In 1995, the U.S. trade deficit with Thailand fell to $4.9 billion, a
decrease of $497 million from 1994. U.S. merchandise exports to Thailand grew to
$6.4 billion, an increase of nearly 32 percent from 1994. Thailand was the
United States' eighteenth largest export market in 1995. U.S. imports from
Thailand totaled $11.4 billion, $1 billion more than in 1994.
The stock of U.S. foreign direct investment in Thailand was $3.8 billion in
1994, an increase of 27.7 percent over 1993. U.S. direct investment in Thailand
is largely concentrated in the manufacturing, energy and banking sectors.
In Thai Fiscal Year (TFY) 1995, October 1994 - September 1995, the average
Thai tariff was 7.8 percent calculated as a ratio of import duties collected to
total imports arriving in Thailand (including imports of goods on which tariffs
were waived as part of Thai government investment incentives). This compares
with a figure of 8.8 percent in TFY 1994. The change is largely explained by
tariff reductions instituted as a result of Thailand's membership in the Asian
Free Trade Area and, to a lesser extent, the WTO. The average trade-weighted
tariff for dutiable items was 21.26 percent in 1995.
Tariffs accounted for 17.8 percent of total government revenues in TFY 1995,
a decrease of 1.5 percent from 1994. Since 1990, the share of total government
revenues contributed by import duties has declined; the most recent tariff
reductions reduced revenues by approximately $700 million per year. Given
continued decreases in the levels of duties, economic growth, and increased
efficiency in collecting other taxes, the revenues from tariffs will continue to
decline as a proportion of government revenues.
The Royal Thai Government (RTG) is reducing import duties and trade barriers
as part of its obligations as a founding member of the World Trade Organization
(WTO) and as a member of the Association of South East Asian Nations' (ASEAN)
Free Trade Area (AFTA). At the end of 1994, the RTG commenced a major reform of
tariff schedules that will be completely phased in by January 1, 1997. The total
number of tariff- rate categories will be reduced from 39 to six: zero percent
for certain goods such as medical equipment and fertilizer; one percent for raw
materials, electronics components, and vehicles for international transport;
fivepercent for primary and capital goods, such as machinery, tools, and
computers; ten percent for intermediate goods; 20 percent for finished products;
and 30 percent for goods needing special protection. Certain items, notably
agricultural products, autos and auto parts, alcoholic beverages, and other
sensitive products, will be excluded from this reform.
As part of this process, tariff rates on almost 4,000 items will be reduced
in order to comply with Thailand's WTO obligations. Full tariff reductions will
become effective January 1, 1997. When combined with tariff reductions enacted
earlier in 1994, these cuts will decrease the average tariff on 20 categories of
(which, according to the Thai Finance Ministry, account for 91 percent of all
dutiable items) from 30.24 percent in 1994 to 17.01 percent by 1997.
Under the tariff reform package, there will also be a special tariff rate of
30 percent maximum, down from 100 percent, for locally produced goods in need of
"special protection," including fabrics, carpets, clothing, refrigerators and
air conditioners. Auto imports will retain tariff rates of 42 and 68.5 percent,
depending on horsepower; the rate on auto parts will be 60 percent. For the
first time, tariffs on petroleum imports will be reduced. Duties that now
stretch from 30 percent to 60 percent will be cut to between one percent and 45
percent; by 1997 these rates will fall still further to a maximum of 30 percent.
The Thai Government also lowered barriers to imports of chemical, paper, and
pesticide products, which should help U.S. exporters.
In some cases, import duties on unfinished materials are higher than for
finished products, a policy that may disadvantage American business. For
example, duties on parts used to manufacture automotive shafts and axles by a
U.S. firm in Thailand are 35 per cent. Imports of the completed component as
part of completely knocked down kits are taxed at a 20 percent rate. In some
cases, these anomalies are due to past investment incentives; the RTG is
reviewing the issue.
As part of the ASEAN Free Trade Area (AFTA) that began in January 1993,
Thailand continues to reduce tariffs on a variety of products imported from
other ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, and
Vietnam). In December 1995, the ASEAN Summit meeting in Bangkok formally
approved implementation of the AFTA by 2003, called for accelerated tariff
reductions by 2000, and initiated discussions on services, intellectual property
protection, and the removal of non-tariff barriers.
