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20 Jun 2008

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Thailand-Peru FTA: Boosting Exports, Strengthening Trade Balance (Business Brief No.2201)

As escalating oil prices are likely to continue throughout 2008 and into 2009, Thailand's trade balance may be at risk of falling into deficit. Imports of crude oil constitute as high as 17 percent of the country's total imports. The soaring trade deficit may affect our current account balance. Boosting exports should be expedited to ease the country's trade gap, thus reducing pressure on our current account balance. Otherwise, domestic economic stability may be put into jeopardy. So far, Thailand has been plagued by many risk factors, especially fast-rising inflation that has affected consumer's buying power and business costs. Ongoing FTA arrangements –at both the regional and bilateral level – that are expected to take effect in 2008 and 2009 include the ASEAN-South Korea FTA, ASEAN-Japan FTA and Thailand-Peru FTA. They should contribute to Thailand's exports and help the country's trade balance somewhat. During the first four months of this year, Thailand suffered a trade deficit of USD2.9 billion against a trade surplus of USD3.5 billion last year.
The Early Harvest (EH) tariff reduction protocol under the Thailand-Peru FTA framework will likely to come into effect in early 2009 and will help boost Thai exports to the Peruvian market, which are still quite low. We should thus increase our shipments there to take advantage of the rising consumption by Peruvian citizens in line with that country's steady economic growth. Bright prospects seem to lie ahead for exports of Thai industrial goods. Among the Thai exports that can be immediately shipped duty-free to Peru with the bilateral FTA establishment are pickup trucks, electric lighting, plastic and plastic products, eyeglass lenses, rubber and rubber products, telephones, amplifiers, computers and parts, together representing 80 percent of our total exports to Peru.
On the import front, the duty-free status will be applied to mining products such as zinc, tin, precious stones, yarn & woolen fabric shipped from Peru as soon as the agreement takes effect. This will help lower our import costs for these raw materials and intermediate goods from Peru. These tariff reductions are expected to be a boon to Thai business plagued with rising costs which are likely to linger into next year. Thailand's production of export-oriented valued-added products will also stand to benefit from the lower tariffs. At present, 96 percent of Thailand's imports from Peru are raw materials and intermediate goods.

The liberalization under this protocol has yet to include fishmeal, categorized in Thailand's sensitive list. However, in the next stage of negotiations under the Thailand-Peru FTA framework, Thailand may have to allow more fishmeal shipments from Peru. Peru is recognized as the world's largest producer of good quality fishmeal. This may be good news for Thai animal feed manufacturers thanks to the availability of good quality and cheaper fishmeal amid the prevailing fishery raw materials constraints in Thailand. On the downside, however, Thai fishermen and the fishmeal industry are likely to encounter tougher competition. Local fishmeal producers should thus adjust themselves to brace for fiercer rivalry that may come with future liberalization. On the government front, the FTA Fund should be effectively used to boost the competitive capabilities of the Thai fishmeal industry. Importance should also be placed on the development and/or rehabilitation of marine resources in a more sustainable manner to preserve our domestic fishery resources.

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