Thank you for the opportunity to speak with you today. I would like to recognize the Johor Corporation in particular for putting this luncheon together. Today I would like to talk to you about an important new initiative that the U.S. and Malaysia are undertaking: the launching of negotiations on a free trade agreement, or FTA.

You no doubt are aware that last month Minister Rafidah and then-U.S. Trade Representative Portman announced our governments' agreement to begin FTA negotiations. Contrary to some recent reports, we have yet to actually begin negotiations. The first round is scheduled to kick off on June 12.

This is a big step forward in our relations. A FTA with the U.S. could represent a real turning point for Malaysia, comparable to the first investments made by U.S. electronics firms in this country about 35 years ago. In the early 1970's, U.S. companies such as Intel and Hewlett-Packard brought high-tech manufacturing to Malaysia. This meant that Malaysians who studied science or engineering no longer had to leave the country, but could build a successful career here at home. I believe the new business relationships generated by an FTA between the U.S. and Malaysia will help advance Malaysia's economic development even further, in the same way that the U.S. investments of the 1970's led to a paradigm shift in Malaysia's economy. A knowledge-based Malaysian economy is what's at stake in these negotiations.

FTA's represent a significant investment of political capital and bureaucratic resources for any government. They are not undertaken lightly. The decision to proceed was made at the highest levels in both our governments; recognizing the challenges, but with an even greater appreciation of the benefits that would flow if we could take our economic relationship to a higher level.

Those benefits would be considerable and, in fact, probably would be greater for Malaysia than for the U.S. Some might wonder why that would be the case, but in a room full of business people the answer should be obvious. Economic analysis since the days of David Ricardo, as well as historical experience, have shown that the greatest gains from trade accrue to the smaller economy. For a $12 trillion dollar economy like the U.S., the effect of an enhanced partnership with Malaysia would not be that noticeable. Even a doubling of our $44 billion in two-way trade would be a drop in the bucket. But for a $118 billion dollar economy like Malaysia, the impact of a special economic relationship with the U.S. could be enormous.

Let me get a little more specific about those benefits. What's in this deal for Malaysia? What's in this deal for you? The first benefit a FTA would offer to Malaysia would be to cement its most important economic relationship. The U.S. is Malaysia's top export market, taking 20% of this country's exports in 2005. It also is the top foreign investor, providing over 20% of Malaysia's FDI during 2000-2005. The U.S. has been Malaysia's number one foreign market and the number one source of investment for many years, so it seems clear that it would be in Malaysia's interest to reinforce this relationship as we in the Asia-Pacific region move into a new and more competitive era.

An FTA does this by, to some degree, fixing the rules of the game. A U.S. model FTA is a comprehensive agreement covering everything from agricultural tariffs to telecommunications regulations. If we are successful in negotiating this agreement, both parties will have an increased measure of confidence that the rules won't be changed to their disadvantage; or that if changes are made, they will at least have the ability to seek consultations on them.

The second benefit is that Malaysia - as well as the U.S. - would be likely to see increased exports; and more significantly increased diversification of our exports to each other. While the U.S. is Malaysia's largest trading partner, the range of products we exchange is surprisingly narrow. Currently, electronics goods of different types make up about three-fourths of Malaysia's exports to the U.S. Given the resources, technology and skills base of this country, there should be a much wider variety of products that it could sell to the United States. I know from talking to Malaysian trade officials that diversification of exports is one of the most important benefits that they expect to obtain from a FTA.

A major new market that Malaysia firms would be able to enter is the U.S. government sector. Currently, the Malaysian government blocks most U.S. firms from competing for its government contracts and, consequently, the U.S. government does not entertain bids from Malaysian firms. During the FTA negotiations, we will seek to establish fair and equitable means for our companies to compete for each other's government tenders, while allowing for flexibility to pursue socioeconomic goals. If we can work out a deal, then many new opportunities will open up for Malaysia. Right now, Dell Computers Malaysia - which sells laptop and desktop computers to consumers all over the United States - cannot sell its products to the U.S. government. It maintains a separate production line in the U.S. just to service government contracts. Under an FTA, Dell and other local manufacturers would be able to bid for government contracts and source them from Malaysia. The same goes for the provision of services. Malaysia's interest in becoming an offshore center for back office services would benefit immensely from improved access to one of the largest consumers of those services - the U.S. government.

