For­eign Ex­change: Thai­land Weighs the Pros and Cons of Sev­eral Big Trade Deals

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Paulius Kunci­nas and Ti­gran Kara­petyan

De­spite strong dis­plays of in­ter­est across mul­ti­ple gov­ern­ments, Thai­land has re­mained cau­tious in com­mit­ting to the ma­jor pan- re­gional trade blocs be­ing mooted by global eco­nomic su­per­pow­ers. The na­tion’s tra­jec­tory could, how­ever, be so­lid­i­fied in the short- term as Prime Min­is­ter Prayuth Chan- ocha at a Wash­ing­ton, D. C. event in March 2016 de­clared it an even­tu­al­ity that Thai­land would join the Trans- Pa­cific Part­ner­ship ( TPP), which will stand as the world’s largest free trade agree­ment ( FTA) should it be rat­i­fied, bol­ster­ing Pa­cific Rim trade by bil­lions, if not tril­lions, of dol­lars.

The TPP can ben­e­fit Thai­land in many ways and is ex­pected to pos­i­tively im­pact growth in ma­jor ex­port- ori­ented in­dus­tries as well as ser­vice sec­tors, while also boost­ing the com­pet­i­tive­ness of lo­cal cor­po­rates and pro­vid­ing the im­pe­tus for im­por­tant reg­u­la­tory re­forms. At the same time, bar­ri­ers to Thai in­ter­est in join­ing the TPP in­clude strin­gent pa­tent and copy­right stip­u­la­tions which may have cost- based im­pacts for the na­tion in sec­tors such as health­care.

Al­though doubts re­main as to whether the agree­ment will be rat­i­fied, par­tic­u­larly given the cur­rent po­lit­i­cal cli­mate in its largest mem­ber, the U. S., Thai­land’s progress in ready­ing it­self for TPP mem­ber­ship would ben­e­fit eco­nomic growth re­gard­less of whether the agree­ment is rat­i­fied.

At the same time, on­go­ing ne­go­ti­a­tions with China to join the Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship ( RCEP), a pro­posed FTA be­tween ASEAN, China, In­dia, Japan, Aus­tralia, South Korea and New Zealand, of­fer an al­ter­nate, com­ple­men­tary growth path.

HIS­TORIC TRADE DEAL

Thai­land is not the only ma­jor Pa­cific Rim econ­omy which has an­nounced in­ter­est but has, as of yet, re­frained from com­mit­ting to the TPP, with oth­ers who have been in­volved in the di­a­logue but have yet to sign on in­clud­ing Colom­bia, Indonesia, the Philippines, Tai­wan and South Korea. The TPP’S 12 cur­rent mem­bers are Aus­tralia, Brunei Darus­salam, Canada, Chile, Japan, Malaysia, Mex­ico, New Zealand, Peru, Sin­ga­pore, the U. S. and Viet­nam, which to­gether ac­count for 40% of the world econ­omy – USD 295 bil­lion of global in­come – and could ben­e­fit from USD 1.9 tril­lion in trade gains when the agree­ment is fi­nal­ized. TPP mem­bers met in Auck­land in Fe­bru­ary 2016 to of­fi­cially sign the agree­ment. Each mem­ber must now rat­ify the treaty na­tion­ally, and al­though this could pose a prob­lem for the U. S., Japan and Aus­tralia, it is widely ex­pected that a fi­nal agree­ment will come into ef­fect in 2018.

BEN­E­FITS

TPP mem­ber­ship offers a host of po­ten­tial ben­e­fits for its par­tic­i­pants, the most ob­vi­ous of which is the re­duc­tion or elim­i­na­tion of an es­ti­mated 18,000 tar­iff and non- tar­iff bar­ri­ers. Ex­port- ori­ented sec­tors such as au­to­mo­tive man­u­fac­tur­ing, elec­tronic com­po­nents and tex­tiles would read­ily stand to ben­e­fit. Fair trade prac­tices are also en­cap­su­lated in the TPP, as well as reg­u­la­tions call­ing for small and medium- sized en­ter­prise ( SME) sup­port sys­tems – a sig­nif­i­cant con­sid­er­a­tion for Thai­land, where the Asian De­vel­op­ment Bank re­ports that as of 2015, SMES ac­counted for 77.9% of to­tal em­ploy­ment, 38.7% of GDP and 29.5% of to­tal ex­ports. Ad­di­tion­ally, the TPP is ex­pected to in­crease and im­prove co­op­er­a­tion be­tween var­i­ous pro­duc­tion and sup­ply chain en­ti­ties, help­ing com­mod­ity pro­duc­ers and farm­ers con­nect with traders and man­u­fac­tur­ers, while also re­duc­ing poverty via mech­a­nisms for small- scale pro­duc­ers.

