The implications of Cafta for Thai-US FTA talks

Bangkok Post | 5 August 2005

The implications of Cafta for Thai-US FTA talks

Had the US House not approved Cafta, it would have set a dangerous precedent for signing future economic pacts, such as the US-Thai FTA

By JON GUSS AND EARL CARR

On July 28, the Central American Free Trade Agreement (Cafta) was narrowly approved by a two-vote margin (217-215) in the US House of Representatives.

Cafta stipulates comprehensive free trade between the United States and Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

The debate on this agreement, which will have a relatively minor effect on the US economy, was consumed by a broad and highly politicised struggle within American society over issues relating to globalisation and free trade.

Had Cafta not passed in the House, this would have set a dangerous precedent for signing future economic agreements, such as the US-Thai FTA.

Furthermore, there are signs that many Americans are becoming more unwilling to bear the burdens of free trade.

Complicating matters even more are some fundamental disagreements about the style and scope of negotiations between the US and Thai teams.

Domestic opposition by special interest groups within the US almost prevented the passage of Cafta and these groups will be highly critical toward the US-Thai FTA.

The massive uproar over Cafta among American sugar farmers is sure to be repeated once this FTA begins to rotate on the US news cycles. Thailand currently exports the second largest volume of sugar in the world, and American consumers currently pay three times the world price for sugar. American sugar producers will be keen on protecting this lucrative market.

Automotive workers’ unions will also oppose this agreement. It is no secret that US automotive companies such as General Motors are trying to make Thailand into an auto-manufacturing hub, ``the Detroit of Asia’’.

The opposition to the agreement will hinge on both the ardent American concern with out-sourcing and the recent loss of jobs in the domestic auto-manufacturing sector. Human rights groups, who are often critical of free trade agreements, will also raise concerns over the labour, environmental and health-related portions of the agreement.

The bitter battle over Cafta illustrates how politicised American debates over free trade have become. Americans are increasingly wary of the worldwide economic competition, in which they have historically enjoyed a special status.

It is not coincidental that they fear trade with developing countries like China and India, which have much lower production costs and have greatly improved their international images.

While the Bush administration’s plan to negotiate bilateral trade on the ``fast-track’’ has not been completely derailed, the passage of Cafta, along with the side deals that won it necessary votes, exemplifies how desperate and weak this agenda has become.

As if all of this opposition and uncertainty about free trade wasn’t enough, there are some important disagreements within the negotiations that might also disrupt this FTA.

Debate over whether to negotiate financial services with a positive list approach (where each sector is defined and then specific areas to be liberalised are identified), or a negative list approach (where every part of the sector is liberalised with the exception of those explicitly mentioned), is a major stumbling block.

The Thais would prefer a positive list, while the US has supported a negative list. An agreement cannot be reached until the method of negotiation is resolved. The Thais are not budging on this issue and the US Trade Representative’s Office has specific rules on negotiation that they believe must be adhered to.

The timetable for implementation is also a significant sticking point in the US-Thai FTA.

The US wants to wrap up negotiations quickly; ideally by the beginning of 2006. The Thais have expressed significant reservations about such a timetable, emphasising a more cautious approach. American supporters of free trade know that special conditions under the Trade Promotion Authority Act _ which allows the US Trade Representative to negotiate agreements on the ``fast-track’’ _ will soon expire.

With immediate renewal unlikely, they will be anxious to explore alternative trading partners if this agreement is not concluded soon.

While the passage of Cafta allows supporters of the US-Thai FTA to breathe a collective sigh of relief, there are still some significant obstacles to the implementation of this agreement.

There is pressure domestically in both countries to reassess the costs and benefits of free trade. Careful and constructive talks over both the process and pace of negotiations are essential.

However, prolonged disagreements over the logistics of the agreement will not improve its position in the US Congress.

Both the US and Thai negotiating teams need to make concessions and develop a balanced compromise.

For supporters, on both sides, Cafta was the first of several significant obstacles that must be overcome in order to make this agreement a reality.

Jon Guss is a research intern at the Kenan Institute for Private Enterprise’s Washington Center. Earl Carr is the Associate Director for Asia-Pacific Programmes at the Kenan Institute of Private Enterprise. Previously, Mr Carr was a Senior Research Associate in the Asia Studies Department at the Council on Foreign Relations.

www.kenaninstitute.unc.edu

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source: Bangkok Post