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FTA fine print remains a big hurdle

Bangkok Post

FTA fine print remains a big hurdle

Rules of origin still up for negotiation


3 August 2005

Bilateral free-trade agreements typically revolve around discussions of quotas and tariffs and the principle of market access for traders.

But an even more crucial component is rules of origin. In the end, an agreement without clear, practical and fair rules is nothing but a can of food with no opener _ you know the food is in there, you just can’t eat it.

On the surface, the Thai agricultural sector appears to be the winner under the Thailand-Japan free-trade agreement.

Japanese negotiators have agreed to cut tariffs for a range of agricultural products, including chicken, fruit and vegetables and shrimp, all key Thai exports.

But rules of origin remain a subject of dispute, a potential deal-breaker that could sharply undermine the benefits that Thai farm-product exporters appear to have gained in this initial stage.

Rules of origin are intended to ensure that the benefits of a trade agreement go only to products produced by the two countries. Typically the products must be grown, harvested, produced or ``substantially transformed’’ within the area to qualify.

But it is an area of trade regulations that can be frightfully complicated and subject to abuse.

Thai officials have sought to set a principle that the rules of origin would be used to facilitate trade flows, rather than impede trade.

Both governments agreed to this principle following talks over the weekend, but have yet to finalise details. Ultimately, the actual benefits received by Thai traders and farmers will depend in large part on how much access is actually gained to the Japanese market.

Japanese trade officials have proposed import tariff cuts on more than 500 food and farm products, a key factor that has led Thailand to reciprocate with concessions in the auto and steel sectors.

But officials say the Japanese proposals for the rules of origin remain impractical. For instance, food products must have a local content of at least 90% to qualify, while for seafood, trawler crews must be at least 75% Thai to be included under the agreement.

According to the Foreign Ministry, 42 billion baht worth of farm products currently face market access restrictions in the Japanese market, accounting for nearly half of the 93 billion baht in agricultural products exported each year.

Pornsilp Patchrintanakul, a senior executive of the Charoen Pokphand Group, Thailand’s largest agribusiness conglomerate, said Japan’s strict proposals on rules of origin represent a form of protectionism for the country’s farm producers.

``If Thailand fails to achieve gains on agriculture and food, what will be the real benefit gained from a free trade deal with Japan?’’ he asked.

The Thailand Development Research Institute says Thai economic growth could increase by as much as 1.68 percentage points as a result of a ``perfect’’ Thailand-Japan free trade agreement, thanks to export growth and cheaper imports.

Such gains would outstrip potential gains of trade deals with other countries, including China, India, Australia and New Zealand, the TDRI said in a report posted on its official web site,

The farm sector could grow 9.2% and processed food 12.15% as a result of higher exports to Japan. On the other hand, autos and auto parts face a potential contraction of as much as 15% due to rising imports.

But the study noted that the rules of origin would be a crucial factor establishing the benefits received under an agreement.

Thai exports to Japan rose 19% to $13.4 billion in 2004, mostly agricultural products and electronics. Imports from Japan rose even faster at 23% to $22.2 billion, primarily in the form of electronics, steel and other industrial goods.