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Analysis: Is time running out for a Thai-US free trade agreement?

The Nation, Bangkok, 2 May 2006

Is time running out for a Thai-US free trade agreement?

Jeerawat Na Thalang

US officials in charge of negotiating a bilateral free-trade agreement (FTA) in Bangkok may not admit they have given up. But the protracted political stalemate in Thailand has made it almost impossible to conclude talks this year before the expiration of the US fast-track authority, which is crucial for Washington’s endorsement of any trade agreement.

The Administrative Court’s ruling last Friday suspending the third round of by-elections could spell the end of the crisis, leading to a new general election. However, even if that were the case, any new election would come no earlier than August, and that time line does not match Washington’s tight schedule to produce a final draft of the agreement by early next year.

The clock is ticking, as the Trade Promotion Authority (TPA), which allows the US Congress to accept or reject a trade deal in its entirety, without the right to change any part of it, expires in July 2007. Missing that would make it much harder for Congress to pass a sensitive trade deal.

Free-trade talks have not always been popular with US politicians. For instance, President George W Bush last year had to make an extra effort to convince politicians even from his own party to pass the Central American FTA (Cafta).

On the last day before the vote, Bush called South Carolina’s Republican senators in a bid to convince them before the Senate narrowly approved the pact.

An agreement is also politically sensitive from the Thai perspective. The sixth round of talks in mid-January was marred by Thai demonstrators worried about prices for pharmaceuticals, among other concerns.

After that round, officials on both sides were doubtful whether the talks would resume, considering the rising hostility towards the agreement. Their concerns were affirmed when Prime Minister Thaksin Shinawatra decided to dissolve the House on February 24. Three days later, Thai and US officials met and agreed to suspend the talks, as it was considered inappropriate for a caretaker government to negotiate a trade deal.

Prior to that, Thai and US negotiators would exchange scores of phone calls every day, keeping each side updated. But now, the phones have fallen silent, and no one discusses the deal any more.

Nonetheless, in recent weeks local business leaders, through the Board of Trade and the Federation of Thai Industries, have begun drumming up support for the talks. They fear losing the US market to Malaysia, which has made rapid progress on its own FTA with the US.

Moreover, some exporters want a trade deal with the US to ensure continuity of special tariff rates that would in turn ward off uncertainties over the Generalised System of Preferences (GSP), which currently grants special tariffs for one-third of Thai exports to the US market. However, that programme is

unilateral, and chances are high that Washington will reduce benefits for Thailand, a top-five GSP beneficiary, in order to spread them out to other countries. The absence of GSP benefits would cut into the competitive edge Thai exports enjoy against other GSP recipients.

In addition, some US businessmen here are wary of the status of the Treaty of Amity, which treats American businessmen in Thailand on an equal footing with Thai citizens, and vice versa for Thai businessmen over there. However, the World Trade Organisation (WTO) allowed the exercise of this National Treatment Clause only to the beginning of this year.

Bangkok and Washington had planned to come up with an FTA that would supersede the treaty. But with the FTA delayed, the two governments must now temporarily extend the Treaty of Amity’s benefits on a monthly basis, reasoning that the two countries are in the process of negotiating a trade deal. Any status afforded by the expired clause in the treaty would be put in question should the talks be suspended indefinitely.

At any rate, prospects for rejuvenating the talks are not completely hopeless. Thanks to a global effort to conclude the Doha Round of multilateral trade negotiations, there has been growing debate in Washington about whether to extend the TPA’s fast-track authority for another year, in anticipation of a delay in concluding the WTO’s global trade agreement.

If that fast-track authority were extended, that would automatically give more breathing space for Washington and Bangkok to wrap up a bilateral deal by 2008.

However, the rising trade deficit in the US could make trade talks with Thailand unpopular in many US constituencies. Senator Hillary Clinton recently vowed to protect US workers that make pickups, who might lose their jobs should Thai 1-tonne pickups be allowed to enter the US market tariff-free. And as with Cafta, US concerns about a possible influx of Thai textile imports will likely arise, should negotiations proceed.

Now, it’s up to both governments. The new government may not view further talks to pursue a trade deal worthwhile at this time, because they could become too politically risky. Washington, meanwhile, may not want to push a trade deal without the support of the Thai public, because that could endanger the otherwise-positive image of the two nations’ relationship.

The decision-makers may have to think hard about what they want to see from the trade deal by encouraging public participation in the negotiating process. After all, this trade deal, like any, was meant to translate into improved standards of living, as well as better understanding between the two countries. Otherwise, it would be useless to keep pedalling a stationary bicycle with no wheels to go forward.

 source: The Nation