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04BANGKOK8485 U.S.-THAILAND FTA: STATUS AND PROSPECTS

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 07 BANGKOK 008485

 

SIPDIS

 

SENSITIVE

 

STATE PASS TO USTR FOR A/USTR BWEISEL

 

E.O. 12958: N/A

TAGS: ETRD ECON PREL TH US FTA

SUBJECT: U.S.-THAILAND FTA: STATUS AND PROSPECTS

 

SUMMARY

 

¶1. (SBU) The November 22 announcement by the Thai lead

negotiator that the RTG was seeking a postponement of the

December 2004 FTA round was the culmination of several

complex crosscurrents within the RTG and Thai society. The

ostensible reason for the postponement, the upcoming

(February 6) elections, is genuinely believed by some senior

officials, as is the need for additional time for

preparation, but is probably the least important element of

the whole story. Key elements within the RTG are

dissatisfied with the comprehensiveness of the U.S.

negotiating framework, particularly its inclusion of labor,

environment, and financial services, as well as the emphasis

on negative lists in services and investment. Key private

sector organizations, notably the Thai Bankers Association,

also have voiced their objections to U.S. requests. The

prospective U.S. offer has disappointed some here, especially

in areas such as temporary entry. The RTG currently is split

into two camps on how to proceed: the first, led by Finance

Minister Somkid and Chief Economic Adviser Pansak, argues for

a go-slow, narrowly focused market access agenda; the second,

led by lead FTA negotiator Nitya (who is allied with Foreign

Minister Surakiart), favors a faster, more comprehensive

approach, arguing that such an FTA would transform and

modernize the Thai economy. They also stress the high costs

of non-participation as other countries pursue FTAs with the

U.S.

 

¶2. (SBU) Resolution of this debate awaits the February

elections. Our opportunity for input is limited, although we

may be able to make our negotiating framework more attractive

here by emphasizing benefits to small and medium sized

enterprises, a politically favored sector of the Thai

economy. In spite of the delay and internal RTG

soul-searching, we remain basically optimistic about the

FTA’s prospects because we don’t see how either side’s

fundamental interests in having an FTA have changed. For the

U.S., it is our best chance to maintain a favored trading and

investment position with Thailand that is jeopardized by

several imminent developments. Equally important, an FTA

will be transformational for Thailand, effecting a shift in

many of its governmental institutions towards a more

rules-based economy. That will be good for Thailand, good

for the U.S., and will serve as a positive precedent for the

many other developing economies which are weighing economic

development and trade policy options. In asking for a

comprehensive, transformational FTA with the U.S., we are

asking Thailand to do something unprecedented, something that

it will find very hard. Negotiations are likely to take some

time. Progress could prove non-linear, with periods of rapid

movement forward, followed by some regression, a hiatus, and

repetitions of this cycle. It will require patience,

determination, and judgment, with no guarantee of success.

But we believe it is worth the considerable effort likely to

be required. End Summary.

 

FTA TALKS PUT ON HOLD

 

¶3. (SBU) On November 22, the RTG’s chief negotiator announced

that his government was proposing to the USG that the FTA

negotiating round scheduled for the week of December 13 be

postponed. The reasons he cited for the request were the

upcoming Thai national elections (currently scheduled for

February 6, 2005), and the need for additional time to

prepare for further talks with the U.S. This announcement

was pursuant to a decision made the previous day by the RTG’s

newly created FTA Oversight Committee. In addition to the

postponement request, the Committee ordered the relevant

agencies to further study the major issues in the FTA and

provide recommendations on a future course of action.

 

¶4. (SBU) While the explanations publicly provided by the lead

RTG negotiator are undoubtedly genuine, no one here believes

they represent the complete story — or even the primary

story — behind the postponement request. Rather, the

postponement was the culmination of several complex

crosscurrents within the RTG and Thai society.

