PROSPECTS OF ASIAN INTEGRATION, THE THAI

EXPERIENCE

Buntoon Wongseelashote M.Sc. (University of Southampton, England)Chairman of Sub-committee on trade related issues, the Board of Trade of Thailand & the

Thai Chamber of Commerce

US TARIFFS 2006, revenue $25 billion, $11 billion came from developing countries

United Kingdom Bangladesh U.S. Imports (2006) - $53.5 billion U.S. Imports (2006) - $3.3 billion U.S. Tariffs (2006) - $430 million U.S. Tariffs (2006) - $496 million Avg. Rate - 0.8% Avg. Rate – 15.2%

France Cambodia U.S. Imports (2006) - $36.8 billion U.S. Imports (2006) - $2.2 billion

U.S. Tariffs (2006) - $367 million U.S. Tariffs (2006) - $367 millionAvg. Rate - 1.0% Avg. Rate – 6.9%

Source: PPI online

Benefits from FTAs as viewed by Thailand Efficient allocation of resources, gain in productivity

through economy of scale, extra competitive pressure from imports necessitates improvement on productivity.

Enhanced welfare for people as prices for all products to consumers become lower, better ‘real consumption’

GDP growth tends to materialize due to more trades, especially exports and imports, thus generating bigger income for the Thai community

Reduction of illegal smuggling of goods and non-accountable border trades.

Improvement on Customs Procedures. “According to an APEC study, clearing the red tape at country borders would generate approximately twice as much gain to GDP than tariff liberalization would “

Reduced NTMs, opening venue for negotiation

ASEAN FTA since 1992

An industrial complementation scheme designed to encourage intra-regional investment

a free investment area within the region with ten integrated markets with a population exceeding half a

billion people, ASEAN will be much more attractive to large-scale direct investment than it would as a collection of relatively small, segmented market

To the Japanese investors, ASEAN has 520 million people market under AFTA where Japanese brand has been comparatively penetrated, e.g.

China(1300 million ×20%) ASEAN(500 million people×60%)≦ ？

THAILAND’S IMPORT FROM ASEAN COUNTRIES

2003 2004 2005 2006

million Baht million Baht million Baht million Baht522,071.30 640,371.60 870,005.80 897,550.60

per cent per cent per cent per cent increase increase increase increase

11.73 22.66 35.86 3.17

THAILAND’S EXPORT TO ASEAN COUNTRIES

2003 2004 2005 2006

million Baht million Baht million Baht million Baht684,943.20 852,592.40 976,153.40 1,029,871.80

per cent per cent per cent per cent increase increase increase increase

17.66 24.48 14.49 5.5

TRADE SUPLUS WITH ASEAN

2003 2004 2005 2006IMPORTmillion Baht million Baht million Baht million Baht522,071.30 640,371.60 870,005.80 897,550.60

EXPORT

684,943.20 852,592.40 976,153.40 1,029,871.80SURPLUS162,871.90 212,220.80 106,147.60 132,321.20

FTA Thailand-INDIA The Trade under theThai- India Early Harvest 82items, 2005ＦＴＡ （ ）

(unit million US Baht： ）Total increase(%) 82itemsＥＨ increase(%)

Export Thai⇒ India（ ） 61,202.2 66.8 13,657.1 130.8Import India⇒ Thai（ ） 51,162.8 11.7 3,565.4 27.3Balance 10,039.4 - 10,091.8 -

Major export items to India under EH ：　　 Polycarbonate 、 TV 、 Cathade-lay Tube 、

　　 auto parts 、 air-con etc.Major import items from India under EH ：　　 Transmission(auto parts) 、 Alumnium

THAILAND’S IMPORT FROM CHINA (FTA FROM 1.10.2003)

2003 2004 2005 2006

million Baht million Baht million Baht million Baht251,071.50 329,661.60 448,991.20 515,704.80

per cent per cent per cent per cent increase increase increase increase

18.59 31.3 36.2 14.86

THAILAND’S EXPORT TO CHINA (FTA FROM 1.10.2003)

2003 2004 2005 2006

million Baht million Baht million Baht million Baht236,057.80 285,753.80 367,405.40 445,296.40

per cent per cent per cent per cent increase increase increase increase

54.7 21.05 28.57 21.2

TRADE DEFICITS WITH CHINA

2003 2004 2005 2006IMPORTmillion Baht million Baht million Baht million Baht251,071.50 329,661.60 448,991.20 515,704.80

EXPORT236,057.80 285,753.80 367,405.40 445,296.40

DEFICIT15,013.70 43,907.80 81,585.80 70,408.40

MOST THAIS ARE AGAINST ASEAN-CHINA FTA

Trade deficit with China widens Influx of fruits from China has caused Thai fruit

markets to become dominated by Chinese fruits Thai garlic and onion farmers are driven out of

business Non-tariff measures imposed by Chinese provincial

authorities for Thai Agricultural products have been unfair for Thai exporters. Import license and SPS imposed by China are unfair

Thai garment factories have been negatively affected

CAUSES OF MISUNDERSTANDINGS

Previous Thai government has made negotiation for FTA a secret from Thai people

Detail of negotiation is not announced. Selective announcement has made the Thai suspicious of the true nature of the negotiation

FTA favors the rich, not the poor who are the majority of the people.

