TEXTILES STRAINING THE FABRIC OF US-THAI RELATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202040001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: April 26, 2010
• Sequence Number: 1
• Publication Date: October 28, 1985
• Content Type: REPORT

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STAT
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Central intelligence Agency
0?
Washington. 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
--bil-l--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
dependence on the United States.
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 Analysis. Information
available as of 28 October 1985 was used in its preparation.
Comments and queries are welcome and should be addressed to
Chief, Southeast Asia Division, OEA, on
85-10193
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their exports number of recent US proposals to curb
imports. 25X1
The timing, moreover, adds to Bangkok's objections to the
bill's potential impact. Stagnant foreign exchange earnings are
slowing economic.grow'th and making foreign debt management more
difficult. US diplomats estimate that Bankok's debt service
ratio probably will hit arecord 27 percent this year, even if
exports are no.t 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's
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
additi-onal 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
Thailand's 1984 exports--and almost certainly would derail
Bangkok's efforts to boost exports. (See appendix A.)
According to the US Embassy, heavy losses in the textile
industry woul-d seriously damage the economy as firms failed and.
bank loans soured. Prominent Thai economists estimate that the
bill woul.d probably ca-use the country's growth rate in 1986 to
decline'a full pe-rcentage point to less than 3 percent--a further
slowing'.-from projected growth of 4 percent this year'and a
substantial drop from growth rates of 5.5 to 6 percent a year
during the early 1980s.
Thailand Lobbies...
~Convinced"that the Jenkins' bill is a serious threat to the
economy, government, business, labor, and student groups have
9F,)(1
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lBangkok last fall devalued its currency and accelerated the
implementati.on.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 Dercent of hailand's export
revenues--remain depressed. 25X1
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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.
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. by a country they
consider a "special friend."
Despite the Prem government's effort to minimize the
potential damage to relations with Washington, I)tixl
the government shares the widespread belief 25X1
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 lateral 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.
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.
The Multifiber Arrangment--negotiated between producing and
consumer countries--sets guidelines under the auspices of the
GATT for bilateral textile and clothing trade arrangements. F___] 25X1
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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 otect US-Thai
relations For example, he 25X1
recently instructed the government tariff commission to
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 4 25X1
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US Embassy, 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 enactment of the Jenkins bill is
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
to the United States if Washington curbs Thai exports.
Looking Ahead
We believe that even a watered-down version of the
would pose serious problems
following last months's coup
for Prime Minister Prem.
attempt, Prem needs to demonstrate credible leadership--both on
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--wnijid believe,
provide fresh ammunition to Prem's opponents.
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.
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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.
Although sharp retaliation seems unl.ikel-y 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.
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 hi hli hts Prem's
vulnerability on economic issues.
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Thai also will work harder for closer economic cooperation within
ASEAN--particularly as a lobbying group against the United
S
tates.
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,
tapi-oca, and sugar, in hopes of a Thai invitation to Soviet
Deputy Prime Minister Ryabov who is heduled to visit Southeast
Asia at the end of October.
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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 eMD]ovees. or
almost a third of the manufacturing work force. 25X1
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 th 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
United States instead would be reduced 4 percent. 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,
th
e Embassy believes that thebill h
emargo wave a significant
long term impact on the Thai textile industry because some
foreign customers will switch permanently to other suppliers. 25X1
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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 needs during a period
of economic difficulty.
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 Washinaton in an increasing number of US-Thai trade
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
cotton.
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
debt crisis and its 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 future could partially offset
Mala,'ssia and Sin a ore would not be badly hurt by the
Jenkins billbecause 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 l on the ground that it is unfair to Asian
exporters.
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THAILANDFS EXPORTS
1984
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SUBJECT: Textiles Straining the Fabric
Distribution:
of US-Thai Relations
OEA/SEA/ITM
Richard Childress, NSC
Byron Jackson, Commerce
Linda Droker, Commerce
Paul Pilkauskas, State
Ed Goff, State
Frazier Meade, State
Janet Malkemes, State
Cora Foley, State
Alan Kitchens, State
Alice Straub, State
Tom Forbord, State
Jack Sheerin, State
Lt. Col. William Wise, Pentagon
Richard Rice, Pentagon
Doug Mulholland, Treasury
Bob Anderson, Treasury
Dave Hatcher, ISA
Greg Moulton, USTR
Ron Sorini, USTR
Melissa Coyle, USTR
1 - DDO/EA
1 - NIO/ECON
1 - NIO/EA
NIO/Analytical Group
10/PPS
ANIO/Econ
C/OEA/SEAD
DC/OEA/SEAD
OEA/SEA/IB
OEA/NEA
OEA/CH
D/OEA
OEA/Research Director
C/PES/DDI
OCR/ISG
C/EA /[FL~
CPAS/
CPAS/IMC/CB
DDI/OCR/EA/A
DDI
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1 - PDB Staff
1 - C/NIC
1 - Senior R-ev?iew Panel
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