Thailand's FTAs Facilitate Trade and Investment

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 agreement.

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 auto industry.

     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 free.

     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)

This is the first of a two-part series reviewing the impact on trade and investment of Thailandís current multilateral and bilateral agreements. The second part, to be published in the August issue of the BOI Investment Review, will update the status of Thailandís FTAs presently under negotiation, including those with the U.S. and Japan.
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