U.S.-THAILAND FTA: GOOD PROSPECTS FOR PROGRESS IN

C O N F I D E N T I A L SECTION 01 OF 07 BANGKOK 007033

SIPDIS

DEPARTMENT PASS FOR USTR -- BWEISEL, LCOEN
DEPARTMENT PASS TO DEPT OF AGRICULTURE WASHDC

E.O. 12958: DECL: 11/10/2015
TAGS: ETRD EINV TH
SUBJECT: U.S.-THAILAND FTA: GOOD PROSPECTS FOR PROGRESS IN
NOVEMBER NEGOTIATING ROUND

Classified By: Economic Counselor Michael J. Delaney, for Reasons 1.4 (
b) and (d)




1. (C) Summary: On the eve of the Round 6 FTA talks in
London, prospects look good for making solid progress in most
negotiating areas scheduled for discussion. There are signs
that the mood here has shifted from passive resistance to a
resigned, "let's get on with it" attitude. Even in financial
services, the RTG is publicly stating that liberalization is
coming. Many of the most knowledgeable observers here point
out that the support of PM Thaksin has not flagged, and that
his clout alone ensures that the FTA will be completed. The
personal involvement of PM Thaksin probably is a negative,
however, in the area of temporary entry: RTG insistence on
some treatment of this issue reportedly comes directly from
the PM, who is mindful of the temporary entry provisions in
Singapore's FTA with the U.S.


2. (C) The RTG is billing the FTA here in Thailand as not an
FTA at all, but as an economic cooperation agreement with the
U.S. At the heart of this marketing strategy is a strong,
more or less across the board trade capacity building effort
as an integral part of the FTA process. For that reason, a
continuation of the strong U.S. effort in this area is a
crucial ingredient for rapid FTA progress.


3. (C) Paras 10-35 provide our assessment of the state of
play in many of the negotiating areas. End Summary

Things Look Mostly Good for Progress in London

4. (C) Based on our talks with a broad range of Thais
involved in one way or another with the FTA talks, we are
hopeful that good progress can be made in most of the
negotiating areas. There is definitely a change in the mood
here -- a shift from the old "I don't see how we can possibly
meet the Americans' demands", to a "let's get on with it"
attitude. While the new mood is more akin to resignation
than enthusiasm, it nevertheless represents an improvement
that, we hope, will be felt in London.


5. (C) There are several reasons for the mood shift here.
The RTG's senior negotiator, Ambassador Nitya, told us that a
certain amount of preliminary "dancing around" was necessary
for the real talks to begin. "The first four rounds were
discussions, really, just a way of getting acquainted," he
said. (At this point, Nitya broke into a rendition of
"Getting to Know You," appropriately, from the movie The King
and I). Now, Nitya said, real negotiations can begin. Other
developments that have contributed include Prime Minister
Thaksin's September 19 meeting with the President, in which
both affirmed the desire to finish talks by early 2006; and
the completion of internal RTG sectoral studies that paint a
generally benign picture of the likely effects of the FTA on
the Thai economy. Finally, in many negotiating areas, Thai
officials have gotten the measure of their American
counterparts and now possess the self-confidence to move
forward.


6. (C) Most of our contacts believe that PM Thaksin's
commitment to successfully concluding an FTA with the U.S. is
genuine and has not flagged. Said one of our sources,
"Thaksin is loathed by the old-line, elite industrialists,
who see him as a low-class upstart. That is one reason
Thaksin has no real problem opening up the markets via the
FTA -- he has no desire to protect his enemies from
competition." And, given Thaksin's continued grip on power,
most observers here are convinced that he has the clout to
overcome opposition to the FTA. According to one observer,
"You guys (the USG) worry too much -- the FTA will be done
because Thaksin said it would be done."

"Cooperation", Not Free Trade

7. (C) Faced with the apathy of the masses and the hostility
of a few elite groups (mostly protected sectors and
foreign-funded NGOs),the RTG is portraying the FTA as not an
FTA at all, but rather an economic cooperation agreement
(formally, perhaps the U.S.-Thailand Trade and Investment
Cooperation Agreement -- USTICA). This largely explains the
RTG's zeal for packing as many trade capacity building
projects as possible into the FTA process. Proponents of the
theory of comparative advantage, or even believers in the
"win-win" nature of open markets, are thin on the ground
here, but many Thais readily recognize the advantages of
cooperation with the U.S., particularly when that cooperation
involves transfer of expertise from the U.S. to Thailand.

