TNAG-2351-FCO40-3421-Visits-by-Lord-Caithness--Minister-of-State-for-Foreign-and--1991 — Page 33

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CALL ON PRIME MINISTER OF MALAYSIA:

1.

illr thaw o.r.

PS/Lord Caithness

13 May 1991

Private Secretary

Sir J Coles

Mr Burns

Mr Bone, ERD

Mr Stitt, CCD

Mr Brenton, ESED

Mr Davies, FED

13 MAY 1991

At dinner hosted last week by the High Commissioner in Kuala Lumpur Lord Caithness met Mr Arumugam, Head of the local GEC subsidiary and a close confidant of Dr Mahatir.

Mr Arumugam explained that Dr Mahatir would be in London privately the following week and invited Lord Caithness to call. This morning he duly did so.

2.

It became clear that Dr Mahatir's prime purpose was to make a strong pitch for the East Asia Economic Grouping (EAEG). He expressed strong resentment at US criticism. The US wanted control of the Asia/Pacific trading area in its trade war with the European Community. It wanted to see world trade limited to these two groupings without the creation of a third

tri independent group. He repeated several times that the US was

exerting pressure on Japan to block the creation of an EAEG. It was also pressurizing Indonesia to block ASEAN acceptance of the EAEG. Dr Mahatir emphazised that the purpose of the EAEG was to promote, not hinder, free trade. If necessary it might exercise a balance between the US and EC trading groups. If they developed in a protectionist direction the EAEG would act to promote free trade. The US was intimidated by the commercial potential of the Asia/Pacific region and was already taking steps to restrict free access to US markets.

3.

Dr Mahatir repeated several times that Malaysia was committed to free trade. The success of ASEAN was built on free trade. It was not coincidence that the countries of ASEAN were among the most prosperous of developing countries. Malaysia had taken the lead in encouraging foreign investment and free trade after independence whereas other countries had tended towards centrally controlled economies. But other ASEAN countries had quickly followed Malaysia's example and recognised that free trade was the only basis of wealth in the region. He hoped that other countries in the region such as China and Burma would follow this example. Vietnam was already trying to break out and had sought advice from Malaysia on, for example, the creation of an independent banking system.

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/Summarizing,