This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 07 BANGKOK 008485 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS TO USTR FOR A/USTR BWEISEL 
 
E.O. 12958: N/A 
TAGS: ETRD ECON PREL TH US FTA
SUBJECT: U.S.-THAILAND FTA: STATUS AND PROSPECTS 
 
SUMMARY 
 
¶1.  (SBU)  The November 22 announcement by the Thai lead 
negotiator that the RTG was seeking a postponement of the 
December 2004 FTA round was the culmination of several 
complex crosscurrents within the RTG and Thai society.  The 
ostensible reason for the postponement, the upcoming 
(February 6) elections, is genuinely believed by some senior 
officials, as is the need for additional time for 
preparation, but is probably the least important element of 
the whole story.  Key elements within the RTG are 
dissatisfied with the comprehensiveness of the U.S. 
negotiating framework, particularly its inclusion of labor, 
environment, and financial services, as well as the emphasis 
on negative lists in services and investment.  Key private 
sector organizations, notably the Thai Bankers Association, 
also have voiced their objections to U.S. requests. The 
prospective U.S. offer has disappointed some here, especially 
in areas such as temporary entry.  The RTG currently is split 
into two camps on how to proceed: the first, led by Finance 
Minister Somkid and Chief Economic Adviser Pansak, argues for 
a go-slow, narrowly focused market access agenda; the second, 
led by lead FTA negotiator Nitya (who is allied with Foreign 
Minister Surakiart), favors a faster, more comprehensive 
approach, arguing that such an FTA would transform and 
modernize the Thai economy.  They also stress the high costs 
of non-participation as other countries pursue FTAs with the 
U.S. 
 
¶2. (SBU)  Resolution of this debate awaits the February 
elections.  Our opportunity for input is limited, although we 
may be able to make our negotiating framework more attractive 
here by emphasizing benefits to small and medium sized 
enterprises, a politically favored sector of the Thai 
economy.  In spite of the delay and internal RTG 
soul-searching, we remain basically optimistic about the 
FTA's prospects because we don't see how either side's 
fundamental interests in having an FTA have changed.  For the 
U.S., it is our best chance to maintain a favored trading and 
investment position with Thailand that is jeopardized by 
several imminent developments.  Equally important, an FTA 
will be transformational for Thailand, effecting a shift in 
many of its governmental institutions towards a more 
rules-based economy.  That will be good for Thailand, good 
for the U.S., and will serve as a positive precedent for the 
many other developing economies which are weighing economic 
development and trade policy options.  In asking for a 
comprehensive, transformational FTA with the U.S., we are 
asking Thailand to do something unprecedented, something that 
it will find very hard.  Negotiations are likely to take some 
time.  Progress could prove non-linear, with periods of rapid 
movement forward, followed by some regression, a hiatus, and 
repetitions of this cycle.  It will require patience, 
determination, and judgment, with no guarantee of success. 
But we believe it is worth the considerable effort likely to 
be required.  End Summary. 
 
FTA TALKS PUT ON HOLD 
 
¶3. (SBU) On November 22, the RTG's chief negotiator announced 
that his government was proposing to the USG that the FTA 
negotiating round scheduled for the week of December 13 be 
postponed.  The reasons he cited for the request were the 
upcoming Thai national elections (currently scheduled for 
February 6, 2005), and the need for additional time to 
prepare for further talks with the U.S.  This announcement 
was pursuant to a decision made the previous day by the RTG's 
newly created FTA Oversight Committee.  In addition to the 
postponement request, the Committee ordered the relevant 
agencies to further study the major issues in the FTA and 
provide recommendations on a future course of action. 
 
¶4. (SBU) While the explanations publicly provided by the lead 
RTG negotiator are undoubtedly genuine, no one here believes 
they represent the complete story -- or even the primary 
story -- behind the postponement request.  Rather, the 
postponement was the culmination of several complex 
crosscurrents within the RTG and Thai society. 
 
