THURSDAY, March 28, 2024
nationthailand

Thai exporters will need to rely on FTAs to survive: private sector

Thai exporters will need to rely on FTAs to survive: private sector

The Commerce Ministry under the new government faces tough challenges as Thai exports are expected to drop due to the ongoing US-China trade war and it is becoming a struggle to maintain the price of agricultural products due to an oversupply. In order to cope with these problems, the new government will have to encourage the private sector to rely on existing free trade agreements (FTA), seek new export markets, complete the Asean Single Window (ASW) and take a more proactive stance in supporti

In the first five months of this year, Thai exports dropped by 3 per cent compared to the same period last year, contracting in value by more than US$4 billion (Bt122.5 billion). Thailand’s economic institutions have started predicting that Thai exports will drop by around 1 per cent in 2019, compared to last year’s 6.9 per cent year-on-year growth. The Joint Standing Committee on Commerce, Industry, and Banking forecast a 1 per cent contraction recently, while Siam Commercial Bank’s Economic Intelligence Centre (EIC) estimated a 1.6 per cent decline.
In order to deal with this, private sector representatives suggested that the new government use a two-pronged approach to stimulate export growth. 
“In the short and medium-term, the new government can work more closely with the private sector to ensure the FTA privileges are being utilised,” said Yunyong Thaicharoen, first executive vice president and head of the EIC.
In 2018, only 58.4 per cent of Thailand’s exports to China enjoyed FTA privileges, the Commerce Ministry said. However, from January to May this year, Thai exports to China dropped by 8.7 per cent year-on-year, reducing in value by more than $1 billion, data from the Customs Department shows. 
“There are many exporters in the agriculture sector who are not aware of their FTA privileges when exporting to China. They may also not possess the knowledge on regulatory standards, intellectual property licensing and effective strategies,” said Auramon Supthaweethum, director-general of the Department of Trade Negotiations (DTN) under the Commerce Ministry.
Hence, Yunyong said, promoting the use of FTA privileges can go a long way in supporting Thai exports. However, the incoming government should continue seeking new export markets and negotiating more FTAs to support the country’s export growth prospects in the long term, he added. For instance, he said, the new government could focus on completing negotiations for the Regional Comprehensive Economic Partnership (RCEP) as soon as possible.
Prime Minister General Prayut Chan-o-cha said during the Asean Summit in June that as chair of the grouping, Thailand can be confident of completing the RCEP negotiations by the end of this year.
The mega-trade deal, which will link up the 10 Asean members and China, India, Japan, South Korea, Australia and New Zealand, has been stuck at the negotiating stage for the past seven years. Once completed, it will be the largest multilateral trade deal in history, accounting for a third of the world trade.
Thailand will benefit from lower tariffs from the 16 RCEP signatories, as it already exports 57 per cent of its goods to them. Goods exported to the 16 countries was valued at over $58 billion in the first five months of 2019.
The ASW is also on Thailand’s economic agenda this year. The regional single window aims to integrate the single-window systems of Asean countries in order to expedite cargo clearance and boost cross-border trade by enabling an electronic exchange of trade-related documents. 
The new government should continue developing the ASW to improve the flow of goods within the region and boost the ease of doing business for exporters, said Kalin Sarasin, chair of the Board of Trade of Thailand. 
Five Asean countries – Thailand, Vietnam, Singapore, Malaysia and Indonesia – launched the ASW in 2018, with Thailand being given the task of developing an ASW system for Cambodia, the Philippines, Brunei, Laos and Myanmar this year. 
Cambodia, Philippines and Brunei have been testing the ASW option since the beginning of 2019, while Brunei recently confirmed that it can adopt the system fully, bringing the number of Asean members already using the single-window clearance system to six, DTN’s Auramon said. 
The new government should also consider seeking an FTA with the European Union (EU), advised Aat Pisanwanich, director of the University of the Thai Chamber of Commerce’s Centre for International Trade Studies (CITS).
Exports to the EU account for up to 10 per cent of Thailand’s total export, though the amount has been declining at an alarming rate as Vietnam, a key competitor, has already established an FTA with the EU, he said. 
Thai exports to the EU in the first five months of this year dropped by 6.9 per cent year-on-year to around $700 million and Thai-EU trade will continue declining if the Kingdom fails to swiftly negotiate a trade deal with the European bloc, Aat warned. 
Vietnam’s goods that are in direct competition with Thailand, like electrical appliances, rice and fruit, will become even more competitive due to lower tariffs once the Vietnam-EU FTA is activated, Aat said. This, he added, will further reduce Thailand’s market share in the EU leading to long-term negative impacts on Thai exports. 
A study conducted by the CITS suggests that once the Vietnam-EU FTA kicks in, Vietnam’s exports to the EU will rise from $50 billion per year to Bt70 billion, and reduce Thai exports by $20 billion in the second quarter of 2019 and by $40 billion in the next two years. 
Meanwhile, Supant Mongkolsuthree, chair of the Thai Federation of Industries, said the new government also needs to actively support the agricultural sector. 
He pointed out that the agricultural sector has been struggling on both domestic and international fronts. The price of agricultural goods has remained low locally, and those within the grassroots economy have been struggling financially due to this. Meanwhile, the export of agricultural goods has also been performing poorly due to a stronger Thai baht, which has increased the price of agricultural goods from Thailand compared to those from its competitors like Vietnam. 
“We expect the new government’s agriculture-related policies to vary from controlling prices by limiting exports to offering soft loans for producers to produce less and offering price guarantees on agricultural goods,” said Mana Nimitvanich, first vice president of Krungthai Bank’s Global Business Development and Strategy Group. “While these policies are unhealthy for the economy in the long-run as they interfere with the market mechanism, they may be necessary to boost the income of those in the agricultural sector in the short-term.”
He also suggested that new government work on boosting the productivity of the agricultural sector by leveraging new technology in the long-run.
The Commerce Ministry, meanwhile, has prepared an agenda for the incoming minister to consider, such as stabilising the price of agricultural goods like rubber, cassava and rice, said Boonyarit Kalayanamit, permanent secretary of the Commerce Ministry.
Other policies the incoming commerce minister has to review include stimulating spending in the grassroots economy through the use of welfare cars and coping with the impact of the US-China trade row by negotiating more trade deals. The new minister will also have to consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Deputy Commerce Minister Weeresak Wangsupakitkosol, however, said he still doesn’t know when his official tenure begins.

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