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Japan, Malaysia agree on FTA

Japan and Malaysia yesterday sealed the outline of a free trade agreement (FTA) that will open up a major new market for Japanese automakers with the lifting of heavy tariffs on Japanese cars within 10 years.

Japanese Prime Minister Junichiro Koizumi and his Malaysian counterpart Abdullah Ahmad Badawi signed off during a Tokyo meeting on the FTA outline hashed out in weekend negotiations in Kuala Lumpur.

The major sticking point was on tariffs that effectively make Japanese automakers minor players in Malaysia, a major vehicle market that has historically used high taxes to protect its domestic industry.

In turn, Japan will open up its tightly controlled agriculture sector.

"It will definitely contribute to our economy, in the form of investment and in the form of joint ventures," Abdullah said of the FTA.

"It will build confidence among businessmen in Malaysia," he told reporters after his meeting with Koizumi. "We are going to see more trading and investment activities between Japan and Malaysia in the future."

He said the broad principles of the FTA were set and that final negotiations would be concluded by the time Koizumi visited Kuala Lumpur in December for an inaugural East Asia summit.

The agreement said Malaysia will immediately, as of the formal signing of the FTA, eliminate its tariffs on knocked down auto parts for Japanese carmakers in Malaysia.

It will completely eliminate tariffs on Japanese finished cars by 2015, "starting with the larger ones," a joint statement said.

Under the deal, "Japan will offer cooperation to the Malaysian autos and auto parts industry to strengthen its competitiveness," it said.

Malaysia already cut import duties to 20 percent on cars made in the ASEAN on Jan. 1 as part of market liberalization under the ASEAN Free Trade Area.

It also raised excise duties on all new cars sold in the country to offset an expected fall in revenue, but the new tax structure was been put on hold after complaints from local auto firms that it provides little incentives for them to produce or assemble cars in the country.
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