 

THE ELECTIONS

 

¶5. (SBU) Prime Minister Thaksin’s Thai Rak Thai Party and its

allies have gone into full campaign mode for the February 6

national elections, and all other issues are being viewed

through the election prism. It is an unfortunate fact that

public sentiment concerning Thailand’s several free trade

initiatives is almost entirely negative. Perhaps the most

talked about trade deal is Thailand’s “early harvest” tranche

of the ongoing FTA talks with China. While the early harvest

provisions contain significant benefits for prospective Thai

exporters to China, press coverage has centered almost

entirely on increased imports of Chinese onions and garlic,

and resulting depressed prices for Thai farmers in this

sector. (We have yet to see a mass media article that

mentions any increase in consumer welfare due to lower food

prices.)

 

¶6. (SBU) Against this backdrop, the U.S.-Thai FTA talks are

regarded by the RTG as a potential political liability best

avoided in an election campaign. From the perspective of the

RTG, the only way the FTA talks with the U.S. could have been

a useful campaign tool would have been an early harvest

component which contained some attractive market access

improvements for Thai exporters. The U.S. preference for a

single undertaking that addresses substantially all trade and

investment barriers meant that there would be no pre-election

“presents” for Thailand (and the Thai Rak Thai party). Once

that fact was recognized by PM Thaksin and the relevant RTG

ministries, support for a pre-election negotiating round

largely evaporated.

 

¶7. (SBU) But we don’t accept the claim that the postponement

request is all about — or even primarily about — an

exogenous factor like the elections. For one thing, trade

policy, while recently controversial and a political

negative, is not a big vote-mover here. Many issues

overshadow it. For another, Thailand’s FTA talks with Japan

are about as controversial here as those with the U.S., and

yet the previously scheduled FTA talks with that country,

scheduled for the week of December 6 in Bangkok, have gone

ahead (and with very little media scrutiny). We doubt the

December 13 FTA talks with the U.S. in remote Hawaii would

have generated much in the way of media attention here.

 

NEED FOR ADDITIONAL PREPARATION TIME

 

¶8. (SBU) There is no question that the RTG has found itself

ill prepared for negotiations with the U.S. The belated

formation (in early November, five months after the start of

negotiations) of the RTG’s FTA Oversight Committee (chaired

by Finance Minister Somkid) is, in part, a belated

recognition that more work on positions has to be done,

especially in (but not limited to) labor, environment, and

financial services (the Committee’s creation is also partly

motivated by internal power struggles within the RTG — para

15). One of our working level contacts in the Ministry of

Commerce said, “If you look at the guys on our (the RTG’s)

labor and environment teams, you can see right away that they

are not prepared to negotiate anything.” A Labor Ministry

source said that as of late November, his ministry had yet to

complete translating into Thai the text presented by the U.S.

in the October FTA round.

 

¶9. (SBU) But like the elections, we don’t accept that the

need for greater preparation time is the major reason for the

postponement. Only a minority of the negotiating groups were

faced with serious preparation related obstacles that would,

arguably, delay further meetings. Preparation for 90 percent

of the negotiating groups would have been advanced by the

December talks, since the talks would have provided

opportunities for information exchange, clarification of

positions, and so forth. It is evident that factors other

than the need for additional time for preparation played a

role in the postponement.

 

“REQUEST SHOCK”

 

¶10. (SBU) While the RTG thought that it had done its

homework in preparation for the FTA talks with the U.S., it

has found out that much more remains to be done. The RTG —

or at least many of its key officials — were seemingly

caught off guard by the scope and depth of U.S. requests in

many areas. These areas include labor; environment;

financial services. When we express our astonishment to RTG

officials at their surprise at the U.S. agenda (after all,

the U.S. must rank as the most transparent country in the

world in terms of negotiating goals in our trade relations —

our complete negotiating agenda has been available on the

Internet for several months prior to the start of

negotiations), they respond that 1) the full impact and

ramifications of the U.S. requests had not been fully

appreciated; and 2) not all RTG officials had been fully

briefed in advance on the U.S. negotiating position. A

prominent official that probably falls into this category is

the Prime Minister; while he is a supporter of an FTA with

the U.S. — indeed, he claims authorship of the idea — he is

probably unaware of what its contents are likely to be. All

indications are that he has been caught off guard by the

overall U.S. request list, and is disappointed that the U.S.

