(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00447R000302230001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: January 12, 2017
• Document Release Date: June 29, 2011
• Sequence Number: 1
• Publication Date: October 28, 1985
• Content Type: MEMO

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Central Intelligence Agency
Washingwn. D. C. 20505
DIRECTORATE OF INTELLIGENCE
28 October 1985
Textiles Straining the Fabric of US-Thai Relations
Summary
Consideration in the US Congress of the Jenkins
bill--which would sharply curtail Thai textile
exports to the United States--coincides with a
lackluster export performance by Thailand that
threatens economic growth and is compounding foreign
debt management problems. Coming on the heels of
the recent coup attempt, the proposed legislation
also adds to Prime Minister Prem's political
problems at home. At a minimum, we believe the
bill's enactment would prompt increased domestic
political pressure on Prem to retaliate against
American interests such as agricultural exports. We
also cannot rule out the possibility that some
elements in the military would try to use the new US
legislation to undercut Prem or as an excuse to plot
another coup attempt. Even if the bill is dropped,
however, Bangkok over the near term will likely
attempt to expand other trade ties, and bilateral
relations might cool as Bangkok seeks to reduce its
Friction in Trade Relations
US-Thai trade relations--traditionally very cordial--have
deteriorated over the past few months, particularly since the
Jenkins bill was introduced in the US Congress last spring. As
the Thai see it, the bill represents the most serious threat to
This memorandum was prepared by Southeast
Asia Division, Office of East Asian yInformation
available as of 28 October 1985 was used in its preparation.
Comments and queries are welcome and should he addressed to
Chief, Southeast Asia Division, OEA,
85-10193
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their exports of a number of recent US proposals to curb
The timing, moreover, adds to Bangkok's objections to the
bill's potential impact. Stagnant foreign exchange earnings are
slowing economic growth and making foreign debt management more
difficult. US diplomats estimate that Bankok's debt service
ratio probably will hit a record 27 percent this year, even if
exports are not held back by trade restrictions in overseas
markets. And although Bangkok this year has stepped up its
export drive, only manufactures such as textiles--Thailand'
number two export earner after rice--have performed well.1
With agricultural exports likely to remain sluggish at least
in the short term, passage of the Jenkins bill would place an
additional strain on Thailand's economy. We calculate that the
bill could cut Thai textile exports to the United States by
almost two-thirds, representing a 23-percent decrease in the
country's total textile exports. This would probably amount to a
$220 million drop in export earnings--equal to 3 percent of
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Bangkok's efforts to boost exports. (See appendix-A.) "~ 25X1
According to the US Embassy, heavy losses in the textile
industry would seriously damage the economy as firms failed and
bank loans soured. Prominent Thai economists estimate that the
bill would probably cause the country's growth rate in 1986 to
decline a full percentage point to less than 3 percent--a further
slowing from projected growth of 4 percent this year and a
substantial drop from growth rate 5.5 to 6 percent a year
during the early 1980s. 25X1
Thailand Lobbies...
Convinced that the Jenkins bill is a serious threat to the
economy, government, business, labor, and student groups have
'Bangkok last fall devalued its currency and accelerated the
implementation of other reforms designed to make Thai exports
more competitive internationally. Despite these measures,
exports this year are expected to decline at least 2 percent from
$7.3 billion in 1984 because world markets for agricultural
commodities--which account for 60 percent of Thailand's export 25X1
r
..,.
-_--- - ---- -
e
nues
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united to fight it in a way not seen since the mid-1970s.2
Textile workers and students have staged demonstrations and have
written letters to Washington, urging that the bill be
scrapped. Thai parliamentarians, including the House Speaker,
have lobbied their counterparts in Washington, and other
prominent politicians have joined in the campaign. Top-level
Thai officials, including Prime Minister Prem and Foreign
Minister Sitthi, also have weighed in against the bill, although
they have adopted a less confrontational tone by emphasizing
Bangkok's intention to address US trade concerns. 25X1
Although the "official" campaign for the most part has
maintained a conciliatory spirit, media commentaries--and many
politicians--have taken a much harsher view of the legislation.
