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Thai-Chinese FTA faces ongoing problems

Bangkok Post, Thailand

Thai-Chinese FTA faces ongoing problems

Other non-tariff barriers not covered by deal reduce benefits for farmers

By Piyaporn Wongruang

13 September 2009

A potential market of 1.3 billion people is a very attractive proposition for any government or company, and that was the main reason why six years ago the Thai government tried every means possible to expedite a trade deal with China.

Despite strong criticism of the move, the then government of former Prime Minister Thaksin Shinawatra rushed to sign a historic free trade agreement (FTA) under the larger framework of the Asean-China Free Trade Area, which is expected to be fully activated next year.

The FTA covers eight agricultural categories, but since it was signed in June 2003, Thailand has still seen disruption to trade with China.

Problems have occurred in areas ranging from logistics and transport to the imposition of non-tariff barriers by China, resulting in a growing imbalance in the volume of trade between the two countries.

After multilateral trade negotiations (under the direction of the World Trade Organisation) collapsed in Cancun, Mexico, the ex-premier wanted to see Thailand engage in bilateral deals. China was the second deal struck after Bahrain.

The FTA with China was agreed with the condition of an "early harvest programme" - the immediate reduction of tariffs to 0% for 116 agricultural products including fruit and vegetables. It came into effect three months later in October, three months ahead of other Asean countries.

According to the Agriculture Economics Office’s study of March, 2003, Thailand gained around 11.6 billion baht in trading those 116 items with China, with fruit and vegetables accounting for up to seven billion baht. The situation promised a healthy trade surplus, that made the government and private companies ever more eager to trade with China.

But due to limited transport infrastructure and other non-tariff barriers imposed by the Chinese government, both the Thai government and companies realised that the FTA could not be utilised to its full extent.

According to Sunchai Puranachaikere, president of the Thai Fresh Traders and Exporters Association, Thai businesses generally export fruit and vegetables by air to Hong Kong, in order to get them to markets in mainland China through Guangzhou, about 120km northwest of Hong Kong.

It is only in recent years that they have been able to exploit land routes to China. These include Regional Highway No9, which cuts through Thailand’s Northeast, Laos and Vietnam, before reaching China’s Guangxi province, and Regional Route No3, a short-cut via Laos to Yunnan province that is still under construction.

Few transport routes means few market opportunities, Mr Sunchai said. In addition, China still imposes VAT of up to 13% on imported goods, an issue that has remained unresolved since the deal was struck.

As well as transport problems hindering trade, businessmen like Mr Sunchai have also encountered new non-tariff barriers, particularly stricter food hygiene measures imposed by the Chinese government.

Shortly after the FTA was signed, the Chinese voiced concerns about contamination of some Thai fruit, longan in particular. This eventually led to a new agreement for cooperation on food hygiene standards for imported goods of the two countries.

Signed in 2004, this promised mutual benefits for both countries, but further agreements were requested by China placing new demands for the examination and certification of Thai farm goods.

As a result, Thai farmers and traders need to be able to guarantee, by certificates issued by the Thai Agriculture Department and Commerce Ministry, the origins of their goods and that they are free of toxins and diseases.

Failure to meet these conditions could mean the impounding of goods, the withdrawal of import permits issued by the Chinese government, or even border closures, which happened last year for the transport of illicit goods via Route No9.

According to Thai officials dealing with the incident, Chinese officials claimed to have found snakes and pangolins, an endangered species, amongst a load of approved trade goods.

It was not until June of this year that the two countries resolved the issue and signed an agreement requiring Thai goods to be completely sealed while in transit on Route No9, in addition to the existing demands for examinations and certifications.

Mr Sunchai said the ongoing complications of the FTA are partly a result of a lack of public consultation before the deal was signed.

He said any future developments regarding the deal should take into account public views, and ensure that both sides will be treated equally.

He said that currently Chinese traders are fully benefiting from the 0% tariff when exporting their agricultural goods via the Mekong River.

Thai officials should be more progressive in planning future negotiations for the use of Route No3, or wait for China to impose conditions similar to those applied to exports via Route No9, he said.

"We are already at a disadvantage. The question is whether we can stop the trend and start talks. It’s a management problem that needs to be fixed," said Mr Sunchai.

Sompong Nimchuar, Minister Counsellor (Agriculture) at the Office of Agricultural Affairs, Royal Thai Embassy in Beijing, said obstacles in FTAs, including non-tariff barriers, are common.

"What matters the most is how countries treat each other based on international standards. With these, the effects of non-tariff barriers can be minimised, and the countries can reap similar benefits," Mr Sompong told Spectrum.

"Around the end of this year Thailand will host the third meeting on sanitary and phyto-sanitary measures between the two countries to improve trade conditions.

"At least we can have a memorandum of understanding to help resolve trade issues. After a deal, there can be issues regarding trade like this," said Mr Sompong.

Research jointly conducted last year by FTA Watch, a non-profit organisation observing free trade activities, and the Applied Economic Research Centre of Kasetsart University’s Economics Faculty, confirmed the presence of non-tariff barriers to Thai farm produce exported to China under the deal, although transport logistics have improved to help facilitate the trade.

It also found that Thai farmers have gained little from the FTA as they are still suffering from a lack of market information, along with other complications such as stricter toxin and disease examinations and verifications.

Some have even lost out due to imports of Chinese goods such as garlic.

Jacque-chai Chomthongdee, of FTA Watch, said the FTA with China should serve as a lesson for Thailand to plan more carefully before entering into bilateral trade agreements. He said there were other factors that can affect the success of an FTA, including non-tariff barriers.

"The country should be clear in the first place who will ultimately gain or lose from such a deal, and this can be done only when the country is well prepared with adequate information," he said.

According to the Agriculture and Cooperatives Ministry’s records, Thailand earned 15.9, 19.5, 16.5, and 11.9 billion baht from exporting goods to China in the years 2005 to 2008, respectively, while it imported farm goods from China worth 4.7, 6.1, 7.1 and 5.1 billion baht over the same period.

Thai Agriculture Minister Theera Wongsamut recently presided over a roadshow featuring Thai farm goods at Beijing’s Xinfadi Agro Wholesale Market.

He was asked by his Chinese counterpart, Wang Yong, Minister of the General Administration of Quality Supervision, Inspection, and Quarantine, to consider cooperation on future trade on Route No3, which many view as being potentially more important than Route No9, due to its shorter length, and its location which enables Chinese farm produce to flood onto the Thai market.