VZCZCXRO0168
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #1422/01 2610859
ZNR UUUUU ZZH
R 180859Z SEP 07
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 9976
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 001422 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EB/TPP/BTA AND EAP/MTS 
DEPT PASS USTR FOR BARBARA WEISEL AND DOUGLAS BELL 
USDOC FOR JENNIFER BAKER 
USDA FAS FOR OA/BIG, ITP/AAD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV MY
SUBJECT: DAUSTR Douglas Bell's FTA Discussions in Malaysia 
 
 
Sensitive But Unclassified - Not for Internet Distribution 
 
Summary and Introduction 
------------------------ 
 
¶1. (SBU) In his meetings with Malaysian government officials 
September 6-10, Deputy Assistant USTR for Southeast Asia and the 
Pacific Douglas Bell pushed Malaysia to continue to work with U.S. 
negotiators to make progress on outstanding issues, in advance of a 
possible next FTA round in November.  Malaysian lead negotiator 
Jayasiri from the Ministry of International Trade and Industry 
(MITI) noted progress on market access discussions for goods and 
agriculture.  The Malaysian leads on investment and services pledged 
to keep working with their U.S. counterparts to resolve outstanding 
issues.  However, they said the U.S. was insufficiently flexible in 
addressing serious Malaysian concerns in both sectors; these include 
the U.S. proposals on investor state dispute resolution and 
elimination of performance requirements in the investment chapter, 
and U.S. insistence on early and complete market access in the 
services sector.  Malaysia also seeks U.S. concurrence to negotiate 
a mutual recognition agreement on services.  Malaysia's lead on the 
telecom and e-commerce chapters acknowledged good progress in both 
chapters, while noting continued Malaysian insistence that the 
government maintain some control over technology choice, as well as 
the sector's regulatory bodies.  Former Malaysian Ambassador to the 
U.S. Ghazzali noted significant progress in the talks over the 
course of five rounds, and agreed another round would help maintain 
and improve the necessary momentum to reach conclusion.  He 
cautioned that with MITI more of a coordinator than a driver for the 
FTA, Cabinet decisions will continue to drive the negotiating 
process in Malaysia. 
 
Ministry of International Trade and Industry (MITI) 
--------------------------------------------- ------ 
 
¶2. (SBU) MITI's Jayasiri, the overall GOM lead for the U.S.-Malaysia 
FTA, told DAUSTR Bell, along with Econ Counselor and econoff, that 
much work needed to be done to move the FTA process forward, and he 
warned that results might not lead always to what the U.S. expected. 
Key contentious issues such as government procurement and financial 
services were outside of MITI's control, and negotiators continued 
to follow the decisions made by the Cabinet in May, which also 
included a decision not to negotiate a competition chapter. 
However, he said momentum still existed, after waning somewhat when 
TPA expired at the end of June.  Jayasiri said Malaysia wanted to 
work through technical details as much as possible before next 
meeting face-to-face with the U.S. side, possibly in November.  He 
noted that the market access discussions for both goods and 
agriculture were in good shape, while noting that the U.S. had not 
moved much in some areas, namely textiles. 
 
¶3. (SBU) Bell responded that both sides needed to translate the 
recent commitment made at senior levels to move the talks forward, 
into a specific work plan that would help negotiators work through 
remaining obstacles.  The U.S. viewed another round with some 
urgency, and believed early November to be a good time to hold such 
a round, provided working groups made good progress in the 
meantime. 
 
¶4. (SBU) On investment, Malaysian lead negotiator Wong Seng Foo said 
U.S. insistence that it could move little from its proposed text was 
unhelpful, since Malaysia could not sell the investment text to its 
stakeholders absent some changes.  Particularly sensitive areas 
included performance requirements (PRs) and investor-state 
relations.  On PRs, Bell requested that Malaysia provide the U.S. 
with more details of its existing PRs so that U.S. side could 
determine more accurately whether this was a large or a small 
obstacle to agreement; more dialogue was needed so both sides could 
resolve the issue, as much as possible before the next round.  Wong 
committed to providing this information.  Bell also said the U.S. 
awaited further information from Malaysia on its specific concerns 
regarding investor state disputes before the U.S. makes a capacity 
building proposal.  Wong said the Attorney General's office would 
need to provide this, and would welcome examples of how such a 
dispute mechanism was used in other U.S. FTAs (Bell noted that we 
had few examples to provide, since most such disputes are resolved 
without invoking the mechanism). 
 
