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Viewing cable 07BANGKOK5574, THAI-JAPAN TRADE AGREEMENT SET TO ENTER INTO FORCE

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Reference ID Created Released Classification Origin
07BANGKOK5574 2007-10-29 06:47 2011-08-25 00:00 UNCLASSIFIED Embassy Bangkok
VZCZCXRO1574
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #5574/01 3020647
ZNR UUUUU ZZH
R 290647Z OCT 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0373
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 9960
UNCLAS SECTION 01 OF 02 BANGKOK 005574 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
USDOC FOR 4430/EAP/MAC/OKSA 
 
E.O. 12958:N/A 
TAGS: ETRD EINV ECON TH
 
SUBJECT:  THAI-JAPAN TRADE AGREEMENT SET TO ENTER INTO FORCE 
 
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 
 
BANGKOK 00005574  002 OF 002 
 
 
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 
WTO. 
 
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 
regard. 
 
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. 
BOYCE