Professor Pasuk Phongpaichit discusses
the future of Thailand's new trade agreement with Japan
By Jon Fernquest[Introduction|Article]
[Reading Questions|Answers]
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The new Thai-Japan free trade agreement came into force last week.
An important critical perspective on this new agreement was presented last week by Professor Pasuk Phongpaichit, professor of economics at Chulalongkorn University in Bangkok, at a seminar on "The 120th Anniversary of Japan-Thailand Diplomatic Relations" in Tokyo.
The new agreement clearly provides Thailand with some great opportunities, but taking advantage of these opportunities will not be easy. Coordinated effort between Thai industry and government over several years will be required.
The competitiveness and sophistication of Thai firms will likely increase as contact with Japanese firms and markets increases, but continual monitoring will be necessary. At the end of her article, Professor Pasuk provides a list of open questions that need to be answered in the future to gauge how beneficial the agreement has been for Thailand.
Assessing the impact of the new free trade agreement will not be an adventure into unexplored territory. There are already examples how how the success of free trade agreements can be evaluated and debated after they have been in operation for several years. Probably the most famous of all economics bloggers on the internet is professor Brad DeLong of University of California at Berkeley. Brad DeLong frequently discusses the failures and successes of the North American Free Trade Agreement (NAFTA) a decade after it went into effect. NAFTA was a free trade agreement between the United States and Mexico that Brad DeLong helped implement during the Clinton administration. [See Brad DeLong's Afta Thoughts on NAFTA]
critical - examining in detail and making careful, well-reasoned judgements
a perspective - the way that a person thinks about an issue (a product of their believes, wealth, and social position)
taking advantage of opportunities - gaining the benefits that are possible to gain
a coordinated effort - when two or more people work together harmoniously
gauge - measure
North American Free Trade Agreement (NAFTA) - a free trade agreement between Mexico, Canada, and the US that started over 10 years ago
Reading Questions
Here are some questions to guide your reading (See answers at end):1. How are the "economic partners" of a country ranked in terms of importance?
2. How does Japan rank among Thailand's economic partners?
3. Despite accounting for a small fraction of overall Japanese, why is Thailand an important Japanese trade partner?
4. Which country receives the higher tariff reductions under the agreement? By how much?
Over how many years will the tariff reductions take place?
5. Which country will have to reduce tariffs faster> How much faster?
6. At the end of tariff reductions how will Japanese tariffs compare to Thailand's tariffs?
7. In the end will the difference between tariffs that the two countries face really be significant compared to the original tariffs?(Express your opinion)
8. Which sectors of the Thai economy have expressed satisfaction with the agreement?
9. Which sectors of the Thai economy have not expressed satisfaction with the agreement?
10. What positive and negative effects could the agreement have on Thailand's agricultural sector?
(Express your opinion, or better yet do some research)
11. Which country opens up more services under the agreement?
12. What two Japanese manufacturing industries are especially important in Thailand?
13. How are Japanese firms that provide services to larger Japanese manufacturers protected by the new agreement?
14. What benefit will this protection of Japanese firms have for the hai economy?
15. Which areas of the Japanese economy are opened up to Thai service providers?
16. Which service areas is Thailand likely to be able to use its accumulated industry experience to take advantage of?
(Express your opinion)
17. How does the agreement make it easier for Thais to obtain the necessary professional qualifications to engage in Japan's service sectors?
18. What will make it difficult for many small-scale Thai producers such as SMEs and farmers to take advantage of the agreement?
19. What part of the agreement tries to smooth over any difficulties that small-scale producers might have? How?
20. How does the "Investment Agreement" protect Thai investments in Japan and Japanese investments in Thailand?
21. Why might the range of Japanese assets in Thailand protected by the agreement be too wide?
What difficulties might this present? (Express your opinion)
22. What redress can a business seek if it feels that it has suffered as a result of changes brought about by the agreement?
What limitations are there in this process?
