Malaysian ‘dithering’ over FTA worries US

KL may be wary of negative Muslim views and unequal trade benefits.

THE Bush administration is concerned that Malaysia is not showing a great deal of enthusiasm for concluding a free trade agreement with the United States. Warning that this could affect burgeoning bilateral trade ties, a senior White House official said that Kuala Lumpur now appeared intent on “putting the FTA on the slow burner”, though negotiations began in March.

“The US recognised that there were certain sensitivities in Malaysia, such as the bumiputera issue,” he said.

“We had worked with them for a year before the launch to iron out differences, and there was a general belief that Malaysia would change and support an open market policy.”

Kuala Lumpur has done anything but that.

During the second round of negotiations in July, Malaysian officials refused to “put a text on the table”, a US source said. They had maintained that Cabinet approval was needed for a draft agreement.

Then, the second round of talks – originally scheduled for this month – has been delayed until next month.

“We have been assured at high levels in Malaysia that they want the next round of talks to go ahead,” said the White House source.

“It could be that the delay is just a hiccup. But it is also possible that the Malaysians do not have the stomach for a deal. There may be developments on the domestic scene that have a bearing on negotiations.”

Sources in Kuala Lumpur revealed that there were “genuine problems” with signing an FTA with the US now.

One is the recent conflict in Lebanon.

A government insider said that Malaysia, as chair of the 57-country Organisation of the Islamic Conference, took “great offence” that the US had backed Israel’s hardline stance there.

An FTA with the US now could generate a backlash from the Muslim world. Another factor is the row between Prime Minister Abdullah Badawi and his predecessor, Tun Dr Mahathir Mohamad.

The latter has been critical of Malaysia getting too close to the Americans. Earlier this month, for example, he questioned a decision to allow US nuclear warships to berth in Port Klang.

The former premier has also sought to champion bumiputera rights in the face of increasing competition from foreign investors.

Observers said that a trade agreement with the US would open the Malaysian market to American goods, services and investments. But the US Trade Representative’s office maintains that “an FTA will level the playing field”.

But the worry is that the US could benefit more because Malaysian tariffs, which will be eliminated, are a lot higher.

Within Umno, there are concerns that bumiputeras will lose their privileges and concessions if American companies compete in tenders for government projects. There are about 40,000 bumiputera contracting companies, for example, whose main income comes from these tenders.

Malaysia also has restrictions on foreign equity and participation in many sectors. With an FTA, the US will seek to break down these barriers, especially in telecommunications, energy and health care.

Datuk Moehamad Izat Emir, president of the Malay Businessmen and Industrialists Association of Malaysia and a prominent Umno leader, told The Straits Times: “This will take the country on the path to becoming an American colony…We have to ensure the Malays will not be left behind.”

The American market is already open to Malaysian companies. The main obstacle they face is not market access, but the ability to compete in the US. Responding to criticism at home, International Trade and Industry Minister Rafidah Aziz, while backing a trade pact, maintained that “Malaysia will only accept an agreement if it is satisfied that its interest in all sectors has been taken into account”.

While Kuala Lumpur is dithering, pressure is mounting on Washington to close the deal by December.

The deadline is aimed at taking advantage of the US President’s “fast-track authority” – under which Congress will have to approve the package in its entirety – that ends in the middle of next year.

US officials have said that an FTA would be a barometer of bilateral ties with Malaysia, which is America’s 10th largest trading partner today.

“Malaysia risks being placed lower in the queue,” said the White House official. “We have other partners in the region.”

The US is currently negotiating FTAs with South Korea and Thailand. It is also exploring similar arrangements with Indonesia, the Philippines and Vietnam. Since 2000, the US has concluded FTAs with Singapore, Australia, Bahrain, Chile, Jordan, Oman, Morocco, Peru and the six Central American countries.

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