Thailand^[98]

1 Introduction

The agricultural sector has always played an important role in the Thai economy, thanks to its abundant land suitable for agriculture and its unique tropical location, which is relatively free from major natural catastrophes. Thailand’s total land area is about 5 140 square kilometres, 34 percent of which is arable land and 15 percent of which is covered by forest. With an average landholding of slightly less than 1 ha per worker, Thai farmers have the largest landholding in Asia. But irrigated areas account for less than 24 percent of total cultivated land, and therefore, most Thai agriculture is in the rain-fed area.

From the mid-1980s, however, Thailand began to lose its comparative advantage in agriculture. As a result, the agricultural share in GDP dropped sharply from 22 percent in 1980 to 11 percent in 1995. And yet it remains the largest source of employment and still provides significant export earnings. After Thailand was hard hit by the financial crisis in 1997, agriculture has been considered as the major safety net for unemployed urban workers. Thai agriculture is still the largest employer, employing 45 percent of the total workforce. The baht depreciation, triggered by the financial crisis, also significantly increased the baht earnings from agricultural exports.

Thai agriculture has always been dominated by the crop subsector, but over time, both the crop composition and the relative importance of other subsectors have changed. Rice has always been the most important crop in terms of value added and export earnings. Rice, rubber, cassava and, more recently, sugar and fruits are the major export crops. Over the last four decades, the share of crops in agricultural value added dropped from 76 percent to 53 percent with a corresponding rise in the importance of fish products. The agricultural GDP share of the livestock subsector has remained more or less constant.

Like other developing countries, Thai agriculture had been heavily taxed since the end of the Second World War. In addition to export taxes, some agricultural products were also subject to export quotas. Furthermore, in the 1960s, there was a major increase in tariffs on industrial products as part of the policy to protect industry. Such protection penalized the agricultural sector. Despite these penalties, the agricultural sector thrived, reflecting Thailand’s strong competitiveness in agricultural production.

Although Thai agriculture started its secular decline in the 1960s, it did not cause any policy concern until the early 1980s when there was an obvious sign of agricultural malaise (Siamwalla, 1996). Since the mid-1980s, Thai agricultural policy has changed almost completely from taxing the agricultural sector to subsidizing and protecting farmers, following the direction of the developed countries. A first response to the fall in world prices in the early 1980s was the price intervention policy with public purchases at above market prices. In the mid-1980s, in response to a further fall in world prices, the government lifted the export tax measures that had been a negative burden on farmers. Under the agricultural rehabilitation programme in the late 1980s and the agricultural production restructuring programme in the early 1990s, credit incentives were provided to farmers to switch from crops that were considered in excess supply to crops that the government listed as “promising” products. Despite several billion baht of budget used for these projects, the results were far from the targeted objectives. The fourth important change in domestic policy was the tariff reform initiated in 1991 and launched in 1994, the year in which the Uruguay Round was concluded. Thai manufacturing exports were penalized by the high wall of tariff protection. The reform resulted in deeper MFN tariff cuts than required under the Uruguay Round agreement. Following the 1997 crisis, tariffs were further reduced in 1999 and 2000. One consequence of the tariff reform was that the negative bias against agricultural exports caused by the protection was also reduced.

Externally, the government participated actively in the UR of trade negotiations by joining the Cairns Group. The decision was in response to a diagnosis that world markets for most agricultural markets, particularly rice, had been depressed by massive subsidies and protectionism, mostly from the developed countries. The decision to participate in the UR was also because the country would benefit from having the rules of the global trading system strengthened (Poapongsakorn and Ungphakorn, 1995). In addition, the government decided to join AFTA and APEC in the early 1990s, as it believed that regional economic cooperation would help increase markets for both industrial and agricultural products of both Thailand and other member countries.

2 Experience in implementing the WTO agreements

This section describes Thailand’s commitments in the UR AoA in three areas, i.e. market access, domestic subsidy and other related agreements. Since Thailand did not notify any export subsidy, the issue will not be discussed here.^[99]

2.1 Market access

Commitments

Under the AoA, Thailand made a commitment to reduce tariffs on 740 tariff lines by an average reduction of 24 percent over the 1995-2004 period, with a minimum reduction of 10 percent on all tariff lines. The average bound tariff rate was calculated to decline from 49 percent in 1995 to the final rate of 36 percent in 2004. It bound tariffs on 994 agricultural products, which constitute 100 percent of tariff lines in agriculture, compared with 5 percent before the UR negotiation. Thailand also tariffied the non-tariff measures of 23 agricultural products by converting them into TRQs with in-quota tariff rates ranging from 20 percent to 65 percent. It reserved the right to resort to the SSG provision for 111 products, or 11 percent of the 994 agricultural tariff lines.

Actual tariff reductions

As well as its commitment to reduce bound tariffs under the AoA, Thailand undertook a more drastic unilateral tariff reform both before the UR conclusion and after the 1997 financial crisis. As a result, applied tariffs are lower than the WTO bound rates for all but a few tariff lines. The average applied tariff rate for agricultural products has gradually declined from 43.1 percent in 1995 to 32.1 percent in 1999 and 28 percent in 2000. However, the rate is still higher than that for industrial products, which also declined from 20.7 percent in 1995 to 13 percent in 2000. It is also much higher than the rates for agricultural imports of most other Asian countries, as evidenced in Table 1. The average tariff for agriculture is high because 43 percent of all tariff lines exceed 30 percent. The tariff peaks are found in the meat and dairy products, sugar, alcoholic, beverages, tobacco, fruits and vegetable sectors. Most of the highest tariff peaks are the outof- quota tariff rates. Moreover, despite the fact that the applied tariff rates are usually lower than the bound rates, there are still 550 products whose applied tariffs are higher than the bound rates. About 58 percent of these lines are in agriculture and fisheries.^[100] Such high tariffs explain why Thailand has not had any difficulties with a surge in food imports. But it does not mean that Thailand has not experienced large increases in agricultural imports (discussed further below).

Table 1. Tariff rates and dispersion of primary products in selected Asian countries (unweighted)

^a 1993.
Source: Warr (2000): 1 223 (rates for each country are not the same year); Panagariya (1999): 357.

There are two other important characteristics of the Thai tariff structure which affect agricultural trade and production. In addition to the high average tariff rate, agricultural tariffs have a high dispersion, ranging from 0 to 242 percent for the out-of-quota tariff on raw silk. This means that the level of nominal protection for Thai agriculture is relatively high. But the high tariffs may exaggerate the actual level of protection. First, many products with high out-of-quota tariff rates are exported goods, e.g. rice has a tariff rate of 58 percent, sugar 104 percent, coffee 100 percent. The high tariffs for these products are redundant. Second, the applied tariffs for a number of products are much lower than the bound rates, e.g. maize, soybean. Third, according to grain traders and casual observation in the border provinces, a number of agricultural products are smuggled from neighbouring countries into Thailand. They include red onion, garlic, oranges, etc.

The second characteristic is that the tariff structure exhibits a pattern of valueadded tariff escalation. In some important agroprocessing industries, the applied tariffs on raw materials used in the industry are as low as zero percent, e.g. soybean and maize. But the tariffs on agroprocessing products such as meat are exorbitantly high. An important exception is the negative tariff escalation in the food and beverage industries. The average tariffs for raw materials and semifinished products are 43.5 percent and 48 percent, respectively, compared with 37 percent for the fully processed final products (WTO, 2000 chart III.5). Although the food industry is affected by the negative effective rate of protection, food exports are less affected by the high tariff on inputs because imported inputs are tariff exempted. Both the positive tariff escalation and the tariff exemptions on imported raw materials for food exports point to the policy bias in favour of the agroprocessing industries.

