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24 May 2019

Trading

Urgent task of the new government Speed up Thai-EU trade agreement (Current Issue No.2997)

          Thai exports to major markets are under pressure from the escalating trade war, which is likely to linger through the end of the year. Moreover, Thai exports may lose market share in the European Union (EU) to neighboring ASEAN countries in the near future, if the EU can conclude bilateral trade deals with them. In particular, there are expectations of an imminent free-trade agreement between the EU and Vietnam as the talks are nearly wrapped up, with only the investment clause left to be sorted out. Once concluded, the FTA between the EU and Vietnam is likely to pose a big challenge for Thai outbound shipments to the EU market.

           KResearch views that one of the priorities of the incoming Thai government should be the conclusion of an FTA between Thailand and the EU. The FTA would serve not only as a mechanism to maintain the market share of Thai exports in the EU, but also support the future development of the Thai manufacturing sector. The FTA would be an incentive for the retention of existing investments, while also luring new investments from businesses planning to use Thailand as their manufacturing and exporting base to capture high purchasing power markets, the EU in particular.

             A clear-cut timeframe would be key to the success of free trade talks between Thailand and the EU, because if the liberalization timeframe in the Thai-EU FTA were similar to that of the FTA agreements between the EU and other neighboring countries, it would benefit Thailand in the long run During the initial stage, the FTA would save the tariff costs for importing products into the EU market by USD1 billion per year, opening up new markets for potential Thai exports including processed food, electronics and automotive parts. Additionally, the FTA would make Thailand an attractive destination for a new wave of high-tech investment in categories such as integrated circuits, circuit boards, diodes, semiconductors and automotive parts, and enhance the capacity of Thailand's supply chains to support the manufacturing of advanced-technology products in the future. Consequently, Thailand would have a better chance of being a regional manufacturing center for innovative high-tech products.  

               If Thailand and the EU cannot reach an agreement on an FTA deal with a clear timeframe, Thailand could lose an opportunity to upgrade its manufacturing industry towards the technologies of the future. Moreover, Thailand would lose investment money from existing tech businesses to other production bases in ASEAN. Thus, Thailand might no longer be able to maintain its role as the regional production and export hub of ASEAN.