is unwilling to negotiate a quick and politically attractive

“early harvest” package. (Note: We believe the RTG’s “early

harvest” plan for the FTA with the U.S. largely involved

formally renewing key provisions (Articles 4 and 10) of the

U.S.-Thailand Treat of Amity and Economic Relations.)

 

“LITTLE DEALS WITH BIG COUNTRIES”

 

¶11. (SBU) Seen through Thai eyes, the U.S. requests suffer

from comparison with the other recent trade deals Thailand

has concluded. Many of these deals lack (at least for now)

comprehensive market opening substance, opting instead for

relatively easy “early harvests.” This is the case for both

China and India. Even the FTA with Australia is fairly

slow-pitch: aside from reductions in goods tariffs, very

little was accomplished. By comparison, the breadth of the

FTA with the U.S. is wildly ambitious — maybe too ambitious

for some. One knowledgeable local observer said, “Thaksin

wants little deals with big countries; they make good

headlines without causing too much trouble.”

 

 

“OFFER SHOCK”

 

¶12. (SBU) The RTG has also had to review its strong desire

for a temporary entry chapter (or at least strong temporary

entry provisions as part of a services chapter) in the FTA.

The desire for a U.S. visa is strong in Thailand (the U.S.

has long been the country of choice for education, for

example); one of the strongest appeals of the U.S.-Thailand

Treaty of Amity and Economic relations are the reciprocal

preferential visa provisions. We believe the RTG has been

counting on reaffirming and perhaps upgrading this provision

as a big part of its public sales campaign for the FTA.

Adding insult to injury is the inclusion of temporary entry

chapters in the Chile and — most importantly — Singapore

FTAs. Thailand’s rivalry with the latter country is an

important reason behind the RTG’s persistence in asking for

temporary entry provisions. Lead Thai negotiator Nitya

recently cited the temporary entry provisions negotiated in

the U.S. FTA with Singapore in wondering aloud to the

Ambassador whether an FTA without temporary entry provisions

would be acceptable to the RTG. He said, “Of course, it

isn’t my call, but you know what the Old Colonel (PM Thaksin)

thinks about Singapore.” We believe the RTG’s basic position

on somehow addressing temporary entry is inflexible, and as

such is probably one of a handful of issues that falls

outside the normal give and take of the negotiating process.

In the absence of some treatment of temporary entry in some

context (not necessarily within the FTA), we question whether

the RTG will agree to an FTA.

 

¶13. (SBU) The RTG hopes that the post-U.S. election climate

will be more amenable to the discussion of temporary entry.

In noting that the President’s party has strengthened its

majority in Congress, some officials here are hopeful that

the U.S. may re-think its position on temporary entry and

trade agreements. In arguing for a delay in further FTA

talks, the Prime Minister’s chief economic adviser, Dr.

Pansak Vanyaratyn, asked the Embassy’s Economic Counselor,

“Why don’t we wait until both of our governments have a

mandate?” The “mandate” Pansak probably was referring to in

the case of the U.S. was a reconsideration of our position on

excluding temporary entry from trade agreements.

 

PRIVATE SECTOR OPPOSITION

 

¶14. (SBU) The corporate elites of Thai society are viewed by

many here as highly insecure. “They don’t see any

opportunities in liberalization, only the loss of privilege,”

one source told us. While there is considerable truth in

this statement, we think it is somewhat exaggerated; in

reality, private views are mixed. In general, the Federation

of Thai Industry (which accounts for much of the

manufacturing sector here) generally is supportive of the

FTA. Opposition to the FTA is centered in the Thai Bankers

Association and large swathes of the Thai Chamber of

Commerce. These are powerful organizations, and they no

doubt have made their voices heard.