According to the US Embassy, their protests reflect the Thai's
belief that they are being "picked on" at a time when they are
facing serious problems--and, moreover. y a country they
consider a "special friend." 25X1
Despite the Prem government's effort to minimize the
potential damage to relations with Washington, a variety of
sources indicate that the government shares the widespread belief
among the Thai that the legislation is discriminatory. An ASEAN
memorandum drafted by Bangkok clearly reflects the government's
opinion that the bill violates that most-favored-nation principle
of the GATT by exempting certain countries and groups such as the
European Community, Canada, and Mexico. (See appendix B.)
Bangkok also opposes the legislation as being inconsistent with
the international Multifiber Arrangement's provisions and as
unilaterally repudiating US commitments to bilateral trade
agreements with Thailand.3 25X1
A better alternative to the bill, in Bangkok's view, would
be a renewal of the Multifiber Arrangement on terms acceptable to
all parties. Foreign Minister Sitthi also favors establishment
of a trade arrangement between Washington and ASEAN as a possible
long-run solution to US and Thai trade concerns, according to the
US Embassy. If Washington does not drop the bill, however,
Bangkok will probably lobby for exclusion from it or for an
amendment that would soften the bill's impact on Thailand.
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2Students, workers, and politicians played a leading role in
the public demonstrations that toppled the military dictatorship
in 1973. Between 1973 and 1976, the activities of these and
other pressure groups reached an unprecedented level.
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3The Multifiber Arrangment--negotiated between producing and
consumer countries--sets guidelines under the auspices of th
GATT for bilateral textile and clothing trade arrangements.
-~-
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...With Carrots and Sticks
Prem is willing to make concessions on some bilateral issues
to gain leverage against the bill--and to brotect US-Thai
relations
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For
recently instructed the government tariff commission ~to
c~
reconsider the tariff rate on cotton after renewed US complaints
that a duty increase last fall has led to a sharp drop in the
United States' share of Thai cotton imparts.4 25X1
According to the 25X1
m assy, additional compromises on US concerns such as
protection of intellectual property rights and trademarks are
possible, although some Thai officials oppose further concessions
because they believe that Ana ent of the Jenkins bill is
inevitable. E: 7 25X1
Despite Prem's desire to avoid confrontation with the United
States or to risk damaging overall relations, other Thai
politicians have threatened retaliation if the bill is enacted.'
Kukrit Pramot, leader of the Social Action Party (SAP)--the
largest party in the Cabinet--has said that Bangkok should-
suspend cooperation with the United States on narcotics
suppression and on refugee issues. Even longtime US supporters
have called on ASEAN to ban imports of US products, prohibit US
ships from the region, and restrict the use of US airlines for
cargoes originating in or passing through the area. Moreover,
Thai academics as well as politicians have hinted that the
purchase of US F-16s should be reconsidered, arguing that
Thailand's scarce foreign exchange should not be allowed to flow
to the United States if Washington curbs Thai exoorts_
Looking Ahead
We believe that even a watered-down version of the
for Prime Minister Prem. 25X1
following last months's coup
attempt, Prem needs to demonstrate credible leadership--both on 25X1
the domestic front and in defending Bangkok's interests in the
international economic arena--to counter charges that he has been
ineffectual. US enactment of any protective legislation
affecting Thailand--such as the Jenkins bill--would, we b e,
provide fresh ammunition to Prem's opponents. 25X1
4Bangkok will lower the import duty on cotton by 40 percent,
partially offsetting a threefold increase in the tariff last fall
that was part of an across-the-board tariff hike aimed at
generating additional government revenues. I 25X1
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Moreover, although Prem has demonstrated an ability to
survive political difficulties, we believe the fallout from a
sharp cutback in textile exports would incrpacI tho rhmn,e ,.o
another coup attempt.
