US-Thailand Free Trade Agreement Market Access Issues

1. US-Thailand Free Trade AgreementMarket Access Issues Parthapratim Pal Jayati Ghosh

2. Background • Thailand has been negotiating for a Free Trade Agreement with USA since 2003 • USA feels: • “An agreement with Thailand, which is currently the United States’ 20th largest trading partner, would • significantly increase trade in goods and services, • create more commercial opportunities for U.S. exporters, particularly agricultural product exporters, and • reduce or eliminate barriers in many sectors... • enhance investment flows by ensuring a stable and predictable environment for investors, and improve the protection and enforcement of intellectual property rights. • strengthen longstanding economic and security ties between our countries” http://www.ustr.gov/Trade_Agreements/Bilateral/Thail_FTA/Section_Index.html

3. Purpose of this presentation • The question remains whether Thailand is going to benefit out of this FTA. • It is generally believed that an FTA will open up US markets to Thailand and increased market access will offset any potential costs arising out of FTAs. • We investigate whether signing of an FTA with USA necessarily leads to increased market access in USA

4. US FTAs: Overview • Before 2000, USA had FTAs with • Canada, Israel and Mexico • Since 2000, USA has negotiated FTAs with • Australia, Bahrain, Chile, Jordan, Oman, Morocco, Singapore, Peru, Malaysia, CAFTA • Negotiations are on with the following countries: • South Korea, Panama, Thailand, UAE, Columbia and Ecuador (Part of ANDEAN), SACU, • Following FTAs are likely to be undertaken • Algeria, Egypt, Tunisia, Saudi Arabia, Qatar

5. Country FTA TIFA WTO GSP Brunei Yes Yes Not Eligible Burma Yes Not Eligible Cambodia Yes Yes Indonesia Yes Yes Yes Laos Negotiating Accession Not Eligible Malaysia Launched Yes Not eligible Singapore Yes Yes Yes Not Eligible Thailand Negotiating Yes Yes Yes Vietnam Negotiating Accession Not Eligible ASEAN-10 Negotiating The ASEAN-USA Matrix

6. Export Composition of Thailand (Exports to USA, 2005) Source: http://censtats.census.gov/

7. Bilateral Agreements/FTAs to increase/protect Market Access? • Quite a few of Thailand’s main competitors are either already Regional Trade partners of USA or in the process of becoming a Regional trade partner of USA • This is why there is a temptation for Thailand to engage in a regional trade pact with USA to either maintain or improve market access.

8. Thailand’s Top Exports and its main Competitors: Two Examples Source: http://censtats.census.gov/

9. Canada Market Share Source: http://censtats.census.gov/

10. Mexico Market Share Source: http://censtats.census.gov/

11. Australia Market Share Source: http://censtats.census.gov/

12. Some Latin American Partners Have Done Better: Source: http://censtats.census.gov/

13. But some Non-partners have done even better!! Source: http://censtats.census.gov/

14. Performance of Some ASEAN Countries Source: http://censtats.census.gov/

15. On the other hand, FTAs have benefited USA…1 • US exports to Chile grew 33.5% in 2004, making the USA Chile’s leading trade partner. • The US trade surplus with Singapore tripled after the first year of the US-Singapore FTA, reaching $4.3 billion. • In the first quarter since the US-Australia FTA went into effect, the US trade surplus with Australia grew 31.7% to $2.13 billion. • Together, US exports to Chile and Singapore grew $4 billion in the first year of the FTAs with those countries. Source: Office of the United States Trade Representative, CAFTA Policy Brief – May 26, 2005

16. FTAs have benefited USA…2 • The US-Australia FTA improved the overall US trade deficit situation. The US trade surplus with Australia rose by 31.7% in the first quarter to just over $2.1 billion compared to first quarter 2004. • Some US companies saw even more impressive gains: After the FTA with Chile, Caterpillar’s US exports to Chile nearly doubled. • Even though Singaporean tariffs were low before implementation of the FTA, US exports rose to $19.6 billion, an 18.4% increase from the previous year. • The American Farm Bureau Federation estimates that CAFTA, when fully implemented, would expand US farm exports to the region by $1.5 billion a year. • The National Association of Manufacturers (NAM) estimates that CAFTA would result in $1 billion in additional manufactured US exports to the region. Most of this increase could occur quickly, because more than three-quarters of tariff cuts on manufactured goods would take place in CAFTA’s first year. Source: Office of the United States Trade Representative, CAFTA Policy Brief – May 26, 2005

