Despite the huge economic benefit to be gained, a think tank is warning that Thailand’s hesitance to liberalise its service sector fully will cause economic growth to stall.
The Thailand Development Research Institute (TDRI) said the share of industrial products in Thailand’s GDP is the highest in Asia, while the proportion of the service sector has remained stagnant over the past five decades.
“Thailand’s overreliance on industrial goods production results in a need to depend on exports, and it will also force us to keep wages down,” said TDRI research director Somchai Jitsuchon, speaking on the sidelines of a seminar on the Asean Economic Community (AEC).
Thailand’s economy will grow by less than 7% if it fails to open up the service sector and remains stuck in a “middle-income trap”, he said.
“Even 4-5% will be difficult to achieve,” Mr Somchai said.
Panellists at yesterday’s forum, jointly hosted by the TDRI and the Asia Foundation at the Eastin Grand Hotel Sathorn, repeated calls for the state to liberalise the service sector, which is protected under the Foreign Business Act (FBA).
Veronique Salze-Lozac’h, the Asia Foundation’s chief economist and senior director of economic development, said the sector’s liberalisation would drive a better quality of services stemming from greater competition.
But many governments resist opening up critical areas such as medicine, education and telecommunications.
“There are also vested interests, as local companies might also be powerful and not in favour of more competition,” said Mrs Salze-Lozac’h.
Sok Siphana, an adviser to the Cambodian government and former commerce vice-minister of that country, said the countries that open up will gain expertise.
“The service sector has such a strong potential for knowledge sharing,” he said. “[Asean] is competing with countries like China and Korea to attract investment, and if foreign expertise is so different, we can’t claim that we’re a strong bloc.”
Pornapa Thaicharoen, a lawyer at Baker & McKenzie, said ministers are given the authority to amend the FBA, but the problem lies in the mindset of state agencies.
As Thailand does not have a functioning government, foreign businesses fear incompetence in services will cause factories to move to nearby countries.
Andrew Durieux, chairman of the AEC committee at the Joint Foreign Chambers of Commerce in Thailand, said this country has some of the strongest service-sector protectionist measures in the region.
Thailand has broadened the roll of businesses that foreigners can own, but they are not specific to Asean, and the list includes several unconventional sectors.
“For instance, a Malaysian can own 100% of a space research company in Thailand,” Mr Durieux said. “This creates the impression that Thailand does not want the AEC.”
First published: Bangkok Post, March 29, 2014