If there is a significant loss of textile jobs and earnings,
Prem will, at a minimum, face increased pressures from domestic
interest groups. The opposition Thai Nation Party--whose leaders
include many wealthy businessmen with interests in the textile
industry--undoubtedly would step up its attacks on the government
in a bid to force its way into the ruling coalition--or to
replace Prem. Prominent bankers and private economists who have
publicly criticized government economic policy would probably
become much more vocal, as would labor groups. Members of Prem's
coalition might try to dump him as well. The SAP in particular--
the Prem government's mainstay--is trying to distance itself from
Prem's economic policies to avoid blame for the country's
problems, according to the US Embassy. 25X1
Although sharp retaliation seems unlikely given Bangkok's
vested interests in maintaining good relations with the United
States, we believe that domestic political pressure would force
Prem to take action against some US interests if the bill is
enacted. The Embassy reports that cotton and other US
agricultural exports are the most likely targets. We believe
that Bangkok also might become less cooperative on other US
concerns such as narcotics suppression. 25X1
Even if the bill is dropped, the overall US-Thai
relationship may cool somewhat, at least in the short term,
because Bangkok apparently is beginning to regard Washington as
an unreliable trade partner. Bangkok most likely will become
less willing to go along with the US position on issues where it
views Thai--or ASEAN--interests as diverging from Washington's,
and it will probably become more vocal in expressing reservations
about US policies, particularly on trade. We believe that the
5Stagnant export earnings and depressed farm incomes were
cited by the coup plotters as a key motivation behind their
attempted overthrow of the government. Although the opportunity
for personal financial and political gain appears to have been a
more likely reason, the abortive coup highlights Prem's
vulnerability on economic issues.
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Thai also will work harder for closer economic cooperation within
ASEAN--particularas a lobbying group against the United
Statec
In addition, Bangkok probably will immediately step up
efforts to expand its ties with other trading partners--including
the Soviet bloc, the Middle East, Africa, and Latin America--in
order eventually to reduce its dependence on the US market. The
US Embassy reports that after a recent visit by a high-ranking
Soviet trade delegation, Prem has agreed to increase trade with
the USSR despite Bangkok's basic distrust of the Soviets. Thai
officials say that the Soviets have offered to purchase textiles,
tapioca, and sugar, in hopes of a Thai invitation to Soviet
Deputy Prime Minister Ryabov, who scheduled to visit Southeast
Asia at the end of nc+
b
o
er
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Appendix A
Why Textiles Head the List of US-Thai Trade Frictions
Textile and garment manufacturing is Thailand's most
important industry, accounting for a quarter of manufacturing
value-added and over 5 percent of GDP. The industry also is the
largest manufacturing employer, with about 450,000 ees or
almost a third of the manufacturing work force. mD~O '
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Textiles and garments, moreover, are Thailand's most
important manufactures export, and the third-largest foreign
exchange earner after rice and tourism. Exports of textiles and
garments last year amounted to 11 percent of the country's total
merchandise receipts, earning about $800 million. From the US
perspective, however, Thailand is a small exporter, and its
textile products account for less than 2 percent of total US
imports of textiles and garments. 25X1
As originally submitted to Congress, the Jenkins bill would
cut Thailand's quotas for 1985 to 127.5 percent of 1980 levels--a
rollback of 64 percent from last year's exports to the United
States. Growth in subsequent years would be limited to 1 percent
per year. Thai officials estimate that enactment of this version
of the bill would probably cause a loss of more than a fifth of
the country's textile jobs as well as a huge loss in foreign
exchange earnings. Under a proposed amendment to the bill,
however, 1984 would be used as the base year for calculating the
new quotas- In this case Thai,--J'_
tne
United States instead would be reducedy4Ay~ tN?rtis to
perc cennt. 25X1
Compounding friction over the bill is a recent US embargo of
Thai garments for the remainder of 1985--which Bangkok
reluctantly accepted because 1985 quotas already have been
filled--and a reduction of Thailand's 1986 quotas to pay back
overshipments in 1984. According to the US Embassy, the three-
month halt in shipments to the United States will cause up to a
1.5-percent drop in total export earnings for 1985 and the loss
of 50,000 to 100,000 jobs as many small firms crumble. Moreover,
the Embassy believes that the embargo will have a significant 25X1
long term im
act
th
p
on
e Thai textile industry because some
foreign customers will switch permanently to other suppliers.