THE ELECTIONS 
 
¶5. (SBU) Prime Minister Thaksin's Thai Rak Thai Party and its 
allies have gone into full campaign mode for the February 6 
national elections, and all other issues are being viewed 
through the election prism.  It is an unfortunate fact that 
public sentiment concerning Thailand's several free trade 
initiatives is almost entirely negative.  Perhaps the most 
talked about trade deal is Thailand's "early harvest" tranche 
of the ongoing FTA talks with China.  While the early harvest 
provisions contain significant benefits for prospective Thai 
exporters to China, press coverage has centered almost 
entirely on increased imports of Chinese onions and garlic, 
and resulting depressed prices for Thai farmers in this 
sector.  (We have yet to see a mass media article that 
mentions any increase in consumer welfare due to lower food 
prices.) 
 
¶6. (SBU) Against this backdrop, the U.S.-Thai FTA talks are 
regarded by the RTG as a potential political liability best 
avoided in an election campaign.  From the perspective of the 
RTG, the only way the FTA talks with the U.S. could have been 
a useful campaign tool would have been an early harvest 
component which contained some attractive market access 
improvements for Thai exporters.  The U.S. preference for a 
single undertaking that addresses substantially all trade and 
investment barriers meant that there would be no pre-election 
"presents" for Thailand (and the Thai Rak Thai party).  Once 
that fact was recognized by PM Thaksin and the relevant RTG 
ministries, support for a pre-election negotiating round 
largely evaporated. 
 
¶7. (SBU) But we don't accept the claim that the postponement 
request is all about -- or even primarily about -- an 
exogenous factor like the elections.  For one thing, trade 
policy, while recently controversial and a political 
negative, is not a big vote-mover here.  Many issues 
overshadow it.  For another, Thailand's FTA talks with Japan 
are about as controversial here as those with the U.S., and 
yet the previously scheduled FTA talks with that country, 
scheduled for the week of December 6 in Bangkok, have gone 
ahead (and with very little media scrutiny).  We doubt the 
December 13 FTA talks with the U.S. in remote Hawaii would 
have generated much in the way of media attention here. 
 
NEED FOR ADDITIONAL PREPARATION TIME 
 
¶8. (SBU) There is no question that the RTG has found itself 
ill prepared for negotiations with the U.S.  The belated 
formation (in early November, five months after the start of 
negotiations) of the RTG's FTA Oversight Committee (chaired 
by Finance Minister Somkid) is, in part, a belated 
recognition that more work on positions has to be done, 
especially in (but not limited to) labor, environment, and 
financial services (the Committee's creation is also partly 
motivated by internal power struggles within the RTG -- para 
15).  One of our working level contacts in the Ministry of 
Commerce said, "If you look at the guys on our (the RTG's) 
labor and environment teams, you can see right away that they 
are not prepared to negotiate anything."  A Labor Ministry 
source said that as of late November, his ministry had yet to 
complete translating into Thai the text presented by the U.S. 
in the October FTA round. 
 
¶9. (SBU)  But like the elections, we don't accept that the 
need for greater preparation time is the major reason for the 
postponement.  Only a minority of the negotiating groups were 
faced with serious preparation related obstacles that would, 
arguably, delay further meetings.  Preparation for 90 percent 
of the negotiating groups would have been advanced by the 
December talks, since the talks would have provided 
opportunities for information exchange, clarification of 
positions, and so forth.  It is evident that factors other 
than the need for additional time for preparation played a 
role in the postponement. 
 
"REQUEST SHOCK" 
 
¶10. (SBU)  While the RTG thought that it had done its 
homework in preparation for the FTA talks with the U.S., it 
has found out that much more remains to be done.  The RTG -- 
or at least many of its key officials -- were seemingly 
caught off guard by the scope and depth of U.S. requests in 
many areas.  These areas include labor; environment; 
financial services.  When we express our astonishment to RTG 
officials at their surprise at the U.S. agenda (after all, 
the U.S. must rank as the most transparent country in the 
world in terms of negotiating goals in our trade relations -- 
our complete negotiating agenda has been available on the 
Internet for several months prior to the start of 
negotiations), they respond that 1) the full impact and 
ramifications of the U.S. requests had not been fully 
appreciated; and 2) not all RTG officials had been fully 
briefed in advance on the U.S. negotiating position.  A 
prominent official that probably falls into this category is 
the Prime Minister; while he is a supporter of an FTA with 
the U.S. -- indeed, he claims authorship of the idea -- he is 
probably unaware of what its contents are likely to be.  All 
indications are that he has been caught off guard by the 
overall U.S. request list, and is disappointed that the U.S. 
is unwilling to negotiate a quick and politically attractive 
"early harvest" package.  (Note: We believe the RTG's "early 
harvest" plan for the FTA with the U.S. largely involved 
formally renewing key provisions (Articles 4 and 10) of the 
U.S.-Thailand Treat of Amity and Economic Relations.) 
 
