Connect with us

Banking

Thailand’s loss of trade privileges with US is credit negative

The development is credit negative because Thailand’s export-oriented economy is in a difficult external environment given that a broad-based export slowdown and strong Thai baht are weakening the competitiveness of goods exporters and the country’s tourism industry.

Bahar Karaman

Published

on

Thailand’s loss of trade privileges with US is credit negative amid challenging external environment, according to an article from Moody’s Credit Outlook, 4 November 2019 issue.

Loading...

On 25 October, the US (Aaa stable) announced the removal of approximately $1.3 billion in trade preferences for Thailand (Baa1 positive) under the Generalized System of Preferences (GSP), effective 25 April 2020.

Citing inadequate protection from internationally recognized labor rights, particularly in the seafood and shipping industries, the Office of the US Trade Representative said the US would suspend trade preferences for 573 categories of Thai exports, which could face import tariffs of up to 5% relative to their current duty-free status.

Thailand’s export-oriented economy in a difficult environment

The development is credit negative because Thailand’s export-oriented economy is in a difficult external environment given that a broad-based export slowdown and strong Thai baht are weakening the competitiveness of goods exporters and the country’s tourism industry.

However, the removal of trade preferences alone is unlikely to weaken Thailand’s GDP or export performance in 2020 because GSP privileges apply to a relatively small subset of Thai exports and recently announced stimulus measures will support domestic demand in the coming quarters as external conditions remain subdued.

Exports account for around half of Thailand’s GDP and the US is its second-largest export partner after China (A1 stable). Merchandise exports to the US totaled $28 billion in 2018 (11.1% of total merchandise exports, 5.5% of GDP).

Together, the $1.3 billion in targeted goods account for only a third of GSP-eligible exports to the US, which totaled $4.4 billion in 2018.

The effect of potentially higher tariffs on this subset of exports will be minor because it only accounts for 5% of total Thai exports to the US. A higher import tariff of 4.5% on average would reduce exports to the US by around $30 million, according to the Thai government’s preliminary estimates, equivalent to just 0.1% of total exports to the US and 0.01% of total Thai merchandise exports.

Thailand’s merchandise exports contracted by 2.1% year over year in the first nine months of 2019 after growing by 8.6% in the same period in 2018. The contraction reflects the direct effect of trade tensions between the US and China, the slowdown in the global electronics cycle given Thai exporters’ integration in regional electronics supply chains, and overall weaker global growth.

Exports to the US have grown steadily over the past year, even though overall trade volume has declined (see exhibit).

The government intends to negotiate with the US to restore full GSP access. In addition to promptly initiating such talks, we also expect the government to implement policy measures to soften any effect on exports to the US, including promoting such exports ahead of the April 2020 deadline and accessing other markets for adversely affected products.

The government has also prioritized resuming negotiations over a free trade agreement with the European Union (Aaa stable) and its participation in negotiations on the proposed Regional Comprehensive Economic Partnership.

Michael Higgins, Associate Analyst, Sovereign Risk Group, Moody’s Investors Service
Martin Petch, Vice President – Senior Credit Officer, Sovereign Risk Group, Moody’s Investors Service

Comments

Asean

12 Things to Know about the ASEAN Catalytic Green Finance Facility (ACGF)

The ACGF is an ASEAN Infrastructure Fund initiative managed by ADB’s Southeast Asia Department Innovation Hub. It helps Southeast Asian governments prepare and finance infrastructure projects promoting environmental sustainability and contributing to climate change goals.

Asian Development Bank

Published

on

Southeast Asia faces an infrastructure investment shortfall of more than $100 billion a year, which may have worsened amid the COVID-19 pandemic.

Loading...
(more…)

Continue Reading

Banking

Thai cabinet approves 350 billion baht Aid for COVID-hit Businesses

Thailand unveiled new measures to help small and medium COVID-hit businesses in the tourism industry hit by a liquidity crunch.

Olivier Languepin

Published

on

The Thai cabinet has approved assistance worth 350 billion baht($11 Billion) to help businesses affected by COVID-19 with soft loans and asset warehousing.

Loading...
(more…)

Continue Reading

Banking

APAC Banks to Face Portfolio Valuation Losses As Yields Rise

The latest data suggest that Fitch-rated banks in Hong Kong, India, Indonesia, Malaysia and Taiwan have the largest AFS securities portfolios, and display particular sensitivity to changes in yields.

Avatar

Published

on

Fitch Ratings-Hong Kong/Singapore-21 March 2021: A rise in yields for long-dated sovereign bonds will result in near-term losses for Asia-Pacific (APAC) banks as they recognise valuation changes on their available-for-sale (AFS) bond portfolios, but the capital impact should be manageable for most rated banks, says Fitch Ratings.

Loading...
(more…)

Continue Reading

Most Viewed

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 13,973 other subscribers

Latest

Trending