8. (C) The RTG's notion of the FTA being at heart a
cooperation accord is linked to likely RTG market access
offers. Nowhere can this be seen more clearly than in
financial services. Perhaps the ultimate protectionist
shibboleth in Thailand, recent signs point to a willingness
to negotiate liberalization even in this area. The RTG
Finance Minister recently told us that dealing with financial
services in the context of the FTA is a challenge for
Thailand, in part because increased international regulation
and rules governing banks (e.g., Basel II) are lessening
commercial banks' ability to finance long term. The RTG, he
said, wants to build up Thai capital -- especially bond
markets -- as vehicles to provide long term project finance.
According to the Finance Minister, the biggest obstacle to
further development of the Thai bond market is the lack of
liquidity which leads to high volatility. Rules requiring
mutual funds, pension funds, and other institutional
investors to mark-to-market on a daily basis means that they
are hesitant to invest in such volatile instruments. The key
to FTA progress in this area, he said, lies in USG technical
assistance in assisting Thailand in developing its capital
markets and effectively dealing with the mark-to-market
issue. The Thais are saying, in essence, "OK, you want us to
liberalize in this area, then it is up to you to equip us to
deal with the effects of this liberalization." While
financial services is a particularly vivid example of this
link between FTA progress and USG technical assistance (under
the broad rubric of trade capacity building),we believe this
link exists in most negotiating areas.


9. (C) The other advice we consistently receive is to take a
lesson out of Japan's successful FTA game book. While less
than comprehensive, the Japanese seem to have achieved many
of their immediate goals in the FTA with Thailand. This was
accomplished by orchestrating a steady parade through Bangkok
of MITI types and Japanese industrialists, extolling the
employment and FDI benefits of a Japan-Thailand FTA. The
arguments we not at all abstract; they touted how X number of
jobs and X amount of Japanese investment would come to
Thailand if the event was completed. Said one insider, "This
sort of thing works here. Nobody bothers to check on the
accuracy of these claims post facto -- money and employment
talks." The problem with this idea is that we are unaware of
any U.S. firm (or the AmCham) that is prepared to make such a
statement in relation to the U.S.-Thailand FTA. But we
should remain alert to any emerging opportunities that may
present themselves.

Negotiating Areas

10. (C) The following is our assessment of the current state
of play in the various FTA negotiating groups. (NOTE: Not
all of these groups are scheduled to meet in London.)


11. (C) Financial Services -- The RTG seems to be connecting
liberalization in this area to U.S. assistance in developing
Thailand's capital markets (para 8). With that proviso,
there are encouraging signs that we may begin to see forward
movement in London. Finance Minister Thanong seems to be
preparing the Thai public and financial community for a shift
from the protectionist policies that have long dominated much
of the financial sector. His clearest statement that
liberalization is coming (albeit after an indeterminate
phase-in period) came in a November 8 speech before a group
of Thai bankers in Bangkok. Thanong urged Thailand's
financial institutions to prepare for "unavoidable"
liberalization. He said, "In the age of financial sector
liberalization, in order to be in harmony with the
globalization, we cannot either reject or oppose such inflow
of change. On the contrary, we must prepare to become strong
enough. What I can do now is that I can only delay the
timing of such a change, not allowing it (the liberalization
in the financial sector) to happen before the adaptation of
the country's financial institutions."


12. (C) The RTG probably is willing to accept relatively
short phase-in periods for insurance and non-banks (perhaps
even immediate liberalization),but will hold out for a long
phase-in period for banks. As noted in para 8, the phase-in
period is likely to be linked to the development of
Thailand's capital markets. A big concern is cross-border
investments. Most analysts here think that under current
conditions, total liberalization would produce a one-way
outflow of capital from Thailand. The hope is to phase in
cross border liberalization to progressively force capital
market development.


