trade and investment, 
to be chaired by the trade and industry ministers of both 
countries (in Malaysia the Minister of International Trade 
and Industry, or MITI).  Malaysian firms reportedly secured 
7.68 billion ringgit (USD 2.19 billion) worth of projects, 
primarily for road construction and the development of power 
plants and power transmission projects. 
 
KUALA LUMP 00000569  002 OF 003 
 
 
 
Trade Minister Rafidah Keeps Up The Pressure 
-------------------------------------------- 
 
¶6. (U) Minister of International Trade and Industry Rafidah 
Aziz, who accompanied the PM to Syria and Yemen, returned to 
the Middle East in late March to lead a trade and investment 
mission to the UAE, Qatar, Bahrain, and Saudi Arabia.  The 
last country on the mission includes a specific "construction 
marketing mission" with stops in Jeddah and Riyadh, 
reflecting Malaysia,s intention to export its significant 
construction expertise. Malaysia is particularly eager to 
promote its construction sector since it is the only 
significant economic sector that has contracted in recent 
years, due to a general downshifting in the development of 
mega-infrastructure projects inside Malaysia. 
 
¶7. (SBU) At Rafidah,s stop in Dubai on March 22, she 
announced that Malaysia had raised the possible launch of 
free trade agreement (FTA) negotiations with the Gulf 
Cooperation Council (GCC) countries (Saudi Arabia, Bahrain, 
Kuwait, Oman, Qatar and the UAE), and was waiting for a 
response from the GCC. However, Ho Siew Ching, Principal 
Assistant Director for West Asia at MITI, told econoff that 
any launch of an FTA with the GCC, or with any of its member 
states, was not imminent, due in part to resource constraints 
within MITI that inhibit its ability to launch new FTA 
negotiations.  Malaysia was more likely to continue using its 
JTCs, which it now has with most of the region,s countries 
(except Saudi Arabia and Bahrain), as forums for 
government-to-government discussions on trade and investment. 
 These JTCs, similar to the Trade and Investment Framework 
Agreements that the United States has signed with many 
countries, have been in place with many of the region,s 
countries for several decades, but for the most part have 
been moribund until recently, according to Ho. 
 
¶8. (SBU) In addition to its interests in reviving the JTCs, 
and in eventually launching an FTA with the GCC, Ho added 
that Malaysia was also a strong supporter of the OIC,s 
long-standing goal to implement a trade preferential system 
(TBS-OIC) among its members.  She noted that progress was 
being made under PM Abdullah,s OIC chairmanship, with a 
second round of TPS-OIC negotiations having been held in 
November 2006 in Turkey, and a target implementation date set 
for January 1, 2009. 
 
¶9. (SBU) Malaysia,s evolving approach to its trade relations 
in the Middle East increasingly is focused on oil-rich states 
seeking to diversify their economies into areas beyond the 
petroleum sector, Ho told econoff.  Almost half of 
Malaysia,s exports go to the UAE, which Malaysia sees as a 
good match for its most competitive sectors, including not 
only construction but also the ICT sector and Islamic 
financing.  In the latter area, Malaysia is also welcoming 
greater participation in its own Islamic banking sector by 
Middle Eastern firms.  Banks from Qatar, Kuwait and Saudi 
Arabia have received licenses from the Malaysian central bank 
to establish a number of branches in Malaysia, despite a 
history of foreign firms generally facing significant 
constraints in operating in this sector.  Malaysia also hopes 
to attract increasing numbers of Mideast visitors, including 
for medical tourism and education. 
 
A Businessman,s View 
-------------------- 
 
¶10. (SBU) A Malaysian business leader recently told Econ 
Counselor about his firm,s first foray into the Middle East: 
 a project to build two wharves in Saudi Arabia.  He said he 
was surprised at how much easier it was to do business in the 
Middle East, in contrast to neighboring Indonesia.  As a 
Malay, this businessman could negotiate with his Indonesian 
clients in his own language.  But in Saudi Arabia, he found 
"the decisions are faster, the corruption is lower and you 
know the check won,t bounce."  He plans to reallocate some 
of his promotional resources from ASEAN countries to the Arab 
market. 
 
Comment 
------- 
 
 
KUALA LUMP 00000569  003 OF 003 
 
 
¶11. (SBU) Expanding trade and investment ties with the Middle 
East is a strategy with few disadvantages for Malaysia. 
Malaysia,s economy largely complements the economies of the 
Middle East rather than competes with them.  Flush with 
petroleum revenue and seeking sustainable development beyond 
the energy sector, many of the region,s countries find it 
attractive to do business with a country that not only has 
real experience in advancing development (especially when 
"development" means large scale infrastructure projects like 
highways, airports, and skyscrapers), but also is a Muslim 
majority state. Leveraging his OIC chair, Prime Minister 
Abdullah has strengthened Malaysia,s political ties with the 
region, and lobbied for a say in Middle East peace issues. 
In parallel, Malaysia is using these ties to push for 
increasing contracts for Malaysian firms.  Abdullah champions 
an economic and development agenda within the OIC, and 
promotion of greater economic linkages within the Muslim 
world, efforts that coincide neatly with Malaysia's own 
overseas trade and investment goals. 
 
¶12. (SBU) Trade Minister Rafidah,s statement on the possible 
launch of an FTA with the GCC reflects the GOM,s increasing 
awareness that Malaysia has a lot to gain from pursuing more 
FTAs.  An FTA with the GCC or with some of its member states 
would be significantly less comprehensive than the FTAs that 
the U.S. negotiates, which would appeal to Malaysia. Such 
FTAs would no doubt find favor from Malaysia,s would-be 
partners in the Mideast, including its major trading partner 
the UAE which, like Malaysia, has negotiated an FTA with the 
United States, with no agreement reached so far. 
 
¶13. (SBU) Malaysia,s recent high level economic interest in 
the Middle East, including a potential Malaysia-GCC FTA, 
appears to have more to do with its desire to expand trade 
and investment with friendly countries that have a lot of 
money to spend, rather than as a reaction to the inability, 
so far, for it to agree on an FTA with the U.S. Moreover, 
with West Asia constituting less than 4% of Malaysia,s total 
trade with the world, an FTA with all or some of the 
region,s countries likely would have limited impact in the 
near to medium term, at least compared to an FTA with the 
U.S., Malaysia,s largest trade and investment partner. 
SHEAR