Fri, 27 Jun 2003

Is Thailand pushing too hard for trade pacts?

Sakulrat Montreevat, The Straits Times, Asia News Network, Singapore

Thailand has made progress in bilateral talks with its major trading partners since the end of last year.

It has signed its first free trade agreement (FTA) with Bahrain, under which both countries will cut tariffs to 0 percent by 2010. From the Thai perspective, Bahrain is the gateway to the countries in the Gulf Cooperation Council.

Thailand also expects to sign bilateral deals with China, India, Australia and Japan this year, although each framework is different.

The proposed FTA with China (more a preferential trading agreement, PTA, at this stage) is set to eliminate tariffs on some fruit and vegetable products. The talks were concluded during an official visit to Thailand by the Chinese Minister of Foreign Affairs last Friday.

With the agreement scheduled to commence in October, Thailand expects that it will pave the way for other sectors, and lead to an FTA with China soon. There have been criticisms that an FTA with China will become redundant with an ASEAN-China FTA. However, both countries want to launch the PTA so that they can harvest the benefits of free trade earlier.

Thailand is also negotiating a framework with India, likely to be concluded by September. The agreement aims to cut tariffs to zero on 87 items, mostly agricultural and industrial products, by 2010. As benefits to India, Thailand has listed machines and parts, and electric machines, equipment and parts. As for Thailand, it hopes to use the FTA as a springboard to concluding trade deals with other South Asian nations.

Negotiations over the Closer Economic Relations and Free Trade Agreement with Australia, however, are taking longer to conclude. At the last round of talks in April, both countries could not reach agreement on several things, including the items for 0 percent tariff reduction, rule-of-origin formulations, sanitary standards for fruit and meats, and the further liberalization of investment and services. But Thailand is keen to press on and sign a trade deal with Australia before the end of the year.

Negotiations with Japan are also under way for a proposed Closer Economic Partnership, which Thailand expects to seal this year. Japan, however, has been slow to respond because of objections to tariff cuts on some agricultural items, that is, rice and chicken.

To be eligible for an FTA with the United States, Thailand signed a Trade and Investment Framework Agreement last October. The plan was to announce initial talks for a U.S.-Thailand FTA during President George W. Bush's visit in October. But after Prime Minister Thaksin Shinawatra's visit earlier this month, the FTA negotiations are likely to begin next year instead.

An FTA with the U.S. will be more complicated, given that both countries are bound by the 1966 Treaty of Amity, effectively bestowing most favored nation status on Thai and U.S. businesses. The U.S. also made recent demands for Thailand to tackle intellectual property rights violations, improve customs procedures and allow more foreign holdings in telecommunication companies than the current limit of 25 percent.

Eventually, Thailand also hopes to ink bilateral FTAs with Peru, Mexico and South Africa, although these are still at the stage of proposals or feasibility studies. Most recently, Thailand initiated trade talks with New Zealand. Reports suggest that an FTA between the two would be different from the Thailand- Australia FTA.

Thailand first made bilateral trade overtures at the end of 1997. But the country's attempts to initiate FTAs with Australia, Chile, the Czech Republic, Croatia and the Republic of Korea did not end favorably.

After he was elected in 2001, Thaksin has opted for a different FTA approach, by targeting large markets in Asia and America instead.

Overall, the Thaksin government remains committed to its dual track policy. But the high level of public debt has forced the government to cut back the deficit from the last fiscal year. The country's economic policy is shifting from the fiscal stimulus towards an international trade policy to maintaining stable economic growth.

Clearly, however, the government wants a fast track for the bilateral FTAs. It is also active in promoting other trade- related areas, that is, investment and trade facilitation.

But there are concerns with Thailand's eagerness to negotiate different FTAs with different partners.

One is that the discriminatory preferences may force unlisted products to bow out of the international markets. A number of different FTAs also raises the complexities in the implementation of rules of origin. Also, the cost and time spent on these FTAs could be a burden on scarce negotiating resources, and may divert their attention from the World Trade Organization.

Thailand will be asked how its various FTAs are compatible with regional commitments, that is, the ASEAN Free Trade Area and Asia-Pacific Economic Cooperation forum's region-wide trade liberalization. The WTO has also noted that in any FTA, trade sectors must be comprehensive, with none excluded.

It is also questionable how readily Thailand can accept some conditions set by larger partners, for example, sanitary standards in the case with Australia, exclusion of agriculture for Japan, or liberalization of services for both Australia and the U.S. These are complex issues, making negotiations tough.

Like Singapore, Thailand wants to negotiate FTAs fairly quickly, but Singapore and Thailand are different in economic structure and development.

Thailand can use the U.S.-Singapore FTA as an example in preparing itself for negotiations with the U.S. but, in the light of the concerns above, it needs to be careful in treading the FTA path.

The author is a fellow in Regional Economic Studies at the Institute of Southeast Asian Studies.