Cablegate: Thailand and the End of Gsp: Who Loses, Who Wins?
VZCZCXYZ0001
RR RUEHWEB
DE RUEHBK #4685/01 2141206
ZNR UUUUU ZZH
R 021206Z AUG 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0635
RUCPDOC/USDOC WASHDC
UNCLAS BANGKOK 004685
SIPDIS
SIPDIS
STATE FOR EB/TPP/MTA
STATE PASS USTR FOR MARIDETH SANDLER
USDOC FOR JKELLY
E.O. 12958:N/A
TAGS: ECON ETRD TH
SUBJECT: THAILAND AND THE END OF GSP: WHO LOSES, WHO WINS?
1. Summary: Thai manufacturers exporting to the U.S. under the
Generalized System of Preferences (GSP) program predict that if GSP
benefits are redirected from Thailand, the primary beneficiary would
be China rather than other GSP users. China competes fiercely with
Thai exports and is already quickly dominating many of Thailand's
traditional export markets despite preferential tariff treatment.
For the U.S., the net result of eliminating GSP benefits for
Thailand would likely be a broadening of our substantial trade
deficit with China and little change in trade with other GSP users.
Thailand would likely see curtailment of certain export industries
and a serious blow to many small and medium-sized enterprises (SME)
that both directly export and support export industries. One means
to limit the inevitable political and economic fallout, and
distribute benefits more widely, would be to target GSP
restructuring to product categories where less developed countries
have a demonstrated production capacity and potential to compete in
export markets. End Summary.
2. Thailand is one of the top users of U.S. GSP benefits, exporting
more than USD 3.5 billion in products tariff-free under the program
in 2005, 18 percent of Thailand's total exports to the U.S. Exports
under GSP through May of 2006 are up 32.6 percent year-on-year from
2005, placing Thailand just behind India as the leading user of GSP
worldwide. Chief exports under the program include jewelry,
televisions, radial tires and a host of other diverse products. Two
top exports for 2005, plastic sacks and bags and aluminum cookware,
were eliminated as GSP-eligible products for Thailand on July 1
after the 2005 GSP review.
GSP removal a gift to China
---------------------------
3. Leading exporters in the electronics, jewelry and plastics
industries made clear to Econoff that elimination of GSP benefits
for their exports would greatly affect their competitiveness and
quickly lead to a loss of export market share to their fastest
growing competitor, China. In nine out of Thailand's top ten
exports under GSP, which together account for more than one-third of
Thailand's GSP exports, China is one of the top three exporters to
the U.S.
4. The jewelry industry, which incorporates nearly a quarter of all
Thailand's GSP exports, competes directly with China and India in
numerous export categories. The three competitors have long
traditions of jewelry craftsmanship and strong export industries,
but industry experts see China as the chief beneficiary of export
growth if GSP benefits are eliminated. Although Thai exporters
naturally consider their workmanship superior to that of China's,
jewelers complain that China's substantial mineral resources give it
a natural advantage, and their undervalued currency give it an
artificial advantage over Thai exports. Although the jewelry
industry is well entrenched in other export markets, nearly half of
Thailand's jewelry exports are to the U.S. and are a vital part of
the industry's revenues.
5. Electronics industry representatives told Econoff that TV
manufacturers had already lost price competitiveness to China and
were competing for the moment on superior quality, but were
convinced their survival depended in large part on continued GSP
benefits. Manufacturers pointed to China's rapid growth in market
share as a foreboding portent of things to come (In 2001, China
exported USD 141 million in color televisions (HTS 852812) to the
U.S.; in 2005 the number was USD 2.2 billion. 2006 exports are up
nearly 70% yoy.)
Other GSP users won't even get the crumbs
-----------------------------------------
6. Thailand competes very infrequently in GSP categories with other
GSP users (with the exception of the other top users of GSP, Brazil,
India and Indonesia) and virtually not at all with least developed
countries. In examining trade statistics on Thailand's top 25
exports to the U.S. under GSP, it is clear that Thailand's primary
competition is from China, the developed world, and other top users
of GSP. In only two categories out of Thailand's top 25 GSP exports
could it remotely be said that another non-top GSP user is
considered a competitor. Removal of GSP benefits for Thailand would
likely increase export share for its current competitors, but hardly
at all for any other GSP user.