"LITTLE DEALS WITH BIG COUNTRIES" 
 
¶11. (SBU)  Seen through Thai eyes, the U.S. requests suffer 
from comparison with the other recent trade deals Thailand 
has concluded.  Many of these deals lack (at least for now) 
comprehensive market opening substance, opting instead for 
relatively easy "early harvests."  This is the case for both 
China and India.  Even the FTA with Australia is fairly 
slow-pitch: aside from reductions in goods tariffs, very 
little was accomplished.  By comparison, the breadth of the 
FTA with the U.S. is wildly ambitious -- maybe too ambitious 
for some.  One knowledgeable local observer said, "Thaksin 
wants little deals with big countries; they make good 
headlines without causing too much trouble." 
 
 
"OFFER SHOCK" 
 
¶12. (SBU)  The RTG has also had to review its strong desire 
for a temporary entry chapter (or at least strong temporary 
entry provisions as part of a services chapter) in the FTA. 
The desire for a U.S. visa is strong in Thailand (the U.S. 
has long been the country of choice for education, for 
example); one of the strongest appeals of the U.S.-Thailand 
Treaty of Amity and Economic relations are the reciprocal 
preferential visa provisions.  We believe the RTG has been 
counting on reaffirming and perhaps upgrading this provision 
as a big part of its public sales campaign for the FTA. 
Adding insult to injury is the inclusion of temporary entry 
chapters in the Chile and -- most importantly -- Singapore 
FTAs.  Thailand's rivalry with the latter country is an 
important reason behind the RTG's persistence in asking for 
temporary entry provisions.  Lead Thai negotiator Nitya 
recently cited the temporary entry provisions negotiated in 
the U.S. FTA with Singapore in wondering aloud to the 
Ambassador whether an FTA without temporary entry provisions 
would be acceptable to the RTG.  He said, "Of course, it 
isn't my call, but you know what the Old Colonel (PM Thaksin) 
thinks about Singapore."  We believe the RTG's basic position 
on somehow addressing temporary entry is inflexible, and as 
such is probably one of a handful of issues that falls 
outside the normal give and take of the negotiating process. 
In the absence of some treatment of temporary entry in some 
context (not necessarily within the FTA), we question whether 
the RTG will agree to an FTA. 
 
¶13. (SBU)  The RTG hopes that the post-U.S. election climate 
will be more amenable to the discussion of temporary entry. 
In noting that the President's party has strengthened its 
majority in Congress, some officials here are hopeful that 
the U.S. may re-think its position on temporary entry and 
trade agreements.  In arguing for a delay in further FTA 
talks, the Prime Minister's chief economic adviser, Dr. 
Pansak Vanyaratyn, asked the Embassy's Economic Counselor, 
"Why don't we wait until both of our governments have a 
mandate?"  The "mandate" Pansak probably was referring to in 
the case of the U.S. was a reconsideration of our position on 
excluding temporary entry from trade agreements. 
 
PRIVATE SECTOR OPPOSITION 
 
¶14. (SBU) The corporate elites of Thai society are viewed by 
many here as highly insecure.  "They don't see any 
opportunities in liberalization, only the loss of privilege," 
one source told us.  While there is considerable truth in 
this statement, we think it is somewhat exaggerated; in 
reality, private views are mixed.  In general, the Federation 
of Thai Industry (which accounts for much of the 
manufacturing sector here) generally is supportive of the 
FTA.  Opposition to the FTA is centered in the Thai Bankers 
Association and large swathes of the Thai Chamber of 
Commerce.  These are powerful organizations, and they no 
doubt have made their voices heard. 
 
