Remarks by U.S. Ambassador Eric G. John, at Capital Market Academy, Stock Exchange of Thailand, Bangkok
[As prepared for delivery]
Good afternoon and thank you for inviting me to join you today. I’d especially like to thank my friend Mr. Chatchaval for giving me the chance to speak to you. The Stock Exchange of Thailand did a great thing in establishing the Capital Market Academy a few years ago. As the past year has shown us, there aren’t many areas of the economy that need the attention of leaders and expert policymakers more than financial markets, and so it’s a pleasure to be able to address the distinguished members of the CMA.
I’d like to speak to you today about the U.S.-Thai economic relationship, but, to put that in perspective, first a few words on the economic crisis. It’s been a little more than a year now since this became the most important story in the world. On October 15th one year ago, the United States was at the lowest point of one of the worst economic periods in the history of the country. Fannie Mae and Freddie Mac had already been taken over by the federal government. Merrill Lynch had been sold to Bank of America. Lehman Brothers had declared bankruptcy, and AIG had only avoided it because the government intervened. In early October, the stock market experienced its worst week in 75 years and the Bush administration was forced to re-examine its “hands-off” approach and create a bailout package to prevent a possible systemic financial collapse. By October 15th, 2008, our government had already distributed the first 250 billion dollars of the recovery package.
Imagine if I had stood here two years ago and told you all of these things were going to happen. It would have sounded unbelievable.
Now, a year later, we have the chance to reflect a bit and to look at what happened during those key months. The other day I was reading an article in the magazine the New Yorker that described moment by moment the most important eight days in September. It makes for fascinating, and sobering, reading.
Lawrence Summers, the current director of the National Economic Council, has said that what was happening in the U.S. was like a run on the bank, where everyone goes to the banks and pulls out their money as fast as they can with no thought about the future. Fortunately, however, cooler heads have prevailed.
By the time the Obama Administration came to power, we were still in the midst of the disaster, despite the strenuous efforts of Secretary Paulson and others in the previous administration. The first order of business was to limit the damage and lay the foundation for recovery in the future. In this case, that meant stabilizing the financial system and restoring confidence among everyone involved.
The first thing we had to do was step back from the catastrophe, and show the people of our country and the people of the world that things were going to get better. And they have gotten better ... not great yet, but better. Then the next goal is to show everyone in the financial world that we can trust each other again and that we can prosper.
Now that we have some stability in the financial markets, we can start talking about regaining real economic growth again.
A year ago in Thailand there was a different kind of crisis. Over the past year, I have often commented that investors are looking for political stability in Thailand above all. Even though the political unrest here was domestic in nature, the international business world saw the image of Thailand as an unstable place. What investors perceived in the months around October 2008 was very different than what we see today. As with the financial crisis in the United States, a lot of effort among the leadership in Thailand was put into relieving the political crisis here. Now, after ten months of government continuity, Thailand has achieved a measure of political stability. Not great, but good. Good enough that we can step back and evaluate what needs to be done to make Thailand an attractive place for foreign trade and investment and for U.S. business to get excited again about Thailand.
Indeed, as we put the crises in the rear view mirror, it behooves us to talk about the ways that our economic relationship—a key underpinning of our broader alliance--can be made better, so that both our countries can move forward.
Thailand and the United States have been allies for the better part of two centuries. The U.S.-Thai relationship has strengthened on the basis of shared commercial and trade interests. The United States remains Thailand’s single largest export market, and is a central component of Thailand’s outward looking economic strategy. Thailand continues to be ranked among the United States’ top 25 largest trading partners. That is why it is so important that we focus on steps our countries can take to make that friendship stronger, more prosperous for everyone.
Last month in Pittsburgh, the G-20 stressed international free trade as one of the pillars of good economic health. In a time of crisis a natural anxiety leads people of any country to want to protect their own industries despite the long-term benefits of free trade. Protectionism is a natural reaction in desperate times. Nevertheless, one of the most important outcomes of the G-20 meetings has been a commitment of all the participants to resist protectionism and keep markets open. As we move forward, we need to remain ever vigilant to keep open the economic lifeline that free trade provides.
Another key outcome of the G-20 was a commitment to “fair and transparent competition.” Clarity and predictability are absolutely essential to a good investment climate. Let me highlight three areas that I think are worth taking a look at in this regard.
First, Customs. I think it’s no secret, that U.S. and other foreign companies generally rate Customs issues as the main obstacle to doing business in Thailand. This is an issue we have raised repeatedly over the years, but it continues to be important. If importers encounter delays, or cannot predict product valuation, or cannot ever be sure when penalties, even criminal ones, may be assessed—even for actions taken years in the past-- it hinders trade. It has to hinder trade! Now a lot of trade goes on anyway, over $30 billion between our countries annually, but how much more are we missing because businesses turn away from Thailand because of fear and uncertainties involving Customs? Deputy Finance Minister Pradit told me recently that he would work to resolve some of our more serious Customs issues, and I believe we can make progress with the current Customs department and the new Director General. It’s important that decisions in this area reflect the interests of Thailand as a whole. When trade is unhindered and transparent, everyone benefits. Consumers get the best goods at the lowest prices. Government revenues are predictable and are used solely for the benefit of the public. Businesses, both Thai and foreign, can build their companies in a stable and open environment.
