thaicables – It's Your Right to know the Truth!

“170341″,”9/18/2008 7:34″,”08BANGKOK2837″,

“Embassy Bangkok”,”CONFIDENTIAL”,

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E.O. 12958: DECL: 09/18/2018

TAGS: PREL, PGOV, PHUM, PINR, KDEM, PREF, TH

SUBJECT: DAS MARCIEL DISCUSSES ASEAN, BURMA AND BORDER

ISSUES IN MEETINGS WITH THAI MFA AND SURIN

 

REF: BANGKOK 2487

 

BANGKOK 00002837 001.2 OF 003

 

Classified By: Ambassador Eric G. John, reasons 1.4 (b) and (d)

 

1. (C) Summary. Thai MFA Permanent Secretary Virasakdi

Futrakul told visiting EAP DAS Scot Marciel and the

Ambassador September 9 that the RTG viewed recent Cambodian

border actions as contradictory to progress achieved during

recent discussions by the two nations\’ Foreign Ministers.

Virasakdi said that the RTG was actively planning for the

December ASEAN Summit and hoped that the ASEAN Charter would

be ratified by all member nations by the end of 2008. In a

separate meeting, ASEAN Secretary-General Surin Pitsuwan laid

out goals for further ASEAN economic integration and

improvements in the effectiveness of the ASEAN Secretariat.

DAS Marciel pressed Virasakdi for international monitoring of

the Hmong resettlement process in order that legitimate

safety concerns of the refugees could be addressed. End

Summary.

 

THAI-CAMBODIAN BORDER REMAINS CONTENTIOUS

—————————————–

 

2. (C) MFA Permanent Secretary Virasakdi Futrakul told EAP

DAS Scot Marciel and the Ambassador September 9 that

significant progress had been made in resolving the

Thai-Cambodian border conflict. Virasakdi expressed optimism

that the Joint Border Committee would assist in furthering

progress on disputed areas at Preah Vihear and Ta Muen

temples (reftel). Thai Parliament approval was needed before

proceeding, however. Virasakdi expressed frustration that,

despite progress, the Cambodian government had recently sent

seventy troops to occupy the Ta Krabey temple (Ta Kwai in

Thai), which is approximately fifteen kilometers from Ta

Moan. Cambodian actions were an attempt to take advantage of

the political conflict in Bangkok, Virasakdi asserted. The

RTG would resist a Cambodian attempt to take the border

dispute to the International Court of Justice (ICJ) based on

the precedent of using colonial maps drawn by the French.

Taking the case to the ICJ would poison the Thai-Cambodian

relationship; if this occurred, no Thai government would be

able to agree with Cambodia regarding overlapping oil claims

in the Gulf of Thailand. Virasakdi said the RTG would look

to the U.S. for support if the Cambodian government took the

issue to the UN Security Council. DAS Marciel explained that

the USG hoped that Thailand and Cambodia would resolve the

issue peacefully and bilaterally.

 

THAI GOALS FOR ASEAN

——————–

 

3. (C) Virasakdi said that the RTG was busy preparing for the

December ASEAN Summit; the Summit would be followed by the

ASEAN plus 3 meeting and the East Asia Summit. Virasakdi

said the RTG hoped to organize an ASEAN-United Nations Summit

and had invited World Bank President Robert Zoellick to

attend as well. Virasakdi hoped that the leaders of the

seven ASEAN countries that are APEC members (Brunei,

Indonesia, Malaysia, the Philippines, Singapore, Thailand,

and Vietnam) would be able to meet with President Bush at the

APEC meeting in Peru this November. Virasakdi also expressed

hope that a U.S.-ASEAN Science and Technology Agreement could

be signed at APEC.

 

4. (C) Virasakdi told DAS Marciel that while Indonesia and

the Philippines had yet to ratify the ASEAN Charter, he was

optimistic that the Indonesian government would ratify the

Charter soon. (Note. The Thai Parliament on September 16

passed the final implementing legislation necessary to

deposit its ratification of the Charter with the Secretariat.

End note.) Virasakdi acknowledged doubts that the

Philippines would ratify the Charter before the end of the

year, but said ASEAN Secretary-General Surin Pitsuwan was

actively lobbying the Philippine Senate Foreign Relations

Committee. Virasakdi joked that his workload would be easier

if the Charter were not ratified, because Vietnam would then

take over as chair for ASEAN from Thailand in July 2009

rather than at the end of 2009.

 

BANGKOK 00002837 002.2 OF 003

 

5. (C) DAS Marciel asked Virasakdi about RTG goals as ASEAN

chair. The RTG\’s primary hopes were to finalize ASEAN

blueprints for political-security and social issues,

Virasakdi said. Forging consensus on a ASEAN human rights

body was also a goal, Virasakdi said, but there currently was

disagreement on the terms of reference for the organization.

(Note: In a separate meeting, Kavi Chongkittavorn, Assistant

Group Editor of the Nation Multimedia Group, told DAS Marciel

that the Vietnamese government had resisted granting power to

the ASEAN human rights body. End note.)

 

6. (C) Virasakdi said that Sec-Gen Surin would soon propose a

restructured ASEAN Secretariat, one that Surin hoped would be

more effective and proactive. The proposed restructured

organization would require an increased budget, and ASEAN

member countries would meet soon in Hanoi to discuss member

contributions. After the APEC meeting in November, ASEAN

foreign ministers would meet with MERCOSUR counterparts to

explore cooperation between the two bodies. ASEAN could also

cooperate with ASEAN Regional Forum nations to develop a

Standard Operating Plan for disaster management.

 

RESETTLEMENT OF HMONG UNRESOLVED

——————————–

 

7. (C) DAS Marciel pressed Virasakdi for international

monitoring of the resettlement process for Hmong refugees

from Thailand. Virasakdi said the RTG was trying to convince

the Lao government to accept a role for the International

Organization of Migration in resettling the Hmong, but the

Lao government had refused to agree to third party

involvement. Laos may consider third country resettlement

but had set conditions that had halted progress. Foreign

governments would have to negotiate agreements directly with

the Lao government, and the Hmong would have to return to

Laos to be issued Lao passports in advance of departing to a

third country. DAS Marciel stressed the importance of

transparency in the resettlement process in order to address

safety concerns of the Hmong. Virasakdi suggested that the

USG engage the Lao Permanent Representative in Geneva, as he

had previously been the official primarily responsible for

the Hmong issue.

 

BURMESE POLITICAL SITUATION

—————————

 

8. (C) DAS Marciel stressed to Virasakdi that the

international community must continue to pressure the Burmese

regime for real political progress in advance of the 2010

elections. Considering the Burmese regime\’s actions during

the constitutional referendum, the USG considered prospects

for fair elections negligible. Virasakdi said there were two

viewpoints on the coming elections: one side believed that an

election would be better than nothing, while others agreed

that the elections would not be fair. DAS Marciel told

Virasakdi that the USG would continue to press the Burmese

regime to allow all Burmese a voice in determining their

government.

 

SURIN PRESSING FOR CHANGE IN ASEAN

———————————-

 

9. (C) In a separate meeting, ASEAN Secretary-General Surin

told DAS Marciel that his priority for ASEAN was furthering

economic integration. Surin said he was working with ASEAN

Foreign Ministers to try to provide for more flexibility for

the ASEAN Secretariat. This would allow the Secretariat to

interact more effectively with the public, civil society, and

the business sector in ASEAN nations. Surin would continue

to press ASEAN leaders to expand dialogue at the East Asian

Summit in December to include discussions on food and energy

security and climate change.

 

10. (C) DAS Marciel suggested that ASEAN better incorporate

the business community into ASEAN affairs. Surin agreed that

this was an area that needed attention and cited the

U.S.-ASEAN Business Council as a good example. Surin said

the Japanese were trying to organize a ASEAN Chamber of

Commerce; the ASEAN Secretariat would promote intra-ASEAN

 

BANGKOK 00002837 003.2 OF 003

 

investment and trade registration.

 

11. (C) Surin said ASEAN would continue efforts to help

Vietnam, Laos, Cambodia, and Burma bridge the development gap

with richer ASEAN nations. DAS Marciel cited U.S. assistance

to prepare Laos for possible WTO accession as an example of

sound economic development policy. Surin agreed that ASEAN\’s

less-developed nations must follow good economic policies, as

ASEAN would not be able to rely on richer member countries

such as Singapore and Brunei for assistance. Surin said that

rational development strategy must work with existing

regional architectures, such as the Mekong River Commission,

the Initiative for ASEAN Integration, and other

organizations. Considering the global food situation, Surin

said that developing the Irrawaddy Delta region into a new

\”rice bowl\” would benefit the Burmese people and possibly

assist political change. DAS Marciel suggested that Vietnam

could possibly be utilized by ASEAN as a model for

implementing agricultural reforms.

 

12. (C) DAS Marciel stressed to Surin that continued

engagement with the Burmese regime would need to be

predicated on the regime taking positive political steps.

Surin said that UN Secretary General Ban Ki-Moon may try to

visit Burma in conjunction with the December ASEAN Summit and

that UN Under-Secretary for Political Affairs Lynn Pascoe was

trying to lay the groundwork for a positive visit.

 

13. (U) DAS Marciel has cleared this cable.

JOHN

“

“76927″,”9/1/2006 9:23″,”06BANGKOK5406″,”Embassy Bangkok”,

 

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SENSITIVE

 

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STATE PASS USTR

USDOC FOR JKELLY

 

E.O. 12958:N/A

TAGS: ECON, ETRD, TH

 

SUBJECT: THAILAND REJECTS ASEAN-KOREA FTA

 

REFTEL: SEOUL 1981

 

1. (U) Thailand declined to join its nine ASEAN neighbors in the

signing of the ASEAN-Korea FTA in Kuala Lumpur last week. Mr. Sarig

Ubolbarn of the Department of Trade Negotiations explained that the

RTG had yet to reach agreement with Korea on opening Korea\’s market

to Thailand\’s rice exports. The RTG did not attempt to continue

negotiations in Kuala Lumpur and likely will not schedule further

bilateral discussions with Korea until after general elections are

held in Thailand later this year.

 

2. (SBU) Although rice exports presented the most serious and public

disagreement with Korea, other issues remain to be discussed.

Thailand is concerned about its ability to conform to the FTA\’s

model for tariff reduction and is still engaged in internal

discussions over which items should be placed in the \”normal track\”

or the \”sensitive track\” (see reftel). The RTG is struggling as

well with Korea\’s more stringent SPS regulations. Thai industry has

protested inclusion of products from North Korea\’s Kaesong special

economic zone, fearing an influx of cheap imports, and Sarig

suggested there would be further negotiations on the rate of tariff

reductions for Kaesong goods before Thailand would sign the final

agreement.

 

3. (SBU) Thailand\’s rice trade with Korea make up less than one

percent of its total exports to Korea (USD 2.4 billion in 2005) but

nevertheless holds a critical place in negotiations for Thailand.

Sarig conceded that other agricultural and seafood products were

more important exports to Korea at present that could benefit from

immediate tariff reductions, but felt the RTG had to try to crack

the market to benefit Thailand\’s many rice growers. Negotiations on

investment and services remain to be finalized and Thai trade

officials expect the rice issue may be resolved within those

negotiations.

BOYCE

“

“74302″,”8/10/2006 5:17″,”06BANGKOK4888″,

“Embassy Bangkok”,”UNCLASSIFIED”,”",

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E.O. 12958, AS AMENDED:N/A

TAGS: ECON, ETRD, TH

SUBJECT: A NEW CHINESE EXPORT

 

1. Summary: Emerging as the sixth largest source of engineering

contractors in the world, China’s construction industry is seeking

to increase exports of these services to Thailand. An experienced

Chinese industry executive spoke candidly regarding his company’s

difficulties in navigating the disparate layers of Thai bureaucracy,

asserting that Chinese construction firms are often outmaneuvered by

more established Thai and foreign firms. However, others have

complained the companies receive undue support from the Chinese

government, including low-interest loans and direct grants.

Finally, it appears that most members of Thailand’s construction

industry support caretaker PM Thaksin Shinawatra’s government, as it

provided political stability and maintained important existing

contacts. End summary.

 

2. As a close neighbor and a large developing market in Southeast

Asia, Thailand has attracted the attention of Chinese construction

firms as a destination for increased service exports. Currently the

world’s sixth largest exporter of engineering services, China’s

construction firms have relatively extensive foreign operating

experience. At the 2006 Global Construction Summit in India, deputy

president of the China International Contractors Association

(Chinca) Diao Chunhe said Chinese firms in 2005 reached a record

turnover of USD 21.76 billion globally, a 24.6 percent increase from

2004. New contracts signed by Chinese contractors in 2005 totaled

USD 29.6 billion, also up 24.2 percent. Moreover, one

Thailand-based Chinese industry source noted that the Chinese

Ministry of Commerce has facilitated a shift from mostly African and

Middle Eastern projects in the 1980s to increased emphasis on

countries bordering China, including Southeast Asia, Mongolia and

Russia.

 

A Chinese old Thai hand

————————

 

3. Despite a growing international market and support from China’s

policy-makers, one Chinese executive fretted that Chinese

construction companies still have difficulties in penetrating the

Thai market. During a candid July 5 meeting, Mr. Wang Yinfei,

managing director at China State Construction Engineering Company

(CSCEC), provided Econoff with his perspectives on the evolving

Chinese business and investment strategies in other countries. Wang

is rare among prominent Chinese business leaders in that he is

relatively young, well-experienced overseas and conversant in

Chinese, Thai and English. Graduating from Shanghai’s prestigious

Fudan University, Wang first arrived in Thailand as a middle manager

in 1988 for CSCEC. Since then he has spent all but one year living

in Bangkok. His company was a founding member of the Chinese-Thai

Enterprises Association, where Wang served as its first president.

 

4. Wang described the difficulties in receiving contracts in

Thailand, a process of building personal networks at multiple levels

of every ministry’s staff and navigating through a complicated

system of regulations. Wang claimed on certain projects Thai

companies influence ministers to block competitors by withholding

upgrades of technical rating certifications, necessary for larger,

more lucrative contracts. This practice also infiltrates bid

evaluations, which are divided into two categories: price and

technical expertise. Although the different bid values are open,

Wang deemed the technical evaluation an arbitrary process that often

depended on “personal connections”, where Thai and more established

foreign firms excel. Other limitations are requirements for

joint-venture partnerships with Thai companies under Thai government

procurement regulations. Mr. Lu Jiongtao, managing director for

Chinese hydropower company CWE, noted that all of his company’s

projects required a Thai company as lead bidder. (Note: Chinese

construction companies circumvent this by legally establishing

themselves as Thai entities. End note.)