Imports under the tariff quotas

In administering the tariff quotas, the Department of Foreign Trade (DFT) uses different methods of quota allocation. The free trade system is applied to at least two products that are important raw materials for the feed industry, soybeans and soybean cake. Although there is no limit on their imports, importers must apply for an automatic import licence. There are a few products in which the global committed quota is enforced, but there is no specific limit on the allowable import by each importer, e.g. pepper and dried longan. But in most cases, the DFT specifies the maximum quotas granted to each group of eligible importers (particularly producer associations, the Public Warehouse Organization and private firms). Products allocated under this method are palm oil, maize, coconut, potato and onion. Another criterion is a fixed share of quotas to existing importers based on their import history and a smaller share of quotas to newcomers. The last criterion used for imported potatoes is first come, first serve. The methods of quota allocation seem to be influenced by the strength and interests of the agrobusiness industries through their associations.

Out of 23 products, Thailand has fulfilled its commitments for eight or nine products where actual imports have vastly exceeded the commitments. Imports of nine products fall short of the commitments, and there has been no import for six products.

The 1999 Trade Policy Report of WTO Secretariat concluded that the Thai tariff quota system does not appear to constitute a significant barrier to trade (WTO, 2000, p. 80). First, out of 23 products under TRQ, actual imports of eight products have exceeded the committed tariff quota by several times, e.g. concentrated milk, soybeans. Second, five of the products with no actual imports (dried longan) or imports less than the tariff quota are Thai exports, i.e. rice, sugar, pepper and coffee beans. Since world prices are higher than the domestic prices, it does not make sense to import those products, although there are small amounts of imports of some of these products because they are of a different quality from the products produced in Thailand. Third, most of the tariff quotas for products with no imports are too small for the importers to cover their transaction costs, or they are in liquid form which involves high transportation costs, e.g. coconut oil, dried coconut and milk. Finally, two products which have no official imports are in fact imported into Thailand. Raw silk was imported from China but was not notified to the WTO because China was not a WTO member until 2001. There is also a high incidence of smuggling onion and garlic into Thailand that is not reported.

However, there are several problems with the quota administration that may constitute some degree of import protection and distort the market structure. The first problem is the issue of quota allocation to the public trading organization and the producer associations, particularly sugar and garlic. Since they are the representatives of producers, they have an incentive to restrict imports. The second problem is the delay in quota allocation and the use of seasonal allocation. But the more serious consequence is that all methods of quota allocation will affect income distribution as well as the industrial structure. The large-scale agribusiness firms obtain rents from quotas at the expense of small farmers of corn and soybean because import quotas depress the domestic farm gate prices. Moreover, the quota allocation can also affect the industrial structure since it tends to discriminate against small companies and new suppliers. While large animal-feed factories and large-scale chicken producer-exporters have access to cheaper imports of raw materials, small feed producers, small chicken exporters and new entrant producers, who may be more efficient, will not be able to compete with the incumbents since they have to depend on more expensive raw materials in the local market. The AoA’s main instrument to solve the problem of non-tariff barriers has in fact created a new evil, which may be as bad as the old non-tariff barriers, if not worse.

Other non-tariff measures

Among South and Southeast Asian countries, Thailand has a relatively low level of non-tariff barriers on primary products (Panagariya, 1999, p. 356). Except for the tariffication of 23 products, Thailand does not have any other import quotas. It also maintains only a few other non-tariff measures. About one percent of total tariff lines, most of which are grains, edible oil, sugar and petroleum products, are subject to a specific import tax, making it difficult to evaluate the rate of nominal protection. In addition to certain product-specific surcharges (on corn for animal feed and on non-MFN imported soybean cake), non-automatic import licences must be approved for the import of fish meal (with protein content less than 60 percent), gunny bag, jute and kenaf, and silk yarn. Moreover, imports may also be prohibited for reasons such as health and safety, economic stability, public interest, national security, peace and order, and other national interests. Except for the import ban on meat and prohibition of imports of Angolan diamond and refrigerators using chlorofluorocarbons in recent years, Thailand has seldom prohibited imports. Thailand has also issued the Notification on Safeguard Measures in compliance with the WTO Agreement on Safeguards. In agriculture, Thailand reserves the right to resort to the special agricultural safeguard for 111 tariff lines. But up to 2000, it has never used such action. Finally, since 1997, Thailand has initiated a custom modernization reform programme and passed the customs valuation law. But despite the recent attempt to streamline custom procedures by adopting the Ling Room System and the national electronic data interchange, many importers still complain about red tape and corruption (though this has declined significantly after the tariff reductions).

In the past, Thailand used to impose local-content requirements (LCR) on the domestic production of a few agricultural products, e.g. soybean oil, milk and silk. But since 2000, only imports of dairy products have been subject to the LCR policy. Under the system, importers of skimmed milk powder must buy 20 times the weight of imported powder in local raw milk. In the case of prepared milk, the LCR is 2 to 1. Thailand was due to abolish the LCR for milk by the end of 1999. Because of strong farmers’ pressure, the government requested a postponement of the phase-out date, but the Ministry of Agriculture failed to do so within the deadline. As a result, it had to request the WTO for an approval of an extension of the LCR in the form of a waiver. The LCR has been extended until the end of 2003. Although there is a minimum price policy to attract a regular supply of milk, strong competition by private enterprises to buy raw milk has maintained the price at a level slightly higher than the minimum price.

In summary, Thailand does not significantly use NTMs as a major source of protection.

Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade

Between 1996 and 2001, there were 90 SPS measures and 190 TBT measures announced by various government agencies and notified to the WTO (see Table 2). Currently, imports which are subject to SPS inspection include foodstuffs, fishery products, food products, hazardous substances, live animals, plants, seeds and seedlings. All TBT regulations and SPS measures that Thailand has adopted since 1995 have been notified to the WTO under relevant committees. Most of these TBT regulations and standards are in accordance with, or are aligned to, international standards set by the international organizations recognized by the WTO. Its food labelling requirements are designed to protect consumers’ health and safety, and the rules are transparent. Thailand’s registration process for packaged food items is not exclusive in nature, and therefore different importers can register and be granted licences to import the same food items into Thailand.

Table 2. Notifications of SPS and TBT measures in Thailand

Source: Thailand Industrial Standards Institute.

However, there are still some problems in implementing TBT and SPS measures. Regulating agencies do not have adequate staff and resources to inspect and to run tests on the imports which are subject to TBT and SPS measures. The customs officials, therefore, have to be lenient in the process of inspection. Also, certain standards cannot be applied in Thailand as the testing equipment is not available in the country.

2.2 Domestic subsidy commitments

The Thai government has notified and provided all kinds of domestic support allowed by the AoA, except for Blue Box measures. It is one of the few developing countries to have notified a large amount of total domestic support.^[101] Its AMS ceiling was B21.8 billion in 1995 and will decline to B19 billion in 2004 (see Table 3). Actual support has been lower than allowed support, but its share has increased rapidly from 72 percent in 1995 to 84 percent in 1999 and close to 100 percent in 2000. Although there are not yet complete data for 2001, it is estimated that actual support will exceed the commitment because of the huge increase in the budget that the government allocated to the paddy pledging programme (about B19.22 billion which is more than double the actual support in 2000).

Large expenditure on price support programmes may be politically attractive to politicians who have to care about the welfare of the poor farmers. But there is evidence that the expensive programmes tend to benefit only a handful of farmers who can participate in the programmes and the traders involved. Despite the significant budget used to support the prices of Thailand’s major products, particularly rice, cassava and rubber, there are still many problems: The impact on market prices is very limited, there are huge losses from stockpiling and selling, corruption, etc.

