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22 Mar 2005

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Cutting Thailand's Trade Deficit: Tapping New Markets

Thailand's exports over the past year have surged 22 percent, the highest growth in seven years. These rising exports could be attributed to a steady global economy that posted a year-on-year growth of 5 percent, last year, against the 2.7 percent in 2003. Thailand's key markets - including the US, European Union (EU), Japan and ASEAN - have exhibited continuous growth, thus resulting in higher domestic demand for both consumer goods and raw materials for production of goods and services in these countries. On the import front, Thailand recorded growth of 26.6 percent, exceeding that of exports. As a result, Thailand's trade surplus dropped by 45.9 percent to USD2.723 billion, against the surplus of USD5.034 billion in 2003.

In January 2005, Thailand's imports rose by 33.54 percent to USD9.217 billion, while its exports increased by 10.87 percent to USD7.876 billion. Thus, the country posted a trade deficit for the first time since August 2004, standing at USD1.341 billion. Throughout this year, Thailand's trade balance is also likely to be in the red.

Remarkably, Thailand's imports from all markets increased. They include those from the established markets of the US, EU, Japan and ASEAN, and from markets with which Thailand has already established free trade agreements (FTAs), including China, India, Australia and New Zealand, where tariff reductions under those FTA accord officially come into effect this year (although some products under the 'Early Harvest Scheme' of bilateral FTAs between Thailand and China & India has already been put in place). Imports have also come in from other non-regional new markets, i.e., Latin America, Africa and the Middle East. To reduce the country's trade deficit woes, emphasis should be placed on expansion of exports along with efficient management of imports. So far, rising imports have come mainly from purchases of capital goods and raw materials used for industrial production, as well as the effect of higher oil prices - an external factor that has caused Thailand's oil import bills to rise considerably. Thus, the country's total imports have soared. In January 2005, Thailand's oil imports climbed 76 percent to USD1.209 billion, up considerably over the USD686.9 billion in the same period of last year.

The government has been preparing an import strategy trying to focus mainly on using domestic raw materials and importing only necessary materials that cannot be produced domestically, which could help reduce imports. Moreover, the government should float diesel fuel prices to reduce oil consumption, and at the same time, should launch serious and steady campaigns to induce the public to use fuel more economically for maximum benefit.

In terms of exports, as the weaker USD has boosted the Baht since the last quarter of 2004, Thai exports have become relatively more expensive for foreign buyers. But, if compared to other countries in Asia whose currencies have also gotten stronger, Thai exports have not been affected much in price competitiveness against those other countries. However, in 2005, uncertain forex rates, the trend toward a stronger Baht, trade barriers of developed countries, and higher production costs from more expensive oil, will all be factors that affect Thai exports.

Therefore, the markets with which Thailand has established FTAs -China, India, Australia and New Zealand - and other markets that Thailand is currently negotiating with on FTAs, should create more opportunities for Thai exports to compete due to import tariff reductions that will make Thai goods cheaper, not to mention the lessening of non-tariff barriers. Moreover, new markets outside the region that we should keep watch on, like Africa, Latin America and the Middle East, where the Thai export share has increased respectively, will likely be export markets that have a more important role in the future. One good point about these new markets is that they do not erect trade barriers as do developed countries, and thus they are a path to disperse Thai exports to other regional markets. It is hoped that Thailand's growing exports that have done so sell over the last seven years - enlarging the export proportion of GDP from around 37.5 percent in 1997 to more than 50 percent at present - will help push the Thai economy forward steadily, as well as reduce trade deficit problems.

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