WITH TEMPORARY PATCH, THAILAND RESUMES APPROVING

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