Thai-Japan trade pact: Searching for opportunities (17-05-07)
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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The Thai-Japan FTA signed last month is known as the Japan-Thailand Economic Partnership Agreement (JTEPA).
This official name stresses cooperation.
Clothing and food exports are two important sectors of the Thai economy that stand to gain from the agreement.
In the Japanese textile industry, bleachers and dyers have already expressed interest in moving their operations to Thailand (See FTA Watch).
European manufacturers seeking access to low Japanese tariffs also might relocate manufacturing operations to Thailand. (See previous Bangkok Post article)
Critics claim that the agreement might have negative impacts on the Thai economy:
a. The automobile parts market might be damaged when it is opened to Japanese competition
b. Hazardous waste exports from Japan to Thailand are a possibility
c. Cooperation rather than competition in the educational sector would be better
d. Thai SMEs might suffer because they have lower productivity than Japanese SMEs
Some of these objections might turn out to be important and assistance to certain sectors of the economy might be necessary.
One thing is for sure, the necessary research and promotion necessary for the Thai economy to prosper under the agreement has only just begun.
For further reading, read the actual Agreement between Japan and the Kingdom of Thailand for an Economic Partnership signed on April 3, 2007.
At the Japan-Thailand Economic Partnership (JTEP) Office (part of Japan's foreign ministry), check out the articles, documents, and analysis in English and Thai.
Read Michael Porter's 2003 competitiveness analysis for Thailand.
For a collection of articles critical of the FTA check out bilaterals.org.
Read Greenpeace coverage on the hazardous waste provisions of the agreement.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Why must the Thai garment industry increase its competitiveness? (List factors)
2. Which new textile and garment markets will Thailand profit from with increased competitiveness?
3. When will this opportunity arise?
4. Has Asia drawn much FDI in the textile and garment sector?
5. What impact will the Thai-Japan FTA have on textile and garment production?
(Use inference)
6. How are Thai garment manufacturers reducing their labor cost?
7. Could the use of cheaper labour from neighboring countries reduce Thai wage rates in the industry? Will this cause a so-called "race to the bottom" ?
(Express your opinion)
8. What kinds of textile products are especially promising as Thai exports to Japan?
9. What countries are Thailand's competitors in world textile markets?
Bangkok Post Article May 17, 2007
INDUSTRY / TEXTILES & GARMENTSJapan trade pact offers fresh hope
ARANEE JAIIMSINHigh labour costs, the baht's appreciation and rising energy prices should not be seen as threats but as an incentive for the garment industry to lift its competitiveness, according to industry experts. They say improvements will position Thai garment makers to profit from better access to the Japanese market following ratification of the new free trade pact.
Dej Pathanasethpong, president of the Thai Garment Manufacturers' Association, said that Asia was the world's most competitive place for textiles and garments and that many Western companies had relocated to the region.
He said that Asian textile and garment companies had shown a world-class ability to flourish amid fierce competition and other challenges.
"If Thai textile and garment firms can successfully cope with the current difficulties, then they stand on the front line in the world's textile and garment business arena," said Mr Dej.
Virat Tandaechanuratm, executive director of the Thailand Textile Industry Institute, said that textile and garment exports were projected to rise by 5-7% this year from US$395.5 billion last year due in part to the Japan-Thailand free trade agreement.
The trade pact will sharply reduce import tariffs on Thai garments. Thailand also benefits from inexpensive migrant labour. Many factories have relocated to Tak province, which borders Burma, and features a vast pool of legal and illegal Burmese workers.
The sector's exports are expected to grow by 10% over last year, which would increase the country's share of textile and garment exports to Japan to 1.5% from 1.36% currently.
Potential export products to Japan include knitted and woven apparel, of which Japan imported $22.4 billion last year from around the world. Currently, Thailand's total garment exports to Japan are only $182.3 million.
Mr Virat said that Thai operators should focus on ready-to-wear markets with European-looking models that are becoming increasingly popular in Japan. In the long term, the industry should increase investment in the intermediate textile industry to expand production of finished apparel to Japan.
Thailand should also improve production standards and forge partnerships with Japanese operators.
Competition is increasing from low-cost producers such as China, Vietnam and Cambodia, so Thailand's share of the world textile market may gradually dwindle. Therefore, producers are seeking increased government support to improve competitiveness.
