US-Thailand Free Trade Agreement Market Access Issues

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US-Thailand Free Trade AgreementMarket Access
Issues

• Parthapratim Pal
• Jayati Ghosh

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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/Tha
il_FTA/Section_Index.html
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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

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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

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The ASEAN-USA Matrix
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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/
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Bilateral Agreements/FTAs to increase/protect
Market Access?

• Quite a few of Thailands 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.

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Thailands Top Exports and its main Competitors
Two Examples
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 province of China" 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 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 province of China" 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
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Canada
Market Share
Source http//censtats.census.gov/
10
Mexico
Market Share
Source http//censtats.census.gov/
11
Australia
Market Share
Source http//censtats.census.gov/
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Some Latin American Partners Have Done Better
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But some Non-partners have done even better!!
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Performance of Some ASEAN Countries
Source http//censtats.census.gov/
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On the other hand, FTAs have benefited USA1

• US exports to Chile grew 33.5 in 2004, making
  the USA Chiles 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
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FTAs have benefited USA2

• 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, Caterpillars 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 CAFTAs first year.

Source Office of the United States Trade
Representative, CAFTA Policy Brief May 26, 2005
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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

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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
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Tariff Structure of USA
Source Trade Policy Review of USA, WTO 2006
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
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Preference Margin for Singapore FTA (MFN-
Preferential Tariff Rate)
Source Calculated from US TPR 2006, WTO
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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

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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.

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BITs can be harmful

• BITs 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 couldnt do from a
  multilateral platform

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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.

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Thank You