US-MALAYSIA FTA WILL MISS END-MARCH DEADLINE
Hopes of completing a free trade agreement between the US and Malaysia by an end-March deadline were finally abandoned last week when Washington acknowledged it was no longer possible.
The two sides had originally hoped to conclude a deal in time for the Bush administration to be able submit it to the US Congress for a mandatory 90-day review and a yes-or-no vote without amendments, before its ‘trade promotion authority’ expires at the end of June. However, the talks have languished, principally due to differences over the Malaysian government’s affirmative action policies for ethnic Malays.
"At this point, submission of a US- Malaysia FTA under the current TPA statue is not possible," Stephen Norton, a spokesperson for the US trade representative’s office, said on 23 March. "Our belief that reaching a high-quality, comprehensive FTA would benefit both economies is undiminished," he added.
Kuala Lumpur’s affirmative action policies give majority ethnic Malays special privileges for government contracts, jobs, and housing, as a way to help them compete with the wealthier Chinese minority. They also require foreign investors to offer minority shares to Malay-owned local partners. Though blamed for discouraging investment, the scheme is often credited with preserving social peace in the country. However, the policies have complicated FTA negotiations: for instance, public procurement policies that shut out domestic non-bumiputra companies also exclude US businesses.
Malaysian officials had in recent months stressed that they were in no hurry to meet the March deadline (see BRIDGES Weekly, 14 February 2007). They say that the government will need more time to form a political consensus on how to proceed. "We will not be tied down to any timeframe and we want to look into all details thoroughly before making a decision," Malaysian Deputy Prime Minister Najib Razak said at the beginning of last week.
Both sides have agreed to continue negotiations in mid-April in Washington, even if the trade promotion authority is not renewed.
In a separate development, Malaysian Prime Minister Abdullah Badawi recently announced that affirmative action rules would be eased in the planned Iskandar special economic zone, in an attempt to reverse a drop in foreign direct investment. Officials hope that increased FDI will soothe opposition to the changes.
"Statement by Stephen Norton on US- Malaysia FTA negotiations," OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE, 23 March 2007; "Trade pacts balance on TPA timetable," THE CALTRADE REPORT, 27 March 2007; "Malaysia brishes off US pressure for FTA decision," ASSOCIATED PRESS, 19 March 2007; "Abdullah relaxes rules to create Malaysia’s Shenzhen," FINANCIAL TIMES, 28 March 2007.
US AND SOUTH KOREAN NEGOTIATORS WORK FURIOUSLY TO MEET DEADLINE
South Korean Trade Minister Kim Hyun-chong and Deputy US Trade Representative Karan Bhatia are meeting in Seoul all week long in an attempt to forge a ‘package deal’ on the issues that stand between the two countries and a free trade agreement (FTA). These issues, including automotive trade, agriculture, anti-dumping remedies, and pharmaceuticals, have been contentious since the talks began ten months ago.
Negotiators have until 30 March to conclude a deal so that the Bush administration can submit it to the US Congress for a mandatory 90-day review period before its ‘trade promotion authority’ expires at the end of June.
Alongside the talks between Bhatia and Kim, area-specific discussions on goods, textiles, agriculture, investment, rules of origin, and financial services are attempting to make some headway before the issues are sent for ministerial consideration.
On 28 March, Kim told South Korean lawmakers that the talks could be completed by the deadline at the end of the week. "We have reached a final consensus in 10 of the 19 negotiations sectors. I believe 90 percent of the talks are finished," said Kim, though he added "the remaining 10 percent is more difficult."
One remaining issue is how the FTA will address products originating from the South Korean-operated Kaesong Industrial Complex located just across the border in North Korea. Seoul wants them covered by the deal; Washington does not. Some sources speculate that the issue could be part of a post-FTA "built-in" agenda, allowing for further negotiations after the deal is signed. The other contentious issues might also be included in a "built-in" agenda if not agreed on by the deadline.
The issue of US beef imports to South Korea, suspended in 2003 after a mad cow disease scare, is not officially part of the negotiations but US officials insist that their legislature will not approve the FTA unless the issue is amicably resolved. On Tuesday, J. Patrick Boyle, president of the American Meat Institute told reporters that the two sides had reached an ‘understanding’, though there has been no written agreement.
ICTSD reporting; "S.Korea, US struggle to bridge differences in final FTA talks," YONHAP NEWS, 26 March, 2007; "Korea-US FTA: ‘big deals’ imminent on 10 core issues", DONGA.COM, 26 March 2007; "Rival parties differ on Kaesong in Korea-US FTA," YONHAP NEWS, 28 March 2007; "Korea, US complete 90% of FTA talks," THE KOREA TIMES, 28 March 2007.