As the U.S. puts further free trade talks with Thailand on hold until a democratically elected government is installed, Thailand has turned its sights on free trade pacts with Japan and India in an attempt to expand exports.
Yet actions by the military government, which seized control in a Sept. 19 coup, have unsettled foreign investors and have sparked protests from the U.S., England, Japan and the European Union.
Thailand signed a free trade agreement with Japan in early April and could complete trade talks with India by June, officials have said.
While agreeing to liberalize trade with Japan, Thai military officials have irked Japanese investors and others with proposed changes to its Foreign Business Act. Those proposals, which were approved by the Cabinet on April 10 and are now pending before the National Legislative Assembly, could force foreign firms into costly restructurings and would levy stiff penalties if the new rules were broken, raising fines from less than $20,000 to more than $100,000, and imposing up to five years imprisonment.
The proposed changes to the Foreign Business Act are an attempt to protect Thai businesses from foreign competition. The restructurings would be required as the proposed law would limit foreign shareholder rights to 49.9 percent in Thai companies. A Thai consulting firm, Kasikorn Research Centre, has said that the proposed changes could deter foreign investment.
U.S. Ambassador to Thailand Ralph L. Boyce sent a message to the Thai government in December when he told the American Chamber of Commerce in Bangkok that the U.S. wanted the “Thai government to quickly resolve the outstanding questions regarding the interpretation and implementation” of the act. He also said that no free trade talks would resume until “Thailand returns to democratic rule.”
Even though free trade talks between the U.S. and Thailand have been suspended, trade benefits under the Generalized System of Preferences were extended for two years, until Dec. 31, 2008. The extension requires a review to identify products that have enjoyed the duty free treatment allowed under GSP, but that are now competitive in the international marketplace.
The International Trade Commission is reviewing the competitiveness of Thai’s exports, and gold and jewelry exports have come into focus. Other Thai exports that could lose their duty free status are color TVs and some polyethelene exports. The limits on GSP are to be announced July 1.
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Currently, about 18 percent of Thailand’s exports to the U.S. are given GSP benefits. The U.S. imports about $600 million in Thai jewelry yearly. Thai jewelry and gem exports have been predicted to grow 10 percent this year, down from a previous prediction of a 20 percent increase. The decrease is blamed on the feared loss of duty free treatment in U.S. exports, the baht’s rise against the dollar and a world economic slowdown.