Impacts of AFTA free trade agreement on Thailand in 2010
By Jon Fernquest
The
beginning of 2010 was also the beginning of many new Free Trade
Agreements
for Thailand, Southeast Asia and the rest of Asia. Today's article discusses the changes that are likely to occur in Thailand in the near future as a result of some of these agreements.
There will be a negative effect for some industries but the major point made in the article is that many tariff cuts have already taken place so for many products there will really be little change at all.
This article is part of a section on Free Trade Agreements in Saturday's Bangkok Post. Read other articles in the section including:
1.
Winners and losers from AFTA
(Read article)
2. Cambodian adjustments for future entry into AFTA (Read article in Phnom Penh Post)
3. Thailand's development as an automobile manufacturing hub (Read article)
4. Thai plastic resin industry to get boost from Afta (Read article).
2. Cambodian adjustments for future entry into AFTA (Read article in Phnom Penh Post)
3. Thailand's development as an automobile manufacturing hub (Read article)
4. Thai plastic resin industry to get boost from Afta (Read article).
Also read a previous Bangkok Post article about the impact of AFTA on Thailand's palm oil sector (Read article)
Today's article begins after the vocabulary:
AFTA (ASEAN Free Trade Area)
- a
trade agreement by the countries in ASEAN to reduce and end tariffs
within ASEAN (SeeWikipedia)
Free Trade Agreement (FTA) - an agreement between a group of countries to eliminate many tariffs, quotas and preferences on goods passing between them (See Wikipedia)
tariff - tax on imports
tariff cuts - reductions in tariffs
plastic resin - a chemical substance used to make plastics (See Wikipedia on plastics and resin identification codes)
Free Trade Agreement (FTA) - an agreement between a group of countries to eliminate many tariffs, quotas and preferences on goods passing between them (See Wikipedia)
tariff - tax on imports
tariff cuts - reductions in tariffs
plastic resin - a chemical substance used to make plastics (See Wikipedia on plastics and resin identification codes)
Economics
The new Trade ERA
Implementation of Afta a milestone for Thailand and Asean but some sectors will experience adjustment pains.
9/01/2010Thosathorn Kruthanawat
Thailand and its neighbours have entered a new era with the arrival of the much-hyped Asean Free Trade Area (Afta), and while some business sectors are nervous about the potential impact, many economists foresee a new phase of growth and prosperity.
Among the optimists is the Thailand Development Research Institute (TDRI), which sees Afta as a milestone for the regional grouping that has been functioning for more than four decades.
Somkiat Tangkitvanich, the TDRI research director, noted that the Afta process in fact started in 1992, and if there were any big impact it would have already been visible by now.
implementation - actually
do or carry out a plan
milestone - an important event in the history or development of something
experience adjustment pains - meaning: people sometimes find it difficult to make changes
experience growing pains - common saying meaning: children have pain both physical and emotional as they grow up and become an adult
much-hyped - people talked about it a lot, praised it, and made it into a big thing
foresee - see and expect that something that will happen in the future
prosperity - a time when people have enough money and life is good
optimists - people who believe that the future will be better, that the current situation will improve
Thailand Development Research Institute (TDRI) - Thailand's first public policy think tank with economics research a specialty (See website)
milestone - an important event in the history or development of something
experience adjustment pains - meaning: people sometimes find it difficult to make changes
experience growing pains - common saying meaning: children have pain both physical and emotional as they grow up and become an adult
much-hyped - people talked about it a lot, praised it, and made it into a big thing
foresee - see and expect that something that will happen in the future
prosperity - a time when people have enough money and life is good
optimists - people who believe that the future will be better, that the current situation will improve
Thailand Development Research Institute (TDRI) - Thailand's first public policy think tank with economics research a specialty (See website)
The centrepiece of the pact is the elimination on Jan 1 of tariffs on nearly 8,000 items traded among six Asean members: Malaysia, Indonesia, Singapore, the Philippines, Brunei and Thailand. The four less-developed members - Cambodia, Laos, Burma and Vietnam - have until 2015 to cut their tariffs.By 2015, says Dr Somkiat, "[Asean] will be integrated into a single market which is an important point because the market will be stronger and larger with a high population".