INTER-MINISTERIAL CONFLICT 
 
¶15. (SBU)  Long simmering differences over policy and 
jurisdiction boiled over in the November 21 FTA Oversight 
Committee meeting that called for the December round's 
postponement.  Far from being resolved, these differences 
could become sharper in the coming months.  Normally (and by 
law), trade negotiations are led by the Ministry of Commerce. 
 For the U.S. FTA, the Foreign Ministry has the lead.  Lead 
Thai FTA negotiator Nitya has the title of Adviser to the 
Foreign Minister.  This is not a very powerful position.  The 
Chair of the FTA Oversight Committee is Finance Minister 
Somkid.  Somkid is a politically powerful Cabinet minister (a 
coterie of MPs owe him allegiance); he is thought to be a 
leading proponent of the skeptical, "go-slow" school 
regarding the FTA with the U.S., favoring a narrow agenda 
that focuses on traditional market access issues.  His major 
ally on the FTA Oversight Committee is Dr. Pansak.  This pair 
have found common cause in blocking Nitya's plans for the 
FTA, which included the December negotiating round.  Nitya 
(allied with FM Surakiart) favors a full speed ahead, 
comprehensive FTA agenda.  In terms of both institutional and 
personal political power, this pair easily outguns Nitya. 
This intra-governmental conflict could continue -- and even 
worsen -- beyond the February elections. 
 
¶16. (SBU) At the inaugural November 22 meeting of the RTG's 
newly created FTA Oversight Committee, the various themes of 
the several dissenting factions -- those concerned over the 
elections, inadequate preparations, "request shock", or 
"offer shock,"  -- came together, finding common cause in a 
call to stop forward progress on the FTA pending a 
reassessment of the entire FTA exercise.  Most observers here 
think the FTA talks will be re-started after the elections, 
but such an eventuality awaits a formal decision to that 
effect by the FTA Oversight Committee. 
 
POSSIBLE FUTURE DEVELOPMENTS 
 
¶17. (SBU)  Frustrated by the proliferation of ill-informed 
FTA oversight committees (we currently count four that play 
some role in the FTA) and his inability to chart the course 
of the FTA talks, Nitya is lobbying to be given the title of 
Thai Trade Representative.  This can be designated a Cabinet 
level position, and would give him a fighting chance of 
regaining control over the FTA agenda.  We understand a 
decision regarding this is not likely until after the 
elections.  Everyone here thinks that Thaksin's Thai Rak Thai 
party and its allies will win handily, probably increasing 
their majority in the lower house of parliament.  If the 
post-election Minister of Commerce is a politically powerful 
figure, it is possible that Commerce may seek to assert its 
leadership in the U.S.-Thai FTA talks.  In that case, 
Commerce probably would resist increasing Nitya's power, and 
the latter could find his position untenable.  But, while a 
Commerce takeover of the talks could spell trouble for Nitya, 
it might not be all bad for the FTA; what is needed to drive 
negotiations forward is 1) strong commitment 2) from a 
powerful figure.  A new Commerce Minister might prove just 
the ticket.  In this regard, we find it significant that the 
Commerce-led FTA talks with both India and China continue to 
move forward, while the MFA-led FTA talks with the U.S. and 
Japan have been delayed. 
 
¶18. (SBU) Somkid and Pansak are thought to be dissatisfied 
with both the U.S. negotiating framework and (derivatively) 
proposed pace of the FTA negotiations.  Somkid (seconded by 
Pansak) has described the negotiating mandate set forth in 
U.S. Trade Promotion Authority legislation as negotiating 
"pre-conditions," (they count 17 such TPA pre-conditions in 
total) and as such undermine the RTG's desire for both sides 
to negotiate from a clean slate.  They also object (in 
varying degrees) to various U.S. positions (as cited in paras 
10-12).  Their initial response has been to halt the talks, 
albeit temporarily.   Somkid and Pansak surely have the 
support of PM Thaksin, at least for now.  Said one long time 
Thai observer, "This is a classic Thai response to being 
pushed faster or farther than they want to go; they step 
back." 
 
