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

260605Z Jan 06

UNCLAS SECTION 01 OF 02 BANGKOK 000492 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PASS USTR FOR BWEISEL AND TPOSNER 
COMMERCE FOR JKELLY AND JCOBAU 
 
E.O. 12958: N/A 
TAGS: ETRD EINV TH
SUBJECT: WITH TEMPORARY PATCH, THAILAND RESUMES APPROVING 
US SERVICES INVESTMENTS UNDER AMITY TREATY 
 
 
¶1.  (SBU)  Summary:  On January 25 MFA PermSec KRIT told the 
Ambassador that, in exchange for the US willingness to 
consider new language that would provide "greater comfort" 
for Thailand in the event of a WTO challenge to its provision 
of better-than-MFN treatment of US services investors, 
Thailand will immediately resume approval of AER-related US 
services investment applications.  The Ambassador agreed, 
hence US services applications are again being approved.  The 
RTG has asked that the effort to find mutually acceptable 
language have an end-of-February deadline. 
 
¶2.  (SBU)  This arrangement provides a temporary (5-week) 
patch to our immediate problem and as such is welcome. 
However, this incident serves as a reminder that the AER's 
long term prognosis is terminal.  Key provisions of the AER 
are inconsistent with contemporary trading arrangements to 
which both Thailand and the US are signatories.  Our best 
hope for continuing our preferential rights in services 
investment in Thailand is the conclusion of an FTA.  If the 
FTA falters, U.S. services investment rights in Thailand are 
likely to revert to the GATS and its MFN provisions. 
Prospective U.S. services investors need to be aware of this 
fact.  End Summary. 
 
¶3.  (SBU)  In a January 25 meeting, MFA Permanent Secretary 
Krit told Ambassador Boyce that, while the RTG believes its 
January 25, 2004 diplomatic note terminating two articles of 
the Treaty of Amity and Economic Relations (AER) was valid, 
the Thai Cabinet had agreed, as an interim measure, to 
"resume" the AER's "status quo" if the USG would agree to 
discuss new language for an exchange of notes to provide the 
RTG "greater comfort" in the event Thailand were brought 
before WTO dispute resolution because of the AER.  (Note:  By 
"resume the status quo", Krit means the resumption of RTG 
acceptance and approval of US services investments under the 
provisions of the AER.  The RTG stopped approving 
applications o/a January 1 of this year -- para 9.)  Krit 
asked the USG to agree to an "end of February timeframe" for 
agreeing to the new language. Ambassador Boyce agreed to this 
proposal, carefully noting that we would be willing to 
consider language providing "political comfort" to the RTG, 
but not anything which would create a legal commitment on the 
part of the USG.  Krit replied that these two concepts might 
have some overlap.  The PermSec promised that by the morning 
of January 26, US companies would again have their 
applications for registration in Thailand under the terms of 
the AER accepted and approved by the Ministry of Commerce. 
 
¶4.  (SBU)  Krit said that he did not have modified language 
to propose at this time: "We (the RTG) will have to consult 
among ourselves before we are ready to propose specific 
language." 
 
¶5.  (SBU)  The PermSec attributed the temporary resolution 
(the "turning point") of this matter to a January 18 
telephone conversation between FM Kantathi and AUSTR Barbara 
Weisel during which the basic outlines of this proposal were 
discussed.  The FM subsequently briefed the Cabinet, which 
approved and, said Krit, empowered him to convey the proposal 
to the Ambassador.  Krit admitted that "circumstances and 
efforts on our (Thailand's) part" have reduced to "minimal" 
the chance that Thailand would have to defend itself against 
a formal challenge to the AER in the GATS, but "we (the MFA) 
were unable to convince the Cabinet on this point." 
 
¶6.  (SBU)  Krit noted that the Cabinet-approved provides only 
a temporary remedy to the AER/services investment issue and 
wondered aloud what might happen should our efforts to find 
acceptable language fail.  In reply, the Ambassador suggested 
that it would be best for now to concentrate our efforts on 
finding common ground. 
 
Background 
-------------- 
 
¶7.  (SBU)  The AER's preferential provisions for U.S. 
investors  are a prima facie inconsistency with the MFN 
provisions of the WTO GATS.   In recognition of this, upon 
Thailand's 1994 accession to the GATS, the country took a 
ten-year derogation period for the AER, a period that ended 
January 1, 2005. 
 
¶8.  (SBU)  In December, 2004, the RTG sent a diplomatic note 
to the USG, advising that it was withdrawing from two 
articles of the AER in order to comply with WTO rules. In 
response to the diplomatic note, the USG insisted that a 
party could not simply withdraw unilaterally from certain 
obligations of a treaty and, therefore, we considered the AER 
to remain valid. The RTG offered to continue to comply with 
the terms of the AER if the USG would agree to an exchange of 
diplomatic notes pledging USG support if a third party 
brought Thailand to WTO dispute resolution for violation of 
WTO rules. In parallel with our FTA talks, language for the 
notes was agreed to by the negotiators. After several months 
of delay, the Foreign Minister and Deputy Prime Minister for 
Foreign Affairs both agreed to the notes, and it was 
presented to Cabinet for final approval.  The formal exchange 
of letters (probably between FM Kantathi and Secretary of 
State Rice) was envisioned as a bridging mechanism between 
the expiration of  Thailand's GATS derogation and the coming 
into force of the FTA, allowing the conferral of AER benefits 
without interruption. 
 
¶9.  (SBU)  Embassy officials belatedly (and anecdotally) 
learned in early January that applications for US services 
investments under the provisions of the AER were no longer 
being approved by the Ministry of Commerce.  After initially 
denying that this was the case, MFA officials eventually 
confirmed this information.  Contrary to expectations, we 
were told, Commerce Minister Somkid had objected to the 
proposed language in the "comfort letter" on the grounds that 
it did not provide sufficient cover for Thailand in the event 
of a WTO challenge. 
 
¶10.  (SBU)  The presence of key USG officials in Chiang Mai, 
Thailand, in January to participate in the FTA talks afforded 
the opportunity for several exchanges on the AER issue with 
RTG officials.  While inconclusive, those exchanges served to 
inform and sensitive the RTG (particularly MFA) that this was 
a serious problem that jeopardized the FTA process.  We 
believe these exchanges laid the groundwork for the FM's 
"turning point" January 18 call to AUSTR Barbara Weisel. 
 
¶11.  (SBU)  Comment:   While the agreed arrangement provides 
a temporary fix to our immediate problem and as such is 
welcome, this incident serves as a reminder that the AER's 
long term prognosis is terminal.  Key provisions of the AER 
are inconsistent with contemporary trading arrangements to 
which both Thailand and the US are signatories.  Our best 
hope for continuing our preferential rights in services 
investments in Thailand is the conclusion of an FTA.  If the 
FTA falters, U.S. services investment rights in Thailand are 
likely to revert to the GATS and its MFN provisions. 
Prospective U.S. services investors need to be aware of this 
fact. 
 
BOYCE