FTA Failure Bad for US and Malaysia

The United States assured Malaysia on Wednesday it was not trying to dismantle the Asian country’s affirmative-action policies that favor ethnic Malays as part of the countries’ free-trade negotiations.But the United States was seeking greater transparency in Malaysia’s government procurement to try to reach a free-trade agreement (FTA), Deputy U.S. Trade Representative Karan Bhatia told a news conference in Kuala Lumpur.

The majority of Malaysia’s population are ethnic Malays. They provide the bedrock of the ruling party’s hold on power and a large share of government contracts are reserved for them.

Any move by Malaysia to open up procurement contracts to greater competition could be seen by ethnic Malays as relaxing the policies that are supposed to promote their prosperity.

The United States and Malaysia have been locked in free-trade talks since June 2006, but Washington’s fast-track authority to make deals with minimal Congressional interference runs out on July 1, increasing the pressure for both countries to conclude a deal.

“While I want to contemplate success and be focusing on that, I think it is important to point out here that if we are not successful, if the FTA does not come together, there would be costs associated with that,” Bhatia said.

“Not just the losses of all the benefits that we have listed, but it would also send an unfortunate message that our countries are not open for business,” he said.

The fast-track authority allows President George W. Bush to negotiate trade agreements that Congress can only approve or reject, but not change.

Malaysia’s trade minister, Rafidah Aziz, has expressed doubts over whether the talks with Washington can be wrapped by July.

Bhatia said the United States was sensitive to the country’s policy to help ethnic Malays, known collectively as Bumiputras.

“Let me address a myth, which is that somehow in this FTA we seek to undo Malaysia’s social policies, in particular with respect to Bumi preferences,” Bhatia said.

“If I can leave you with one thing today, let me leave you with a clear sense that that is not our intention. We do not seek to undo or undermine Malaysian Bumi preference policies.

“Instead, the U.S. government is seeking more transparency in Malaysian government procurement and to be able to compete with other international companies on a level playing field,” he said.

The two countries had two-way trade in 2005 of $44 billion. The United States is Malaysia’s biggest trading partner and foreign investor, while the southeast Asian country is the United States’ 10th-largest trading partner.

The United States has barred Malaysia from a potential $250 billion in government procurement of goods and services, including $20 billion in electronics and information-technology products. Electronics are Malaysia’s main export.

Source: Reuters