Background Thailand has been negotiating for a Free Trade Agreement with USA since 2003 USA feels: An agreement with Thailand, which is currently the United States 20th largest trading partner, would significantly increase trade in goods and services, create more commercial opportunities for U.S. exporters, particularly agricultural product exporters, and reduce or eliminate barriers in many sectors... enhance investment flows by ensuring a stable and predictable environment for investors, and improve the protection and enforcement of intellectual property rights. strengthen longstanding economic and security ties between our countries
Purpose of this presentation The question remains whether Thailand is going to benefit out of this FTA. It is generally believed that an FTA will open up US markets to Thailand and increased market access will offset any potential costs arising out of FTAs. We investigate whether signing of an FTA with USA necessarily leads to increased market access in USA
US FTAs: Overview Before 2000, USA had FTAs with Canada, Israel and Mexico Since 2000, USA has negotiated FTAs with Australia, Bahrain, Chile, Jordan, Oman, Morocco, Singapore, Peru, Malaysia, CAFTA Negotiations are on with the following countries: South Korea, Panama, Thailand, UAE, Columbia and Ecuador (Part of ANDEAN), SACU, Following FTAs are likely to be undertaken Algeria, Egypt, Tunisia, Saudi Arabia, Qatar
The ASEAN-USA Matrix Country FTATIFAWTOGSP Brunei Yes Not Eligible Burma YesNot Eligible Cambodia Yes Indonesia Yes Laos Negotiating Accession Not Eligible MalaysiaLaunched YesNot eligible SingaporeYes Not Eligible ThailandNegotiatingYes Vietnam Negotiating Accession Not Eligible ASEAN-10 Negotiating
Export Composition of Thailand (Exports to USA, 2005) SITCDescriptionShare '76'Telecommunications and sound recording and reproducing apparatus and equipment23.48 '75'Office machines and automatic data processing machines15.18 '84'Articles of apparel and clothing accessories12.12 '89'Miscellaneous manufactured articles, n.e.s.8.45 '03' Fish (not marine mammals), crustaceans, molluscs and aquatic invertebrates, and preparations thereof8.27 '77' Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof (including nonelectrical counterparts of household type, n.e.s.)7.32 '66'Nonmetallic mineral manufactures, n.e.s.2.79 '69'Manufactures of metals, n.e.s.2.62 '82' Furniture and parts thereof; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings2.49 '74'General industrial machinery and equipment, n.e.s., and machine parts, n.e.s.1.99 '23'Crude rubber (including synthetic and reclaimed)1.83 '65'Textile yarn, fabrics, made0up articles, n.e.s., and related products1.71 '85'Footwear1.62 '05'Vegetables and fruit1.59 Source:
Bilateral Agreements/FTAs to increase/protect Market Access? Quite a few of Thailands main competitors are either already Regional Trade partners of USA or in the process of becoming a Regional trade partner of USA This is why there is a temptation for Thailand to engage in a regional trade pact with USA to either maintain or improve market access.
Source: SITC 76Rank data RankCountry NameImports (000$)Share 1 "China" "Mexico" "Malaysia" "Japan" "Korea" "Thailand" "Taiwan province of China" "Canada" "Sweden" "Indonesia" "Singapore" "Brazil" "United Kingdom" "Israel" "Germany" Sub-Total "World" SITC 75Rank data RankCountry NameImports (000 $)Share 1 "China" "Malaysia" "Japan" "Mexico" "Singapore" "Taiwan province of China" "Korea" "Thailand" "Canada" "Philippines" "Ireland" "United Kingdom" "Germany" "Hungary" "Indonesia" Sub-Total "World" Thailands Top Exports and its main Competitors: Two Examples
Canada Market Share Source:
Market Share Mexico Source:
Australia Market Share Source:
Some Latin American Partners Have Done Better:
Source: But some Non-partners have done even better!!
