More expensive Thai exports
Effects of lost Thai GSP privileges?
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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As of next month low tariffs that Thailand has long enjoyed on important exports to the US are ending.
What will the overall impact be on Thai exports and the Thai economy?
Today's article begins to look at this issue.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What event is likely to affect Thai exports in the near future?
2. What Thai exports are currently receiving privileges under the US GSP tariff system? (Skim whole article)
3. What is the most important Thai export item that will be affected by the GSP changes?
4. How will tariffs on this most important item change?
5. How much could exports of this item be affected by the tariff change?
6. Does this item account for a large percentage of Thai GSP exports?
7. What other exports could be affected by the GSP changes?
8. What is the normal US tariff rate?
9. How do GSP tariffs compare with MFN tariff rates?
10. How have Thai gold jewellery exports moved outside of the GSP conditions?
(Explain the rather difficult logic step by step)
11. What kinds of countries is the US GSP program designed to help? How is it supposed to help them?
12. What is the official statement by the US government on the relation between intellectual property issues and GSP privileges?
13. Why do some see the loss of GSP privileges and recent intellectual property issues as more than a coincidence?
15. Are China and India also losing their GSP privileges for gold jewellery?
16. Overall, what effect will changes in GSP privileges have on the world gold jewellery market?
Bangkok Post Article June 20, 2007
Higher tariffs will hit jewellers
Revised US rates take effect on July 1
WORANUJ MANEERUNGSEE
A number of high-value Thai export items will lose tariff privileges under the United States' Generalised System of Preferences (GSP) when Washington announces new conditions next week. Under the 2007 GSP review, Thai gold jewellery exports will no longer carry a zero tariff rate, starting from July 1. The US will tax Thai gold jewellery at 5.5% - the regular Most Favoured Nation rate.
"We estimate that without the GSP, gold jewellery exports to the US market may drop by 10%," said Pornchai Chuenchomlada, president of the Thai Gem and Jewellery Traders Association.
Gold jewellery was the top beneficiary of US GSP rates last year. Thai jewellery exports reached $700 million, above the ceiling approved by US Congress. Additional conditions state that goods valued at more than $187.5 million, which have enjoyed wavers for more than five years, would lose zero-tariff privileges. Washington granted waivers under a "competitive need limit" for Thai gold jewellery back to 1995.
The previous rules that took effect last year apply for the 2007 GSP review (see table). Congress renewed the current GSP programme until the end of 2008.
GSP is a programme to promote economic growth in the developing world by providing preferential duty-free treatment to products from 131 countries. Intellectual property protection is one of many criteria for the privileges.
Other Thai products likely to lose tariff privileges are radial tyres and flat-panel TVs, whose export values were $170.8 million and $148.2 million last year respectively. If they do not enjoy zero tariffs, they will be taxed at 4% and 3.9% respectively. Radial tyre makers have asked for a waiver, but have not yet received a response. Flat-panel TV makers missed last November's deadline.
Some observers have said that removing some of Thailand's GSP privileges was punishment for Thailand's alleged lack of intellectual property protection.
The US downgraded Thailand to its Priority Watch List from Watch List early last month. The move followed Thailand's compulsory licensing of HIV drugs.
But a Bangkok-based American envoy insisted the cuts were not connected to intellectual property rights. The envoy said that the move was based on Thailand's export competitiveness in accordance with US law and GSP guidelines.
Thailand is the second biggest GSP user. Thailand exports $4.25 billion of goods under GSP, or nearly 20% of the country's total exports to the US.
Mr Pornchai said that even though India - the biggest gold jewellery exporter to the US - would also lose GSP, the greatest threat to Thai jewellery exports was China. China receives no GSP from the US. The association's vice-president flew to Washington early this week to urge the Bush administration to maintain Thailand's privileges. He argued that Thailand needs time to adjust to counter low-cost Chinese producers.
"About 30% of our 1,400 members would be affected by reduced GSP benefits," he said, adding but they have started looking for new markets such as the Middle East, Scandinavia, Australia and New Zealand.
Silver jewellery and colour TV sets may maintain benefits, though last year export values exceeded the limits. Both have waivers for less than five years.
Thailand's top exports with GSP are gold jewellery ($700 million), silver jewellery ($239 million), radial tyres ($170 million), colour TVs ($161 million), flat panel TVs ($148 million), PET ($134 million), food ingredients ($88 million), microwave ovens ($81 million) and wooden frames ($79 million).