13. (C) This fairly rosy scenario could be upset by the Bank
of Thailand, still the strongest opponent of financial
services liberalization. We expect the BoT to fight banking
liberalization right up to the signing of the FTA. One
insider told us that the BoT Governor opposes liberalization
"because he is a Thai banker, not a central banker." Another
analyst with good ties told us the BoT is planning to team up
with some commercial banks and NGOs to generate large
demonstrations against the FTA ("with the focus on medicine
prices, GMOs, and other fear mongering issues -- the BoT
realizes people won't demonstrate for banks"). Still, we
understand the BoT has presented a proposed timetable for
liberalized market access to RTG policymakers.


14. (C) Another complication in financial services is the
jettisoning of the issue by Amb. Nitya. The RTG senior FTA
negotiator has surrendered responsibility in this area to the
Ministry of Finance. This reportedly has created logistical
and coordination problems within the RTG. We understand Amb.
Nitya was scheduled to meet with Finance officials (as well
as former Finance Minister Somkid) on November 9 for the
purpose of resolving these problems.


15. (C) Services -- This group is not scheduled to meet in
London. Our contacts report that progress in future rounds
is likely to be halting. Hindrances are legion. First,
services is a highly protected sector in Thailand, with many
SMEs that are thought to be incapable of surviving greater
competition. Second, Thailand has not opened up this sector
in previous FTAs, giving rise to the expectation that the
area will again be excluded. Third, the Thais are almost
entirely on the defensive in this area, with the only
offensive issue being visas. Fourth, the lead Thai
negotiators, especially Khun Nan, are unenthusiastic about a
bilateral approach (Nan was formerly posted at the WTO, and
is reportedly imbued with "the spirit of G-77"). Finally,
the Thai services negotiators are also responsible for
conducting trade agreements with India, Australian FTA
implementation issues, and APEC/ASEAN, so they have limited
to devote to the FTA with the U.S.


16. (C) While no panacea, we think continuing USG offers to
provide trade capacity building support for services SMEs
would be helpful, as would technical assistance on standards
and certification.


17. (C) Telecommunications -- Chirapa Chitraswang, Principal
Advisor for Communications, MICT, Direk Chareonpol (MICT),
and Pasu Srihirun from the National Telecommunications
Commission (NTC) will attend the London talks. We are not
aware of any deal-breaker issues that will be highlighted in
this round. The MICT has, nevertheless, been reluctant to
discuss and un-bracket the US text to date, because officials
there have been waiting for the NTC to issue licenses and
regulatory guidance. The NTC has been operational for only
one year. When the Ambassador met with the Minister of
Information and Communication Technology in October, he urged
the MICT to take the lead in the interagency process on the
Thai side. While we expect that the regulatory picture will
be sufficiently clear for the MICT to issue policy guidelines
by the anticipated January FTA round, we do not know the
extent to which they are able to commit during the
intersessional round. Additionally, we understand that
another reason for RTG delay is that some telecom issues tie
in with other chapters, such as IPR (on satellite signals,
for example). The Thai telecom sector has experienced
considerable upheaval the past year (see recent Embassy
reporting),including the Telenor buyout of UCOM and TAC, the
NTC,s issuance of licenses, and the prospects for the
privatization of state-owned telcos TOT and CAT Telecom.


18. (C) E-Commerce -- Ms. Anchalapon Siriwan, Director of
the Strategy and Planning Bureau (Acting Senior Advisor on
Foreign Affairs),MICT, has replaced Dr. Duangtip as the
chief negotiator for the RTG. Direk Chareonpol (MICT) and
Pasu Srihirun (NTC) will also attend the London round. As
with telecommunications, we are not aware of any deal-breaker
issues, but the MICT has been reluctant to discuss and
unbracket the US text thus far. We do not have a clear
understanding of what the new chief negotiator is prepared to
do at the London talks.