 

5. Wang also noted that corruption is endemic in the construction

industry, a problem confirmed by Thai contractors as well. Still,

all parties seemed to accept this condition as a standard operating

expense. Mr. Thamnu Vasinonta, executive director for the Thai

Contractors Association said he disliked the current practices of

bribery, but interestingly not its principle. “A bribe should not

be an assumed cost of doing business,” he said, “but more like a tip

companies give to show appreciation after the bidding.” He implied

that better government ‘service’ to efficiently award contracts

deserved a bigger ‘tip’, and vice versa. Wang also conveyed that

CSCEC also had to adapt to this reality, and one must “brainwash”

away any notion of legal and administrative ethics. “You can’t come

to Thailand and expect to change the society,” he remarked. Wang

even joked about the relative transparency of corruption; the amount

of the bribe is rarely arbitrary, but a similarly fixed percentage

of the contract value.

 

Chinese construction companies: Pups or Wolves?

——————————————— —

 

6. Despite these difficulties, Chinese construction firms and other

service exporters have aggressively increased their presence in

Thailand. Aside from the large communications company Huawei, BoI

China desk director Mr. Charas Chitkittichamras listed construction

firms CSCEC, CHEC and CITIC as the most prominent players. He

 

BANGKOK 00004888 002 OF 003

 

explained that thus far they have generally received contracts for

public housing complexes; for more complicated “megaprojects”,

Chinese companies usually play minor roles as subcontractors.

Charas suggested that the primary reasons include a relative lack of

capability and poor understanding of Thailand’s bidding process.

 

7. Since 2001 Wang said CSCEC has improved relationships with

different RTG ministries, winning the prime contractor role on a few

projects. Wang said that his company’s largest current contracts

include an 8.4 billion baht (USD 220 million) housing project with

20,000 units and a 1 billion baht (USD 26 million) local government

office tower, but he also added a 3.8 billion baht (USD 100 million)

outer ring highway for Bangkok. He also confirmed other projects

where CSCEC acted as a subcontractor, but he denied that CSCEC

accepted subcontractor status because of any technical deficiencies.

Rather, he contended that his company wanted to avoid the

complicated machinations in securing large projects from the Thai

government.

 

8. Chinese companies have also started making inroads into

contracts for pipelines and dams. For instance, the Petroleum

Authority of Thailand (PTT) recently chose Chinese Petroleum

Pipeline Engineering Corporation (CPPE), a subsidiary of the China

National Petroleum Corporation (CNPC), to build a 70 kilometer

pipeline near Bangkok that leads to the Wang Noi power plant. One

Thai construction expert from U.S. engineering giant Bechtel

confirmed the determination of Chinese companies to advance their

own processes, materials and information. For example, the Chinese

CPPE subcontractor has asked Bechtel repeatedly for copies of

information on unrelated construction projects. “The Chinese are

learning all the time,” the Bechtel representative noted, “and

they’re learning quickly.” Eventually he expects these companies to

be very competitive.

 

9. In almost every case, Chinese construction and service providers

offer the lowest prices as their primary advantage, and Charas noted

that sometimes their bids are half of its competitors. Part of this

advantage may stem from their tendency to use only Chinese

suppliers, traders and even labor. Andy Huang, president of

Taiwanese construction firm Sunflower Group, complained about

Chinese companies accepting smaller payments in installments,

sometimes with no up front payment, because of PRC financial

assistance. CSCEC’s Wang confirmed the practice, although his

rationale differed from Huang’s, citing his firm’s more flexible

payment option as a response to ministry budget shortfalls.

 

10. These activities have some observers questioning whether

Chinese companies are playing fair. For example, Charas believed

that Chinese companies lack many of the technical capabilities to

compete for major contracts. However, the Bechtel source noted that

Chinese companies are sometimes selected despite being less

qualified than other competitors. He suggested that the PTT is

“heavily influenced” by the Thai Ministry of Commerce, which in turn

is susceptible to Chinese influence through inter-government loans.

Although the evaluated Chinese bid on the pipeline project was the

cheapest, CPPE had the weakest qualifications, material support and

expertise. As project manager on behalf of the RTG, Bechtel also

has had to exert extra effort to administer the contract to ensure

CPPE does not cut corners.

 

11. Wang freely acknowledged that the Chinese government has

ratcheted up its support for outbound investments, including very

low-interest loans and liberal re-import/export policies that

allowed Chinese firms to transport their equipment and machinery

from China to Thailand. Even Thai contractor association

representative Thamnu agreed that some level of outside influence is

acceptable, but he balked at direct PRC loans to Chinese companies.

That type of advantage would create overtly unfair bidding

conditions. As an alternative, Thamnu thought that the Chinese

government should make more government-to-government loans for

construction projects, with the caveat that Chinese companies

receive preferential access. He suggested that this would help to

maintain fairness for existing projects while giving Chinese

construction more opportunities for previously unbudgeted works,

something of a win-win for everyone.

 

Politics and the waiting game

——————————

 

12. Thailand’s current political uncertainties have reduced the

overall level of construction, particularly for public-funded

projects. Thamnu suggested that members of his organization, which

is unaffiliated with any government or political entity, have

watched both new and existing contracts halted. Funding has crawled

to a standstill as the government lacks power to approve new

budgets. Lu noted that CWE will have no new projects for at least 6

months and can do nothing but wait. Perhaps as a result, Thamnu

expressed his personal view that the Thaksin government had been

good for contractors.

 

13. Wang also believed most Chinese companies supported the current

Thaksin government and the Thai Rak Thai (TRT) party because it

generally advanced pro-business economic policies. While

 

BANGKOK 00004888 003 OF 003

 

acknowledging Thaksin’s special emphasis on Chinese trade and

investment has been helpful, he said the primary reasons for growing

Chinese business activities go beyond a cultural affinity with the

large ethnic Chinese Thai business elite. Wang liked Thailand’s

Buddhist mores, but political stability since 2001 has been the main

draw for further trade. This is magnified in an industry like

construction that requires strong business-government relations. He

did not object to the opposition Democrat Party except for

continuity’s sake. He gave an example of CSCEC’s local government

office building suffering delays and higher costs when the Democrat

Party took power and demanded significant changes to the project

design and materials.

 

14. Comment: The construction industry is an example of Chinese

potential to expand their growing exports to Southeast Asia beyond

traditional sectors involving cheap goods and agricultural products.

While China does not yet export highly-skilled services in finance

or consulting, its low-cost construction SOEs may prove formidable

competitors once they better navigate Thailand’s construction

networks. We note that none of the Chinese construction firms

discussed competing for private sector construction contracts

despite their apparent pricing competitiveness. End Comment.

 

Arvizu

“

“74296″,”8/10/2006 3:23″,”06BANGKOK4880″,

“Embassy Bangkok”,”UNCLASSIFIED”,”",”VZCZCXRO6355

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E.O. 12958, AS AMENDED: N/A

TAGS: EINV, ECON, TH

SUBJECT: CHINESE INVESTMENT STRATEGIES: FAIR OR FOUL PLAY?

 

1. Summary: In its efforts to manage globalization and competition,

Thailand has welcomed Chinese trade and investment. China in turn

has responded with well-connected companies utilizing government

incentives to invest. Both countries extend attractive policy

measures to encourage this trend. Chinese multinational companies

find attractive Thailand\’s mature domestic market, similarities in

culture and – until recently – stable political environment, which

local observers believe primes it as a major outlet to reduce

China\’s rapidly expanding trade surpluses and foreign exchange

reserves. However, while some in Thailand welcome China as just

another source of investment to raise overall market

competitiveness, others fear that Chinese companies may possess

unfair advantages from being closely aligned with the PRC

government. Spurred by Beijing\’s \’Go Abroad\’ policy, large Chinese

state-owned enterprises can count on their government-sanctioned

financial support. End summary.

 

2. In recent years Thailand has aggressively targeted China as a

trading partner and as a growing source of foreign investment,

although local Thai observers do not see any favoritism on the part

of the RTG. Mr. Charas Chitkittichamras, head of the China desk at

Thailand\’s Board of Investment, considered the increased attention

towards China a necessary and balanced response commensurate to

China\’s economic clout. Furthermore, Dr. Deunden Nikomborirak,

research director at the Thailand Development Research Institute,

viewed China only as one among many participants in Thailand. She

emphasized the benefits of greater competition among all foreign and

Thai companies towards increased efficiency and lower prices.

 

3. Both countries actively promote this development. For instance,

Thailand\’s Board of Investment (BoI) has created a special China

desk to facilitate mutual FDI. Moreover, rather than relying solely

upon agreements with Beijing, the BoI has targeted individually 11

southern Chinese provinces for direct cooperation in the private

sector. This initiative includes the establishment of a

Thailand-China Business Council in each of those selected provinces.

Concomitantly, China has restructured its Thailand embassy to

encourage Chinese investment. According to Ms. Hu Yan, a Chinese

businesswoman with close connections inside the Chinese embassy in

Bangkok, China\’s diplomatic corps only engaged in political or

consular activities until the 1990s. In the last 10 years, however,

the Chinese Ministry of Commerce has increased its presence in

Thailand. Aside from supplying some basic informational and legal

support, it created the Chinese-Thai Enterprises Association in 2002

as the official grouping of Chinese companies. Hu noted these

measures correspond to Beijing\’s overall engagement with ASEAN

countries, where Thailand is the largest destination for Chinese

investments. For example, she noted the 3rd China-ASEAN expo later

this October in the Chinese city Nanning, to which she claimed

responsibilities for handling Thai delegates\’ travel arrangements.

 

Chinese investors praise Thailand

———————————

 

4. Chinese investors interviewed by Econoff unanimously agreed that

Thailand is particularly well-suited for Chinese companies. Along

with a more mature domestic market, they felt Thailand offers better

production sourcing and infrastructure than most other Southeast

Asian nations. Ms. Jian Jun of textile and chemical manufacturer

China Worldbest Group, a Shanghai-based SOE, also mentioned

Thailand\’s advantages as a base for greater access to export

markets. Finally, the large ethnic Chinese community often acts as

a springboard into the market. According to Mr. Milton Osbourne at

the Lowry Institute in Australia, at least 60 percent of Thai

parliamentary MPs have Chinese ancestry, with some estimates upwards

of 90 percent. \”We like Thailand because the Thais are unbelievably

friendly and kind, probably because of their Buddhist beliefs,\”

added Mr. Wang Yinfei, managing director of China State Construction

Engineering company.

 

5. Notwithstanding Thailand\’s current political uncertainties, all

the Chinese investors interviewed considered the country as

generally stable, with mostly consistent economic policies. No one

denied that the current conditions have caused short-term

difficulties to their business. For example, Chinese businesswoman

Hu revealed that the Chinese premier was originally scheduled to

arrive earlier in April this year to announce upwards of USD 5

billion dollars in loans to the Thai government, but canceled the

trip due to the political protests at the time. Chinese companies

would in turn receive much of these loans to invest in Thailand.

Not surprisingly, all said they would like to see a continuation of

caretaker PM Thaksin\’s government, but maintain confidence that any

administration would continue liberal trade and investment policies.

 

Chinese SOEs to China: Show me the money!

—————————————–

 

6. These conditions have also made Thailand an ideal destination for

China\’s \’Go Abroad\’ (Zou Chuqu) investment strategy, which Chinese

businessmen say offers incentives for Chinese state-owned

enterprises (SOEs) to invest in other countries. Mr. Xu Genluo,

 

BANGKOK 00004880 002 OF 003

 

general manager at Hangzhou-based Holley Group, explained the five

priorities of this policy: 1) Relieve the pressures to revalue the

Chinese currency; 2) Avoid certain export restrictions on Chinese

products; 3) Reduce China\’s trade imbalance with other countries by

diverting manufacturing; 4) Gain global management and technological

skills; and 5) Diversify company investments.

 

7. The \’Go Abroad\’ policy thus coordinates significant Chinese

government involvement in financially supporting its outbound SOEs.

Xu stated that his own company derives significant direction and

financial support from the government, including a direct grant for

a $100 million dollar electric meter factory in Thailand. Xu did

not specify the source of the grant, only stating that they were

given to ten specially selected Chinese companies. Jian also spoke

of regular consultations and business ceremonies held within the

Chinese embassy compound. (Note: During interviews with Econoff,

Chinese businesspersons all either appeared to have just come from

or prepared to depart for meetings there. It is possible the

Chinese embassy either wanted to ensure adherence to certain talking

points or to discover the substance of the interviews. End note.)

In addition, Hu recollected that some of her friends in Chinese

banks were mandated by their government to approve a certain number

of loans for outbound investments each year. She asserted some of

those loans offered \”virtually no interest\” for borrowers, adding

that Chinese SOEs are also exempt from corporate taxes on their

overseas earnings.

 

Getting too much help from China?

———————————

 

8. Further blurring the distinction between Chinese businesses and

government, Hu also emphasized that only Chinese SOEs are afforded

those policy incentives. In contrast, privately-owned Chinese

companies are generally prohibited from going abroad. Officially,

only SOEs are allowed into the 69-member Chinese-Thai Enterprise

Association. There are only two exceptions, including Hu\’s small

tourism and air shipping company. She said the Chinese Ministry of

Commerce only allowed her company to bypass those rules because of

her extensive personal relationships with the Chinese embassy in

Bangkok.

 

9. In addition to reducing its foreign reserves and trade

imbalances, Chinese investment policies can help its SOEs gain

advantages over its private competitors in Thailand. For example,

Charas of Thailand\’s BoI suspected that the Chinese government

financially underwrites low bids to gain access to the Thai market.

He considered this policy to be an extension of Chinese soft power

policies. Nonetheless, Charas did not consider these measures

financially large enough to significantly undermine genuine

competition, especially since most Chinese companies are still minor

players in Thailand.

 

10. However, Jian of China Worldbest Group, a Shanghai-based SOE,

portrayed a far more distant relationship between Chinese businesses

and government. Acting also as president of the Chinese-Thai

Enterprise Association, she asserted that Worldbest received no

money from the Chinese government, dismissing the notion as an

inefficient allocation of public funds. She reiterated Chinese

government statements that China has allowed the market to

completely determine a company\’s viability. For Jian, even the

concept of SOEs being \’state-owned\’ belies the reality that

companies are now publicly owned, with the government as only one

shareholder. She theorized the dominance of Chinese SOE investors

as a natural result of China\’s relatively nascent entrance into a

market economy, as larger companies with resources to invest

overseas tend to have SOE origins.

 

11. Jian also defends against the notion that China is too reckless

with its outbound FDI. For instance, she gave evidence of

market-driven investment decisions, noting their careful risk

assessment since 1998 before opening manufacturing facilities in

Thailand in 2001. She explained that Worldbest wanted to have

better access to the local market and export position, but also

stressed the high quality of Thai talent in assisting their research

and development.

 

12. Charas agreed with most of Jian\’s market-based rationale. He

noted that most of the Chinese companies have been profitable, apart

from some minor investors in products and retail services. Aside

from telecommunications, most of the larger investments and service

trade in construction have moved into Thailand cautiously. Those

Chinese companies that have failed suffered from a limited

understanding of Thai tastes, rather than self-inflicted wounds to

placate Beijing\’s foreign policy mandates. For instance, Charas

imparted one anecdote on ceramics from Jingdezhen, China\’s most

famous town for such wares. Chinese investors failed to realize

Thai buyer\’s appreciation for professional presentation and often

displayed otherwise quality wares amassed on the ground. This

alienated Thai clients seeking ceramics for both small- and

large-scale home improvement projects.

