Trade Minister Rafidah Aziz today threatened to punish neighbouring Thailand in a growing row over over its refusal to slash a 20 percent tariff on Malaysian cars.

"If Thailand, for example, does not comply with what is provided for, we will be forced to retaliate and I am now looking for my officers on measures to retaliate," Rafidah Aziz was quoted as saying by the state Bernama news agency.

"Whatever it is, we will maintain our position that we have complied, that we are entitled to get the CEPT treatment for our export," she said.

Rafidah's outburst came after bilateral negotiations on Tuesday in Kuala Lumpur failed to achieve any result, with Thailand sticking to its position.

Malaysia insists that under an Asean regional free trade deal, its auto exports to Thailand should only carry a five percent tariff.

Phasing out the APs

But Thailand has rebuffed the argument, saying parties are entitled to tariff cuts under an Asean Common Effective Preferential Tariff (CEPT) only if they remove other restrictions.

These include Malaysia's controversial import permits scheme, which Bangkok sees as a non-tariff barrier to trade.

Malaysia announced in March that it will cut taxes in an attempt to enhance the competitiveness of national carmakers Proton and Perodua, and as part of a bid to become a regional hub for car manufacturing and exports.

One of the key changes was the reduction in the Asean CEPT import duty to five percent for qualifying vehicles.

Malaysia also said it would phase out its controversial "approved permit" system for car imports, part of an affirmative action plan to raise the status Malays, by the end of 2010.

Under the controversial scheme, only ethnic Malay entrepreneurs are given permits to bring in vehicles.

Rafidah said the bilateral meetings would continue despite the military coup in Thailand.

"That's their own internal problem. We are dealing with the bureaucracy," she said.

"We will continue to discuss, we will continue to look at it."