23. What negotiation shortcomings were there on the Thai government side?
24. How will the 2007 constitution overcome these problems?
25. How did the size of the Japanese list of items excluded from negotiations differ from the Thai list?
26. What important items did the Japanese exclude?
Bangkok Post Article November 02, 2007
FOCUS / JAPAN-THAI ECONOMIC PARTNERSHIP AGREEMENTFree trade and the concerns it raises
In an address delivered in Tokyo yesterday, a highly respected Thai scholar discusses the impact of the free trade agreement on bilateral relations between Japan and ThailandBy PASUK PHONGPAICHIT
November 1st marks the official 120th anniversary of Thai-Japanese relations. But economic relations date back around 600 years. In 1419, the King of Ryukyu (Okinawa) complained that Siamese officials had refused to sell sappanwood on grounds that the gifts offered were insufficient. We might call this an early example of a non-tariff barrier. To overcome this, the Ryukyu king sent more gifts, including large quantities of woven-gold satin, white linen, sulphur, swords, big blue vases, folding paper fans and small blue bowls.
Today, the regional and global economy is much more complex.
The Japan-Thai Economic Partnership Agreement (which was inaugurated yesterday) is a response to that complexity. It covers trade in commodities, services and investment. It is an attempt by two countries to enhance their competitiveness.
In this talk, I will briefly summarise the agreement, and suggest how we should judge its success in the future.
free trade - trade between countries without tariffs or other restrictions
raise concerns - naturally leads one to think of certain problems or issues
an address - (formal) a speech to a group of people
impact - an effect, how great of an effect, the magnitude of the effect
Free Trade Agreement (FTA) - an agreement between two or more countries to reduce tariffs and other "barriers to trade" over time
bilateral relations - formal diplomatic relations between two countries
Ryukyu and Okinawa - two islands located in the sea to the South of China and Japan
sappanwood - a rare wood
on grounds that - for the reason that
insufficient - not enough
tariff - a tax on trade with foreign countries
non-tariff barrier - a barrier or restriction on trade with foreign countries that is not a tariff or tax
satin - smooth shiny cloth made from silk
linen - a plain cloth used to make common household items such as tablecloths, sheets, and pillowcases
vases - jar made of ceramics or glass for holding flowers
Japan-Thai Economic Partnership Agreement (JTEPA) - the formal title of the free trade agreement between Japan and Thailand that became law last week
Background
But first, a little background.
For Thailand, Japan is our single most important economic partner. It accounts for around 20% of our imports and 15% of exports. It is by far the biggest foreign investor, contributing between a third and a half of the total.
Japan is also an important friend-in-need, as was shown during the Asian crisis of 1997. This is well remembered and appreciated.
From the Japanese side, Thailand is not important on the same scale, accounting for only 3-4% of Japan's total trade. Yet Thailand is far from insignificant to Japan. For many Japanese firms, their investments in Thailand have helped them to retain their profit levels and their world market shares in the face of new competition.
background - essential knowledge on a subject one needs to understand the news
friend-in-need - when you have problems and "need" someone the "friend" is there to help you
appreciated - thankfl for what people did for you
scale - magnitude and importance
accounting for - the fraction of the total that it is
insignificant - not important
retain - keep
world market shares - what percentage of the world market is possesses
The Trade Agreement
Now let me summarise the main points of the agreement.
On first sight, the tariff reductions seem to favour Japan. On Japan's side the average tariff rate is already low at 2.67%, and will be reduced gradually to reach 0.17% in year 16 (2024).
Thailand's average tariff rate is currently higher at 9.09%, and will be reduced to reach 0.55% by year 11 (2019), a shorter time-frame than in the case of Japan.
A Japanese import into Thailand will fall in price by about 8.55%, while a Thai import into Japan will fall in price by only 2.61%. Moreover, Japanese exporters should be able to realise the benefits of the tariff reduction immediately, while Thai firms may have to spend time and money to improve product quality in order to meet Japanese standards.
