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21 Apr 2006

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GSP from the US: Pressure to Thailand on FTA talks

คะแนนเฉลี่ย

The US has brought review of GSP forward to July 2006 and renewal of GSP on categories that will expire in December 2006 to pressure Thailand into continuing the FTA negotiations with the US. It wants to get a rapid conclusion within this year, before the fast track negotiating authority in the US expires in July 2007. Canceling of GSP will definitely affect Thai exports to the US because, at present, Thai export under GSP privileges have a value of around USD3,575 million, which accounts for 21 percent of Thailand's total exports to the US.

The top twenty Thai GSP exports to the US are mostly industrial goods. If the GSP on Thai exports to the US is canceled, Thailand's competitiveness in the US market will be affected. As Thai exports that have receives GSP privileges and are not required to pay import tariff to the US will be subject to tariff duties at the MFN (Most-Flavored Nation) rate. The impact of this will be high, especially on gems and jewelry, whose export value is the highest among GSP privileged items, as they will be subject to an average MFN rate of around 7 percent and have to compete with potential rivals like India and China.

Furthermore, Thailand's key rivals for many items, being such countries as Malaysia and South Korea are scheduled to begin bilateral talks on FTAs with the US in the middle of 2006. The US will try to push the negotiations to reach for a conclusion within 2006. It has been expected that if the USA concludes their FTAs with Malaysia and South Korea before the FTA between Thai and USA is finalized, it will result in more exports from Malaysia and South Korea to the US market with better tax advantages. This would also apply to Indonesia, which is expected to be the next FTA counterparty with the USA. This is because Indonesia is in the process of conducting a feasibility study on holding further FTA talks with the USA after the study is completed. The FTA feasibility study is being driven by the Indonesian private sector that is concerned that unless Indonesia holds talks on an FTA with the USA, it will lose competitiveness to major trade partners like Thailand into the US market.

KResearch is of the opinion that maintaining the level of Thailand's competitiveness in the US market and getting an advantage over other competitors is significant to the expansion of Thai exports to the US market. USA ranks first in the world as the largest market for Thailand's exports, and Thailand always has a favorable trade surplus with the USA. However, the FTA negotiations with the USA should be carried out prudently and on a basis of equal benefit. Hasty talks that could lead to neglect of benefits to Thailand should be avoided. Even Malaysia and South Korea are reluctant to agree on timeframes pushed by the USA for a conclusion within this year, unless mutual benefit can be established.

Furthermore, if Thailand enters into an FTA with the USA and the agreement comes into force. Thailand will lose GSP, a unilateral privilege which
Thailand now enjoys but will be changed to bilateral benefit to be achieved from negotiations to penetrate each other's market under an FTA, as happened with Mexico. USA cut GSP privileges to Mexico in 1994 because it became a member of the North America Free Trade Area (NAFTA) with the USA and Canada. The most important issue is that the FTA with USA does not only cover reductions of custom tariffs, but also includes liberalization of the service sector and areas related intellectual property rights, labor and the environment, which will result in a more open Thai service sector for the USA, and help in implementing more stringent protection measures for intellectual property, labor and the environment.

The USA wants to employ FTAs to reduce trade barriers and create more opportunities for its exports in trade partners' markets, thus easing their escalating trade deficit, which is rising every year. The USA recorded a trade deficit of USD 766.561 million in 2005, up 18 percent over the 651,735 million in 2004. The trade deficit with Thailand was USD8,380.5 million, but the USA wants to expand exports in the service sector where there is still more growth potential. At this time, the USA shows a surplus on trade in services and the USA is also the key services exporter for financial services, transportation and education. As a result, the USA needs FTA partners to reduce/abrogate regulations that are obstacles to their investments in service business. The US hopes that the expansion of exports of services will improve the current account where the USA has run deficits continuously for many years. In 2005, according to the US Department of Commerce's Data, the USA had a current deficit about USD800,000 million, or about 6.4 percent of their GDP.

The FTA framework between Thailand and USA has to be considered an advantage to Thailand's export expansion to the USA in giving an advantage over competitors and preparing itself to be ready for the market liberalization on domestic goods that Thailand would be forced to reduce tariffs on for the USA. Thailand must prepare to cope with market liberalization in the service and investment sectors. Hence, the authorities should urge business sectors to be ready for competition with the USA because they are accompanied by US capital and advanced technology. The points of concern are their strict protection of intellectual property, labor and the environment because they will benefit Thailand, but they may put Thailand in a disadvantageous position, as well. Thailand will gain an advantage because it would receive protection for the innovations of Thai people, evolve better welfare and livelihood for laborers and also protect the environment. Nonetheless, there are the drawbacks that need to be considered simultaneously, especially the disadvantages of access to medicines occurring from the strict protection on medicinal patents. That makes the price of medicine more expensive, and increases the operating costs of the government and private sectors because of higher standards for labor and environmental protection.

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