 

13. Comment: Thus far it appears Thai observers considered the

advantages of Chinese investment outweigh any potential fairness

 

BANGKOK 00004880 003 OF 003

 

issues. While they understand that Chinese companies have close

relationships with the PRC government, none of the interlocutors has

indicated that China has used its increasing investments for

political leverage. Even Chinese investors like Hu and Xu were

candid regarding their own business-government intimacy, appearing

not to find such support unfair. With China\’s GDP rising 10.3

percent and 11.3 percent in the first and second quarters of 2006,

expect China to increase its direct incentives to motivate its SOEs

to \’Go Abroad\’, especially as China is eager to avoid the various

economic pressures caused by its ascendant economy. End Comment.

 

Arvizu

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SIPDIS

 

SIPDIS

 

DEPARTMENT PASS USTR FOR BWEISEL AND JJENSEN

COMMERCE FOR JBENDER AND JKELLY

 

E.O. 12958: DECL: 06/01/2016

TAGS: ETRD, EINV, ECON, TH

SUBJECT: DELAY IN FTA TALKS LIKELY TO HIT US EXPORTS

 

Classified By: Economic Counselor Michael J. Delaney. Reason: 1.4 b an

d d

 

1. (C) Summary. There is a growing possibility that

US-Thailand Free Trade Agreement (FTA) negotiations will be

indefinitely postponed. The sizable opportunity costs for US

commerce of the FTA\’s failure have been documented in several

econometric studies of the FTA\’s likely effects: foregone US

exports are estimated to total around US$390 million per

year, or US$3.9 billion over a 10-year period. Less well

recognized is the likely cost to US commerce caused by trade

diversion to non-US suppliers that have already negotiated

much lower tariffs into the Thai market. Thailand has

already finalized (or, we believe, soon will finalize) FTAs

with some of its key trading partners, so an indefinite

postponement of the FTA with the US will place a substantial

percentage of our existing trade with Thailand at a

double-digit tariff disadvantage — US suppliers will face

average effective tariffs of 16 percent for agricultural

products, and 23 percent for industrial products, versus

mostly zero tariffs for our competitors. About 75 percent of

current US exports to Thailand overlap with products covered

by Thailand\’s FTAs with other countries. Based on 2005

volumes and value, we estimate US$60.5 billion in US

agricultural and industrial exports over the next ten years

will be at risk due to trade diversion to FTA-covered

suppliers from Japan, China, Australia, and New Zealand.

 

2. (C) There is evidence that FTA-induced trade diversion

away from US suppliers is already occurring, and is likely to

worsen over the next few years as Thailand\’s FTAs with our

competitors are fully implemented. End Summary.

 

FTA Talks Could Be Delayed Indefinitely

 

3. (C) Thailand\’s political stalemate continues. The Thai

courts have ruled that the April 2 elections were not

constitutional, so the previous government remains in

caretaker status. New elections eventually will have to be

held, but apparently not until mid-October owing to continued

legal and political wrangling. Thus, the current state of

political limbo will through 2006, making the resumption of

FTA talks with the US ever more problematic given the US\’s

own scheduling constraints (TPA expiration, resources

requirements of other FTAs). Further lengthening the odds of

successful conclusion of the FTA is the reality that, at

least in the short term, any future Thai government may shy

away from re-engaging on the FTA. The FTA is politically

controversial and unpopular here, and may be relegated to the

\”too hard\” category by an incoming (possibly fragile)

government.

 

4. (C) Commerce Vice Minister Uttama Savanaya (who is

Deputy Prime Minister and Commerce Minister Somkid\’s personal

representative in the FTA talks) told us recently that he

does not believe a future government would be in a position

to undertake any major policy initiatives in the short term,

including the resumption of FTA negotiations. Minister

Somkid himself on May 26 told the Ambassador that while he is

anxious to resume FTA negotiations once an elected government

is in place (Somkid estimated that a government could be

formed by December 2006), he warned that FTA talks \”cannot

resume along the same lines as before.\” Although he did not

provide details, we believe Somkid is prepared to negotiate a

narrow, market access for goods FTA modeled (we believe) on

Thailand\’s FTA with Japan. The FTA would be \”phased,\” with

most non-tariff issues being left for later. (Comment:

Somkid\’s and Uttama\’s latest comments are consistent with

what they have been saying for some time. Somkid is in favor

of market liberalization in principle, but has since 2004

confided to other Thai Government officials his doubts that

Thailand could accommodate the US requirement for a

comprehensive FTA Somkid\’s lack of enthusiasm for the FTA

left PM Thaksin as its only strong Thai proponent, and played

a role in the subsequent problems the FTA talks encountered.

Somkid probably calculates that a comprehensive, US-style FTA

is more than the fragile Thai political system can handle

right now. End Comment.)

 

Opportunity Costs Under a No-FTA Scenario

 

5. (C) Given the current politics and attitudes here,

 

BANGKOK 00003354 002 OF 008

 

combined with US scheduling and resources constraints, there

is a growing possibility that there will be no comprehensive

US-Thailand FTA for the foreseeable future. We have examined

how this \”No FTA\” scenario would affect future US exports to

Thailand, as well as Thai exports to the US. In a sense,

such a calculation has already been done in the several

econometric studies of the effects of an FTA on bilateral

trade volumes and GDP growth. (See, for example, the USITC\’s

\”US-Thailand Free Trade Agreement: Advice Concerning the

Probable Economic Effects of Providing Duty-Free Treatment

for Imports:, dated August 2004; and the Thai Development

Research Institute\’s \”A Study on the Impacts of a Thailand-US

Free Trade Agreement\”, dated October 9, 2003.) These studies

typically take as a baseline the existing trade regimes of

the two economies, and calculate the trade effects of full

market liberalization, i.e., the elimination of all tariffs

and most non-tariff barriers. The result of that calculation

of \”baseline trade flow versus trade flow under a

liberalized, post-FTA regime\” is the economic benefit of the

FTA (the result can be readily converted into annual GDP

growth, employment generation, or other measurements).

Conversely, that same result would be the \”opportunity cost\”

of not having an FTA. According to these econometric

studies, these opportunity costs would be commercially

significant: the FTA would boost US GDP by about 0.1 percent

over a ten-year period (US$11.75 billion), and boost US

exports to Thailand by about 4.7 percent annually (i.e.,

US$390 million per year, or US$3.9 billion over a 10-year

period).

 

Trade Diversion Effects Under a No-FTA Scenario

 

6. (C) Less well documented is the likely damage to

existing bilateral trade if the FTA is indefinitely

postponed. If we want to know the true cost to US commerce

of an indefinite delay of our current FTA initiative with

Thailand, earlier econometric analyses are incomplete since

the existing bilateral trade regime — the \”baseline\” — is

changing in important ways that are likely to cause trade

diversion from US exports. Trade diversion effects are

relatively high for Thailand because Thailand\’s MFN tariffs

are relatively high. In the absence of an FTA with the US,

Thailand\’s FTAs with other countries will place at risk most

(about 75 percent) existing US exports to Thailand. Perhaps

the most important change for US exporters is Thailand\’s

current or imminent implementation of FTAs with Australia,

New Zealand, China, and Japan. FTAs with Australia and China

have been signed and are already in effect; the FTA with

Japan has been finalized and awaits signing.

 

7. (C) In general, Thailand\’s non-US FTAs cover market

access, particularly tariff reduction/elimination, for

varying product (goods) categories. In most cases, the

FTA-covered product tariffs go to zero after a phase-in

period. That will give these countries a significant price

advantage over the US, since Thailand\’s current effective MFN

tariffs average about 16 percent for agricultural products

and 23 percent for industrial products. Over time, trade

diversion to these lower tariff suppliers is likely.

 

Future US Services Investments Could Also Be Negatively

Impacted

 

8. (C) Under the US-Thailand Treaty of Amity and Economic

Relations (AER), US investors enjoy preferential,

better-than-MFN treatment for a range of services investments

in Thailand. Thailand\’s 10-year GATS derogation permitting

this arrangement expired in January 2005. AER rights

currently are being extended by 90-day intervals pending

successful completion of the FTA. The perception that

Thailand\’s FTA negotiations with the US are on more or less

indefinite hold would increase pressure on Thailand to

withdraw benefits to US investors that are provided under the

AER.

 

9. (C) Thailand\’s exports to the US also face

uncertainties. The implementation of CAFTA and other FTAs

poses a competitive threat. Another question mark is the

future of the US Generalized System of Preferences (GSP).

Thailand currently is the third-biggest beneficiary of the

GSP, with about one-third (more than $5 billion worth) of

Thailand\’s exports to the US enjoying GSP tariff-free

 

BANGKOK 00003354 003 OF 008

 

treatment. With the current GSP program scheduled to expire

at the end of 2006, some US policymakers have expressed the

desire to revamp the program, spreading out the benefits to

more countries and focusing more on the least developed

economies, that is, away from a middle income country like

Thailand.

 

Thailand\’s FTA with Australia

 

10. (C) The Thailand-Australia FTA (TAFTA) entered into

force on January 1, 2005. The agreement focuses on market

access, particularly tariff reduction. Thailand will phase

out its tariffs on some 2,934 tariff items, around 53 percent

of all items, accounting for 78 percent of current Thai

imports from Australia. Of these, only 206 items were

previously duty free. A further 41 percent of Thai tariffs

will be phased to zero by 2010. These items cover 17 percent

of current trade. All remaining tariffs, including tariff

rate quotas, will phase to zero in 2015 or 2020 (with the

exception of skim milk powder and liquid milk and cream, for

which the tariff rate quotas will be eliminated in 2025).

 

Agricultural Products

 

11. (C) For agricultural products subject to tariff rate

quotas prior to January 1, 2005, Thailand has either

eliminated the tariff and quota restrictions or will expand

access for Australia over a transition period varying

according to the product, before final elimination of the

tariff rate quota.

 

12. (C) Meat — Thailand will phase the current 32% tariff

for sheep meat to zero in 2010. Thailand immediately reduced

the tariff on beef to 40 percent, down from 51 percent, and

for beef offal to 30 percent, down from 33 percent, and will

phase these rates to zero in 2020. Thailand will phase the

current 33 percent tariff for pork to zero in 2020. (Note:

The cited pre-FTA tariff rates are applied on an MFN basis

and, as such, are the tariff rates applied to US imports.)

 

13. (C) Dairy — Thailand immediately eliminated the

previous tariffs on infant formula (5 percent), lactose (up

to 2 percent), casein and milk albumin (10 percent), and will

phase the tariffs on butter fat, milkfood, yoghurt, dairy

spreads and ice cream to zero in 2010. The FTA provided an

immediate additional quota for Australia of 2,200 tons for

skim milk powder and 120 tons for liquid milk and cream,

expanding by 17 percent at five-yearly intervals until 2025,

when all tariffs and quotas will be eliminated. It will

phase the tariffs for butter and cheese, other milk powders

and concentrates to zero in 2020.

 

14. (C) Grains and related products — Thailand immediately

eliminated the previous tariffs on wheat (ad valorem

equivalent of 12-20 percent), barley, rye and oats (ad

valorem equivalents of up to 25 percent), and the tariff and

tariff rate quota on rice. It also immediately eliminated

the tariffs on unroasted malt (ad valorem equivalent of 28

percent) and wheat gluten (31 percent), and will phase the

tariffs on wheat flour (32.6 percent) and starch (31 percent)

to zero in 2010.

 

15. (C) Fruit and Vegetables — Thailand will phase

tariffs on most fresh fruit and vegetables (current rates

mostly 33 percent or 42 percent) to zero in 2010. Tariffs on

mandarins (42 percent) and grapes (33 percent) were

immediately reduced to 30 percent, and will be phased to zero

in 2015. Thailand immediately eliminated its tariffs on

most tropical fruit, and provided immediate additional quota

for fresh potatoes, expanding yearly until 2020, when all

tariffs and quotas will be eliminated. The current 30

percent tariffs for processed potatoes will be phased to zero

in 2015.

 

16. (C) Thailand immediately reduced to 24 percent the

previous tariffs of 30 percent on fruit juices and canned

fruit, and will phase the tariff to zero in 2010. The

previous 30 percent tariffs on canned mixed fruit and canned

pineapple were eliminated immediately.

 

17. (C) Sugar — Thailand provided immediate additional

quota for sugar, expanding annually by 10 percent, with

 

BANGKOK 00003354 004 OF 008

 

tariff and quota free access in 2020.

 

18. (C) Wine, Beer and Spirits — Thailand immediately

reduced its previous 54 percent tariffs on wine to 40

percent, and will phase the tariff to zero in 2015. For beer

and spirits, Thailand immediately reduced its previous

tariffs of 60 percent to 30 percent, before phasing to zero

in 2010.

 

19. (C) Other Processed Foods — Thailand immediately

eliminated its previous 10 percent tariffs on chocolate

confectionery, and will phase its current 30 percent tariff

on sugar confectionery to zero in 2010. For bakery

products, Thailand will mostly phase current tariffs of 25-30

percent to zero in 2010, with immediate elimination of

tariffs on crispbread and some cereals.

 

20. (C) Other Agricultural Products — Thailand

immediately eliminated its previous tariffs of up to 10

percent on hides and skins. Thailand immediately eliminated

its previous 1 percent tariff on wool and will bind its

tariff on cotton at zero.

 

Industrial Products

 

21. (C) On entry into force, Thailand reduced tariffs on

any industrial goods not subject to immediate elimination to

a ceiling of no more than 20 percent (with the exception of

small and medium passenger motor vehicles), before phasing to

zero. (Pre-FTA industrial effective tariff rates average

about 23 percent.) Where not eliminated immediately, tariffs

on a range of industrial goods identified by Australia as of

specific interest were halved immediately before phasing to

zero.

 

22. (C) Motor Vehicles and Components — Thailand

immediately eliminated tariffs on large passenger motor

vehicles (engine capacity of over 3000cc) and goods vehicles,

previously at 80 percent and 60 percent respectively. For

other passenger motor vehicles, Thailand immediately reduced

the previous 80 percent tariff to 30 percent, before phasing

this down by 6 percent each year to zero in 2010. Tariffs on

all automotive parts, components and accessories, previously

up to 42 percent, were immediately reduced to a ceiling of 20

percent, and will be phased to zero by 2010. Tariffs on

engines were immediately reduced from the previous 30 percent

to 15 percent. Other tariffs previously at or below 20

percent were also immediately reduced and phased down

accordingly.

 

23. (C) Machinery and Equipment — Prior to January 1,

2005, Thai tariffs ranged up to 30 percent. Tariffs were

either immediately eliminated or will be phased to zero by

2010, with the exception of three tariffs covering electric

power boards, which will be eliminated in 2015. Tariffs of

20 percent for electric transformers and inductors were

eliminated immediately. Tariffs of 30 percent for

fully-automatic washing machines and combined

refrigerator-freezers were eliminated immediately.

