KUALA LUMPUR, March 22, 2006 (IslamOnline.net & News Agencies) - Former Malaysian prime minister Mahathir Mohamad on Wednesday, March 22, warned that a free-trade agreement (FTA) with the United States may harm the economy and constrain government policy.

"I worry the FTA with the US may have an adverse effect on us," Mahathir told reporters, reported Agence France-Presse (AFP).

The two countries announced early this month that they were to begin FTA talks after Washington worked out accords with some 14 other countries, including Malaysia's neighbor Singapore and Australia.

Mahathir said he was concerned over any FTA because the United States was looking in particular at government procurement, a key area which had been used in the past to promote the economic standing of native Malays or Bumiputras.

"I understand the Americans are particularly interested in government procurement. They want to be able to access government procurement but we have used government procurement in order to correct the (economic) imbalances under the New Economic Policy (NEP) to give the Bumiputras a chance," he said.

"If we lose that we will not be able to correct the (imbalances)."

Malaysia's population of 25 million is 60 percent ethnic Malays, with Chinese and Indians the minority races.

Under an affirmative action plan introduced from 1970, Malays and other indigenous groups receive economic, education and other benefits to narrow the wealth gap with the Chinese.

Successor Prime Minister Abdullah Ahmad Badawi, however, said it had led to a culture of dependency, with Malay businesses relying on government handouts.

Mahathir also said that the FTA with Japan, a key trading partner, was not beneficial to Malaysia.

"In the FTA with Japan, we will import Japanese manufactured goods including motorcars; in exchange we can export vegetables and fruits. We are not the greatest producers of vegetables and goods. These are low value things.

"It would seem to me the FTA with Japan is not beneficial to us," he said.

Japan is among one of Malaysia's top trading partners, after the United States, and one of the biggest investors in the country.

Malaysia signed an FTA with Japan last December and has began talks with Australia, New Zealand and Pakistan.