Still, Thai manufacturers in garments, jewellery and processed foods are said to be satisfied with the JTEPA. The Thai Ministry of Foreign Affairs insists that Thai farmers will benefit, too.
a tariff - a tax on trade with foreign countries
shorter time-frame - quicker, with less of a delay
realise the benefits of - gain the benefits (already discussed but not yet gained)
standards - levels ofquality
garments - clothes
processed foods - foods that have been cut, cleaned, and packaged
Service Sector Provisions Favour Thailand
Under services, the agreement seems to favour Thailand. Japan opens up 135 areas, while Thailand opens up only 13. But the actual benefit is more difficult to assess.
Japanese service firms in Thailand in areas such as consulting, logistics, maintenance and dealerships are allowed a higher foreign equity than that permitted under local law. Many Japanese firms were set up in Thailand after the 1997 Asian crisis to offer services to the Japanese manufacturers of automobiles and electronics. The JTEPA provisions safeguard these firms (and new entries) against changes in Thailand's investment laws. This should make Thailand become more attractive to Japanese investors.
In return, Japan opens up 135 areas for Thai service providers including advertising, hotels, restaurants, event organising, tour organising, security services, interpreting, caring for the elderly, teaching Thai language and Thai dancing, spas, and professional services including taxation, legal, architectural and engineering consultancy.
In practice, entry into many of these areas in Japan requires professional qualifications and other conditions. Here the agreement has made things a little easier. Thais with a BA degree from Thailand may apply for an equivalent degree in Japan.
For other labour migrants to Japan, the agreement offers very little.
The required work experience for Thai cooks is reduced from 10 years to 5 years. But for other occupations, provisions are made for further negotiation at a later date.
assess - evaluate, judge how good it is
logistics - transportation, storage, and control of goods, raw materials, and parts used by a company in production
foreign equity - the percentage of a company owned by foreigners
safeguard - protect
new entries - companies newly entering the market (the Thai market)
event organising - organising large shows and conferences, with many people attending
interpreting - translating spoken language (to help people communicate in real time)
consultancy - a firm that advises in a specialised area that requires expertise (for example, architecture, logistics, computing, etc.)
professional qualifications - things like degrees and licenses that prove one can work as, for example, a doctor, an architect, an accountant, etc.
equivalent - the same as
labour migrants - people who move to a different region, city, or country to work
occupations - jobs
provisions - arrangements in an agreement
Implementation of Agreement
There is a real fear that some provisions will be meaningless, especially for small Thai producers such as farmers and SMEs, because of the difficulties of meeting safety standards and other qualifications.
The Implementing Agreement of JTEPA sets up a cooperation framework to help overcome such barriers by such measures as technical input or help with licensing procedures. Various local bodies in the private sector in Thailand, including some local agricultural cooperatives, have also shown enthusiastic interest in pursuing cooperation under the Implementing Agreement.
The JTEPA includes an Investment Agreement which protects foreign investors from both sides against expropriation, nationalisation, or indirect expropriation, with compensation in the case of expropriation for public purposes.
The wide range of assets covered include re-invested earnings, supplier and buyer credits, intellectual property rights, concessions, licences and permits, tangible and non-tangible property, and property rights.
These provisions have excited some concern. Perhaps the range of assets is too wide and might create difficulties.
provisions - arrangements that are part of an agreement
cooperation - working together to achieve something
a framework - a system of guidelines for an activity
licensing - the giving official permission to engage in an activity or sell a product
a license - official permission to engage in an activity or sell a product
agricultural cooperatives - groups of farmers who join together to market and sell their agricultural produce
expropriation - taking something away from someone
nationalisation - when the government seizes private businesses and turns them into government run enterprises
re-invested earnings - company profits that are put back into the company to help it grow (instead of borrowing money from the bank, for instance)
concessions - a special right or privilege given to someone
permits - legal permission to do something (for example, to own a car or burn polluting garbage)
tangible property - "touchable" proerty, property that you can touch (for example, an automobile or land)
property rights - rights that people have to own something (for example, some land in Thailand does not have strong property rights attached to it)
excited some concern - some people became excited and concerned about it
Process of Negotiation
Investors may sue the government for compensation on grounds that their business has suffered as a result of changes in government policy, and such cases are judged by a three-man panel with no mechanism for appeal. During the negotiation, some sensitive issues arose. As these will affect whether the agreement is judged a success, let me briefly review them.