The latest phase of Afta eliminates tariffs on 7,881 items, bringing the total covered under the Common Effective Preferential Tariffs for Afta (CEPT-Afta) to 54,457 or 99.11% of all goods and services traded in the region. The average tariff rate in the six countries has now fallen to 0.05% from 0.79% in 2009.
While Jan 1 has been billed as a major milestone for Afta, tariffs have been falling for years.
centrepiece - the
most important part
pact - agreement
tariffs - taxes on imports
cut their tariffs - reduced their tariffs
eliminates tariffs - end tariffs, get rid of tariffs
average tariff rate - one measure of the middle or typical tariff in a group
Common Effective Preferential Tariffs for Afta (CEPT-Afta) - the low 0 to 5% tariff that all ASEAN countries must limit themselves to on goods traded within Afta (See Wikipedia)
integrated into a single market - joined together into a single market
billed as - named and promoted as
pact - agreement
tariffs - taxes on imports
cut their tariffs - reduced their tariffs
eliminates tariffs - end tariffs, get rid of tariffs
average tariff rate - one measure of the middle or typical tariff in a group
Common Effective Preferential Tariffs for Afta (CEPT-Afta) - the low 0 to 5% tariff that all ASEAN countries must limit themselves to on goods traded within Afta (See Wikipedia)
integrated into a single market - joined together into a single market
billed as - named and promoted as
Dr Somkiat pointed out that of the thousands of items covered, only six have a gap of more than 10 percentage points between the new and old tariffs, so the change from 2009 to 2010 could be considered marginal.
However, consumers will benefit from cheaper prices of goods given lower tariffs on a host of raw materials used by the region's producers.
In addition, the export and investment sectors will generate higher potential in the long term.
marginal - small and
not very important
raw materials - the basic materials like metal, wood and plastic used to manufacture goods
raw materials - the basic materials like metal, wood and plastic used to manufacture goods
The tariff lines under CEPT-Afta cover a wide range from finished consumer products such as air-conditioners, chilli sauce, fish and soya sauces, intermediate materials such as motorcycle parts and automobile cylinders, and other products such as iron and steel, plastics, machinery and mechanical equipment, chemicals and prepared foodstuffs, paper, cement, ceramics and glass.
"This is an important symbolic step up to other trade agreements such as Asean+3 and Asean+6 which is important," he said.
"Of course, governments will lose income from tax collections but in the long term the chances for exports are wider when compared with countries outside Asean."
intermediate materials
- parts used to build final goods that are then sold to the
consumer
automobile cylinders, combustion chambers - the chambers where the combustion that drives engines takes place, the major part of the engine (See Wikipedia)
a foodstuff - food, things that people eat
prepared foodstuffs - food that is cooked
a symbolic step - some action that has meaning as a symbol (but no real changes yet)
X is symbol of Y - X has meaning because it represents Y (but X is not the same as Y)
symbolic (adjective) - acting as a symbol
ASEAN - the organisation for regional cooperation between Southeast Asian states (Thailand, Vietnam, Singapore, Malaysia, Laos, Brunei, Indonesia, Cambodia, and Myanmar) (See Wikipedia)
Asean+3, ASEAN Plus Three - the Southeast Asian countries of ASEAN plus China, South Korea, and Japan (See Japan Ministry of Finance)
Asean+6 - Asean+3 plus India, Australia, New Zealand and (See WTO paper)
automobile cylinders, combustion chambers - the chambers where the combustion that drives engines takes place, the major part of the engine (See Wikipedia)
a foodstuff - food, things that people eat
prepared foodstuffs - food that is cooked
a symbolic step - some action that has meaning as a symbol (but no real changes yet)
X is symbol of Y - X has meaning because it represents Y (but X is not the same as Y)
symbolic (adjective) - acting as a symbol
ASEAN - the organisation for regional cooperation between Southeast Asian states (Thailand, Vietnam, Singapore, Malaysia, Laos, Brunei, Indonesia, Cambodia, and Myanmar) (See Wikipedia)
Asean+3, ASEAN Plus Three - the Southeast Asian countries of ASEAN plus China, South Korea, and Japan (See Japan Ministry of Finance)
Asean+6 - Asean+3 plus India, Australia, New Zealand and (See WTO paper)
Dr Somkiat acknowledged some manufacturing businesses would experience an impact from Afta, but in any case tariffs are only a small part of the factors that affect business performance. Entrepreneurs also must think about operating costs, infrastructure, government regulations and other factors as well. "I don't mean there won't be an impact but it won't be as strong as a tsunami. Thai businesses won't be destroyed by Afta as many experts worry. In fact, if any sectors face trouble, it shows that they have low competitiveness. So entrepreneurs should think about how efficient they truly are."