Table 3. Monetary value of distorting and non-distorting measures 1995-

Source: Department of Business Economics, Ministry of Commerce

^a The figure is from preliminary data.

^b Estimated by the author from the Farmer Assistance Fund (B5 189.1 billion), BAAC (B9 872.96 billion) and BOT (B5 784.01). The number is still an overestimate.

^c Available data suggest that actual support might be much larger than the committed support. The proposed budget was B5.2 billion from BOT, B6.18 billion from FAF and B19.96 billion from BAAC.

There are also consequences that may be more serious to the future of Thai agriculture. The increases in the budget for all kinds of trade distorting support measures (actual AMS, de minimis and even part of the S&D support) will certainly have a crowding out effect. The victim, unfortunately, turns out to be R&D programmes.5 In the past, Thailand was one of the few developing countries that had invested heavily in research. Moreover, the increasingly aggressive price intervention programmes of the government may seriously affect the 5 The ratios of real value of research expenditure to production value of three major crops have declined after 1997: rice, rubber and sugar. The ratio for corn has shown a constant trend in the recent years. There are also serious shortage of researchers (TDRI, 2000). competitiveness of Thailand’s major exportable crops, particularly rice and rubber. The rice price intervention programmes have created the wrong incentive for farmers to grow low-quality rice, which can be sold to the government programmes at an unrealistically high price. But given the increasing production costs, Thai rice will not be able to compete with the cheaper Vietnamese and Indian rice.

The government has also provided product-specific support which falls under the de minimis threshold of around B1 billion per annum. It has also provided domestic support under the S&D measures, which varied between B3 billion and B12.2 billion between 1995 and 1998. However, the largest support is the nonactionable support under the Green Box, which was in the range of B33.6-47.6 billion in the same period. Thailand ranks close to the top among all developing countries in terms of the relative amounts of subsidy paid to its agriculture (Table 4).

Table 4. Thailand’s rank among developing countries in terms of subsidies

Note: Several countries did not notify the S&D, de minimis and AMS subsidies.
Source: Compiled from ABARE, “Domestic Support of Agriculture”, Current Issues, May 2002.

There are other kinds of hidden support that do not count as part of the AMS. First, the government has provided support for the price intervention of rubber products which are not classified as agricultural products under the WTO definition. The cross-subsidy support for sugar, in which domestic consumers pay a higher sugar price to support sugar exports (which have to sell at the highly “distorted” world price), is also not counted. Second, the loss from the government price intervention programmes (for rice, cassava and rubber) is also not accounted for. This loss includes the decline in the quality of intervention products in the stockpile, a loss from selling products from the stockpile, a loss from the G-to-G^[102] trading as well as the opportunity cost of the government officials who engage in the intervention programmes.

2.3 Intellectual property rights: Plant variety protection law in Thailand

There are two types of intellectual property rights relevant to agriculture, patent law and plant variety protection (PVP) law. The main characteristic of patent law is that the innovation has to be a “non-obvious or inventive step”. This implies that a massive investment in R&D is needed in agricultural research (normally involving genetic material). One of the required conditions when applying for a patent certificate is to publish all the research details to the public. However, PVP law only requires that the innovation has to have the properties of uniformity, stability and distinctness. The “distinctness” property is not as rigorous as that of the “inventive step” of patent law. Thus, other competitors can come up with very similar products and still obtain protection. The ramification may be significant as it may discourage private researchers and investment. Nonetheless, for developing countries, PVP may be more suitable than patent law because it encourages a cheaper form of research into new types of varieties as they do not have to show an inventive step. Thereby, R&D costs will be less substantial than patent law.

Thus, it is not surprising that the government agencies responsible for the matter opted for PVP instead of patent type law. However, some Thai non-governmental organizations (NGOs) and academics pressured the government to adopt the sui generis approach, arguing that the 1991 version of UPOV’s PVP has several major weaknesses.^[103] For example, the farmers’ exemption (i.e. the right to keep parts of the harvested crops for further production) is severely constrained. Moreover, the farmers and local communities will not benefit from the work of plant-breeding companies which develop new varieties from indigenous plants. In 1999, the Plant Varieties Protection Act was passed by parliament. The act follows the main principles of PVP law in other countries and the agreement under UPOV. Basically, the new plant variety applying for protection still has to meet the criteria of “uniformity, stability and distinctness”. Unlike UPOV, this act includes a benefit-sharing clause as an incentive for further research while providing sufficient protection for the rights holders. The act allows other researchers to do further development and research of the plant as long as it is not for commercial reasons. Three types of native plant varieties are also protected, and the rights are assigned to either the community or the government. Such protection will deter foreign researchers from taking advantage of Thailand’s plants.^[104] To protect the interests of society, if the rights holders do not propagate the material of a new variety or the sale thereof has been made in insufficient quantity for the need of the people within three years, the government will have the right to withdraw the certificate and hand out the right to more suitable applicants.

The Plant Variety Protection Act is still at a very early stage of development. Despite having passed the PVP law in 1999, the law has still not been fully implemented because some sections of the law still need to be clarified by the Ministry of Agriculture, and this process may take some time to complete. At this moment, the ministerial regulation only allows four types of products to be registered for a trial period, namely, rice, sugar cane, mango and one type of orchid. For these reasons, it is difficult to assess the real effect and the experience of this act on Thailand.

3 Export market effects of the AoA

This section analyses whether or not the WTO disciplines have improved market access conditions for major Thai agricultural products in its main export markets. Four major export commodities are examined because the main markets for each are different, and each country uses different types of trade barriers against different imports. Next, the impact of the loss of preferences under the GSP scheme for Thai exports is assessed. Finally, SPS measures against Thai exports are discussed separately.

3.1 Tariff barriers and tariffication

The largest markets for Thai agricultural products are mostly Asian countries, which accounted for 62 percent of Thai exports in 2000, followed by the American continent, Australia, Europe and Africa in descending order. Although most Asian countries have very high average tariffs (see Table 1), Asian governments tend to reduce applied tariff rates when production falls short of domestic consumption requirements. If imports are allowed under TRQs, they will either reduce the in-quota tariffs or increase the amount of in-quota imports. For example, instead of the bound tariff of 40 percent for rice, Malaysia imposed an actual tariff of zero percent in 1999; Indonesia’s applied tariff rate for rice was also zero percent compared with the bound in-quota tariff rate of 90 percent. In addition, Malaysia’s actual import of sugar and actual rice import by Indonesia in 1995 exceeded the committed in-quota amounts.

Rice

The overall performance of Thai rice export after the AoA (1995-2001 period) was better than that in the 1985-1994 period. Thailand not only has enjoyed a higher growth rate of both the volume and real value of rice exports (see Table 5) but also has remained the largest world exporter of rice. The statistical evidence on whether the AoA improved market access for Thai rice is mixed. In addition to the huge but declining comparative advantage, the good performance of Thai rice is attributed to an ability to maintain many important alternative markets to offset a decline in demand in some countries. Most rice-importing countries have high bound tariffs to protect their farmers, but will apply much lower tariffs when their production falls. These countries include Malaysia, Philippines, China and Indonesia. Therefore, the important factors that explain the amount of Thai rice exports to these countries are their production and income. Market access under the AoA is not statistically significant in the regressions explaining rice exports.^[105]

Table 5. Performance of Thailand’s major agricultural exports

n.a.: not available.
Sources: Thailand’s Department of Business Economics; WITS compiled by FAO.

