WASHINGTON — U.S. Trade Representative Rob Portman said Wednesday that the U.S. and Malaysia have agreed to begin negotiations for a free trade agreement.

“Malaysia has been at the forefront of the economic dynamism transforming Asia in recent years,” Portman said during a news conference on Capitol Hill attended by House and Senate lawmakers from both parties who support a trade deal. “It already is our 10th-largest trading partner, with $44 billion in two-way trade in 2005.”

Portman hopes to wrap up negotiations by the end of the year and submit a deal to Congress by March 2007, before President Bush’s trade promotion authority expires in July. Under the authority, Congress cannot amend trade deals and can only vote them up or down.

However, Portman’s plan could be difficult to achieve because the U.S. and Malaysia cannot begin formal negotiations until a 90-day consultation period with Congress is completed — in early- to mid-June — which would leave only six months of formal negotiations.

Portman acknowledged both countries are “under constraints” to complete an accord by the end of the year, but stressed the two sides have “laid the groundwork carefully.”

Malaysia is the 25th-largest apparel and textile exporter to the U.S., with shipments of 335 million square meter equivalents, valued at $725.6 million, in 2005.

Rafidah Aziz, Malaysian Minister of International Trade and Industry, who joined Portman at the news conference, said negotiators are seeking market access in the form of lower tariffs on exports of apparel and textiles to the U.S.

Aziz noted Malaysia, which has developed its own textile industry, would not be seeking “tariff preference levels” — the use of foreign fabrics and yarns — or “cumulation,” which would allow the use of fabric and yarns from specified U.S. trading partners.

Erik Autor, vice president and international trade counsel of the National Retail Federation, said a free trade agreement with Malaysia could be important, but he held out little hope that the deal would contain flexible rules of origin.

“They are going to make the rules of origin worthless with a strict yarn-forward rule and no additional flexibilities,” said Autor, adding retailers are pessimistic, based on the track record thus far. A yarn-forward rule requires that yarn and fabric be produced in either Malaysia or the U.S. for an item to receive duty-free treatment.

This story first appeared in the March 9, 2006 issue of WWD. Subscribe Today.

Cass Johnson, president of the National Council of Textile Organizations, said if Malaysia does not press for foreign fabric allowances and links to other U.S. trading partners, it will “lead to smoother negotiations.”

But he warned that “the other side of the coin is what kind of rule of origin they [Malaysia] will support,” adding the textile industry backs the strict yarn-forward rule of origin with no exceptions.

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