Trade negotiations command attention

posted 28-February-2006

Bangkok Post, 26 February 2006

TRADE NEGOTIATIONS COMMAND ATTENTION

Amidst the promises of positive benefits of FTAs to Thailand, more and more citizens are raising questions, especially in relation to the services and investment sectors, writes SUPARA JANCHITFAH

Many Thais are concerned about what will happen to their communities in the future, after the Thai-US Free Trade Agreement is concluded and enters into force. A major worry is that under the FTA, which so far has been conducted without public participation, the government might come under pressure to change the conditions of public services, and for example allow privatisation or competition from foreign firms which would leave Thais out of the game on their own soil.

"Will a local community or TAO (Tambon Administration Organisation) have a say if the American investors want to invest in our area? Will we be able, as stated in the Thai Constitution, Article 56, to participate in preserving and (guarding against) exploitation of natural resources?" asked Jintana Kaewkao, a local leader at Ban Krud in Prachuap Khiri Khan.

Dr Lawan Thanadsillapakul, the director of the Institute of International Economic and Business Law of Sukhothai Thammathirat Open University, said that unless the Thai government safeguards them by inclusion in its list of exceptions, local governments might not have their rights as stated in the Thai Constitution. She added that the government must be very specific in naming areas for exceptions.

She explained that under the Constitution, Thailand is a single state. Thus any trade deal will enter into force for the entire area within her boundaries. This is not the case for the US, as it has both the federal government and state governments and the state governments may choose not to enforce some sections of an FTA.

TROUBLES AHEAD?

The history of FTAs shows that inevitably conflicts arise after international trade deals enter into force. The many lawsuits concerning investment and services clearly indicate that trouble could be lying ahead. It is of interest that none of these cases are mentioned in any materials produced by the Thai government on FTAs.

For example, a US waste disposal company, the Metalclad Corporation, instituted arbitration proceedings for violation of the North American Free Trade Agreement (NAFTA) against Mexico with the International Centre for Settlement of Investment Disputes, Additional Facility Rules. Metalclad’s notice of arbitration asserted that Mexico wrongfully refused to permit Metalclad’s subsidiary to open and operate a hazardous waste facility that Metalclad had built in La Pedrera, San Luis Potosi, despite the fact that the project was allegedly built in response to the invitation of certain Mexican officials and allegedly met all Mexican legal requirements.

Hearings on the merits of the suit were held from late August through early September, 1999. On August 30, 2000, the Metalclad tribunal issued an award in favour of the investor in the amount of .7 million. Mexico petitioned the Supreme Court of British Columbia to set aside the award on the grounds that the Metalclad tribunal exceeded its jurisdiction and that enforcing the award would violate public policy. The court set aside the award in part.

Some of the commercial disputes involving Mexico under NAFTA were raised in hearings before Thailand’s National Human Rights Commission on the Thai-US FTA. Mr Virachai Plasai, deputy director-general of the International Economic Affairs Department and a negotiator for the Thai side, responded that according to his department’s studies NAFTA had brought about some negative impacts to the US government.

"They (America) also fear that the private sector would sue them as well, that is why the US tries to be very careful (in trade deals) and amends the texts (in ways) that that will benefit them. We have studied these cases and we think that we will avoid this ...," he said.

When NHR Commissioners asked Virachai any question, he invariably said that they misunderstood the trade deal.

Presently, the Thai public has no idea what changes might be coming in the future due to the trade negotiations, as the deals are being handled by a group of officials taking instructions from the government, and the government only tells a small part of what is going on. Some US officials have denied that it is a US stipulation to keep the trade deal secret, but in any case, the Thai public has still been kept in the dark. Apart from a handful of officials, no one has had a chance to see the text of the trade deal.

Because they are unable to have a look at the authentic text of the Thai-US FTA, in order to protect the rights of the Thai people NHR Commissioners are studying already-signed trade deals between the US and some other countries. International law lecturer Lawan, who is also on a sub-committee of the NHRC concerned with the FTA, pointed out that in order to understand a trade deal in its entirety, one must "do the cross-reading", not look at only one particular section or sector.

"All issues are related. For example, environmental issues will be in many different chapters, such as investments, services, investment disputes, intellectual property rights and so on," she said.

Prof Saneh Chamarik, the chairperson of the NHRC, expressed his concern about the FTA in regard to the investment and service sectors, and he said some mechanisms in Thailand are still impaired. "The law enforcement in Thailand is still problematic, which leads to unequal competition in the market and to monopoly." He wonders how Thailand will go about protecting itself from a superpower under these conditions.

Mr Virachai responded that he does not think it is a problem, "as we have a Constitution and also an Administrative Court. If the government officials don’t enforce the law of the land they have ignored their duty," he said.

However, Prof Saneh remarked to Virachai that according to his experience, many officials do ignore the rule of law and the Constitution. Thus he cautioned, "You should be careful on the matter."