Thailand’s market share in Japan and EU - two important markets which apply a TRQ for rice - declined. Although Thailand remained the second largest rice exporter in the EU market, it lost a significant share to India - a lower cost competitor - and Guyana, which enjoyed deep trade preferences from the EU. Between 1994 and 2000, Thailand’s share in Japanese rice imports also plummeted from almost 31 percent to 19.6 percent. After the AoA the Japanese importers who were given the tariff quotas for rice increased the share of rice imports from the United States, Australia, China and Viet Nam. The United States, Australia and China produce Japonica rice, which is the Japanese main diet. Viet Nam, which produces Indica rice - the same kind of rice Thai farmers grow - has a lower cost than Thailand. However, Thailand’s share in the United States rice import increased from 77.2 percent in 1994 to 78.5 percent in 2000. Most of the rice exported to the United States market is high-quality rice preferred by the Asian population in the United States. Since United States farmers have switched parts of their land from growing the long-grain (Indica) rice to growing Japonica rice for export, the AoA may have had an indirect beneficial impact on the Thai rice market in the United States.

Sugar

Thai sugar exports also grew more rapidly in the post-UR period (see Table 5). Here, the main factor appears to be a greater domestic supply availability rather than world market prices,^[106] the baht currency depreciation or increased AoA market access. The sharp currency depreciation in 1997 failed to boost exports because sugar production dropped by more than 0.95 million tonnes (or 16 percent) in 1998. The wide fluctuation in sugar cane production may account for the loss of Thailand’s market share in Japan between 1994 and 2000 (see Table 5). The AoA also failed to pry open more market access for Thai sugar in the EU and the United States since both still allocate sugar import quotas on the trade preference system which is dictated by political factors. Thailand does not belong to the groups of countries (such as the ACP) that meet their political criteria.

Poultry meat

Exports of poultry meat also grew faster in the post-UR period. The markets for Thai chicken exports are highly concentrated since the three largest markets, Japan, the EU and Republic of Korea, account for almost 93 percent of the total. While Thailand has lost market share in Japan to lower-cost producers in China and Brazil, chicken exports to the EU increased by almost three times between 1994 and 2000. While Thailand has a small amount of quota under a specific bilateral TRQ for chicken in the EU market, the main factors behind this growth were due to BSE and the currency depreciation, which made Thai chicken more competitive. After the BSE problem was controlled, and beef prices went down, the EU began to impose strict SPS measures against imported chicken (see SPS section below for more discussion).

Cassava

Cassava pellets are a product with very few markets, dominated almost entirely by the EU market. Despite the large quota granted by the EU, Thailand has seen its export of pellets falling continuously in the post-UR period. However, this is the result of Common Agricultural Policy (CAP) reforms rather than the AoA directly, although the CAP reforms were stimulated, in part, by the need to prepare the EU to accept the AoA disciplines. Moreover, the economic rent from Thai exports to the EU has disappeared. Since then, Thai farmers have begun to reduce cassava production, which in turn has a negative impact on export of cassava pellets. The export of cassava starch depends upon the income of the importing countries because starch is the raw material for many important industries, such as paper and processed food.

3.2 Trade preferences

As a developing country, Thailand has been entitled to receive trade preferences from 28 trading partners under the Generalized System of Preferences (GSP) established by UNCTAD in 1968. Thailand’s GSP utilization rate (exports receiving preferential treatment divided by total exports to the GSP countries) rose from 0.65 percent in 1971 to a peak of 22 percent in 1992 and then declined gradually to 15.7 percent in 1999 as Thailand was graduated out of the regime for some of its exports. The graduation is expected to have a negative impact on the competitiveness of Thai exports.

Before 1997, when the EU first began to reduce the trade preferences for Thai products by 50 percent, the utilization rate of GSP was 62 percent. In 1998, the utilization rate fell to 39 percent and would be much smaller in 1999 when all the preferences were eliminated. For various reasons, the utilization rates of the GSP granted by the United States and Japanese governments are smaller than that of the GSP in EU. The short-term impact of the reduction of margin of preference for Thai exports to EU is not large but still significant enough to affect the percentage share of exports to the EU market (Thammavit and Chanin, 2001). However, apart from fresh fruits and vegetables, actual trade flows do not appear to have been adversely affected. Also, utilization rates by Thai exporters in all three markets would fall further in the future anyway because of the reduction in MFN tariffs.

In addition, Thai agricultural exports are also affected by the EU’s special trade preferences to the Andean Community and CACM countries under the drug regime. The Thai government has argued that such preferences violate the GATT principle of non-discrimination.^[107] Products from those countries, which directly compete with Thai products, enter the EU market with no duties. Since the list of countries granted the drug regime preferences is based on unclear political criteria, the Thai government has notified the EU that the regime violates the WTO’s enabling clause, i.e. that the preferences granted must be “generalized” and non-discriminatory. Since 1995, when the drug regime was implemented, and the GSP granted to Thailand was to be gradually reduced, the Thai government has unsuccessfully asked the EU to include Thailand as one of the countries under the drug regime, given the record of the government’s continued campaign against drug use and illegal trade in drugs. It is now still in the consultation process with the EU.

3.3 SPS measures and technical barriers to trade (TBT)

Thailand’s agricultural exports have been subject to an increasingly high incidence of non-tariff barriers, particularly SPS and TBT measures. This section provides a qualitative assessment of the impact of SPS barriers on Thai exports. However, it should be cautioned that the assessment is only qualitative and may be highly affected by the value judgement of the persons who were interviewed by the researchers. This is because there are no systemic data on the value of trade affected by the SPS measures.^[108]

The Thai Ministry of Commerce (Department of Business Economics) provides a list of 34 Thai agricultural products that are subject to four types of non-tariff measures (NTMs), i.e. SPS, TBT, environmental protection and others (see Table 6). Out of these 34 products, 11 are fishery products not covered by the AoA, seven are vegetables, nine fruits (five of which are fresh fruits), five livestock products and three other products (rice, rubber and sugar). There are 30 countries that impose NTMs on Thai agricultural products, 16 of which are developed countries. The Commerce Ministry’s Web site as well as that of the Thailand Institute of Industrial Standards provide details of those SPS and TBT measures imposed by the WTO members that affect Thai exports. According to the comments of the private sector, five out of 177 measures are not commercially feasible to be complied with, and seven measures are questionable (Chulalongkorn University, 2001).

The countries that applied SPS measures to sanction imports from Thailand are mostly the developed countries, particularly countries in Europe. However, developing countries and some developed countries in Asia have also been reported to use SPS measures to detain imports from Thailand. It should be noted that most developing countries tend to sanction products that compete with their agricultural production, while most developed countries (but with a few exceptions) apply the SPS measures mainly out of concern for their consumers and risk of plant diseases.

A study of 260 non-tariff measures against Thai exports in 1999 found that 35 percent were SPS measures, and 3 percent were TBT. The EU had the largest number of SPS measures against Thai exports (17 percent), followed by Republic of Korea (14 percent), ASEAN (13 percent), Japan (11 percent) and the United States (8 percent) (Chulalongkorn University, 2001). However, this data set did not contain information on the value of Thai exports affected by the NTMs.

Table 6. Agricultural products subject to NTM and countries imposing

Source: Compiled by the author from Chulalongkorn University, 2001; Data by the Ministry of Commerce.

Note: ADD: anti-dumping duty.

The US FDA Web site provides information on the incidence of import detentions by country of origin and causes of detention, but not the value of imports. There were 1 340 cases of import detentions against Thai products reported by the FDA in 2001. There were only 10 countries whose products were subject to more detentions than Thailand. But all, except India, had a higher percentage share of United States imports than Thailand. In the first two months of 2002, Thailand ranked number 8 in terms of the number of import detentions. Detailed investigation shows that 66 percent of Thai products detained by the FDA were agricultural and simple processing products, 11.75 percent were processed food, and 22 percent were manufactured products.