Performance of Some ASEAN Countries Source:
On the other hand, FTAs have benefited USA…1 US exports to Chile grew 33.5% in 2004, making the USA Chiles leading trade partner. The US trade surplus with Singapore tripled after the first year of the US-Singapore FTA, reaching $4.3 billion. In the first quarter since the US-Australia FTA went into effect, the US trade surplus with Australia grew 31.7% to $2.13 billion. Together, US exports to Chile and Singapore grew $4 billion in the first year of the FTAs with those countries. Source: Office of the United States Trade Representative, CAFTA Policy Brief – May 26, 2005
FTAs have benefited USA…2 The US-Australia FTA improved the overall US trade deficit situation. The US trade surplus with Australia rose by 31.7% in the first quarter to just over $2.1 billion compared to first quarter Some US companies saw even more impressive gains: After the FTA with Chile, Caterpillars US exports to Chile nearly doubled. Even though Singaporean tariffs were low before implementation of the FTA, US exports rose to $19.6 billion, an 18.4% increase from the previous year. The American Farm Bureau Federation estimates that CAFTA, when fully implemented, would expand US farm exports to the region by $1.5 billion a year. The National Association of Manufacturers (NAM) estimates that CAFTA would result in $1 billion in additional manufactured US exports to the region. Most of this increase could occur quickly, because more than three- quarters of tariff cuts on manufactured goods would take place in CAFTAs first year. Source: Office of the United States Trade Representative, CAFTA Policy Brief – May 26, 2005
Summary of Results Some FTA Members have lost market share - both traditional FTA partners like Mexico and Canada and new partners like Australia and Singapore. A few FTA Members have managed to maintain/improve market share - Peru, Chile. A few non-Members have done very well/well and increased their market share -China, India. Most ASEAN countries did not manage to increase their market share. So, we do not find any clear pattern between FTAs and increase in Market share in USA
Why Signing FTAs may not guarantee improved market share USA becoming a hub of too many FTAs, which is leading to Preference dilution Tariff rates in USA are fairly low (4.9 percent average MFN rate, average applied rate is lower at 3.7 percent), therefore, preference margins are not that high. 38 percent of the tariff lines are zero duty The Preference margins will be lower for goods with GSP access to USA. FTAs contain a very high level of exclusions, and sensitive sectors are almost always kept out of FTAs Non Tariff Measures actually prevent market access more than tariff measures Diagrammatic Representation of a Hub
Tariff Structure of USA Total number of tariff lines a 9,99710,00110,29710,304 Non-ad valorem tariffs (% of all tariff lines) Non-ad valorem with no AVEs (% of all tariff lines)0.0 Tariff quotas (% of all tariff lines) b Duty-free tariff lines (% of all tariff lines) Dutiable lines tariff average rate (%) Domestic tariff "peaks" (% of all tariff lines) c International tariff "peaks" (% of all tariff lines) d Bound tariff lines (% of all tariff lines)100.0 e aChapters 1-97, at 8-digit level, excluding in-quota tariff lines. bTariff quotas are referred to as "tariff rate quotas" in U.S. regulations. cDomestic tariff peaks are defined as those exceeding three times the overall average applied rate. dInternational tariff peaks are defined as those exceeding 15%. eTwo lines applying to crude petroleum are not bound Source: Trade Policy Review of USA, WTO 2006
Preference Margin for Singapore FTA (MFN- Preferential Tariff Rate) Source: Calculated from US TPR 2006, WTO
But Costs of FTAs can be significant for smaller partners North-South RTAs can reduce policy space for developing countries Developed countries try to insert clauses which they have failed to push in a multilateral framework US-Thai FTA can hurt Thailand in a number of areas including: Agriculture Investment treaties Intellectual Property Rights Environment
Why Bilateral Investment Treaties? WTO Members resisted the introduction of the Multilateral Agreement on Investment Developed countries are now trying to sneak in an investment treaty through the FTA route This will soften the stance of developing countries at the multilateral forum Given the high growth of FDI flows to developing countries, it is not for the sake of the host country that an investment treaty is required. Investment treaties are essentially introduced to strengthen the hands of big foreign capital.
BITs can be harmful BITs can harm developing countries in a number of ways: They restrain the options of developing countries to use FDI as a policy instrument to improve sectoral/regional balance of an economy BITs go beyond WTO TRIPS Agreement and incorporate the "national treatment" principle without the exceptions provided for under international treaties. BITs can be used to introduce commitments on issues like labour standards and the environment, which the developed countries couldnt do from a multilateral platform
Conclusion Evidence from existing FTA partners of USA and others shows that FTAs are neither necessary nor sufficient for increased market access. Preference margins will be low for the product categories where Thailand has proven export market in USA. But USA is likely to use the FTA to push stricter TRIPS regime which may hurt Thailand. FTA can also be used to push environment and labour clauses, which developed countries could not do through WTO. BITs restrict countries from aligning FDI to the national priorities of the host country So, overall, the gains are doubtful while there will be some obvious costs.