WHY IS THIS FTA TAKING SO LONG?

C O N F I D E N T I A L SECTION 01 OF 07 BANGKOK 000689

SIPDIS

DEPARTMENT PASS USTR FOR BWEISEL
DEPARTMENT PASS FOR USDA

E.O. 12958: DECL: 02/03/2016
TAGS: ETRD EINV ELAB TH
SUBJECT: WHY IS THIS FTA TAKING SO LONG?

REF: BANGKOK 000492

Classified By: Economic Counselor Michael J. Delaney: E.O. 12958. Rea
son: 1.4(b) and (d)


1. (C) Summary: Our answer to the question of why this
FTA is taking so long is four lacks: lack of adequate
preparation in Thailand for the FTA talks; lack of experience
among Thai negotiators in negotiating a comprehensive FTA
with a major trading partner; lack of strong and effective
leadership for the Thai FTA negotiating team; and lack of
enthusiasm within the Royal Thai Government, and Thai society
in general, for the FTA. Thailand entered these talks with
an almost total lack of preparation, and has fielded an FTA
team inexperienced in negotiating anything remotely like the
comprehensive trade and investment deal we are seeking. The
appointed chief of the Thai team proved incapable of exerting
control over the disparate RTG elements involved in the
talks, many of which are less than enthusiastic about the FTA
with the US. Also, the FTA has always been closely
associated with PM Thaksin, and the decline in the PM's
political fortunes has adversely affected the fortunes of the
FTA.


2. (C) As to the question of whether the FTA can be
successfully completed within the time remaining, our firm
belief is -- maybe. It is said that Thais are terrible at
planning but very good at coping: having botched the planning
for the FTA, the RTG may yet be able to scramble, adapt its
approach, and bring the FTA to a successful conclusion. We
are convinced that the key ministries (Commerce and Finance)
are finally determined to do so, and recently have instituted
changes that promise better preparation, more effective
leadership, and more productive negotiating sessions. The
RTG has also now pledged to consult with Parliament, and step
up its outreach program to win over the Thai public. The
question is whether there exists sufficient time remaining to
do what has to be done both inside the room, i.e., with the
FTA negotiations themselves, and outside the room, i.e., with
public opinion in Thailand.


3. (C) For our part, we need to do one thing: we must come
up with an effective response to the medicines pricing
question -- particularly for HIV/AIDS medicines -- and make
sure our message is heard. Due to its historical and
emotional content in Thailand, this issue is white hot for
any Thai government, and is the one issue that has the power
to kill the FTA. In partnership with local Pharma
representatives, the Embassy has prepared and is forwarding
for Washington agencies' clearance a fact sheet on the
treatment of medicines in the FTA which, we believe, will
serve to allay much of the concern on this issue. End
Summary.

The Four Lacks


4. (C) The sixth round of negotiations for the US-Thailand
Free Trade Agreement (FTA),held January 9-13, 2006 in Chiang
Mai, Thailand, presents a mixed picture. While important
progress was achieved in some of the FTA negotiating areas,
other areas showed only modest forward movement. Post-Chiang
Mai, after 20 months of negotiations, completion of the FTA
text still seems far off, probably beyond the publicly stated
US deadline of end-April 2006. Many knowledgeable Thai
observers of the FTA process question whether the FTA will be
completed by the US deadline.


5. (C) Many of the questions over the FTA's completion date
derive from what has been accomplished so far. There are
many ways to measure an FTA negotiation's progress, but one
of the simplest is to measure what percentage of the FTA text
has been completed so far. Using that measure, it appears
that only a small percentage of the text has been completed.
Moreover, many of the key issues regarding coverage and other
obligations remain to be decided.


6. (C) So why is this FTA taking so long? That so much
effort has been expended for such modest progress is
attributable to several factors, most importantly the four
"lacks": lack of adequate preparation in Thailand for the
FTA talks; lack of experience among Thai negotiators in
negotiating a comprehensive FTA with a major trading partner;
lack of strong and effective leadership for the Thai FTA
negotiating team; and lack of enthusiasm within the Royal
Thai Government, and Thai society in general, for the FTA.

Lack of Adequate Preparation.


