EUROPEAN COMMISSION
Directorate-General for Trade
Directorate C: Sustainable Development, Bilateral Trade Relations
Unit C.2: Trade Relations with South and South East Asia, Australia, New Zealand

Brussels, 15 February 2012

TRADE/C3/CW/MH D(2012)

LIMITED

SUBJECT: EU-Malaysia FTA - report of the 6th negotiating round (Kuala Lumpur, 8 – 11 February 2012)

ORIGIN: Commission DG Trade Unit C.2

(…)

EU Malaysia FTA
Report on 6th Round of negotiations
Kuala Lumpur, 8-11 February 2012

The sixth round of negotiations was held in Kuala Lumpur from 8 to 11 February 2012. The EU negotiating team was led by DG Trade’s Peter Berz. His counterpart on the Malaysian side was Datuk Dr Rebecca Fatima Sta Maria from Malaysia’s Ministry of International Trade and Industry (MITI). Most areas were discussed with the exception of trade defence, dispute settlement/mediation, transparency, institutional/general provisions and the green-tech annex.

Setting

This round saw good progress in some areas. Malaysia appears keen to see an early conclusion of the negotiation, but also called for the EU to show willingness to "converge". On the other hand, the uncertain dates for Malaysia’s elections (and the linked questions of the finalisation of the car policy review, alcohol, procurement and services liberalisation) as well as the parallel TPP negotiations (e.g. Geographical Indications) continue to hamper progress in certain areas. We expect that these issues, as well as export duties and IP/data protection, might eventually have to be addressed at political level.

Some progress can be reported on tariffs, SPS/halal issues and competition. On tariffs, there was a first opening by Malaysia to discuss in general terms tariff reduction for wines and spirits. Malaysia also showed readiness to engage in discussions on halal transparency and progress was made on finding a solution for the resumption of pork trade. On competition, there was first movement by Malaysia to start dedicated talks on subsidies.

Substance chapter by chapter

Trade in goods

The tariff discussions on coverage continued to see progress with Malaysia showing an overall constructive attitude on the EU’s request for full industrial coverage, but some question marks still remain. Following further explanations by the EU, Malaysia will consider favourably the steel and aluminium chapters (HS 72, 73 76). Malaysia also provided further indications on a number of chapters, but was not yet ready to specify the liberalization treatment for motor vehicles. Furthermore, Malaysia reiterated its request for high EU coverage at entry into force. At strong EU insistence, Malaysia finally agreed to discuss alcoholic beverages for the first time with a view to having more detailed indications by the next round.

Malaysia finally conceded that it has little export capacity in the EU sensitive fishery lines of tuna and surimi. Parties did not commit to exchanging a revised tariff offer, but agreed to work on providing more indications on tariff lines in the non-specified category after this round.

The trade in goods text is now agreed with the exception of the provisions on export duties and licensing. The issue of export duties risks being one the key challenges in the negotiations.

The discussions on rules of origin at this round focused on list rules in the area of agriculture and processed agricultural goods, and fish and fishery products and the protocol. Progress was made on a number of HS chapters (3, 5, 1604, 1605, 18, 19, 20, ex 22 and 44) and divergences further narrowed in other chapters. Malaysia requested specific list rules in the areas of palm oil and derivates as well as for wood products. Malaysia also reiterated its request for ASEAN cumulation. The EU encouraged Malaysia to rather consider whether a more lenient rule would suffice to provide foreign sourcing to obtain Malaysia originating status.

On TBT, the process is well advanced but the outstanding issues are difficult and in some cases require changes in practices on the Malaysian side. The remaining brackets concern the articles on standards, equivalence of technical regulations, acceptance of conformity assessment rules, transparency, market surveilleance activities and marking and labelling.

Exchanges took place on the NTB Annexes (motor vehicles and pharmaceuticals). On motor vehicles, the meeting included for the first time experts from the Malaysia Automotive Institute, also in charge of the ongoing policy review to be completed by mid-2012. Malaysia indicated its willingness to discuss convergence to international (UNECE) standards and to look into the issue of excise duties. On the system of Approved Permits (AP), Malaysia did no go beyond re-affirming the intention of phasing them out by 2015 (open APs) and by 2020 (franchise APs).

On pharmaceuticals/medical devices, there was also a good discussion. Malaysia asked for clarifications and indicated that it would provide comments on the text by the next round.

