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19 Nov 2020

International Economy

RCEP Set to be Enforced, but Close Attention Must be Paid to the US Stance, which Could Affect Thailand Ahead (Current Issue No.3162)

Presently, Thailand is already a member of the Regional Comprehensive Economic Partnership (RCEP), which is the world's largest free trade agreement (FTA). This is most welcome news because the RCEP will likely help enhance Thailand's competitiveness over the short term, although the country's long-term competitiveness is undermined by the fact that Thailand's rivals that are also members of the RCEP and other FTAs that Thailand is not a member, in particular the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In addition, close attention must be paid to whether Joe Biden, once sworn in as the 46th president of the US, will lead the US to rejoin the CPTPP, which was initiated by former US President Barack Obama, or not.

 While the RCEP and CPTPP are said to have helped bolster the competitiveness of their members, Thailand is losing its economic competitiveness to its rival Vietnam in all dimensions. It cannot be denied that Vietnam's behind-the-scene success is due to its FTAs with the EU, Russia (CPTPP) and recently the RCEP, which has helped upgrade its status to a production base that can integrate global supply chains. KResearch is of the view that Thailand's RCEP membership will not create any significant change to the country although the RCEP has several advantages, including the fact that it helps deepen the integration of Asian supply chains, and aid Thailand in maintaining its competitiveness over the short term (as an attractive investment destination for production and export to mainly Asian countries). However, Thailand's long-term competitiveness is deteriorating, especially in the Western world because there is not any tool to help market its products there. Moreover, there are signs showing that the US may rejoin the CPTPP. If so, this will likely help bolster Vietnam's competitiveness against Thailand even more.

In addition, KResearch views that the CPTPP, which includes the US as a member, (CPTPP+US) is possible under the newly elected US administration, but not over the near term. It is expected that Joe Biden will accelerate the efforts to combat the coronavirus (COVID-19) pandemic and revive the US economy soon after he assumes office. He may then resume international trade negotiations, but such processes could be impeded by the US Congress; therefore, the US will likely be able to submit its CPTPP membership application in the second half of 2021 at the latest. If the US can rejoin the CPTPP, Washington will have to comply with the terms and conditions, which have already been enforced. Although the US will not benefit much from opening its market under the CPTPP, there are numerous privileges that it can enjoy. The CPTPP+US, therefore, is highly likely for Washington as it would be better than negotiating new FTAs with Asian countries, though it has to submit a member application per the set procedures.

As Thailand is already a member of the RCEP, while Thailand's rivals have not entered into the FTAs with the US, and the CPTPP+US has yet to materialize, this is the right time for the relevant Thai authorities to make preparations for Thai businesses and put in place relief measures for all sensitive sectors so as to upgrade them on par with the required international standards. Regardless of whether Thailand will enter into any trade agreement in the future, or not, Thailand will inevitably have to adjust in order to upgrade its manufacturing standards. Moreover, the relevant Thai authorities are required to consider weighing the CPTPP if the US decides to rejoin this trade bloc in the future.​


International Economy