RESTRICTEDWORLD TRADE
ORGANIZATIONG/C/W/292
31 August 2001
(01-4212)
Council for Trade in Goods Original:  English
THAILAND - REQUEST FOR EXTENSION OF THE TRANSITION
PERIOD UNDER THE AGREEMENT ON TRADE-RELATED
INVESTMENT MEASURES
The following communication, dated 31 August 2001, has been received from the Permanent
Mission of Thailand.
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Thailand’s phase-out plan for the elimination of TRIMs:
Local Content Requirement (LCR) for the manufacturing of ready-to-drink milk
In accordance with the decision of the General Council (GC) in the document WT/L/410,
Thailand hereby requests an additional extension of the transitional period of the TRIMs Agreement.In support of this request, Thailand submits the following:
I. A STATEMENT ON THE PARTICULAR DIFFICULTIES, INTERNAL OR
EXTERNAL, THAT THAILAND CONTINUES TO ENCOUNTER IN
IMPLEMENTING THE PROVISIONS OF THE TRIMS AGREEMENT1
1. During the transitional period of the TRIMs Agreement, Thailand went through the worst
economic crisis in history, which significantly impeded the planned economic development
endeavours, including the attempt to proceed toward  the complete elimination of the use of its local
content requirement (LCR) in the manufacturing of ready-to-drink milk as originally scheduled.More specifically, the adverse effects of the economic disruption which had and continue to frustrate
Thailand’s efforts to upgrade the local milk and dairy industry and fully implement the related TRIMs
provisions can be summed up as follows:
2. In the past, a majority of the Thai farmers have had to rely solely on monocrop farming,
which provided scant and unstable source of incomes.  As such, for more than a decade, the ThaiGovernment has vigorously prompted dairy farming as an alternative means of livelihood.  At present,
there are up to 22,900 households or at least 90,000 individuals directly involved in this sector.  Yet
dairy farming is still a fledging industry in Thailand, mainly consisting of small-scale farmers, many
of whom are poor and have very limited access to necessary resources, capital, and know-how.  This
being the case, this newly established industry was unprepared for the abrupt economic downturnwhich broke out 3 years ago in 1997, whose devastation remains unsolved.  On the one hand, the
crisis has resulted in a sudden reduction in the purchasing power of Thai local consumers and thus a
dramatic decline in the demand for raw milk.  On the other hand, it has led to the closure of numerous
milk and dairy manufacturing and processing firms due mainly to insufficient funds and limited
sources of finance.  Indeed, these adverse market conditions have severely hampered Thailand’s
                                                     
1 See also Thailand’s submissions G/C/W/243 and G/C/W/244, 23 November 2000.G/C/W/292
Page 2
development plans and endeavours, including the necessary preparations to phase-out LCR on the
manufacturing of ready-to-drink milk, as cited below in section II.
3. Likewise, given the fact that milk and dairy farming has increasingly become a vital
alternative means of livelihood for small-scale rural farmers and has helped to absorb a large number
of displaced workers as a result of the recent economic crisis, the recession has evidently created greathardship for the local milk and dairy farmers who heavily depend upon the selling of their products
for their livelihood.  This dismal state of affairs indicated that additional time was needed not only by
the Thai local farmers in order to make the appropriate reforms but also by the Thai Government so as
to re-examine and readjust the planned programs to phase-out LCR and to build an effective social
safety net in preparation for further market liberal ization.  Perceivably, without the maintenance of
LCR in the manufacturing of ready-to-drink milk, it is projected that there would be a significant loss
in the pre-investment in existing milk and dairy farming and production of not less than 5,500 million
Bahts (US$122.2 million)2 and in the collection and distribution of raw milk of approximately 950
million Bahts (US$21.1 million), as well as in other related industries of around 280 million Bahts
(US$6.2 million).  As well, it is expected that the elimination of LCR at this critical juncture would
further suppress the demand for local raw milk which could amount to a substantial loss of income to
the rural farmers of around 5,900 million Bahts (US$131.1 million) and lead to an additional
joblessness of more than 70,000 farmers in the Thai ru ral sector.  Needless to say, there would also be
inestimable adverse consequences on up and down-stream sectors and industries, which are closely
associated with the milk and dairy industry.