19. (C) The one issue discussed among USTR, State, and the
MICT since the June Montana FTA round is the matter of
Lese-Majeste. The RTG has proposed to include language in
the FTA to the effect that the e-commerce provisions not be
read as a license to insult the king. USTR has proposed in
return that the matter be dealt with in a confirmation of
policy letter. State,s lawyers have reviewed the draft
letter prepared by USTR and find it acceptable. US
negotiators should be aware, however, that the language
proposed by the RTG also mentions &indecent or harmful
content,8 and that the government of Prime Minister Thaksin
Shinawatra -- with the MICT as the lead agency -- is
currently engaged in a campaign (known as Cyber Clean) to
make cyberspace free from &inappropriate content.8 The
MICT has specified that the target is pornographic content,
not political material. In this context, the MICT may oppose
the side letter proposal.


20. (C) Labor -- Three RTG negotiations ) Deputy PermSec
Surin Chiravisit, Deputy DG Dr. Chaiyuth, and a staffer, Ms.
Angkana. We understand they will be prepared to discuss
removing text brackets. Among the topics proposed by DOL for
discussion are: treatment of subcontract labor under Thai
labor laws, treatment of migrant labor, the pending Labor
Relations Act, and Thailand,s proposed Special Economic
Zones (SEZs) and the applicability of labor laws in the SEZs.



21. (C) Textiles -- This area will not be meeting in London.
The Thai side (K. Nantawan of Foreign Trade) says it has
sent USTR a rules of origin proposal. They expect to discuss
possibly at a future separate inter-session, or at the next
FTA round in Thailand.


22. (C) Customs -- Director Wattana U-Thasoonthorn of the
Customs Standards and Valuation Directorate will attend.
Subject matter will include recent follow-up questions that
USTR sent to him after receiving the questionnaire answers
from Thai customs. Issues will include the advance
publication of regulations, release of goods, review and
appeal, carrier medium and express shipment. We are hopeful
that the Thai side is prepared to discuss text.


23. (C) Based on our discussions with Wattana, we believe
the RTG is prepared to agree to 99 percent of the U.S. text.
According to Wattana, the U.S. text, in general, describes
standard Thai practice. As in other chapters, however, the
RTG is reluctant to agree to anything requiring a change in
existing Thai law. Also, the RTG negotiators appear to be
attempting to harmonize foreign commitments around WTO
standards.


24. (C) Specific areas of RTG concern are as follows:

-- Article 1 (Publication): The RTG is prepared to comply
with this item at this time so long as publication means in
the Thai language. The RTG is not prepared to publish
English translations of all documents. Additionally, in some
cases, advance publication is difficult, although he said in
the case of hearings the RTG does provide texts to interested
parties in order to obtain comments. (Note: When the RTG
holds hearings on pending legislation, both the process and
the role of the hearings are less formalized ) and therefore
transparent ) than the US negotiators may assume. They tend
to be brief affairs with far less substantive comment than is
standard practice in the United States).

-- Article 2 (Release of Goods): This was the subject of
detailed discussion in Honolulu in September. Wattana
expects that in London there will be a presentation by USTR
on surety matters, and that the two sides will then review
the text. While Wattana expressed a willingness to structure
the discussion in article by article fashion from the text of
the US proposal, he objected to structuring the discussion
around the points on USTR,s questionnaire. Wattana
explained that Thailand has expedited processing for gold
card privilege holders and licensed customs brokers. (Note:
It appears that lack of knowledge of each others' systems
continues to bedevil this issue. The RTG system is a much
more informal one than the US. RTG negotiators do not appear
to understand that Article 2 calls for release of goods
within 48 hours across the board. The Thais need to grasp the
comprehensive nature of this article, and in order to agree
to it, there may need to be either TCB measures or a phase-in
period, or both.)

-- Article 7 (Express Shipments): The RTG has difficulty
accepting paragraphs (e) and (f) which specify that such
shipments shall not be limited by maximum weight or customs
value, and that the de minimus customs value shall be no less
than US$200. Wattana claims that these provisions were not
in the FTAs with Chile, Australia, Singapore, CAFTA.
Accepting the US$200 limit will require a change in Thai law
(the Tariff Act) and will be a problem when the agreement
goes to cabinet. Current Thai law specifies about US$25
(1,000 Baht).

-- Article 10 (Advance Rulings): Wattana understands that
the U.S. FTA with Chile specifies a 3-year phase-in period.
In principle, the RTG can implement this article at the
present time, according to Wattana.