7. (C) It has become obvious that the decision by Prime
Minister Thaksin to propose to the US an FTA was made on the
basis of consultations with a few key advisers, and no one
else. Thus, FTA negotiations with the US were launched with
very little preparation by the many Thai Government
ministries and agencies that would be involved. Similarly,
there was very little attempt to educate the Thai public on
the rationale for the FTA and its potential economic
benefits.


8. (C) The effect of the lack of any effort by Thaksin to
explain the rationale for the FTA can be seen in the conduct
of many Royal Thai Government FTA negotiators. Faced with
little idea of what Thailand could expect in terms of rights
and obligations under the FTA, many Thai FTA negotiators have
utilized the first 19 months of the FTA negotiations to serve
as a sort of feasibility study for the FTA. While the FTA
rounds have served to answer many questions and clarify what
the FTA might look like, they (particularly regarding market
access) have not been true negotiations for many of the Thai
officials and ministries involved -- the rounds have been
conversations about negotiations, which ideally will lead to
negotiations per se.


9. (C) Thaksin's approach with the FTA is consistent with
the PM's much-touted "CEO" style, characterized above all by
strong, decisive leadership. From its inception, the FTA
with the US has been seen as Thaksin's project. While in
some ways the PM's personal imprimatur may be one of the
FTA's strengths, it has become obvious that it is also its
great weakness. For one thing, the identification of the FTA
with Thaksin means that the FTA's fortunes are more or less
directly linked with those of the PM's. Over the past year,
Thaksin's popularity has been buffeted by allegations of
corruption, conflicts of interest, and autocratic rule that
largely bypasses democratic institutions like the Parliament.
While Thaksin remains firmly in charge (in part because of
the absence of a credible alternative),his popularity has
suffered, particularly among the politically active Bangkok
middle class. One of the basic complaints about Thaksin is
that he does not consult with anyone. Unfortunately, the FTA
is now being touted as the example par excellence of this
tendency of the PM's. As the popularity of the PM has
declined, so has the FTA's. At the height of his popularity,
Thaksin may have been able to secure support for the FTA
solely on the basis of his personal endorsement, but those
days are over. Politically active elements of Thai society
are growing skeptical and demanding greater information. The
Thai Government's response has been belated and inadequate.
In negotiating the FTA, the US is seen by some as abetting
Thaksin's autocratic tendencies.


10. (C) A frequent criticism of the Thaksin administration
has been that many of its policies are promulgated primarily
for the benefit of the Prime Minister, his family and his
business allies. The most recent example critics point to is
the sale of the Thaksin family's 49.60 percent share of Shin
Corp, the family's publicly-listed holding company, to
Singapore's Temasek. The sale occurred on the same day as
Thai law permitted foreign companies to increase their equity
in Thai telecom firms to 49 percent. Shin Corps' principal
asset is a mobile phone company. Critics of the FTA will
surely use this as "proof" that an FTA with the US, with the
many changes in Thai law it will bring about, is primarily a
tool for Thaksin to change policies in order to gain
financial benefit.


11. (C) The sale of the Shin Corp shares was structured in
a particularly circuitous, non-transparent, and possibly
illegal manner in order to avoid any tax liability. At a time
when the RTG budget is under some pressure to fund major
infrastructure projects and the tax authorities have grown
more vigorous in their tax collection efforts, the avoidance
of any tax liability on one of the largest transactions in
Thai history (73 billion baht- US$1.8 billion) is clearly
striking the Thai man-on-the-street as special treatment for
the PM. In addition, the Thai SEC made several rulings
regarding the need (or not) for Temasek to tender for the
shares of minority stockholders that clearly favored the
interests of Temasek and the PM's family. The perception
that Thaksin utilizes the state apparatus to enrich himself,
while not universal, is fairly prominent within the Bangkok
middle class, some of whom see the same dynamic at work with
the FTA. While we see ourselves as negotiating an FTA with
Thailand, a (probably growing) number of vocal Thais see the
U.S. as negotiating an FTA with Thaksin.

Lack of Experience.


12. (C) While Thailand has negotiated a number of bilateral
FTAs with selected trading partners (including Australia, New
Zealand, China, and Japan),these have been far less
comprehensive than the FTA the US is proposing. The Thai
approach in previous FTAs has been to concentrate on sectors
of greatest immediate interest and put aside whole sectors
deemed "too hard." GATT Article XXIV consistency has been
taken care of by the fig leaf of labeling these deals "early
harvest" agreements.