4. Moreover, since public spending and technical support for the upgrading of the industry have
been substantially reduced due to the recession, the longer time-frame for the phasing out of LCR was
deemed essential to allow the Thai Government the pe riod to readjust and put into effect the strategic
development plan to improve the productive efficiency and achieve cost effectiveness in the
production of domestically produced raw milk.  This is especially important considering that Thai
milk and dairy farmers must compete with lower cost imported skimmed milk powder and dairy
products which are the ultimate result of the use of trade-distorting practices in the world market, such
as domestic supports and export subsidies.  These unfair trading practices are demonstrated, forinstance, by the fact that there has been no significant changes in the prices of imported skimmed milk
powder into Thailand prior to and following our economic turmoil, though the Thai currency has
undergone a massive depreciation from 25 Bahts per US$1 to 55 Bahts per US$1 and has only
recently begun to settle at around 45 Bahts per US$1.  Also, it is evident that while the domestic price
of raw milk in the US and the EU is generally higher than the domestic price in Thailand (12.14Bahts/kg. and 10.97 Bahts/kg respectively), the dairy products exported from the US and the EU have
tended to maintain lower prices, of around 9.50 Bahts/kg comparing to the Thai dairy product price of
approximately 12.50 Bahts/kg.
3  This being the case, therefore, the removal of LCR of the
manufacturing of ready-to-drink milk seems inapprop riate at this moment in time since it would not
only lead to the further unjust repression to the in ternational competitiveness of Thai milk and dairy
products in the international marketplace but also contribute to further adversity for the rural farmers
as well as for the economic recovery and development of Thailand as a whole.
5. In sum, it can be clearly perceived that without the maintenance of LCR, the development,
financial, and trade needs of Thailand would be severely impeded.  Subsequently, and considering the
fact that the Thai economy has yet to recover from the crisis, the extension period for the use of the
only remaining LCR for another two years woul d considerably help Thailand readjust its
developmental plans and policies to the abrupt changes in circumstances and to once more prepare forthe elimination of all TRIMs.
                                                     
2 US$1=approximately 45 Baht.
3 Source: 1999 Dairy Review.  An Agra Europe Special Study, Table 15, p. 25.G/C/W/292
Page 3
II. A DESCRIPTION OF THE STEPS THAILAND HAS TAKEN TO DATE AND/OR
WILL TAKE TO ELIMINATE THE REMAINING TRIM4
6. Between 1995 and 1999, the Thai Government devised several plans and programs to
improve the productive capacity of dairy farming as well as the quality of domestic raw milk.  These
works have been undertaken in close coordination with local farmers, milk and dairy manufacturers
and processors, and investors.  Indeed, one of the underlying objectives of these development
endeavors has been to proceed toward the complete elimination of LCR in the milk and dairy industry
as originally scheduled.  Among others, these initiatives included the improvement of livestock
raising and farming techniques, cost reduction production efficiency, training programs and
workshops for local farmers, the setting up of Dairy Cooperatives, and research and development on anumber of topics ranging from animal feeds and herd fertility to farm and animal health and quality
control of domestically produced milk and dairy pr oducts.  In addition, the Thai Government, together
with the Dairy Cooperatives and the private sector, has also placed a great deal of resources and
capital in the establishment of collection and distributing centers, the provision of machinery and
equipment, and the building of transportation networks and facilities.
7. However, at the end of 1999, as the economic crisis which broke out in 1997 continued to
take its toll, it became increasingly clear to the Thai Government that the established milk and dairy
development programs were in urgent need of re-evaluation and readjustment.  At the same time, a
number of incidents had occurred which further exacerbated the existing market situation, leading
eventually to Thailand’s request for an extension in the phasing out of the LCR for ready-to-drinkmilk.  For instance, during 1999, a large number of milk and dairy manufacturing and processing
firms began to refuse to purchase local raw milk though there was an increase in production.  This
resulted in an over supply of raw milk in the Thai market and, with no alternatives, the local farmers
began  to   discard  almost  1,400 tons  of  raw  milk  with  a  value  of  around  17 million  Baht
(US$425,000) at the end of 1999.
