The third round of formal negotiations for the Thailand-US Free Trade Agreement (TUSFTA) during 4-9 April 2005 in Pattaya, Thailand brought the free trade talk to a critical stage. The first three rounds of formal negotiations since August 2004 consisted mainly of the exchange of initial positions and submission of the draft texts on both sides. The next step is to sit down and clarify all the issues of agreements and disagreements for further negotiations. However, the next step is not expected to proceed promptly because of the fact that both Thai and US governments have set preconditions of negotiation which make it difficult.
The first and most important hurdle for TUSFTA is that the Thai government has excluded the issues of labor and environment from the negotiations while the US side must include the two issues according to the US Bipartisan Trade Promotion Authority Act of 2002.
The Thai government, like many other developing countries, has a policy of not to link trade with labor and environment issues. The Thai side suspects the US's real motivation to link these issues with trade is to force developing countries to raise their labor and environment protection standards and, hence, to increase production cost and to reduce Thai export competitiveness in the US market.
However, the US chapter on environment makes it clear that the US accepts Thailand's rights to set its own environment protection standards while the labor chapter adopts the standards as set out in the commitments under the International Labor Organization (ILO) declaration, of which Thailand is already a signatory. What is required by the US for labor and environment is simply a high level of protection and effective law enforcement.
In fact, the standards of protection in Thai labor and environment laws are relatively high compared to many other countries at the same level of economic development. The problem is effective law enforcement as relevant government agencies lack financial and personnel resources. Thus, the commendable position for the Thai government is to allow the Thai negotiation team to open dialogue on labor and environment with the US side and to use TUSFTA as an opportunity window to raise the effectiveness of Thai law enforcement. Noticeably, the US chapters on labor and environment also include articles on cooperation to raise the effectiveness of law enforcement in the two countries.
Thus, Thailand may use the labor and environment chapters to advantage by developing cooperation with the US to harness the latter's experience and resources to raise the effectiveness of law enforcement in Thailand. This will also benefit Thailand in the long run as its export sector will be pushed forwards to a higher-value production which does not rely on labor and environment exploitation, raising the standard of living of Thai employees and quality of life of the Thai population in general.
Another difficult negotiation issue is financial services in which the US requires Thailand to liberalize its financial system. The Thai side, consisting of Ministry of Finance and the Bank of Thailand, has so far refused to talk and cited the stability of the Thai financial system and their experience from the 1997 Asian financial crisis as the reason against liberalization. However, what is actually at stake is the Bank of Thailand's desire to cling to its own pervasive regulatory power.
Financial system liberalization will benefit Thailand's economic development in the long run if it is conducted in a proper sequence and timing. The breakup of banking cartels and the increased competition in the Thai financial market will certainly benefit the Thai public as depositors and borrowers of banks. Liberalization will also increase the size and depth of the Thai financial market and, hence, reduce its sensitivity to drastic capital movement and the possibility of financial crises in the future.
So the correct negotiation position for Thailand is to open up its financial system in steps which allow for adjustment and stability. The US side is also clearly sensitive to the issues as can be seen from the US-Chile FTA which set a good example of how to proceed with financial liberalization under FTAs. What is required now is the decision at the Thai policy level to proceed with financial liberalization under TUSFTA, which the Bank of Thailand must not resist.
The most difficult chapter for TUSFTA is intellectual property. This is also the most misunderstood and politically-sensitive topic of TUSFTA for the Thai public. The US demands are comprehensive, covering scope, coverage, and types of intellectual property to be protected as well as legal procedures and stringent law enforcement. The chapter, if accepted by Thailand, will have widespread repercussion from computer software to digital media (movies and music), plants, animals and pharmaceuticals. The chapter is tantamount to a fundamental reform of the whole of Thai intellectual property laws.
The Thai public's concern over intellectual property chapter is partly based on misunderstanding and short-termism. There is a widespread fear that, once more stringent and comprehensive laws are adopted, intellectual property products will be more expensive and Thailand stands to lose because Thailand is currently a net buyer and consumer of these technologies. One most vocal resistance is from Thai HIV patients who envisage more expensive and less-readily available drugs under more stringent drug patent laws.
However, the reform of Thailand's intellectual property laws, just like financial liberalization, will benefit Thai economic development in the long run. It is generally acknowledged in Thailand that the country needs a restructuring of its education and research and innovation system in order to achieve the development of a knowledge-based economy. The upgrading of Thai industries from labor-intensive, environment-polluting manufacturing to a higher-value production also requires indigenous research and innovation. All these require a comprehensive reform of intellectual property laws and protection practices to allow Thai inventors to benefit more fully from their own inventions.
On the other hand, the short-term impact of intellectual property law reform must be addressed properly to alleviate the public concern. A side letter to the chapter should allow for flexible and gradual reform of Thai intellectual property laws in order to phase in the new practices and to ease out the short-term negative effect. Another side letter may specify cooperation which allows the US to assist Thailand in developing its intellectual property databases, legal procedures, expertise and personnel.
The author is with the Faculty of Economics, Thammasat University.