Thai people believe Thaksin, the ousted prime minister put his own benefit over the people’s in the negotiation for FTA

Both farmers and industries that are negatively affected by FTA are not well compensated.

IMPEDIMENTS TO FREE TRADE NON-TARIFF MEASURES, SPS, ETC. , TECHNICAL

BARRIERS TO TRADE IMPORT LICENSE PROCEDURES CUSTOMS CLEARANCE, CUSTOMS PROCEDURES AND

CUSTOMS VALUATION MUTUAL RECOGNITION AGREEMENTS on electrical and

electronic equipment, cosmetics, pharmaceuticals, telecommunications equipment, foodstuff and prepared foodstuff

PROTECTION THROUGH TARIFF RATE QUOTA FOR AGRICULTURAL PRODUCTS AND QUANTITATIVE RESTRICTION FOR NON-AGRICULTURAL PRODUCTS

RULE OF ORIGIN LACK OF EXPEDITIOUS SYSTEM FOR RESOLUTION OF

TRADE DISPUTES

Rule of Origin: CTC vs RVC

simpler and cheaper for business to apply easier for government to administer inherently more predictable and consistent in terms

of origin outcomes (‘once qualify, always qualify’), and thereby permits effective forward planning

economically efficient in that it allows exporting manufacturers to buy inputs from the cheapest international sources

especially advantageous for small and medium enterprises because there is less need to maintain costly records systems.

Mishaps for FTAs While local plantations or industries are replaced by

imports, livelihood of the people is threatened Dependence on imports and the absence of local

competition gives power to exporting country to control supply and set prices

The possibilities of fledgling industries to survive become small

The concept of producing something to substitute for imports can no longer be applied

“FTAs between developed and developing countries enhance growth of FDI in developing countries.” may not be true

Tier 2, 3, lowers

SMEsLocalSuppliers

Tier 1

LSEs

[* LSEs : Large Scale Enterprises SMEs : Small & Medium Enterprises]

(Car 16 Companies, Motorcycle 5 Companies)

(709 Companies)

(>1,200 Companies)

FOREIGN/ JV.

Foreign Majority = 287 FirmsThai Majority = 68 Firms

Pure Thai Company = 354 Firms

Source: Thai Automotive Institute

Assemblers

Thai automotive industry structure: Many assemblers and thick supporting industries

Automobile industry in Thailandrecovery from crisis and new

growth1,125,000

703,000

441,000

750

928

327411

459

584

389434525 559

158

533

626

409

144

571485

589

363 296

218262

332

233180

42

17515213066

148210

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Production Domestic Export

Source: Thailand’s automotive institute

Market Access Improvement by Thailand

1. Auto (Completely Built Up : CBUs) (a) CBUs exceeding 3000cc (i) Tariff rates of 80% will be reduced gradually to 60% by 2009. (ii) Discussion on further liberalization and possible elimination of tariffs in mid-2010’s will start in 2009. (b) other CBUs : Renegotiation (c) No intention of extending more favorable treatment to other major automobile manufacturing countries in its future FTAs on auto tariffs than that extended to Japan.

2. Auto parts (a) Tariffs on almost all auto parts will be eliminated in 2011. (i) Auto parts with tariff over 20%: Tariffs will be reduced to 20% immediately after the date of entry into force of the JTEPA and maintained until the end of the year 2010. (ii) other auto parts : Tariffs will be maintained until the end of the year 2010. (b) Sensitive items (engines and engine parts) Tariffs will be maintained until the end of the year 2012 and will be eliminated in 2013.

Thailand-Japan Economic Partnership Agreement (JTEPA)

Japan-Malaysia FTA

Malaysia will abolish tariffs on completely-knocked-down (CKD) vehicles and components produced by Japanese carmakers in the country

Tariffs on auto parts imported from Japan that are not used in CKD vehicles will be reduced to between zero and 5% in 2008 and will be fully eliminated by 2010.  

Tariffs on completely-built-up vehicles (CBUs) will be completely abolished by 2015. 

tariffs on vehicles with engine capacities of between 2,000 and 3,000cc, multi-purpose vehicles (MPVs) and trucks of 20 tonnes or more will be gradually abolished in five years. 

For vehicles with engines bigger than 3,000cc, tariffs will be cut to between zero and 5% in 2008 and totally eliminated by 2010

WTO vs FTA, Thai viewpoint Total world imports, 2004:

$8.9 trillion (Goods)$2.1 trillion (Services)

 WTO members:* $8.6 trillion (Goods), 96% ~$1.8 trillion (Services), 87%

GDP growth will be more pronounced under WTO than under FTA

All other benefits under FTA will also be pronounced under WTO

FTA is prone to be unfair when economic powers negotiate with dependent country. Preponderance nature of US and EU.