7. As an example, Thailand's second largest export under GSP is
televisions incorporating a VCR or player (HTS 85281228). The
export market is completely dominated by only three countries,
Malaysia, Thailand and China; no other country has exported TVs
under that category thus far in 2006. Thai TV manufacturers told
Econoff they faced little overall competition from other GSP users
and were confident that any loss of market share for Thailand would
inevitably pass to China. None were able to point to a least
developed country with sufficient manufacturing capacity to pick up
any decline in Thailand's exports.
SMEs will take the hit
----------------------
8. Thailand's major GSP users are typically SMEs in labor-intensive
industries. The jewelry industry employs nearly one million people
working in thousands of small factories around Bangkok and a number
of other nearby provinces. Nearly 80 percent of jewelry
manufacturers are SMEs, most employing between five and thirty
craftsmen. With a small domestic market, nearly every jewelry
manufacturer produces for export, primarily to the U.S. The
plastics industry calculated that five percent of plastics
manufacturers were considered large (more than 500 employees), 30 to
40 percent medium-sized and the rest small (10 - 50 employees).
Industry leaders predicted that large firms could survive a loss in
GSP, but that SMEs would be hit the hardest, estimating that 30,000
of the industry's 200,000 workers would be affected.
9. Although the electronics industry is dominated by large,
foreign-invested firms, industry reps pointed to their supply chain
as predominantly SMEs which would suffer from a loss of GSP for
electronics exports. Television manufacturing, once little more
than assembly of imported parts, now sources 80 percent of its
component parts from Thai-owned domestic suppliers. Including the
supply chain, the industry employs approximately 100,000 workers.
Some CNL waivers outlived their usefulness
------------------------------------------
10. Thailand currently receives Competitive Need Limit (CNL) waivers
in ten export categories, though only a few appear to be necessary.
For buffalo leather (HTS 41071940 and HTS 41079940), Thailand has
not exported under this customs heading for years. In two others
(ceiling fans HTS 84145130 and electrostatic photocopying apparatus
HTS 90091200), trade statistics for 2006 show Thailand's once
vibrant export market has been lost almost completely to China. In
two other categories (ignition wiring sets HTS 85443000 and
artificial flowers HTS 67029065), exports have declined and appear
to be safely under the maximum export limits under GSP rules.
11. Thailand's remaining CNL waivers are in jewelry (HTS 71131120,
71131150 and 71131950) and televisions (HTS 85281228). Although
Thailand surpasses value or percentage limits in three of these
categories, keeping GSP treatment appears to be crucial to
maintaining market share against strong competition from China in
these categories as noted previously.
12. Comment: Consideration of GSP restructuring has focused on
shifting benefits to the least developed countries and those with
weaker export industries. However, eliminating Thailand's GSP
benefits would appear to be counterproductive, resulting in
production shifting largely to China rather than other GSP users.
Net results for the U.S. would be an even wider trade deficit with
China and a smaller trading relationship with our long-time key ally
in Thailand. In contrast to a number of other trading partners,
Thailand has been a constructive partner in bilateral and
multilateral trade arenas. However, we have heard rumors that the
RTG is considering tying renewal of U.S. investment privileges under
the Treaty of Amity and Economic Relations (AER) to renewal of GSP
benefits.
13. The Thai public will inevitably consider an end of GSP benefits
as retribution for lack of progress in bilateral FTA talks with the
U.S. To limit political fallout, and better distribute benefits, a
restructured GSP program could target product categories where less
developed countries have an established industry and the potential
to effectively compete if leading GSP users, including Thailand,
were withdrawn from those categories. Alternatively, or perhaps
additionally, GSP benefits could be expanded to products where less
developed countries have shown export potential but continue to face
tariff barriers. End Comment.
ARVIZU