The RTG is also easing barriers to imports of farm products. In addition to
lowering duties on many agricultural products and removing the ban on imports of
others, Thailand will tie tariff rates on farm goods to quotas -- a step that
will improve access to the Thai market for U.S. producers. Rice will be subject
to "safeguards" on its importation and price levels, but these will be set to
meet WTO standards. Significantly, Thai customs will no longer charge specific
duties on most imported farm goods (wine and spirits are notableexceptions, see
below) when the specific duty (e.g., 50 baht per kilo) exceeds the ad valorem
rate (e.g., 60 percent). This should help certain U.S. products, such as fresh
citrus, to compete in the Thai market. With Thailand's membership in the WTO,
the surcharge on soybean meal was also converted to a more reasonable tariff
quota -- a boon to U.S. exporters to Thailand.
Not all of the changes will materially affect access of farm products into
this predominantly agricultural country. Duties on many high-value fresh and
processed food products remain high, even though the rates will decline by 33 to
50 percent under the WTO. With most pre-WTO rates around 60 percent, this will
leave most items in the 30 to 40 percent range by the year 2004 -- high compared
with Malaysia, Singapore, and Indonesia. Thus, producers of meats, certain fresh
and dried fruits, tree nuts, juices, and other packaged items may still find it
difficult to penetrate the Thai market.
Thai policies continue to impose tough barriers on imports of certain other
products. Duties on wine and spirits, which are the higher of ad valorem duties
ranging from 54 to 68 percent or a specific duty ranging from 19.6 to 136 baht
($.78 to $5.44) per liter, remain high. Imported alcoholic beverages are also
assessed separate excise duty at rates varying from 48 percent on beer to 20
percent on champagne, rum, and sake. Imports of motorcycles, in particular
completely built up units (CBUs) and motorcycles with engines over 200cc,
continue to be prohibited, though the RTG is considering liberalizing the latter
prohibition. Separate excise duties are assessed on a number of other imported
products such as tobacco products, automobiles, and some electrical and
petroleum products. Many textile and apparel products remain subject to the
higher of an ad valorem or specific duty.
Quantitative restrictions and import licensing
Until 1995, firms had to obtain licenses from the Ministry of Commerce in
order to import items such as food products, raw materials, and industrial
products. Agricultural items, such as soybean products, powdered milk, and
coffee, were subject to strict import licensing requirements. In 1995, Thailand
began the process of converting these restrictions (excluding industrial
products) to tariff rate quotas and tariffs in accordance with its WTO
Although some import licensing requirements will continue to protect Thai
industries for health, security, and other reasons, the Uruguay Round agreement
requires the elimination of Thai requirements for a wide variety of goods.
Arbitrary customs valuation procedures constitute another barrier to U.S.
exports. The Thai Customs Department may use as a check price the highest
previously invoiced price of a product imported from any given country and may
disregard actual invoiced values in favor of the check price for assessment
purposes. This practice has at times resulted in the over-valuation and unfair
taxation of lower priced products. It may not take into account differences in
quality and seasonal price fluctuations for agricultural products.
STANDARDS, TESTING, LABELING, AND CERTIFICATION
The Thai Food and Drug Administration (FDA) requires standards, testing,
labeling and certification permits for the import of all food and pharmaceutical
products into Thailand. The FDA charges a fee of 15,000 baht (about $600) for a
three-year permit to import food, and 12,000 baht (about $480) for a one-year
permit to import drugs. Products imported in bulk require laboratory analysis at
a cost of between 1,000 and 3,000 baht ($40 to $120) per type of item. Products
imported in sealed containers (consumer ready packaged) require analysis costing
5,000 baht ($200) per type of item. In addition, "specific-controlled" food
products -- some 39 processed and packaged food items -- must be further
licensed by FDA at a cost of 5,000 baht ($200) before importation is
Importers indicate that the overall licensing process poses an import barrier
on many food products because of its cost, duration, and requirement for
proprietary information. Although the FDA has streamlined procedures, some cases
may still take up to a year to complete. All processed food items must be
accompanied by a detailed list of ingredients and a manufacturing process
description. Imports have been constrained as a result of these requirements
since some U.S. suppliers decline to provide the proprietary information
On June 6, 1995, the Thai Cabinet approved a policy to require, on a case by
case basis, countertrade on government procurement contracts valued at over 500
million baht ($20 million). A counter purchase of Thai commodities valued at 20
to 50 per cent of the principal contract may be required. As part of a
countertrade deal, the RTG may also specify markets into which commodities may
not be sold, expected to be markets where Thai commodities already enjoy
significant access. The counter trade requirement may disadvantage U.S.
suppliers and its case by case implementation may result in a lack of
Thailand maintains several programs that subsidize exports, including
preferential financing for exporters. Thailand's export-import bank, established
in September 1993, is responsible for some of these programs, particularly the
packing credit program.