The first issue concerned the process of negotiation itself. While negotiations proceeded from early 2004 to 2006, some important information was not made publicly available.
Under Thai law, there was no requirement for the agreement to be submitted to parliament. Shortly prior to the eventual signing, the agreement was debated in the Legislative Assembly, but legislators were provided with little information on the details of the agreement, had only a short time to analyse that information, and had no power to vote.
This procedure generated suspicion. For example, it emerged that Japan had excluded rice and some 230 other items from the scope of negotiation, while Thailand's exclusion list had about 10 items.
This is, of course, Thailand's own internal problem, and steps have already been taken to overcome it. The new Constitution of 2007 requires that such agreements are aired in a public hearing, submitted for parliamentary approval, and governed by a new law currently under discussion.
compensation - money paid for work or to make up for a loss
a mechanism - a way of geting something done in a system
appeal - a request for a legal decision to be changed
sensitive issues -
suspicion - lack of trust (a feeling that something bad has happened, but not sure)
the scope of an agreement - the area or items included or dealt with in an agreement
steps have already been taken to - something has already been done to solve the problem
a public hearing - a meeting to collect facts about a problem that is open and visible to the public
TRIPS, Micro-organisms, and Intellectual Property
The second issue concerns intellectual property. Under Thai law, it is difficult to gain intellectual property rights over a natural organism. Under TRIPS, individual countries are allowed to protect themselves by such a law.
But a clause in the JTEPA states that: "Each party shall ensure that any patent application shall not be rejected solely on the grounds that the subject matter claimed in the application is related to a naturally occurring micro-organism."
The question arose as to why this clause should appear in the JTEPA. What sort of substance was envisaged? Thai NGOs argued that it would be safer to drop this clause and allow the TRIPS framework to apply. The negotiators refused this suggestion so the clause remains, and so too does the suspicion of why it is there.
adadasdasdasdasdasdasda
intellectual property rights (IP rights) -
a natural organism - an animal in nature
TRIPS - the part of the WTO treaties that deal with intellectual property
ensure that... - make certain or sure that...
patent application - applying for legal protection for an invention
rejected solely on the grounds that... - rejected for only one reason,...
a micro-organism - the very small, microscopic, living things (for example viruses and bacteria that cause disease)
a framework - a system of guidelines for an activity
a clause - one detail
The Hazardous Waste Issue
The third concern concerns waste.
Under the agreement, Thailand will reduce the tariff on several categories of waste. This raised suspicions that the agreement would promote Japan's ability to use Thailand as a dump for unwanted waste.
Officials from Thailand and Japan protested that the movement of waste is strictly controlled by laws in both countries, and both countries have signed the Basle Convention of 1989 on the inter-country movement of hazardous waste.
The ministers of foreign affairs of the two countries exchanged letters to "reaffirm that JTEPA does not in any way encourage trafficking of hazardous wastes between Japan and the Kingdom of Thailand".
But if the import of hazardous waste is thus strictly controlled, why bother to adjust the tariff levels?
Though Thailand may have a system of control on paper, the enforcement of laws is often inefficient. Currently there are problems that waste is imported to Thailand, earmarked for re-export to other countries, but never leaves.
There remains a big question mark over why this tariff reduction should appear in the agreement.
Given the massive importance of Japan for the Thai economy, it is vital that Thailand concludes such an agreement with Japan, particularly in view of the parallel negotiations between Japan and other Asian neighbours.