Except for fishery and seafood products which have experienced the highest incidence of the SPS problems, chicken, fruits and vegetables have also shown a high incidence (Table 7). Orchid exports to the EU (valued at B509 million in 2000) are also subject to a high incidence of detention and destruction. In 1997, the amount destroyed accounted for 1 percent of exported orchid, although this declined to 0.5 percent in 2000. Thai exporters have complained that in many countries, particularly in the EU, when the exported products are found to have an SPS problem, the whole export lot is either destroyed (e.g. products that suffer from high insecticide remnants or chemical residue) or delayed until the products undergo the proper treatment at the destination (e.g. cut flowers that have insects and possible diseases). Such practices have caused heavy loss to the Thai exporters. Unfortunately, there is no information to quantify the amount of such loss.^[109]

An important question is whether the claims that Thai products suffer from SPS problems are genuine. It is extremely difficult to tackle the issue, and the complaints have to be analysed carefully on a case-by-case basis. There are many cases of genuine SPS problems suffered by Thai exports. But after consultation with the importing countries and when the problems are tackled, these countries allow import to resume. One example is the problem of VRE found in the frozen chicken export to the Czech Republic (Chulalongkorn University, 2001).

Table 7. Thai agricultural exports experiencing SPS problems

Source: Chulalongkorn University (2001).

However, there are also many doubtful cases of SPS measures imposed by some trading partners on food imports from Thailand. For example, the EU regulation on imported cut-up chicken stipulates that the temperature of the meat being cut up must be lower than 4°C. In 2002, the EU began to apply chemical residue standards which are higher than the international ones for imported chicken and shrimp. A few large lots of Thai frozen chicken and shrimp were detained and destroyed. After that, every lot of import was subject to SPS inspection until the late 2002, when an agreement between the EU and the Thai government was reached. The Philippines government sent officials to inspect Thai slaughterhouses in 1998 and has not yet announced its report. When bacteria were found in Thai frozen chicken, Korean officials did not specify the quantity of chicken found to be infected. Thai chicken exports to Australia have never been approved. There have also been problems with rice exports to Mexico.

The Thai government has established a formal procedure to resolve these serious SPS problems. When there is a report that Thai exports are detained or banned, the Thai commercial consular in the importing country will first collect the information and facts and ask the Thai exporters to inspect their own products. If the ban is based on false information, bilateral negotiations are begun, i.e. the trade representatives of the importing country will be invited to visit the factory. If the effort fails, the government will raise the issue at WTO or in meetings of the concerned international organizations. However, each government department is different in its responses to the problems incurred by the Thai exporters. Some are very enthusiastic, responsive and supportive, while some are not. It often takes an unreasonably long time for some agencies to respond to the problems faced by the exporters.

The SPS Agreement itself is also problematic and imposes a high cost on the developing countries. First, although there are international standards for SPS measures, many developed countries still adopt different standards, which result in higher compliance costs for the exporting countries. For example, while the United States, Canada and Japan use the HACCP standards for food imports, the EU uses both the HACCP and ISO 9000. As of 2001, there are only 155 Thai companies that have adopted the HACCP standards. Second, as mentioned above, Thailand has experienced some cases of discriminatory practices by a few trading partners which invoked SPS standards to ban Thai imports unfairly. Finally, unlike with the United States, Thailand has not yet been able to establish Mutual Recognition Agreements with the EU, and thus, its standards are not accepted as “equivalent” by the EU.

The use of SPS (and also TBT) measures highlights a critical need for developing countries to enhance their abilities to meet market requirements. Although it is difficult to quantify the cost and benefits of the SPS Agreement on Thai exports, many exporters and government officials interviewed by the researchers stated that despite a number of SPS problems encountered by Thai exports, Thai products were much more developed than their competitors as most large exporters had very modern facilities to test their products, and thus the products met international standards. Since its production costs are rising rapidly, Thailand could maintain competitiveness only by meeting the SPS measures imposed by its trading partners.

Therefore, on balance, Thai exporters are more optimistic and forward looking about the SPS measures. But this does not mean that all problems have disappeared. On the contrary, many exporters, large and small, still complain about the rising incidence of trade protection under the guise of the SPS measures.

Thai exporters do not have any serious problems with TBT measures because they have applied or adopted the international standards that are widely accepted by the trading partners.

SPS and GMO products

As both an exporter of food and importer of some agricultural products used as ingredients in food production (e.g. soybean and corn), Thailand has major concerns in the debate over genetically modified organisms (GMOs). For example, Egypt has banned imports of Thai tuna canned in oil based on perceptions of risk related to GM soybeans. Thailand has registered a complaint, arguing that the tuna is not prepared with GM soybeans. Although a certification programme and labelling may provide a means to settle the dispute, there has been no consensus among WTO members on the basic elements of a regulatory approach suited to GM crops, the cost and benefit of labelling programmes and whether WTO disciplines in the TBT and the SPS Agreements are suited to this type of technology (Wilson, 2002). However, the large-scale Thai producers and exporters have not waited for such consensus. Some have ordered soybean and corn from countries (or even provinces) that are GMO-free. They have also separated GMO-free production lines (or facilities).

Within the country, there has been serious conflict between the foreign-owned seed- producing company and the Ministry of Agriculture on the one side, and NGOs on the other side. The problem arose when the NGOs disclosed that GMO cotton seeds that were planted in field trials in government research stations were smuggled out of the stations and were planted on farmers’ lands. Fearing the high risk of uncontrollable environmental damage, the NGOs have pushed for a (temporary?) ban on field trials of GMO products. The ban may be permanent unless the Ministry of Agriculture can effectively prevent the smuggling of trial seeds. In April 2001, the ministerial cabinet decided that, in addition to the existing law prohibiting commercial production of GMO products, no field trial of GMO seeds will be allowed until a biodiversity law is passed. Even the Department of Agriculture is not allowed to do field trials of GMO seeds. The public research institutes can only carry out laboratory research. The decision drew strong protest from the National GMO committee, which consists of members from the scientific institutes.

On the trade of GMO products and GMO-related products, the cabinet ruled that imports of GMO seeds will be allowed only for research. Imported GMOagricultural products for consumption (e.g. corn and soybean) are allowed unless the products are germinated and unless they can be used as seeds. The government has also granted more funds for public research on biotechnology, including the expansion of the public research facilities.

On food safety, there are now two government agencies that are responsible for food safety regulations of GMO products, i.e. the Food and Drug Office and the Agriculture Department. But the capacity of the public institutes to identify the GMO substances in food products is only limited to the qualitative capacity, i.e. ability to identify positively whether or not the products contain any GMO substances. They do not yet have the capacity to identify the magnitude of GMO substances. Moreover, they have very limited resources to carry out tests of GMO products. Such constraints will prevent Thailand from initiating the labelling policy for GMO foods, unless its research capacity is strengthened and facilities expanded. That explains why Thai food exporters who depend upon imported raw materials have to resort to the procurement of raw material only from GMO-free producers.

4 Trends in agriculture and food trade

This section describes trends in agriculture and food trade. It first focuses on total agricultural and food trade and changes in the direction of trade. Then the trends of the top 18 products, classified by eight-digit HS codes, will be analysed. The analysis of agriculture and food trade is carried out in terms of quantity and value. Trade value in baht is obtained from the Department of Business Economics, while the value in US dollars is from FAOSTAT.