Vocabulary (in discussion above)
a coincidence - when two things happen at the same time (they seem to be related but they aren't)
a causal chain of events - event a causes event b causes event c causes....
privileges - special right or advantage (that others do not have)
lose tariff privileges - import taxes on your exports are lower than other countries
give preference to x - choose x instead of others
Generalised System of Preferences (GSP) - a US law that gives lower tariffs to developing countries
Most Favoured Nation (MFN) - the normal or regular tariff rate nowadays (historically was this meant that if you signed a Free Trade Agreement with another country with a Most Favorite Nation clause in it, all the terms of the treaty would apply to all the other countries that you had similar agreements with)
Thai Gem and Jewellery Traders Association - trade and industry association for companies int Thailand involved in jewellery production and sales
beneficiary of y - receives benefits from y
a ceiling - an upper limit, cannot move beyond this
above the ceiling - moved above the upper limit
waivers - exception to a law, legal permission to not obey a law
granted waivers under x - exception to a law from another law x
took effect - starts (start enforcing the law)
preferential duty-free treatment - country doesn't have to pay duties like other countries
Intellectual property protection - enforce intellectual property rights (for example, preventing the copying and distribution of popular songs, movies, and books)
criteria for - what you base your decision on (for example, good eyesight and height were important criteria for selecting pilots)
radial tyres - automobile tires
flat-panel TVs - television sets with flat screens
u and v, whose values were x and y respectively - u had value x, and v had value y
alleged - claimed but not proven
downgraded - given lower status (that is less valuable)
compulsory licensing of HIV drugs -
envoy - a representative sent from one government to another with a message
export competitiveness - how attractive the exports of your country are compared to other countries (price and quality are important factors, price is partly determined by exchange rate)
x counters y - x reduces the effect of y
Answer Key:
1. What event is likely to affect Thai exports in the near future?
Thailand's loss of lower tariffs under the US Generalised System of Preferences (GSP) system will become effective on July 1st.
The 2007 US GSP review will be announced next week but some of the changes have already been made public.
2. What Thai exports are currently receiving privileges under the US GSP tariff system? (Skim whole article)
gold jewellery ($700 million)
silver jewellery ($239 million)
radial tyres ($170 million)
colour TVs ($161 million)
flat panel TVs ($148 million)
PET ($134 million)
food ingredients ($88 million)
microwave ovens ($81 million)
wooden frames ($79 million).
3. What is the most important Thai export item that will be affected by the GSP changes?
Gold jewellery.
4. How will tariffs on this most important item change?
Gold jewellery exports will have their tariff rate raised from 0 to 5.5%.
5. How much could exports of this item be affected by the tariff change?
Exports could drop by as much as 10%.
6. Does this item account for a large percentage of Thai GSP exports?
At 39% of GSP exports, gold jewellery accounts for a very large percentage of Thai exports.
7. What other exports could be affected by the GSP changes?
Radial tyres and flat panel TVs.
8. What is the normal US tariff rate?
The normal (or regular) tariff rate is called the "Most Favoured Nation (MFN)" tariff.
9. How do GSP tariffs compare with MSN tariff rates?
US GSP tariff rates are much lower than the MSN rate and often zero.
10. How have Thai gold jewellery exports moved outside of the GSP conditions?
(Explain the rather difficult logic step by step)
a. Thai gold jewellery exports have been above the legal ceiling for a long time.
b. Since 1995, wavers on the limit have been granted to Thailand on a "Competitive Need" basis.
c. Having enjoyed wavers for more than five years and being beyond $187.5 million, Thailand looses zero-tariff privileges by law.
Technically, according to law it seems that Thailand would have lost privileges a long time ago, which raises questions:
a. Why have exceptions (wavers) been issued in the past?
b. What special conditions right now have stopped the wavers?
c. Has the political composition of congress changed?
d. Do intellectual property rights issues have something to do with it?
("Gold jewellery was the top beneficiary of US GSP rates last year. Thai jewellery exports reached $700 million, above the ceiling approved by US Congress. Additional conditions state that goods valued at more than $187.5 million, which have enjoyed wavers for more than five years, would lose zero-tariff privileges. Washington granted waivers under a "competitive need limit" for Thai gold jewellery back to 1995.")
11. What kinds of countries is the US GSP programme designed to help? How is it supposed to help them?
The GSP programme is designed to help the economic growth of developing countries.
("GSP is a programme to promote economic growth in the developing world by providing preferential duty-free treatment to products from 131 countries.")
12. What is the official statement by the US government on the relation between intellectual property issues and GSP privileges?
A US government envoy has insisted that there is no connection between the loss of GSP privileges and recent intellectual property right issues. The loss of GSP privileges merely follows GSP guidelines.
("But a Bangkok-based American envoy insisted the cuts were not connected to intellectual property rights. The envoy said that the move was based on Thailand's export competitiveness in accordance with US law and GSP guidelines.")
13. Why do some see the loss of GSP privileges and recent intellectual property issues as more than a coincidence?
A sequence of events has occurred recently that appears to be more than a coincidence. It appears to be a causal chain of events:
a. Intellectual property protection has long been a criteria for GSP privileges.
b. Thailand issued compulsory licenses on HIV drugs earlier this year.
c. The US downgraded Thailand to its Priority Watch List from Watch List early last month.
d. Thailand loses GSP privileges next month.
Some see this as a chain of events with each event causing the next event.
15. Are China and India also losing their GSP privileges for gold jewellery?
India is losing its GSP privileges, but China never had them, so it can't lose them.
16. Overall, what effect will changes in GSP privileges have on the world gold jewellery market?
China should benefit the most because its low-cost producers are already operating with the higher tariffs.
Higher tariffs for Thailand mean an effective price increase for American buyers on Thai gold jewellery.