But the very extent of Thailand's dependence on Japan gives rise to fears that the weaker party may not have done so well out of the negotiations.
raised suspicions - created suspicions
hazardous waste - poisonous industrial chemicals from industry
Basle Convention of 1989 - an international treaty governing trade in hazardous waste and toxic substances
reaffirm - state again clearly and firmly
trafficking - illegal buying and selling of something (drugs or toxic waste, for instance)
why bother to - why do something that isn't necessary
enforcement of laws - arresting and punishing people for breaking laws
inefficient - do not use resources, time, and energy in the best way possible
earmarked for - reserved for a special use
the extent of - how great it is
dependence on - reliance on (how much one could not live without it)
Assessing the Success or Failure of the Agreement
These fears are aggravated by concerns over the process of negotiation on the Thai side. How, then, will the Thai public assess the success or failure of the agreement over the years to come?
I would like to propose a list of nine points which may be used for monitoring the results of the agreement.
1. Have the commodity exports of Thailand to Japan increased at higher rates after the JTEPA?
2. Have the service receipts of Thailand from Japan increased at higher rates after the JTEPA?.
3. Are more professional Thais with BA degrees able to obtain licences to provide services in Japan?
4. Are more cooks, health-care providers and others in categories listed in the agreement able to go to work in Japan?
5. Has additional hazardous waste been imported into Thailand from Japan? And what has been done to this waste?
6. Has there been a significant increase in patents on natural organisms being registered after JTEPA?
7. Have more small producers been able to export to Japan? For example, have more agricultural cooperatives been able to export agricultural products to Japan?
8. Has the cooperation framework outlined in the Implementing Agreement facilitated new efforts to overcome practical problems, especially for small agriculturalists and SMEs?
9. Has the agreement played a positive role in encouraging continued Japanese investment in Thailand?
There should be a joint body to monitor and evaluate the outcome of the JTEPA for both partners.
Perhaps the single most important thing about the agreement from the Thai point of view, is that it has reaffirmed the commitment of both countries to evolve an economic relationship which benefits both sides.
In a world economy which seems to become more complex, more competitive and less stable as time passes, this is a relationship which both sides need to nurture.
aggravated by - made worse by
monitoring - checking to see that nothing goes wrong
professional - work that requires advanced education and/or special training
health-care providers - hospitals and other organisations like clinics that provide medical services
joint body - a group that joins together other groups into one group
a commitment - a promise to do something
evolve - gradually change and develop into a more advanced form
Cambridge graduate Professor Pasuk Phongpaichit is with the Faculty of Economics, Chulalongkorn University.
The above article has been condensed from a speech she delivered in Tokyo on Nov 1, 2007, at a seminar on "The 120th Anniversary of Japan-Thailand Diplomatic Relations."
Answer Key:
1. How are the "economic partners" of a country ranked in terms of importance?
Three factors are cited in the article:
a. Amount of exports.
b. Amount of imports.
c. Amount of foreign investment in the country.
d. Past record of helping the country out when it faces economic problems.
2. How does Japan rank among Thailand's economic partners?
Japan ranks number one.
3. Despite accounting for a small fraction of overall Japanese, why is Thailand an important Japanese trade partner?
In the face of new competition in world markets, Japanese investments in Thailand have helped Japanese firms to:
a. Retain profit levels.
b. Retain world market shares
4. Which country receives the higher tariff reductions under the agreement? By how much?
Over how many years will the tariff reductions take place?
Japan will receive tariff reductions of 8.55% over a period of 12 years (2007 to 2019).
Thailand will receive tariff reductions of 2.61% over a period of 17 years (2007 to 2024).
5. Which country will have to reduce tariffs faster> How much faster?
Thailand has to reduce tariffs faster over 12 years, as opposed to Japan's 17 years.
6. At the end of tariff reductions how will Japanese tariffs compare to Thailand's tariffs?
The average Thai tariff level that Japanese imports face will be %0.55.
The average Japanese tariff level that Thai imports face will be %0.17.
