Dec 25, 2012

Thailand - The pros and cons of far-reaching trade agreements

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Amid stagnant multilateral trade talks under the World Trade Organisation (WTO) but fast-moving bilateral and regional negotiations, Thailand is looking at pursuing more free-trade pacts to ensure its competitiveness and level playing fields for Thai enterprises.

The government has been under pressure to consider three major pacts: the US-led Trans-Pacific Partnership, a Thailand-European Union FTA, and a comprehensive Thailand-India FTA. Many enterprises and academics support pushing ahead with talks, claiming that market liberalisation will facilitate trade and investment amid a global economic downturn.

Others, however, have warned against rushing into joining these pacts for fear of losing competitiveness with developed nations.

The Nation has reviewed the pros and cons of these potential FTAs as well as summing up the results of past trade agreements. Should Thailand join every trade pact to grasp the benefits of liberalisation amid the stalling of multilateral talks? Or should we slowly study the possible impacts of such agreements, such as emphasis on intellectual property (IP) rights and liberalisation of trade in services and investment? Should we consider extending the negotiation periods to ensure the readiness of Thai enterprises to compete?

Trans-Pacific partnership

Many Thai enterprises want the country to join the US-initialised TPP. The pact so far involves nine countries: the United States, New Zealand, Singapore, Chile, Brunei, Australia, Peru, Vietnam and Malaysia. Japan, Mexico and Canada have also shown high interest in joining the agreement. Notably, the US is Thailand's third-largest trading partner, accounting for 10 per cent of total export value. Thai enterprises involved in foods, toys, electronics, garments, sugar, jewellery and ornaments, and footwear support joining the TPP. Exporters share similar views, saying the agreement would entail tariff cuts and lowering of non-tariff barriers to services and trade. Thai exports are facing difficulties amid the slowing economic growth of the US.

Nevertheless, trade experts have warned that Thailand should think twice about rushing into the TPP, which could be a bid to get around WTO rules that currently protect developing nations. For instance, Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (Unctad), warned that the TPP would include many requirements and standards imposed by the United States, such as labour rights, that developing countries including Thailand and Vietnam would find it difficult to commit to. The US could also force governments to privatise state-owned companies in exchange for market access.

Non-governmental organisations (NGOs) have also expressed strong concerns on the issue of IP protection, since the US would want to impose its own standards, including on drug patents.

Although trade with the US is important and many Thai exporters rely on that market, it seems the country will play a less critical role due to its slowing growth and the emerging of Asian economies.

Thailand should carefully study whether to join the TPP and concentrate on the current regional integration with other Asia countries under Asean+3 and +6, the so-called Regional Comprehensive Economic Partnership (RCEP), because it will certainly help promote the growth of Thailand's trade during the rising of Asia.

Thailand-EU FTA

Thailand should also carefully consider whether to start negotiating a free-trade agreement with the European Union, as the two parties have different standards on many trade-related issues including protection of intellectual property and drug patents.

Will it be worthwhile for Thailand to participate in overall market liberalisation in exchange for a cut in export privileges to the EU market? Inevitably, Thailand will definitely lose benefits under the Generalised System of Preferences of the EU. However, according to a Commerce Ministry report, trade under the GSP to the EU accounts for only 2-3 per cent of the total exports from Thailand. The Trade Negotiations Department reported that the Commerce Ministry had conducted a focus-group discussion about a Thailand-EU FTA with seven key sectors. The following broad sectors took part in the consultation: electronics and electrical appliances, automobiles and auto parts, and steel; fashion goods, including textiles and garments, jewellery and ornaments, footwear and leather goods; medicines; banking and finance, tourism and animation; agriculture and foods; alcoholic beverages; and environmental and plant protection. Most supported negotiating this FTA since it would ensure tariff cuts after the EU reduces its GSP, scheduled to take place by 2014.

However, people living with the Aids virus have called on the government to proceed carefully on free-trade negotiations with the EU, as its demands for copyright protection could make it difficult for patients to access cheap medicines. NGOs also worry about easy access to alcohol and tobacco by Thai youth and other consumers because of lower tariffs.

Economic experts warn that the euro crisis could expand across the whole European continent. Thailand and the other Asean countries, therefore, should strengthen cooperation among themselves and get rid off non-tariff barriers to promote trade and regional economic growth.


Asean and six leading Asian economies recently announced the official establishment of the Regional Comprehensive Economic Partnership, which will be the biggest free-trade market on the globe. The RCEP will gather up the free-trade agreements between Asean and the six partner nations - China, Japan, South Korea, India, Australia and New Zealand - to open up more trade, services and investment among the member states.

The RCEP countries will commit to liberalising almost 100 per cent of trade, following the lead of many effective bilateral free-trade pacts between Asean and its partners. However, there is still a degree of protection for sensitive goods of some countries such as rice.

Asean governments and the private sector envisage the RCEP as paving the way for stimulating the Asian economy and helping to balance expansion between Eastern and Western countries. The pact between Thailand and the other 15 countries will also offset the power of the TPP. The Asean countries and its six RCEP partners together account for 56 per cent or US$255 billion (Bt7.8 trillion) of Thailand's total trade.

The RCEP will also act as an important stepping stone to achieving the Free-Trade Area of the Asia-Pacific before 2020.

Thailand-India FTA

The comprehensive Thailand-India FTA is almost finalised. However, the private sector is concerned about opening of the professional labour market and an imbalance in benefits from liberalisation of trade in goods, since India protects much of its market.
Thailand and India formed an FTA on September 1, 2004, through an early-harvest scheme featuring 84 items coming under zero tariffs. The two countries want to proceed further with a comprehensive FTA, but India has offered only 59 items for tariff reductions, much lower than Thailand’s proposed 150 items.

India wants Thailand to open its labour market to higher-educated professional workers such as doctors and engineers, as India has a surplus of such manpower. Critics have warned, for example, that even with Thailand's stringent requirements for obtaining a local licence to practise medicine - which include passing a Thai-language exam - many Indian doctors will be qualified to work in the Kingdom, given the sheer size of the country's population.

Private enterprises have called on the Thai government to consider the pact carefully to ensure the most benefit for the country.

However, a source in the India-Thai Business Association said liberalisation on professional workers would not harm Thai workers as has been feared. Indian professionals would prefer to work in the US or wealthy Middle Eastern countries, as they would earn more money.

Thailand should consider that India is the world's second-biggest market in terms of population. Having a full FTA with India would certainly benefit Thai exports. Since implementing the early-harvest scheme in 2004, Thai export to India has been boosted by more than 100 per cent, while Indian shipments to Thailand grew by about 30 per cent.

Other potential FTAs

Thailand is considering negotiating FTAs with African countries and with the member states of the Gulf Cooperation Council, namely Saudi Arabia, Oman, Qatar, Bahrain, the United Arab Emirates and Kuwait.

Other FTAs that Thailand has already concluded, and which have helped stimulate Thai export amid the downward trend of global trading, include those with China, Japan, Peru, Chile, Asean, Australia, New Zealand, and Chile.

Petchanet Pratruangkrai 

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