"If we were not to see significant progress'' in the fifth round of talks next week, then "it would be very difficult to see how that would happen in the time remaining,'' Deputy US Trade Representative Karan K Bhatia told reporters in Kuala Lumpur on Wednesday. A trade agreement can accommodate Malaysian government policies that give the ethnic Malay majority preferential treatment, Bhatia said. The US is not seeking to "undermine'' the so-called affirmative action programme, he said. Bhatia is in Malaysia to win over officials on contentious issues before next week's talks in Malaysia.

The US has set a deadline to conclude negotiations by the end of March in order to get an agreement through Congress by July. Negotiators are "near closure'' on many components of the free trade agreement, Bhatia said. Malaysia's "government doggedly refuses to give up its preferential ethnic policies and to compete on an equal footing, especially in liberalising services and government procurement contracts,'' said Andrew Aeria, an LSE Enterprise & IdeaGlobal political analyst. The free trade agreement "is now stuck.''

An agreement would accelerate growth in trade and investment between the two countries, and boost Malaysia's economy, Bhatia said. It would also offer US companies such as Microsoft Corp. and General Electric Co. greater access to Malaysia's $147 billion economy, Southeast Asia's third largest. The country is the 10th-largest US trading partner with about $44 billion in dealings between the two nations in 2005. Bhatia, who this week met officials from the Malaysian finance, agriculture and trade ministries, said he's now "more optimistic'' about reaching an agreement.

The US government may need two more rounds of talks with Malaysian authorities, one more than scheduled, before reaching an agreement because the countries haven't agreed on issues including how government contracts are awarded, US Assistant Trade Representative Barbara Weisel said January 12.

"There are not insignificant challenges ahead,'' Weisel said then. "The Malaysian government has, as in the case of labor and environment, not reached a decision as to whether it is comfortable including those'' in the agreement.

—Bloomberg