Second: Excise tax. Especially in tough economic times, we all understand that the government must find ways to generate revenue. No one likes to pay taxes, but as long as taxes are collected fairly, it does not have to create distortions that harm the investment climate and ultimately limit economic growth. We understand that the Ministry of Finance is currently considering amendments to the tax laws that could lead to uncertainty and distortion in supply markets. In short, there are two concerns.
One, is that the Director General of Excise would be given new powers to arbitrarily set valuation rates, rather than base taxes on invoice costs, which is standard international standard. We are concerned that such a role for the DG would increase uncertainty and thus discourage trade and investment. Why not just adopt best international practices?
Two, there is talk that these changes in tax laws will lead toward treating imports differently, and less favorably, than domestic products. Introducing such distortions in the market are not in anyone’s long term interest as economic efficiency will be key to long term growth. Thus, in the spirit of the commitments made at the G-20 Summit, I hope that any new tax changes will indeed be fair and transparent.
Third, IPR. The last issue I would like to raise is intellectual property rights. In the past year, Thailand has made a lot of progress in this area. Prime Minister Abhisit, and in particular Deputy Commerce Minister Alongkorn have done much good work in the past several months. For example, Creative Thailand is a great program, highlighting the tremendous contributions that Thai artists and entrepreneurs have to make, and recognizing that future growth depends on innovation and new technologies. This is a bandwagon we should all want to jump on.
Let me make one observation in this regard. It is no secret that manufacturing location has for the past many years simply been a function of the lowest wage rates. Comparatively low wage rates brought manufacturing jobs to Thailand from Japan and the United States in the 80’s and 90’s, and have caused those jobs to move to Indonesia, India, and especially China in the past decade. This is really not bad news, as it reflects better working conditions, and more and more Thai workers who can enjoy middle-class lifestyles. But we may be on the verge of a paradigm shift that could create more good manufacturing jobs here again. I am speaking of the movement toward “green” product manufacturing. Consumers in developed countries are showing a willingness not to just pay the lowest price, but to buy products that are the most environmentally friendly. Thailand is well-positioned to grab a large slice of this new manufacturing trend. And U.S. companies, I might add, hold many of the technological secrets to make green product manufacturing successful. There is great potential here for U.S.-Thai cooperation. For this to be successful, however, there must be a solid intellectual protection environment that will instill confidence that intellectual property will be safe here.
I have said this before, but it bears repeating: Intellectual property protection is not so much about fake DVDs or handbags. It is about public confidence in the reliability of machines parts and batteries, confidence that when you walk into a pharmacy you will not walk out with fake medicine, and confidence that innovation will be rewarded and Thailand can look to a bright economic future in the 21st century. The ready availability of fake DVDs, Gucci bags and pirated software is only the most visible demonstration of a country’s attitudes toward intellectual property protection.
These issues may seem small in comparison to the topic of global economic meltdown with which I began today. But these are some of the issues that affect us. The task before us is to build better business structures and a more welcoming business environment to strengthen the basis of our long-standing friendship.
The United States is working hard on our end of the relationship as well. American businesses have invested close to $25 billion in Thailand in the past couple of decades. U.S. firms in Thailand employ 250,000 Thai managers and workers. Under the U.S. GSP program, Thailand is one of the two top countries in the world to benefit from duty free access to the U.S. market. Our embassy operates numerous programs to build capacity in agriculture, security, trade and other fields. We are committed to working closely with our counterparts in the Royal Thai Government to make sure that our respective governments have an accurate understanding of each others’ policies and challenges. And the Obama Administration has shown a renewed commitment to the entire ASEAN region. The United States will be the first country to post an Ambassador to ASEAN. So we can be certain that our involvement in this region will continue to grow.
So even though it has been a tough year, there are economic opportunities for us now and there will surely be more to come in the future.
We have stepped back from what could have been catastrophes. Now we have the breathing room to look for ways we can progress. There is a lot of talk in the United States today of reform. The American people, and I’m sure the Thai people as well, want their government to manage the private sector in ways that will establish a solid foundation for the economy and benefit all members of society. There is a lot of good work for us all to do.
Finally, let me point out something that is well-known to you all, but which we cannot forget. Thailand today faces an increasingly competitive business climate in its region. Vietnam, the Philippines, Malaysia, and Indonesia are all developing rapidly and Thailand cannot afford to be insular in its thinking. Thailand must build on the head-start is has enjoyed in economic development in the region and move forward to develop the policies, practices and commitments needed to succeed in the 21st century. It simply cannot revert back to the old ways and still be successful. As you work to move Thailand forward, I can assure you that the United States will be an eager partner.
President Obama said recently that “time is the enemy of reform.” The time to act is now. And speaking of “now,” time is also the enemy of the questions you have for me. So let me end here and turn the floor over to you for your questions and comments.