25. (C) Environment -- Mr. Petipong Pungbun Na Ayudhya,
Permanent Secretary of the Ministry of Natural Resources and
Environment (MoNRE) is nominally the lead negotiator for the
Environmental Chapter. After the conclusion of the last
round of talks in Hawaii in September, Petipong assigned Dr.
Supat Wangwongwatana (Deputy-Director General of MoNRE,s
Pollution Control Department) to be the new lead for the Thai
Environmental Group in London. Dr. Supat speaks English
fluently and reportedly has had a close relationship with the
U.S. EPA for many years. In a phone conversation November 8,
however, Dr. Supat seemed uncomfortable discussing his role.
He said that Mr. Songsak Saicheva, Minister Counselor at the
Thai Embassy in Washington, has effectively been taking the
leading role so far. Dr. Supat admitted that he has not yet
seen the text of the bracketed environmental chapter and
asked if Econoff he could provide a copy. In response to a
request, Dr. Supat said he is on TDY outside of Bangkok and
so would be unavailable to meet Econoff before the London
talks. Later the same day, a MoNRE staff member called ECON
FSN to recommend that for discussions about the FTA, Embassy
should go through &appropriate channels8 ) and talk with
the Ministry of Foreign Affairs. We attribute any reticence
on the part of MoNRE to a lack of self-confidence.
Thailand,s other FTAs have not included an environmental
chapter. MoNRE is not used to dealing with foreigners in
formal negotiations. This is new ground for them, so their
frequent personnel changes and hesitation in moving forward
comes as no surprise.


26. (C) We did subsequently talk to the Ministry of Foreign
Affairs. Mr. Sorasak Samornkraisorakit, First Secretary and
member of the Task Force on Environment for the FTA told us
that the only item on the Thai agenda for the Environmental
Chapter for next round of talks in London is to &discuss the
text of the environmental chapter.8 We observe, however,
that in addition to discussions on the text, in previous
discussions the Thais were very interested to talk about a
mechanism for environmental cooperative activities.


27. (C) The main sticking point on the text negotiations
will be the Thai reluctance to agree to the wording of
Article 2 ) &A Party shall not fail to effectively enforce
its environmental laws(8 We believe the Thais are
uncomfortable with this language because they feel they have
a lack of capacity to effectively enforce their own
environmental laws. In a nutshell, the Thais lack manpower,
training, and financial resources, and in addition, available
legal penalties are often insufficient to deter violations.
Following are examples from three environmental areas
(policing national parks, controlling factory waste-water
discharge, and conducting environmental impact assessments)
that demonstrate the point.


28. (C) Example #1: Approximately ten percent of Thailand
National Parks, full-time employees work directly for the
Ministry of Natural Resources and Environment (although this
figure varies greatly from Park to Park). The Ministry does
not have the financial resources to hire more employees
directly. The result is that most park rangers are local
hires who are paid subsistence wages and are trained on the
job (in patrolling, the use of a weapon, and the basics of
identifying plant and animal species). MoNRE has never
developed a training curriculum for its locally hired park
rangers, so the quality of training is very much dependent on
the local park director. Moreover, legal penalties for
poaching and for illegal smuggling of plant and animal
products in Thailand is low ) a maximum of USD 1000 fine and
one year in prison. (In practice, although arrests are made
regularly, no one has ever gone to prison in Thailand for a
plant or wildlife trafficking crime, and fines imposed are
usually far less than the USD 1000 maximum.)


29. (C) Example #2: At the launch of the Asian
Environmental Compliance and Enforcement Network (AECEN) in
Manila in August, the Thai delegation openly voiced his
concern that Thailand lacked the necessary numbers of
inspectors to ensure compliance with industrial wastewater
laws and regulations. In discussions, he expressed interest
in other countries, experiences with industry associations
that had established mechanisms for self-compliance and
self-enforcement as a means to ease the burden on
over-strapped government regulatory agencies. He noted that
Thailand has an intricate structure of administrative and
criminal procedures and penalties for compliance and
enforcement, but at the end of the day, penalties are too low
to serve as an effective deterrent. The maximum penalty the
courts can impose on a factory that fails to comply with
waste discharge regulations is USD 5000.