 

INTER-MINISTERIAL CONFLICT

 

¶15. (SBU) Long simmering differences over policy and

jurisdiction boiled over in the November 21 FTA Oversight

Committee meeting that called for the December round’s

postponement. Far from being resolved, these differences

could become sharper in the coming months. Normally (and by

law), trade negotiations are led by the Ministry of Commerce.

For the U.S. FTA, the Foreign Ministry has the lead. Lead

Thai FTA negotiator Nitya has the title of Adviser to the

Foreign Minister. This is not a very powerful position. The

Chair of the FTA Oversight Committee is Finance Minister

Somkid. Somkid is a politically powerful Cabinet minister (a

coterie of MPs owe him allegiance); he is thought to be a

leading proponent of the skeptical, “go-slow” school

regarding the FTA with the U.S., favoring a narrow agenda

that focuses on traditional market access issues. His major

ally on the FTA Oversight Committee is Dr. Pansak. This pair

have found common cause in blocking Nitya’s plans for the

FTA, which included the December negotiating round. Nitya

(allied with FM Surakiart) favors a full speed ahead,

comprehensive FTA agenda. In terms of both institutional and

personal political power, this pair easily outguns Nitya.

This intra-governmental conflict could continue — and even

worsen — beyond the February elections.

 

¶16. (SBU) At the inaugural November 22 meeting of the RTG’s

newly created FTA Oversight Committee, the various themes of

the several dissenting factions — those concerned over the

elections, inadequate preparations, “request shock”, or

“offer shock,” — came together, finding common cause in a

call to stop forward progress on the FTA pending a

reassessment of the entire FTA exercise. Most observers here

think the FTA talks will be re-started after the elections,

but such an eventuality awaits a formal decision to that

effect by the FTA Oversight Committee.

 

POSSIBLE FUTURE DEVELOPMENTS

 

¶17. (SBU) Frustrated by the proliferation of ill-informed

FTA oversight committees (we currently count four that play

some role in the FTA) and his inability to chart the course

of the FTA talks, Nitya is lobbying to be given the title of

Thai Trade Representative. This can be designated a Cabinet

level position, and would give him a fighting chance of

regaining control over the FTA agenda. We understand a

decision regarding this is not likely until after the

elections. Everyone here thinks that Thaksin’s Thai Rak Thai

party and its allies will win handily, probably increasing

their majority in the lower house of parliament. If the

post-election Minister of Commerce is a politically powerful

figure, it is possible that Commerce may seek to assert its

leadership in the U.S.-Thai FTA talks. In that case,

Commerce probably would resist increasing Nitya’s power, and

the latter could find his position untenable. But, while a

Commerce takeover of the talks could spell trouble for Nitya,

it might not be all bad for the FTA; what is needed to drive

negotiations forward is 1) strong commitment 2) from a

powerful figure. A new Commerce Minister might prove just

the ticket. In this regard, we find it significant that the

Commerce-led FTA talks with both India and China continue to

move forward, while the MFA-led FTA talks with the U.S. and

Japan have been delayed.

 

¶18. (SBU) Somkid and Pansak are thought to be dissatisfied

with both the U.S. negotiating framework and (derivatively)

proposed pace of the FTA negotiations. Somkid (seconded by

Pansak) has described the negotiating mandate set forth in

U.S. Trade Promotion Authority legislation as negotiating

“pre-conditions,” (they count 17 such TPA pre-conditions in

total) and as such undermine the RTG’s desire for both sides

to negotiate from a clean slate. They also object (in

varying degrees) to various U.S. positions (as cited in paras

10-12). Their initial response has been to halt the talks,

albeit temporarily. Somkid and Pansak surely have the

support of PM Thaksin, at least for now. Said one long time

Thai observer, “This is a classic Thai response to being

pushed faster or farther than they want to go; they step

back.”

