Thailand-US Free Trade Agreement

1. 1 Thailand-US Free Trade Agreement

2. 2 Scope of the study (1) Background and Introduction Ongoing Regional Trade Agreements Trade Patterns and Macroeconomic Impacts of FTA Detailed Impacts on Specific Products: Automotive and Agriculture and Food

3. 3 Scope of the study (2) Cross Border Services Telecommunications and E-commerce Financial Sector Trade Related Issues: Competition Policy, Intellectual Property Right, Investment, Trade and Environment Conclusions

4. 4 Methodology Analysis of US-Singapore Agreement and other related agreements, e.g., US-Chile Agreement Assessment of quantitative impacts using a model based on Computational General Equilibrium (CGE) Input from 7 brainstorming sessions during August and early September 2003

5. 5 Regional Integration

6. 6 Regional/Bilateral Agreements: Thailand

7. 7 Regional/Bilateral Agreements: US

8. 8 US Import, by exporting country Thailand has a small and decreasing share in the US market

9. 9 US Import, by exporting country Thailand is competitive in sectors with declining US import growth

10. 10 Thailand & US as Trading Partners Thailand and US weakly complement each other while China and US strongly complement each other in trade in goods US-Thailand FTA is unlikely to negatively affect most goods producers in Thailand and should help Thailand to gain its shares in the US market Thailand exported $ 3.7 billion of services (mainly tourism) to the US and imported $4.7 billion from the US in 2000

11. 11 Margins of Preferences in Past Agreement

12. 12 TDRI-CGE Model and Assumptions Use a single-country model covering 79 sectors Assume zero US tariff rates after conclusion of FTA Effects of NTB reduction are not considered Assume export growth of 3.46% (equal to IIE’s model) Use to cross-check with IIE’s results

13. 13 Macro Impacts (1)

14. 14 Macro Impacts (2)

15. 15 Agriculture The US is the second largest market for Thailand and the largest supplier of agricultural products Thailand and the US are complementary producers (tropical VS temperate products) US has low average tariff rates (7%), except vegetables & fruits (> 10%), pineapple (30%), fish (26%) but has many NTBs Thailand has high average tariff rates (24%), especially in dairy, sugar, alcoholic, tobacco, fruits & vegetables

16. 16 Agriculture Export from Thailand will increase by 5-22% and import from the US will increase by 4-67% due to reduction in tariffs and NTBs Significant welfare gain to Thai agriculture is about 2.3 percent increase in GDP Potential winner products: rice, shrimp, frozen seafood, rubber, fruits and vegetable, sugar and canned fish Potential loser products: soybean, corn, potatoes and peanuts

17. 17 Policy adjustment needed Gradual phase out th trade-distorted domestic support programs (price-guarantee and paddy pledging program). Replace by productivity-enhancing program. Set up the public research in agriculture that has been declining in the last decade. Establish property rights in water and the water management policy to trackle water shortage problem Restructuring program that allow the uncompetitive farmers to switch to non-agriculture activities.

18. 18 Adjustments Needed & Points to Negotiate Negotiations should focus on Import quotas (sugar) Sanitary and phyto-sanitary measures (SPS) (shrimps, fruits & vegetables) Administrative protection (AD and CV) Subsidy (rice) Agreement on agriculture safeguards that allow farmers to cope with the tariff reduction. (similar to Article 18: U.S.-Chilean FTA)

19. 19 Automotive Sector Thailand and U.S. are each major producers of motor vehicles and components Thailand has gained trade surplus from the U.S. in over items of automotive sector The reduction of tariff structure is expected to increase auto trade volume between both countries

20. 20 Automotive Sector Competitiveness of automotive sector significantly increases since the economic crisis Thailand’s competitiveness in Parts and Components is still low but increasing. Within sub-categories, Thailand is competitive in those spare parts of “Tire and Rubber”, “Alloy Wheel”, and “Electronics”

21. 21 Automotive Sector (Assembly)

22. 22 Automotive Sector (Parts)

23. 23 Automotive

24. 24 Policy adjustment needed a need for a certain length of time (say 5 years) of phasing in tariff reduction to minimize the negative consequences reforming the excise tax and license fee policies an urgent need to establish a public-private cooperative programs on human resource development restructuring the incentive systems to encourage firms to invest more in technological development.

25. 25 Adjustments Needed & Points to Negotiate(Private Sector Point of View) Adjust product line and improve QCD of Thai suppliers to leap benefits from US’s growing spare part and motorcycle markets Need to Develop new model of Pickups, Truck, Motorcycle to meet demand in the U.S. Promote the adoption of QS/ISO 9000 standards Develop human resources to benefit from technology transfer and investment from the US Adopting of IT (such as Internet and Electronic Data Interchange: EDI) between assemblers and suppliers

26. 26 Cross-border Services Require national treatment to other Party’s suppliers, with some exemptions, including telecom and banking where special provisions apply Disallow corporatized SOEs to have privileges over private competitors Grant US investors national treatment in purchasing SOEs share Require transfer and payment relating to supply of services to be made freely without delay

27. 27 Adjustments Needed & Points to Negotiate Ensure that Competition Act is properly implemented Negotiate to have US MNCs bound by UNCTAD’s principles (‘The Set’) to control restrictive business practices Offer market access to other WTO members in sectors where concentration is likely Improve regulatory regime to promote good governance Provide exemption to SOEs to carry social obligations and allow long transition period Include safeguards clauses on payment and transfer

