A European Union envoy said today that Malaysia's racial quota policy favouring the majority ethnic Malays is detrimental to the country and could hinder a free-trade agreement.

EU ambassador to Malaysia, Thierry Rommel said Malaysia's attractiveness to foreign investors has weakened as a result of the affirmative action policies for the majority ethnic Malays or "bumiputras".

"As far as Malaysia is concerned, this New Economic Policy - the bumiputra policy - is a stumbling block. Malaysia is already paying the price in losing out in FDI in relative terms," Rommel said.

"Protectionism in public procurement is rising. That protectionism is expanding and the scope for competition and efficiency is narrowing ... Malaysia is marginalising itself," he told reporters.

Pervasive impact

Rommel said the bumiputra policy was detrimental to Malaysia's human capital development due to its "pervasive impact" throughout the public education system.

Malaysia since the 1970s has retained the policies in order to close a wealth gap between Malays and the minority Chinese community.

Rommel also criticised Malaysia for delays in negotiating a deal which could be a precursor to a FTA, adding that the country is lagging other members of the Association of South East Asian nations (Asean).

"We're waiting impatiently for Malaysia to join the Asean movement (to have these talks). It is running behind. They have said let's start the negotiations but it's not been followed up," Rommel said.