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Thailand: Bringing down trade barriers, but at what cost?

Thailand has expressed interest in joining the US-backed Trans-Pacific Partnership (TPP), the US’s ambitious plan to develop a free-trade zone across the Asia-Pacific region, though Bangkok has made clear it will want to assess any downside to its own economy before bringing down its trade barriers.

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Thailand has expressed interest in joining the US-backed Trans-Pacific Partnership (TPP)

Thailand has expressed interest in joining the US-backed Trans-Pacific Partnership (TPP), the US’s ambitious plan to develop a free-trade zone across the Asia-Pacific region, though Bangkok has made clear it will want to assess any downside to its own economy before bringing down its trade barriers.

First mooted by Washington in 2009, the TPP aims to establish a high level of economic integration across the Asia-Pacific region. It is in part a response to the perceived lack of focus given to the region by former President George W Bush in the last decade, with that inattention being seen by many as allowing China to become a dominant political and economic force.

Thailand has expressed interest in joining the US-backed Trans-Pacific Partnership (TPP)

Thailand has expressed interest in joining the US-backed Trans-Pacific Partnership (TPP), the US’s ambitious plan to develop a free-trade zone across the Asia-Pacific region

Currently, the US is holding negotiations with eight other countries – Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam, with Japan, Canada and Mexico having also agreed to start talks – to form the TPP block. Washington is also urging other nations around the Pacific Rim to join the process, using the recent ASEAN and Asia-Pacific Economic Cooperation (APEC) summits to push adoption of the concept even further.

Yingluck Shinawatra said Thailand would actively consider becoming part of the TPP project

And it seems as if Thailand may be buying, with Prime Minister Yingluck Shinawatra saying the country would actively consider becoming part of the TPP project after holding talks with President Barack Obama on the sidelines of the ASEAN meeting in Bali on November 19, local media has reported.

However, Foreign Minister Surapong Tovichakchaikul was somewhat more cautious, saying that Bangkok would need to study the details of the TPP before committing itself to membership negotiations.

“We did not say when. The US is satisfied,” Surapong told reporters. “There are many conditions. Japan took a long time before deciding to join. But at least it is a starting point.”

Thailand had to determine how membership of the TPP bloc would affect local industries and the national economy he said, though Surapong stressed that the government would be working to further strengthen trade and cooperation with the US and bolster relations between Thai and American business communities.

Even if Thailand does sign up for the TPP, it will be many years before any such trade bloc formally comes into effect.

The negotiations for each potential member state will be protracted, with all countries involved keen to protect their special interests and not sell their economies short.

At present, Thailand enjoys a healthy advantage in its bilateral trade with the US, recording a $13.7bn surplus last year, with total exports of $22.7bn balanced against just $9bn of imports, making Thailand the US’s 24th largest trading partner, according to the Office of the US Trade Representative.

Even if two-way trade barriers are dismantled, it is likely that Thailand will be able to maintain this positive position, given the demand for Thai electrical and agricultural products in the US. Indeed, by staying out of the pact, Thailand could face the prospect of losing much of its lucrative US trade to other countries, as well as being shut out of regional markets.

And Thailand’s economy could do with a boost. A deal such as the TPP could help the battered local economy, which is still dealing with the dampening effects of recent massive flooding. On November 21, the National Economic and Social Development Board forecast that GDP would expand by 1.5% this year, well down on its earlier projections of 4% growth.

Even though any agreement on the TPP is a long way off, the prospect of a regional free market could encourage investments in industry and other trade-related sectors, providing a more immediate balm to the sodden economy.

While it is probable there will be heated debate over whether Thailand should join the TPP, with concerns already being voiced over loss of economic sovereignty to the US, should the Yingluck administration enter negotiations with the US over joining the TPP it should not face any criticism from the main opposition Democrat Party.

Late last year, while still prime minister, Democrat Party leader Abhisit Vejjajiva said he was in favour of establishing the Pacific-wide free trade area. However, that enthusiasm did have a restriction, with Abhisit saying in November 2010 that Thailand’s priority should be creating an economic union of ASEAN member states by 2015, with the then-premier predicting the TPP would take far longer to enact.

With 2012 an election year in the US, it is hard to say how much emphasis Washington will give to developing the bloc in the shorter term. However, it is likely that some form of super trade grouping will be rolled out in the coming years, and all indications are that it would be in Thailand’s interests to be a part of it.

Note: This article was published on behalf of  Oxford Business Group, the views and opinions expressed in this article are those of the authors and do not necessarily state or reflect the views of  Thailand Business News

Oxford Business Group (OBG) is a global publishing and consultancy company which produces original economic and business intelligence on markets in the Middle East, Africa, Asia, Eastern Europe and the Caribbean.

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