 

24. (C) Steel — Thailand immediately eliminated its 1

percent tariff on slab steel. Thailand immediately halved

its tariffs on flat-rolled steel products of interest to

Australia, including hot-rolled coil (previous tariff of 10

percent), cold-rolled coil (12 percent) and coated steel (15

percent). Tariffs will then be eliminated in 2015, with the

exception of most coated steel products for which the tariffs

will be phased to zero in 2008.

 

25. (C) On long steel products, Thailand will generally

reduce tariffs to zero by 2010. On a limited number of

products, including structural sections and merchant bar,

Thailand immediately halved tariffs, which will then be held

until elimination in 2015. On steel articles, where

Thailand\’s previous tariffs were generally 20 percent,

Thailand eliminated some tariffs immediately, with the

remainder to be phased to zero by 2010.

 

26. (C) Non-ferrous metals — On unwrought copper cathode,

Thailand will eliminate the tariff in 2010, prior to that

Thailand will bind the rate at no more than 5 percent, and

will apply a tariff of no higher than the rate applied to its

 

BANGKOK 00003354 005 OF 008

 

ASEAN partners. On copper bars and pipes, with previous

tariffs of 10 percent, Thailand either eliminated the tariff

immediately or reduced it immediately to 5 percent and will

eliminate it in 2007. On aluminum bar, sheet and foil, with

previous tariffs of 10 percent, Thailand reduced immediately

to 5 percent the tariff on items of specific interest and

will eliminate it in 2007, while remaining tariffs will phase

to zero in 2009. Thailand immediately eliminated its 1

percent tariff on unwrought aluminum. On unwrought lead and

zinc, with previous tariffs of 10 percent, Thailand either

eliminated the tariff immediately or reduced the tariff

immediately to 5 percent and will eliminate it in 2007.

 

27. (C) Pharmaceuticals — Thailand will phase current

tariffs of 10 percent or 20 percent to zero in 2009. On

products of specific interest, previous tariffs of 10 percent

were halved immediately and will be eliminated in 2007.

 

28. (C) Fertilizers — Thailand immediately eliminated

previous fertilizer tariffs at 5 percent, and immediately

halved previous tariffs of 10 percent before elimination in

2007.

 

29. (C) Photographic Goods — Thailand immediately

eliminated tariffs of 20 percent on photographic film, paper

and chemicals.

 

30. (C) Plastics — Thailand immediately reduced tariffs

of 30 percent on plastic articles to 20 percent and will

phase to zero in 2010. For the most significant item of

current trade, miscellaneous plastic articles, not separately

identified in the tariff schedule, Thailand immediately

eliminated the previous 30 percent tariff. Thailand will

phase the current tariffs of up to 20 percent on polymers to

5 percent in 2008 and to zero in 2010.

 

31. (C) Other Goods — Thailand immediately eliminated the

previous tariff of 10 percent on golf club parts; immediately

eliminated the previous tariff of 20 percent on parts of

seats; immediately eliminated the previous tariff of 20

percent on ferries under 1,000 tons, and will bind the

current zero tariff on ferries of over 1,000 tons.

 

Thailand\’s FTA with New Zealand

 

32. (C) Thailand\’s FTA with New Zealand is similar in key

respects to that of Australia\’s. New Zealand is a major

supplier of dairy products and meat to Thailand. Trade

diversion away from US suppliers to New Zealand competitors

is likely to occur, but will be mitigated by supply

constraints in New Zealand.

 

Thailand\’s FTA with China

 

33. (C) Thailand\’s FTA with China is fairly narrow,

focusing on reciprocal \”early harvest\” tariff reductions in a

limited range of agricultural products. Starting in 2004,

tariffs are phased to zero by 2006 for the following

products: live animals (Thailand\’s current applied MFN tariff

rate is 10.5 percent); meat and edible meat offal (35.4

percent); fish and crustaceans (5 percent); dairy products

(23.3 percent); products of animal origins (12.5 percent);

live trees and other plants (33.2 percent); edible

vegetables, roots, and tubers (35.4 percent); and edible

fruits and nuts (32.4 percent).

 

Likely Trade Diversion Costs for US Exporters by Sector

 

34. (C) Fruit — China,s fruit exports have surged since

the signing of the Sino-Thai zero-for-zero accord covering

fruits and vegetables. Fortunately for US suppliers, total

market size increased and US net exports were not displaced

(for now). Imports from China have been on the upswing over

the past five years, rising from US$19 million in 2000 up to

US$63 million in 2005. Meanwhile, US exports have been flat

at around US$18 million annually for the past five years.

Australia and New Zealand started off with about US$4 million

(combined) five years ago and are now up to US$7 million in

2005, just prior to the kick-off of their FTA-mandated

reduced tariffs. Combined competitive pressure from China,

Australia and New Zealand could reduce the competitiveness of

US fruit in this market. Currency devaluation, however,

 

BANGKOK 00003354 006 OF 008

 

might discount US fruit enough to offset this.

Unfortunately, freight disadvantage for US products will be

exacerbated by high fuel costs, perhaps trumping both

currency values and tariff offsets.

 

35. (C) We project that US fruit exports to Thailand will

taper off as Australia and New Zealand displace US apples,

cherries, peaches, plums, and berries. US exports will fall

by about US$3 million in 2007, and another US$1 – 2 million

in 2008.

 

36. (C) Nuts — Australia,s nut exports to Thailand have

boomed since 2001, jumping from less than US$100,000 then to

over US$600,000 in 2005. Tariff reductions and high quality

from Australia will only further increase the competitiveness

of Australian tree nuts (as opposed to ground nuts). China

will, of course, elbow the US out of some business; the

question is just how much. US nut exports to Thailand were

very strong up to 2005, racking up some $8 million that year.

Given the substitutability of U.S. nuts by Australian ones,

look for US nut exports to suffer, probably coming down half

a million annually, as long as Australia has the supply.

 

37. (C) Wine — US market share in Thailand has dropped

steadily over recent years. Australia tops the list of

suppliers, providing plentiful supplies, affordable prices,

reasonable quality, and low shipping costs. New Zealand is

creeping up the ranks, showing that it can pull in over 1

percent of the market with its tiny exports and high demand

for its quality wines in higher purchasing power markets.

Look for the paltry US$150,000 exports of US wine to Thailand

to stay flat. Any growth in the market will fall to the

Australians or Europeans.

 

38. (C) Beef — Thailand is a tiny beef market, buying less

than US$5 million annually from all sources. The unfortunate

find of BSE in the US meant that American beef exports

collapsed in 2004 and 2005. New Zealand and Argentina took

up most of the slack (Australia was topped out and could not

muster the export muscle.) The US is currently battling back

to regain market share in Thailand. Tariff disadvantages

compared to antipodean origin meat will only serve to make

the comeback more difficult. It is hard to isolated losses in

the meat market due solely to BSE (mad cow) or to price /

tariff disadvantages, but either way, US beef is headed for a

protracted fight in Thailand. The best-case scenario is that

US beef makes it way back to US$1 million annually.

Australia, New Zealand, and Argentina will take the lion,s

share. Without negative tariff pressure caused by the FTAs

with Australia and New Zealand, US beef would easily regain

it former position in the market.

 

39. (C) Dairy Products — New Zealand has grown its

presence in the Thai market through aggressive marketing and

attractive prices. Australia is right on their heels. The

US has recently become competitive due mostly to domestic

pricing restructuring. This segment of the market is

particularly price conscious, given that quality and

availabilities are largely the same from the major suppliers.

More so than in other product categories, tariff reductions

on Southern Hemisphere dairy products ought to play out in

higher export numbers, too. Look for US losses in this

category, possibly as much as US$5 million a year due to

lower tariffs for Australian and New Zealand suppliers.

 

40. (C) Pet Food — Of the US$20 million or so in pet food

that enters Thailand annually, over half comes from

Australia. The US has held steady at just over 30 percent of

the market. Many US manufacturers have production facilities

in Australia and will easily be able to shift resources to

Australia to follow the demand from markets like Thailand.

Look for direct and proportional market losses as tariffs

drop for Australian and New Zealand suppliers.

 

41. (C) Hides and Skins — This is a huge market segment

for the US, racking up some US$50 to US$75 million annually.

Closely related to the beef slaughter industry, hides and

skin exports to Asia (Thailand, Philippines, and Korea) have

been very strong due mainly to strong supplies and stable,

attractive prices. With very few quality differences among

suppliers, it is reasonable to assume that Australia and New

Zealand will be able to erode the US share as tariffs on

 

BANGKOK 00003354 007 OF 008

 

their product decline. In 2005, US exports were about US$55

million compared to the combined Australia/NZ volume of about

US$45 million.

 

42. (C) Thailand imports around US$2.8 billion in food and

agricultural products annually. To this can be added a few

more tens of millions for lumber and fiber. The US has been

the leading supplier of agricultural products to Thailand,

sending in around half a billion worth of products in 2005.

Australia is rising in importance as a supplier, reaching the

number 5 position with about US$200 million in exports to

Thailand that same year.

 

43. (C) Much of the US export power in the Thai market is

due to dominance in soybean, wheat and cotton trade ) areas

where Australia cannot erode the US position or where the FTA

will not provide any incentive to switch from US to Aussie

supply. The US vulnerability comes in the areas beyond farm

commodities in their &pure8 sense. The US vulnerability is

in product categories where tariffs are higher, and where

reasonable substitutes are available (processed food

products, semi-finished foods like frozen French fries,

consumer ready products such as juices, cereals, as well as

the perishable and high cost products like fruits,

vegetables, etc.)

 

44. (C) If one were to take the so-called bulk commodities

out of the US mix, that would leave about half of the value

in value-added and consumer ready products, that area most

vulnerable to Aussie (and other FTA) erosion. Of these

approximately US$250 million &at risk8 exports, look for a

gradual wearing away of the US numbers as tariff preference

shifts to our Southern competitors. The deterioration of

market share will likely be accelerated due to rapidly rising

freight costs, too (with Australia and NZ enjoying relative

freight advantages over the US). Therefore, we believe the

value of US agricultural exports to Thailand will shrink

continually over the next decade, losing perhaps as much as

half of their current value due to lack of competitiveness.

 

Thailand\’s FTA With Japan: Focus is on Industrial Goods

 

45. (C) Thailand\’s FTA with Japan poses the biggest threat

to US exports of industrial goods. The FTA with Japan has

been finalized, but remains unsigned. Thai officials have

told us that they regard the signing of the FTA with Japan as

fairly likely in the near future, notwithstanding the current

political impasse in Thailand. Their optimism derives from

the recognition that unlike the FTA with the US, the FTA with

Japan has been completed and only needs to be signed.

Furthermore, it has not attracted the same popular attention

and controversy as has the FTA with the US (probably because

it focuses almost exclusively on non-agricultural tariffs).

The FTA text is not publicly available. However, Japanese

diplomats in Bangkok have told us that the FTA is heavily

oriented toward phased reduction/elimination of tariffs on

industrial goods. We believe the FTA text calls for

implementation (including phased tariff reduction and

elimination upon full FTA implementation) to begin January

2007.

 

46. (C) Thailand\’s MFN effective tariffs for manufactured

goods currently average about 23 percent. The US and Japan

are direct competitors across a range of products in the Thai

market: of the top twenty categories of US exports to

Thailand, eleven are also included in the top 20 list of

Japanese exports to Thailand. The categories in which the US

competes directly with Japan comprise better than 78 percent

of total US exports to Thailand. Upon full implementation,

Japanese industrial goods are likely to face de minimus

tariffs, while US goods will face the average effective

tariff rate of 23 percent. As the FTA\’s tariffs are phased

in (in most cases to zero), US products will gradually lose

their price competitiveness against substitutable Japanese

products.

 

Total Value of US Exports At Risk Due to FTA-Induced Trade

Diversion

 

47. (C) The twin effects of agricultural product trade

diversion from Australia/New Zealand/China, and industrial

product trade diversion from Japan, is likely to severely

 

BANGKOK 00003354 008 OF 008

 

impact US exports to Thailand. Once these FTAs are fully

implemented, US exporters will have to overcome a

double-digit tariff disadvantage. The lack of an FTA with

Thailand would put at risk at least US$1.25 billion (based on

2005 values and volumes) in US agricultural exports over the

next ten years. Upon full implementation of the FTA with

Japan, we estimate that about US$59 billion (based on 2005

values and volumes) in US industrial exports over the next

ten years to Thailand will be at risk. Thus, about $60.5

billion (based on 2005 values and volumes), or about 75

percent of total US exports to Thailand, will be at risk once

all of Thailand\’s FTAs are fully implemented.

 

Trade Diversion Is Already Happening

 

48. (C) We use the relatively moderate term \”at risk\” to

characterize the impact on US suppliers, since it is

impossible to gauge the precise impact of differential

tariffs on US exports. Many issues besides differential

tariffs are at play, including availability of supply,

quality, cost and reliability of delivery, and proprietary

technology. It is likely that the effects of the US\’s tariff

disadvantage will vary from product to product.

 

49. (C) In terms of overall US exports to Thailand, will

tariff discrimination matter? Based on our examination of

preliminary data, the answer is an emphatic \”Yes.\”

FTA-mandated reduction in tariff rates is already having a

big impact on Thailand\’s import mix, skewing it toward FTA

countries. According to full-year Thai statistics,

Australian exports to Thailand grew by 47 percent in 2005,

compared to the US exports\’ growth of only 20 percent. Gold

and crude petroleum were the main contributors, but

Australian exports of wheat, aluminum, copper, zinc, lead,

automotive engines and parts, malt, dairy products,

electrical machinery and equipment, fruit and nuts, pet food

and pharmaceuticals also grew strongly.

 

50. (C) US exports of cereal (the 14th largest US export to

Thailand, HS code 10) increased 27 percent in 2005 compared

to the previous year, whereas Australia\’s increased 57

percent. US exports of pharmaceuticals (the 18th largest

category of US exports to Thailand) increased 17.9 percent in

2005 compared to 2004, whereas Australian exports increased

31.1 in the same period. Articles of iron and steel (HS code

73) was the 9th largest US export to Thailand by value in

2005 increasing 13.8 percent over 2004. Australia\’s exports

to Thailand in this category increased 90.3 percent over the

same period. These results are particularly troubling given

that Australia\’s FTA with Australia has not been fully

implemented; 2005 was only the first year of the FTA\’s

multi-year tariff phase-out schedule, i.e., tariffs for the

most part have not yet phased to zero. It could be that that

the worst is yet to come as the Australia versus US tariff

gap in the Thai market widens.

 

51. (C) Since the Thailand-Japan FTA has not been signed or

implemented, there is no hard data on how this FTA might

affect US exports. We note, however, that since Thailand\’s

effective tariff rates for industrial goods is higher than

its effective agricultural tariff rates (16 percent versus 23

percent), the trade diversion effect (in this case, away from

US suppliers, to Japanese suppliers) on US exports may be

greater than what we have seen for agricultural products with

the Australia FTA.