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Appendix B
Thailand Leads ASEAN Opposition to the Jenkins Bill
The potential impact of the Jenkins bill varies across
ASEAN, with Thailand, the Philippines, and Indonesia likely to
suffer the greatest losses. We believe that all of the members
of ASEAN, however, would look upon enactment of the bill as an
act of discrimination against Asia and an indication that
Washington is insensitive to the region's needs during a period
of economic difficulty. 25X1
Bangkok has emerged as the leader of ASEAN's opposition to
the bill because it stands to lose the most, both financially and
possibly in terms of domestic political stability. Moreover, we
believe the Thai view the bill as one more instance of being
bullied by Washington in an increasing number of US-Thai trade 25X1
disnutes_
In addition to drafting a group memorandum on trade and
economic relations with the United States, Bangkok is actively
promoting an ASEAN economic summit for 1987, where it will press
its Southeast Asian neighbors for greater cooperation in boosting
trade within ASEAN and in forming an effective lobbying group on
extraregional trade issues. If the bill is enacted, we believe
that Bangkok also will attempt to coordinate a group protest, and
possibly to impose sanctions such as a halt to imports of US
Philippine textile exports to the United States--which
amount to almost two-thirds of the country's total textile
exports--would be reduced 20 percent under the Jenkins bill. At
least 20,000 workers would lose their jobs, and total export
earnings would drop about 1.4 percent. We believe this would
complicate Manila's efforts to cope with the country's foreign 25X1
debt crisi
d i
s an
ts increasingly militant labor force.
Indonesia's textile exports to the United States would be
cut 90 percent under the bill, halving its total textile
exports. Although textiles and garments represent only 2 percent
of the country's total merchandise receipts, the United States
has taken the lion's share of the industry's recent export
growth, and passage of the bill probably would end Jakarta's
hopes that textile exports in the ture could partially offset 25X1
declining oil revenues.
Mala sia and Sin a ore would not be badly hurt by the
jenkin-s-5111 because the United States takes just a small share
of their total textile exports--which amount to only a minor
share of merchandise exports for both countries. Nonetheless, we
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expect Malaysia and Singapore to support the other ASEAN members'
objections to the bill on the ground that it is unfair to Asian
exporters
.
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THAILAND'S EXPORTS
1984
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SUBJECT: Textiles Straining the Fabric of US-Thai Relations
Distribution:
Original - OEA/SEA/ITM
1 - Richard Childress, NSC
1 - Byron Jackson, Commerce
1 - Linda Droker, Commerce
1 - Paul Pilkauskas, State
1 - Ed Goff, State
1 - Frazier Meade, State
1 - Janet Malkemes, State
1 - Cora Foley, State
1 - Alan Kitchens, State
1 - Alice Straub, State
1 - Tom Forbord, State
1 - Jack Sheerin, State
1 - Lt. Col. William Wise, Pentagon
1 - Richard Rice. Pentagon
1 -
1 -
1 -
1 - Doug Mulholland, Treasury
1 - Bob Anderson, Treasury
1 - Dave Hatcher, ISA
1 - Greg Moulton, USTR
1 - Ron Sorini, USTR
1 - Melissa C
1 -
1 -
1 -
1 -
1 -
DDO/E'A/I
NIO/EA
NIO/ECON
C/OEA/SEAD
DC/OEA/SEAD
OEA/SEA/IB
OEA/NEA
OEA/CH
D/OEA
NIO/Analytical Group
0/PPS
ANIO/Econ
OEA/Research Director
C/PES/DDI
OCR/ISG
C/EA/RR
CPAS/ILS
CPAS/IMC/CB
DDI/OCR/EA/A
DDI
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1 - PDB Staff
1 - C/NIC
1 - Senior Review Panel
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