¶19. (SBU) But the temporary delay is only a tactical move; we 
think major strategic decisions have been deferred until 
after the February elections.  Foreign Minister Surakiart 
recently told the Ambassador, "We have a mandate to pursue 
these talks after the elections," and vowed to resume talks 
once "the necessary parliamentary and legal processes are 
complete."  Surakiart added that he had made these points to 
U.S. Trade Representative Zoellick during the recent APEC 
meeting in Santiago, Chile.  The full speed ahead school, 
which includes FM Surakiart, have been arguing that with the 
proliferation of FTAs, the costs of non-participation are 
likely to be very high. 
 
¶20. (SBU) In a separate meeting with the Ambassador, Finance 
Minister Somkid was somewhat less encouraging, telling the 
Ambassador, "We will not do anything we cannot explain to the 
Thai people.  After the elections, we will meet with our 
entire FTA team and look at every position; I think we can 
handle everything."  He then made an indirect pitch for an 
"early harvest" approach: he described a meeting he had with 
the lead Japanese FTA negotiator, where he had urged the 
Japanese to consider immediate FTA concessions, leaving other 
areas for later.  He concluded by saying, "We need to be 
careful.  Many in Thai society are ready to be opposed to an 
FTA with the U.S.  We don't want to let that happen."  While 
he didn't spell out exactly how he proposed to avoid such an 
eventuality, the overall message seemed to be, "Go slow, be 
moderate in your requests." 
 
¶21. (SBU) We find it significant that no RTG official has 
told us they are opposed to the FTA per se.  The opposition 
for now seems mostly short term and tactical.  We think there 
is a good chance that even hard core opponents of Nitya, such 
as Pansak, may change their tune after the elections; in 
Pansak's economic writings, he touts the modernizing effect 
of FTAs.  Whatever its short term political advantages may 
be, a narrow market access type of FTA will not yield much in 
the way of economic modernization. 
 
WHAT WE SHOULD DO 
 
¶22. (SBU)  While it is easy to be discouraged by some of the 
attitudes toward the FTA that are prevalent here, we see the 
current hiatus as a temporary setback that in no way alters 
the overall situation.  A Free Trade Agreement with Thailand 
clearly remains in our interest.  Usually, an FTA is designed 
to take bilateral relations to a new level.  In the case of 
Thailand, however, much of our motivation is the preservation 
of our current position.  The U.S. currently is Thailand's 
largest trading partner.  In investment, U.S. firms have 
privileged access to the Thai market under the Treaty of 
Amity and Economic Relations (AER).  But our status is 
imminently threatened by current trends.  In view of GATS MFN 
issues, we doubt the AER has much of a future as a 
stand-alone document.  The relentless rise of China's 
economic profile in this region represents a challenge to the 
U.S.'s trade and investment leadership.  Additionally, 
Thailand is negotiating a number or other FTAs, which 
probably will create some trade diversion that disadvantages 
U.S. exporters.  Given these developments, without a new 
framework for our commercial relationship we will find it a 
challenge to maintain our current position. 
 
¶23. (SBU)  We also think pursuing an FTA is the right thing 
to do for reasons that go beyond maintaining our position 
here.  A close precedent to what we are trying to accomplish 
with our FTA with Thailand is the Mexico component of NAFTA. 
Like Mexico, Thailand is a medium-sized developing economy. 
Like Mexico, Thailand is essentially not a rules-based 
economy, relying, instead, to a great extent on personal, 
informal arrangements.  As envisioned by the U.S., our FTA 
with Thailand will effect a transformation within the Thai 
economy, by moving it towards a more rules-based, transparent 
way of conducting commerce.  Such a transformation will be 
hard to achieve; it will be much harder than anything 
Thailand is likely to ask the U.S. to do.  It is also a safe 
bet that, similar to the case with Mexico, that a 
comprehensive FTA will see Thailand make the vast majority of 
the concessions, since the vast majority of the existing 
trade and investment barriers are on the Thai side.  Leading 
RTG policy makers are aware of the transformational, 
modernizing potential of the FTA and, in their more visionary 
moments, cite that potential as the FTA's chief attraction. 
But, it is an open question whether the Thai Government or 
people are willing and capable of effecting such a 
transformation.  The chief architect of PM Thaksin's economic 
plan ("Thaksinomics"), Pansak Vanyaratyn, wrote, "I am not 
sure we have the iron will to stay the course.  I am not 
certain that we, meaning, the Thai State or the Thai private 
sector, have the will or the stamina to complete the change 
that we have set in motion."  We share Dr. Pansak's 
uncertainty. 
 