New Malaysian firms entering the U.S. market will find the competition tough. The U.S. is the largest, most open and innovative market in the world, but businesses that rise to this challenge can hone their competitiveness against the best firms in the world. To paraphrase that famous song about New York, companies that can "make it" in the American market can make it anywhere. In fact, as many Japanese, European and other foreign firms have found, it's almost impossible to run a world-class operation without a foothold in the United States. An FTA will make it easier for Malaysian firms to get that all important foothold.

A third benefit of an FTA is that it would raise Malaysia's profile with foreign investors and increase their confidence in this market. As I'm sure you are aware, there is tough global competition to win foreign investment these days. China and India are particularly attractive destinations and everyone is worried about getting their share, given the demand from these two giants. The special relationship established with the U.S. through an FTA would help Malaysia stand out from the crowd. U.S. foreign direct investment (FDI) in Mexico tripled following NAFTA, and other U.S. FTA partners have seen increased investment as a result of their agreements.

Foreign investment is key to Malaysia's objective of creating a "knowledge based" economy. FDI is not just a transfer of capital, but also of technology and "know how." Malaysia can make some of the knowledge it needs, and it can buy some of it from abroad, but much of the most valuable knowledge can only be obtained through equity partnerships. Most firms won't sell you their "crown jewels," but often they are willing to share them, if they can be assured of a proper return. By establishing clear and fair rules for investment, and ironclad protection for intellectual property, a FTA gives foreign investors the confidence to share their most valuable knowledge - the kind of knowledge Malaysia will need to achieve its goal of becoming a fully developed country by the year 2020.

In a recent survey conducted by the business consultancy A.T. Kearney, Inc., one third of the executives they polled said that the existence of a free trade agreement would make it more likely for them to invest in a given country. They see FTAs as confirmation that a country's economic policies are outward looking, rules based, and even handed. They also appreciate the investment guarantees that are built into a comprehensive FTA. These represent a promise that foreign investors will be treated at least as well as local investors.

Malaysian economic growth and job development would also benefit from the increased trade and investment resulting from an FTA. And as an added bonus, jobs in exporting industries consistently have higher productivity and pay higher wages than those in domestic industry. A study by the U.S. Census Bureau found that even within the same industry, factories in the U.S. that produce for export pay wages 13 to 18 percent higher than those that produce mainly for domestic consumption.

Finally, the benefit to Malaysian consumers should not be overlooked. Not only would they gain access to a wider variety of U.S. products, the prices they pay for goods and services would also fall as a result of a more liberalized trade regime. Malaysian factories that rely on U.S. inputs would also see a fall in their cost of production, increasing their productivity and their competitiveness.

The benefits that would flow from an FTA would support the objectives of the 9th Malaysia Plan. A key thrust of the Plan is to move Malaysia's economy away from manufacturing toward a higher-tech knowledge-based economy, especially in sectors such as ICT, biotechnology, and services. U.S. firms are the world leaders in these areas, and an FTA would enhance their ability to work with Malaysian firms in these sectors. Indeed, it is unlikely that Malaysia would be able to attract the volume of "greenfield" investment required for this transition in the absence of some paradigm changing event, such as an FTA.

An FTA also would support other aspects of the 9th Malaysia Plan, such as encouraging the private sector to take a more active role in economic development. With its emphasis on transparency and rule based decision making, an FTA would complement the Prime Minister's campaign to improve the delivery of public services. In sum, an FTA would provide an important boost to Malaysia on its path towards the Vision 2020 goal of becoming a fully developed economy.

We do face an additional challenge in that these negotiations must move on a fast track. The legislation through which our Congress grants the Administration authority to negotiate international trade agreements will expire on July 1, 2007. To provide Congress with sufficient time to consider the agreement before this authority expires, we will seek to conclude our negotiations by the end of this year. We will need to work very hard, with a great deal of flexibility and understanding on both sides, to complete such a complex project in such a limited span of time. But our negotiators have a good understanding of the task ahead of them, as does the national leadership on both sides. I know both teams are committed to completing this agreement, which will bring significant benefits to both our countries, and will work hard to achieve success.

No doubt there will be people who will oppose these negotiations. Some may have personal interests at stake. Others may have more generalized objections to free trade and globalization. As business leaders, I urge you to consider what is best for your future and for the future of Malaysia. This free trade agreement will cement Malaysia's already strong economic partnership with the United States and it will provide the markets, the capital and the "know how" Malaysia needs to expand its economy and move it to a more developed level.

Now I look forward to hearing your views and I would be happy to take any questions that you might have.