PROSPECTS OF ASIAN INTEGRATION, THE THAI EXPERIENCE Buntoon Wongseelashote M.Sc. (University of Southampton, England) Chairman of Sub-committee on trade related issues, the Board of Trade of Thailand & the Thai Chamber of Commerce

US TARIFFS 2006, revenue $25 billion, $11 billion came from developing countries United KingdomBangladesh U.S. Imports (2006) - $53.5 billion U.S. Imports (2006) - $3.3 billion U.S. Tariffs (2006) - $430 million U.S. Tariffs (2006) - $496 million Avg. Rate - 0.8% Avg. Rate – 15.2% France Cambodia U.S. Imports (2006) - $36.8 billion U.S. Imports (2006) - $2.2 billion U.S. Tariffs (2006) - $367 million U.S. Tariffs (2006) - $367 million Avg. Rate - 1.0% Avg. Rate – 6.9% Source: PPI online

Benefits from FTAs as viewed by Thailand Efficient allocation of resources, gain in productivity through economy of scale, extra competitive pressure from imports necessitates improvement on productivity. Enhanced welfare for people as prices for all products to consumers become lower, better ‘real consumption’ GDP growth tends to materialize due to more trades, especially exports and imports, thus generating bigger income for the Thai community Reduction of illegal smuggling of goods and non- accountable border trades. Improvement on Customs Procedures. “According to an APEC study, clearing the red tape at country borders would generate approximately twice as much gain to GDP than tariff liberalization would “ Reduced NTMs, opening venue for negotiation

ASEAN FTA since 1992 An industrial complementation scheme designed to encourage intra-regional investment a free investment area within the region with ten integrated markets with a population exceeding half a billion people, ASEAN will be much more attractive to large-scale direct investment than it would as a collection of relatively small, segmented market To the Japanese investors, ASEAN has 520 million people market under AFTA where Japanese brand has been comparatively penetrated, e.g. China(1300 million ×20%) ≦ ASEAN(500 million people×60%) ？

THAILAND’S IMPORT FROM ASEAN COUNTRIES

THAILAND’S EXPORT TO ASEAN COUNTRIES

TRADE SUPLUS WITH ASEAN

FTA Thailand-INDIA Major export items to India under EH ： Polycarbonate 、 TV 、 Cathade-lay Tube 、 auto parts 、 air-con etc. Major import items from India under EH ： Transmission(auto parts) 、 Alumnium

THAILAND’S IMPORT FROM CHINA (FTA FROM )

THAILAND’S EXPORT TO CHINA (FTA FROM )

TRADE DEFICITS WITH CHINA

MOST THAIS ARE AGAINST ASEAN- CHINA FTA Trade deficit with China widens Influx of fruits from China has caused Thai fruit markets to become dominated by Chinese fruits Thai garlic and onion farmers are driven out of business Non-tariff measures imposed by Chinese provincial authorities for Thai Agricultural products have been unfair for Thai exporters. Import license and SPS imposed by China are unfair Thai garment factories have been negatively affected

CAUSES OF MISUNDERSTANDINGS Previous Thai government has made negotiation for FTA a secret from Thai people Detail of negotiation is not announced. Selective announcement has made the Thai suspicious of the true nature of the negotiation FTA favors the rich, not the poor who are the majority of the people. Thai people believe Thaksin, the ousted prime minister put his own benefit over the people’s in the negotiation for FTA Both farmers and industries that are negatively affected by FTA are not well compensated.

IMPEDIMENTS TO FREE TRADE NON-TARIFF MEASURES, SPS, ETC., TECHNICAL BARRIERS TO TRADE IMPORT LICENSE PROCEDURES CUSTOMS CLEARANCE, CUSTOMS PROCEDURES AND CUSTOMS VALUATION MUTUAL RECOGNITION AGREEMENTS on electrical and electronic equipment, cosmetics, pharmaceuticals, telecommunications equipment, foodstuff and prepared foodstuff PROTECTION THROUGH TARIFF RATE QUOTA FOR AGRICULTURAL PRODUCTS AND QUANTITATIVE RESTRICTION FOR NON-AGRICULTURAL PRODUCTS RULE OF ORIGIN LACK OF EXPEDITIOUS SYSTEM FOR RESOLUTION OF TRADE DISPUTES

Rule of Origin: CTC vs RVC simpler and cheaper for business to apply easier for government to administer inherently more predictable and consistent in terms of origin outcomes (‘once qualify, always qualify’), and thereby permits effective forward planning economically efficient in that it allows exporting manufacturers to buy inputs from the cheapest international sources especially advantageous for small and medium enterprises because there is less need to maintain costly records systems.

Mishaps for FTAs While local plantations or industries are replaced by imports, livelihood of the people is threatened Dependence on imports and the absence of local competition gives power to exporting country to control supply and set prices The possibilities of fledgling industries to survive become small The concept of producing something to substitute for imports can no longer be applied “FTAs between developed and developing countries enhance growth of FDI in developing countries.” may not be true

Tier 2, 3, lowers SMEs Local Suppliers Tier 1 LSEs [* LSEs : Large Scale Enterprises SMEs : Small & Medium Enterprises] (Car 16 Companies, Motorcycle 5 Companies) (709 Companies) (>1,200 Companies) FOREIGN/ JV. Foreign Majority = 287 Firms Thai Majority = 68 Firms Pure Thai Company = 354 Firms Source: Thai Automotive Institute Assemblers Thai automotive industry structure: Many assemblers and thick supporting industries

Automobile industry in Thailand recovery from crisis and new growth Source: Thailand’s automotive institute

Market Access Improvement by Thailand 1. Auto (Completely Built Up : CBUs) (a) CBUs exceeding 3000cc (i) Tariff rates of 80% will be reduced gradually to 60% by (ii) Discussion on further liberalization and possible elimination of tariffs in mid ’ s will start in (b) other CBUs : Renegotiation (c) No intention of extending more favorable treatment to other major automobile manufacturing countries in its future FTAs on auto tariffs than that extended to Japan. 2. Auto parts (a) Tariffs on almost all auto parts will be eliminated in (i) Auto parts with tariff over 20%: Tariffs will be reduced to 20% immediately after the date of entry into force of the JTEPA and maintained until the end of the year (ii) other auto parts : Tariffs will be maintained until the end of the year (b) Sensitive items (engines and engine parts) Tariffs will be maintained until the end of the year 2012 and will be eliminated in Thailand-Japan Economic Partnership Agreement (JTEPA)

Japan-Malaysia FTA Malaysia will abolish tariffs on completely-knocked-down (CKD) vehicles and components produced by Japanese carmakers in the country Tariffs on auto parts imported from Japan that are not used in CKD vehicles will be reduced to between zero and 5% in 2008 and will be fully eliminated by Tariffs on completely-built-up vehicles (CBUs) will be completely abolished by tariffs on vehicles with engine capacities of between 2,000 and 3,000cc, multi-purpose vehicles (MPVs) and trucks of 20 tonnes or more will be gradually abolished in five years. For vehicles with engines bigger than 3,000cc, tariffs will be cut to between zero and 5% in 2008 and totally eliminated by 2010

WTO vs FTA, Thai viewpoint Total world imports, 2004: $8.9 trillion (Goods) $2.1 trillion (Services) WTO members:* $8.6 trillion (Goods), 96% ~$1.8 trillion (Services), 87% GDP growth will be more pronounced under WTO than under FTA All other benefits under FTA will also be pronounced under WTO FTA is prone to be unfair when economic powers negotiate with dependent country. Preponderance nature of US and EU.