Cablegate: Thai-Japan Trade Agreement Set to Enter Into Force

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1. Summary. The Japan-Thailand Economic Partnership Agreement
(JTEPA) will enter into force on November 1. The trade agreement
liberalizes the vast majority of trade in goods between the two
countries, though key Thai exports like rice and sugar are excluded.
Trade in services and investment is also liberalized though not to
the degree of openness enjoyed by U.S. investors. Thai business
expects a 20 percent boost in overall exports to Japan due to the
agreement, with some hard-hit sectors like apparel, jewelry and sea
products hoping for even better performance. End Summary.

2. Five years after Thailand and Japan agreed to pursue a trade
agreement, the JTEPA will enter into force on November 1. The two
countries agreed in principle on the treaty in September 2005, but
due to the unstable political situation in Thailand did not
officially sign until April, 2007. Although the agreement is
considered similar to a free trade agreement, both sides note that
many chapters of the agreement deal with cooperation in economic
sectors rather than liberalization, and therefore termed it an
"Economic Partnership Agreement."

3. The agreement is expected to have a significant impact on trade:
Japan is Thailand's largest trading partner and Thailand is Japan's
sixth largest. Bilateral trade in 2006 surpassed USD 42 billion and
made up 16 percent of Thailand's total trade with the world. Japan
is Thailand's top export market for sugar, chicken and aluminum
products, and second largest for rubber, vegetables and furniture.
Electronic machinery makes up the largest segment of Thailand's
exports to Japan. Japan is also the largest investor in Thailand;
the Japanese Embassy estimates new investment from Japan at an
average of three billion dollars annually.

Tariffs take a haircut

4. The agreement promises to eliminate or reduce tariffs on 97
percent of Japan's exports to Thailand by value, and 92 percent of
Thailand's exports to Japan. Many of the reductions will take place
immediately with the rest spread out over ten years. Thai trade
officials have highest hopes for rapid expansion of exports of
agricultural and sea products. Under the agreement, Japan will
immediately lift tariffs on tropical fruits such as durians,
papayas, mangoes and coconuts. Tariffs on processed shrimp are also
set for immediate elimination, followed by other fish products over
five to ten years. However, Deputy Director General Winichai
Chaemchaeng of the Department of Trade Negotiations said his side
was disappointed, but not surprised, that Japan insisted on
excluding rice, sugar and canned pineapples from the agreement,
though the latter two may be renegotiated within five years.

5. For its part, in the agricultural sector Thailand will
immediately drop its 10-40 percent tariffs on temperate fruits,
including apples, pears, peaches and berries. Strawberries and
melons will see tariffs reduced over two years. The Japan External
Trade Organization estimated the agreement would increase Japanese
fruit exports to Thailand by 30 to 50 percent per year. Thai
officials are somewhat concerned that some niche agricultural
projects in the north of Thailand may be negatively affected by the
tariff reductions, but believe the effects will be slight.

6. Thailand's Board of Trade estimated earlier this year that Thai
exports to Japan would grow 20 percent after the agreement.
Individual industries expect even higher gains. The Thai Garment
Manufacturers Association is optimistic that Japan's immediate
elimination of tariffs on apparel and textiles would boost exports
of those products by 25 percent. Tariffs on footwear and leather
products are scheduled to be eliminated over seven to ten years.
The Thai Frozen Food Association predicted at least 20 percent
growth in exports of shrimp and other sea products. The jewelry
industry, a top export industry for Thailand, hopes the elimination
of 2.7 to 10 percent tariffs will raise their exports to Japan by as
much as 40 percent in 2008.

7. Thailand's tariffs are also scheduled to come down for steel and
autos, two of Japan's most important goals, though these were
contentious issues and the last to be negotiated. Thailand has
committed to eliminate tariffs on half the value of steel imports
from Japan immediately, albeit with a quota, with the rest to be
phased in over ten years. The Department of Foreign Trade set a
duty-free import quota of 950,000 tons for the first year after
implementation. Thai steel producers have been wary about opening
up competition to more efficient Japanese producers, but Deputy DG
Winichai said he was confident the manufacturing industry's demand
for steel and local industry's close proximity to factories will
keep Thai steel producers competitive. Out of concern for its
domestic auto production, Thailand committed to reducing tariffs on
autos with engines greater than 3000cc from 80 to only 60 percent
over four years. Most auto parts will see tariff reductions down to

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20 percent immediately, but hold at that level for the next six
years and then be eliminated. Engines and engine parts will
maintain tariffs for eight years.

Services open a crack

8. Thailand agreed to crack open the door to liberalize some
service sectors, allowing sixty percent ownership of hotel and
restaurants, and for maintenance and repair services for household
appliances. Logistics consulting will be open for 51 percent
ownership, and general management consulting to 100 percent.
Wholesale and retail services are open for 75 percent ownership,
with the condition that products are manufactured within Thailand
(autos excepted). Japanese negotiators tried to obtain a commitment
of MFN treatment for services liberalization offered in any other
future trade agreement entered into by Thailand, but the Thais
granted only that they would consider it. The text does include a
commitment to negotiate on more service sectors in three to five
years after implementation.

9. Japan agreed to begin lowering some barriers to movement of
natural persons, now allowing Thai chefs to work in Japan with only
five years of experience versus the previous ten. Japan agreed to
reopen negotiations on nurses and spa workers in two more years.

10. Dr. Virachai Plasai, former Director General of MFA's
International Economics Department and lead negotiator on the JTEPA
services chapter, said that Japan's access to the services market is
still substantially less than U.S. access under the U.S.-Thailand
Treaty of Amity and Economic Relations (AER). The AER offers
national treatment to U.S. businesses under a negative list
approach, opening up all sectors to U.S. investors with only a few
specific but notable exceptions such as telecommunications and
fiduciary services. JTEPA uses a positive list, opening up only
additional sectors specified within the agreement, and only one of
which is allowed 100 percent ownership. In Dr. Virachai's view,
Japan's access to services under the agreement will be only slightly
better than what Thailand has already committed to provide under the

Not Free Trade, Economic Cooperation

11. Both Japanese and Thai officials stressed that the JTEPA
focused at least as much on cooperation as on obligations. The
agreement lays out plans for a "Steel Industry Cooperation Program,"
and an "Automotive Human Resources Development Institute," as well
as projects on energy conservation, investment cooperation, and
paperless trading. In the agricultural field, the agreement
establishes two subcommittees to cooperate on food safety issues and
improve contacts between agricultural cooperatives. Mr. Katsuya
Ikkatai at the Japanese Embassy said the cooperation programs were
not included as a form of compensation for trade dislocations, but
that the Japanese did realize the importance they would play in that

12. Comment: The JTEPA is not quite a thorough free trade
agreement and both sides would have hoped for more liberalization in
key areas. Nevertheless, implementation of the agreement next month
will come as a welcome relief for Thailand's agriculture and apparel
export industries that have been hard hit by the rapid appreciation
of the Thai baht over the past year and a half. Thailand's recent
trade agreements with China, Australia, and New Zealand helped
increased Thailand's overall exports, and Thailand is moving ahead
to finish up other ongoing negotiations with Peru and India.
Thailand is also focusing on efforts to negotiate trade agreements
through ASEAN. End Comment.

© Scoop Media

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