Thailand: Relations with the U.S., Economic Recovery, and Problems with Burma -- A Research Trip Report

Thailand: Relations with the U.S., Economic Recovery, and Problems with Burma -- A Research Trip Report

Order Code RL30604
CRS Report for Congress
Received through the CRS Web
Thailand: Relations with the U.S., Economic
Recovery, and Problems with Burma – A
Research Trip Report
June 30, 2000
(name redacted)
Specialist in Industry and Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

Thailand: Relations with the U.S., Economic Recovery, and
Problems with Burma – A Research Trip Report
Summary
This report summarizes information and observations from a research trip to
Thailand conducted May 27-June 5, 2000, with supplementary material from other
sources. This report provides an overview of Thailand’s relations with the United
States, recovery from the financial crisis, and problems with Burma (Myanmar)
centered on illegal drug trafficking and refugees. Thailand is of interest to the United
States at this time because its apparent economic recovery can be a bellwether for the
region and the country is facing a threat to its national security from the narcotics
trade and refugees from Burma. Since Thailand is a military ally, the United States
has a direct interest in its disputes with Burma.
U.S. relations with Thailand are generally favorable both in terms of security and
economics. A consensus existed among Thai government officials and business
executives that their economy was on the road to recovery. After growth rates of -
1.8% in 1997, -10.0% in 1998 and 3.6% in 1999, real gross domestic product (GDP)
is expected to expand by about 4% in 2000. A question remains, however, about the
sustainability of the recovery and the strategy of relying on exports to the booming
American economy. Since the onset of the financial crisis in 1997, the U.S. bilateral
trade deficit with Thailand has doubled.
Thailand’s northern border with Burma (Myanmar) presents the greatest current
threat to Thai security. It is the scene of increased illegal drug trafficking – aimed at
the Thai population – and a flood of refugees – mostly from ethnic groups in Burma.
Thailand has pursued a policy of engagement with Burma and led in the movement
to admit Burma as a member of the Association of Southeast Asian Nations, although
that policy of engagement now seems to be undergoing revision. Thai authorities are
taking stronger action to stem the illegal drug trade and to attempt to deal with the
displaced persons from ethnic groups across the border. This encompasses a larger
role for the Thai military who are cooperating with the police in drug interdiction and
suppression. The drug problem with Burma has gone beyond the traditional opium
and heroin to methamphetamines. These are produced primarily in plants across the
border in the Shan state and aimed at Thai consumers. In 1999, an estimated 200
million tablets were smuggled into the country.
Thailand is housing more than 100,000 displaced persons from Burma in ten
temporary camps – which all too often have turned into semi-permanent settlements.
An estimated 700,000 additional Burmese live in Thailand outside the established
camps. Most have been displaced because of the fighting between the military junta
and ethnic minorities along the border areas with Thailand. These refugees are
placing a heavy economic, social, and political burden on the Thai government. For
FY1999 and 2000, the U.S. State Department is administering U.S. appropriated
funds related to the crisis in Burma and along the Thai-Burmese border of $6.5
million.

Contents
U.S.-Thai Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recovery from the Financial Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Relations Between Thailand and Burma (Myanmar) . . . . . . . . . . . . . . . . . . . . . . 8
Thai Policy Towards Burma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Illegal Drug Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Displaced Persons and Refugees from Burma . . . . . . . . . . . . . . . . . . . . . 13
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
List of Figures
Figure 1. Map of Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Figure 2. Indices of Currency Values of the Thai Baht, South Korean Won, and
Indonesian Rupiah Relative to the U.S. Dollar (1997-2000) . . . . . . . . . . . . 4
Figure 3. Real Economic Growth Rates for Thailand, S. Korea, and Indonesia, 1993-
2001 (forecast) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 4. U.S. Imports From, Exports to, and Merchandise Trade Balance with
Thailand, 1992-1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Crossing the Thai-Burma Border on Inner Tubes . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 5. Map of Myanmar (Burma) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Ban Mae La Temporary Shelter, Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
School Children in Ban Mae La Temporary Shelter, Thailand . . . . . . . . . . . . . 15
List of Tables
Table 1. Top 25 U.S. Imports from Thailand in 1999 by Standard Industrial
Classification (Dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 2. Top 25 U.S. Exports to Thailand in 1999 by Standard Industrial
Classification (Dollars) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Thailand: Relations with the U.S., Economic
Recovery, and Problems with Burma – A
Research Trip Report
Thailand was the tinder that in
Figure 1. Map of Thailand
1997 ignited the Asian financial
crisis. Recovery now is underway,
Vie t na m
La os
but the economic improvement in
Thailand is being offset by a serious
Mae Sariang
and worsening illegal drug and
refugee problem with Burma
My a nma r
(B u rm a )
Mukdahan
(Myanmar). This report
Th ailan d
Khemmarat
summarizes information and
observations from a research trip to
Warin
Chamrap
Thailand conducted May 27-June 5,
Kantharalak
Nam Tok
2000, with supplementary material
Aranyaprathet
from other sources.1 The focus of
Bangkok
Ca m bodi a
(Krung Thep)
the trip was on relations with the
(K a m pu c h ea )
Sattahip
United States, Thailand’s recovery
from the financial crisis, and
problems with Myanmar centered
on illegal drug trafficking and
Vi et na m
refugees.2
Takua Pa
Thailand is of interest to the
United States at this time because:
(1) its apparent recovery from the
Hat Yai
Asian financial crisis can be a
bellwether for the region; (2) it is
Betong
Ma la y s ia
facing a threat to its national
A da pted by C R S fro m M ag el l an Ge ogr aph i x.
security in the form of a sizable
illegal narcotics trade from Burma
that not only is putting the younger generation of Thais at risk but the profits from
that trade are being used to strengthen certain ethnic groups in Burma who make the
drugs and who are, at times, hostile to Thailand; (3) the Burmese military junta’s
crackdown on ethnic minorities in Burma is causing a huge refugee problem for
1 The congressional staff delegation was sponsored by the U.S.-ASEAN Business Council and
the Royal Thai Embassy in Washington, D.C.
2 Unless otherwise indicated, information in this report came from meetings with Thai
officials, private Thai think tanks, U.S. businesses in Thailand, and U.S. embassy/consulate
officers. For further information on U.S.-Thai relations, see CRS report 98-366, Thailand-
U.S. Relations, by (name redacted).