13. (C) Thailand has never attempted to negotiate anything
remotely like the FTA with the US. With its comprehensive
coverage of trade and investment, the FTA is taking on
protected and sensitive sectors such as financial services
and government procurement. Coverage of labor and the
environment are entirely new for Thailand, as is the
consideration of going beyond WTO obligations in the
protection of intellectual property. Besides scope, the
TPA-imposed time constraints of the US side are also new for
Thailand: lack of Thai experience in negotiating such a
comprehensive agreement could be compensated for with
additional time for consideration, but the looming expiration
of TPA and demands on US trade negotiations resources makes
time a precious commodity. All this means that negotiating
the FTA is very hard for Thailand, much harder than such
negotiations are for the US.

Lack of Leadership.


14. (C) PM Thaksin's management style has resulted in a
concentration of decision-making and power at the top. We
have found that to get action on something important, it is
necessary to go to the PM or his top advisers (who number no
more than four or five) -- even Ministers lack real authority
on many issues that seemingly fall within their
responsibility. Long time MFA officer and former Ambassador
to the US Nitya Phibulsonggram was appointed in 2004 to lead
the Thai FTA negotiating team. With no prior experience in
trade negotiations, Nitya struggled to provide effective
leadership. Expertise aside, Nitya is not a member of
Thaksin's inner circle. This left him without the authority
to make the many decisions necessary to move the negotiations
forward. The full implications of this were felt in Chiang
Mai as -- once again -- several Thai negotiating groups
arrived without offers or authority to move on the FTA text.
Immediately after the Chiang Mai meetings, Nitya submitted
his resignation. Privately, Nitya has told us that he
resigned owing to his inability to exert authority on FTA
matters over the various ministries involved, as well as his
inability to recruit the assistance of the Prime Minister in
his efforts to exert authority over those ministries. We
also believe that the incessant personal attacks by anti-FTA
forces against Nitya played a role in his resignation.


15. (C) The search is well underway for a new FTA chief.
Most of the names floated have been subordinates or long time
associates of Deputy Prime Minister/Commerce Minister Somkid
Jatusriptak. Since Somkid has the PM's ear, the appointment
of a person trusted by Somkid would facilitate communication
with the PM and, we hope, make for faster, more productive
negotiations. It remains to be seen, however, whether a
Somkid-led FTA team would in fact move any faster than the
one led by Nitya. In 2004, Somkid told several of our RTG
contacts that he believed an FTA with the US would be too
difficult for Thailand. Some here think that Somkid would
like to find a painless way to shelve the FTA. Somkid is
loyal to the PM, however, and we think he will do what the PM
asks, i.e., push the FTA process forward to the best of his
abilities.


16. (C) Somkid took direct charge of Thailand's FTA talks
with Japan in their final stages. His version of events has
Thailand taking a hard line against Japanese demands and
prevailing in the end. He has repeatedly complained to us
and others that Nitya was too much of a diplomat and not
enough of a trade negotiator -- he hadn't made the transition
from being Thailand's Ambassador to the US and this makes him
much too nice to the Americans. He cites as a model
negotiator Thailand's lead in the FTA with Japan, MFA Deputy
PermSec Pisarn Manavapat, who by all accounts had poor
personal relations with the Japanese side but was steadfast
in defending the Thai position. We think Somkid's belief in
the efficacy of the hard line is behind his recent decision
to overrule the Foreign Ministry and reject the proposed
exchange of letters that would have ensured the continuation
of reciprocal rights granted by the US-Thailand Treaty of
Amity and Economic Relations. (NOTE: The RTG has
subsequently proposed an interim solution to this problem --
reftel.)

Lack of Enthusiasm.