LACK OF INTELLECTUAL PROPERTY RIGHTS
One of the most prominent trade issues between the United States and Thailand
has been the extent of Thailand's protection for U.S. copyright, patent and
trademark holders. In April 1991, Thailand was designated a "priority foreign
country" under the Special 301 provisions of the 1988 trade act, and since 1989
has been denied certain benefits under the U.S. GSP program.
Since 1993, protection of intellectual property rights in Thailand has
improved. First, the RTG has stepped up efforts to suppress piracy and educate
the public on the importance of IPR protection. Second, in addition to enhancing
protection for certain pharmaceutical products, the RTG passed a revised
copyright law in 1994 that addressed many U.S. concerns. From 1993 to 1995, the
Thai police made 5,756 arrests and seized 2.6 million pirated items under its
copyright, trademark, patent, and censorship laws. In recognition of this
progress, the Administration revoked Thailand's status as a "priority foreign
country" in September 1993, and then moved it from the "priority watch list" to
the "watch list" in November 1994. In 1995, after the new copyright law became
effective, the Administration also fully restored benefits to Thailand for 11 of
the 16 GSP items that were previously suspended.
Problems remain, however, with aspects of the copyright and patent laws and
the enforcement of existing legislation. The police do not readily initiate
action against pirates, even though they are fully empowered under the law to
arrest violators. To date, no one has served time in prison for pirating
protected goods, and fines are often too low to deter offenders. After a major
campaign to sweep pirates from Bangkok's streets in 1993-1994, the number of
arrests and seizures fell sharply in 1995. The RTG is sponsoring legislation to
create an intellectual property court that should address some of these
Following a complaint by the Pharmaceutical Manufacturers Association, the
Administration determined in March 1992 that Thailand's acts, policies and
practices relating to patent protection were unreasonable and restricted U.S.
commerce. In September 1992, Thai legislation extended protection to
pharmaceuticals and agricultural machinery and increased the patent protection
term to 20 years. However, the law did not provide protection for products
patented in other countries that had not yet been marketed in Thailand
("pipeline protection"), and it contained extremely broad authority to issue
compulsory licenses in cases where patented goods are not yet produced in
Thailand. The legislation also created a pharmaceutical patent review board with
unique and extraordinary powers to require sensitive cost and pricing
information. These provisions are a significant disincentive to obtain product
patent protection for pharmaceuticals in Thailand and seriously reduce the
benefits of the patent protection provided in the 1992 law.
In 1993, the RTG established administrative measures to provide a degree of
market exclusivity for pharmaceutical products not eligible for protection under
the 1992 law, narrow the scope of compulsory licensing provisions, and restrict
the authority of the pharmaceutical patent board. These measures, however, are
not fully consistent with the growing international consensus on protecting
pharmaceutical products. For example, the market exclusivity period is only five
to six years. Thailand is still in the process of developing a new patent law
that is meant to comply with the WTO Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPs); parliament will consider such legislation
in 1996. The Pharmaceutical Research and Manufacturers of America estimates that
in 1994 its members lost $70 million in sales due to deficiencies in patent
protection in Thailand.
Thailand passed a new copyright law in December 1994 that strengthened legal
copyright protection and increased the penalties for copyright infringement. The
new law became effective March 21, 1995, bringing the Thai copyright regime into
closer conformity with the international standards under the TRIPs agreement and
the Berne Convention (Paris Act). With active support from U.S. industry
associations, the Thai Police conducted numerous raids on pirates, and the RTG
initiated a public awareness campaign to change the attitudes that encourage and
support piracy. The incidence of pirated audio tapes and compact discs in the
Thai market has fallen dramatically, and sales of legitimate videocassettes and
software are growing.
Nonetheless, the vagueness of certain provisions, particularly regarding
decompilation and government use of software, remain of concern. The law does
not clearly spell out what constitutes infringement for software, and statements
by RTG officials have appeared to condone use of software that was pirated
before the copyright law came into effect. Judicial proceedings are slow and
fines actually imposed are also light, although the new copyright law has
increased both fines and lengths of sentences. To date, no one has served a
prison sentence for copyright infringement. Moreover, arrests and seizures of
pirated goods under the copyright and censorship laws have declined
significantly over the last two years. The result was a gradual resurgence of
piracy in certain areas, such as videocassettes and book publishing, in 1995.
The Business Software Alliance believes that piracy cost its members $120
million in lost sales in 1994, while the Motion Picture Association estimates
damages to U.S. film makers at $29 million in 1995.
