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Malaysia, Japan agree to set up FTA

Japanese Trade Minister Shoichi Nakagawa, left, shakes hand with Malaysia's International Trade and Industry Minister Rafidah Aziz in Kuala Lumpur yesterday. PHOTO: AP

Malaysia and Japan yesterday agreed to set up a free trade area (FTA) as part of a comprehensive economic relationship after resolving the last remaining differences in emergency, high-level talks.

"We have now finalized everything," International Trade and Industry Minister Rafidah Aziz told reporters after talks with Japanese Trade Minister Shoichi Nakagawa who arrived earlier yesterday for last-ditch efforts to salvage deadlocked negotiations on a planned free trade area.

"It will be a comprehensive economic framework agreement covering all the areas that we feel we would like to cover," Rafidah said.

Talks between Japan and Malaysia began in Kuala Lumpur on Tuesday but had failed to produce a consensus on tariffs for industrial products, especially in the sensitive auto sector and steel industries of Malaysia, which Japan says is excessively protectionist.

"I have been saying that it is the final stretch that is the most difficult," Nakagawa said. The "trust and confidence" between the two countries had led to this "win-win relationship."

secret compromises

He and Rafidah refused to divulge the details of the compromises made in the auto and steel tariff structures with Nakagawa describing it as "a national secret."

Rafidah said that the comprehensive economic relationship will contain elements of the free trade area, which will be formally launched in December.

"What we have decided today will become the basis for an agreement in principle" that will be announced when Malaysian Prime Minister Abdullah Ahmad Badawi visits Tokyo on May 25-26 for a bilateral visit.

"It covers all areas -- goods, services, even agriculture and economic cooperation," she said.

Since launching the FTA talks in January last year, the two countries have reached a basic accord on agricultural and marine products. But outstanding issues remain, including Malaysia's tentative pledge to fully eliminate tariffs on imported vehicles by 2015. Japan wants an earlier deadline.

Malaysia imposes high import and excise duties on imported cars to protect its national Proton and Perodua cars from competition. The two carmakers jointly control 74 percent of the auto market in Malaysia, Southeast Asia's biggest passenger car market. Tariffs have recently been lowered for cars produced in Southeast Asian countries but other countries still face high barriers.

Japan also wants Malaysia to abolish tariffs on steel products used for vehicles and household appliances. It quoted unidentified Japanese government sources as saying that Malaysia is considering an immediate removal of tariffs for some car models that do not compete with Proton and Perodua.

Tariff variations

Rafidah said the FTA will contain some "early harvest programs," meaning a list of goods on which the tariff abolition and reduction will come into force immediately after the deal is signed in December. Other items will see the benefits of the FTA gradually.

"The mechanism for tariff cutting, tariff abolishment in terms of FTA will start as and when it is scheduled to start."

"Both sides are very happy ... As of now it is done. We are just going to shake hands afterward," she said.
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