¶5. (SBU) Regarding services, Bell said the U.S. would like to hold a 
DVC covering the audiovisual and telecom sectors as a means to focus 
discussions.  This could increase confidence that would lead to 
further productive discussion on broader services issues.  Dr. 
Sarinder Kumari, the Malaysian lead, complained that the U.S. had 
remained inflexible on its proposed text, except in a few 
 
KUALA LUMP 00001422  002 OF 002 
 
 
non-substantive areas.  Malaysian negotiators found it difficult to 
negotiate a services chapter that appeared to provide limited 
benefit for Malaysian firms, especially at a time of increased 
attention in Malaysia to the services sector as an engine for future 
growth.  Malaysia did not disagree that further competition from 
U.S. services providers would provide benefits to the sector's 
development in Malaysia, but the U.S. needed to better consider 
Malaysia's need to phase-in liberalization so that Malaysian firms 
would not be overwhelmed.  Sarinder said Malaysia viewed its 
proposed phase-in of liberalization as a concession to the U.S., but 
noted no analogous flexibility from the U.S. 
 
¶6. (SBU) Malaysian firms might benefit from the negotiation of 
mutual recognition agreements (MRAs), but the U.S. side has shown 
little response to this suggestion, said Sarinder.  Bell pushed back 
noting that at present the Malaysian services offer provided minimal 
market access making an MRA discussion premature.  He also noted 
that Malaysia's services sector stood to gain a great deal from an 
increased U.S. presence through increased employment, exposure to 
new technology and management practices and by improved 
competitiveness. 
 
¶7. (SBU) Sarinder further noted that, while more senior USTR 
officials profess no intention in changing Malaysia's bumiputera 
policies, working level negotiators insisting on 100% equity 
participation across the board were, in effect, seeking to change 
fundamental aspects of the NEP.  Sarinder said she is still 
discussing with her team the scheduling of a DVC and subsequently 
proposed dates to the U.S. side. 
 
¶8. (SBU) On Malaysia's proposal on temporary safeguards for the 
financial system, Wong said Bank Negara would submit proposed 
language to the U.S. in October. 
 
Communications Ministry - Anbalagan 
----------------------------------- 
 
¶9. (SBU) Under Secretary Anbalagan K noted a few areas of concern in 
the talks on telecom and e-commerce (he leads the Malaysian team in 
both areas).  Malaysia wishes to retain some control in the area of 
technology choice, given the country's relatively small market and 
its desire to maintain interoperability among technologies.  For 
socioeconomic reasons Malaysia also wished to retain some control 
over regulatory bodies.  Bell noted that the U.S. had just recently 
received Malaysia's offer and will assess how much access it 
provides to U.S. firms.  Anbalagan acknowledged receiving USTR's 
telecom questions and committed to responding as soon as possible. 
 
MFA - Ambassador Ghazzali 
------------------------- 
 
¶10. (SBU) Former Malaysian ambassador to the U.S. Ghazzali S.A. 
Khalid told Bell that there has been "tremendous movement" in the 
bilateral talks since June 2006, with the most progress taking place 
in those groups that have perceived joint ownership of their 
chapters, such as IPR.  Progress has been achieved despite the hard 
approaches of some U.S. and Malaysian negotiators.  At this point it 
is important for both sides to sustain momentum and to show that 
movement has been made over the course of our discussions.  By 
completing the majority of the agreement Ghazzali believes it will 
be possible to convince the politicians to make the right decisions 
in the end on the most difficult areas of the talks. 
 
¶11. (SBU) On government procurement, Ghazzali believed that 
differences could be bridged if real discussions take place, and he 
suggested that it may be larger corporate (GLC) interests that are 
inhibiting discussion, and only to a lesser extent the political 
fear of change to Malaysia's bumiputera policies.  The negotiating 
process has been hamstrung in Malaysia in part due to lack of a 
single player to move the process; MITI was initially in that role, 
but as discussions became more intense MITI shifted to a role of 
coordinator instead.  The Malaysian Cabinet-led process makes 
negotiation difficult; it would be helpful for Malaysian negotiators 
to have some Cabinet mandates in hand before meeting for the next 
round. 
 
SHEAR