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FTAs may not be worth their weight, says academic

Bangkok Post | 20 July 2006

FTAs may not be worth their weight, says academic


The country’s benefits from bilateral free trade agreements (FTAs) may not be worth the cost, according to an academic.

Rules of origin, whereby every step of the production process of a product can be traced, might force companies to source raw materials only in member countries, which could potentially push up their manufacturing costs, said Archanun Kohpaiboon, an economics lecturer at Thammasat University.

Exporters’ examination costs to meet the rules of origin have also been estimated at 3%-5% of their export prices.

Meanwhile, pacts with developed countries were unnecessary, he said, given their low tariffs on industrial products.

He said 65% of the exports to Australia from Jan 2005 until last February in terms of value had benefited from the FTA which began on Jan 1 last year.

Thailand’s automobile sector benefited the most from the Australian pact, with a utilisation rate of 95% of the export value. Even so, automobile exports did not change dramatically last year from 2001.

If automobiles were excluded from the FTA, only 47% of the Thai exports to Australia in terms of value would have benefited from the agreement.

’’Automobile exports before and after the FTA took effect have changed marginally. The tax privileges local exports gained from the pact are unlikely to have been substantial,’’ Mr Achanun said.

’’With an FTA, it is possible for partners to use rules of origin as a trade barrier,’’ he said.

Regarding the Thai-Chinese early-harvest agreement on fruit and vegetables that took effect on Oct 1, 2003, Mr Achanun said that close to 100% of the Thai exports had benefited from the pact, compared with 35% from October to December 2003.

’’The products that utilise the pact most are tapioca and longan. But tapioca exports have hardly changed over the past five years,’’ he said.

Under the New Zealand FTA which went into effect on July 1, 2005 exporters have had to bear great document costs because the country requires five years’ worth of retrospective statistics to meet the rules of origin.

Based on one study, the flexible timeframe given to industries to adjust to FTAs between the Asean and China had also resulted in more spending on documents.

He said electronic products were unlikely to benefit from the FTAs, given that tariffs were low in every country.

Speculating on why Thailand was keen to negotiate FTAs, he said it was probably to defend its market share, in light of the proliferation of other bilateral FTAs in the region.

’’FTAs may serve as an insurance policy for Thailand. The country rushes negotiations for FTAs because it wants to maintain its market share. This produces a domino effect, that in turn results in even greater competition.’’

So far, the country’s FTAs with China, Australia, New Zealand and India have been effective.

However, Mr Archanun said that the country should focus on multilateral negotiations under the World Trade Organisation framework, instead of on bilateral FTAs.

’’The result of an FTA on the economy remains unclear, but the country needs to invest a huge amount of financial and human resources in FTA talks. As well, this has stolen away the country’s resources to pursue matters with the WTO.’’

 source: Bangkok Post