4.1 Macroeconomic and trade policies

Thanks to the macroeconomic management institutions established in 1959, Thai macroeconomic policies have been ably managed, with some exceptions (in 1977-1984, and 1994-1996), so that there were no massive distortions particularly of the real exchange rate arising from macroeconomic policies that would affect the agricultural sector (Siamwalla and Poapongsakorn, 1995). The good macroeconomic policies have been strong enough to overcome the bad sectoral policies (high agricultural export taxes and high import protection) and thus allowed agriculture to grow in accordance with the comparative advantage that the country had prior to 1980.

This comparative advantage gradually shifted against agriculture in the 1980s as manufacturing exports boomed. The industrial boom was followed by the real estate boom and economic bubble in the early 1990s as the Bank of Thailand began to liberalize the financial sector and allow free capital movement. Then, the second instance of macroeconomic mismanagement occurred. In addition to the big mistake of maintaining the fixed exchange rate regime (which was one of the major causes of the 1997 economic crisis), the government failed to use a fiscal surplus measure (or capital controls) to head off excessive aggregate demand. Instead, it chose to use tight monetary policy, which was ineffective as it led to more capital inflows in response to the higher interest rate. As a result, the inflation rate increased in the 1994-1996 period. The problem was aggravated in 1996 by a temporarily strong dollar, resulting in the overvaluation of the baht (Figure 1) because the baht was still fixed to the dollar. The competitiveness of Thai exports, both agricultural and labour-intensive manufacturing products, declined sharply. Export growth, which used to be more than 10 percent per year, came to a sudden halt in 1996, triggering a series of attacks on the baht in the late 1996 and early 1997 as investors began to lose confidence in the Thai economy.

After using almost all its foreign exchange reserves in the battle to defend the baht, the Bank of Thailand was forced to switch from the fixed exchange rate to the flexible exchange rate regime on 2 July 1997. The baht flotation triggered the economic crisis in Thailand and other Asian countries. After the currency flotation, the baht first depreciated sharply from B25.5 for US$1 to B54 in January 1998, and then stabilized at B43-45 after mid-1998. Since then, the Thai baht has been able to maintain the competitiveness vis-à-vis trading competitors and trading partners, as shown by the real effective exchange rate in Figure 1.

After the crisis, the inflation rate has been extremely low, averaging less than 2 percent during the 1999-2001 period. Interest rates have also remained lower than the world interest rate. Both the low inflation and low interest rate have allowed Thai exports to remain competitive, while imports become much more expensive as a result of the currency depreciation. The tariff reforms described earlier also reduced the effective rate of protection, and therefore have reduced to some degree the bias against agriculture.

Figure 1. Real effective exchange rates (REER) vis-à-vis trade partners and trade competitors (calculated at TDRI, based on exchange rate data from the Bank of Thailand, and consumer price indices from Bank of Thailand and various official sources in the countries).

(a) REER

(b) Trade-non-traded prices

Source: Siamwalla 2000.

4.2 Trends in agricultural exports and imports

Both export earnings and value of imports (in baht terms) grew more rapidly in the pre-UR period than in the post-UR era. Using the WTO definition of agriculture (excluding fishery and most agro-industrial products), the growth of export earnings (in baht) in the post UR period (1985-2001) was 1 percent lower than that in the pre-UR period (1988-1994; see Table 8). Agricultural imports also slowed down after 1995. The conclusion is the same for both the market value and the constant value of imports in terms of baht earnings. Taking both trends together, the trade balance improved slightly.

In terms of dollars earnings, both the nominal and real growth rates of exports and imports in the post-UR period (in current or constant prices) were negative, while the pre-UR growth rates were positive, with a higher import growth than export growth. The negative growth rates of the dollar value of exports and imports are caused by two factors, the baht depreciation and the declining trend of the world prices of most agricultural commodities. The depreciation explains why the growth of export volume in 1995-2001 is higher than that of 1991-1994 and why the growth of import quantity slowed down in the post-UR period (Table 8). Despite the fact that the real value of exports declined, and its rate of decline was faster than that of imports, the trade surplus (in real terms) in 1995-2001 was still slightly higher than that in 1988-1994.

If the 1995-2001 period is broken down into two subperiods, i.e. the pre-crisis period of 1995-1997 and the post-crisis period, it is possible to assess the impact of currency depreciation. In nominal baht earnings, it is surprising to find that the growth of exports after 1997 is lower than in the 1995-1997 period. This is probably because the growth rate of the world economy in 1997-2001 was lower than in the 1995-1997 period. Although the baht depreciation helped increase the export earnings in baht, the decline in world agricultural prices offset the exchange rate effect on exports. However, as expected, the growth of import value (in baht) slowed down after 1997. In real terms, both the growth rates of export and imports were higher in 1997-2001 than in the 1995-1997 period, thanks to the low inflation after the crisis.

Table 8. Growth of agricultural exports and imports

Notes: The constant value in baht is derived from the farm price index. The G-5 manufacturing unit value index is used to derive the constant value of dollar earnings. All growth rates have been estimated using regression. a1995-2000. b1997-2000.

Source: The trade value in baht and quantity are from the Department of Business Economics; the trade value in dollars is from the FAO.

Table 9. Real growth rates and percentage share of trade in agricultural and food products

^a Excluding fishery products.

^b Annual growth rates of trade value at 1995 farm price index. All growth rates are estimated by the semi-logarithmic regression.

Source: Department of Business Economics.

Another issue is whether there is any growth differential between trade in agriculture and food. Table 9 breaks down total agriculture trade into agriculture and food.^[110] Surprisingly, despite the fact that Thailand is a major exporter of many commodities, more than 62 percent of its exports in 1995-2000 are food products (down from 67 percent in the 1991-1994 period). However, most of its imports are agricultural products, which accounted for almost 60 percent of the total in 1995-2000.

In conclusion, the overall trade performance of agricultural products slightly declined between the pre-UR and the post-UR periods. A short period of macroeconomic mismanagement in 1994-1996 had a negative impact on the exchange rate. But after the flotation of the baht in 1997, the positive trade impact of the exchange rate was partially offset by the low global economic growth in 1998 and 2000 and the decline in the world price of agricultural products.

4.3 Destination and origin of trade

Since 1995, there has been an important shift in the destination of Thai agricultural exports and origin of agricultural imports. With regard to the countries of destination for Thai exports, there was a decline in the percentage share and growth rates of exports to Japan and EU, which are two of the largest markets for Thai products. There are at least two possible reasons for the sharp decline in the EU’s export share. First, Thailand began to lose its preferential tariff status in recent years, and thus its exports to EU, including agricultural products, are now subject to higher import duties. Second, the strict SPS and TBT measures imposed on agricultural products imported into the EU may have impacted on Thai exports. The declining share of exports to Japan may be attributed to the decade-long recession in Japan. Fortunately, Thailand has been able to increase the growth and percentage shares of exports to other destinations. The markets that have become increasingly more important in the recent years are China, the United States, Malaysia, Indonesia and Africa.

The changes in the sources of agricultural imports are more remarkable than for exports. Imports from India, which is the most important source of agricultural imports, declined sharply from 31 percent in 1991-1994 to 16 percent in 1995-2000. In the early 1990s, about 6.7 percent of Thai imports came from Singapore because it was the main entrepôt for Southeast Asia. But in recent years, Thai importers have begun to switch towards the direct source of supplies, resulting in a fall in import share from Singapore. The percentage share of imports from China also dropped significantly between 1991-1994 and 1995-2000. In recent years, other Asian countries (mainly Israel and Saudi Arabia) have become the largest source of agricultural imports for Thailand. Its percentage share increased from 6.2 percent in 1991-1994 to 21.5 percent in 1995-2000. The American continent and Australia have also become an increasingly important source of imports for Thailand in recent years.

