Identifier
Created
Classification
Origin
08BANGKOK1218
2008-04-22 10:53:00
CONFIDENTIAL
Embassy Bangkok
Cable title:  

SCENESETTER FOR UNDER SECRETARY OF COMMERCE PADILLA

Tags:  ECON ETRD EINV EFIN OVIP PGOV PREL TH 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHBK #1218/01 1131053
ZNY CCCCC ZZH
P 221053Z APR 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 2730
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
C O N F I D E N T I A L BANGKOK 001218 

SIPDIS

SIPDIS

COMMERCE FOR UNDER SECRETARY PADILLA
STATE PASS TO USTR

E.O. 12958: DECL: 04/22/2018
TAGS: ECON ETRD EINV EFIN OVIP PGOV PREL TH
SUBJECT: SCENESETTER FOR UNDER SECRETARY OF COMMERCE PADILLA

Classified By: DCM James F. Entwistle, reasons 1.4 (b) and (d).

C O N F I D E N T I A L BANGKOK 001218

SIPDIS

SIPDIS

COMMERCE FOR UNDER SECRETARY PADILLA
STATE PASS TO USTR

E.O. 12958: DECL: 04/22/2018
TAGS: ECON ETRD EINV EFIN OVIP PGOV PREL TH
SUBJECT: SCENESETTER FOR UNDER SECRETARY OF COMMERCE PADILLA

Classified By: DCM James F. Entwistle, reasons 1.4 (b) and (d).


1. (U) Summary. Your visit to Thailand gives you the
opportunity to affirm our strong economic relationship with
Thailand as we celebrate the 175th anniversary of the Treaty
of Amity and Commerce. After being led for 15 months by an
interim military-appointed government following a coup in
September 2006, Thailand returned to democratic rule with
national elections in December 2007 and the swearing in of
Prime Minister Samak Sundaravej's Cabinet in January 2008.
The government's economic team is led by Finance Minister
Surapong Suebwonglee and Commerce Minister Mingkwan
Sangsuwan. The two have set a course to stimulate the
economy by reviving infrastructure "mega-projects" and
pushing credit into rural areas. They have also moved to
shore up foreign investor confidence. The United States is
Thailand's largest export market and third-largest supplier
of imports after Japan and China. Two-way trade in 2007
totaled USD 31 billion. U.S. investment, concentrated in the
petrochemicals, finance, consumer products and automobile
sectors, is estimated at USD 23 billion. End Summary.

--------------
CURRENT ECONOMIC CONDITIONS
--------------


2. (SBU) Thailand's recent economic growth has been driven
almost solely by exports, which now comprise over 70 percent
of GDP. Domestic consumption and investment was flat in 2007
due to political uncertainty following the coup. The current
subprime-induced slowdown of the U.S. economy (and other
advanced economies) is expected to reduce Thai exports of
manufactured products in 2008. The Thai government plans to
compensate by boosting domestic growth. The government
coalition led by the People's Power Party (PPP) of Samak
Sundaravej has proposed expanding government spending by

funding infrastructure projects and a revamped version of
"populist" low-interest credit programs, aimed at assisting
the rural poor, that were first instituted by former Prime
Minister Thaksin Shinawatra. Finance Minister Surapong
increased foreign investor confidence in March by removing
capital controls that had been imposed shortly after the
coup. The controls were initiated in an unsuccessful effort
to stem the appreciation of the Thai baht, which has
strengthened sharply, along with other Asian currencies,
vis-a-vis the U.S. dollar over the past two years.


3. (U) Both government and private economists expect real GDP
growth in 2008 to be between 5.0 and 6.0 percent, compared to
4.8 percent in 2007, on improved domestic consumption and
investment. Thailand is a net exporter of food products and
is the world's largest exporter of rice. Consequently,
Thailand is expected to weather the recent global increases
in food prices relatively well compared to other Asian
economies. Food and oil price increases have contributed to
a recent uptick in headline inflation, running at 3.0 to 4.0
percent in the first quarter of this year, while core
inflation remains a low 1.5 percent.

--------------
BILATERAL ECONOMIC ISSUES
--------------


4. (SBU) Negotiations on a Free Trade Agreement stalled in
mid-2006, and the USG officially suspended them after the
September 2006 coup. At the time of the suspension, there
were a number of significant differences between the two
sides' negotiating stances, particularly on financial
services, intellectual property rights, and rules of origin.
Due to the political environment in both countries, we
consider the talks to be on indefinite hiatus but not
officially terminated. The Thai government has not
approached us to schedule additional rounds, although
officials occasionally make public statements affirming that
the FTA is a long-term goal, and the question occasionally
arises among media pundits.


5. (SBU) In November 2006 and January 2007, Thailand's Public
Health Minister issued compulsory licenses on three
pharmaceutical products, two of which affected U.S.-based
companies Merck and Abbott Labs. The Public Health Ministry
at the time and sympathetic NGOs claim the move was necessary
to open up access to essential medicines for patients
previously unable to afford the drugs. We have focused our
engagement with the Thais on ensuring their process for
considering compulsory licenses is transparent, and that
discussions with patent holders are undertaken in good faith.
The current government is reviewing the compulsory licenses
already issued as well as their future policy on the issue in
general.