Amendments to the trademark law in 1992 provide higher penalties for
infringement and extend protection to services, certification, and collective
marks. While these amendments seem to have created a viable legal framework and
led to some improvement in enforcement, trademark infringement remains a serious
problem. U.S. companies with an established presence in Thailand and a record of
sustained cooperation with Thai law enforcement officials have had some success
in defending trademarks, but the process remains time-consuming and expensive.
Problems are particularly acute with respect to enforcement in the criminal
To deal with concerns about enforcement, the RTG has proposed the creation of
an independent intellectual property and international trade court that would be
staffed with judges trained in IPR matters. Just as important, the court
legislation should expedite procedures and facilitate civil penalties against
offenders, both lowering the burden of proof for convictions and raising civil
penalties that copyright holders can use to wage the battle against piracy.
Parliament is expected to pass the legislation.
Under current Thai regulation, only persons of Thai nationality may be
licensed in many professional services, including accounting, architecture,
engineering, construction management, brokerage services and legal services.
However, the RTG is currently planning revisions to these regulations, and Thai
services access commitments under the extended Uruguay round should also bring
some positive changes.
Insurance: Under laws enacted in 1992, foreign direct insurers are
not allowed to establish branches in Thailand without special permission. In
December 1995, the Thai Ministry of Commerce published the procedures for
applying for a license to establish a branch of a foreign insurance company.
Under the law, all foreign shareholders combined are limited to a maximum 25
percent shareholding in each Thai insurance company. The law grandfathered
existing foreign participation exceeding 25 percent (including a long
established U.S. company) in previously licensed Thai insurance companies.
However, the RTG has not finally ruled on the applicability of this provision to
the affected U.S. firm three years later. Moreover, the law provided that such
foreign participation cannot be increased. Thai government policy is to place
all government insurance with government-controlled companies.
Banking: For some time, foreign banks had been prohibited from
entering Thailand through a moratorium on new offshore licensing. The RTG has
announced that seven foreign banks will be granted branch licenses by 1997.
Licenses may be awarded as early as April 1996. Generally, Thai authorities have
limited foreign banks to a very small share of the total Thai banking market,
largely by restricting foreign bank entry, branching, and acquisition of Thai
Foreign bank branches are also legally precluded from establishing new
sub-branches in Thailand. There are plans to allow foreign banks operating
Bangkok International Banking Facility (BIBF) offshore banking units offices to
upgrade those offices outside the Bangkok area to branches. Foreign banks are
not allowed to operate automated teller machine networks, as ATMs are considered
to be branches. Recently changed regulations now permit foreign banks to
participate in the local ATM network with domestic banks. However, foreign banks
have been unable to conclude an agreement with domestic banks for access to the
The Thai cabinet approved the creation of the BIBF in September 1992. Under
the BIBF framework, designed to develop offshore banking units, the Bank of
Thailand issued new restricted licenses to foreign and domestic banks. Seven
American banks received such licenses. Under the new licenses, these offshore
units have been able to make loans to Thailand and to third countries using
funds from abroad, but they have not been permitted to take domestic deposits or
to fund domestic lending from domestic sources. Forty-four banks now participate
in the BIBF.
In early January 1994, Thai Finance officials announced a decision to allow
foreign banks participating in the BIBF to establish branches (Provincial
International Banking Facilities -- PIBFs) in provinces outside of the Bangkok
metropolitan area. Thai officials describe this as the latest step in the
long-term liberalization of the banking system.
The announcement of National Executive Council No. 281, commonly known as the
Alien Business Law, limits foreign equity in many Thai firms to less than fifty
percent. The RTG is drafting a new Alien Business Law that reportedly will be
more liberal. Some other laws are more restrictive and will not be affected by a
liberalized law. Laws covering banking and insurance, for example, limit foreign
equity to 25 per cent. The RTG maintains local content requirements in the
automotive industry as well.
There are many exceptions to foreign equity limits available as investment
incentives from the Board of Investment. Many foreign firms in promoted
industries, especially those in export industries, may be 100 percent
foreign-owned. In addition, the Treaty of Amity and Economic Relations between
Thailand and the United States provides for 100 percent U.S. ownership of
companies in most industries. Businesses in the fields of communications,
transport, fiduciary functions, natural resources, or trade in agricultural
products are excluded from treaty coverage.
Several government firms are shielded from foreign and domestic competition,
especially in the communications industry. The Communications Authority of
Thailand imposes stringent equity and revenue sharing requirements on
International Value Added Network Service (IVANs) providers. The RTG is seeking
to prevent new technologies, such as call back services, from competing with the
Telephone Organization of Thailand, the government-owned telephone service