On sanitary and phytosanitary (SPS), the text is well advanced, although Malaysia has difficulties to accept verification (system audits) and prelisting procedures for products of animal origin in line with international standards and thus reciprocating EU’s approach. This is linked to Malaysian halal requirements that require an audit of each and every foreign meat establishments and also costs to be paid by the exporting country. The EU considers this not in line with international standards.

In the margins of the FTA negotiations, discussions also took place with the Department of Veterinary Services (DVS) on the new prelisting procedure for imports into Malaysia of pork and its products from EU. This procedure is specific for the EU but a similar procedure was said to have been drafted for pork imports from the United States. DVS will provide details on the listing and system audits procedure and share a guidance document on all import requirements related to pork and its products with the EU, including the updated list of the approved EU abattoirs. Both sides agreed on meeting within 6 months’ time to take stock of the implementation of the current procedure with a view to seek further improvements where necessary.

On halal, a meeting between the Chief Negotiators and halal experts took place with the objective of paving the way for a more trade friendly system. Malaysia promised to try and inject some transparency, by for instance providing a sort of "checklist" of existing standards and procedures for inspections and verifications. Both parties agreed to cooperate towards building trust and confidence between the respective Halal certification bodies, with the ultimate goal of facilitating trade.

Good progress was made on the customs/trade facilitation (CTF) chapter as most of the pending issues have been cleared and finalised with entire EU language. Three more articles were approved (release of goods, transparency, customs brokers) which brings the total of approved provisions to 11 out of 15. Issues still to be agreed include the reasonable interval between prior publication/promulgation of a law and its entry to force, the general non-discriminatory principle (Malaysia would like to limit to CTF legislation only but not MAA) and the comitology structure.

Further progress was achieved on Mutual Administrative Assistance (MAA) in customs matters, closing four more Articles (out of 13). The main outstanding issues essentially relate to the enquiry visits provision (Art.7) and provisions on confidentiality and disclosure of information (Art.10) where the Malaysian side was not yet able to finalise its position. The Article on temporary withdrawal of preferences was not discussed as Malaysia has not yet provided its comments.

In the area of services and investment, sectoral discussions took place on financial services, telecoms, transport and temporary presence of natural persons as well as on disciplines in domestic regulation and licensing procedures. The round saw some progress on the text. On market access, however, the EU reiterated the need to see an ambitious outcome and recalled its requests on market access and national treatment commitments. A further concern is Malaysia’s discretionary domestic licensing regime. The EU presented its offer at the round. Market access negotiations have not yet started in earnest and Malaysia appears unwilling to take significant commitments. More momentum will be needed in this area.

On intellectual property, progress was made on the enforcement section of the chapter. The main points of divergence include patent related issues (data protection and Supplementary Protection Certificates) and border measures. Malaysia signalled willingness to consider extending the scope of border measures to exports, but only limited to trademarks and copyrights. On GIs, progress was made on the question of agent for the application of EU GIs. However, there remain substantive divergences of position on the level of protection for GIs and genericness.

On government procurement, the EU and Malaysia pursued text-based negotiations, making good progresses on the transparency rules. Discussions on market access presented a more mixed picture. Further indications were given that the coverage at central level could be improved whereas providing access to procurement by the sub-federal level or SOEs still prove difficult.

The discussions on competition were constructive. The highlight was a useful meeting with the newly-established Competition Commission which brought an opening for starting concrete discussions on subsidies at the next round. Good progress was made on antitrust with agreement on some of the text. Talks also covered cooperation aspects and an exchange of information on the provisions relating to confidentiality. On monopolies and state owned enterprises, some brackets related to antitrust were removed. There was also a fruitful exchange on the provisions regarding commercial considerations and non-discrimination.

There were active negotiations on trade and sustainable development, resulting in substantive progress on several provisions, including on the objectives of the chapter, the levels of labour and environmental protection, CSR, the review of sustainability impacts, and cooperation. Commitments on core labour standards and ratification of the ILO Conventions remain sensitive for Malaysia, as well as issues under sub-federal competence, such as natural resources. This notwithstanding, good progress was made on the articles on biodiversity and on timber, which are the key components of the framework under this chapter to address palm oil, dealing with the main underlying challenges: tackling deforestation and the loss of biodiveristy, and developing appropriate standards and monitoring practices.

Beyond the 6th negotiating round

A ministerial meeting is scheduled on 30 March 2012 in Cambodia in the margins of the ASEAN Economic Ministers meetings.

The following rounds of FTA negotiations are confirmed in 2012:
– 7th round: 17-20 April in Brussels
– 8th round: 12-15 June in Kuala Lumpur