 

Conclusion

 

52. (C) The available import statistics present an

incomplete picture, and we are working with the American

Chamber of Commerce in Thailand to gain a fuller, more

detailed understanding of the likely impact on US exporters

of Thailand\’s FTAs with our competitors. But we already have

enough information to confidently project that the

combination of implementation of these FTAs and inaction on

the US FTA is likely to severely damage our overall

competitiveness in the Thai market, resulting in the loss of

a significant share of our current exports to Thailand.

 

BOYCE

“

“61475″,”4/24/2006 9:00″,”06BANGKOK2360″,

 

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

“06BANGKOK1665|06BANGKOK788″,

“This record is a partial extract of the original cable.

The full text of the original cable is not available.

 

“,”UNCLAS SECTION 01 OF 03 BANGKOK 002360

 

SIPDIS

 

SENSITIVE

 

STATE FOR EAP/MLS AND EB

COMMERCE FOR 4430/EAP/MAC/OKSA

TREASURY FOR OASIA

STATE PASS TO USTR FOR WEISEL

STATE PESS TO FEDERAL RESERVE FOR MATT HILDEBRANDT

 

E.O. 12958: N/A

TAGS: ECON, EFIN, PREL, TH, Elections – Thai

SUBJECT: THAI ECONOMY REACTS TO POLITICAL UNCERTAINTY

 

REF: A. BANGKOK 1665 (POLITICAL PROBLEMS AFFECT THAI

ECONOMY)

B. BANGKOK 788 (THE GREAT THAKSIN ASSET SALE)

 

1. (SBU) Summary: Over the past few years, the Thai economy

has weathered SARS, bird-flu, tsunami, increased competition

from China and unrest in the country\’s south, all with only

limited impact to growth. The ongoing political crisis that

has gripped the country throughout this year, combined with

record-high energy prices and a surprisingly strong currency,

bring new challenges to continued economic strength. As we

have reported (reftels), the economy has grown increasingly

dependent on exports for its growth and will become even more

so if the current political instability persists. End

Summary.

 

2. (SBU) In a meeting with Assistant Governor for Domestic

Economy of the Bank of Thailand (and key member of the

monetary policy committee), Dr. Atchana Waiquamdee told us

that domestic demand would grow slowly, if at all in the face

of high energy prices, high consumer debt levels and

increasing interest rates. Because of increased salaries

(5-10 percent varying by sector) and continued low (1.7

percent) unemployment, there has been no increase in consumer

debt defaults and spending on non-durables remains strong

even as consumer confidence continues to slide. This decline

in consumer confidence is reflected in slowdowns in first

quarter 2006 new home sales (exacerbated by a 50 percent

decline in bank mortgage approvals as banks have tightened

lending standards in anticipation of weaker economic growth),

new car sales and sales of other consumer durables all lead

to a general consensus among Thai economists that consumers

will not be a factor in the growth of the Thai economy in

2006. Most observers expect consumer demand to grow only at

the rate of the overall economy (3.5-5.5 percent), at best as

consumers continue to use -and borrow on- their credit cards

to keep non-durables spending near current levels. Dr.

Atchana also pointedly said that the government should never

have expected economic growth to come from domestic

consumption given GDP/capita is only about US$2000. Comment:

This is a dig at the Thaksin administration\’s \”dual-track\”

economic policy which emphasized increased domestic

consumption alongside export growth. One of several

anti-Thaksin comments she made to us. End comment.

 

Government Spending Slow

————————

 

3. (SBU) Dr. Atchana believes that, because of the caretaker

status of the current government and the likelihood that

political instability will persist for some months,

government disbursements for capital investment will be a bit

slow (80 percent of target in the first quarter) even though

spending should remain on track through the remainder of the

fiscal year (ending September 30). If political instability

persists, however, there may be no new budget in place for

the new fiscal year. In any case, in April the government

announced that the much-anticipated tenders for

infrastructure \”megaprojects\” would be delayed until a new

government is in office. These projects were expected to add

0.5-1 percent to GDP and help stimulate private investment.

Anecdotally, several businesses have said that government

decision making has been slowed considerably because of the

administration\’s caretaker status. As a result, there are

many procurement decisions that remain on hold.

 

Companies Keep the Money in Their Pockets

——————————————

 

4. (SBU) Private investment continues at a slow pace despite

continued high capacity utilization rates (in excess of 73

percent). Foreign companies that use Thailand as an export

base, especially in the auto and electronics sectors, have

added capacity over the past year (a major factor in

increased Thai exports–see para 5). Thai companies,

however, continue their hesitancy to take on debt or spend

much of their cash flow on new capacity. This is reflected in

very slow bank corporate loan growth (1-2 percent). Dr.

Atchana guessed that Thai exporters are able to increase

output by running multiple shifts (a factor not captured in

capacity utilization figures). First quarter private

investment grew at a 5.4 percent annual rate, and much of

this was investment by foreign companies and foreigners

buying Thai property. Further evidence of slow investment

rates are seen from March imports which increased by only 1.3

percent from last year, mostly because of higher oil prices.

Imports of steel and machinery declined sharply, suggesting a

slowdown in capital investment.

 

Export Sector Saves the Day, Again

————————————

 

5. (SBU) With public and private spending and investment all

in stasis, it has been the export sector that has driven

Thailand\’s growth. Exports increased 17.3 percent in the

first quarter, including a 20 percent increase in exports to

the US market in March and a double-digit increase in exports

to Japan. Further helping the export figures, Thai

commodities including sugar, rice, tapioca and rubber, have

all benefited from increases in global prices and a recovery

in output after the drought of 2005. With exports comprising

more than 60 percent of GDP, the continued health of this

sector can maintain Thailand\’s general economic health.

 

6. (SBU) The improved trade balance and continued positive

portfolio investment flows combined with a generally weak US$

has caused the baht to appreciate 7.3 percent against the

dollar so far this year. While the Indonesian rupiah has

appreciated at a similar rate, other regional currencies

whose products compete with Thai exports such as the Korean

won, Phillipine peso, Singapore dollar and Malaysian ringgit

have increased by 4.7, 3.3, 3.0 and 2.8 percent respectively.

This has created considerable apprehension among Thai

business and government officials who fear that Thailand will

lose competitiveness in export markets. 80 percent of Thai

foreign trade is conducted in US$ and our contacts tell us

that Thai exporters do not hedge their US$ income streams.

Combined with increased labor, energy and interest rate

costs, Thai company margins will be considerably squeezed if

the baht remains so strong.

 

Bank of Thailand Allows Strong Baht

————————————

 

7. (SBU) The Thai Ministers of Finance and Commence have both

told the press that the baht is too strong and should be

targeted at a rate of about 39/US$ (current rate is just

below 38/US$). Dr. Atchana advised us that the Bank of

Thailand has not made much effort to prevent the baht run-up

and implied that it would be unlikely to do so in the future

as \”the Bank does not have a policy to promote the export

sector\”, especially since \”intervention is effective for only

a limited period.\” She also noted that the cost of

intervention is increasing because, in order to keep

inflation down as the money supply has increased from the

inflow of fx, the Bank has had to sterilize the baht created

when it buys US$ and therefore issued bonds which, in a

rising interest rate environment, is an expensive operation.

There is also the problem of adding liquidity when the BoT

has been trying to reign in inflation. One analyst posits

that \”the BoT is less (not more) likely to intervene and will

allow the baht to appreciate in accordance with market

forces.\” As an aside, Dr. Atchana noted that when Temasek was

remitting funds to pay for its purchase of Shin Corp, the BoT

was completely out of the market, allowing the baht to rise,

at least in part because the Bank \”saw no reason to allow the

PM\’s family to earn more baht because of any action from the

Bank.\”

 

8. (SBU) Comment. In the wake of inconclusive elections in

April, the political situation remains uncertain. Reftel A

notes the many analysts and businesspeople who expressed

concern for the economy if the political situation did not

stabilize by June. Dr. Atchana told us she thought that

domestic consumption and investment could actually begin to

decline if Thai politics did not stabilize within three

months. If this consensus proves correct, Thailand would

become even more reliant on its one remaining economic

engine, and that sector is under pressure from the strong

baht and rising operating expenses. The Thai economic

forecast for the rest of the year depends largely on the

global economy maintaining its current momentum and the Thai

political scene achieving some sort of clarity. The good news

is that business and government debt levels are low and bank

liquidity is ample, so there is some general flexibility in

the system. The question is how long an economy can function

without any economic policy-making from government.

ARVIZU

“

“61120″,”4/20/2006 10:16″,”06BANGKOK2293″,

“Embassy Bangkok”,

“UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

“06Bangkok1695″,

“This record is a partial extract of the original cable.

The full text of the original cable is not available.

 

201016Z Apr 06

“,”UNCLAS SECTION 01 OF 10 BANGKOK 002293

 

SIPDIS

 

SENSITIVE

 

STATE FOR G/TIP, DRL/IL, CA/FPP, CA/VO/KCC, EAP/MLS

 

E.O. 12958: N/A

TAGS: ELAB, KCRM, CVIS, KFRD, SMIG, PHUM, TH

SUBJECT: LABOR EXPORT IS BIG BUSINESS IN THAILAND

 

REF: Bangkok 1695

 

1. (U) Summary: The recent experiences of Thai farm workers in the

U.S., combined with evidence of widespread fraud in the H2A visa

process (reftel), highlight the plight of Thai workers abroad who

are frequently exploited by labor supply agencies (both Thai and

foreign) that charge heavy and illegal recruitment fees. Workers,

academics and government officials indicate that effectively all of

Thai laborers\’ first and often second year earnings go to repaying

initial recruitment fees of their employment contracts. In many

cases, workers do not receive the lengthy contracts and terms they

are promised, and return home in significant debt. In the worst

cases, they are shipped abroad again to pay off their recruiting

debt, have their entire salaries confiscated, or are vulnerable to

being trafficked. End Summary.

 

2. (U) Recent labor problems experienced by Thai workers in the U.S.

and other countries, combined with evidence of widespread fraud in

the U.S. H2A visa process (reftel), have highlighted the plight of

Thai workers abroad who have been exploited by labor supply agencies

(both Thai and foreign) charging heavy and illegal recruitment fees.

The total number of Thai workers abroad ranges from 350,000 to

400,000. Media stories in the past year have noted strikes by Thai

workers protesting conditions in Taiwan, and groups of Thai workers

in the U.S. fleeing farms in North Carolina to seek work elsewhere

or, in some cases, to apply for T visas as victims of trafficking.

Although the number of Thai guest workers in the U.S. (approx.

8,000) is small compared to Thai workers in other countries (such as

Taiwan, with over 100,000), interviews with workers, academics and

government officials suggest that recruitment agencies are using

similar tactics, regardless of destination, to ensnare workers in a

cycle of false job promises and long-term indebtedness.

 

3. (U) The export of Thai labor is not without benefits – studies

suggest that annual remittances from Thai workers abroad total

almost USD 1 billion per year. However, returned workers, academics

and former and current government officials indicate that Thai

laborers abroad cannot pay off their initial recruitment fees until

at least the second or third year of their employment contracts. In

many cases, workers do not receive the lengthy contracts and terms

they are promised, and return home to indebtedness and/or loss of

collateral for the loans they took out to pay an agent to arrange

for work abroad. (In the case of the U.S., the H2 visa category for

temporary, seasonal work does not allow for multiple year issuances.

U.S. agents apply for extensions of validity for these workers, but

there is no guarantee that they will be issued.) In the worst

cases, workers are shipped abroad again to pay off their recruiting

debt (while incurring a new debt), have their entire salaries

confiscated, or are vulnerable to being trafficked.

 

—————————————-

FORMER MP RECOUNTS EARLIER INVESTIGATION

—————————————-

 

4. (SBU) The prevalence of exported Thai labor is not new, but

expanded immediately following the 1997 financial crisis and the

ensuing high unemployment rate. The first high-profile effort to

investigate labor recruitment fraud was led in 2001 by the

then-chair of the House Labor Committee in Thailand\’s Parliament,

Premsak Piayura. Emboffs met the former MP at his monastic retreat

on the outskirts of Bangkok on March 28. Premsak had been in the

headlines earlier that month for quitting his position in PM

Thaksin\’s Thai Rak Thai party, refusing to run in the recent snap

elections of April 2, and choosing to enter temporary religious

service as a monk.

 

5. (SBU) Seated outside his prayer hut in the forested retreat,

Premsak outlined the wide-ranging web of labor recruiting agents,

sub-agents and foreign companies that his labor committee determined

had conspired to charge workers massive up-front recruitment fees

well in excess of legal limits. The system, he said, had been in

place for a number of years, but accelerated after the Asian

financial crisis of 1997 when rural workers were desperate to find

work abroad. Sub-agents, he said, recruited workers at the village

level and referred them to district or provincial agents working for

a recruitment company based in the region or, more likely, operating

out of Bangkok. In some provinces, labor officials allowed

recruiters to set up shop inside provincial government offices. The

maximum recruitment fees charged to workers, Premsak said, varied by

destination country as follows:

 

Destination Baht (USD)

————————————

United States 1,000,000 (25,000)

Canada 300,000 (7,500)

Taiwan 200,000 (5,000)

Israel 150,000 (3,750)

Malaysia 80,000 (2,000)

 

6. (SBU) The recruitment fees Premsak outlined are well in excess of

the legal limit under Thai law, which allows recruiters to charge no

more than one month per year of the workers\’ eventual salary as a

recruiting fee, plus fixed expenses for passport, transportation,

medical exam and technical skills test. The total fees are not

supposed to exceed 65,000 baht (56,000 for Taiwan). (For the U.S.,

the U.S. company must pay for transporation and housing.) Premsak

said workers were willing to pay excess fees in the belief that they

could earn wages substantial enough to support their families

through remittances. Workers recognized, however, that they would

spend at least the entire first year of work abroad paying off the

debt they accumulated to pay the initial recruitment fee.

 

7. (SBU) In most cases, workers pay the fee through loans obtained

from banks, illegal loan agents or relatives, and by posting their

house titles or land deeds as collateral. This did not concern

workers anticipating multiple-year labor contracts. Premsak said he

interviewed workers who were promised minimum three-year contracts

to work in the U.S., believing they were renewable for two periods

to comprise a total of nine years\’ work – clearly illegal under the

U.S. H2A and H2B visa regulations which allow ten-month contracts,

extendable up to 36 months. Workers had been carefully coached to

lie to visa interviewers and Ministry of Labor officials, believing

they shared the recruiters\’ interest in subverting employment laws.

However, in many cases (including in the U.S.), the workers arrived

in the destination countries to find different employment

conditions, worked in different occupations than those for which

they had been hired (e.g. seafood processing, when they had been

hired as carpenters), or were frequently moved amongst multiple

employment sites. In other cases, workers were never given jobs and

did not leave Thailand, despite having paid the recruitment fee. In

one case, workers who thought they were going to Israel were dumped

off by plane in Hat Yai in the South of Thailand.