 

¶19. (SBU) But the temporary delay is only a tactical move; we

think major strategic decisions have been deferred until

after the February elections. Foreign Minister Surakiart

recently told the Ambassador, “We have a mandate to pursue

these talks after the elections,” and vowed to resume talks

once “the necessary parliamentary and legal processes are

complete.” Surakiart added that he had made these points to

U.S. Trade Representative Zoellick during the recent APEC

meeting in Santiago, Chile. The full speed ahead school,

which includes FM Surakiart, have been arguing that with the

proliferation of FTAs, the costs of non-participation are

likely to be very high.

 

¶20. (SBU) In a separate meeting with the Ambassador, Finance

Minister Somkid was somewhat less encouraging, telling the

Ambassador, “We will not do anything we cannot explain to the

Thai people. After the elections, we will meet with our

entire FTA team and look at every position; I think we can

handle everything.” He then made an indirect pitch for an

“early harvest” approach: he described a meeting he had with

the lead Japanese FTA negotiator, where he had urged the

Japanese to consider immediate FTA concessions, leaving other

areas for later. He concluded by saying, “We need to be

careful. Many in Thai society are ready to be opposed to an

FTA with the U.S. We don’t want to let that happen.” While

he didn’t spell out exactly how he proposed to avoid such an

eventuality, the overall message seemed to be, “Go slow, be

moderate in your requests.”

 

¶21. (SBU) We find it significant that no RTG official has

told us they are opposed to the FTA per se. The opposition

for now seems mostly short term and tactical. We think there

is a good chance that even hard core opponents of Nitya, such

as Pansak, may change their tune after the elections; in

Pansak’s economic writings, he touts the modernizing effect

of FTAs. Whatever its short term political advantages may

be, a narrow market access type of FTA will not yield much in

the way of economic modernization.

 

WHAT WE SHOULD DO

 

¶22. (SBU) While it is easy to be discouraged by some of the

attitudes toward the FTA that are prevalent here, we see the

current hiatus as a temporary setback that in no way alters

the overall situation. A Free Trade Agreement with Thailand

clearly remains in our interest. Usually, an FTA is designed

to take bilateral relations to a new level. In the case of

Thailand, however, much of our motivation is the preservation

of our current position. The U.S. currently is Thailand’s

largest trading partner. In investment, U.S. firms have

privileged access to the Thai market under the Treaty of

Amity and Economic Relations (AER). But our status is

imminently threatened by current trends. In view of GATS MFN

issues, we doubt the AER has much of a future as a

stand-alone document. The relentless rise of China’s

economic profile in this region represents a challenge to the

U.S.’s trade and investment leadership. Additionally,

Thailand is negotiating a number or other FTAs, which

probably will create some trade diversion that disadvantages

U.S. exporters. Given these developments, without a new

framework for our commercial relationship we will find it a

challenge to maintain our current position.

 

¶23. (SBU) We also think pursuing an FTA is the right thing

to do for reasons that go beyond maintaining our position

here. A close precedent to what we are trying to accomplish

with our FTA with Thailand is the Mexico component of NAFTA.

Like Mexico, Thailand is a medium-sized developing economy.

Like Mexico, Thailand is essentially not a rules-based

economy, relying, instead, to a great extent on personal,

informal arrangements. As envisioned by the U.S., our FTA

with Thailand will effect a transformation within the Thai

economy, by moving it towards a more rules-based, transparent

way of conducting commerce. Such a transformation will be

hard to achieve; it will be much harder than anything

Thailand is likely to ask the U.S. to do. It is also a safe

bet that, similar to the case with Mexico, that a

comprehensive FTA will see Thailand make the vast majority of

the concessions, since the vast majority of the existing

trade and investment barriers are on the Thai side. Leading

RTG policy makers are aware of the transformational,

modernizing potential of the FTA and, in their more visionary

moments, cite that potential as the FTA’s chief attraction.

