Without the agreement, the next wave of Japanese investment might have otherwise gone to neighbouring countries with comparable levels of industrial development and infrastructure as Thailand.

As an interim government, the Surayud administration made an exception to the rule when it went ahead and clinched the historic agreement with Japan in the absence of an elected Parliament to ratify it. Signing the agreement within the interim government's term in office will do a great deal to win back the confidence of Japanese investors in particular and international investors in general.

Prime Minister Surayud Chulanont addressed concerns over the lack of scrutiny and public participation concerning the decision by initiating a debate within the National Legislative Assembly, albeit without putting the matter to a vote. The government also assigned the independent think-tank, the Thailand Development Research Institute (TDRI), to study the potential impact of the Thailand-Japan FTA before the Cabinet decided to go ahead with it.

The passing of the agreement is a way for the military-installed administration to send a clear signal that it is investor-friendly after a series of blunders, which have eroded foreign investor confidence in Thailand. The draconian capital control measures and the stiffening of the enforcement of the Foreign Business Act created a perception among foreign investors that the interim government preferred anti-foreigner, inward-looking economic policy.

Thai industries need this agreement in order to maintain their competitive-edge because it will include technological transfer to help them upgrade their manufacturing processes. Other emerging countries such as Vietnam and India are increasingly attracting foreign investment by offering attractive incentives and environments that are conducive to foreign direct investment.

The FTA with Japan is not perfect. There will be some that lose and some that gain. But, overall, it should benefit the Thai economy and the majority of Thai people. Compared to other FTAs that Thailand has made with other countries, the Thailand-Japan FTA will be the one that offers the most positive benefits for both economies because the Thai economy is driven significantly by Japanese investment, and Japanese investors also find a reliable partner in Thailand. Moreover, the Thailand-Japanese FTA does not cover all aspects in the same manner as the planned Thailand-US FTA deal.

The bilateral trade pact with Japan should enhance Thailand's position as a regional hub for the Japanese investment network in the region, especially in the automotive sector.

Japan established its investment base in Thailand in the mid-1980s. The Plaza Accord, which resulted in the yen appreciating against the dollar, prompted a number of Japanese investors to relocate overseas as it would have been too costly for them to maintain some of their low-technology production bases at home.

The deal was endorsed, in spite of ongoing protests from non-government organisations which have expressed concerns over the possibility of Japan monopolising seedling technology and fears that Thailand would turn into a dumping ground for industrial waste. These concerns are legitimate and the government has tried to assure NGOs that problems can be solved by strict enforcement of the law.

But the question of whether the bilateral trade deal will be worthwhile depends on the performance of the private sector.

The challenge for them is to build upon the infrastructure laid down by this agreement and cooperate with Japanese investors to upgrade their technology and promote their exports to the Japanese market where import duties will be lowered after the agreement.