 

8. (SBU) Calling his labor investigation the first real corruption

scandal of Thaksin\’s administration, Premsak said the labor system

flourished under post-1997 economic policies which encouraged the

import of cheap migrant labor from Burma, Laos and Cambodia for hard

physical work in Thailand, allowing Thai workers to seek work abroad

for less strenuous work at higher wages. To adequately regulate

labor export, he suggested that, at minimum, relevant labor laws be

amended to impose much harsher penalties for transgressors and

require a more stringent vetting process for labor migrants, as well

as better complaint handling procedures to properly compensate

cheated workers. As labor committee chair, he said he had proposed

such amendments to the 1975 Employment Law, but that \”nobody wants

to touch it, it\’s a gold mine.\”

 

9. (SBU) Concerning the labor export systems of other governments,

Premsak said there appeared to be three broad categories of public

versus private management of the process:

 

– Regulating it strictly on a Government-to-

Government basis, whereby governments take on the

task of identifying jobs overseas and recruiting

workers.

 

– Allowing complete private company management of job

matching and labor recruitment, which runs the risk

of unscrupulous agents flouting the regulations.

 

– Having a mixed publicly/privately managed system

which allows private companies to manage labor

export but with stringent government oversight.

 

10. (SBU) Premsak said he favored the third of these options, which

is ideally what should be in place in Thailand, but believed that

the country\’s recruitment network more closely resembled the second

\’laissez faire\’ category. The government was not eager to implement

a fully government-controlled system (which he said operated in

Vietnam) due to the immense bureaucracy that would be required to

manage the petition process, visa process, transportation and other

requirements.

 

11. (SBU) Premsak, whose term as labor committee chair ended in

2004, said that he had fended off numerous attempts to replace him

by fellow parliamentarians who had business ties to the recruitment

agencies. In one case, a fellow MP directly owned an agency; in

others, the agencies were owned by relatives of MPs. His

committee\’s investigative efforts in 2001 succeeded in forcing the

firing or transfer of eight senior officials in the Ministry of

Labor, including the then Permanent Secretary and Director General

of Employment. These officials, he said, were tolerating the

recruitment agencies\’ flouting of labor export regulations, and in

fact had greatly assisted them by setting up \”one-stop recruitment

centers\” inside government-run provincial labor offices. (One

academic we interviewed confirmed Premsak\’s account, saying a major

piece of evidence in the firings was the presence of large amounts

of money deposited in officials\’ bank accounts from labor supply

companies.) Premsak said he doubted that the overall system has

been changed since he stepped down, and expressed disappointment

that the new labor committee has been less vigilant in following up

complaints.

 

————————–

ACADEMIC STUDIES IN ACCORD

————————–

 

12. (U) Credible academic studies buttress Premsak\’s findings. A

2000 study by the Asian Research Center for Migration at

Chulalongkorn University concluded that: \”Between 1996-1998, more

than 15,000 workers were cheated by unlicensed employment recruiting

agencies and illegal brokers. This resulted in losses of USD 463

million … the most common deceitful practice is to charge workers

a fee but never find them a job.\” Explaining the nature of the

recruitment system, the study continued:

\”The current system is totally market driven, with minimal input

from government in regulating private recruitment agencies. Most

job seekers comply with agency demands and are willing to pay high

fees to get jobs. Many agencies are run by, or backed up by,

politicians who use their influence to abuse the system, sometimes

resulting in job seekers being cheated. There is an urgent need for

the Thai government to intervene, otherwise only the recruiting

agencies, and informal money lenders who help to raise the fees for

the workers, will gain any benefit from labour migration … illegal

agencies in Thailand work with illegal agencies, brokers or

employers in destination countries.\”

 

13. (U) The Chulalongkorn study found that almost 90 percent of

workers who were sent to Taiwan paid recruitment fees exceeding the

legal limit of 56,000 baht. Many paid 150,000 to 200,000 baht, in

accord with the estimates given by Premsak. The study\’s

cost/benefit analysis showed that workers who migrated to Taiwan,

Malaysia and Singapore did not break even until a year into their

employment contracts. The study cites the two principal Thai legal

instruments governing migration for employment (The Immigration Law

of 1981 and the Law of Employment Recruitment of 1985) as

insufficient to protect job seekers due to inadequate penalties and

lack of government oversight of labor supply companies.

 

14. (SBU) A leading labor academic involved in this study told

Laboff she believed that up to two-thirds of labor recruiting

agencies in Thailand were owned by politicians or their relatives.

She said most bureaucrats in the Ministry of Labor were honest, but

under extreme pressure from senior-level officials to keep the flow

of laborers moving. Separately, an NGO labor expert said it was

well known that the overseas employment department was the only

place in the Ministry where officials could earn money on the side,

and that many senior officials did so.

 

15. (SBU) Economists at the Thailand Development Research Institute

(TDRI) second Premsak\’s contention that a major economic \”push\”

factor encouraging Thais to work abroad is the suppression of wages

by the importation of cheap migrant workers (mostly Burmese) into

Thailand. TDRI researchers told Laboff that Thailand\’s wage

elasticity for unskilled workers is extremely low, with the minimum

wage of less than USD 5 per day relatively constant during

Thailand\’s economic recovery from the 1997 crisis. TDRI calculates

that the rate of wage increases for unskilled workers in Thailand is

depressed by 1.14 percent per year for each 500,000 migrant workers

imported. The estimated 2 million migrant workers in Thailand

(mostly Burmese) therefore depress the wage increase rate by 4.56

percent per year.

 

16. (SBU) Economists hasten to add, however, that migrant workers -

as in other countries – provide a much needed service to the Thai

economy by working in physically strenuous industries such as

fishing or construction that Thais now shy from. Unskilled or

low-skilled Thai workers, as a result, are seeking work abroad,

where they can earn salaries ranging from 3-4 times higher in

Taiwan, to 10 times higher in Japan, and even more in the U.S. The

TDRI study echoed the contention heard elsewhere, however, that

workers are unlikely to earn back the money spent on recruitment

fees until the second or third years of their contracts. Those

workers who returned after only one year abroad, the study said,

were no better off than before, and in many cases faced a

debilitating debt burden.

 

—————————–

REAL LIFE CASES REVEAL ABUSES

—————————–

 

17. (SBU) On March 26, Laboff and FSN met in Minburi, a suburb of

Bangkok, with a group of seven workers who are part of a larger

group of 300 workers who have filed complaints with the Ministry of

Labor after losing recruitment fees of 100,000 baht each (USD 2,500)

when promised jobs in North Carolina failed to materialize. The

seven workers were recruited in 2004 from a range of rural provinces

and were assessed the preliminary fee to \”pay for H2A visa petitions

and applications.\” The workers were told their contracts would last

three years, renewable to nine years, and that their salaries would

reach 100,000 baht a month. They said their recruiting agency, Siam

Overseas Co., told them in early 2005 that heavy snow in the U.S.

had forced cancellation of their farming jobs, and they were asked

to pay 4,000 additional baht to acquire an H2B visa for work in

shrimp processing. The workers said that they refused to pay this

fee and, asking for a refund of their original fees, the entire

group of 300 filed complaints with the Ministry of Labor and the

Royal Thai Police. One worker who hired a lawyer was able to

recover his 100,000 baht fee, but the other six workers received bad

checks (copies of which were provided). (The Ministry of Labor

advised Laboff on March 28 that the case is still pending.)

 

18. (SBU) In April 3 interviews in Khon Kaen in Northeast Thailand,

a group of 10 workers described becoming indebted to a Thai

husband-wife team that recruited them to work in Taiwan. The

husband, who represented 10 different labor supply companies,

charged labor broker fees of 200,000 baht each while the wife

operated an illegal finance company that loaned workers the money to

pay their recruiting fee, with land deeds used as collateral.

Several of the workers showed pay slips reflecting the usual 15,840

Taiwanese dollars/month in gross pay (USD 490), with deductions for

continued agent fees that left the workers with 11,000 net. Those

net wages were direct deposited into bank accounts set up by the

labor broker and his wife, who held the ATM cards and took further

deductions before remitting the remaining USD 20-50 a month to the

Thai-based relatives of the workers. The workers themselves

returned to Thailand to find themselves in heavy debt due to 4-6

percent interest charged and compounded monthly on their initial

recruitment loans.

 

19. (SBU) According to the parliamentary aide who accompanied

Emboffs to these meetings, the police chief of the labor broker\’s

home district of Phuu Kiaw, in Khon Kaen province, was transferred

from his position after attempting to investigate the case. Only

the intervention of Premsak, who represented Khon Kaen as an MP, and

a sympathetic public prosecutor have brought the labor broker to

account, and a civil trial is pending on three charges: 1) illegal

labor recruitment; 2) illegal financial schemes; and 3 ) usury.

Lawyers representing the workers said they hope to rescind the

200,000 to 450,000 baht debt burdens of the 10 workers and to regain

their land titles, but they do not expect jail terms for the

perpetrators. The banks involved in creating the workers\’ deposit

accounts and providing ATM cards to the labor broker are not being

charged.

20. (SBU) Also in Khon Kaen, Laboff interviewed two workers recently

returned from Malaysia, where they said they worked in construction

jobs for Hong Zi Construction Co., obtained through paying 80,000

baht fees to a Thai recruiting agency named Sincere International.

(Both workers provided copies of their employment contracts.) The

first worker said he went to Malaysia to help pay off a 140,000 baht

debt he had acquired through working in Taiwan. Once in Malaysia,

he said, he was asked to turn over his passport to his employer and

to sign blank contract documents for the construction firm. He

returned to Thailand in March, 2006, after being refused his first

paycheck. The second worker, at the same firm, said he was also

denied pay, had his passport confiscated, and was only provided food

during a four-month period in which he and fellow workers were

denied access to telephones and worked only intermittently due to

heavy rains. He said he fled the work site in his fifth month and

was subsequently imprisoned by Malaysian immigration authorities

until relatives bailed him out. Lawyers for these two workers said

they were currently working on cases for 70 other workers who were

approached for 1 million baht (USD 25K) to work on drilling sites in

the U.S.

 

21. (SBU) Separately, a visit by Conoff and ICE agent to speak with

a group of returned workers from Nakhon Phanom province confirmed

the 1 million baht fee for workers to work in the U.S. These

workers paid 350,000 baht (USD 9K) up front to local agents in

Thailand to be included in the group and were to pay an additional

650,000 (USD 16K) baht over the next three year\’s to pay off their

debt. Upon arrival in Los Angeles, the workers were met at the

airport by the U.S. company\’s agent who took the workers\’ passports.

After waiting for two weeks, the workers were sent to a farm in

Hawaii, instead of to their authorized job site in Arizona. After

their visa expired several months later, the group was picked up by

DHS/ICE and sent back to Thailand before being able to pay off any

of their loan. Some of this group filed a complaint with the

Ministry of Labor against the Thai agent and got back 300,000 baht

from the Thai agent after agreeing to drop the complaint. Others in

this group did not join the complaint and reportedly paid an

additional 300,000 baht fee to be included in future group going to

the U.S. The Ministry of Labor suspended the Thai agent for a short

period of time, but the suspension was subsequently lifted and this

agent continues to be one of the most active recruiters in Thailand.

 

——————————————

THAI LABOR OFFICIALS: WE\’RE DOING OUR BEST

——————————————

 

22. (SBU) In a meeting with Laboff, the Director of the Overseas

Employment Division of the Ministry of Labor, Supat Gukun, defended

Thai officials\’ responses to accusations of overseas labor

exploitation. Supat, who had just returned from visits to U.S.

labor recruiters in Los Angeles, said he was unaware of significant

existing problems with U.S. companies, and that it was the USG\’s

responsibility to vet job petitions properly when they are filed

with the U.S. Department of Labor. Supat expressed concern about

recent H2A visa denials by Bangkok consular officers: \”We can\’t

understand why you\’d approve a job petition but then deny an H2A

visa,\” he added. He showed Laboff copies of sample worker

registration forms with the Ministry, which he said proved workers

were paying labor recruitment fees within the law\’s limits. Supat

said he had no means to verify whether workers or agents were

truthfully reporting fee payments on the forms, saying the Ministry

could not act where there was no proof of wrongdoing.

 

23. (SBU) Supat said that if workers complained about their

experiences abroad, they could be explained by several factors:

 

– Lack of education and inability to understand

contract language or financial terms.

– Pressure from U.S. unions and Mexican labor groups

opposed to the importation of Thai agricultural

workers.

– Unrealistic worker expectations about salaries.

– Worker discomfort with unusually hot weather and

strenuous conditions in the U.S. South.

– Reliance on informal recruiting agents rather than

registered ones.

 

24. (SBU) Supat said his Ministry went to great lengths to educate

prospective workers about the recruitment process and conditions

they would face abroad, whether in the U.S., Taiwan or elsewhere.

Supat added that foreign labor supply companies brought DVDs to

worker seminars to demonstrate job conditions at various work sites.

He said he had heard of instances where workers in the U.S. were

moved amongst different job sites, but said the workers went along

voluntarily. (Regardless, these moves between jobsites generally

have not been authorized under U.S. law.) In some cases, workers

left their job sites themselves, illegally, having been attracted to

higher paying jobs working in Thai restaurants, he added.

 

25. (SBU) Supat, who had previously been a senior Ministry labor

representative in Taiwan, said that recent problems involving Thai

workers in Taiwan had been resolved. Supat blamed an August 2005

riot of 2,000 Thai workers in Kaohsiung, Taiwan (and a subsequent

work stoppage by 600 workers in March 2006) on a core group of

individuals who had spurred other workers to revolt over lack of

access to television and mobile telephones. He said that the

Ministry was continuing to approve worker petitions for employment

in Taiwan at the same rate as before, and that workers were

responsible for checking with one of 75 labor provincial offices to

obtain the names of registered labor recruitment agencies.

(Comment: Supat made no mention of a Thai parliamentary review in

November 2005 that concluded the rioting Thai workers in Taiwan were

exploited by Thai labor officials as well as Taiwanese employers.

The report said that \”not only senior labor officials were involved,

but some politicians as well,\” but did not disclose names. A Thai

labor official was later removed from his Kaohsiung office under

suspicion of accepting bribes to keep quiet about worker

complaints.)

 

26. (SBU) Supat said workers that have complained about excessive

recruitment fees, or excessive interest on loans to pay for such

fees, were usually going through unregistered companies or informal

networks of unscrupulous individuals. He cited the Ministry\’s

website (www.doe.go.th) devoted to addressing worker complaints,

which had recorded only a 3 percent dissatisfaction rate among

overseas workers. In most cases, follow-up interviews with workers

revealed no proof of malfeasance by the 268 registered labor supply

companies in Thailand, only 100 of which are considered \”active\”.