CRS-2
Thailand that requires help from abroad – including $6.5 million in U.S. appropriated
funds, and (4) since Thailand is a military ally, the United States has a direct interest
in Thailand’s disputes with Burma.
Located in Southeast Asia between Cambodia and Burma and north of Malaysia,
Thailand is a country of 61 million people on a land area about the size of Texas. The
economy has a gross domestic product of about $120 billion. Per capita income
averages around than $2,000 with a much higher level of about $7,000 in Bangkok
and lower levels in the countryside. The Thai political system is a constitutional
monarchy that, after periods of military rule, now holds democratic elections for
parliament members under a new constitution promulgated in 1997.3
U.S.-Thai Relations
U.S. relations with Thailand are generally favorable both in terms of security and
economics. The two countries are allies under the Southeast Asia Collective Defense
Treaty (Manila Pact of 1954) and run about 30 joint exercises per year (including
peacekeeping and emergency evacuation). During the Gulf War, the U.S. was
provided access to Thai bases. Thailand quickly responded to the call for support of
the peacekeeping effort in East Timor (formerly of Indonesia) by dispatching some
1,500 troops there. Thailand and the United States also cooperate on a number of
other issues, particularly in stemming the flow of illegal narcotics and coping with
refugees from neighboring countries.
In 1999, the United States ran a $9.3 billion merchandise trade deficit with
Thailand. This was nearly double the $3 to $5 billion in trade deficits prior to the
beginning of the financial crisis in 1997. (See Figure 4.) The top U.S. imports from
Thailand include electronic machinery and equipment, other machinery, apparel, fish,
and miscellaneous manufactures. The top U.S. exports there include electrical
machinery and equipment, other machinery, transportation equipment, chemicals, and
agricultural products. (For details, see the Appendix to this report).
The Thai economy provides an attractive base for U.S. firms from which to reach
Southeast Asian markets. Companies such as Dole, Proctor & Gamble, General
Motors, and Ford Motors have sizable operations in Thailand. After the United
States, Thailand is the second largest market worldwide for pickup trucks. Ford
ranks third in this market. (In Thailand, pickups often are converted into minibuses.)
U.S. companies are said to play an important role in the Thai economy in providing
models of safe and healthy workplaces. In general, they are considered to follow U.S.
standards with respect to labor and the environment. No groundswell of opposition
to U.S. investment in Thailand has arisen.
Two issues, however, seemed to mar the otherwise cordial U.S.-Thai
relationship. The first is the initial U.S. response to the Thai financial crisis in July
3 A newly established election commission recently has disqualified several senators for
alleged vote buying during their campaigns and forced two rounds of new elections in those
districts. An Anticorruption Commission also has been active.

CRS-3
1997. The United States did not pledge to provide backup loans as part of the
financial support package coordinated by the International Monetary Fund (IMF).
This created the impression among the Thai people that the United States was not
concerned about their crisis, particularly after the U.S. later pledged secondary
financing for Indonesia and South Korea. They also expected U.S. financial
assistance because of their movement toward democracy. Later, the United States
compensated somewhat for its initial lack of support by providing Thailand with $1
billion in Export-Import Bank credits, cancelling the sale of U.S. fighter planes
(thereby saving Thailand’s hard currency), and providing $400 billion in loan
guarantees by the Overseas Private Investment Corporation for projects involving
U.S. investment in Thailand. These involved real resource help, quite unlike the
promises of secondary financing in the IMF support package in which the U.S. did not
participate and which Thailand never activated.
The second issue of contention was the Administration’s decision in 1999 to
support New Zealander Mike Moore for the post of Director General of the World
Trade Organization rather than the Thai candidate, Deputy Prime Minister Supachai
Panitchpakdi. The Thais viewed the United States as the leader among the nations
favoring the New Zealander for the post. Thai feelings were allayed, however, when
under a compromise, each nominee is to serve half the six-year term of the post.
With respect to the illegal trafficking in women and labor for the U.S. market,
Thai officials only noted that they try to cooperate with other countries in combating
the problem. They are training their police and trying to enforce laws. They also
noted that the networks dealing with narcotics seem unrelated to those dealing with
the traffic in women and children.
U.S. businesses in Thailand raised a concern about the double taxation treaty that
took effect at the beginning of 1997 after thirteen years of negotiations. This treaty
is to terminate on January 1, 2003, unless the Thai government changes its laws to
allow disclosure.4 According to U.S. business interests, to let this treaty terminate
would put them at a large disadvantage in operating in Thailand. They urged the U.S.
side to pursue talks more aggressively on this issue.
U.S. agricultural exporters in Thailand also expressed concern that the official
policy of Thailand was to not allow genetically modified (GM) products into the
country. Since American companies export considerable wheat, potatoes, soybean
4 According to the Convention Between the United States of America and the Kingdom of
Thailand for the Avoidance of Double Taxation, when information is requested by a
Contracting State in accordance with Article 3, section 28, the other Contracting State is
obligated to obtain the requested information as if the tax in question were the tax of the
requested State, even if that State has no direct tax interest in the case to which the request
relates. Since Thailand had no such provision in its law, this requirement was suspended in
the convention until such time as the United States receives from Thailand a diplomatic note
indicating that Thailand is prepared and able to implement the provisions of this paragraph
which would require enabling legislation to be enacted and to become effective. If the
diplomatic note is not received by June 30, 2002, the Convention is to terminate on January
1, 2003. U.S. government officials are aware of the problem and hope that it will receive
higher priority within the Thai government as the deadline draws near.