5  Likewise, the economic disruption led to a closure of numerous
milk and dairy manufacturing and processing firms due mainly to insufficient funds and limited
sources of finance.  Needless to say, since dairy fa rming has in recent years become a vital alternative
means of income and livelihood in the rural areas, the lives of a large number of local farmers were
severely affected by the resultant crisis, and they eventually coordinated their efforts and demanded
the Thai Government to find rapid solutions.
8. Apart from the fact that the Thai Government had used up a great deal of time in searching
for ways to solve the dilemma w ithin the milk and dairy industry, more time was spent in finding
effective means and mechanisms so as to prepare for the eventual removal of LCR so that Thailand
could remain steadfast to the TRIMs Agreement. Subsequently, in March 2000, the Cabinet requested
the Ministries concerned to reconsider the abolition of the Notification of the Ministry of Industry
regarding LCR in the manufacturing of milk and dairy products as it could have adverse repercussions
to the already deteriorating conditions of the milk and dairy industry.   Subsequently, on 4 April 2000,the Cabinet, after having exhausted all avenues, decided to give its consent to the
 maintenance of the
Announcement of the Ministry of Industry regarding LCR in the manufacturing of milk and dairy
products, and for Thailand to request of the WTO an additional timeframe for the use of LCR for
ready-to-drink milk.
9. Initially, Thailand had made a request to the WTO for a 5-year extension of the transitional
period for LCR for the manufacturing of ready-to-drink milk under Article 5.3 of the TRIMs
                                                     
4 See also Thailand submissions G/C/W/243 and G/C/W244, 23 November 2000.
5 In 1999, US$1= approximately 40 Baht.G/C/W/292
Page 4
Agreement.  This request was submitted to the Council for Trade in Goods on 2 May 2000.6
However, from mid-2000 to mid-2001, through close consultations with the respective WTO
members, the Thai Government decided to accept the shortened timeframe from 5 to 4 years so as to
accommodate the common interest and determination among the Members to find a rapid and
effective multilateral solution.  This alteration had not only required further mediation and consensusbuilding among the concerned parties but also necessitated readjustments in the architecture, and thus
implementation, of the phase-out plan.  Subsequently , with the view to compromise and maintain the
integrity of the WTO multilateral processes, Thai land eventually accepted the proposition to instead
request of the WTO a waiver of the requirement of Article 5.2 of the TRIMs Agreement, which
gained the support of the Members and the approval of the General Council on 31 July 2001.7
III. A PHASE-OUT PLAN FOR ELIMINATING THE REMAINING TRIM NO LATER
THAN 31  DECEMBER 2003, TAKING INTO ACCOUNT DEVELOPMENT,
FINANCIAL, AND TRADE NEEDS
10. To eliminate LCR in the manufacturing of ready-to-drink milk and prepare for the
liberalization of the local milk and diary industry, the Thai Government has drawn up a strategic
phase-out plan, which encompasses the following:
(i) Regulatory Reforms:
11. The current Announcement of the Ministry of Industry regarding the manufacturing of milk
and dairy products requires manufacturers of ready-to-drink milk to purchase 10 units of domestic
raw milk to every 1 unit of imported skimmed milk powder for the manufacturing of ready-to-drink
milk with a successive increase in the purchase of domestic raw milk of at least 20 per cent per year.
12. The new Announcement will be issued which will require manufacturers of ready-to-drink
milk to purchase 5 units of domestic raw milk to every 1 unit of imported skimmed milk powder forthe manufacturing of ready-to-drink milk.   The Announcement and the measures will be in effect for
only 2 years, commencing on 1 January 2002 up until 31 December 2003.
IV. CONCLUSION
13. Ultimately, the objective of the above development plans and reforms is to improve the
productive efficiency and achieve cost effectiveness in the production and of manufacturing of Thaimilk and dairy products so as to completely remo ve LCR in the manufacturing of ready-to-drink milk
by the end of 2003, as well as to create an effective social safety net in preparation for further market
liberalization.
14. To this end, Thailand hereby commits to submit periodic reports to the Council for Trade in
Goods on the progress it makes in phasing out its remaining TRIMs.
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6 See Thailand submission G/C/W/203, 2 May 2000.
7 See G/C/W/276/Rev.1, 31 July 2001.