The importance of the FTA to Thailand

“The Importance of the FTA to Thailand”
Pointers for H.E. Nitya Pibulsonggram
AMCHAM Monthly Luncheon
Grand Hyatt Erawan Hotel
Wednesday, 25 May 2005

President Steve Green,
Distinguished Guests

Thank you for your invitation, AMCHAM and its members are among
the leaders of businesses in Thailand, having played a prominent role
in contributing to Thailand’s economic growth. I consider it a
privilege to be invited to speak to you.

The topic of the day is “The Importance of the FTA to Thailand”. As
you know, Thailand is currently involved in a number of FTA
negotiations as part of the government’s policy of trade-driven
economic growth. All of the FTAs negotiated and still being
negotiated will be beneficial and important to Thailand’s future
economic growth, and the Thai-US FTA will be especially important,
in many respects:

  1. Given that the US is Thailand’s largest and most important export market, this FTA should help secure greater market access and opportunities for Thai exports by eliminating tariff and nontariff barriers - creating economic growth and jobs.
  2. Considering the number of countries that have already completed an FTA with the US, and the number of other potential countries waiting in line, Thailand needs this FTA to stay competitive vis-à-vis these countries.
  3. It is the most comprehensive FTA that Thailand has negotiated to date, ranging from market access for goods, textiles, agriculture, services, investment, telecommunication, e-commerce, IPR, government procurement, labour, and environment, which makes this FTA very interesting in terms of the range of opportunities that will open up, for both countries. For Thailand, we hope to gain greater market access for our exports as well as invite greater flow of investment and joint-ventures and technology transfer into Thailand. We hope to raise our competitiveness and foster longterm partnership with the US. All of these factors will in turn create greater impetus for Thailand’s economic growth.

At the same time, this comprehensiveness also implies that Thailand
will have to make monumental changes and adjustments in various sectors, be it the regulatory system, the legal system, and the way of
doing business in general. Some of these changes naturally raises
concerns and sensitivities. I will come back to this point later on, but
first let me give you a quick run-through on the progress of the
negotiations so far.

We’ve had 3 rounds of talks so far, the latest being in April this year,
in Pattaya. The next round will be held in Montana this coming July.
Overall, I am quite satisfied with the progress achieved up to this point.
Although most groups are still in the stages of gathering and
exchanging information, some groups have already made important
progress. For example,

- in market access and tariff reduction, both sides are now
in a position to exchange initial offers for immediate
tariff reduction in the next round.
- Regarding SPS, both sides have agreed to set up a
mechanism to expedite the pest risk analysis for 6
varieties of Thai fruits (longan, lychee, mango,
pineapple, mangosteen, rambutan), which have in the
past never been able to enter the US market.
- In Trade Capacity Building, the Thai side has proposed
a number of projects on various issues which the US has
agreed in principle to provide cooperation and training.

I hope that we can see more concrete results like these as we go
on, even before the completion of the negotiation.

At this stage, we expect the FTA to be beneficial to our textiles, agroindustry,
computer parts, telecom equipment, electronics, furniture,
plastics, ceramics, leather, and jewellery.

However, despite the progress made, there are still a number of issues
that are contentious and that need to be addressed further in the course
of the negotiation.

