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All FTAs are not created equal

The Nation, Bangkok

All FTAs are not created equal

Australian, Indian pacts yield, jury is still out on China

By Wichit Chaitrong

9 September 2006

Thai exporters and importers have benefited from the free-trade agreements with Australia and India but reaped fewer benefits from Asean’s FTA with China, according to a survey by the Thailand Development Research Institute (TDRI).

"FTA utilisation by exporters is quite high from the FTAs with Australia and India, or at 88.15 per cent and 80.6 per cent respectively," said Somkiat Tangkitvanich, head of the research team that looked at the rate of FTA utilisation last year.

The TDRI study released yesterday suggests that Thai importers utilise FTAs less than exporters. The rate of utilisation by importers of the FTAs with Australia and India was 32.03 per cent and 44.97 per cent, respectively.

However, both exporters and importers took fewer benefits from the Asean-China free-trade agreement because the product coverage in terms of tariff reductions is lower and the average tariff cuts are also low, said Somkiat.

Exporters under the three FTAs last year had combined import-duty savings of Bt7.3 billion, while savings by importers came in at Bt1.54 billion, he said.

The average tariff cuts by Australia, India and China were 4.47 per cent, 2.56 per cent and one per cent respectively. The coverage of products subject to tariff cuts last year was 2,546 items by Australia, 72 by India, and 2,319 by China.

Thailand’s average tariff cut was 0.74 per cent for 3,393 items imported from Australia, 6.6 per cent for 64 items from India, and 0.72 per cent for 1,010 items from China.

Archanun Kohpaiboon, an economist at the Thammasat University and co-researcher, said the auto industry had probably taken advantage of the Thailand-Australia FTA but the evidence was not that clear.

He said that looking at positive indicators, manufacturers had used more auto parts produced locally. However, he did not find evidence suggesting that the FTA had led to auto-parts producers adjusting their investments. Instead the investment and trade policy of producers is directed by multinational companies, he said.

Archanun suggested the Finance Ministry further cut import tariffs for several items - chassis, clutches, steering wheels and radiators - from 30 per cent to 10 per cent.

Those who had taken the most advantage of the Thai-Australian FTA were in the food, plastic and jewellery industries.

Somkiat said the textiles (except a few items) and apparel, steel and chemicals industries had received less benefit from the liberalisation of the Australian market because Australia also offers duty cuts to other countries.

Australia importers also said that duty reductions had initially helped wholesalers in Australia, but lower prices have not yet benefited consumers because of strong competition from China and South Korea which offered much lower prices, Somkiat quoted an Australian businessman as saying.

Other factors limiting consumer benefits include exchange-rate fluctuations and wholesalers’ transportation costs.

Many Thai exporters are still unaware how to benefit from the FTAs, Somkiat said. The high cost of telecommunication and banking services also constrains the competitiveness of exporters, he added.