28. 28 Telecommunications Provide safeguards against discrimination and abuse of market dominance by ‘major suppliers’ by ensuring Access to network on unbundled services Physical and virtual co-location Access to poles, ducts and conduits Number portability Leased circuit services at reasonable rate Resale at cost-oriented price

29. 29 Telecommunications Ensure free flow of information, except for security and confidentiality reasons Ensure interconnection to facilities and services Require separation of regulation from operation Require notification of intentions to privatize SOEs Ensure the availability of competitive safeguards, recourse to regulator to resolve disputes and opportunities to appeal

30. 30 Adjustments Needed & Points to Negotiate Revise Telecommunication Act to prevent discrimination against Thai operators Liberalize leased-line markets Privatization of TOT and CAT Strengthen competition laws Reserve the rights to prohibit movement of information on social and cultural grounds

31. 31 E-commerce Digital products imported or exported by electronic transmission are exempted from custom duties Digital products imported or exported through other channels (physical form such as CDs) are subject to duties calculated on the value of the carrier medium only. Cross-border supplies of services using electronic means are subject to obligations stipulated in the chapters on cross border trade in services, financial services and investment.

32. 32 Adjustments Needed & Points to Negotiate Exemption of customs duties on digital products in on-electronic forms is likely to have a small fiscal impact (0.03 % of revenue) Exemption of customs duties on digital products in transmitted electronically will have no fiscal impact since collection is unlikely to be economically feasible.

33. 33 Adjustments Needed & Points to Negotiate Allowing cross-border supply of e-services and investment may bring about unforeseen results. However, Only services currently supplied cross border should be allowed via the internet Monitoring mechanism should be put in place and trial period should be allowed before entry into force.

34. 34 Financial Services Cover banking, insurance and other services Ensure national and MFN treatments to services provided by suppliers of other party through market access and cross-border supply Prohibit quantitative limitations on number of financial institutions, total value of transaction, number of employees, etc Ensure temporary entry of “essential personnel” or senior management Tight time frame for entry into force for market access Allow exception for safety and soundness of the financial systems

35. 35 Adjustments Needed & Points to Negotiate Adopt a ‘positive-list’ approach to liberalization Revise related laws to prevent discrimination against Thai service providers Strengthen banking standards and regulatory regime

36. 36 Competition Policy Discipline the behaviors of private monopolies and SOEs Require exchange of information on enforcement measures, SOEs and monopolies, and exemption to competition laws Provide a mechanism for dispute resolution Provide a loose framework on cooperation and consultation

37. 37 Adjustments Needed & Points to Negotiate Pass general dominance and M&A regulations for all sectors and remove exemption for SOEs under TCA 1999 Delete provisions requiring SOEs to act solely on commercial considerations Assess the impacts of granting US suppliers non-discrimination treatment in procurement of SOEs Ensure rights to obtain information on US MNCs with no local representation in anti-competitive investigations

38. 38 Intellectual Property Require Thailand to ratify or give effect to a number of existing IP agreements, including UPOV Convention on plant varieties Patent Cooperation Treaty WIPO Copyright Treaty WIPO Performances and Phonograms Treaty Extend terms of copyright to 70 years and terms of patent to allow for delay in granting and approval

39. 39 Intellectual Property Protect rights to communicate to the public, rights management system and technology measures for copyright holders Extend scope of patent to cover any invention Prevent using geographical indicators similar to well-known trademarks Prohibit access to test data for pharmaceutical products and compensate owners for undue delayed of the approval processing be extending patent protection.

40. 40 Adjustments Needed & Points to Negotiate Prolong the date of entry into force to over 10 years Strengthen competition laws and other safeguards Do not extend terms of protection for patent and copyright Exclude genetic material, plants, animal, software and business methods from patentable subject matters Adopt a previous version of the UPOV Convention Allow access to test data under certain conditions

41. 41 Investment Expected to replace the Treaty of Amity 1966, expiring in 2005 Provide protection for investment against nationalization, expropriation and measures equivalent to expropriation. Investment covered are broadly defined to include equity participation, debt instruments, derivatives, etc Prohibit performance and technology transfer requirements Require dispute resolution through arbitration for private-government disputes Clarify whether US investors are entitled to acquire land

42. 42 Adjustments Needed & Points to Negotiate Covered investment should be limited to long-term investment or FDI Vague terms, e.g., measures equivalent to expropriation, should be defined to limit infringement of sovereign rights Allow exceptions based on public health, safety and security Clarify the extent the agreement applies to different level of governments Assess the implication of allowing US investor to own land and obtain privileges

43. 43 Environment Provide broad working conditions on issues related to trade and environment Allow each party to set own “environmental strandard” Recognize that each Party should improve its laws, try its best to enforce them, institute legal procedures to prevent violation Require legal actions against violation, public information disclosure, information sharing and public participation Set up joint committee to discuss issues on trade and environment

44. 44 Conclusion Thailand and US are complimentary trade partners US-Thailand FTA is expected to produce a positive growth in real GDP for Thailand Potential benefits also arise from investment, competition in service sectors and improvement in regulatory regimes Sensitive areas include services, financial sectors, investment, intellectual property rights and government procurement -- these issues should be subject to negotiations