Thu, Nov 15, 2007 - Page 11 News List

Race policies block Malaysia FTA

BLOOMBERG

Malaysia's refusal to review its race-based policies is jeopardizing a proposed free-trade agreement between Southeast Asia and Europe, said the outgoing European envoy to Kuala Lumpur.

"This protection is a disservice to Malaysia in the long run," Thierry Rommel said of the policies in an interview. "It has already hampered free-trade talks with the US and with Australia, and it will certainly complicate free-trade talks" with the EU, he said.

Multiracial Malaysia gives ethnic Malays preferential treatment in government contracts, housing and company ownership. Malaysian ministers rejected Rommel's comments in June that these policies have resulted in protectionism in areas including automobiles, agriculture and services. Still, Europe is a growing market Malaysia can't neglect, economists say.

"It's a large market that Malaysia can't ignore," said Suhaimi Ilias, an economist at Aseambankers Malaysia Bhd. "The EU market is expanding on new memberships, namely the Eastern Europe and former Soviet bloc countries. So there are plenty of benefits to be gained for Malaysia from strengthening economic and trade ties with the EU, especially in diversifying our exports."

The EU accounted for 12 percent of Malaysia's total trade last year as exports rose 20 percent, according to government statistics.

Only Pakistan and Japan have signed bilateral trade accords with Malaysia. The US continues to negotiate with Malaysia after failing to seal a free trade agreement this year amid the Southeast Asian nation's reluctance to open up its rice market and meet requests to increase access to government contracts.

Malaysian Prime Minister Abdullah Ahmad Badawi did not have an immediate comment on Rommel's views, his spokesman Kamal Khalid said yesterday.

"The snag is on Malaysia's `restrictions' on trade and investment in certain services and government procurement," said Suhaimi at Aseambankers. "This sticking point in FTA negotiations with the EU and the US can perhaps be addressed by the Malaysian government showing the political will to set a definite timeframe to undertake liberalization measures in these segments."

About 60 percent of Malaysia's 27 million people are Malays, and the race-based program was introduced after racial clashes in 1969. Ministers say it's still needed to maintain stability.

"The philosophy is basically one of discrimination and protectionism with selective and discretionary market opening," Rommel said.

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