17. Summary of Results • Some FTA Members have lost market share - both traditional FTA partners like Mexico and Canada and new partners like Australia and Singapore. • A few FTA Members have managed to maintain/improve market share - Peru, Chile. • A few non-Members have done very well/well and increased their market share -China, India. • Most ASEAN countries did not manage to increase their market share. • So, we do not find any clear pattern between FTAs and increase in Market share in USA

18. Why Signing FTAs may not guarantee improved market share • USA becoming a hub of too many FTAs, which is leading to Preference dilution • Tariff rates in USA are fairly low (4.9 percent average MFN rate, average applied rate is lower at 3.7 percent), therefore, preference margins are not that high. • 38 percent of the tariff lines are zero duty • The Preference margins will be lower for goods with GSP access to USA. • FTAs contain a very high level of exclusions, and sensitive sectors are almost always kept out of FTAs • Non Tariff Measures actually prevent market access more than tariff measures Diagrammatic Representation of a Hub

19. 1998 2000 2002 2004 Total number of tariff linesa 9,997 10,001 10,297 10,304 Non-ad valorem tariffs (% of all tariff lines) 14.0 12.4 12.2 10.6 Non-ad valorem with no AVEs (% of all tariff lines) 0.0 0.0 0.0 0.0 Tariff quotas (% of all tariff lines)b 2.0 2.0 1.9 1.9 Duty-free tariff lines (% of all tariff lines) 18.6 31.5 31.2 37.7 Dutiable lines tariff average rate (%) 7.2 8.0 7.4 7.8 Domestic tariff "peaks" (% of all tariff lines)c 4.9 5.3 5.6 7.1 International tariff "peaks" (% of all tariff lines)d 7.7 7.0 6.6 5.5 Bound tariff lines (% of all tariff lines) 100.0e 100.0e 100.0e 100.0e Tariff Structure of USA Source: Trade Policy Review of USA, WTO 2006 a Chapters 1-97, at 8-digit level, excluding in-quota tariff lines. b Tariff quotas are referred to as "tariff rate quotas" in U.S. regulations. c Domestic tariff peaks are defined as those exceeding three times the overall average applied rate. d International tariff peaks are defined as those exceeding 15%. e Two lines applying to crude petroleum are not bound

20. Preference Margin for Singapore FTA (MFN- Preferential Tariff Rate) Source:Calculated from US TPR 2006, WTO

21. But Costs of FTAs can be significant for smaller partners • North-South RTAs can reduce policy space for developing countries • Developed countries try to insert clauses which they have failed to push in a multilateral framework • US-Thai FTA can hurt Thailand in a number of areas including: • Agriculture • Investment treaties • Intellectual Property Rights • Environment

22. Why Bilateral Investment Treaties? • WTO Members resisted the introduction of the Multilateral Agreement on Investment • Developed countries are now trying to sneak in an investment treaty through the FTA route • This will soften the stance of developing countries at the multilateral forum • Given the high growth of FDI flows to developing countries, it is not for the sake of the host country that an investment treaty is required. • Investment treaties are essentially introduced to strengthen the hands of big foreign capital.

23. BITs can be harmful BITs can harm developing countries in a number of ways: • They restrain the options of developing countries to use FDI as a policy instrument to improve sectoral/regional balance of an economy • BITs go beyond WTO TRIPS Agreement and incorporate the "national treatment" principle without the exceptions provided for under international treaties. • BITs can be used to introduce commitments on issues like labour standards and the environment, which the developed countries couldn’t do from a multilateral platform

24. Conclusion • Evidence from existing FTA partners of USA and others shows that FTAs are neither necessary nor sufficient for increased market access. • Preference margins will be low for the product categories where Thailand has proven export market in USA. • But USA is likely to use the FTA to push stricter TRIPS regime which may hurt Thailand. • FTA can also be used to push environment and labour clauses, which developed countries could not do through WTO. • BITs restrict countries from aligning FDI to the national priorities of the host country • So, overall, the gains are doubtful while there will be some obvious costs.

25. Thank You