CRS-4
meal (for chicken feed), and other products for which GM varieties exist, their
concern was that eventually they would run into problems with the market there.
They pointed out that Thailand has only one laboratory to verify GM-free products.
Recovery from the Financial Crisis
The visiting congressional staff group sought answers to three basic questions
with respect to Thailand’s financial crisis:
! What was the cause of the crisis?
! Was the economy recovering?
! Will the policy measures allow for sustained recovery?
The cause of Thailand’s Figure 2. Indices of Currency Values of the Thai
financial crisis was rooted in a
Baht, South Korean Won, and Indonesian
combination of a fixed
Rupiah Relative to the U.S. Dollar (1997-2000)
exchange rate, current and
120
capital account liberalization,
under-developed regulatory,
100
Thai Baht
reporting, and supervisory
80
institutions, and mismatches
among borrowers and lenders
60
that created enormous risks
S. Korean
for the financial system.5
40
Won
Particularly significant was
20
Indonesian
the mismatch between foreign
Rupiah
short-term borrowing used
1997
1998
1999
2000
0
3
7
1
5
9
3
7
2
7
23
15
26
18
13
24
16
28
20
24
26
18
29
10
22
15
26
for domestic long-term
Jul 2
Nov 5
Jun 3
Jul 15
Oct 7
May 5
Jul 28
Sep 8
Dec 1
Apr 5
Aug 13
Sep 24
Dec 17
Jan 28
Mar 11
Apr 22
Aug 26
Nov 18
Dec 30
Feb 10
Mar 24
Jun 16
Oct 20
Jan 12
Feb 23
May 17
lending that fed a speculative
bubble in real estate and stock
Source: Data from PACIFIC Exchange Rate Service
markets. This was combined
with attempts to maintain a fixed exchange rate in the face of rising trade deficits and
the threat of massive bankruptcies among finance companies and other banking
institutions that faced nonperforming loans of about 18% of their loan portfolios.
Once investor confidence was shaken, a stampede to move assets out of the Thai baht
into foreign currencies doomed the fixed exchange rate, despite government attempts
to maintain it by selling foreign exchange reserves. Eventually, the Thai authorities
had to turn to the IMF to coordinate a $17 billion financial support package. The
package, however, came with stringent requirements on monetary and fiscal policy
that, in retrospect, resembled conditions imposed on hyper-inflationary Latin
American economies and may not have been appropriate for the situation in Thailand.
Eventually, the IMF eased its requirement that Thailand run a budget surplus, but not
before the economy had dropped into recession. As can be seen in Figure 2, after the
worst of the currency depreciation in 1997-98, the Thai baht has remained relatively
5 For further information on the financial crisis, see: CRS Report RL30272. Global
Financial Turmoil, the IMF, and the New Financial Architecture, by (name redacted).

CRS-5
stable at about 75% of its pre-crisis level. It has performed similarly to the South
Korean won and much better than the Indonesian rupiah.6
In June 2000, a
Figure 3. Real Economic Growth Rates for
consensus existed among
Thailand, S. Korea, and Indonesia
Thai government officials and
1993-2001 (forecast)
business executives that their
economy was on the road to
15
recovery. One think tank
10
analyst, however, described
the recession and recovery,
5
not as “V or W” shaped, but
as “L” shaped (it had dropped
0
and is expected to stay
-5
down). As shown in Figure
3, After growth rates of -
-10
1.8% in 1997, -10.0% in
1998 and 3.6% in 1999, real
-15
1993
94
95
96
97
98
99
2000
1
gross domestic product
(GDP) is expected to expand
by about 4% in 2000. The
recession for Thailand, as well as South Korea and Indonesia, appears to be V-
shaped, but the post crisis levels of growth for Thailand are only about half those in
the early 1990s.
A question remains among policymakers, however, about the sustainability of the
recovery. In mid-2000, the recovery seemed more broadly based than it did in late
1999, but the economy definitely is not back to where it was prior to 1997.
Considering that businesses had become accustomed to growth rates of 5 to 10% per
year prior to the crisis, the two years of recession plus slow recovery have put the
economy about 25% below where it would have been without the financial crisis.
This means that many businesses are suffering from excess capacity in production
lines, and real estate developers are facing low occupancy rates in office buildings
built with borrowed funds.
According to the Bank of Thailand, at the end of 1999, capacity utilization in the
motor vehicle sector was only 36%, in construction 50%, in food 44%, in iron and
steel 39%, and in petroleum production 86%. Overall manufacturing production in
1999, however, was up 12.5% over 1998. Unemployment was still around 4%.
A concern for Americans is that the recovery strategy for Thailand includes
export-led growth that depends on shipping products to the booming American
economy. As shown in Figure 4, since the onset of the financial crisis in 1997, the
bilateral trade deficit with Thailand has doubled from $4.1 billion in 1996 to $9.3
billion in 1999. Thai policymakers point out that Thailand’s exports of goods to the
6 For a review of the causes, consequences, and policies related to the financial crisis in
Thailand, see: International Monetary Fund. Thailand: Selected Issues. IMF Staff Country
Report No. 00/21. February 2000.