VOICING CONCERNS

Since early this month, the Department of Trade Negotiations has been organising meetings, inviting some state agencies and some associations related to the services and investment sectors to voice their concerns.

Mr Vichai Chongthanapipat, vice president the Customs Broker and Transportation Association of Thailand, expressed his thoughts on the potential impact of the FTA on the transportation sector.

"If we don’t reserve this (logistic and transportation business) for Thai people, we wouldn’t be able to compete with foreign firms. They have more funds and higher technology. Many small businesses will be dead," he said.

He suggested that the negotiation team must reserve the logistic and transportation industry for Thai nationals by setting requirements such as that the major shareholders must be Thai as well as the people who can authorise the firms.

Pimchanok Vonkhorporn of the DTN told the meeting organised by her department that the US trade talk representatives paid high interest to the express delivery services.

According to the Office of the United States Trade Representative, the world market for express delivery services was in 2002 estimated at over billion, this due to the increasing use of on-line purchasing by businesses and consumers and the need for vendors to match the speed of electronic ordering with rapid physical delivery.

Vichai said the delivery services were a stepping stone to other larger, related businesses in the future. He warned that the Thai government should reserve such businesses for Thais. He said that presently these express delivery services have already overstepped the work of the existing mass telecommunication services.

"I would propose that we have to limit the size of packages - for example to not more than 10 kilogrammes. What will happen if foreigners are allowed to control the outflow and inflow of food, goods and even weapons?" Vichai asked when interviewed by Perspective.

Such proposals as Vichai’s may be impossible, as there are many general principles that cannot be violated which are affiliated with the trade deals (see sidebar) and which would seem to prevent his requests from being materialised.

According to these principles, the Thai government will not be able to require that senior management in any sector, or any other job, must be reserved for Thais, unless there is already an existing law stating as such.

On April 19, 1999, United Parcel Service (UPS), one of the biggest package and postal delivery services in the US, filed charges against the Canadian Post, a state enterprise of Canada, claiming that the enterprise obtained subsidies from its government which did not allow equal competition. This suit is the first of its kind under NAFTA, in which a private company sued a state enterprise. UPS is asking US0 million for damages. The suit is still in progress.

MAKING EXCEPTIONS

The services sector is divided into five clusters - financial services, telecommunications, e-commerce, cross-border services and investment - in the Thai-US trade talks.

Many from professional groups attended the DTN meeting to express their concerns related to their profession. An architect who declined to be named said that if the Thai government does not require the presence of a local professional on architectural projects it will lead to a decline of employment opportunities, as some foreign firms might draw up their blueprints abroad.

At present the Thai Foreign Labour Law bars foreigners from engaging in 39 professions, yet many professionals are concerned if Thailand must go by the "national treatment" of Americans when the trade deal is concluded. For example, American law and accounting firms will be allowed to employ their people. This could greatly weaken the Thai economy.

"Some joint-venture business may no longer want to hire Thai workers as they can hire their own people. All benefits will fall to their firms, but at the expense of the Thai environment and natural resources," said Dr Lawan.

A representative from the Engineering Council wondered if the trade deal would be applicable to all states in the US when it goes into force, since Thailand has conducted the trade deal with only the US federal government. There was no clear answer from the DTN officials on hand, but negotiator Pimchanok agreed that this is a valid concern.

"At the state level in the US, there is a clear mandate about the role of local governments. During the trade talks in Chiang Mai, I told the US representatives that we also have our local governments, such as TAOs. However, our TAO law has not yet materialised, so I think we have to put this on the exceptions list," said Pimchanok.

She added that there are some sectors that would not be included in the trade talks, such as public transportation, property, energy, and services that relate to Thai traditions and culture. Yet she asked: "Will the US accept these proposals?"

The only sector in services that Thailand seems to have an advantage in is the telecommunication industry, as only a few US companies are in a position to penetrate the Thai market.

Chirapa Chitraswang, principle adviser for the communications sector, said the government will place telecommunications onto the exceptions list to protect it for three to five years. This is due to the fact that the National Telecommunication Commission has just been formulated. She said that the US had proposed that the Thai government allow American firms to create networks of cable and satellite services in Thailand, without setting up offices in the country.

"But as we have no regulations to control cross-border services, we will inform the US that we are not yet prepared to open the sector to them," she said, adding that the US also asked the Thai government to reduce its stake in CAT Telecom and TOT Public Companies.

This is an example of the difference in scale of the benefits of the FTA. While the US asks for share reductions in public companies so as to allow its firms to penetrate Thailand’s services sector, Thailand can only ask to send more people to work in Thai restaurants and Thai massage parlours.

