The government’s planned special economic zones (SEZs) in border provinces should focus on developing value-added and innovative products from the knowledge-based sector to enhance the country’s competitiveness, says the Thailand Development Research Institute (TDRI).
SEZs are a good way to improve competitiveness and induce development in the border provinces, but questions have emerged about to whether the goals are achievable, as the plan lacks a clear strategy for linking Thailand’s value chains with those of neighbouring countries as a means of mutual development, said Saowaruj Rattanakhamfu, senior research fellow for development economics and productivity upgrades at the TDRI.
She said state privileges offered to labour-intensive industries and the use of unskilled foreign workers sent signals that were inconsistent with the country’s goal of escaping the middle-income trap.
“Thai business operators would have no incentive for adapting to higher-value-added activities, thus there is a need to enhance competitiveness by focusing on high-value-added production,” Ms Saowaruj said.
She said Thailand should stress development of SEZs as manufacturing bases for high-value-added products and services instead of promoting labour-intensive industries.
“This means the government should transform SEZs into ‘special innovation zones’ by focusing on the knowledgebased sector such as software, design, and research and development,” Ms Saowaruj said.
Programmers and foreign professionals are examples of highly skilled foreign workers that should be the government’s focus.
Six border provinces have been designated for SEZs – Tak, Sa Kaeo, Songkhla, Trat, Mukdahan and Nong Khai – with a combined area of 2,932 square kilometres.
Investors in SEZs will be entitled to generous privileges such as a corporate income tax exemption for eight years, a 50% tax reduction on net profit from investment over five years, double tax deductions for the cost of transport, electricity and water supply for 30 years and an additional 25% tax deduction for the cost of installation or construction of facilities in addition to normal depreciation costs.
Other privileges include an exemption from import duties on machinery, a five year exemption for raw or essential materials for use in the production of exports and a permit for the employment of unskilled foreign workers at promoted projects.
Ms Saowaruj said using SEZs as a base for labour-intensive industries could miss the mark, as Thailand’s production costs were 15 times higher than those of Cambodia and Laos. She cited a TDRI study on production costs for apparel in the three countries.
Thai exports have also lost privileges under the Generalised System of Preferences to the EU and the US, meaning business operators selling products domestically would enjoy benefits from being located in SEZs.
Despite how the SEZs have been designed to provide a solution for problems associated with foreign labour, national policy on foreign labour remains unclear and laws are not enforced seriously, Ms Saowaruj said.
But she said the government should continue to highlight development of border provinces as gateways to neighbouring countries through infrastructure investment.
Border checkpoints could be improved by separating immigration and product checkpoints and creating a one-stop service centre to ease trade and investment, Ms Saowaruj added.
First published in Bangkok Post, 23 June 2015