CRS-6
United States at $14.3 billion in 1999 amounted to only about 1% of total U.S.
imports that exceeded $1,025.3 billion that year. Still, it seems that this development
strategy of increasing demand in the economy by selling to the booming and open
American market is not sustainable. It is the same strategy being pursued by dozens
of other countries in the world. A single country might succeed in doing it, but all
countries cannot do it without causing balance-of-payment problems for the United
States.
A point to note is the
Figure 4. U.S. Imports From, Exports to, and
rising influence of Japan in
Merchandise Trade Balance with Thailand
Thailand. Of the 130 billion
1992-1999
baht ($3.4 billion) stimulus
20
package announced in March
U.S. Imports
1999, 53 billion baht ($1.4
14.32
15
13.43
12.6
billion) came from the
11.35
11.34
10.31
10
8.54
Miyazawa plan financed by
7.53
7.21
7.36
6.4
4.86
5.23
4.98
the Japanese government.
3.98
5
3.77
Also, according to U.S.
U.S. Exports
0
business executives, Japan has
-5
-3.55
been promoting its influence
-4.77
-4.12
-5.45
-4.95
-5.24
through its aid and training
-8.2
-10
-9.34
programs, particularly with
Trade Balance
-15
respect to small- and medium-
1992
93
94
95
96
97
98
99
sized enterprises. The
Data Source: U.S. Department of Commerce
Japanese government has
been providing experts who
are introducing the Japanese model for small businesses.
Like most newly industrializing nations, Thailand has developed a dualistic
economy with a rising middle-class population centered primarily in Bangkok and a
rural population scattered throughout the rest of the country. The middle-class (and
wealthy) still have pent up demand for the accouterments of a mass-consumption
world – cars, consumer electronics, fashionable clothing, and comfortable housing.
The middle class are important, not only for their effect on the economy, but for the
workings of democracy and for the taxes they pay. They vote for government
officials and then finance their policies. During the financial crisis, the middle class
bore the brunt of the downturn, and they still face lower wages, higher debt, and more
job instability than before the crisis.
Thailand’s rural areas were less affected by the economic disruption, although
laborers who lost their jobs in Bangkok, often went back to the countryside looking
for work. Agriculture accounts for half of the Thai population. As the crisis
progressed, depressed world prices for commodities, particularly rice, hurt Thai
farmers. Agricultural incomes are down, and Thai authorities are seeking ways to
assist farmers without violating the rules of the World Trade Organization.
In the post-mortem on the financial crisis, the Thai public seems to be making
a scapegoat out of the International Monetary Fund. The criticism of the Fund is that
its conditions as part of its financial support package required the Thai government
to pursue tight fiscal and monetary policies and to close ailing financial institutions.

CRS-7
This worsened the recession and compelled the government to incur a sizable fiscal
deficit in trying to recover from the crisis. Much of the criticism of the IMF,
however, seems based on the fact that it reversed its initial stringent conditions and
admitted its early mistakes. The criticism does not seem to be based on any solid
economic assessment that some alternative policy would have worked better during
the extraordinary turmoil in the early part of the financial crisis. In meetings with Thai
officials, none of them was willing to spell out in detail to what extent the IMF
recovery plan was responsive to Thai input or whether it merely reflected similar plans
made previously for Latin American countries. Some said that given the situation,
they had to “take the bad medicine with the good.”
The fiscal stimulus required to bring the economy out of the recession has
pushed the government’s budget into deficit. In 1999, the fiscal deficit reached 119
billion baht (about $3 billion or 2.3% of GDP). As of February 2000, the government
held a public debt of about $23 billion – roughly equivalent to one year’s government
revenue or 13% of GDP, while the Bank of Thailand had debts of another $13 billion.
The public now is debating over who will pay for this borrowing.
The nascent economic recovery seems to have slowed the pace of reforms. The
closing of insolvent financial institutions and imposition of new banking standards
have progressed apace, but privatization of key government-owned monopolies and
improvements in corporate governance seem to be lagging. The government is
working to recapitalize financial institutions, reprivatize state-owned banks, and solve
the problem of non-performing loans. A total of 68 finance companies were either
liquidated or merged. The government took over 6 of 15 commercial banks and
eventually sold two of them to foreign investors. The government also has injected
about $12 billion into the equity of state (and intervened) banks.
In terms of privatizing companies, in the telecommunications sector, Thailand
has made promises as part of its reforms under the IMF financial support package and
commitments with the World Trade Organization to liberalize its telecommunications
services. The government has directed three state-owned enterprises to make
preparations for initial corporatization and eventual privatization of their
organizations. These include the Communications Authority of Thailand (international
telecommunications), the Telephone Organization of Thailand (telecommunications
in Thailand and neighboring countries), and the Mass Communications Organization
of Thailand (radio and television broadcasts in Thailand). They are to begin by
establishing a holding company fully held by the government which is to own the
companies and eventually sell shares in them to the public.7 Progress in implementing
this privatization plan, however, has been slow. One explanation for the delay is that
the Thai military and other government officials are involved in some of the state-
enterprises. Their family wealth may depend on these businesses. Another
explanation is that labor unions, who tend to be strong in state-owned enterprises,
vehemently oppose privatization.
7 Financial Times Information. Asia Intelligence Wire. International Market Insight Reports:
Thailand: Update On Privatization of Com Authority. International Market Insight Reports.
June 23, 2000. Internet version.

CRS-8
One bright light in the reform process has been in data dissemination by financial
institutions. The first step in establishing sound regulatory and oversight systems is
in gathering accurate and timely data on the activities of financial institutions. The
Bank of Thailand and Finance Ministry seem now to have much improved data
collection and dissemination mechanisms in place.
As the Thai policymakers look beyond basic recovery from the financial crisis,
they have identified education as a major weakness in supporting future sustained
growth. They point out that their technical education level is lower than that in
Singapore, Malaysia, and other newly industrialized nations. Given that China is
expected to capture more and more labor-intensive industry, they are concerned that
Thailand will not have the skills for the high-technology industries to which their
economy will have to move. The country lags behind neighboring economies in
Internet and computer usage and in English facility. The government has passed a
National Education Act, but the current educational system has enormous special
interests and inertia.
Relations Between Thailand and Burma (Myanmar)
Thailand’s northern border with Burma (Myanmar) presents the greatest current
threat to Thai security. It is the scene of increased illegal drug trafficking – aimed at
the Thai population – and a flood of refugees – mostly from ethnic groups in Burma.
With respect to their
Crossing the Thai-Burma Border on Inner Tubes
national security, Thai
officials considered a high-
intensity conflict, a major
war, with any of their
neighbors unlikely within
the next five to ten years.
They were concerned,
however, over two low-
i n t e n s i t y c a t e g o r i e s :
international terrorism/
organized crime and
conflicts with Burma. Since
33 of the 76 provinces in
Thailand are near the border
with Burma, the conflicts with that country have affected Thai security. In terms of
the priorities of Thai security policy, the first priority is relations with neighbors;
second is relations with the great powers; and third is relations with regional groups.
With neighbors, the political objectives are to promote good understanding, build
trust, and protect Thai security. Thai officials noted that relations with Cambodia had
improved considerably and relations with Malaysia were considered to be excellent.
The problems with Burma stem from three basic causes. The first is that the
border with Burma is mountainous, ill-defined, porous, and long disputed. The area

