VZCZCXRO2586
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #0372/01 1340603
ZNR UUUUU ZZH
R 130603Z MAY 08
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 0975
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUEHGV/USMISSION GENEVA 1572

UNCLAS SECTION 01 OF 03 KUALA LUMPUR 000372 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EEB/TPP/BTA AND EAP/MTS 
DEPT PASS USTR FOR BARBARA WEISEL AND DOUGLAS BELL 
USDA FAS FOR OA/BIG, ITP/AAD 
COMMERCE FOR 4430/MAC/MICHAEL HOGGE 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV KIPR EAGR MY
SUBJECT: U.S.-Malaysia FTA: Encouraging Signals 
 
 
Sensitive but Unclassified - Not for Internet Distribution 
 
Summary and Introduction 
------------------------ 
 
¶1. (SBU)  Senior Malaysian government officials reaffirmed 
Malaysia's interest in continuing FTA negotiations during meetings 
May 5 and 6 with Assistant USTR for Southeast Asia and the Pacific 
Barbara Weisel.  Senior MITI officials proposed another round in 
July and noted the possibility of a follow-on round in the late 
fall.  The Malaysians expressed the desire to close out as many 
chapters of the agreement as possible in the upcoming round and 
signaled new potential flexibility in difficult areas such as 
services and the possibility of scoping discussions on government 
procurement.  Despite the potential uncertainty created by 
Malaysia's recent general elections, Malaysian officials remain 
committed to the FTA negotiation process. 
 
Chief Secretary Sidek Hassan 
---------------------------- 
 
¶2. (SBU) The PM's Chief Secretary Sidek Hassan (the government's 
highest ranking civil servant) acknowledged to AUSTR Weisel that 
there were many difficulties yet to be resolved in the FTA 
negotiations, including obtaining cabinet authority to negotiate 
sensitive chapters.  Nevertheless, Sidek repeatedly encouraged AUSTR 
Weisel to keep the negotiations going.  Sidek also acknowledged that 
the leadership in Malaysia was currently focused on commodity 
(particularly food grain) driven inflation and domestic politics, 
but trade negotiations were still important. 
 
Ministry of International Trade and Industry (MITI) 
--------------------------------------------- ------ 
 
¶3. (SBU) In his meeting with AUSTR Weisel, MITI Secretary General 
Dato' Abdul Rahman said that Minister Muhyiddin wanted to move 
forward on FTAs in general.  He also had personally signed off on 
MITI's recommendation for holding another FTA negotiating round with 
the U.S. in the July timeframe as well as a possible follow-on round 
in the fall.  AUSTR Weisel welcomed that and said both sides needed 
to work toward closing out as many chapters as possible in July. 
Rahman also noted that Malaysia had done preparatory work to develop 
new flexibility in the services chapter, particularly with regard to 
restrictions on foreign investment in the services sector.  He 
welcomed the EPU's efforts to inject rational policy thinking on the 
liberalization of services into the FTA negotiations (see paragraph 
5). Rahman said Minister Muhyiddin had specific concerns about 
explaining how government procurement (GP) would benefit Malaysia 
but was okay with the idea of open international tenders.  He added 
that the efforts of opposition controlled states to liberalize GP 
could help put pressure on the Finance Ministry to move as well. 
AUSTR Weisel said there were ways to deal with GP issues but 
Malaysia's negotiators needed the authority to brainstorm on 
possible approaches.  Rahman responded that internal discussions on 
liberalizing GP were being driven by Pemudah, the public/private 
task force on business facilitation reform (which is chaired by 
Chief Secretary Sidek). The reform process just needed some time and 
he was hopeful that the cabinet would provide a broader mandate to 
negotiate these chapters. 
 
¶4. (SBU) MITI's Jayasiri, the working level lead for the 
U.S.-Malaysia FTA talks, told AUSTR Weisel that the relevant 
ministries continue to seek ways to bridge differences with the U.S. 
on issues under negotiations, in anticipation of the next round of 
talks.  He said that MITI would seek revised cabinet mandate on 
various issues, including on services and investment.  On services, 
Jayasiri said MITI continues to negotiate with other ministries to 
deepen existing offers and to broaden offers to other sectors, such 
as franchising (he said Malaysia would have new offers on 
franchising as well as environmental services). Weisel welcomed the 
progress, but emphasized that the U.S. continued to need a 
comprehensive offer. 
 
Economic Planning Unit (EPU) - A New FTA Role 
--------------------------------------------- 
 
¶5. (SBU) Datuk Dr. K. Govindan of EPU (the Prime Minister's economic 
planning office) told AUSTR Weisel that EPU will be playing a more 
active role in Malaysia's FTA negotiations.  He noted that, although 
MITI has long been the lead ministry on FTA talks, it could not 
direct other agencies to take action.  EPU planned to play such a 
coordinating role, however, articulating to all relevant ministries 
 
KUALA LUMP 00000372  002 OF 003 
 
 
the broader national interests in concluding free trade agreements. 
Govindan cautioned that EPU is still getting up to speed on the 
issues involving Malaysia's various pending FTA talks, and would 
initially be more in a listening mode, but the agency planned to 
eventually be directing economic policy.  Govindan said EPU would be 
studying previous U.S. FTAs, and expressed particular interest in 
those agreements' coverage of government procurement, services, and 
legal issues.  Govindan noted that the services sector would be key 
to Malaysia's future prosperity, and Malaysia should be looking at 
FTAs to help make that sector more competitive. 
 