Vocabulary (in discussion above)
Japan-Thailand free trade agreement - also known as the Japan-Thailand Economic Partnership Agreement (JTEPA) (See Wikipedia on the (See Japan-Thailand Economic Partnership Agreement)
Free Trade Agreement (FTA) - An agreement between two or more nations that eliminates or significantly reduces tariffs and trade barriers (Source; See Wikipedia)
pact - a formal agreement to help each other (for example, if the opposition parties cannot agree on a pact between themselves they may not win, or the former enemies refuse to sign an non-aggression pact)
free trade pact - same as Free Trade Agreement (FTA) above, but more positive and optimistic, implying that the two sides will help each other
ratification - making a signed agreement officially into law, usually by a vote in parliament (ratify an agreement, when an agreement is signed there is still uncertainty whether it will turn into law because a democratically elected legislature usually has to vote on it first)
race to the bottom - "when competition between nations or states (over investment capital, for example) leads to the progressive dismantling of regulatory standards. This theory states that this reduction of regulation, welfare, taxes, and trade barriers will increase poverty, and drive the poor to the few remaining areas that retain protections. In the end this theory argues that this will force the last remaining states to drop their protections in order to survive." (See Wikipedia on race to the bottom, anti-globalization and related entries)
textiles, fabric, cloth - thread woven together and used for clothes, curtains, sheets (See Wikipedia on textiles, textile industry, textile manufacturing technology, and list of different textiles)
garments - clothes (formal word used when talking about the clothing industry and manufacturing clothes, for example, the garment district in New York city is an area of town where clothes are produced)
the baht's appreciation - the value of the baht increasing, which makes good produced in Thailand more expensive
an incentive for - a reward to encourage people to do something (See glossary)
competitiveness, national comkpetitiveness - the ability of a country to sell goods in a market compared to other countries (See Wikipedia on competitiveness and criticism by Krugman)
position y to z - change y to achieve objective z
Thai Garment Manufacturers' Association - (See website)
flourish - successful, developing quickly and strongly (See glossary)
cope with x - must accept and live with a difficult situation x
stand on the front line - (analogy with warfare) the front line is the most important place in a battle
Thailand Textile Industry Institute - established in 1996 by the government to increase the competitiveness of the Thai textile industry in global textile markets, has focused on technological upgrade, quality control, developing expertise and relationships with foreign counterparts, as well as monitoring and applying international industry best practices (Source; See website)
import tariffs, tariffs - tax on goods when they enter the country, when they are imported (See Wikipedia)
a migrant - person who moves from one place to another
migrant labour - workers who move from one country to another country to find work (or from one region to another region in a country) (See Wikipedia)
a pool - a collection of things available to be used
a vast pool of - a very large collection available for use
apparel - clothing (especially formal clothing for special occasions, for example, "evening apparel" for going out to dinner or dinner parties)
woven - only stretches in certain directions, frays at the edges, one of three major classes of fabrics (See Wikipedia on woven fabric)
knitted - the most elastic of the three classes of fabrics, "knitted fabrics are much more elastic, which accounts for their historical use in stockings and other clothing that requires changes in shape. Hence, dresses and lingerie made from knitted fabrics can be more form-fitting than counterparts made from a woven fabric. Knit fabrics can stretch from 0 to 500%, depending on their material and knitting pattern." (See Wikipedia on knitted fabric)
ready-to-wear - (See Wikipedia on and also the great Robert Altman film about hte fashion industry)
the intermediate textile industry - the steps in transforming and adding value to thread, the raw material of clothes and other textile products, until a finished product that can be marketed and sold is created (See Wikipedia on Michael Porter's Value Chain concept)
forge partnerships with - work with other companies, enter into business arrangements with other companies
dwindle - decrease, become smaller and weaker
Answer Key:
1. Why must the Thai garment industry increase its competitiveness? (List factors)
Three factors are listed as reasons why the Thai garment industry must improve its competitiveness:
a. High labour costs in Thailand.
b. The baht's appreciation.
c. Rising energy prices
2. Which new textile and garment markets will Thailand profit from with increased competitiveness?
Japan's textile and garment markets.
3. When will this opportunity arise?
After the Thai-Japan Free Trade Agreement (FTA) is ratified by Thai and Japanese parliaments.
It is not clear whether this will happen under the current unelected National Assembly or next year after elections.
4. Has Asia drawn much FDI in the textile and garment sector?
Yes, many Western companies have relocated to the region.
5. What impact will the Thai-Japan FTA have on textile and garment production?
(Use inference)
Textile and garment production will increase as a result of the Thai-Japan FTA, because exports are "projected to rise by 5-7% this year," and this projected rise is partially due to the FTA.
Note paradoxically one might see less Thai and more Chinese clothes in Thailand under the FTA if, for instance, Thailand ends up producing clothes for the high-end Japanese market and importing cheap low-end clothing products from China for domestic consumption [See this interesting note by Brad DeLong on imports versus exports under trade]
6. How are Thai garment manufacturers reducing their labor cost?
Moving production to areas of the country where labor costs are lower such as Tak province where factories can employ cheaper migrant labour from other countries such as Burma.
7. Could the use of cheaper labour from neighboring countries reduce Thai wage rates in the industry? Will this cause a so-called "race to the bottom" ?
(Express your opinion)
8. What kinds of textile products are especially promising as Thai exports to Japan?
a. Knitted and woven apparel.
b. Ready-to-wear clothing.
c. Clothing with a European look.
9. What countries are Thailand's competitors in world textile markets?
Other low-cost textile producers such as China, Vietnam, and Cambodia.