CRS-9
traditionally has been populated by
Figure 5. Map of Myanmar (Burma)
ethnic tribal people who may or
China
may not recognize national
Putao
governments. The current military
Bhutan
Shingbwiyang
government in Burma is attempting
Kachin
India
State
to unify the country by force and is
China
Myitkyina
loathe to grant autonomy to
Bang.
minority groups along the border.
Bhamo
Tamu
Katha
Since the late 1980s, the Burmese
Sagaing
Namhkam
Division
military junta has carried out
Falam
Lashio
Hsipaw
military campaigns against the
Shwebo
Hakha
Shan
minority populations along the Thai
Chin
Maymyo
Sagaing
State
Mandalay
State
Myingyan
Ta-kaw
border. Thai officials in the area
Chauk
Meiktila
Namsang
Mandalay
report that the fighting in Burma
Taunggyi
Rakhine
Division
Magway
Laos
Sittwe
State
will sometimes spill over into
Magwe
Pyinmana
Division
Loi-kaw
Kyaukpyu
Allanmyo
Kayah
Thailand. Artillery shells
Ramree Island
State
Toungoo
Cheduba Island
Prome
occasionally cross the river on the
Sandoway
Pegu
border. The fighting also has
Division
Henzada
B ay
Pegu
Thailand
triggered a flood of refugees into
Rangoon
o f
Division
Thaton
Hpa-an
Bassein
Be ng al
Yangon
Thailand with Karen people even
Irrawaddy
(Rangoon)
Division
Mawlamyine
Pyapon
crossing land mine fields to reach
Karan
Mon
State
State
Thai border crossings. These
Ye
Preparis Island
(Burma)
clashes have been occurring for 15
Coco Island
(Burma)
Tavoy
years. According to Thai officials,
Launglon Bok
Islands
Bangkok
Narcondam Island
one problem is that the Myanmar
(India)
Tenasserim
Division
Andaman
ruling junta has turned over the area
M y a n m a r
Mergui
Sea
of Karen control to the Karen
( B u r m a )
National Capital
Buddhists and has been using them
Division or State Capital
Mergui
G u l f o f
Archipelago
City
T h a i la n d
Division or State Boundary
to suppress the Karen Christians
International Border
0
50
100 150 200 km
and Muslims. Many Karen
Kawthuang
0
50
100
150 mi
Christians and Muslims, therefore,
Adapted by CRS from Magellan Geographix.
have fled to areas across the border
in Thailand.
These fights between the Burmese government and minority populations have
compelled some of the ethnic groups, particularly the Wa in the Shan state across the
border from northern Thailand, to depend even more on drug trafficking to generate
income for their people.
Thai Policy Towards Burma
Thailand has pursued a policy of engagement with Burma. It was a leader in the
movement for admitting Burma as a member of the Association of Southeast Asian
Nations. Unfortunately, Thai officials now express their disappointment that after
membership, Burma seems not to be following certain ASEAN principles. The
country allegedly pursues its own interest with little regard to commitments under
ASEAN. Thai officials stated that they have little choice but to attempt to maintain
good relations with Burma. Without such relations, they cannot manage the long
border between the two nations. In attempting to negotiate with the Myanmar
government, they have found that it takes a long time to build understanding and

CRS-10
trust. Despite the many problems, the Thai government says it must continue to try
to reconcile differences with Burma.
Thailand trades with Burma and allows, for example, 400 to 500 Burmese each
day to cross the Friendship Bridge at Mae Sot in Tak province – many of whom are
on one-week visitor visas. Despite the attacks by Burmese ethnic groups on the
refugee camps across the border in Thailand, there is no evidence that the Burmese
government has territorial ambitions.
In discussions with Thai officials, it was apparent that Thai policy of constructive
engagement towards Burma was being toughened, but the exact nature of the change
was difficult to pin down. When the issue was brought up with officials at the
National Security Council by group members in May 2000, they denied that any
changes had taken place and brushed off any such information as speculation. Still
it was apparent that the situation along the border with Burma posed the greatest
immediate threat to Thai security. The illegal flow of narcotics threatened to make
addicts of a new generation of young people along with a sizable part of the Thai
workforce while financing hostile activities by groups in Burma. The Burmese
suppression of ethnic groups, moreover, was pushing displaced persons across the
border and placing a heavy social, economic, and political burden on Thailand.
It appears that the Thai government is moving toward a policy of selective
engagement with Myanmar that includes more aggressive measures to deal with the
illegal drug trade along the northern border. This policy encompasses a larger role
for the Thai military who are cooperating with the police in drug interdiction and
suppression. Even though military leaders in Northern Thailand expressed regret that
they should have to devote resources to do what they consider to be police work, they
are now coordinating the anti-narcotics effort in the area.
Scattered news reports indicate that a more aggressive stance is being taken by
Thailand against drug trafficking. The Shan Herald Agency for News (located in
Chiang Mai, Thailand), for example, reported that remnants of the Shan forces
defeated by the Wa in 1994 have recently received arms from their “old Thai friends.”8
The Far Eastern Economic Review reported in June 2000 that Thailand was
“supporting clandestine sabotage operations in Wa-controlled territory inside Burma.”
Details are scarce, but training Burma’s ethnic Karen community to be agents in the
war on drugs and an explosion at a Wa-controlled dam have been mentioned. A
commander in the Thai army has stated that with respect to cross-border sabotage by
the Thais, a “surgical strike would be viable.”9
8 Crispin, Shawn W., et al. Thailand, Drug Tide Strains Tides. Far Eastern Economic
Review. September 9, 1999. Internet edition at [http://www.feer.com].
9 Tasker, Rodney and Shawn W. Crispin. Thailand, Flash Point. Far Eastern Economic
Review. June 1, 2000. Internet edition at [http://www.feer.com].

