Thailandís six free trade agreements
(FTAs) with Australia, China, India, New Zealand and the 10 member
countries of ASEAN (Association of Southeast Asian Nations) have
made Thailand an even more attractive place to invest. Exports
of electronics, automotives and auto parts, sectors in which foreigners
are heavily invested, have increased significantly. Not only have
FTAs drastically expanded duty free access to 2.87 billion people,
key industries have been liberalized, logistics streamlined and
regulations on foreign investments further liberalized.
The FTAs have also provided investors
with competitive advantages in the importation of raw materials,
components and other production inputs by reducing and eliminating
import duties on these items. Some of the free trade initiatives
also opened new markets and industries to foreign direct investment,
such as the ASEAN Investment Area (AIA) Agreement and the Thailand-Australia
FTA, which enables Australian investors to own majority control
of investments in selected industries in Thailand without BOI
promotion. Some FTAs have also harmonized customs codes and product
standards, speeding trade flows. Thailandís participation in multilateral
agreements has meant that Thai and Thai-based international manufacturers
have gained considerably, increasing Thailandís allure as a production
and export base.
The following is a summary of major
benefits that have resulted from each of the six FTAs completed.
ASEAN Free Trade Area (AFTA)
AFTA was launched in 1992 to eliminate
tariffs and integrate member economies into a single production
base and regional market of 550 million people. Tariffs were reduced
to 0-5% in 2003 for ASEAN 6 and will be eliminated by 2015 for
all ASEAN members. Trade within all of ASEAN is already relatively
free, however, as more than 99% of traded goods are either duty
free or face maximum tariffs of only 5%.
The AIA Agreement, a component of AFTA,
liberalizes and facilitates ASEAN investment for member and non-member
investors. Effective January 1, 2010, ASEAN 6 (Brunei, Indonesia,
Malaysia, the Philippines, Singapore and Thailand) markets will
be open to non-ASEAN investors in most sectors including manufacturing,
agriculture, fishery, forestry, mining and related services. In
addition to liberalizing investment, the AIA will facilitate freer
flows of capital, skilled labor, professional expertise and technology
within ASEAN. In 2003, the AIA liberalized investment in manufacturing
for members in ASEAN 6 + Myanmar.
Investors will also benefit from initiatives
to harmonize customs codes and develop common product certification
standards. Product standards have been harmonized for 20 priority
items including electrical and electronic equipment.
ASEAN is increasingly becoming a key
market for Thai exports, which jumped by 29% in 2004 to US$ 21
billion. Thailandís main ASEAN exports are computers and related
parts and components valued at US$ 2.3 billion, along with autos
and auto parts and components valued at US$ 1.5 billion. Through
ASEANís pursuit of FTAs with major trading partners, Thailand
and its foreign investors may gain access to new markets such
as South Korea, Japan and India.
ASEAN - China
The trade on goods agreement between
ASEAN and China took effect on July 1, creating the worldís largest
free trade area of 1.7 billion consumers, a regional gross domestic
product of approximately US$ 2 trillion and total trade estimated
at US$ 1.2 trillion. Thai exports of tapioca, biochemicals, plastics
and medical equipment are expected to profit from the FTA. Tariffs
will be phased out between 2010 and 2018.
An Early Harvest Scheme between China
and ASEAN-6, begun in January 2004, cut tariffs on meat, fish,
dairy products, other animal products, trees, vegetables, fruits
and nuts. Duties on these goods will be eliminated by 2006.
Thailand - China
Prior to the establishment of the ASEAN-China
FTA, Thailand entered into an FTA with China that took effect in
October 2003. It eliminated duties on 188 fruits and vegetables
and, according to the Thai Department of Foreign Trade, Thailand
posted a US$ 200 million agricultural trade surplus with China from
October 2003 through February 2005. Negotiations regarding additional
items are on hold, as they will be covered under the ASEAN-China
Thailand - Australia
In the first four months after the Thailand
- Australia FTA took effect on January 1, eliminating Australiaís
5% import tax on autos and parts, Thailandís exports of autos and
auto parts to Australia surged by 55% to US$ 400 million. This benefited
foreign investors who have significant investments in Thailandís
The Thai - Australia FTA
provides incentives to attract Australian foreign direct investment.
Australian investors can now own up to 60% in Thai SMEs in telecommunications,
computers, construction, education, distribution, tourism, mining
and other sectors.
The FTA helped to boost
bilateral trade to US$ 2 billion in the first four months of 2005,
up 50.4% over the same period last year. During January - April,
Thai exports to Australia jumped by 24% to reach US$ 900.5 million,
according to the Thai Ministry of Commerce.
The Agreement eliminated
tariffs on 83% of Thai exports and 80% of Australian exports, and
by 2010, 95% of all trade between Australia and Thailand will be
Duties on all Thai agricultural
products were eliminated, except for tuna, skipjack and bonito,
which will be phased out by 2007.
Import duties on Australian
wheat, barley, rye, oats, lactose, cocoa, copper bars and steel
slab were eliminated, while tariffs on items such as wine, fruits,
vegetables, plastics, paper, textile, garment, steel, machinery
and electrical appliances will be eliminated by 2010.
Thailand - India
An Early Harvest Scheme (EHS), part
of a broader India-Thai FTA, took effect on September 1, 2004 and
stimulated a 129% increase in Thai exports. From September 2004
to April 2005, Thai exports totaled US$ 150 million, compared to
US$ 65 million between September 2003 and April 2004. Thai exports
of electrical and electronics parts to India increased to US$ 59
million, compared to US$ 11 million for the same period a year earlier.
Foreign investors in Thailand have gained as they are heavily invested
in this sector.
The Scheme reduced tariffs
on 82 agricultural and industrial items by 50% including various
fruits, wheat, sardines, salmon, mackerel and processed crab. It
also covers other major Thai exports such as gems and jewelry, household
electrical appliances, integrated circuits, furniture and auto parts.
Tariffs on these items will be eliminated by September 1, 2006.
Full liberalization will occur by 2010.
Negotiations on trade
of services and investment began in January 2004 and are to be finalized
by January 2006. Future negotiations will cover trade facilitation,
customs procedures, visa issuance, and the reduction and elimination
of non-tariff barriers.
Thailand - New Zealand
The Closer Economic Partnership Agreement
between Thailand and New Zealand took effect on July 1, eliminating
duties on 71% of annually traded goods. Tariff-free imports from
New Zealand include machinery, wool, plastic products, paper, infant
formula and vegetables. Tariff-free Thai exports include electrical
appliances, gems, canned tuna, furniture, glass and ceramics.
(For more information on Thailandís trade
with China, Australia and New Zealand, see the March, April and
June 2005 issues of the Investment Review available at www.boi.go.th
under the publications section)