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2 Apr 2007

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JTEPA – Japan-Thailand Free Trade Agreement: Benefits and Cautions(Current Issue No.1960)

The Cabinet has approved the signing of the JTEPA (Japan-Thailand Economic Partnership Agreement) which is due for signing on April 3, 2007, where Thailand and Japan had entered into official negotiations that began in February 2004 and reaching a conclusion in principle in September 2005, but was postponed during Thailand's political turning point. It is projected that this free trade agreement will become effective in the latter half of this year.
KASIKORN RESEARCH CENTER (KResearch) holds the view that the JTEPA has both benefits and cautions that would have different impacts on various groups in the country. In terms of the benefits, it would boost Thai exports to Japan as a benefit of Japan granting tariff reductions to exports from Thailand. Meanwhile, Thai consumers would benefit from cheaper imported Japanese consumer goods due to reduced import tariffs on them, i.e., temperate climate fruit such as apples, berries and prunes. Moreover, the JTEPA would help create a more favorable investment atmosphere and draw additional Japanese investment Thailand due to eased rules and regulations on their investments and the granting of tariff reductions to Japan. Therefore, the many Japanese companies that use Thailand as a manufacturing base would be able to import raw materials and capital equipment from Japan at lower costs following Thailand's tariff reductions.
At present, the situations with Thailand's export sector and foreign direct investment (FDI) have been subjected to many pressures. Thailand's export sector has lost price competitiveness due to the Baht appreciating significantly against the USD and more than other currencies in ASEAN have. Meanwhile, FDI has been negatively affected by uncertainties in domestic politics, unrest in the southernmost provinces and amendments to Thailand's commercial codes; e.g., the Foreign Business Act, B.E.2542 (1999), and the Retail Trade Act, which have undermined the confidence of foreign investors – including the Japanese – toward further investment in Thailand, which is thus expected to slow this year as they adopt a wait and see attitude toward clarifications on these amendments. They also need to see political stability after Thailand elects a new government.
Another good benefit from the JTEPA for Thailand would be to export workers to Japan more easily because Japan will be easing the conditions on the qualifications of Thai male and female chefs to work in Japan. However, Japan have not yet allowed Thai workers from some fields of work to supply services in Japan, for example, Thai spa/massage services, as well as nursing for the elderly.
The Thai government should improve education focusing on human resource development because it is the most significant factor for sustainable development of the country and better production quality. It would also be a way to support FDI, which places great importance on skillful workers and technicians. Moreover, it is a factor needed to attract investments from foreign countries.
One important issue is that the JTEPA can enhance the competitiveness of Thailand toward reaching parity with other ASEAN countries which have already have FTAs with Japan, such as Singapore, Malaysia and the Philippines, as well as Indonesia, Brunei and Vietnam, which are in the process of FTA negotiations with Japan.
For the impact on steel and auto-part manufacturers in Thailand, they will be faced with competition from imports from Japan because they will become cheaper with the tariff reduction due on the JTEPA. Although there would be a period of adjustment allowed of 5-11 years before tariffs would drop to 0 percent, the government should urgently set up a support fund for Thai entrepreneurs to prepare for the effects of FTA liberalization. The concerns of those who may be affected include matters of their livelihood or where the society would be impacted environmentally, or on intellectual property, public health services, etc. These are sensitive issues that the government sector should seek better understanding in order to instill the confidence of all and reduce opposition pressure to the signing of this agreement.
Before the JTEPA agreement goes into effect (which is expected to be around 6 months after agreement is signed), the government should improve domestic laws to prepare for the liberalization and other obligations per the agreement. Moreover, the government should improve efficiency in the enforcement of laws, particularly on the protection of the environment.
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Disclaimer: This research paper is arranged for public information, which has been obtained from sources believed to be reliable. KResearch does not warrant its completeness, reliability or accuracy for commerce or fitness for a particular purpose. The information contained herein may be subject to change at any time without notice. Reliance upon any information contained herein shall be undertaken at a user's own risk KResearch shall not be liable to any user, or anyone else for any damage occurring from the use of any content herein. Nothing in this research paper shall be counted as containing any advice, recommendation or opinion for decision making in business.

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