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3 Sep 2020

Econ Digest

Free trade agreements link Thailand’s and the world’s automobile industries through agile supply chain production

The COVID-19 pandemic has affected the global automobile supply chain since the beginning of 2020, leading global automakers and parts manufacturers, especially Japanese automakers, to adopt new business models in order to reduce risks. Production has shifted from lean production that originally focused on cost reduction to an agile supply chain, which is flexible and responsive supply chain management in various situations. The business model for adopting an agile supply chain for global automobile and parts industries can be divided into 2 areas: 1) Maximize the shortened supply chain so that production easily reaches the economies of scale, and 2) Search for the main production base of the region.

 

Taking the changing supply chain model into account, KResearch considers that joining various economic cooperation groups connected to the world’s main consumer markets, such as the EU and the US, will help attracting foreign investment while making Thailand a part of a new supply chain that closely links Asia with other regional markets, especially for electric cars. 

 

KResearch views that joining free trade groups such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that includes members of American countries such as Mexico and Canada may help expand Thailand’s auto parts investment and export opportunities* to Japan and Mexico through the intensified trade linkages between the Americas and Asia. Thailand will have more opportunities to develop as a production base for auto parts in the automobile supply chain of both country groups, including an increased opportunity to export automobiles to Mexico since it has reduced taxes from 30% to 0%. KResearch expects that if Thailand joins CPTPP, within 5 years after the agreement comes into effect, Thailand will export an amount of automobiles worth not less than THB8,500 million and auto parts worth at least THB12,000 million. However, such a situation will occur only if the government is not too late in its decision to participate in the negotiation of the agreement (CPTPP) and if the transition to electric vehicle technology also takes place gradually.

 

* Analyzed only the results from the automobile and auto parts industry, while there are numerous issues to be considered for deciding whether to participate in CPTPP or not.  

 



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