¶24. (SBU)  While posing great challenges, the 
transformational potential of an FTA with Thailand is what 
makes it worthy of great effort on our part.  By helping 
Thailand move toward more rules-based, transparent, and 
efficient governance, an FTA with the U.S. will be the 
catalyst for much higher output and living standards in 
Thailand.  It will be a world showcase, serving as a positive 
precedent for the many other developing economies which are 
weighing economic development and trade policy options. 
 
¶25. (SBU)  Deciding on the future course of the FTA is 
largely a Thai question which eventually will be resolved by 
a debate within the Thai Government and society.  Our 
opportunity for input is limited.  As far as the U.S. 
management of the FTA negotiations goes, we don't have a lot 
of fine tuning to recommend since there are few, if any, 
complaints in this area.   On the contrary, Amb. Nitya has on 
several occasions publicly expressed his appreciation for the 
professionalism of the lead USTR negotiator. 
 
EMPHASIS ON SMEs COULD HELP 
 
¶26. (SBU)  The Thaksin Government has placed a heavy emphasis 
on small and medium sized businesses.  Following the 1997 
economic crisis, the RTG believed that the potential in SMEs 
and the traditional sector, given its great flexibility, 
diversity, and low import content, would provide a new source 
of economic growth and income.  The RTG has introduced a host 
of economic programs aimed at boosting this sector of the 
Thai economy, which already accounts for almost 40 percent of 
Thailand's GDP.  This sector also represents a core 
constituency of Thaksin's Thai Rak Thai party. 
 
¶26. (SBU)  Our FTA framework could be more attractive to the 
RTG if there was a greater emphasis on SMEs across the 
various negotiating groups.  This would mainly involve 
changes in formatting and emphasis, not new concessions.  RTG 
officials point out that an FTA that could be marketed in 
Thailand as an "SME FTA" would be a much easier sell to Thai 
public opinion (and would be much more attractive to PM 
Thaksin, whose exact position on the RTG's internal FTA 
debate remains uncertain).  Our nascent "Group on Small and 
Medium Enterprises and Other Cooperation" represents a good 
start; it is possible that other opportunities to emphasize 
SMEs could be identified and exploited in other negotiating 
areas.  For example, in the government procurement chapter it 
might be possible to highlight the small business set-aside 
provisions, and gear our efforts in trade capacity building 
toward this area.  It might be possible to enlist the aid of 
the U.S. Small Business Administration on this project. 
 
¶27. (SBU)  In spite of the delay and internal RTG 
soul-searching, we remain basically optimistic about the 
FTA's prospects because we don't see how anyone's fundamental 
interests in having an FTA have changed.  It is 
overwhelmingly in Thailand's interest to have an FTA with the 
U.S., whether one argues on the grounds of its 
transformational, modernizing effect; the high costs of 
non-participation; market access; strategic alliances; or 
some combination of these.  An FTA with Thailand remains 
overwhelmingly in our interest, whether one argues on the 
grounds of maintaining our strong position here; the hugely 
beneficial transformational effects in the Thai economy 
likely to accrue from the FTA; or the demonstration effect on 
other developing economies.  In asking for a comprehensive, 
transformational FTA with the U.S., we are asking Thailand to 
do something unprecedented, something that it will find very 
hard.  Negotiations are likely to take some time.  Progress 
might be non-linear, with periods of rapid movement forward, 
followed by some regression, a hiatus, and a repetition of 
this cycle.  It will require patience, determination, and 
judgment, with no guarantee of success.  But we believe it is 
worth the considerable effort likely to be required. 
JOHNSON