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FTA with Thailand opens can of worms for automakers

FTA with Thailand opens can of worms for automakers

By Takashi Kikuchi
The Daily Yomiuri
Publication Date : 2004-12-08

The Japanese government has urged Thailand to lift tariffs on car imports as part of its efforts to conclude a free trade agreement. At the same time, Japanese automakers, whose affiliated firms take up most of the Thai auto market, are cautious about the FTA because it could cause fierce competition between the same Japanese car models.

Following a basic FTA with the Philippines in late November, the government is shifting its focus to trade negotiations with other countries, including Thailand.

As the government and automakers differ in their views of the FTA with Thailand, it is possible the problem of tariffs on cars as well as those on agricultural products could cause fresh disagreements between the two countries.

Adisak Rohitasume, president of the Thai Automotive Industry Association and vice president of Asian Honda Motor Co., said: "We want the Japanese government to give priority to automobile parts in the FTA negotiations, and as for completed automobiles, wait, if possible, until 2010 or later, when the Thai car industry will be able to compete with Japanese-built cars. We’ve already informed the Thai government of our wishes."

Thailand imposes an 80-percent tariff on Japanese-built cars. In Thailand, Honda Motor Co.’s Odyssey is priced at 2.5 million baht (\6.46 million) and is marketed as a high-end luxury car.

A Japanese businessman working in Bangkok said, "I want to use a Japanese car on business, but it’s so expensive that I have to use a Mercedes-Benz made in Thailand."

In the Japan-Thailand FTA negotiations, Japan urged Thailand to remove tariffs on utomobiles and steel. Adisak’s comments were made against a backdrop of concern that when the two countries reach a basic agreement for the FTA and tariffs are slashed, Japanese-built cars could flood the market.

Although the car industry has become a major industry in Thailand, 80 percent to 90 percent of the production, sales and exports are taken up by firms affiliated with Japanese carmakers.

A Honda Motor Co. plant in Ayutthaya is increasing production and export of its City model—exported to Japan as the Fit ARIA—the Civic and sport utility vehicles. The plant is involved in integrated production-anufacturing metal molds and engines, processing to press steel plates and assembling. Parts made at the plant are exported to Japan, China and the United States.

Thai Prime Minister Thaksin Shinawatra has said he wants to make Thailand the Detroit of Asia. His idea is to produce fuel-efficient cars and pickup trucks, increasing annual production to 1.8 million units in 2010, of which 800,000 units are for export.

The plan aims to establish Thailand as a production center within the Association of Southeast Asian Nations countries.

If the tariff is removed immediately after the FTA negotiations, there is concern among Thais that Japanese automakers could cut investment in auto production in Thailand, which could affect employment in the country. In this area, the interest of the prime minister coincides with that of the automobile industry.

On the other hand, Japanese automakers are aware that Thailand also is in FTA negotiations with China, South Korea and the United States, and if Japan falls behind such rival countries in negotiations, it could miss out on exporting its products to Thailand.

Automakers in Thailand affiliated with Japanese car manufacturers see the merits of using the Thai FTA networks to push into emerging markets, including India and Middle East countries.

Therefore, a source in the Japanese automobile industry said, "It’s possible that Thailand could become a center of exports—avoiding competition for market share and models between Japan, European countries and the United States."

But in the Japan-Thailand FTA negotiations, the two countries have confirmed the exclusion of rice—Japan’s Achilles heel—from the negotiations, giving Thailand a stick with which to beat Japan. Taking this into consideration, there is no denying that the problem of automobile tariffs could cast a shadow over future negotiations.

In early November, Thailand established a task force for FTA strategies. Thai Finance Minister Somkid Jatusripitak, who heads the task force, visited Japan immediately after the task force’s inauguration to meet with Hiroshi Okuda, chairman of Toyota Motor Corp. and of the Japan Business Federation (Nippon Keidanren).

Somkid told Okuda that Thailand would give priority to FTA negotiations with Japan. Despite this assurance, it is likely that complicated tactics and maneuvers will be seen in the Japan-Thailand FTA negotiations, due to the interests of automakers affiliated with Japanese car manufacturers, and the continuing thorn in the side of FTAs: Japan’s stance on agricultural products.

 source: AAN