CRS-11
If a war should break out along the Thai-Burmese border, questions may arise
with respect to U.S. obligations under the Manila Pact which allies it with Thailand.10
The probability of escalating the conflict to the point where treaties would be invoked,
however, seems small at this time. Thailand is wary of war with Burma, since they
have been enemies since ancient times, and in conflicts Burma usually wins. In the
past, ethnic groups in Burma have served as buffer armies. A larger conflict,
moreover, could weaken ASEAN as it would involve two of its members and its
principle of noninterference in the internal affairs of member nations might be called
into question. The issue of dealing with hostilities between two ASEAN members has
no precedent for the organization. Hostilities also could bring China more into the
picture, since it is reportedly supplying weapons and personnel to the Wa army and
is Burma’s only real ally. Thai officials pointed out that China is interested in gaining
access to Burmese ports on the Indian Ocean.
With respect to U.S. policy toward Burma, opinions expressed by officials and
business leaders in Thailand was that unilateral sanctions, such as those imposed by
the United States, are not solving the problem. They pointed out that the U.S.
pursues policies of engagement with North Korea, China, and Vietnam, so why not
with Burma? The basis for U.S. policy toward Burma stems from the military
regime’s repression and failure to move towards democratic government. U.S.
sanctions toward Burma include: suspension of economic aid and withdrawal of
Burma’s eligibility for trade and investment programs; an arms embargo, blocking
assistance from international financial institutions; downgrading U.S. diplomatic
representation to Charge d’affaires, and visa restrictions on senior officials and their
families. In 1997, the United States tightened the sanctions to prohibit certain U.S.
transactions with and new investment by U.S. persons there.11 Also, each year since
1989, the U.S. has certified that Burma has cooperated insufficiently in counter-
narcotics efforts.12 Despite opposition to U.S. sanctions, however, some officials
indicated that lifting them unilaterally without some action by Burma might send the
wrong message to the government in Rangoon.
10 The U.S. and Thailand are allies under the 1954 Southeast Asia Collective Defense Treaty
(Manila Pact) which remains in force despite the dissolution of the Southeast Asia Treaty
Organization in 1977. Article IV(1) of this treaty provides that in the event of armed attack
in the treaty area (which includes Thailand), each member would “act to meet the common
danger in accordance with its constitutional processes.”
11 With respect to Burma, the Customs and Trade Act of 1990 authorizes the President to
impose such economic sanctions determined to be appropriate; the Foreign Assistance Act of
1961 prohibits use of U.S. foreign assistance paid as the U.S. proportionate share to
international organizations when those organizations run programs in Burma (as well as in
certain other nations); the Foreign Operations, Export Financing, and Related Programs
Appropriations Act, 1997 prohibits most foreign assistance and authorizes the President to
restrict visas and impose investment sanctions until such time that the President determines
and certifies that Burma has made measurable and substantial progress in improving human
rights and implementing democratic government.
12 U.S. Department of State. Conditions in Burma and U.S. Policy Toward Burma, For the
Period September 29, 1999 – March 27, 2000. May 3, 2000.

CRS-12
Illegal Drug Trade
The area around northern Thailand has long been known as the Golden Triangle
(intersection of Burma, Laos, and Thailand) for production of opium and heroin. The
Thai government estimated that in 1999, Burma produced 1,090 metric tons of
opium, Laos 140 tons, and Thailand 6 tons. The decline in Thai production is
considered to be one result of a vigorous eradication and crop substitution program.
The current threat, however, is not from heroin or opium (even though Thailand
still has an estimated 300,000 heroin addicts) but from methamphetamines (referred
to in Thailand as “yaa baa” or the mad drug and as speed in the United States). These
drugs are produced primarily in plants across the border in the Shan state in Burma.
They are highly addictive, relatively cheap,13 and can easily be smuggled into the
country in backpacks. Unlike most opium and heroin, they are sold in Thailand rather
than transported further into international markets. According to Thai officials, in
1999, an estimated 200 million tablets were smuggled into the country from Burma
(of which about 40 million were seized by Thai authorities). Addictive usage has
exploded among Thai students, entertainers, truck drivers, office staff, factory
workers, fishermen, and farmers (who have to work nights to get crops to markets
in Bangkok by morning).
Thai authorities contend most of the methamphetamines are produced in some
50 plants run by United Wa State Army (UWSA) minority insurgents in the Shan
state. Since the manufacturing process (from synthetic or natural ephedrine plus
caffeine and other ingredients) is simpler than that of heroin, manufacturing
laboratories can be smaller and more mobile. Thai officials asserted that the Burmese
government condones the illegal drug trade by the Wa in exchange for a cut of the
profits.14 The UWSA consider themselves a nation. They are sophisticated, highly
organized, and armed (allegedly with heavy machine guns, mortars, and even Chinese-
made surface-to-air missiles procured possibly through Cambodia15). Evidence of the
profitability of the drug trade can be seen in the new construction on the Burmese side
of the border of housing, schools, roads, and hospitals.16 The UWSA have an
estimated 3,500 to 4,000 armed drug trafficking soldiers. Some estimate that the Wa
could beat the Burmese army in a confrontation, so the Rangoon government, for
now, stays clear of the area.
Illegal drugs from the Wa are brought into Thailand in caravans on trails. Since
the actual border is in question in many areas, traffickers can walk across it carrying
backpacks. They often are armed with AK-47s and hand grenades. They will shoot
it out with the police, since if they are caught the penalty is death. At times, gun
13 A single tablet costs about $0.08 cents to produce in Burma, sells across the border for
$0.67 and for $3.24 in Bangkok.
14 Burma denies being the source of illegal narcotics or cooperating with the Wa in trafficking.
15 Davis, Anthony. Thailand Tackles Border Security. Jane’s Intelligence Review, March
2000.
16 Chemical raw materials for producing the drugs apparently are procured from China, India,
Thailand, and other countries.

