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Critics urged to look at long-term gains

Bangkok Post

Somkid says inflows will fill trade gap

Critics urged to look at long-term gains


9 August 2005

Foreign direct investment is poised to increase steadily in the near future as a result of new free-trade agreements, according to Somkid Jatusripitak, a deputy prime minister and commerce minister.

New investment would help counter concerns over possible trade deficits under new trade agreements, he said.

"Trade deficits could be seen in the early stages, but in the long run, we will benefit from these pacts, either through more exports or greater investment inflows. We must be optimistic," Dr Somkid said.

The Thailand-Japan FTA, expected to be finalised later this month, would help draw more investment from Japan, the country’s largest foreign investor.

Dr Somkid said critics of bilateral FTAs should take a strategic view of the benefits to the country, rather than focus solely on import and export figures.

In addition to Japan, Thailand is also negotiating trade pacts with China, the United States, India, Bahrain, Peru and other countries. A trade pact with Australia took effect at the beginning of this year.

"For the Thailand-Australia FTA, if gold imports are excluded, Thailand will have an edge over Australia," he said.

For the first five months of the year, exports to Australia totalled $1.4 billion, with imports $1.6 billion. Some 40% of imports from Australia were gold bars.

Thailand also continues to enjoy surpluses with China and India, two countries now under "early-harvest" provisions as comprehensive bilateral talks proceed.

According to the Commerce Ministry, imports from China of goods under the FTA totalled $60 million for the first five months of the year, with exports totalling $162 million, some 70% of which represented tapioca products.

In the case of India, Thailand exported $111 million and imported $32 million worth of goods from January to May.

Some economists have expressed concern about possible losses in trade and tax revenues under free-trade agreements. One study projects lost tax revenues of 42 billion baht over the next ten years under the Thailand-Japan agreement.

Dr Somkiat Tangkitvanich, research director of the Thailand Development Research Institute, said there was no clear evidence that a trade agreement would lead to greater cross-border investment.

But he said in the case of Japan, lower tariffs for raw materials and intermediate products could potentially help draw more investment flows to Thailand, as Japanese companies already have considerable production bases in the country.

Dr Somkiat noted for Japanese firms, surveys showed China as the number-one investment destination, thanks to the country’s huge potential market.

"But Thailand has always been among the top choices as a secondary destination [for Japanese], and a bilateral FTA might help draw more interest," he said.

But for other countries, such patterns might be different.

The case of Australia, for instance, deserved further study to investigate the factors behind higher raw-material imports. "I would not recommend analysing trade data for a certain period, but rather waiting for the whole year results, as seasonal effects might distort the facts," Dr Somkiat said.

"But state officials should monitor the trade flows. If all counterparties ultimately post surpluses with Thailand, then this will be an issue."

Meanwhile, Dr Somkid met yesterday with steel manufacturers and importers to discuss ways to curb the imports of low-priced steel.

Sawasdi Horrungruang, chief executive of Nakornthai Strip Mill, said the Commerce Ministry should impose dumping duties on some low-priced steel products from China.

"There are several types of cheap steel products from the mainland such as hot-rolled steel, cold-rolled, and galvanised steel that are taxed at 5%, 7.5% and 9.5% respectively. Some shipments even are coming from countries that have never exported steel to Thailand, such as Egypt," Mr Sawasdi noted.

In the first half, Thailand imported about 8.2 million tonnes of steel products, an increase of 19.14% from the same period last year. In value terms, steel imports were worth $4.9 billion, up 68.5% from last year.