In effect, the sources of agricultural imports for Thailand have become much more diversified. This may reflect the increasing global competitiveness as the world trade in agriculture expands. The AoA may have contributed partially to the increases in Thai agricultural imports.

5 Food security

During the 1995-1999 period, the nutrition situation in Thailand improved slightly. The caput dietary energy supply estimated by FAO increased from 2 382 kcal to 2 411 kcal, an increase of 1.2 percent.^[111] The improvement was mainly caused by a moderate increase in the food production index from 133 in 1994- 1995 to 160 in 1998-2000, which also represented a small increase in per capita production. But the increased output was partially offset by a small increase in the food export/food import ratio. The food export/import ratio had declined sharply from an average level of 10 in the early 1990s to the current level of 6, because the import growth rate was higher than the export growth rate. However, the currency depreciation in 1997, which helped boost exports, stopped the long-term trend of declining export/import ratios. Food consumption has also shown an improving trend. Per capita food real expenditure increased by 14 percent between 1994 and 1998.

The Household Expenditure Survey can be used to provide an alternative indicator of the food security position. The indicator is estimated by converting the real expenditures on all items of foods purchased and/or obtained by a household into calorie units. To calculate the percentage of malnourished households, the minimum energy requirements for the household are used as the cutoff point and compared with the average calories consumed by each household. The results reveal that about 18 percent of Thai households are malnourished. The percentage of malnourishment increased between 1998 and 2000, which were the years after the 1997 financial crisis.

The next question is: How high is the incidence of malnourishment among the poor? Using the TDRI standard definition of poverty incidence (about US$1 per day), it is surprising that less than 40 percent of the poor households were undernourished in 1994. But the share of the poor households that are undernourished has shown an upward trend since then. The situation became worse after the 1997 crisis, which led to a higher poverty incidence.

Although it is easy to say that poverty is probably one of the important factors explaining the high long-term incidence of malnutrition among the poor, it is more difficult to analyse the cyclical factors that may have a significant impact on the poor’s income and food availability. Previous studies found that agricultural prices is the most important factor affecting the variation in poverty incidence (Siamwalla, 1998). But prices can have both negative and positive effects on the food available for the poor, and hence their nutritional status. The socio-economic survey shows that the poorest deciles of the rural population tend to have the largest proportion of their income derived from agriculture (about 40 percent). They also obtain a significant amount of wage income from hiring out labour. As farmers, both their income and nutrition will be adversely affected by a fall in agricultural prices. But as hired labour, in both the agricultural and nonagricultural sectors, they benefit from low food prices. Which effect dominates is a matter of empirical evidence, but to the extent that the poor have very small farm holdings and that most of their family members have to work as hired labour all year round, low agricultural prices may have a net positive impact on their nutritional status. Moreover, the changes in the pattern of poor households’ income may be consistent with a reduction in the proportion of undernourished poor households. Between 1994 and 1998, the Socio-Economic Survey shows that the poorest households (5th quintile) experienced a drop in their income share from agriculture and a higher income share from wage earnings. But in 2000, their wage share fell, while the share of agricultural income increased, a fact that is consistent with our hypothesis.

6 Negotiating positions and concerns

As one of the major agricultural exporters, Thailand has interests in an agreement that leads to a more liberalized global trade in agriculture. But at the same time, some farmers who grow import-competing products want to be protected. Moreover, when the world prices of the agricultural products that are Thailand’s major exports decline, the government is pressured to provide price support. Food processors also have conflicting interests, depending on whether their products are import-competing or whether they have to depend on imported raw materials. Therefore, each group of stakeholders has different interests in the WTO negotiation. This section will discuss briefly the standpoints of these stakeholders, namely the government, the private sector and the NGOs. An attempt is then made to identify Thailand’s major interests and concerns in the ongoing round of agricultural negotiation. Finally, a qualitative assessment of the issues of negotiation that affect Thailand’s interests will be provided.

6.1 Stakeholder positions

Government position

As a member of the Cairns Group, the Thai government fully supports the Cairns Group’s proposals in all major areas, namely, domestic support, market access and export competition, but there are several minor differences.

The government’s proposals with regard to domestic subsidy reform are as follows:

• A formula approach should be used to deliver major reductions in trade and production distorting domestic support, including AMS and Blue Box, leading to the elimination of such support and thus the removal of disparities in the levels of the support provided by countries.

• The time period, and other parameters, of the reduction formula for trade and production-distorting domestic support should be agreed in the negotiations.

• The formula should include a substantial downpayment during the first year of the implementation period (e.g. not less than a 50 percent initial reduction in trade and production-distorting domestic support).

• The reduction in support should be based on the actual (or applied) level, and the base year should be the year 2000 for developed countries and 2004 for developing countries to prevent countries from increasing support in the final years before implementation of the new agreement.

• The Blue Box must be either eliminated or combined with the Amber Box, and the total amount of support must not exceed the bound ceilings of Amber Box support under the UR agreements.

• Reduction in domestic support should be based on aggregate support to provide policy flexibility.

• The peace clause (article 13) should be allowed to lapse as part of the overall objective to bring agriculture under general WTO disciplines.

Moreover, the government also endorses the ASEAN proposal (submitted on 3 October 2000). The important points are:

• The basic and policy-specific criteria for Green Box support not subject to reduction and elimination (Annex 2 of the Agreement on Agriculture) should be reviewed to ensure that all such domestic support meets the fundamental requirements of no, or at most minimal, trade-distorting effects or effects on production.

• Green Box support should be limited as a percentage of GNP.

• Developing countries should be granted exemptions for their subsidies to investment and production inputs programmes.

• The de minimis provision should be reserved only for developing countries.

• Developing countries should be able to use policy measures to ensure food security.

The Thai government also agrees with the Cairns Group that tariff reduction under the new round should follow the cocktail approach, rather than the existing UR approach. However, as yet, there is no agreement on the appropriate formula. One major difference between Thailand and Australia/New Zealand is the definition of tariff peaks. Australia proposes a rate of 20 percent, while New Zealand wants the rate to be 60 percent. The Ministry of Agriculture is undertaking a study to determine the appropriate rates of tariffs as well as the cocktail formula. On tariff quotas, the Ministry of Agriculture has proposed expanding the list of TRQs to seven more products, i.e. cassava products, nonbreeder live chicken, whole chicken, fowl liver, processed chicken, and viscera. It also recommends expanding the in-quota amounts and reducing both in-quota and out-quota tariff rates for 20 out of 23 products.

Private sector position

The three private sector associations, the Federation of Thai Industries, the Chamber of Commerce and the Association of Thai Banking, set up a joint WTO committee. This supports the Thai government in endorsing a comprehensive (or broadly based) round of negotiations and wants to see the negotiations concluded as a single undertaking.

On agriculture, it makes endorsements on six issues:

• It supports both tariff reduction and expansion of TRQ quotas as a means to guarantee market access. It is also against any trade-distorting domestic support measures.

• It supports special and differential treatment for developing countries and wants the developed countries to provide technical assistance and technology transfer to increase the competitiveness of the agricultural sector of developing countries.

• Domestic support should be limited to Green Box measures.

• It does not support the negotiation on multifunctionality since it can be used to distort international trade.

• Export subsidy should be eliminated as soon as possible

• On the issues of GMOs, negotiations should be limited only to the cases with clear scientific evidence.

In addition, it also wants WTO members to improve trade preference measures so that they are non-discriminating, equitable and automatic.

NGO position

Most NGOs in Thailand do not actively engage in the current round of WTO negotiations. One active organization, the RAFA, does not want the Thai government to participate in the current round of negotiation. It argues that the WTO rules seriously affect the Thai farmers’ sovereignty. For example, the expansion of import quotas of soybean and maize does not receive the farmers’ consent, despite the fact that the quotas seriously affect the farmers’ livelihood by depressing the domestic prices of those products. Other NGOs, particularly the Organization of Community Property Rights, want to expand the future agreement on geographical identification to cover the names of indigenous plants.