7. In the end will the difference between tariffs that the two countries face really be significant compared to the original tariffs?
(Express your opinion)
The current difference in tariffs is %6.42 (%9.09-%2.67).
After tariff reductions, the difference will be %0.38 (%0.55-%0.17).
The difference at the end of the reductions does not seem significant, but this is far in the future.
8. Which sectors of the Thai economy have expressed satisfaction with the agreement?
Thai manufacturers in garments, jewellery and processed foods.
9. Which sectors of the Thai economy have not expressed satisfaction with the agreement?
The agricultural sector.
10. What positive and negative effects could the agreement have on Thailand's agricultural sector?
(Express your opinion, or better yet do some research)
11. Which country opens up more services under the agreement?
Japan with 135 services open to Thailand versus Thailand with 13 services.
12. What two Japanese manufacturing industries are especially important in Thailand?
a. Electronics.
b. Automobiles.
13. How are Japanese firms that provide services to larger Japanese manufacturers protected by the new agreement?
a. They are allowed a higher level of foreign equity.
b. They are protected from changes in Thailand's investment laws.
("Japanese service firms in Thailand in areas such as consulting, logistics, maintenance and dealerships are allowed a higher foreign equity than that permitted under local law. Many Japanese firms were set up in Thailand after the 1997 Asian crisis to offer services to the Japanese manufacturers of automobiles and electronics. The JTEPA provisions safeguard these firms (and new entries) against changes in Thailand's investment laws. This should make Thailand become more attractive to Japanese investors.")
14. What benefit will this protection of Japanese firms have for the hai economy?
It should make Japanese investment in Thailand more attractive and therefore lead to an increase in investment.
15. Which areas of the Japanese economy are opened up to Thai service providers?
135 service areas including including the important areas of:
a. advertising
b. hotels
c. restaurants
d. event organising
e. tour organising
f. security services
g. interpreting
h. caring for the elderly
i. teaching Thai language
j. teaching Thai dancing
k. spas
l. taxation services legalservices
m. architectural services
n. engineering consultancy services
o. other professional services
16. Which service areas is Thailand likely to be able to use its accumulated industry experience to take advantage of?
(Express your opinion)
17. How does the agreement make it easier for Thais to obtain the necessary professional qualifications to engage in Japan's service sectors?
a. Thais with a BA degree can apply for an equivalent degree in Japan.
b. Work experience required for Thai cooks is reduced to 5 years from 10 years.
18. What will make it difficult for many small-scale Thai producers such as SMEs and farmers to take advantage of the agreement?
The difficulties of meeting strict Japanese safety and quality standards.
19. What part of the agreement tries to smooth over any difficulties that small-scale producers might have? How?
The "Implementing Agreement of JTEPA" provides help with:
a. Technical input.
b. Help with licensing procedures.
20. How does the "Investment Agreement" protect Thai investments in Japan and Japanese investments in Thailand?
It protects investors "against expropriation, nationalisation, or indirect expropriation, with compensation in the case of expropriation for public purposes."
21. Why might the range of Japanese assets in Thailand protected by the agreement be too wide?
What difficulties might this present? (Express your opinion)
22. What redress can a business seek if it feels that it has suffered as a result of changes brought about by the agreement?
What limitations are there in this process?
It can sue the government, but the case will be decided by a three-man panel with no possibility of appeal.
23. What negotiation shortcomings were there on the Thai government side?
a. There is no requirement under Thai law for the agreement to be accepted by parliament.
b. There was little debate in the National Legislative Assembly, very little information on the agreement was released, and in the end the NLA had not power to vote on the agreement.
24. How will the 2007 constitution overcome these problems?
The 2007 constitution requires public debate before such a free trade agreement can become law.
25. How did the size of the Japanese list of items excluded from negotiations differ from the Thai list?
Thailand excluded about 13 items, whereas Japan excluded about 230 items.
26. What important items did the Japanese exclude?
Rice. Thailand is the world's number one exporter of rice.
