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27 Mar 2009

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ASEAN-EU FTA Pact Halts: Thai Exports Shrink due to EU Economic Deceleration (Business Brief No.2468)

ASEAN-EU FTA negotiations came to a temporary halt because the seventh meeting of the ASEAN-EU FTA Joint Committee held in March 2009 at Malaysia could not reach any conclusions. Pending issues relate to the way that the EU requested changes in regional negotiations based on bilateral treaties the EU has made with founding ASEAN nations, including Singapore, Thailand, Malaysia, Indonesia, the Philippines, Brunei and Vietnam. Because those negotiations were bilateral, the agreements were implemented faster. The EU might make further agreements with the remaining ASEAN partners, instead. The economic inequality and differences in laws on product and service market liberalization of the founding ASEAN members versus CLMV countries – Cambodia, Laos, Myanmar and Vietnam – has become a point of contention toward further negotiations.
The negotiations were paused in order to hear ministers' decisions on bilateral trade negotiations in early May 2009. KASIKORN RESEARCH CENTER (KResearch) views that the halt in the ASEAN-EU FTA talks will not adversely affect the overall Thai exports in 2009, which will shrink 13.5 – 20.0 percent, because FTA negotiations always take time. As a result, the hoped-for FTA might not help exports amid this economic crisis, although Thai exports to the EU (the second largest export market for Thailand, after ASEAN) may survive if focusing on necessities that include low-priced products to serve the lower purchasing power of EU consumers affected by the economic deceleration.

The economic crisis that lessened the February EU Consumer Confidence Index to the lowest point in two decades has resulted in Thai exports contracting 28.2 percent YoY in 2M09, dropping from the growth of 19.4 percent YoY in 2008. Although more than 7,000 Thai products, such as air-conditioners, processed shrimp, plus chilled and frozen squid received EU GSP privileges starting January 1, 2009, the majority of Thai exports have continued to decelerate due to severely sluggish consumer spending. The delayed negotiations might not immediately lower the EU trade barriers hurting Thai exporters, because the EU has continuously launched other trade restrictions. The majority of those measures include hygienic standards and environmental measures per EU policies. It is expected that Thai exports to the EU will face many challenges, such as decelerating demand and trade barriers that seem to be intensifying amid this economic crisis, so Thailand, an export-reliant country, will inevitably be affected.

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