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WebMemo #455 on Trade and Economic Freedom

March 24, 2004

Negotiating with Thailand: What U.S. Policymakers should know

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This week a delegation of Thai government officials, led by the Minister of Commerce, Watana Muangsook, will visit Washington to make contacts in preparation for the Free Trade Agreement (FTA) negotiations later this spring. The delegation's meetings will range from mingling with Members of Congress to negotiators at the United States Trade Representative's office (USTR). U.S. officials should take advantage of these meetings to get to know the Thai officials and to emphasize the issues that must be covered in this agreement. Everything must be put on the table in these negotiations.

 

The Issues

An FTA with Thailand is a natural next step for the United States to take. Thailand is a member of the World Trade Organization (WTO) and has a Trade and Investment Framework Agreement (TIFA) with the United States. Two-way trade totaled nearly $20 billion in 2002. U.S. exports to Thailand include machinery, agricultural products, and aircraft.

 

The upcoming negotiations present many opportunities and challenges. This agreement has the potential to reap tremendous benefits for both sides if challenging issues are addressed. There is a laundry list of issues that U.S. policymakers should begin discussing with their Thai counterparts this week. These include:

 

  • Piracy
  • Market Access
  • Customs
  • Government Procurement
  • Economic Freedom

Piracy is a key issue for U.S. industries. According to the USTR, "U.S. copyright industries reported an estimated annual trade loss of more than $160 million from IPR infringement in Thailand in 2002. Many infringing products manufactured in Thailand are exported." The export pirated CDs from Thailand is a major problem, according to the USTR's 2003 Special 301 report. Thailand is on the USTR's Special 301 Watch List and has been on this list since 1994.

 

Barriers to Trade

Across-the-board market access is desperately needed for U.S. exporters. Even products that have very little domestic competition, if any, currently face high tariffs. Thailand's complicated tariff regime has 46 rates, according to the USTR. These include an 80 percent rate on passenger cars and sport utility vehicles and tariffs as high as 60 percent on pears and cherries.

 

Adding to the barriers are inefficient and inconsistent customs procedures. "Thailand's Customs Department generally enjoys a high degree of autonomy and engages in practices that are non-transparent and often appear arbitrary and irregular," according to the USTR. Maneuvering through these irregular and tedious procedures adds to the overhead costs of U.S. exporters.

 

Thailand's government procurement procedures present yet another non-tariff barrier to U.S. firms. Thailand has not signed onto the WTO Agreement on Government Procurement. Thailand's "Buy Thai" policy excludes non-Thai products from competing for bids. This policy distorts the market by favoring domestic firms.

 

Great Promise

Thailand should use this FTA as an opportunity to eliminate these distortions and to promote economic freedom. According to The Heritage Foundation's 2004 Index of Economic Freedom, economic freedom has been declining in Thailand for the past several years. Thailand is ranked as a "mostly free" economy. Thailand could increase economic freedom with some changes. An increase of economic freedom would allow Thailand to achieve a higher GDP per capita.

 

U.S. policymakers should take advantage of their meetings with the Thai delegation this week to prepare for the negotiations later this spring. U.S. policymakers should not wait until they're at the negotiating table to broach these challenging issues. Likewise, U.S. policymakers should prepare to put everything on the table. Exclusion for sensitive products, such as sugar, should not be made in this agreement or in future agreements.

 

The USTR should seek to gain across-the-board access from this agreement. This access should include:

 

  • Getting the Thai government to crack down on piracy;
  • A significant reduction in non-tariff and tariff barriers;
  • An agreement from the Thai government to reform their customs procedures; and
  • Allowing U.S. firms to compete for Thai government bids. U.S. negotiators should encourage the Thai government to sign onto the WTO Agreement on Government Procurement.

Additionally, U.S. policymakers should take this opportunity to encourage the Thai government to pursue economic freedom. While significant reductions in tariffs and non-tariff barriers will improve Thailand's trade policy and encourage greater growth, Thailand should pursue further reforms as well. The FTA negotiations will give both sides an opportunity to gain tremendous benefits if everything is put on the table. Additionally, this FTA will strengthen the friendship between the countries. Such opportunities should not be squandered.

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