Agriculture 
----------- 
 
¶6. (SBU) AUSTR Weisel passed an updated market access offer to 
Ministry of Agriculture Deputy Secretary General Dato' Ibrahim bin 
Muhamad. She noted that the U.S. remained concerned about Malaysia's 
latest offer, which continues to omit coverage of some tariff lines 
(such as certain tobacco products) and also does not bring all 
tariff lines to zero at some future date (most notably regarding 
alcoholic beverages).  Weisel noted that overall the agriculture 
chapter negotiations had made progress, and both sides should 
endeavor to largely complete the chapter this year. Ibrahim noted 
that other ministries have jurisdiction on certain items in the 
agriculture offer (Plantations Ministry for tobacco, Finance 
Ministry for alcoholic beverages). (Note: Weisel raised the 
alcoholic beverages offer separately with Finance Ministry Deputy 
Secretary General Dato' Ibrahim Mahaludin, who promised to pass our 
concerns to his ministry's tax office). 
 
¶7. (SBU) Ibrahim was open to the U.S. and Malaysian teams meeting to 
discuss the current offers in advance of the next round, so that the 
chapter could be closed at that round, provided both sides could 
identify a mutually acceptable time and venue before July.  Weisel 
also raised U.S. concerns about Malaysia's restrictive proposals on 
certifying U.S.-origin Halal meat, Malaysia's proposed inspection 
fees for foreign meat plants, and implementation of Malaysia's new 
biotech labeling law. 
 
Competition Policy and IPR 
-------------------------- 
 
¶8. (SBU) Ministry of Domestic Trade and Consumer Affairs (MDTCA) 
Secretary General Dato' Mohd Zain bid Mohd Dom told AUSTR Weisel 
that the ministry continued to work towards potential parliamentary 
approval of Malaysia's domestic competition law by the end of 2008. 
MDTCA continued to solicit the views of other ministries, the 
business sector, and NGOs as it completed the draft bill. Zain noted 
that MDTCA's unusually transparent approach to drafting the bill 
preceded the ground-breaking March elections, and added that the new 
Minister of Domestic Trade, Datuk Shahrir Abdul Samad, was a 
reformer who strongly supported transparency in government 
operations to the extent possible.  Although the new government was 
weaker than before, Zain noted that it was taking transparency and 
good governance more seriously, which would encourage progress this 
year. 
 
¶9. (SBU) Weisel welcomed news of the new bill's progress. She 
reiterated that the U.S. continued to seek inclusion of competition 
policy in the FTA, and in particular a chapter that would apply to 
all commercial entities, including Malaysia's government linked 
companies. She underscored that the U.S. was not wedded to a 
particular template and wished to craft an original chapter with 
Malaysia.  Zain noted that his ministry would welcome capacity 
building assistance once it came time to implement the new law. 
 
¶10. (SBU) Weisel told Zain that the U.S. welcomed the progress on 
the IPR chapter that had been achieved over the course of the FTA 
talks.  Both sides should consider some quiet conversations to work 
out possible tradeoffs that would bring the chapter to conclusion, 
hopefully by the summer 2008 round. Zain agreed that it would be 
helpful to the overall FTA progress for both sides to agree on as 
many areas as soon as possible in order to encourage progress on the 
remaining difficult issues. 
 
Government Procurement 
---------------------- 
 
¶11. (SBU) Although Ministry of Finance Deputy Secretary General 
Dato' Ibrahim Mahaludin told AUSTR Weisel that the Cabinet mandate 
opposing negotiation of a government procurement chapter in the FTA 
still stood, he suggested that the ministry might be able to engage 
 
KUALA LUMP 00000372  003 OF 003 
 
 
in informal discussions with the U.S. He attributed the outlook of 
the new cabinet, as well as the recent attention to reforming 
government procurement (in particular at the state level), as 
instrumental in creating an atmosphere that would allow such a 
discussion with the U.S. Weisel suggested that both sides find a way 
to discuss the real sensitivities and how they might be addressed; 
once a mandate to negotiate a GP chapter was approved, both sides 
would thus be better able to put together a text in a relatively 
short period. 
 
Comment 
------- 
 
¶12. (SBU) AUSTR Weisel's meetings with Malaysian government 
officials revealed unexpectedly strong support for continued FTA 
negotiations with the United States, including the scheduling of 
another round mid-summer.  Chief Secretary Sidek encouraged 
continued talks, though he noted that the Cabinet had not considered 
any FTA-related issues in recent months.  MITI officials broached 
the idea of a next round, asking us "when" another round would 
occur, not "if".  The EPU's intended new role in overseeing 
Malaysia's FTA negotiations is very welcome, given the consistent 
difficulties MITI has experienced over the years in conveying the 
broad national interest of achieving FTAs to ministries whose 
interests are primarily parochial. Time will tell how successful EPU 
will be in overcoming those narrow interests. 
 
¶13. (SBU) The Finance Ministry's new (albeit limited) openness to 
discussing government procurement was particularly striking; the 
meeting was hastily requested by the Finance Ministry in the course 
of Weisel's visit, after our earlier efforts to secure such a 
meeting had been rebuffed. Like GP, competition appears to be 
another formerly "no go" issue for which Malaysia is reconsidering 
at least informal discussions with U.S. negotiators. Although 
completion of the FTA in 2008 remains a long shot, Malaysia appears 
willing to push for revised Cabinet positions in many areas that 
would encourage the conclusion of a number of FTA chapters, perhaps 
even by the July round. 
 
¶14. (U) AUSTR Barbara Weisel has cleared this cable. 
 
KEITH