17. (C) "Nobody likes it, and nobody likes you." That is
how Ambassador Nitya, after resigning his position,
characterized to us rank-and-file Royal Thai Government
officials' attitudes toward the FTA (and, we guess, the US
FTA negotiating team and positions). The fact that many of
the RTG officials involved in the FTA process are less than
enthusiastic about the project has, we believe, played a role
in the course of the talks. Even key economic ministers
have, until very recently, shied away from publicly voicing
support for the FTA. Like many developing countries,
Thailand is characterized by weak institutions. The Royal
Thai Government apparatus falls short of the developed world
norm of a fairly honest, professional, and apolitical
organization that serves at the beck and call of the PM and
his delegates. Semi-independent fiefdoms abound, with
varying degrees of responsiveness to the PM's perceived
wishes. This can be seen in ministries' behavior in the FTA
talks. While a few display something akin to outright
defiance (the Governor of the non-independent Bank of
Thailand, for example),most others have displayed a certain
passivity, or "work to rule" attitude (perhaps betraying
their understanding of USG time constraints). It is this
attitude, we believe, that accounts for most of the RTG's
slowness in tabling offers and responding to the US side.


18. (C) Sometimes the fear of new burdens is behind RTG
officials' opposition. For example, implementation of the
US-proposed IPR provisions would require not only instituting
legal changes (a daunting, time consuming task in Thailand),
but developing new systems for registering and recording IP,
and training officials in new enforcement methods. In Chiang
Mai, RTG negotiators expressed their confusion over both how
to set up a system to register a sound or scent mark, and
also how to train customs officials to recognize these marks
accurately and determine if infringement had occurred. At
the same time, some FTA provisions designed to streamline IP
registration procedures could cut into RTG revenues,
decreasing resources available to the RTG to implement the
FTA.


19. (C) The lack of enthusiasm for the FTA that is evident
among RTG officials is also manifest in larger Thai society.
The absence of any public outreach program, coupled with
Thaksin's declining popularity, has left an open field for
the anti-FTA forces to operate. Opposition to the FTA built
throughout most of 2005, culminating in the demonstrations in
Chiang Mai. The demonstrations attacked the FTA, and
attacked the US. Since the FTA is closely identified with
Thaksin, many "anti-FTA" voices (particularly those in the
opposition political parties) are not so much anti-FTA so
much as anti-Thaksin (with the US seen as a collaborator).
But many special interest groups have come out in opposition
to the FTA per se, on the grounds that market opening would
harm local producers. They cite Thailand's experience with
its FTA with China and the loss of competitiveness of Thai
onions and garlic in the face of Chinese imports. (Note:
This is a highly selective interpretation of the China FTA's
effects: post-FTA, Thailand enjoys a growing agricultural
trade surplus with China.) Local services providers and
their allies fret about US firms taking over the economy
("you're so big and we're so small"). The head of the Bank
of Thailand complains that US banks only want to service the
city of Bangkok, while the real need is providing credit for
the rural population. And there is a pervasive belief that
too-rapid liberalization was a key factor in the 1997-98 Thai
financial crisis.


20. (C) In the absence of an effective RTG campaign to
counter these FTA arguments, public opinion will remain
opposed to the FTA. Even if the FTA text could somehow be
completed in spite of public skepticism, the likely
requirement for numerous changes in Thai law means that the
battle would subsequently shift to the Parliament. It is
doubtful whether, under current circumstances, implementing
legislation for the FTA would be approved by the Parliament.


HIV/AIDS Medicines Prices Could Derail the FTA


21. (C) The vast majority of the anti-FTA arguments amount
to the usual protectionist arguments and can be effectively
countered. There is one opposition voice, however, that
poses a far greater challenge to the FTA: Thailand's
HIV/AIDS sufferers. Citing the IP provisions proposed by the
US, HIV/AIDS groups and their supporters oppose the FTA on
the grounds that it will raise the price of current and/or
next generation HIV/AIDS medicines in Thailand, effectively
denying access to these medicines. That is an explosive
claim in Thailand, one that is guaranteed to spark street
protests. The majority of the demonstrators in Chiang Mai
were HIV/AIDS patients.


