TWN Info Service on Free Trade Agreements

28 January 2008


State of Play in Malaysia-US FTA

According to US sources, the issue of government procurement remained a sticking point in the proposed Malaysia-US FTA talks. The other area which the US is looking for greater access to is financial services. Both, however, were not discussed in the last round of talks held from 14 to 18 January in Kuala Lumpur.

These two sensitive issues are expected to be taken up in the next round, possibly in March when Malaysia expects to hold its general elections.

During the KL meeting, the US and Malaysia was said to have discussed services, investment, intellectual property rights, legal issues, telecommunications and goods, according to sources. Malaysian regulations on alcohol and US demands for market access were also discussed though Malaysia had said it will not include both tobacco and alchohol in the FTA talks.

The report below provides some information on the state of play of the negotiations.

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Inside US Trade

U.S. Will Push For Concluding FTA With Malaysia By Mid-Year

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Date: January 25, 2008

The U. S. will seek to finalize a free trade agreement with Malaysia through intensive rounds of negotiations in the second quarter of this year, a U. S. trade official said this week. Sources said that the next round would have to wait until March, when Malaysia expects to hold parliamentary elections.

Part of the motivation to complete the deal at that time is the recognition that any new administration taking office next year may have other priorities, according to the official. "They have been telling them the FTA is 85 percent finished," and that a new administration might either refuse to take up the FTA or opt to abandon progress and restart negotiations, a private-sector source said.

This source said, however, that given major areas of disagreement such as government procurement, it would be very difficult to complete the FTA within months.

The U. S. official spoke after the U. S. and Malaysia held talks on their stalled FTA for the first time since April 2007. The talks in Kuala Lumpur in the week of Jan. 14 to 18 produced significant progress on some of the thorniest issues, the official said.

The U. S. received new information about the extent and design of an affirmative action program that has been a major road block to the deal, the U. S. official said. This new information will allow FTA talks to continue, the official said.

The Malaysian program is designed to guarantee economic benefits to its ethnic Malay citizens, who historically have not been as wealthy as Malaysians of Chinese descent. The U. S. wants these programs redesigned in ways that allow U. S. firms to compete for Malaysian government contracts.

"We have [affirmative action] programs in the U. S., and we have figured out ways to negotiate service liberalization or liberalization in other areas," the official said. "In the case of Malaysia, it is certainly one of the challenges we have, to craft an agreement that respects their affirmative action policies, yet also provides for market opening and liberalization, particularly in services."

Observers said that any Malaysian compromise on the issue would be unlikely before parliamentary elections in March, which would leave a window of opportunity for progress in late spring. An informed source said that substantive progress on the government procurement issue as well as financial services were sidelined out of consideration for the elections.

On financial services, Malaysia has resisted amending its financial services master plans which outline eventual steps that would remove foreign equity caps regulating investments in domestic banks. The U. S. would like these changes fast-tracked and wants to see other restrictions removed, such as restrictions in the number of branches a foreign-owned commercial bank can open, the informed source said.

In addition to services, the U. S. and Malaysia also discussed investment, intellectual property rights (IPR), legal issues, telecommunications, and goods. Less formal talks addressed customs issues and rules of origin issues during the week of Jan. 7 to 11, according to the U. S. official.

There was substantial progress on IPR enforcement, the official said, but he refused to specify. An informed source said the U. S. side is pleased that Malaysia inaugurated special IPR courts beginning this month and that Malaysia has moved to enact greater safeguards for data exclusivity wanted by the U. S. pharmaceutical industry.

Malaysian regulations on alcohol and U. S. demands for market access were also discussed, the official said. Malaysia, a predominantly Muslim country, has previously resisted including tobacco and alcohol in the FTA at all.