27. (SBU) Supat said that the Ministry held 5 million baht deposits

from each of the 268 registered labor agencies to serve as reserves

for handling valid compensation claims from workers. He said he

could not recall any recent instance where these deposits were

tapped to provide compensation. Asked to name any punitive measures

at all that the Ministry has taken in response to labor agency

improprieties, Supat said the Ministry had suspended three agencies

within the past year, for periods varying from one to six months,

and had permanently canceled the registration of one company, Siam

Overseas, which had defrauded workers of recruitment fees without

providing jobs (see para 16.) Supat said the Ministry was working

with Siam Overseas to provide compensation to the over 300 workers

affected, but had not yet tapped the company\’s 5 million baht

deposit with the Ministry. Another of the suspended companies is

ACCO, the largest local recruiter for workers to the U.S., which was

suspended after a group of workers did not get their full salary and

were sent back to Thailand after only several months (see para 30.)

 

28. (U) Visits to Thai officials in provincial labor offices yielded

similar views. The town of Udorn, north of Khon Kaen, is described

by Thai officials as the top province for sending workers abroad,

and the evidence is on the town\’s streets as soon as you enter.

Signs advertising labor recruitment services are common,

side-by-side with signs advertising loan services to pay recruitment

fees. Offices advertise loans to pay recruiting fees for work in

Taiwan and Qatar, next door to a recruitment company that advertises

for 3,000 workers wanted by South Korean auto parts and glass

factories.

 

29. (SBU) The head of Udorn\’s provincial employment office said that

Udorn\’s youth have always sought work abroad as a cultural norm, to

follow friends and family and earn money. The excitement of leaving

a small town to work abroad, or in Bangkok, was a large part of the

allure. Recruitment fees were high, he said, but if all went

according to law, the workers still benefited and wouldn\’t keep

migrating if it wasn\’t profitable. The official said that

government regulates recruiting fees closely with licensing

procedures. In cases where excessive fees are charged, there is

often collusion between workers and labor agents, with the workers

actively participating in the subterfuge. The official noted there

were 20 recruitment agencies registered in Udorn, that had sent

2,000 workers during the past month alone to work in destinations

such as Taiwan, South Korea, Singapore, Qatar, and Japan. (Figures

from Khon Kaen\’s provincial labor office show similar destinations,

with worker departures abroad rising from 6,014 in 1999 to a peak of

11,688 in 2001 and falling to 8,206 last year.)

 

30. (SBU) The Udorn official said he had only heard of one

Udorn-based firm sending workers to the U.S., and that recruiting

firms had complained about the practices of one U.S.-based labor

supply company that had been asking \”very high fees\” for the right

to fill farm jobs in the U.S. (Note: Our consular section has

received a letter from the Association of Thai Labor Overseas

stating that this same U.S. company was charging a Thai labor supply

company between 400,000-480,000 baht – USD 10-12K – per job.) The

Udorn official said most Thai companies shied away from

relationships with foreign labor companies selling such services \”to

the highest bidder,\” and referred to the labor recruiting process as

\”an oligopoly\” controlled by a handful of firms that use their

access to job information as a means of boosting recruiting fees.

\”You can solve this problem,\” he said, \”by making job information

available to the general public.\” \”Explain to us,\” he added, \”how

workers can learn of opportunities in the U.S. without having to go

through select middleman companies that know the farms and the

petition process.\”

 

————————————–

Labor Exploitation Becomes Trafficking

————————————–

 

31. (SBU) The range of severity of these labor exploitation cases

varies considerably, and many workers clearly believe the recruiting

debt they experience is outweighed by higher salaries that are

offered by multi-year jobs overseas. At the other end of the

spectrum, however, are those cases that qualify as severe forms of

trafficking – particularly cases where passports are confiscated and

access to communications denied. A number of workers in the U.S.

have recently applied for T visas as victims of trafficking – one

egregious case involving an incident in late 2005 where a group of

Thai workers was offloaded in the Hurricane Katrina disaster zone to

find their own work and resorted to catching wild birds to feed

themselves (reftel). Thai parliamentarians are also probing reports

of trafficking into forced prostitution in Taiwan. The House of

Representatives chairperson of the Thai People\’s Rights Abroad

Subcommittee, MP Kusumalvati Sirikomart, said an October 2005 visit

by her committee to Taiwan found that \”many Thai women decide to

work in massage parlors after incurring debt of as much as 400,000

to 500,000 baht,\” owed to recruiting agents who ostensibly were

placing them in domestic housekeeping jobs. An accompanying MP also

said he had interviewed Thai prostitutes in Taiwan who were

force-fed drugs to keep them awake while servicing ten customers a

day, or up to 1,200 customers for their entire debt period.

 

32. (SBU) Comment: It is difficult to ascertain the scope of a

problem that is kept beneath the surface by many of the actors

involved. It is quite clear, however, that the relative lack of

punitive actions taken against labor recruitment agencies is out of

sync with the number of complaints we have seen about recruiting

abuses, and also reports of trafficking. Some workers in Thailand

are wising up and seeking jobs on their own through self-funded

travel to neighboring countries such as Malaysia and Singapore, but

still find it impossible to secure work in the U.S. or other

farther-off places without going through recruiting agents. One

returning worker from Singapore who sat next to our Labor FSN on the

flight to Khon Kaen said \”I once paid 140,000 baht for the right to

work in Singapore. Only later did I realize I could have done it

myself for 30,000 baht. We need to figure out how to do this

elsewhere.\”

 

BOYCE

“

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“Embassy Bangkok”,

“UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

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SIPDIS

 

SENSITIVE

SIPDIS

 

COMMERCE FOR JKELLY

 

E.O. 12958: N/A

TAGS: EFIN, ETRD, PINR, CH, TH

SUBJECT: CHINESE INVESTMENT IN THAILAND (C-AL5-01054)

 

REF: 05 BANGKOK 847

 

1. (SBU) Summary: Well known as a destination of foreign

investment, China is becoming a foreign investor in its own

right and is seeking out investment opportunities in

Thailand. Encouraged by a friendly business atmosphere and a

stable environment for investment, Chinese investors see

Thailand as a manufacturing and export base to expand markets

in the rest of ASEAN. Net investment remains relatively low,

a reflection of the generally conservative nature of most

Chinese investment here, but trend lines for future

investment point up, with some Thai officials predicting that

China will one day become one of the top investors in

Thailand. The Thai government sees an opportunity in China

as a new investment suitor and has made a high-level

commitment to encourage their northern neighbors to invest in

numerous projects. Chinese investors are still finding their

way through unfamiliar territory, but certain cost advantages

and improving analytical and management methods are

brightening their investment future. End Summary.

 

2. (SBU) Thirty years after China renewed diplomatic

relations with Thailand, Chinese investors flush with capital

and newly confident of their business acumen have begun to

seek out investment opportunities in Thailand. Although

traditionally a direct competitor with Southeast Asia for

foreign investment, China has found niches for its own

investment in the region in pursuit of an outward investment

strategy to participate in international capital markets and

stake its own claims overseas.

 

3. (SBU) Although investment numbers from China are still

dwarfed by overall foreign investment statistics, the growth

of Chinese investment has been rapid. In 2003, Thailand\’s

Board of Investment (BoI) set a goal of expanding Chinese

investment by 30 percent for the year; instead investment

rocketed up 300 percent in 2004. In 2005, BoI approved 12

new projects submitted by Chinese investors for a value of

2.2 million baht (USD 57 million), about half that of 2004,

but a number of large projects applied for toward the end of

2005 have yet to be approved. Chinese companies have made

direct investments in 154 different investment projects in

Thailand, with a net value of USD 773 million. The largest

investments are in garments and light industry, but

substantial investments exist in such diverse areas as

chemicals and plastics, mining, machinery, electronics and

agribusiness. Most projects are small to medium enterprises,

but many of the larger and better known companies from China

such as Huawei and TCL, which have the capital and technical

knowledge to support larger projects, are making their

presence known. RTG goals for future Chinese investment are

ambitious, with plans for a 35 percent growth in investment

from China in 2006 and talk of China one day soon becoming a

top investor in Thailand.

 

Gateway to ASEAN

—————-

 

4. (SBU) China\’s investment goals in its overseas bids

have ranged from resource-seeking in Africa and Latin America

to technology-seeking in the U.S. For Thailand, analysts see

China utilizing a market-seeking investment strategy, using

the country as a production base to expand its market share

in Thailand, and as a springboard for exports to the rest of

Southeast Asia. Thailand has promoted this strategy as well

and is marketing itself as a bridge connecting China to other

ASEAN members, promoting its strategic position in ASEAN, its

abundant labor, solid base of production technology and large

consumer market. Further, Thailand\’s network of bilateral

free trade agreements, some completed and others still in the

works (including with the U.S), provide an avenue for

tariff-free trade for Chinese manufacturers in Thailand, and

also a means to sidestep quotas on Chinese manufacturing,

most notably in apparel exports.

 

5. (SBU) Thailand\’s Board of Investment claims that China

has successfully planted more investment in Thailand than in

any of its ASEAN neighbors. Mr. Vikrom Kromdit of the

Thailand-China Business Council says Chinese investors see

much to like in Thailand, including a long history of good

relations (in contrast to their occasionally touchy relations

with other SE Asian countries), and a stable political and

economic situation. Close cultural relations bring an added

advantage. According to Vikrom, Chinese investors feel an

affinity with Thai culture and are comfortable dealing with

Thai businessmen, many of whom are of Chinese descent. For

their part, Thais are positive about their expanding

relations with China. In a recent poll, 83 percent of Thais

 

BANGKOK 00001372 002 OF 005

 

said they had a favorable opinion of China (73 percent had

the same opinion of the U.S.), and 97 percent said the

bilateral relationship with China was good.

 

6. (SBU) This positive view persists despite the widely

held view here that China tends to trade unfairly and has

received a disproportionate share of the benefits of the 2003

China-Thai \”early harvest\” covering bilateral free trade for

about 35 fruits and vegetables. During a visit to Thailand\’s

northern Chiang Rai and Chiang Mai provinces, billed by the

RTG as the country\’s \”gateway to China\”, businessmen

invariably complained to econoff about the uneven playing

field they face when trading with China. Problems range from

a Chinese monopoly on river traffic on the Mekong (\”only the

Chinese know when they will open the dams allowing boats to

navigate during the dry season\”); to the extremely low price

for Chinese garlic and vegetables (below cost for Thai

farmers, \”is it due to hidden subsidies?\”); to the Chinese

provincial authorities applying non-tariff barriers to goods

imported directly by Thais rather than through Chinese

middlemen, e.g. applying sanitary and phyto-sanitary

regulations more stringently to goods exported by Thais than

to those exported by Chinese.

 

7. (SBU) Thai trade with China is also inhibited by a lack

of understanding of Chinese rules and regulations. Some

bankers in the North told us that letters of credit are

available only \”government-to-government\”, another said Thai

insurers won\’t cover shipments to China. This confusion among

smaller Thai exporters has given the opportunity for Chinese

traders to control the exports of certain Thai products

(especially fruits and vegetables) into the Chinese interior.

The large Thai companies in the food processing industry tend

to ship directly from Bangkok to Chinese ports and indicate

few problems with their transactions. The Chinese

agricultural goods traders have invested in some small-scale

food processing businesses but generally have confined their

operations to purchase and transport of final product.

 

8. (SBU) XXXXXXXXXXXXXXXX, XXXXXXXXXXXXXXXX of the

Ministry of Commerce, told Econoff he saw China\’s increased

investment in Thailand as an extension of its \”Go West\”

policy, opening up economic opportunities in China\’s western

frontier and taking advantage of their southern provinces\’

relative proximity to Thailand. The provincial government of

China\’s Yunnan province, situated directly north of Thailand

separated by parts of Burma and Laos, have engaged with RTG

officials in northern Thailand to improve the flow of trade,

investment and tourism between the two regions. China, Laos

and Thailand have linked up with the Asian Development Bank

to construct a road through Laos that would link Kunming in

Yunnan province to Chiang Rai in northern Thailand. Although

there is a current road link through Burma, the route is

considered insufficient for the heavy volume of goods flowing

from China, and concerns remain about political stability in

Burma. The RTG has provided loans to Laos for road

construction and a bridge across the Mekong River, and

expects the project to be completed by the end of 2007. The

RTG is also upgrading ports along the Mekong River to handle

increased traffic flow; Chinese shipping companies already

dominate river traffic. A rail link from Kunming to

Thailand\’s Laem Chabang port near Bangkok is also under

consideration by regional governments.

 

9. (SBU) In anticipation of greater trade between Yunnan

and northern Thailand, Yunnanese authorities and local

officials in Thailand\’s northern Chiang Rai province have

been planning a Northern Region Industrial Estate to

accommodate anticipated investment from China. Although

dozens of Chinese companies stated intentions of investing,

the project has stalled out lately in the face of political

problems with the original proposed site in Chiang Saen

district. The industrial estate promises to take advantage

of the coming road, rail and port improvements between

southern China and northern Thailand, but may not be the

center of bilateral trade as it was once anticipated. XXX

XXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXX at

Chulalongkorn University, speculated that the industrial

estate may never get off the ground. As the implementation

date of the China-ASEAN FTA comes nearer and tariffs fall

across the region, there will be fewer reasons to focus on

northern Thailand as a gateway to the rest of ASEAN. One

Chiang Mai businessman, who ships Thai products by sea, noted

that southwest China \”is poor and can\’t afford the higher

cost/higher quality goods that we produce in Thailand. There

is no reason to trade with Yunnan. Our market is China\’s

seacoast.\”

 

BANGKOK 00001372 003 OF 005

 

Looking for opportunities

————————-

 

10. (SBU) China\’s investments in Thailand to date have

followed little overall strategy other than a search for

profitable investment opportunities. Analysts see no central

coordination of China\’s investments other than provision of

loans by the Chinese government to overseas investors.

China\’s investments appear to focus on trade creation and

taking advantage of China\’s comparative strengths. In

contrast to investments from developed countries, which

typically focus on comparative advantages in technology,

management and marketing, China\’s investments in Thailand lie

in their advantages in flexibility and cost, in particular

lower salaries for technical staff. China analysts suspect

that in addition to already low costs, some Chinese companies

have bid on projects at below cost, accepting the short-term

losses in a bid to gain experience and better position

themselves for future projects. Chinese companies most

frequently team up with Thai partners in new investments.

Companies have to date not focused on mergers or acquisitions

or taking over established Thai brands as a means to enter

the market as has been seen in other countries.

 

11. (SBU) China\’s cost advantage in construction has raised

expectations for a burgeoning presence of Chinese

construction firms. XXXXXXX of Chulalongkorn University

speculated that the oversupply of construction companies in

China is fueling interest in overseas construction projects

to make use of idle capacity. The RTG is actively

encouraging Chinese investment in construction of its new

megaprojects infrastructure development program, and

predicted that twenty percent of the contracts for the USD 24

billion program will go to Chinese firms. However, a recent

meeting for international investors on megaprojects was

sparsely attended by Chinese.

 

12. (SBU) China\’s new traveling class (the fourth largest

source of visitors to Thailand in 2004) is opening up new

investment opportunities overseas as well. The Chinese New

Year in January saw a large influx of Chinese tourists,

bringing Thailand closer to its goal of expanding annual

tourism figures from one million Chinese visitors (actual

2005 total was 800,000) to three million by the end of 2010.

