Thailand’s FTAs : Lessons in Trade and Investment Strategy

1. Thailand’s FTAs : Lessons in Trade and Investment Strategy Narongchai Akrasanee, Ph.D. Tokyo 26-28 September, 2006

2. Outline • The Thai Economy and Foreign Trade and Investment • Recent Trade and Investment Strategies • FTAs as Means to Promote Trade and Investment

3. I. The Thai Economy and Foreign Trade & Investment 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. 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 , Industrial share • Average growth rate of industrial sector outpaced that of GDP

6. 1990 2000 1960 1972 1982 World commodity boom Adopting export oriented Fin. liberalization Prior to 1960 Avg. growth rate of exports volume = 0.9% Avg. growth rate = 8.8% Avg. growth rate = 9.4% Avg. growth rate = 14.0% Avg. growth rate = 12.5% I. The Thai Economy (cont.) Milestone of Thailand Trade / Investment Net Flow of FDI at 2000 prices($m) Financial crisis (1997) Volume of Exports (Index, 2000=100)

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 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

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

9. 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

10. 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

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 Source: BOT

12. 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 barriersin multilateral negotiations

13. China USA India Japan Bahrain BIMST-EC Peru Australia New Zealand III. FTAs as Means to Promote Trade & Investment Source: DTN, MOC Thailand EFTA • Total trade with Thailand43.8% • Include AFTA 62.5% Thailand’s FTAs : 8 countries, 2 groups

14. 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

15. 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)

16. III. FTAs as Means (cont.) • 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

17. 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

18. 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)

19. 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….

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