6. (SBU) On April 28, USTR plans to announce that Thailand
will remain on the Special 301 Priority Watch List (PWL).
USTR placed Thailand on PWL in 2007, largely due to high
rates of optical disc piracy and trademark infringement, and
a lack of adequate enforcement of IPR laws. Thailand has the
second-highest rate of movie piracy in the world, just behind
China and tied with Russia. The total value of losses from
piracy and counterfeiting in Thailand, including clothing,
software and entertainment products, was estimated at USD 400
million in 2007. The compulsory licensing policy was a
contributing but not deciding factor in the decision to place
Thailand on PWL last year, but many Thais remain convinced
that the decision was driven by the pharmaceutical issue.
Thailand has been more active on enforcement in the past
year, but piracy remains a major problem.


7. (SBU) On February 29, the WTO ruled in Thailand's favor in
their case against the Department of Commerce's "zeroing"
methodology in calculating anti-dumping duties on Thai shrimp
exports. The duties have been in place since 2005 and have
been an occasional irritant in bilateral economic relations.
Shrimp is one of Thailand's major exports and the U.S. is
Thailand's largest market, consuming nearly half its exports.
The WTO panel also agreed with Thailand that the U.S.
Customs and Border Patrol's "continuous bond" requirement was
also WTO inconsistent. The U.S. has until April 29 to appeal
the decision.


8. (SBU) Thailand is a leading user of U.S. trade preferences
under the Generalized System of Preferences (GSP) program.
Nearly 20 percent of its exports enter the U.S. duty-free
through the program. In 2007, Thailand lost GSP benefits for
gold jewelry, flat panel televisions and plastics after
surpassing statutory limits on the value of its exports,
affecting over a billion dollars in exports. Some belief
still remains in Thailand that the loss of GSP benefits was
connected to the Special 301 downgrade and Thailand's policy
of compulsory licenses on pharmaceuticals. Thailand will
likely submit a request for renewal of GSP treatment on six
of the nine products that have lost GSP coverage over recent
years.

--------------
THAILAND'S ECONOMIC TIES WITH BURMA
--------------


9. (SBU) About two-thirds of Thailand's electricity is
generated by natural gas and 26 percent of Thailand's natural
gas is imported from Burma. More than half the gas imported
from Burma comes from the Yadana field where Chevron has
partial ownership of a production sharing contract. Thailand
is seeking to diversify its energy supply by building an LNG
terminal to import gas from Qatar by 2011 and has longer-term
plans for nuclear energy by 2021. But for now, Thailand
remains dependent on Burma for a large share of its energy
needs, a fact which inevitably frames Thai policy toward its
troubled neighbor. In addition to natural gas, a large share
of rough Burmese gemstones is sent to Thailand for cutting
and polishing. The Thai gem industry is concerned that a
proposed U.S. ban on importing Burmese gemstones would harm
Thai craftsmen as most of the value of these rubies is added
in Thailand.

--------------
THE POLITICAL SITUATION
--------------


10. (C) PM Samak and his People's Power Party (PPP) received
a substantial plurality in Thailand,s December 23 national
legislative election. Samak and PPP campaigned in the
election as allies and followers of former Prime Minister
Thaksin and his now-disbanded Thai Rak Thai (TRT) party. The
substantial plurality that PPP won reflected not only the
effectiveness of the new party's machinery (largely inherited
from TRT) but also Thaksin's continuing appeal in much of
Thailand, as well as widespread dissatisfaction with the
interim government installed by the coup leaders.


11. (C) Samak and his cabinet took their oath of office
before King Bhumibol on February 6 and the inauguration
marked both the return to power of a democratically elected
government and a return to influence for Thaksin. Although
Samak eagerly presented himself as Thaksin's follower during
the campaign, he has taken a more independent line since the
election. Local media have reported that Samak and Thaksin
clashed over cabinet appointments but it remains unclear
whether those stories were accurate or were planted to
enhance Samak's credibility.


12. (C) Pre-election speculation about whether the Royal Thai
Army would tolerate a PPP administration has faded. Samak
appointed himself Defense Minister -- a civilian Defense
Minister is rare but not unprecedented in Thailand -- and
signs from the military point to the institution,s
willingness to work cooperatively with Samak. In a
significant departure from 2006, there seems now to be a
widespread recognition that military-installed governments
have no special capability to resolve Thailand,s problems.
Under current conditions, most of the political class, the
business elite, and many average Thais who welcomed the coup
in 2006 would likely not support another instance of military
intervention in politics.


13. (C) Thailand's southern provinces continue to be wracked
by episodic violence due to an ongoing ethnic Malay-Muslim
insurgency and Thai government efforts to suppress it.
Regional violence has claimed some 2900 lives since January
2004, when the violence began to escalate. In late 2006, the
interim military-appointed government made some attempts at
ending the violence through reconciliation, but lack of
political support and preoccupation with the on-going
political crisis in Bangkok caused these efforts to stall.
There has been little progress since the inauguration of
Samak's government in 2008.
JOHN