TPSO urges Thailand to chase supply-chain roles over 0% tariff deals

Thailand’s Trade Policy and Strategy Office (TPSO) at the Commerce Ministry has argued that modern free trade agreements (FTAs) are no longer primarily a race to cut tariffs to zero, but a contest over who can position themselves inside — and help shape — global supply chains.

In a special report titled “Resetting the FTA game: From 0% tariffs to supply chain strategy”, published in the November edition of the TPSO journal, the office said the global trade battlefield has become more complex and fast-moving, with the “winner” increasingly being the country that can secure a meaningful role in supply chains.

FTAs remain a key tool for Thailand to respond to new trade realities that go beyond tariff reductions and now cover digital rules, services and sustainability. 

It added that the government is pushing to “reset” Thailand’s approach to FTAs to expand export markets and open doors for Thai businesses, arguing that effective use of FTA benefits — through cooperation between the public and private sectors — can strengthen competitiveness and support more sustainable growth.

However, the report said Thailand is still not fully using the advantages available under its FTA network, despite having FTAs with more than 18 countries. The main barriers, it argued, are not visible tariff walls but “invisible” ones — particularly the complexity of rules of origin (ROO), which determine whether goods qualify for tariff preferences.

It added that ROO requirements and regional value content (RVC) calculations have become both a tool and a structural obstacle, reinforcing the shift in global trade from “who cuts tariffs for whom” to “who can connect more deeply to global value chains”.

Citing data from the Department of Foreign Trade (2024), the report said Thailand’s average FTA utilisation rate is around 84%, meaning nearly one in five exports that could benefit from FTA preferences do not use them. 

While utilisation rates exceed 90% for exports to China, Australia, Japan, South Korea, Peru and Chile, the rates for exports to ASEAN, India and New Zealand are lower, at under 80%.

The report argued that lower utilisation does not necessarily mean exporters lack awareness, but reflects “hidden traps” — especially for small and medium-sized enterprises (SMEs), which often face compliance costs that outweigh the tariff savings.

It cited studies by the Thailand Development Research Institute (TDRI) and the World Bank (2023), saying ROO compliance costs for SMEs can total about 5.3%–8.2%. These costs include documentation for certificates of origin (1.5%–2.0%), input verification (2.0%–3.5%), legal advice (1.0%–1.5%) and staffing costs (0.8%–1.2%). 

As a result, many firms choose to pay full tariffs rather than apply for FTA benefits, the report said.

The report also pointed to Thailand’s dependence on imported inputs. It said foreign value-added content accounts for nearly half of Thailand’s exports, with major sources including South Korea, Taiwan, China and Japan. 

By sector, it cited foreign value-added shares of 17.0% for food, beverages and tobacco; 27.1% for textiles, clothing and leather; 31.7% for machinery and parts; 32.8% for electronics and parts; and 44.7% for automobiles and parts. 

It added that automobiles and electronics — Thailand’s top two export categories — accounted for about 30% of total export value in 2024, underscoring the high reliance on foreign inputs in key industries.

Looking ahead, the TPSO said ROO and RVC rules are likely to become more stringent as geopolitics and supply chain security reshape trade policy. 

It said new agreements may impose tougher and more complex ROO requirements for “strategic goods” such as semiconductors, EV batteries, solar panels and advanced medical products — not merely to grant tariff preferences, but to build “trusted supply chains” and exclude strategic competitors.

It also warned that anti-circumvention measures are expected to become more widespread, aimed at preventing non-member countries from using minimal processing in Thailand — such as simple assembly or repackaging — to claim FTA origin when exporting to third markets. 

The report said exporters would increasingly need to prove that domestic production is substantial and generates genuine value-added.

As a policy response, the TPSO proposed that Thailand move beyond a traditional tariff-focused view of FTAs towards what it called “FTA 5.0” — treating FTAs as strategic instruments to secure positions in global value chains, combining industrial policy with trade policy. 

It outlined three immediate priorities:

• Re-Structure: Reduce weaknesses from reliance on inputs outside FTA networks by promoting strategic sourcing from FTA partners and pushing for expanded cumulation rules to make it easier to count cross-border inputs.
   
• Re-Digitalise: Use technology to reduce ROO-related paperwork and hidden costs, shifting the state’s role from information provider to facilitator through digital traceability and more transparent origin certification systems.
   
• Re-Target & Deep Dive: Shift negotiation goals from focusing on end-consumer markets to securing roles in production chains, targeting upstream and supply-chain-relevant partners such as India, the UAE, Saudi Arabia, Mexico, Chile and parts of Eastern Europe.

The report also proposed new support tools, including an FTA Digital Dashboard to show real utilisation data, and a Supply Chain Intelligence Centre to provide deeper advisory support — particularly on upstream inputs — alongside value chain partnership approaches that emphasise investment, research and technology cooperation.

The TPSO concluded that FTAs will continue to be used below their potential if Thailand does not clearly understand where it stands in supply chains, warning that opening markets does not guarantee Thailand a secure position within the value chains that matter most.

It said Thailand needs not just more FTAs, but FTAs that are genuinely usable — and that help the country build new positions in global trade.