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4 Jul 2012

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Thailand Risks Losing Trade Privileges under New EU GSP Scheme… But Near-Term Issues Lie on Eurozone Crisis and Cost Competitiveness (Business Brief No. 3310 Full Ed.)

The European Union (EU) has announced the latest modifications to their Generalized System of Preferences (GSP), which was approved by the European Parliament on June 13, 2012, and is scheduled for enforcement January 1, 2014.
With the new listings, upper-to-middle income countries (UMICs) will be removed from the program and trade preferences will shift to least-developed countries. As a result, Thailand, considered a UMIC, will no longer be eligible for GSP tariff privileges. Typically, the EU grants a one-year grace period, meaning that GSP privileges for Thai exports to the EU will be officially withdrawn in January 2015.
It is expected that the loss of GSP privileges will hurt 39 percent of Thai exports to the EU, whereafter their prices will increase by an average of about two percent. That effect on our exports includes:
  • Unaffected exports would be those that already have duty-free status, or those tariffs under MFN status are little different from GSP rates, e.g., computers (related parts and components), printed circuit boards, rubber, processed chicken and furnishings. Meanwhile, gems and jewelry which do not get GSP privileges anyway constitute 38 percent of all Thai exports to the EU.
  • Moderately-affected exports would be those that will see their prices increase by about 2-5 percent, including auto-parts/components, household and other electrical appliances, textiles, garments, footwear, rubber products, leather products, lenses, canned seafood, processed fish products, etc. (These products constitute 56 percent of our shipments to the EU.)
  • Most-affected exports would be those that have a wider spread between normal tariff rates and GSP rates, e.g., canned pineapple, chilled/frozen/processed shrimp, etc. (These products constitute six percent of our exports to the EU.)

Meanwhile, Thai exporters to the EU still have time to adjust to the new EU GSP schedule. For now, they are advised to brace for the Eurozone debt crisis and rising labor costs at home versus those of regional rivals, because higher labor costs put further pressure on our exports to EU to contract 11.4 percent during 5M12. KResearch expects that Thailand's outward trade to the EU this year will shrink about (-)5 percent.

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