CRS-13
fights occur that last from five to six hours. As interdiction efforts along the northern
border with Burma have been strengthened, the caravans have moved south to the
area around Mae Sot and around to the east to the border with Cambodia.
With respect to suppression of the illegal drug trade in northern Thailand, the
plan for northern Thai authorities is to establish a narcotics prevention line close to
the Burmese border, engage in a media psychological campaign to teach the dangers
of narcotics, suppress narcotics producers and businesses, seek international
cooperation with Burma and Laos, and consolidate the Thai organizations for
managing the narcotics problem. Their first mission is to reduce imports of narcotics
produced in neighboring countries.
The U.S. Drug Enforcement Administration has been in Thailand for 30 years
and has close working relationships with Thai authorities. The DEA works with local
law enforcement agencies by providing financial support, intelligence information,
help in arrests, and in overseeing their operations. Even though the
methamphetamines are generally not transhipped to U.S. markets, the DEA has
helped in their suppression because the Thai have helped in the anti-heroin/opium
effort and because suppliers tend to produce both types of drugs.
The long-term threat from the UWSA transcends the immediate problem with
illegal narcotics and refugees. It is part of the geopolitical importance of the area.
The Wa had been assisted by the Chinese in their insurgency against Rangoon rule.
Chinese advisors – engineers, teachers, and political advisors – reportedly are working
in the UWSA areas. Another complication is that links between the UWSA’s
southern command and Taiwan also are long standing, and Taiwan provides
assistance to schools and associations in villages in northern Thai provinces bordering
the Wa areas.17
As for the close relationship between Beijing and Rangoon, Thai officials stated
that Chinese military assistance to Burma was not a significant concern. They have
heard complaints from Burma about the poor quality of Chinese weapons and feel that
the Burmese will not let a foreign power dictate policy to them – even if that power
is China. Thai officials also noted that if the Myanmar government gets too close to
China, India may react, because India has opposed Chinese influence in the Indian
Ocean region.
Displaced Persons and Refugees from Burma
As of April 2000, Thailand was housing 102,343 displaced persons from Burma
in ten temporary camps – which all too often have turned into semi-permanent
settlements. An estimated 700,000 Burmese live in Thailand outside the established
camps. The country divides the displaced persons/refugees from Burma into four
groups: (1) Those who entered Thailand before the Burmese military took power.
They are legal refugees and most have Thai citizenship. (2) Those displaced from the
fighting in Burma who are in temporary shelters controlled by the Thai government.
They are not allowed to leave the camps. (3) Those displaced from the fighting but
17 Davis, Thailand Tackles Border Security, FEER, op. cit.

CRS-14
not in the camps and who are illegally in the country. (4) Burmese or members of
minority groups who have entered Thailand seeking economic opportunity without
proper documentation. They also are illegal immigrants.
Ban Mae La Temporary Shelter, Thailand
For the second category of persons in Thai shelters because of the fighting in
Burma, the policy of the Thai government is to provide them with temporary shelter
and humanitarian assistance and to facilitate their safe return to their homes in
Myanmar when the situation there returns to normal. In March 1998, after several
attacks from Burma on two temporary shelters along the border, some 10,000
displaced persons were moved further inland.
In administering to the needs of the refugees, the Thai government is assisted by
various international non-governmental organizations (NGOs). These include the
Burmese Border Consortium, Medicins sans Frontieres, International Rescue
Committee, and Handicap International as well as the United Nations High
Commission on Refugees. Educational efforts receive support from NGOs, such as
International Christelijk Steunfonds, Catholic Office for Emergency Relief and
Refugees, Taipei Overseas Peace Service, and ZOA Refugee Care.
For asylum seekers, the Thai government first determines if they are entitled to
refuge. If so, they are placed in a temporary shelter deeper inside Thai territory. If
they are economic migrants, they are deported back to their country if the situation
permits. In reality, many of the displaced persons simply find their way into Thai
society.

CRS-15
The largest temporary shelter is Ban Mae La camp in Tak province with 30,758
persons, primarily ethnic Karens of Christian and Muslim backgrounds. (Unlike the
Wa, the Karen are not known for dealing in narcotics.) Despite being called a
temporary shelter, it has existed for three decades. Located in a valley bisected by a
small stream, its thatched roofed huts house families that are provided minimal levels
of food and care. Children abound in the camp, as the high birth rate of 4% results
in relatively large families and heavy schooling needs. A major problem with the
camp is a shortage of water during the dry season.
School Children in Ban Mae La Temporary Shelter, Thailand
For FY1999 and 2000, the U.S. State Department is administering U.S.
appropriated funds related to the crisis in Burma and along the Thai-Burmese border
of $6.5 million. Of this, $3.0 million is targeted for humanitarian activities
administered by the U.S. Agency for International Development and $3.5 million for
democracy activities administered by the Office for Democracy, Human Rights, and
Labor.18 Most U.S. funds used for the refugee camps are provided to NGO’s
working there.
For Thailand, the temporary shelters, as well as general refugee problem, impose
significant economic burdens on society, particularly after the economy was hit by the
financial crisis. Some Thai villagers complain that the displaced persons receive more
food and better medical treatment than Thai citizens, themselves. In fact, the medical
clinics in some camps are also used by local patients for specialized medical
treatments. Thai officials also point out that the problem of displaced persons from
18 U.S. Agency for International Development. Budget Justification, Fiscal Year 2001, Annex
II. Asia and the Far East. P. 50.