Join­ing an ex­pan­sive FTA also sup­ports Thai­land’s bid to seize new op­por­tu­ni­ties in in­ter­na­tional mar­kets. It would be a sig­nif­i­cant step for­ward fol­low­ing years of shelved ne­go­ti­a­tions on an EU-Thai­land Free Trade Agree­ment ( FTA) de­spite strong in­ter­est from the pri­vate sec­tor and sim­i­lar such deals be­ing re­cently struck by re­gional neigh­bors Sin­ga­pore and Viet­nam. Prime Min­is­ter Prayuth Chan- ocha as well as his eco­nomic team have made the en­hance­ment of free trade and in­ter­na­tional co­op­er­a­tion key points of fo­cus as the na­tion’s eco­nomic growth re­mains mod­est and re­gional com­pe­ti­tion in­creases.

FEAR OF MISS­ING OUT

Thai­land could also risk los­ing out if it does not join the deal, given that one of its fastest- ris­ing re­gional com­peti­tors, Viet­nam, is a mem­ber, as well as Malaysia, Brunei Darus­salam and Sin­ga­pore. A 2013 re­port by the Asian De­vel­op­ment Bank found that non- sig­na­tory ASEAN coun­tries would suf­fer greater losses in the event of TPP ex­pan­sion if they were non- mem­bers un­der a TPP12 sce­nario – whereby all 12 orig­i­nal sig­na­to­ries rat­ify the agree­ment do­mes­ti­cally. This would mean that th­ese na­tions are likely to in­sist on strength­en­ing the cen­tral­ity of the ASEAN Eco­nomic Com­mu­nity and the RCEP as ma­jor pol­icy op­tions.

Com­pe­ti­tion and pro­duc­tiv­ity could also drop off should Thai­land choose not to

sign, as the na­tion’s re­gional com­pet­i­tive­ness has al­ready been lag­ging lately, sliding one spot to 32nd of 140 economies on the World Eco­nomic Fo­rum’s 2015/ 16 Global Com­pet­i­tive­ness In­dex, well ahead of most ASEAN neigh­bors but re­main­ing be­hind Korea ( 26th), Malaysia ( 18th) and Sin­ga­pore ( 2nd).

PO­TEN­TIAL DRAW­BACKS

The TPP is con­sid­er­ably far- reach­ing, es­tab­lish­ing reg­u­la­tions for in­tel­lec­tual prop­erty rights, food safety, state- owned en­ter­prise sec­tor re­form, en­vi­ron­men­tal pro­tec­tion and fi­nan­cial reg­u­la­tions, as well as trade. While Thai­land rel­a­tively out­per­forms the re­gion in some of th­ese ar­eas, it has not yet de­vel­oped a com­pre­hen­sive reg­u­la­tory frame­work for oth­ers, most notably in­clud­ing in­tel­lec­tual prop­erty rights, and re­forms will be needed to en­sure TPP com­pli­ance.

How­ever, the coun­try’s pur­chas­ing power is also not as strong as many de­vel­oped TPP mem­bers, mean­ing greater in­volve­ment in in­ter­na­tional trade would be ad­van­ta­geous, par­tic­u­larly given China’s on­go­ing eco­nomic slow­down. Room for in­ter­pre­ta­tion also ex­ists in terms of the pros and cons of open­ing the na­tion to in­creased com­pe­ti­tion, and given the back­drop of Thai­land’s GDP growth be­ing mea­sured at an unex­cep­tional 2.8% in 2015, FTAS can be viewed as a means of en­cour­ag­ing ef­fi­ciency and in­no­va­tion, while also open­ing up op­por­tu­ni­ties to pre­pare the coun­try for fu­ture in­ter­na­tional com­pe­ti­tion.

RAT­I­FI­CA­TION

As it stands, there are two ways in which the TPP can come into force: ei­ther the deal is rat­i­fied two months af­ter each na­tion com­pletes its own rat­i­fi­ca­tion process, or a min­i­mum of six coun­tries, which rep­re­sent at least 85% of the to­tal GDP of the orig­i­nal 12 na­tions, rat­ify the deal within two years. Ac­cord­ing to a Fe­bru­ary 2016 ar­ti­cle in The Diplo­mat, this means the agree­ment’s suc­cess will hinge on do­mes­tic rat­i­fi­ca­tion in the U. S. and Japan, which to­gether rep­re­sent just un­der 80% of the GDP of all sig­na­to­ries. This will prove to be one of the big­gest chal­lenge to TPP rat­i­fi­ca­tion, as even if the U. S. and all other sig­na­to­ries apart from Japan sign, they will still fall short of the 85% re­quire­ment by 2%.

Fur­ther­more, the U. S. is cur­rently in the midst of an elec­tion year and is un­likely to move for­ward on the TPP un­til at least 2017. Both of the coun­try’s pres­i­den­tial hope­fuls have pub­licly op­posed the TPP, at least in its cur­rent form, putting the fu­ture of the deal in se­ri­ous doubt.

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