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Thai-EU free trade deal on the horizon

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Bangkok Post | 17 April 2024

Thai-EU free trade deal on the horizon

by Kavi Chongkittavorn

If everything goes as planned, Thailand and the EU could sign a free trade agreement by mid-next year, in what is another example of the European Union’s increasing engagement in the Indo-Pacific region.

Thailand is considered as Europe’s strategic hub. The EU wants to use Thailand, as the Southeast Asian region’s second-largest economy, as a gateway to promote trade and investment in the broader region.

After nearly a decade of neglect, Europe is now fostering cooperation with Thailand.

The Thai government in September provided fertile ground for an improvement in bilateral ties, especially the expediting of the Thai-EU free trade agreement.

This all comes as Thailand has also recently applied to join the Organization of Economic Cooperation and Development (OECD).

Thailand should have concluded the free-trade framework a long time ago had it not been for the latest coup, to which Brussels responded by delaying Bangkok’s free trade efforts by nearly a decade.

Both Singapore and Vietnam completed their frameworks with the EU in 2019 and 2020, respectively. Both Indonesia and the Philippines have also made progress in their negotiations.

Before Songkran, senior officials from Thailand and the EU met in Bangkok to discuss ways to move ties forward, including the free trade framework, green transition, a Schengen visa waiver, and more frequent visits at all levels.

As part of the Thai-EU Comprehensive Partnership and Cooperation Agreement, both sides still have outstanding issues to tackle bilaterally, in particular, combatting illegal, unreported, and unregulated (IUU) fishing and capacity building to help Thai exporters adapt to the EU’s green measures.

However, the prospect of the Thai-EU free trade agreement is the most important aspect.

In the beginning, after four initial rounds of negotiations in 2013 with the EU, the whole process was terminated due to the seizure of power a year later, in May 2014, by Gen Prayut Chan-o-cha.

Now after almost a decade, the EU and Thailand agreed to jump-start the negotiation process. Six months after the March 2019 election, the EU normalised ties with Thailand.

But it was in March 2023 that Thailand and the EU agreed to relaunch negotiations for "an ambitious, modern and balanced free trade agreement (FTA), with sustainability at its core".

The first round of renewed talks was held in September in Brussels, followed by another round in Bangkok in early January. For the rest of this year, two additional rounds are planned, in Brussels in June and in Bangkok in September. It is hoped that by the year-end, both sides will be able to iron out the nitty gritty in all the legal documents so a deal can be signed by next year.

Under the current government, the Thai-EU free trade agreement is a top priority.

The free trade framework will also boost Thailand’s bargaining power to get the Schengen visa waivers. Bangkok hopes more visa waivers will promote tourism and people-to-people exchanges.

Thailand also hopes to conclude similar trade deals with Sri Lanka, the United Arab Emirates and the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland).

Apart from the continued dispute over the fishery sector, there are still five major issues that both sides are wrangling over.

First of all, it has to deal with better access to services and investment. Thailand still places a low limit on the percentage of foreign investment, which the EU would like to see expanded and liberalised.

Secondly, the EU wishes Thailand to allow foreign investors to have a bigger portion in government procurement.

The current law mandates that 60% of the materials acquired must come from local businesses. The EU would like the government to open up its procurement policy.

Thirdly, the labour rights issue remains controversial. Thailand is now considering acceding to two additional conventions of the International Labour Organization that would allow freedom of association and the right to organisation and bargaining.

Fourthly, the EU would like the Thais to set up a multilateral investment court to handle investment disputes if need be. This remains a point of contention.

The final outstanding points are miscellaneous issues such as sanitary and phyto-sanitary (SPS) matters, the protection of intellectual property rights, including geographical indications and the removal of obstacles to digital trade and trade in energy and raw materials.

In 2023, the EU was Thailand’s fourth largest trading partner after China, Japan, and the US, with total Thai-EU bilateral trade amounting to US$41.6 billion (1.5 trillion baht).

Last year, Thailand’s exports to the EU totalled US$21.8 billion, while imports from the EU were valued at US$19.8 billion.

Key Thai exports are machinery and electronics and transport equipment, miscellaneous manufactured articles, as well as food products. EU exports are machinery and transport equipment, chemicals and related products, and manufactured goods.

Among Asean members, Thailand is one of the most important destinations for European investments. In 2022, investment reached US$42 billion. Major European companies include Mercedes Benz, BMW, Ducati, Bosch, Continental, Diageo Moët and Hennessy, for instance. The EU is the second-largest investor in Thailand after Japan.

What is interesting is the growing number of large Thai companies that have chosen to invest in Europe. In 2022 alone, Thai companies invested well over US$30 billion in food processing, hotels, beverages, and jewellery in, among others, France, Italy and Germany.

Looking forward, Thai-EU relations are stronger and more comprehensive thanks to geopolitical factors, which call for closer collaboration and cooperation.

In addition, both countries know that to expand trade and investment in the future, they have to be conscious of the impacts of climate change and environmental protection. Thai entrepreneurs are increasingly aware of these criteria when they want to venture abroad, so the so-called green economy and other related measures must be factored in.

Thai-EU ties could have been better and more dynamic, especially in terms of the strategic arena. However, domestic Thai political developments that attracted strong reactions resulted in unexpected negative impacts that linger.

Thailand-EU ties are underdeveloped in comparison with other Asean members. Other countries are in a better position than Europe regarding utilising Thailand as a hub or a strategic partner.

 source: Bangkok Post