The Tourism Authority of Thailand (TAT) budgeted 10 million

baht (USD 250,000) for Chinese New Year festivals in Bangkok

and other provincial tourist destinations to attract mainland

tourists. After a post-tsunami downturn in visitors from the

mainland in 2005, the number of Chinese tourists is gradually

improving. Airlines have expanded direct flights between

China and Thailand and the RTG is encouraging even more.

Incoming tourists are sparking an interest in Chinese

investment in hotels and resorts in Thailand and travel

agencies to guide them in. In September 2005 the TAT signed

a tourism agreement with three Chinese tour operators and a

public relations company, Publicitas China, to raise the

profile of Thailand in China and market Thailand to Chinese

tourists.

 

13. (SBU) Thailand is not considered a rich source of

energy for China, but Chinese oil companies have nevertheless

expressed interest in working with the Petroleum Authority of

Thailand (PTT) on energy projects. PTT and China\’s oil major

Sinopec announced in June 2005 that they were considering a

joint project to build an oil pipeline across the Isthmus of

Kra to connect the Andaman Sea to the Gulf of Thailand and

bypass the increasingly congested Strait of Malacca, cutting

as much as a week of transportation time for crude oil

shipments to China from the Middle East and improving

security of shipping routes. However, the oil pipeline

project has been under consideration by the RTG for years and

previous feasibility studies cast some doubt on the financial

viability of the project (reftel). To date the pipeline

remains in the planning phase and is not expected to go

forward. Another Chinese oil producer, CNOOC, has agreed to

work with PTT to explore new oil fields in Thailand and

abroad, and to seek new potential in existing Thai oil fields.

 

Thais lend a hand

—————–

 

14. (SBU) Eager to tap into China\’s enormous foreign

exchange reserves, Thailand is actively encouraging mainland

investment. The two countries formed the Thailand-China

Joint Committee on Trade, Investment and Economic Cooperation

in 2004 to promote economic ties. At the most recent meeting

in September 2005, the two countries signed 11 agreements

over issues from logistics cooperation down to trade

 

BANGKOK 00001372 004 OF 005

 

protocols for crocodile meat. The Thai side is represented

by Deputy Prime Minister Somkid, designated \”Mr. China\”, with

responsibility for promoting bilateral investment with China.

Somkid has made monthly trips to China and has been hosting

a continual procession of visiting Chinese dignitaries,

speaking at investment conferences, and overseeing the

signing of trade and investment deals. As part of the Joint

Committee, the two sides have established a working group

with Yunnan province which holds regular meetings regarding

trade, investment, culture, and tourism between the two

regions. Somkid is pushing Chinese participation in

construction, food processing, logistics, electronics and

textiles.

 

15. (SBU) In 2003, Thailand\’s Board of Investment (BoI),

the entry point for most formal investment in Thailand,

established a China desk headed by veteran China hand Charas

Chitkittichamras. Although Thailand provides no special

privileges to Chinese investors, XXXXXX the BoI saw the

need to assist less experienced Chinese investors to learn

the ropes of investing in Thailand. The RTG also established

the Thailand-China Business Council, headed by Mr. Thanakorn

Seriburi, a vice-chairman of Thai conglomerate CP Group (CP

Group has considerable interests in China, especially in the

food processing and retail sectors). The Business Council

has been active in arranging investment conferences and

partnering Chinese investors with local firms.

 

16. (SBU) XXXXXXXXX, XXXXXXXXXXXXXXXXXXXXXX at

the Ministry of Foreign Affairs, said that Thailand\’s close

relations with Taiwan have not slowed the formation of closer

economic relations with China. Although Thailand closely

follows the One China policy, their relations with Taiwan go

back for decades and are still valued. Taiwan is among the

top three investors in Thailand and XXXX estimated 10,000

Taiwanese businessmen were resident here. XXXX believed

China was pragmatic enough to keep political and economic

issues separate and said he had felt no pressure from China

on economic matters with Taiwan. Nevertheless, he conceded

that any future problems between China and Taiwan would be

likely to affect their own bilateral relationships with the

two nations.

 

Much ado about nothing?

———————–

 

17. (SBU) Despite the impressive growth in Chinese

investment and the attention given to it by the RTG, analysts

stressed to Econoff that investment from China was still a

fraction of that from more established foreign investors from

North America, Europe and Japan, and still had little impact

on the Thai economy. When asked where China stood on the

list of foreign investors in Thailand, BoI\’s XXXX replied,

\”They\’re not even on the list.\” The latest BoI statistics

show Chinese investment as still only one percent of net

foreign investment. XXXXX noted also that Thais have been

investing in China for the last twenty years and Thai

investment in China was over ten times the value of Chinese

investment in Thailand. As yet no Chinese companies have

listed on the Thai stock exchange.

 

18. (SBU) Analysts pointed out the numerous difficulties

faced by Chinese investors. Most Chinese are relatively

inexperienced in overseas investment compared to their

Western or Japanese counterparts and are unfamiliar with the

investment environment. Despite the prevalence of

Thai-Chinese businessmen in Thailand, mainland Chinese

investors tended to speak a different dialect than their

counterparts, and did not have advanced English language

skills to communicate with their partners and customers.

When confronted with problems, XXXXXX said that Chinese

firms had a tendency to send their own experts from China to

solve problems rather than relying on local staff, usually

with less than stellar results. One representative from the

largest Chinese investor in Thailand, Worldbest, spoke of the

difficulties the company had after setting up business in

2001. Despite its size (accounting for at least a quarter of

all Chinese investment in Thailand) the firm faced

difficulties in breaking into local supply networks. Without

established relationships with suppliers, Worldbest found

itself low on the priority list for supplies and met

production delays.

 

19. (SBU) Though some companies have found rough going in

starting new investments, future Chinese investments may be

more successful, if for no other reason than that the RTG

wants it that way. BoI sifts through investment applications

from Chinese investors and is approving only those it

 

BANGKOK 00001372 005 OF 005

 

believes will be successful. With Chinese investment still

in a nascent stage, BoI is careful to manage perceptions

about investment in Thailand and is wary of news of failed

investments filtering back to China and discouraging future

investors. Chinese investors are also quickly learning the

investment game and are being more systematic in their

investment approach. According to BoI\’s XXXXX, initial

Chinese investments tended to focus on areas where an

investor had a personal relationship with a partner in

Thailand, without necessarily examining all the investment

factors and the profitability potential of the venture.

These days young Chinese MBAs schooled in modern management

methods are leading the new wave.

 

20. (SBU) Despite RTG assistance, Chinese investors have

hardly been a juggernaut. A tobacco joint venture in Chiang

Mai has suffered from financial disputes and there have been

numerous anecdotes of plans for Chinese-invested projects in

the Northeast being cancelled after environmental concerns

were raised. High hopes for a recent bid by Chinese

conglomerate CITIC Group to build a rail link to Bangkok\’s

new Suvarnabhumi Airport were dashed after a European

consortium outbid the Chinese. However, in January,

Thailand\’s biggest construction contractor said it would

partner with CITIC to bid on twenty major projects in

Thailand.

 

21. (SBU) Comment: Despite going through some expected

growing pains, Chinese investment is beginning to come into

its own and trends indicate rapidly increasing Chinese

participation in the Thai market. Bilateral trade is

ballooning, and investment is likely to follow directly in

its path. Bilateral trade reached USD 12 billion in 2004

with preliminary estimates of a 75 percent increase in 2005.

Deputy PM Somkid said recently he was confident that trade

would reach USD 50 billion by 2010 (bilateral trade with the

U.S. totaled USD 26 billion in 2005). There are few fears

that China, Inc. will steamroll the competition anytime soon,

but the Thais have sat up and taken notice that a new player

has taken a seat at the investment table even as they are

aware that Chinese are typically careful investors and have a

difficult market to crack. End comment.

BOYCE

“

“55125″,”3/3/2006 3:55″,”06BANGKOK1317″,

 

“Embassy Bangkok”,”CONFIDENTIAL”,”",

“This record is a partial extract of the original cable.

The full text of the original cable is not available.

 

“,”C O N F I D E N T I A L BANGKOK 001317

 

SIPDIS

 

FOR D – DEPUTY SECRETARY ZOELLICK

FOR E – UNDER SECRETARY SHINER

FOR EAP – ASSISTANT SECRETARY HILL

DEPARTMENT PASS USTR FOR AMBASSADOR PORTMAN

FROM THE AMBASSADOR

 

E.O. 12958: DECL: 03/03/2016

TAGS: ETRD, TH, Thai Political Updates, US-Thai FTA

SUBJECT: THAILAND\’S POLITICAL CRISIS AND THE FTA

 

Classified By: Ambassador Ralph L. Boyce. Reason: E.O. 12958, 1.4 (b)

and (d)

 

1. (C) With Prime Minister Thaksin\’s February 24

dissolution of the Parliament and the calling of elections,

our FTA with Thailand is on hold. That may not be all bad:

the FTA was the one American component of the increasingly

vociferous anti-Thaksin campaign here, and the negotiations

hiatus has removed it (and the US) from the political line of

fire. The FTA is parked in what we believe to be a safe

place: what had been daily local media reports detailing one

or another dire threat posed by the FTA have now disappeared.

We also are close to finalizing arrangements for an

indefinite continuation of benefits provided to US investors

under our Treaty of Amity and Economic Relations (AER).

Keeping the FTA \”on hiatus\” is essential to this.

Considering the circumstances, this is a good outcome –

better than many possibilities we had feared.

 

2. (C) Thailand\’s political crisis continues to evolve in

unpredictable ways. The most probable scenarios, however,

suggest that the current hiatus in the FTA talks may prove an

extended one. We suspect that there are many within the RTG

who breathed a sigh of relief when the calling of elections

provided a neat, procedural excuse to suspend talks.

Questions over the viability of the FTA extend well beyond

the interruption caused by the elections. The FTA is closely

associated with Thaksin, and as opposition to the PM has

mounted, attacks on the FTA have become ever more strident.

Judging from media coverage, the FTA has now become intensely

unpopular. FTA supporters have either gone underground or

(sensing the political winds) switched sides. In his

currently embattled state, we wonder if Thaksin will be quick

to resume talks even if circumstances were to permit. The

main opposition Democrat Party, while being careful not to

condemn the FTA outright (it supports the FTA in principle

but criticizes certain provisions, e.g., intellectual

property, and the current government\’s handling of the

negotiations), may also find the FTA too radioactive to deal

with in the event the party wins office.

 

3. (C) The main reason for this negative atmosphere has

been the almost complete failure of the Thai Government to

explain to the public the need for, and benefits of, an FTA

with the US. The RTG has belatedly recognized the need for

public consultation, but this project will be doubly

difficult given that so many already have formed their views.

The pro-FTA forces have one great advantage, however: there

is a compelling argument that the FTA will be good for

Thailand, boosting employment and incomes. The FTA is a very

good message, and in the hands of an effective messenger

addressing an open-minded audience it is likely to eventually

gain the upper hand. But this eventuality is likely to take

time.

 

4. (C) In the meantime, what should we do? The sidelining

of the FTA should lower the temperature of what had become a

white hot issue. Our launch of FTA talks with other

countries in the region will serve to educate the Thai public

(and political parties) on the relationship between trade and

investment liberalization and maintaining Thailand\’s

competitiveness. At some point, the politics will calm down,

permitting a fresh look at the FTA.

 

5. (C) Aside from the FTA\’s close association with Thaksin,

the issue that did the greatest damage to the FTA\’s prospects

was enhanced IPR for medicines — particularly those for

HIV/AIDS — and its possible effect on prices. What we

needed to effectively counter the large numbers of

demonstrators (most of whom were HIV/AIDS sufferers) were

clear, direct answers to their concerns. The ability to make

a plain, unqualified statement that the FTA would not affect

Thailand\’s ability to access essential medicines to treat

HIV/AIDS at an affordable price would have been extremely

helpful. Such a statement by a high-level US official at the

outset of any future FTA talks will likely prove useful –

perhaps decisive — in jumpstarting such talks, setting them

in a very different and more favorable light. It would be

infinitely more helpful than having such a position as a

negotiated outcome at the conclusion of the FTA negotiations.

 

6. (C) I urge you not to give up on Thailand. The original

vision of the FTA, with its promise of gains for both of our

economies, remains valid. That\’s why we are convinced that

conditions eventually will permit negotiating comprehensive

trade and investment liberalization with Thailand. We look

forward to that opportunity.

BOYCE

“

“54577″,”2/28/2006 8:35″,”06BANGKOK1204″,”Embassy Bangkok”,

 

“UNCLASSIFIED//FOR OFFICIAL USE ONLY”,”",

“This record is a partial extract of the original cable.

The full text of the original cable is not available.

 

280835Z Feb 06

“,”UNCLAS BANGKOK 001204

 

SIPDIS

 

SENSITIVE

 

DEPARTMENT PASS FOR USTR FOR BWEISEL

COMMERCE FOR JBENDER AND JKELLY

 

E.O. 12958: N/A

TAGS: ETRD, EINV, TH

SUBJECT: FTA ON HOLD AS THAI PM ANNOUNCES SNAP ELECTION

 

1. (SBU) On February 27, Commerce Permanent Secretary and

Chief FTA Negotiator Karun Kittisataporn informed us that, in

view of the Prime Minister\’s February 24 announcement of the

dissolution of Parliament and a snap election on April 2, the

RTG would not be able to conduct most FTA-related work since

it is in \”caretaker\” status. Karun said that, after

consulting with Deputy Prime Minister and Commerce Minister

Somkid, he was authorized to inform the USG that all

substantive work on the FTA would be halted until a new

government was formed and set out a position on the FTA. The

only exceptions, he said, would be responding to US inquiries

that amount to technical points of clarification, and FTA

work \”that is already in the mail\”, i.e., that cannot be

stopped. (Comment: Our understanding of Karun\’s policy

would preclude continuing practically any and all

intersessional work in any of the negotiating areas. End

Comment)

 

2. (SBU) Karun said that he hoped to be able to have the

authority to resume FTA talks with the US by June, but

cautioned that this was a best-case scenario conditioned on

many assumptions. He added that, elections aside, Thailand\’s

current political crisis and the growing controversy

surrounding the FTA argued for a hiatus. \”We need time to

calm things down,\” he said. The Thai Government, he said,

would inform the media that after considering the current

legal and scheduling constraints, it had been decided to have

a hiatus in negotiations, and that Thailand and the US will

consider re-starting talks later in the year. He asked that

the US avoid making any public statements that differed

markedly from this line.

 

3. (SBU) Comment: Thai media on February 28 reported the

postponement of FTA talks, quoting Karun along the lines

cited in para 2. Karun\’s remarks have the advantage of being

non-controversial and removing the FTA from the political

line of fire, while preserving the option of reviving talks

in the future. We would endorse something similar for use by

US officials on an \”if asked\” basis.

BOYCE

“