30. (C) By law, MoNRE,s Office of Natural Resources and
Environment Policy and Planning (ONEP) is responsible to
administer the Economic Impact Assessment (EIA) process.
EIAs are required for any type of construction project
(including hotels, highways or roads, mining, multi-family
dwellings, hospitals, factories, dams, irrigation works,
etc.) in areas adjacent to rivers, lakes, or beaches or in
the vicinity on National Parks, as well as any industrial
project associated with petrochemicals, oil refineries,
natural gas, iron, steel, and cement. ONEP lacks the
manpower to perform all these EIAs itself, so it contracts
the performance of the EIAs to qualified consulting firms,
which are licensed by ONEP (for a period of three to five
years). ONEP lacks the financial resources to pay the
consulting firms, however, and in practice the firms who
conduct the EIAs are paid directly by the business that is
proposing to undertake the project. This practice, of
course, leads to serious questions about the integrity of the
EIA process.


31. (C) Given this situation, we think the Thais may be
receptive to potential cooperative environmental activities
contemplated under an MOU on Environmental Cooperation that
may help address the areas ) manpower, training, financial
resources, and weak penalties - where they are lacking
capacity.


32. (C) IPR -- MFA ostensibly decided against sending a
team to discuss IPR at the London round after learning that
the USG would only have negotiators on hand to discuss
enforcement, i.e., no experts were available to discuss
Geographical Indications and Traditional Knowledge. The RTG
team was to be headed by DG Kanissorn Navanugraha.


33. (C) The last round in Hawaii made substantially more
progress than previous rounds where very little actual
negotiation had taken place. In Hawaii, RTG negotiators
agreed in principle to much of USTR,s proposed text on
copyright, trademark and enforcement. However, Geographical
Indications (GI) and Traditional Knowledge (TK) remain
controversial issues. The RTG is concerned about GI
protection for Thai jasmine rice and Thai silk. On TK, they
are looking for provisions to ensure benefit sharing and
disclosure of the source of genetic resources and traditional
knowledge in production of goods.


34. (C) Neither side has yet tabled text on patents which
promises to be controversial. RTG negotiators have a
different interpretation on TRIPS rules on patent protection
and data exclusivity for pharmaceutical products.


35. (C) Similar to other chapters, RTG negotiators were
unwilling to consider language in the IPR chapter that would
require changes to Thai law, even changes consistent with
legislation currently under review by the Thai Parliament.
TEMPORARY ENTRY

36. (C) Although not a chapter in the FTA, we believe this
remains the one "offensive" broad issue for Thailand. We
have not heard anything on the subject of immigration since
the Embassy briefed the Ministry of Commerce Department of
Trade Negotiations in August on US immigration law. The
Foreign Ministry said that it likewise desired a briefing,
but has not followed up. Under the AER Thailand enjoys
certain privileges that Singapore did not when it was
negotiating an FTA, specifically, the opportunity for Thai
nationals to apply for treaty trader/treaty investor visas
(so-called E visas). So long as the business in the United
States is Thai-owned, this visa category can largely
accommodate applications of specialty workers (Thai chefs and
spa attendants, for example) who wish to go work in the
United States.


37. (C) Current law does not, obviously, address any RTG
request with respect to H1B visas. We believe much of the
Thai insistence on some treatment of H1B visas within the FTA
derives from the fact that Singapore won such treatment in
its FTA with the U.S. Prime Minister Thaksin is especially
sensitive to any sign that the U.S. is prepared to offer
Singapore something that is not being offered to Thailand.
The personal views of the PM on this issue make it unlikely
that the RTG will drop its temporary entry requests anytime
soon. We guess that the RTG plans to keep this on the table
right up to the conclusion of the talks, and only remove it
in exchange for some major U.S. concession (probably a
removal of a significant U.S. request to Thailand.) It is a
safe bet that the issue will arise in some fashion during the
London talks. In a small but hopeful sign that our efforts
to deflect this issue may be having some effect, the Ministry
of Foreign Affairs has asked to meet with us on December 1 to
gain greater understanding of the current visa regime and how
Thailand can make better use of existing treaty trader
privileges.











BOYCE