Thai PM puts free trade agreement on the table with EU
Financial Times | Mar 7, 2013
Thai PM puts free trade agreement on the table with EU
by Jake Maxwell Watts
For Thailand, the timing is perfect for this week’s announcement that negotiations are to begin on a free trade agreement with the European Union.
The issue has dominated Prime Minister Yingluck Shinawatra’s current tour of northern Europe and, if concluded successfully, an FTA would kick in just as Thailand’s cushy preferential trade treatment under the EU’s generalised system of preferences expires in 2015.
Last year, Kasikorn Research Center, a Thai research company, projected that a loss of Thailand’s GSP status would affect 39 per cent of exports to the EU. However, while Thailand clearly would have much to gain from an FTA, it also risks getting mired in regulation-heavy EU red tape which may threaten core industries.
Even so, the FTA is likely to coincide with greater regional integration for Thailand with the launch of the Asean Economic Community at the end of 2015. Thailand is the EU’s third largest trading partner within the Association of Southeast Asian Nations and the EU is Thailand’s third largest trading partner after Japan and China. Trade between them accounted for almost €32bn last year, with the balance tipping in favour of Thailand’s exports, at 53 per cent of the total, according to EU statistics.
A 2009 study by ECORYS, a Rotterdam-based research consultancy, estimated that an FTA between Asean’s 10 countries and the EU’s 27 would boost Thailand’s GDP by as much as 0.36 per cent and the EU’s GDP by 0.06 per cent in the short term. The gains for both are significantly greater in the long term – up to 5.4 per cent and 0.23 per cent, respectively. The study says Thailand is likely to gain most among the Asean countries from the removal of non-tariff barriers in absolute terms, particularly those affecting access to capital.
The Kingdom’s already strong transport equipment, electronics and vehicle manufacturing sectors may gain between 7 and 15 per cent in revenue in the long run, depending on how ambitious the FTA is, according to the study.
While Thailand is not the last of the Asean countries to enter FTA negotiations with the EU, Yingluck (pictured above with Herman Van Rompuy, president of the European Union Council) will be conscious that Malaysia has been in talks since 2010 and Vietnam since 2012. In December, Singapore completed an FTA with the EU.
Yet some critics warn that an agreement may not be all good news for Thailand. Its very high taxes on alcohol, for example, are likely to be a point of contention with the EU.
Thailand’s booming medical industry, which attracted about half a million ‘medical tourists’ in 2011 may also be threatened by EU regulations. A joint press release from Health Action International, Action against AIDS Germany and Oxfam highlighted “serious concerns” that stringent intellectual property regulations would limit access to medicines and raise costs. Thailand’s deputy prime minister and finance minister Kittiratt Na-Ranong has assured local media that public health will be treated as a priority in FTA negotiations.
Although the EU has a reputation for over-regulation and excessive red tape, the economic evidence in favour of an FTA is strong. Thailand is keen to boost its comparative advantage in the region, particularly in advance of the AEC in 2015. Ultimately, say supporters of closer integration, the Kingdom must seize any opportunities it can to broaden cooperation with its big trading partners if it wants to maintain its record pace of growth. The real issue for Thailand is its willingness to make the necessary concessions.
