KUALA LUMPUR, Malaysia (AP) – Malaysia and Japan agreed Sunday to establish a free trade area covering most sectors of their economies, in a deal that could give Japanese automakers a greater share of the largest passenger car market in Southeast Asia.
That market has been mostly closed to outsiders. Since launching the free trade area talks in January last year, the two countries had reached a basic accord on agricultural and marine products. But they failed to agree on Malaysia’s tentative pledge to fully eliminate tariffs on imported vehicles by 2015. Japan wanted an earlier deadline.
Malaysia’s International Trade and Industry Minister Rafidah Aziz told reporters that emergency, last minute talks with Japanese Trade Minister Shoichi Nakagawa had resolved the differences by late Sunday. But he did not give details of the compromise other than to say the pact was “comprehensive.”
“We have now finalized everything,” Rafidah said.
Nakagawa also refused to say if Malaysia had agreed to lower tariffs. He called the details of the deal “a national secret.”
The agreement must be signed by both countries’ prime ministers, which is expected to happen later this week. Malaysian Prime Minister Abdullah Ahmad Badawi is scheduled to visit Tokyo on Wednesday and Thursday.
The latest round of talks began in the Malaysian capital, Kuala Lumpur, on Tuesday but had failed to produce a consensus on tariffs for industrial products, particularly autos and steel, with Japan blaming Malaysia for excessive protectionism.
Malaysia imposes high import and excise duties on imported cars to protect its domestically produced Proton and Perodua cars from competition. The two carmakers jointly control 74 percent of the auto market in Malaysia, Southeast Asia’s largest passenger car market.
Tariffs have recently been lowered for cars produced in Southeast Asian countries but other countries still face high barriers.
If Malaysia has agreed to relax its auto market, that would be good news for Japanese automakers, who have been in increasing competition not only with U.S. rivals but especially South Korean ones for a major Southeast Asian market seen to have great potential.
In the joint study conducted prior to the start of the negotiations, Japan estimated that a free trade agreement with Malaysia would lift Japan’s real gross domestic product by as much as 0.08 percent or about $3.4 billion.
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.
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