But, it is an open question whether the Thai Government or

people are willing and capable of effecting such a

transformation. The chief architect of PM Thaksin’s economic

plan (“Thaksinomics”), Pansak Vanyaratyn, wrote, “I am not

sure we have the iron will to stay the course. I am not

certain that we, meaning, the Thai State or the Thai private

sector, have the will or the stamina to complete the change

that we have set in motion.” We share Dr. Pansak’s

uncertainty.

 

¶24. (SBU) While posing great challenges, the

transformational potential of an FTA with Thailand is what

makes it worthy of great effort on our part. By helping

Thailand move toward more rules-based, transparent, and

efficient governance, an FTA with the U.S. will be the

catalyst for much higher output and living standards in

Thailand. It will be a world showcase, serving as a positive

precedent for the many other developing economies which are

weighing economic development and trade policy options.

 

¶25. (SBU) Deciding on the future course of the FTA is

largely a Thai question which eventually will be resolved by

a debate within the Thai Government and society. Our

opportunity for input is limited. As far as the U.S.

management of the FTA negotiations goes, we don’t have a lot

of fine tuning to recommend since there are few, if any,

complaints in this area. On the contrary, Amb. Nitya has on

several occasions publicly expressed his appreciation for the

professionalism of the lead USTR negotiator.

 

EMPHASIS ON SMEs COULD HELP

 

¶26. (SBU) The Thaksin Government has placed a heavy emphasis

on small and medium sized businesses. Following the 1997

economic crisis, the RTG believed that the potential in SMEs

and the traditional sector, given its great flexibility,

diversity, and low import content, would provide a new source

of economic growth and income. The RTG has introduced a host

of economic programs aimed at boosting this sector of the

Thai economy, which already accounts for almost 40 percent of

Thailand’s GDP. This sector also represents a core

constituency of Thaksin’s Thai Rak Thai party.

 

¶26. (SBU) Our FTA framework could be more attractive to the

RTG if there was a greater emphasis on SMEs across the

various negotiating groups. This would mainly involve

changes in formatting and emphasis, not new concessions. RTG

officials point out that an FTA that could be marketed in

Thailand as an “SME FTA” would be a much easier sell to Thai

public opinion (and would be much more attractive to PM

Thaksin, whose exact position on the RTG’s internal FTA

debate remains uncertain). Our nascent “Group on Small and

Medium Enterprises and Other Cooperation” represents a good

start; it is possible that other opportunities to emphasize

SMEs could be identified and exploited in other negotiating

areas. For example, in the government procurement chapter it

might be possible to highlight the small business set-aside

provisions, and gear our efforts in trade capacity building

toward this area. It might be possible to enlist the aid of

the U.S. Small Business Administration on this project.

 

¶27. (SBU) In spite of the delay and internal RTG

soul-searching, we remain basically optimistic about the

FTA’s prospects because we don’t see how anyone’s fundamental

interests in having an FTA have changed. It is

overwhelmingly in Thailand’s interest to have an FTA with the

U.S., whether one argues on the grounds of its

transformational, modernizing effect; the high costs of

non-participation; market access; strategic alliances; or

some combination of these. An FTA with Thailand remains

overwhelmingly in our interest, whether one argues on the

grounds of maintaining our strong position here; the hugely

beneficial transformational effects in the Thai economy

likely to accrue from the FTA; or the demonstration effect on

other developing economies. In asking for a comprehensive,

transformational FTA with the U.S., we are asking Thailand to

do something unprecedented, something that it will find very

hard. Negotiations are likely to take some time. Progress

might be non-linear, with periods of rapid movement forward,

followed by some regression, a hiatus, and a repetition of

this cycle. It will require patience, determination, and

judgment, with no guarantee of success. But we believe it is

worth the considerable effort likely to be required.

JOHNSON

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Written by thaicables

August 26, 2011 at 4:25 am

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