Japanese, Malaysia agree on trade deal

Japanese, Malaysia agree on trade deal

Mari Yamaguchi, Associated Press/Tokyo

Leaders of Japan and Malaysia on Wednesday agreed on key elements of a free trade pact covering automobiles and most other sectors of their economies, in what could boost Japan's share of Southeast Asia's largest passenger care market, the Foreign Ministry announced.

Japan's Prime Minister Junichiro Koizumi and his visiting counterpart, Abdullah Ahmad Badawi, agreed on the economic partnership during talks on Wednesday that followed an agreement struck by their trade ministers last weekend in Kuala Lumpur.

The two leaders "confirmed that they have reached agreement in principle on the major elements" of the free trade pact, the Foreign Ministry said.

The free trade agreement is expected to be formally launched in December.

After launching free trade talks in January last year, the two countries reached a basic accord on agricultural and marine products.

On Wednesday, they resolved remaining issues, including an agreement to give Malaysia until 2015 to fully eliminate tariffs on imported vehicles. Japan earlier had pushed for an earlier date.

But Kuala Lumpur agreed to immediately remove tariffs on auto parts for vehicles that Japanese automakers assemble in Malaysia and on vehicles that do not compete with Malaysian models.

Malaysia currently 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.

Malaysia has recently lowered its tariffs for cars produced in Southeast Asian countries, but other countries still face high barriers.

The opening of Malaysia's auto industry would be welcome news for Japanese automakers, which are reeling from increasing competition not only from U.S. rivals but also Asian companies, especially Hyundai of South Korea.

Japan estimates that a free trade agreement with Malaysia would lift Japan's real gross domestic product by as much as 0.08 percent or about US$3.4 billion, according to a joint study by Japan and Malaysia.

Under the agreement, Malaysia will also abolish tariffs on steel products used for vehicles and household appliances. Japan will immediately remove tariffs on mangos, mangosteens, durians, papayas and rambutans, while setting an upper limit of 1,000 tons per year on fresh bananas.