Trade pact for Japan and Malaysia

The pact with Malaysia will give a new push to Japan's trade deals

Japan and Malaysia say they have reached a basic deal on a free trade pact covering most economic sectors.

The announcement came after a meeting in Tokyo between Japan's Prime Minister Junichiro Koizumi and his Malaysian counterpart, Abdullah Ahmad Badawi.

The deal includes moves to open up the sensitive Malaysian car market to Japanese firms, in exchange for Japan's help in training Malaysian car workers.

Japan has so far signed just two other such pacts, with Singapore and Mexico.

It has also reached a broad agreement on a free trade deal with the Philippines.

In the past, Japan has been reluctant to sign free trade agreements because of pressure from its inefficient agricultural sector, analysts say.

However, Tokyo has recently stepped up its efforts to conclude deals in order to avoid losing ground to China.

Competitiveness

The deal was announced in a joint statement on Wednesday by the two countries during Mr Abdullah's visit to Tokyo, after negotiators had agreed the details over the weekend in Kuala Lumpur.

The main points include:

• Both sides to eliminate all tariffs within 10 years of the agreement coming into force

• All Malaysian tariffs on finished Japanese cars to be gradually eliminated by 2015

• Japanese and Malaysian governments and car industries to undertake "joint initiatives to further promote competitiveness of autos and auto components" in Malaysia

Between them, Malaysia's two main domestic carmakers, Proton and Perodua, control three-quarters of the Malaysian car market.

Malaysia has traditionally imposed high duties on imported cars to protect the two local firms, although it recently lowered its tariffs for cars produced in other south-east Asian nations.

The full text of the free trade agreement is still subject to working-level talks and is expected to be launched formally in December.