22. (C) The campaign against HIV/AIDS is a potent social
force in Thailand. Thailand's HIV/AIDS epidemic began in the
1980s, in the very early stages of international public
awareness of this disease. HIV/AIDS was first detected among
injecting drug users. From 1987, to 1988, to 1989 the number
of injecting drug users testing positive for HIV jumped from
one percent, to 30 percent, to more than 60 percent. The
virus was soon detected among other population groups,
including female commercial sex workers, their partners, and
families. By 1992, more than one third of commercial sex
workers in Bangkok and Chiang Mai were infected. The Thai
Government launched a program for controlling HIV
transmission in 1989 with two major aims -- harm reduction
associated with the use of injection drugs and a 100 percent
condom usage campaign to address the problem of heterosexual
transmission. The program was successful: after peaking at
around 143,000 new cases in 1991, the number of new HIV
infections in Thailand declined to an estimated 19,000 in

2003. UNAIDS and the World Health Organization have called
Thailand the only HIV/AIDS "success story" in Asia, with a
reduced current HIV prevalence of about 1.5 percent.


23. (C) What the statistics don't tell, and what can only
be evinced by people who lived in Thailand in the late 1980s
and early 1990s, is the sense of fear and panic that
accompanied the outburst of HIV infections in those years.
AIDS was a relatively new and poorly understood disease then,
and because at that time no effective drug regimen yet
existed, diagnosis was a death sentence. The Thai
Government's HIV control program has been successful
precisely because the Thai people were so terrified of HIV
that they changed their behavior as a consequence. The
development of effective anti-retroviral medications was
greeted by the Thais as nothing short of a miracle. The word
spread -- people with HIV could survive! The government
began providing these drugs free of charge to thousands of
the poorest HIV patients and ensured that prices for
locally-produced medications were kept low for those who
could not otherwise afford to pay for them. Thus, at the
present time, there is a generalized, very emotional feeling
among Thais that they have faced and overcome a horrible
danger. And this explains the visceral reaction they have to
anything that might be perceived as a movement backward from
their success -- it renews their fear.


24. (C) The Thai Government's very popular "30 Baht" health
care scheme (which provides medical care for low-income Thais
for a fee of about US75 cents per visit to the doctor) in
combination with the RTG goal of providing drug treatment to
80,000 HIV patients has helped significantly reduce the
annual HIV mortality rate, by some accounts by as much as 79
percent. The RTG hopes to increase the goal to 150,000
patients by 2008. The generic medicines used in the program,
produced by the Government Pharmaceutical Organization, are
off-patent drugs developed by foreign firms which cost about
USD1 dollar per day per patient. Due to the drug resistance
that patients eventually face, second-line drug treatment
becomes necessary, requiring drugs costing three to ten times
as much. The US request in the FTA negotiations for enhanced
IP and data exclusivity protections triggers the emotional
(and effective) argument voiced by the demonstrators: the
FTA will make life-saving drugs unaffordable, bankrupt the 30
baht health care scheme, and kill Thai HIV patients.


25. (C) The role played by the HIV/AIDS issue in the Thai
public's perception of the FTA cannot be overstated. To
illustrate, we believe that if the FTA formally excluded all
HIV/AIDS medicines from its provisions, better than 90
percent of the anti-FTA demonstrators, and much of the
anti-FTA public commentary in Thailand, would disappear.


26. (C) We believe that effectively addressing this issue
is essential if we are to complete successfully the FTA.
Much of what is being said in Thailand on this subject
misrepresents the US position, and our highest priority is
correcting this. In partnership with local Pharma
representatives, the Embassy has prepared a "Fact Sheet,"
complete with Qs and As, on the treatment of medicines in the
FTA which we hope to use in our public outreach efforts with
the media and interest groups. We believe the information in
this document, which is being forwarded to Washington
agencies for review and clearance, will serve to allay much
of the concern on this issue.