In terms of competitiveness among Asean members, he said foreign investors also considered many factors besides tariffs. They look at cost of operations, corruption in government offices such as customs departments, political stability and consistency of investment rules.
In addition, industrial clusters are a big factor in decision-making. For example, if foreign investors are looking at the auto industry, they will be focused on Thailand. If they are looking at electronics, they will focus on Malaysia.
tax collections - the
process of government receiving, checking (auditing) and requesting
taxes from people
efficient - doing a task with no waste of time, money or energy
customs - the government department that gives permission for people to import goods and also taxes those goods
consistency - do not contradict or go against each other, are compatible with each other (form one logical whole)
consistency of investment rules - when investment rules do not go against each other (for example: one rule encourages an investment but another rule discourages an investment)
industrial clusters, business clusters - a place where a lot of related manufacturing in an industry occurs making things easy for the industry (for example: car parts manufacturers are located nearby so car assemblers can manufacture cars easier) (See Wikipedia)
efficient - doing a task with no waste of time, money or energy
customs - the government department that gives permission for people to import goods and also taxes those goods
consistency - do not contradict or go against each other, are compatible with each other (form one logical whole)
consistency of investment rules - when investment rules do not go against each other (for example: one rule encourages an investment but another rule discourages an investment)
industrial clusters, business clusters - a place where a lot of related manufacturing in an industry occurs making things easy for the industry (for example: car parts manufacturers are located nearby so car assemblers can manufacture cars easier) (See Wikipedia)
Kasikorn Research Center agreed that the changes that took effect this month were marginal because many items traded within Asean already had low tariffs, such as textiles and garments. It said the agreement might not help expand export markets as much as some people expect because other factors carried more weight than tariffs alone.
For Thailand, the challenge continues to be upgrading skills and developing products to serve consumer demand, which will help increase brand awareness, add value and competitiveness to Thai products in global markets.
KResearch said that Afta would promote more efficiency in the production sector due to low import taxes on raw materials, adding that Thai entrepreneurs needed to study all details clearly to ensure they obtained the highest benefit.
Kasikorn Research Center -
one of the top economics research organizations in Thailand, part of
Kasikorn Bank
garments - clothes
other factors carried more weight - other things were more important
upgrading skills - improving ability to do tasks (through training and education)
garments - clothes
other factors carried more weight - other things were more important
upgrading skills - improving ability to do tasks (through training and education)
Some sectors may struggle according to the International Trade Studies Center at the University of the Thai Chamber of Commerce. It said the market share for four agricultural products - rice, cassava, palm oil and coffee beans - could fall by one to two percentage points, or US$60 million, in the regional market between 2010 and 2015. The four products had a combined share of 10% of the regional market in 2009.
Thailand expects to lose a 0.5% share of rice trade, or around $13 million, to Vietnam, which has cheaper rice.
The loss of palm oil market share to Malaysia was forecast at 2.6% or US$46 million because Malaysia is the world's largest producer and highly efficient. Malaysian producers' expansion to Indonesia will further lift their productivity.
Thailand will also lose a share of 0.1% or $200,000 in coffee beans to Vietnam, the world's second-largest producer.
brand awareness -
how much people know about and recognize a product and its brand (See Wikipedia)
cassava - a common crop grown in Thailand used to make tapioca desert and biofuel (See Wikipedia)
productivity - workers producing more goods in the same amount of time
cassava - a common crop grown in Thailand used to make tapioca desert and biofuel (See Wikipedia)
productivity - workers producing more goods in the same amount of time
(Source: Bangkok Post, The new Trade ERA, Implementation of Afta a milestone for Thailand and Asean but some sectors will experience adjustment pains, 9/01/2010, Thosathorn Kruthanawat, link)
