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23 Jul 2010

Industry

Electronics & Electrical Appliance Exports, 2H10: Supported by AFTA/FTAs Amid Market Slowdown (Business Brief No.2888)

Thailand's exports of electronics and electrical appliances in 1H10 expanded at an average rate of 38.4 percent YoY, bettering the 13.4 percent contraction seen in 2009. Electronic product exports grew 37.2 percent and electrical appliance exports expanded 40.5 percent, thanks partly to the rebound in the global economy. Another important contributor has been free trade agreements (FTAs) that have helped lift overall exports of Thai-made electronics and electrical appliances, especially in the categories that have benefited from tariff cancellations and reductions. Meanwhile, FTAs have induced some international investors to relocate production in these product categories to Thailand, as well.
KResearch is of the view that that increased investments by the world's leading manufacturers of electronics and electrical appliances in Thailand over recent years – with some just beginning to export products from here in 2010 – will be another factor that will help spur 2H10 export growth despite risk stemming from the apparently fragile global economic recovery that may dampen exports later on to a considerably slower pace than in 1H10. KResearch forecasts that the export growth rate of our electronic products in 2010 will stand at around 17-22 percent, while that of electrical appliances & parts will probably reach 22-27 percent.
While FTAs offer greater opportunities for Thai exports to countries that we have signed agreements with, they also allow products from those nations to gain greater access to our domestic market. Overall, Thailand has sustained trade deficits on electronics and electrical appliances against those nations, but we have gained surpluses with other countries.
Looking ahead, it is expected that the FTAs will offer ever-increasing opportunities and threats (heightened competition), especially under the AFTA as ASEAN will transform into the ASEAN Economic Community (AEC) in 2015, while there will be additional tariff reductions coming due, especially on products listed as sensitive under other FTAs.
Aside from this, the Thai electronic and electrical appliance industry will face several challenges ahead, including effort needed to maintain Thailand as an important investment destination in the future. Although Thailand has better infrastructure than some other nations in the region, we are at a disadvantage in labor costs compared to Vietnam, Indonesia and the Philippines. In addition, there is inconsistency between the taxes levied on certain upstream products and that on downstream products; this is one of the problems forcing some international investors to move out of Thailand to neighboring countries. Another problem is the instability in Thai politics that has adversely affected foreign investor sentiment.
It must be conceded that the future of the Thai electronics and electrical appliance industry will depend on foreign investments and technological know-how. These factors have played an important role in the development of this industry over the past two decades. If multi-national companies lose their interest in Thailand, this will definitely affect the future development of this industry here. Inevitably, related exports will be affected due to ebbing foreign investment. In addition, it will deal a major blow to parts manufacturers, who are largely Thai companies that are heavily dependent on foreign upstream firm orders.

To support the Thai electronics and electrical appliance industry, the government should set clear development targets and promote the Kingdom as an attractive investment destination via reforms in investment incentives. In addition, the government must solve a number of obstacles to investments, e.g., inconsistency in the tax system on upstream and downstream products. Rules and regulations should be updated so that they are consistent with rapid changes in technological development. Skills and productivity in the workforce must be enhanced to ease problems related to labor shortages. Product quality standards should be tightened to prevent the production of poor-quality products.

Industry