Thailand’s FTAs : Lessons in Trade and Investment Strategy Narongchai Akrasanee, Ph.D. Tokyo September, 2006

2 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

3 I.The Thai Economy and Foreign Trade & Investment Avg.GDP Structure (%)External GDP Growth (%) AgricultureIndustryServiceSector (X+M/GDP) (%) 1960s s s s Thai Economy Source : NESDB

4 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

5 Export-oriented strategy in 1982  From 1960 – 2005, Share of external sector has increased overtime, especially during 1980s 1960 = = time Agricultural share, Industrial share Average growth rate of industrial sector outpaced that of GDP I.The Thai Economy (cont.)

6 Milestone of Thailand Trade / Investment Net Flow of FDI at 2000 prices ($m) Volume of Exports (Index, 2000=100) Prior to World commodity boom 1982 Adopting export oriented Avg. growth rate of exports volume = 0.9% Avg. growth rate = 8.8% Avg. growth rate = 9.4% 1990 Avg. growth rate = 14.0% Fin. liberalization Financial crisis (1997) 2000 Avg. growth rate = 12.5% I.The Thai Economy (cont.)

7 II.Recent Trade and Investment Strategies 1982  Export oriented strategy and membership in GATT World interest rate hike and oil crisis led to economic problemshigh 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

8 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.) ,191, ,818, ,298,8603,030

9 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 II.Recent Trade & Inv. Strategies (cont.)

10  Beginning of Thailand’s financial liberalization Signed Article 8 of IMF, Freer flows of capital Set up the SEC, Opened up the stocks market for foreign participation BIBFs, Opened up “Offshore” banking and allowed more foreign participation  APEC and implementation of Uruguay Round Further trade liberalization II.Recent Trade & Inv. Strategies (cont.)

11 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 ExportsOutstandingForeign Capital Inflow (USD Bn.) (USD Bn.)Debt (USD Bn.)FDIPILoansTotal Source: BOT

12  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 II.Recent Trade & Inv. Strategies (cont.)

13 Thailand’s FTAs : 8 countries, 2 groups Peru Japan Australia New Zealand BIMST-EC China India Bahrain USA Total trade with Thailand 43.8% Total trade with Thailand 43.8% Include AFTA 62.5% Include AFTA 62.5% EFTA Source: DTN, MOC Thailand III.FTAs as Means to Promote Trade & Investment

14  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 III.FTAs as Means (cont.)

15 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) III.FTAs as Means (cont.)

16  Architectural Process Design development, determined by objective, by Inter- ministerial 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 III.FTAs as Means (cont.)

17 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 III.FTAs as Means (cont.)

18  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) III.FTAs as Means (cont.)

19 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…. III.FTAs as Means (cont.)

20 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