  1. As I mentioned earlier, one of the main benefits Thailand hopes to gain, as a developing country, is greater market access through tariff reduction. This is not sufficient. The issue of NTBs also needs to be addressed seriously. These barriers still pose an obstacle for Thai export to the US, especially industrial standards and SPS. Here we also propose that a mutual recognition agreement of some sort could be worked out.
  2. US market access is further restricted by the fact that the US has both federal law and state law. Not only will Thailand have to negotiate for market access on a federal level, but also on a state level. It’s like having a double bind. On top of that, some state laws are very complex and difficult to understand, for example the regulations on food safety standard and state government procurement which differs from state to state. This is not to mention the Congress itself, which must pass the FTA bill.
  3. On the issue of Intellectual Property Rights, the general public sentiment here is still negative. You have to admit that the US, being the major producer of intellectual property, will benefit substantially more than Thailand in this area. But it is important that Thailand benefits, too. What will Thailand get in return for a stronger protection on IP? Will better protection and enforcement provide us with more access (to new technology and research)? Will we attract more US investments and firms to Thailand? More innovation, partnership, jointventureship, real transfer of technology? We would need to know that it is a two-way street, and mutually beneficial. At the same time, we would need assurances that Thai people will not be made worse off by stronger IPR protection in pharmaceuticals. What would happen if our sick can’t get access because medicines were too expensive? What if they died because they couldn’t afford to buy drugs? I am sure you are all aware of the concerns raised in the media on this issue. I appreciate the assurances given by the US side, including by Deputy Secretary of State Robert Zeollick on his recent visit to Thailand, that this FTA will not affect access to medicine. This is a good sign, and I emphasize the importance of this point again. The Thai people must continue to have access to affordable medicine, or the FTA won’t be acceptable. Equally important will be the issue of protection of plant varieties. Although this issue has not come up yet in the negotiation, but it is going to be a highly sensitive issue. Thailand is still primarily an agricultural country. Our farmers, who are the backbone of our society, still make up the majority of our population. If we allow patent protection on plant varieties our farmers will eventually become dependent on seeds sold by big corporations. What if one day these new seeds completely drive out the existing varieties, thereby destroying our long-inherited bio-diversity? What effect will this have on food security? These are but only a few questions looming over us, for which we need further clarification.
  4. Another sticky issue is Financial services. There are 2 main concerns in this issue. Given the advancement of the US financial sector, the Thai banking sector doubt that it can compete with US banks. There is also a feeling that Thailand is still recovering from the financial crisis of 1997 and hence not yet ready fully to liberalize the financial sector. There is a need to retain sufficient measures to protect the integrity of our macroeconomic stability.
  5. Other services, such as Telecommunication, are also of concern. For one, the Thai telecom sector is very small relative to that of the US in all aspects: size, development, and range of services. In addition, we have just established the National Telecom Commission which is the regulatory body for the telecom sector. The Commission is still in the process of formulating the regulations, so it will be difficult for Thailand to negotiate fully on the subject at the present. We would probably need to proceed step by step as our regulations take shape.
  6. Mobility of business persons is another concern for Thailand. The USTR says it doesn’t have the authority to discuss this issue. That it is the sole authority of the Congress. But let me ask you this: What good would it be for Thailand if we managed to secure access to cross-border services or commercial presence, now or in the future, but our service providers can’t go and work in the US? This is an important issue for us. Right now we’re vying for 65,000 places provided by the US worldwide each year. These places are usually exhausted by the first of October, the beginning of fiscal year, with Singapore and Chile already having 10,000 places reserved for them under their FTAs with the US.
  7. Let me touch briefly on labour and the environment. These two topics remain difficult for us as there are still misconceptions on the issues. Many still firmly believe that labour and environment should not be linked to trade. General perception is that these conditions will increase the prices of our products and lower our competitiveness. Some of these positions are held firmly by Thailand, that’s why neither labour nor environment was ever included in any FTAs that Thailand has negotiated. I am aware that these two topics are very important to the US (you put them in the TPA), so I hope we can work out a solution soon.
  8. Finally, local politics plays an important part. Everybody knows how hard it is to get any approval from your legislature (Congress). With each FTA, more restrictions and higher standards are demanded by Congress. We’ve already heard that tougher demands are coming our way. After CAFTA, it is certain to be even tougher for us. But.. if CAFTA does not pass... then what?

In the end, I believe this FTA will be good for us. Despite all the
concerns raised, and the changes and adjustments that will have to be
made, it is part of the much-needed structural reform to raise
Thailand’s competitiveness, which is in line with the government’s
policy.

In this regard, I think the group on Trade Capacity Building and SME
will be an important contribution to this process. I want to express my
appreciation for the US cooperation in providing Trade Capacity
Building in the various sectors. This is a key element that will move
the negotiation along and ensure success of this FTA.

We have already made significant progress in this group. I believe
some of the projects proposed could and should be initiated and
implemented in parallel with the negotiations so that they will serve
their purpose of preparing Thailand for the FTA. It is important to
achieve tangible benefits, such as technology and information transfer,
so that Thai business and SMEs will be aware of the benefits of the
FTA, as should our lawmakers.

Finally, I can say to you that our Prime Minister is determined to go
ahead with the FTA negotiations, but it must be mutually beneficial
and fair. The US must take into account the social and economic
differences between our countries and allow for appropriate time
frames, adjustment periods and exceptions. Most importantly,
Thailand’s benefit from this FTA must be visible and clear.

Our good friendship dates back to the signing of the Treaty of Amity
in 1833. Thailand has always regarded the US as a good friend and
ally, and I believe the US feels the same way about Thailand. This
FTA is as much an agreement to strengthen our economic ties as one
which symbolizes our political partnership and deepening friendship.
Therefore, it has to be seen to be good for our friendship. If it isn’t,
the ramifications will have long lasting effect well into the future.

I hope I have helped shed some light on the importance of this FTA to
Thailand, and given you some understanding of our major concerns.

President Green, I hope when you go to Washington this June, you
will convey these messages and concerns to Congress, particularly
those lawmakers who are actively engaged on the FTA issues.

Thank you.