6.2 Thailand’s interests and concerns in the Doha Round

Given the differing stands of each group of stakeholders, what should be the best interests for Thailand in the ongoing round of agricultural negotiation? As a major agricultural exporter, Thailand is interested in an agreement that leads to a higher degree of market access, either through a substantial reduction in MFN tariffs or through the expansion of in-quota imports (or minimum access). It wants trade preferences to be gradually phased out so that the gaps between the preferential tariffs and the MFN rates are substantially reduced. If there is a need for special trade preferences for the LDCs, the system should be strictly based on GATT’s principles of non-discrimination and transparency.

Thailand’s exports would also be increased if both domestic subsidy and export subsidy provided by the developed countries are reduced substantially. Another benefit is that Thailand itself would also be disciplined not to use too much subsidy on trade-distorting measures. But Thailand will also need a relatively large amount of non-trade-distorting subsidy for development programmes that help stabilize or increase farmers’ income.

Improved market access will not only benefit Thai farmers who produce for exports but also result in a more efficient use of resources in the agricultural sector as resources freed from highly protected but inefficient products are transferred to more efficient uses.

However, Thailand will also have to give more market access (e.g. expansion of a large number of tariff quotas) to other WTO members. A large number of farmers who are currently producing the protected products will be seriously affected, particularly if the tariff reduction is deep and takes place in a short time period. The Thai government (and developing countries) should be allowed to employ some measures to ensure that these farmers can gradually adjust in the face of increased competition. Special subsidy or other measures such as high bound tariffs may be necessary for a finite time period.

Perhaps the most serious concern of Thai producers and traders is the abuse of SPS measures as trade protection. Thailand wants to see enforcement as transparent as possible and wants to see that any unnecessary regulations should be streamlined. Though it recognizes the rights of a country to impose its own national standards higher than international standards, Thailand wants to see two developments. First, those imposing such standards should be prepared to help build the capacity of the developing countries and/or establish a system of testing in the developing countries by committing real resources. The developed countries should adhere to the principle of “equivalence” by speeding up the process of Mutual Recognition Agreements with the developing countries. Second, developed countries should allow imports from developing countries that meet existing international standards but are still lower than the national standards on the condition that the products are properly labelled or graded. Such labels will allow the consumers, and not the bureaucrats, to choose by themselves.

Although the Thai government has issued a significant number of SPS measures against imports, it has not yet been able to implement them. Developing countries, including Thailand, have limited resources and technical capacity to enforce all of the SPS measures they put into place. In that case, if they are forced to substantially cut the tariffs which are their last fortress, and unless they want to be trade-protectionist, they will not have any effective means to guard against a rapid import surge. Since they are not recommended to use SSG, ADD or countervailing duty, there must be some room for the developing countries to use high bound tariffs as a safeguard against serious disruptions.

6.3 Assessing the impact of the current negotiations

Despite having a most export-oriented agricultural sector, Thailand is one of the countries with the highest average tariffs for food and agricultural products. Although the Ministry of Agriculture is reluctant to substantially reduce tariffs on agricultural products, its proposal submitted to the Committee on International Economic Policy does not reject outright the idea of large tariff reductions. As mentioned above, it is in the process of determining the appropriate tariff rates for negotiation. Therefore, assuming that there is a large reduction in tariffs, Thailand will have to drastically reduce tariffs for a large number of products that have tariff peaks. Moreover, the government will also have to reduce the negative bias against the raw materials used in the food sector. The bias is caused by the tariff escalation structure. The large tariff reduction will seriously affect marginal farmers who are currently producing the import competing products, e.g. palm oil, soybean. A large number of these farmers will have to shift towards other less profitable but more competitive products. However, a small number of intramarginal farmers will remain. As a result of product substitution, the composition of agricultural activities will change probably towards fewer and more specialized products. If tariff escalation is reduced, more resources will be invested in improving the quality of agricultural products used as the inputs of the food-processing industries.

For exportable crops, the next round of large tariff reductions will have a significant impact on Thailand’s agricultural and food exports, given that it has a huge comparative advantage in a wide range of products and that its agricultural sector has the highest degree of openness. Its product quality is also higher than its trading competitors. Tariff reductions in Thailand will result in an increase in imports of some food products, particularly meat and dairy products, in which Thailand has a comparative disadvantage. It is difficult to predict the impact on net exports of agricultural products and food. However, there should be an increase in net exports given that Thailand has already reduced tariffs on a large number of agricultural raw materials since 1995. Farmers who now grow protected products will shift their resources to the crops where Thailand has a comparative advantage, resulting in an efficiency gain. Consumers will also be better off as they have access to cheaper quality food products and more choice.

From an export point of view, the proposal to increase the volume of tariff rate quotas may be of little benefit for the four major Thai export products, rice, cassava, chicken and sugar for two main reasons. First, sugar imports in the United States and EU are still tightly administered using political factors as the main criteria. Both markets are an exclusive club which Thailand cannot and should not enter. Unless the trade preference in sugar trade is eliminated, Thailand will not be able to penetrate the sugar markets in the EU and the United States. Second, many major rice-importing countries in Asia, namely Indonesia, Malaysia and Philippines, still use state agencies as the only importer. The actual amount of imports depends on the availability of supply in each year, and tends to fluctuate widely from year to year. When there are bumper crops, their food imports will fall sharply. The main reason is the high level of protection in the form of high in-quota tariffs and non-tariff barriers. In the case of cassava products, a few countries have already committed to large import quota amounts. But in-quota tariffs for both tapioca pellets and starch still remain high in Republic of Korea. Thailand will be better off if the in-quota tariffs are first reduced, followed by a sharp reduction of out-of-quota tariffs.

On the import side, Thailand has nothing to fear by offering to take a few products off the TRQ list, namely, rice, sugar and dried longan, because Thailand is the major low-cost exporter. It should also take off many other products which have been allowed free import into Thailand at applied tariffs lower than the bound rates, e.g. maize, soybean, and soybean cake. The action will result in a more competitive market for feed production and vegetable oil processing. The market power of a few agro-industrial companies will decline.

Strangely, the Ministry of Agriculture is considering adding more products to the TRQ list, giving that WTO negotiations aim at eliminating all non-tariff barriers. There is no rational explanation as to why it should want to add cassava products to the TRQ list. Thailand is the largest exporter of the product, while the second largest exporter has only a tiny share of the world market.

With respect to domestic subsidies, a sharp reduction in Amber Box support and strengthened disciplines on Green Box measures would benefit Thai taxpayers and farmers as a whole. First, given low economic growth in the next few years, the reduced budget for price intervention would help restore fiscal discipline by reducing fiscal deficits and thus government borrowing. Second, strengthening disciplines on Green Box measures will ensure that scarce resources are channelled into high-priority programmes which serve the long-term interests of farmers and society as a whole. However, if other developed countries follow the recent American lead and increase support to their farmers, the consequence will be a huge excess supply of some agricultural products, which will certainly depress world prices. Developing countries that are the low-cost producers of those products will not be able to compete at such low prices.

Thailand will definitely gain substantially from the elimination of export subsidy, and for this reason, stakeholders in Thailand strongly advocate this stand. Sugar prices will improve because of the reduction in EU sugar exports. Thai rice will also be more competitive against United States rice exports which are financed by subsidized export credits, but Thailand will have to reduce its packing credit facilities for rice exports.

References

ABARE. 2002. Domestic support of agriculture. Current Issues, May.

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