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Exporters prepare for loss of GSP privileges

Aug 04. 2014
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THAI enterprises in various industries are struggling to adjust their business models and investment plans in preparation for losing Generalised System of Preferences (GSP) privileges in the European Union next year.

Meanwhile, the Commerce Ministry’s Foreign Trade Department is organising seminars and other projects to educate enterprises on standing on their own feet, as well as keeping in contact with Brussels to seek other support programs for Thai exporters after the end of GSP.

These measures could include relocating factories to countries that still enjoy tariff privileges or those that have free-trade agreements (FTAs) with the EU, lowering production costs, and sourcing some raw materials from other countries.
Industries that have already moved to other countries are mainly in garments, consumer goods, agricultural products and processed foods. 
Thailand’s top 15 apparel companies have expanded into other countries to continue benefiting from GSP and to lower production costs.
Vallop Vitanakorn, vice chairman of the Thai National Shippers Council, said many enterprises, not only large firms but also small and medium-sized companies, had tried to adjust their business models in preparation for losing the GSP privileges. Targeted countries for Thai investment are Least Developed Countries (LDCs), including Cambodia, Laos, Myanmar and Bangladesh.
Vietnam is also targeted because it is negotiating an FTA with the EU, while Brussels has suspended talks with Thailand for a similar agreement since the military seized power from the elected government.
Vallop, who is also chief executive of Hi-Tech Apparel, said about 30 Thai garment firms had already invested in other countries, including the top 15 firms.
The GSP benefits are a major reason for encouraging Thai enterprises to expand overseas, followed by the lower cost of labour in such countries. However, Vallop pointed out that low wages were not a top incentive for investing overseas any longer because other countries were also raising workers’ incomes.
For instance, the daily wage in Myanmar has doubled to Bt150, from only Bt70-Bt80 in recent years.
Vallop said Hi-Tech Apparel planned to increase its production capacity in other countries, while maintaining its business in Thailand. Currently 80 per cent of its production is in Thailand, but that proportion is to drop to 60 per cent next year, with the balance in other countries such as Laos, Vietnam and Cambodia.
Apparel exports from Thailand to the EU will be subject to an additional tariff of 2.4 per cent after the end of the GSP programme for this country next year.
Paiboon Ponsuwanna, adviser to the TNSC and former president of the Thai Frozen Foods Association, said that unlike other industries, Thai food producers would have little need to expand overseas because foreign consumers have high confidence in Thailand’s food standards, in terms of quality and sanitary measures. But to offset some losses from the GSP cancellation, food producers will import some raw materials from neighbouring countries, while keeping final production in Thailand.
To control product quality, Thai enterprises will train workers in other countries that contribute to the supply chain.
Moreover, Thai food companies will seek more trading opportunities domestically and in other Asean countries. Paiboon said they would also focus more on the tourist market. After all, food is consumed not only by the 65 million Thais, but also by the 20 million-plus travellers the country welcomes annually. 
Meanwhile, a study by TMB Bank found that some Thai products would become less competitive after the end of GSP because they rely heavily on the EU market. These include electrical appliances and electronic goods, garments, ornaments, processed chicken, frozen shrimp, and industrial machinery and parts.
Last year, Thai exports to the EU were worth US$22 billion (Bt700 billion), or 9.8 per cent of total export value. About 60 per cent of Thai exporters to the EU gained GSP privileges. 
The EU is the fourth-largest export market for Thailand, after Asean, China and the United States.

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