Concerning the investment sector, Dr Jakkrit Kuanpoth, a law lecturer from the University of Wollongong, Australia, suggested that Thailand should pay high concern to the definition of investment in the FTA and should only encourage long-term and direct investment, rather than portfolio or short-term investment. He said Thailand should protect only investments that allow direct expropriation, and in such cases, where the government can guarantee compensation.

The government should make stipulations on the use of local raw materials, and make regulations to ensure that investors are ethical, do not violate environmental or consumer protection laws or dodge taxes. There must be laws to punish those who violate the regulations. Moreover, he suggested that the government should not allow the private-to-state dispute settlement mechanism that relies on international arbitration. The government should only consider dispute settlement between the two states involved . "This system will help protect the sovereignty of the Thai court," said Dr Jakkrit.

Dr Lawan also proposed that Thailand should put all public services, such as water, energy and public transportation, on the list of exceptions, as these sectors directly affect the livelihood of all Thai people. Thailand must also make exceptions for any public policy which will afffect the public interest.

She said the Thai government must be specific in stipulating that ratified or signed treaties must be respected, for example, the treaties that have been signed within Asean, which may be in conflict with giving Most-Favoured-Nation status to the US.

Moreover, environmental and natural resource issues which relate to the well-being of all Thais should also be on the list of exceptions."How can Thai farmers pay the cost of water to produce rice when the profit on the rice is low compared to any golf course?" she said by way of example.

This is the second on the series on Free Trade Agreements and their ramifications.


FTA negatives overlooked

By SUPARA JANCHITFAH

The following is an excerpt from a cartoon book produced by the Department of Trade Negotiation (DTN), Thai Ministry of Commerce:

"Will the government help us in trading?" a subdistrict chief asked an agricultural officer during a meeting on the Thai-US FTA (TUSFTA).

"The government cannot jump directly to sell (Thai products), but the government sector is fully pushing for us," said the officer.

"What is it doing?" another local asked.

"It is helping to push service businesses in which Thailand has the capacity to compete with America, such as tourism, hotels, spas and Thai restaurants," said the official, adding that the Thai government is negotiating to send Thai citizens to work in service-related jobs in the USA, as chefs, practitioners of Thai massage, etc.

"Oh! massage," exclaimed Mrs Prik, another local.

"Yes, Aunt Prik, are you interested in this?" questioned the official.

"Oh! yes, I’m going to apply to be a masseuse and go to the USA," she said enthusiastically.

But is it really that easy for a Thai woman to go to work in the USA as a masseuse or in any other field?

There are a number of similar pamphlets and cartoon books produced by the Thai government, all pointing out the benefits of FTAs but mention only slight disadvantages.

A fact book on the TUSFTA informed Thai people that the US is the nation’s most crucial market and that Thailand maintained a positive trade balance of about US.2 billion in 2004. "However," it is stated in the book, "the Thai market share is on the decline as we have had to give some market share to China and Mexico."

The book states that 73 percent of the US GDP relies on the service sector, but failed to inform the public that Thailand loses out to the US in almost all areas of competition within this sector. According to the study of Dr Duenden Nikomborirak of the Thailand Development Research Institute, Thailand fared worse than the US in terms of revenue generated in the areas of education, financial, insurance services and so on. The only service that Thailand seems to have an advantage is in telecommunications (see graphic).

The government and the negotiator teams always emphasise that Thailand will benefit from the deals by obtaining a lower tariff rate. Presently, the average import tariff rate of the US is only 3.4 percent. " The real trade barriers are in the non-tariff measures such as contingency protection, technical measures, subsidies and rules of origins, not the tariff measures," said Dr Lawan Thanadsillapakul of Sukhothai Thammathirat Open University.

The general public began to be aware of possible disadvantages of TUSFTA during the sixth round of talks, held in Chiang Mai in January. The seventh round has not yet been set, but according to a source from the DTN, the talks will not be held in Thailand.

Thus far the negotiating sessions have been held four times in the US and only twice in Thailand. The negotiations will affect most Thai people, so shouldn’t Thailand get equal billing? This is one point that is causing suspicion.

In addition, the language of the negotiations is full of jargon and terms not aimed for the understanding of the average person, for example these general obligations in FTAs:

  1. National Treatment (NT) - equal treatment of citizens of each treaty party, whether they are foreign or local.
  2. Most-Favoured-Nation (MFN) - no other state (party) shall receive more favourable treatment than a treaty partner.
  3. Market Access (MA) - The state parties must not impose any limiting measure on business operations.
  4. Local presence (LP) - The state parties must not require the establishment or the maintaining of a representative office or residency in their territories as a condition for cross-border supply or service.
  5. Performance Requirement (PR) - neither party may impose or enforce any requirement on exports, domestic content, volume or value of imports, sales of goods or services, transfer of a particular technology, production process, other proprietary knowledge, and so on.
  6. Senior Management and Board of Directors (SMB) - Neither party may require that an enterprise appoint a person of a particular nationality to a senior management position.
source : Bangkok Post

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