Thailand Us Fta Partha Jg

US-Thailand Free Trade AgreementMarket Access Issues

Parthapratim Pal

Jayati Ghosh

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

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

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

The ASEAN-USA MatrixCountry 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    

Export Composition of Thailand (Exports to USA, 2005)

SITC Description Share

'76' Telecommunications and sound recording and reproducing apparatus and equipment 23.48

'75' Office machines and automatic data processing machines 15.18

'84' Articles of apparel and clothing accessories 12.12

'89' Miscellaneous manufactured articles, n.e.s. 8.45

'03'Fish (not marine mammals), crustaceans, molluscs and aquatic invertebrates, and

preparations thereof 8.27

'77'Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof

(including nonelectrical counterparts of household type, n.e.s.) 7.32

'66' Nonmetallic mineral manufactures, n.e.s. 2.79

'69' Manufactures of metals, n.e.s. 2.62

'82'Furniture and parts thereof; bedding, mattresses, mattress supports, cushions and

similar stuffed furnishings 2.49

'74' General industrial machinery and equipment, n.e.s., and machine parts, n.e.s. 1.99

'23' Crude rubber (including synthetic and reclaimed) 1.83

'65' Textile yarn, fabrics, made0up articles, n.e.s., and related products 1.71

'85' Footwear 1.62

'05' Vegetables and fruit 1.59

Source: http://censtats.census.gov/

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.

Source: http://censtats.census.gov/

SITC 76 Rank 1 2005 data

Rank Country Name Imports (000$) Share

1 "China" 34249355 32.89

2 "Mexico" 18882743 18.13

3 "Malaysia" 10376004 9.96

4 "Japan" 9648427 9.27

5 "Korea" 8306082 7.98

6 "Thailand" 4305259 4.13

7 "Taiwan" 4122458 3.96

8 "Canada" 4113298 3.95

9 "Sweden" 1348671 1.30

10 "Indonesia" 1189430 1.14

11 "Singapore" 864048 0.83

12 "Brazil" 792366 0.76

13 "United Kingdom" 772537 0.74

14 "Israel" 761151 0.73

15 "Germany" 758433 0.73

  Sub-Total 100490262 96.51

  "World" 104125747 100.00

SITC 75 Rank 2 2005 data

Rank Country Name Imports (000 $) Share

1 "China" 42242961 42.84

2 "Malaysia" 12708860 12.89

3 "Japan" 8913083 9.04

4 "Mexico" 7077734 7.18

5 "Singapore" 6357025 6.45

6 "Taiwan" 4880372 4.95

7 "Korea" 3178409 3.22

8 "Thailand" 2782772 2.82

9 "Canada" 1967422 2.00

10 "Philippines" 1195925 1.21

11 "Ireland" 1188127 1.21

12 "United Kingdom" 957189 0.97

13 "Germany" 788333 0.80

14 "Hungary" 784102 0.80

15 "Indonesia" 446282 0.45

  Sub-Total 95468596 96.83

  "World" 98595823 100.00

Thailand’s Top Exports and its main Competitors: Two Examples

Canada

16.00

16.50

17.00

17.50

18.00

18.50

19.00

19.50

2000 2001 2002 2003 2004 2005 2006

Market Share

Monthly Trade between USA and Canada

Exports by USA

Imports by USA

0

5,000

10,000

15,000

20,000

25,000

30,000

000

$

Change in Market Share of Top 10 Exports (2000 to 2005)

-15

-10

-5

0

5

'78' '33' '34' '93' '64' '76' '24' '68' '71' '77'

Source: http://censtats.census.gov/

9.00

9.50

10.00

10.50

11.00

11.50

12.00

2000 2001 2002 2003 2004 2005 2006

Market Share

Mexico

Monthly Trade between USA and Mexico

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Jan-

00

May

-00

Sep

-00

Jan-

01

May

-01

Sep

-01

Jan-

02

May

-02

Sep

-02

Jan-

03

May

-03

Sep

-03

Jan-

04

May

-04

Sep

-04

Jan-

05

May

-05

Sep

-05

Jan-

06

May

-06

000

$

Change in Market Share between 2000 and 2005: Top 10 Mexican Exports to USA

-6

-4

-2

0

2

4

6

'78' '77' '76' '33' '75' '84' '71' '74' '93' '87'

Source: http://censtats.census.gov/

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2000 2001 2002 2003 2004 2005 2006

Monthly Trade Between USA and Australia

0200400600800

10001200140016001800

Jan-01

May-01

Sep-01

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

000 $

Change in Market Share of Top 10 Exports (based on 2000 and 2005 data)

-12.00

-7.00

-2.00

3.00

8.00

'01' '28' '33' '93' '78' '68' '11' '67' '87' '84'

Australia

Market Share

Source: http://censtats.census.gov/

Source: http://censtats.census.gov/

Chile: Top 10 Exports

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

'05' '68' '03' '24' '11' '63' '52' '04' '93' '97'

Peru: Top 10 Exports

-202468

10121416182022242628303234

'68' '84' '33' '97' '89' '07' '05' '28' '24' '03'

Peru: Market Share

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2000 2001 2002 2003 2004 2005 2006

Chile: Market Share

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2000 2001 2002 2003 2004 2005 2006

Some Latin American Partners Have Done Better:

Source: http://censtats.census.gov/

But some Non-partners have done even better!!

China: Change in Market Share of Top Ten Exports (2000-2005)

0

5

10

15

20

25

30

35

'89' '75' '76' '85' '77' '84' '82' '69' '81' '83'

China: Market Share in USA

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2000 2001 2002 2003 2004 2005 2006

India: Change in Market Share of Top 10 Exports (2000-2005)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

'66' '84' '65' '89' '69' '67' '05' '03' '51' '77'

India: Market Share in USA

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2000 2001 2002 2003 2004 2005 2006

Performance of Some ASEAN Countries

Market Share in USA: Some ASEAN Countries

2.101.96

2.07 2.021.92

2.01

1.85

1.35 1.29 1.271.21 1.20 1.19 1.14

1.57

1.31 1.271.20

1.050.90 0.92

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

2000 2001 2002 2003 2004 2005 2006

Malaysia Thailand Singapore

Source: http://censtats.census.gov/

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

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

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

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

Tariff Structure of USA  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

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

Source: Trade Policy Review of USA, WTO 2006

Preference Margin for Singapore FTA (MFN- Preferential Tariff Rate)

2.9

1.4 1.7

3.0

0.41.1

2.22.9

1.0

0.0

8.9

2.11.7 1.5 1.2 1.3 1.2 1.5

0.71.5

0.00

12

3

45

6

7

89

10

01 Live animals &

prod.

02 Vegetable products

03 Fats &

oils

04 Prepared food etc.

05 Minerals

06 Chem

ical & products

07 Plastics &

rubber

08 Hides &

skins

09 Wood &

articles

10 Pulp, paper etc.

11 Textile &

articles

12 Footw

ear, headgear

13 Articles of stone

14 Precious stones, etc.

15 Base m

etals & products

16 Machinery

17 Transport equipm

ent

18 Precision equipm

ent

19 Arm

s and amm

unition

20 Miscellaneous

manufacturing

21 Works of art, etc.

Source: Calculated from US TPR 2006, WTO

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

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.

BITs can be harmfulBITs 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

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.

Thank You