Constitutional Challenge to the FTA


27. (C) FTA opponents are also fighting the FTA on the
legal front. Citing constitutional grounds, the Senate
Standing Committee on Foreign Affairs (chaired by Thaksin
opponent Senator Kraisak Choonhavan) has challenged the
legality of the US and other FTAs. His lawsuit argues that
paragraph 2 of Article 224 of the Constitution of the Kingdom
of Thailand requires parliamentary approval of any change to
"the boundary of state jurisdiction." The lawsuit cites
several provisions of the Thailand-Australia FTA (TAFTA) as
changing "the boundary of state jurisdiction." Since the RTG
had not submitted TAFTA for parliamentary approval, the
treaty is unconstitutional and should be annulled. The suit
is currently before the State Ombudsman, who will decide
whether to send the lawsuit to a court. Most observers here
think the Ombudsman will decide to forward the case to the
Constitutional Court, which will rule on the issue. The
Constitutional Court has not shown an inclination to
challenge the Thaksin government, and even if it ruled in
favor of Kraisak's committee, the TAFTA's implementation
regulations (such as lowered tariffs) would remain in place.
Nevertheless, if the Constitutional Court rules in the
plaintiffs' favor, this will affect the FTA with the US as
well, since the RTG has stated it does not plan to submit the
FTA to the Parliament for approval. We doubt there currently
exists sufficient support in the Parliament (particularly the
Senate) for approval of the FTA.

Can We Complete This FTA?


28. (C) So, given the four lacks that have delayed progress
on the FTA, can we complete it within the time remaining?
Our firm belief is -- maybe. Success will require 1) a
different approach by the RTG, and 2) some additional work on
our part.


29. (C) On the first requirement, some grounds for hope
have emerged recently. It is said that Thais are terrible at
planning, but excellent at coping and adapting. Many a
westerner has been appalled at the chaos attending the
preparation of an event in Thailand, and then amazed when
things come together very well at the last minute. We may
see a similar phenomenon with the FTA. Events in Chiang Mai,
the resignation of the chief Thai FTA negotiator, and
rumblings of discontent from the US side have served as a
wake-up call to the RTG. Senior RTG ministers are now
speaking publicly in support of the FTA, and warning that
Thailand will suffer if the FTA is not completed.


30. (C) On education, DPM/Commerce Minister Somkid has
committed to briefing the Parliament on the FTA negotiations
on a regular basis -- a major shift in the RTG's position.
The RTG will soon appoint a new person to lead the Thai FTA
team. All of the candidates we have heard about would, we
believe, be able to provide effective leadership. We believe
that key ministers (Commerce and Finance) are committed to
reining in RTG elements that are not supporting the FTA
process. In a recent meeting with several hundred employees,
Finance Minister Thanong told those gathered that the Prime
Minister wants the FTA and those within the government who
are opposing it must get with the program. We have received
strong assurances from the Vice Minister of Commerce that his
boss, Somkid, is now in charge, and that things will be
different in future negotiating rounds. Their message to us
is, "This is under new management."


31. (C) We doubt whether extending the deadline by a month
or two for completion of the FTA will significantly alter the
situation here. For one thing, there is widespread
skepticism that the US is serious about the end-of-April
deadline, so an extension would serve to validate that
skepticism and would not necessarily lead to increasing the
tempo of negotiations.

We Must Effectively Address the HIV/AIDS Medicines issue


32. (C) We need to do one thing: we believe we must come
up with an effective response to the medicines pricing
question -- particularly for HIV/AIDS medicines -- and make
sure our message is heard. Due to its historical and
emotional content in Thailand (paras 21-26),this issue is a
hot button for any Thai government. If the Thai public is
left with the impression that the FTA will contribute to an
increase in the price of HIV/AIDS medicines in Thailand, the
RTG will find itself painted into a corner and will lack the
support it needs to conclude the FTA. We believe this is the
one issue that has the power to kill the FTA. While the
Embassy and USTR officials have addressed this issue on many
occasions in Thailand, a less equivocal and simpler message
on key questions is urgently needed. The good news is that,
if we can effectively address this issue, we see no other
absolute "show-stoppers" to the eventual acceptance of the
FTA by most of Thai society. Our proposed strategy is for an
aggressive public outreach program concerning the FTA and
drugs (especially HIV/AIDS drugs) pricing, featuring our
proposed Fact Sheet and accompanying Qs and as its
centerpiece.


33. (C) Recalling the observation that Thais are terrible
at planning but very good at coping, having botched the
planning for the FTA, the RTG may yet be able to scramble,
adapt its approach, and bring the FTA to a successful
conclusion. We are convinced that the key ministries
(Commerce and Finance) are determined to do so. The question
is whether there exists sufficient time remaining to do what
has to be done both inside the room, i.e., with the FTA
negotiations themselves, and outside the room, i.e., with
public opinion in Thailand, especially if the PM remains on
the political defensive.
BOYCE