Transcript Thailand’s FTAs : Lessons in Trade and Investment Strategy

Thailand’s FTAs : Lessons
in Trade and Investment
Strategy
Narongchai Akrasanee, Ph.D.
Tokyo
26-28 September, 2006
Outline
I.
The Thai Economy and Foreign
Trade and Investment
II.
Recent Trade and Investment
Strategies
III.
FTAs as Means to Promote Trade and
Investment
2
I. The Thai Economy and
Foreign Trade & Investment
Thai Economy
Avg.
GDP Structure (%)
External
GDP
Growth
(%)
Agriculture
Industry
Service
Sector
(X+M/GDP)
(%)
1960s
8.4
29.0
22.6
48.3
38.7
1970s
6.9
24.5
26.1
49.4
43.7
1980s
7.2
18.4
30.3
51.3
54.7
1990s
5.3
11.4
38.4
50.2
85.1
2000
4.8
10.3
41.1
48.6
114.5
2005
4.5
8.7
43.9
47.4
123.8
Source : NESDB
3
I. The Thai Economy (cont.)

Adopted market capitalism since 1960

During 1960s – 1970s, the role of external sector was
still small, less than 50% of GDP

From 1980s --- greater foreign exposure resulted from
various trade and investment promotion policies,
 Investment Promotion Act, 1977

Encourage FDI

Set out the types of rights and benefits offered to
foreign investment

BOI has been established to promote FDI to Thailand
4
I. The Thai Economy (cont.)
 Export-oriented strategy in 1982

From 1960 – 2005,

Share of external sector has increased overtime,
especially during 1980s
1960 = 36.4
2005 = 123.8
3.4 time

Agricultural share

Average growth rate of industrial sector outpaced that
of GDP
, Industrial share
5
I. The Thai Economy (cont.)
Milestone of Thailand Trade / Investment
6,000
1990 Financial crisis (1997)
Net Flow of FDI at 2000 prices ($m)
5,000
1960
3,000
2,000
1,000
World
commodity
boom
2000
1982
Adopting
export
oriented
Prior to
1960
Fin.
liberalization
0
140
120
100
80
Avg. growth
rate of exports
volume = 0.9%
Avg. growth
rate = 8.8%
Avg. growth
rate = 9.4%
Avg. growth rate
= 12.5%
Avg.
growth
rate =
14.0%
60
40
20
Volume of Exports (Index, 2000=100)
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
19
60
19
58
19
56
19
54
19
52
0
19
50
Index number 2000 =100
Million USD
4,000
1972
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II. Recent Trade and Investment
Strategies
1982

Export oriented strategy and membership in GATT
 World interest rate hike and oil crisis led to economic
problems
high inflation, severe CAD and
increased foreign debts
 Structural reform to earn more FX
 Major measures were implemented;

Baht devaluation in 1981 (8.7%) and 1984 (14.8%)

Export and tourism promotion
7
II. Recent Trade & Inv. Strategies
(cont.)

Encourage more FDI


Protection for import-substitution industry
Gained momentum from 1985 Plaza Accord, Baht
was further devalued against Yen
As a result, exports, tourism and FDI expanded
Exports
(USD Bn.)
No. of
Tourists
Inflow of FDI
(USD Mn.)
1983
6.3
2,191,003
606
1986
8.8
2,818,092
399
1990
22.9
5,298,860
3,030
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II. Recent Trade & Inv. Strategies
(cont.)
1990s

1991/1992 AFTA and the impending Uruguay Round
 AFTA, freer flow of trade in goods, in force since
1993, Now > 60% of products are tariff free
 Thailand’s further trade and investment liberalization

Investment promotion in basic industries ---oil refinery,
iron & steel, petrochemical

Allowed private sector to join in fixed-line operation
9
II. Recent Trade & Inv. Strategies
(cont.)
 Beginning of Thailand’s financial liberalization
 1990 --- Signed Article 8 of IMF, Freer flows of capital
 1992 --- Set up the SEC, Opened up the stocks
market for foreign participation
 1993 --- BIBFs, Opened up “Offshore” banking and
allowed more foreign participation
 1993 -- APEC and implementation of Uruguay Round
 Further trade liberalization
10
II. Recent Trade & Inv. Strategies
(cont.)
Share of external sector increased from 75.8%
in 1990 to 89.8% and 98.7% in 1995 and 2000
respectively
More linkage with global capital market
Exports
Outstanding
(USD Bn.)
Debt (USD Bn.)
FDI
PI
Loans
Total
1991
28.3
37.9
3.7
2.3
13.6
19.6
1993
36.6
52.1
2.6
11.0
18.2
31.8
1995
55.7
100.8
3.0
10.1
21.4
34.5
1997
56.7
109.3
5.1
24.8
17.9
47.8
Source: BOT
Foreign Capital Inflow (USD Bn.)
11
II. Recent Trade & Inv. Strategies
(cont.)

1997 --- New phase of liberalization under WTO
 DDA in 2001

Include agriculture and services in part of the
single undertaking --- Nothing is agreed until
everything is agreed

Singapore issues --- conflicts between developed
and developing economies
 Doha Round is unlikely to reach agreement
Status quo on trade and investment barriers in
multilateral negotiations
12
III. FTAs as Means to Promote
Trade & Investment
Source: DTN, MOC Thailand
EFTA
China
USA
India
Japan
Bahrain
BIMST-EC
Peru
Australia
New Zealand
• Total trade with Thailand 43.8%
• Include AFTA 62.5%
Thailand’s FTAs : 8 countries, 2 groups
13
III.FTAs as Means (cont.)

Conceptual Design
 Sectoral (Early Harvest)

China, 10/2003
– Fruits & vegetables (HS 07-08)

India, 9/2004
– 82 product groups
 All merchandise, with phased exclusion list

AFTA, 1993
14
III.FTAs as Means (cont.)
 Comprehensive, with timing and other
conditionalities

Australia, 1/2005

New Zealand, 7/2005

USA (under negotiation)
 Limited FTA (Partnership Agreement)

Japan (negotiation concluded)

Peru, Bahrain (implementation pending)
15
III.FTAs as Means (cont.)

Architectural Process
 Design development, determined by objective, by Interministerial Committee

Specific market expansion
Sectoral approach

Achieving overall economy of scale
All merchandise

Enhancing competitiveness (sectoral and regime reform)
of Thailand’s businesses
Comprehensive

Enhancing partnership for closer economic relations, or
access to other markets
Limited FTA
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III.FTAs as Means (cont.)
 Negotiation

Negotiating teams by countries, under appointment

Secretariat at Ministry of Commerce (Department of
Trade Negotiations)
 Implementation

By Ministries’ responsibilities (fragmented)

Ad-hoc dispute settlement mechanism
 Impact management

Public education

Restructuring and relocation funds
17
III.FTAs as Means (cont.)

Competition Regime Changes
 More uniform tariff rate structure and customs
procedure

AFTA implementation added pressure on move
towards uniformity
 Modernizing standards and quality requirements

Quarantine system (Australia, NZ)

Quality and safety standards (China, India)
18
III.FTAs as Means (cont.)
 Forcing necessary sectoral reform

Dairy & livestock (Australia, NZ)

Financial services (USA)
Etc., etc…
 Initiating cross-border commercial practice reform
(mainly USA)

Intellectual property rights

Government procurements

Investment
Etc., etc….
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III. FTAs as Means (cont.)

In sum,

Australia/New Zealand --- maintaining
competitiveness for trade in goods

China --- solving surplus in commodities

India --- accessing market for consumer
products

Japan --- industrial integration

US --- Competitiveness for trade in goods and
reform in services industries
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