CRS-16
Burma follows upon a flood of refuges from Vietnam, Cambodia, and Laos during the
Vietnam war and turmoil that has continued for decades in Southeast Asia. With
Burma, moreover, the situation appears particularly bleak, because Thailand maintains
a policy of not compelling displaced persons to return to Burma until it is safe to do
so. At this point, that is not possible, since the Rangoon government claims most of
the displaced persons are not Burmese citizens.
The flow of displaced persons also has brought health problems (communicable
diseases), a rise in crime, and the spread of internal Burmese political unrest to
Thailand. Among the health problems have been a rise in malaria, tuberculosis, and
encephalitis. They also have placed an extra burden on social welfare services. The
illegal refugees also are accused of engaging in drug trafficking, smuggling, and theft.
As for political unrest, in October 1999, Burmese student activists seized the
Myanmar Embassy in Bangkok (which led to Rangoon closing its land and sea
borders with Thailand after what it considered to be lenient treatment by Thailand of
the students involved), and in January 2000, another group of students and dissidents
took over the Ratchaburi Hospital near Bangkok. Both incidents were viewed
unfavorably by the Thai public. The Thai government has expressed the need to
balance its international responsibilities with respect to Burma with its domestic
needs.
The displaced persons from Burma illegally working in the Thai economy also
have become an issue for the Thai government. In the Tak province alone, officials
estimate that about 30,000 illegal refugees work in the industrial sector. Another
30,000 work in agriculture. The Thai government has allowed some of the workers
to remain temporarily, but as their temporary work permits expire, the government
has been powerless to do much about them. The deadline for them to leave has
already been extended once and may be extended again in 2000. Essentially, they
have no place else to go. That is the crux of the problem for most of the refugees
from Burma.

CRS-17
Appendix
Table 1. Top 25 U.S. Imports from Thailand in 1999 by Standard
Industrial Classification (Dollars)
SIC
Commodity Description
Import Amount
36
Electrical and Electronic Machinery, Equipment,
3,304,240,239
and Supplies
35
Machinery, Except Electrical
2,897,613,306
23
Apparel and Related Products
1,617,617,802
9
Fish, Fresh or Chilled; and Other Marine Products
1,234,170,598
39
Miscellaneous Manufactured Commodities
1,097,423,536
20
Food and Kindred Products
812,037,188
31
Leather and Leather Products
554,586,691
30
Rubber and Miscellaneous Plastics Products
467,561,252
38
Scientific and Professional Instruments;
348,332,703
Photographic and Optical Goods; Watches and
Clocks
32
Stone, Clay, Glass, and Concrete Products
325,591,366
25
Furniture and Fixtures
269,337,221
34
Fabricated Metal Products, Except Machinery and
256,773,004
Transportation Equipment
22
Textile Mill Products
186,160,125
24
Lumber and Wood Products, Except Furniture
160,904,543
8
Forestry Products, Nspf
149,837,058
33
Primary Metal Products
115,289,078
99
Special Classification Provisions, Nspf
113,234,686
98
Goods Imported from Canada and Returned to
93,848,973
Canada Without Having Been Advanced in Value
or Improved in Condition or Combined with Other
Articles
28
Chemicals and Allied Products
92,227,452
37
Transportation Equipment
71,774,479
1
Agricultural Products
55,238,240
26
Paper and Allied Products
36,465,470
29
Petroleum Refining and Related Products
21,266,203
27
Printing, Publishing, and Allied Products
12,776,852
92
Used or Second-hand Merchandise
8,585,809
13
Crude Petroleum and Natural Gas
8,530,664
2
Livestock and Livestock Products
7,898,008
14
Nonmetallic Minerals, Except Fuels
2,975,249
91
Scrap and Waste
1,274,479
21
Tobacco Manufactures
102,658
10
Metallic Ores and Concentrates
94,861
Source: U.S. Department of Commerce

CRS-18
Table 2. Top 25 U.S. Exports to Thailand in 1999 by Standard
Industrial Classification (Dollars)
SIC
Commodity Description
Export Amount
36
Electrical and Electronic Machinery, Equipment,
1,726,098,279
and Supplies
35
Machinery, Except Electrical
737,690,858
37
Transportation Equipment
673,532,452
28
Chemicals and Allied Products
507,246,836
1
Agricultural Products
243,795,612
38
Scientific and Professional Instruments;
215,801,758
Photographic and Optical Goods; Watches and
Clocks
20
Food and Kindred Products
158,977,235
26
Paper and Allied Products
100,940,706
3X
Manufactured Commodities Not Identified by Kind
96,428,132
34
Fabricated Metal Products, Except Machinery and
88,742,748
Transportation Equipment
39
Miscellaneous Manufactured Commodities
78,353,738
33
Primary Metal Products
53,405,710
30
Rubber and Miscellaneous Plastics Products
49,183,823
29
Petroleum Refining and Related Products
39,532,140
31
Leather and Leather Products
39,144,091
91
Scrap and Waste
30,580,404
99
Special Classification Provisions, Nspf
26,553,034
24
Lumber and Wood Products, Except Furniture
26,095,727
22
Textile Mill Products
23,476,214
32
Stone, Clay, Glass, and Concrete Products
17,886,169
14
Nonmetallic Minerals, Except Fuels
11,479,122
27
Printing, Publishing, and Allied Products
10,711,666
25
Furniture and Fixtures
8,842,423
9
Fish, Fresh or Chilled; and Other Marine Products
7,055,499
23
Apparel and Related Products
4,530,657
2
Livestock and Livestock Products
4,270,553
8
Forestry Products, Nspf
2,086,168
21
Tobacco Manufactures
513,818
92
Used or Second-hand Merchandise
308,537
10
Metallic Ores and Concentrates
166,937
13
Crude Petroleum and Natural Gas
90,050
12
Bituminous Coal and Lignite
4,485
Source: U.S. Department of Commerce

EveryCRSReport.com
The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the
Library of Congress, charged with providing the United States Congress non-partisan advice on
issues that may come before Congress.
EveryCRSReport.com republishes CRS reports that are available to al Congressional staff. The
reports are not classified, and Members of Congress routinely make individual reports available to
the public.
Prior to our republication, we redacted names, phone numbers and email addresses of analysts
who produced the reports. We also added this page to the report. We have not intentional y made
any other changes to any report published on EveryCRSReport.com.
CRS reports, as a work of the United States government, are not subject to copyright protection in
the United States. Any CRS report may be reproduced and distributed in its entirety without
permission from CRS. However, as a CRS report may include copyrighted images or material from a
third party, you may need to obtain permission of the copyright holder if you wish to copy or
otherwise use copyrighted material.
Information in a CRS report should not be relied upon for purposes other than public
understanding of information that has been provided by CRS to members of Congress in
connection with CRS' institutional role.
EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim
copyright on any CRS report we have republished.