“Benefits, costs should be carefully evaluated at national level rather than only at an individual level.”
The Trans-Pacific Partnership (TPP) is a trade agreement among 12 countries led by the US, along with Canada, Mexico, Peru, Chile, Australia and New Zealand.
The founding members in Asia are Japan, Singapore, Malaysia, Vietnam, and Brunei, and the economies of TPP countries account for around 40% of the world’s gross domestic product (GDP) and 40% of world trade.
The agreement encompasses not only tariff reductions for trade in goods among members but also includes eliminating barriers to investments and services trade.
Moreover, members of the pact have agreed on other trade-related issues such as intellectual property (including data protection for biologic medicines), government procurement, e-commerce, and labour standards.
IMPACT ON THAILAND
The 12 members of the TPP account for 40% of Thailand’s total trade and 45% of foreign direct investments (FDI) flow into Thailand annually. However, Thailand currently has free-trade agreements (FTAs) with most of the 12 countries except for the US, Canada and Mexico.
Exports to Canada and Mexico account for less than 1% of exports, while foreign direct investments (FDI) from the two countries account for less than 2% of FDI into Thailand annually. On the other hand, the US accounts for 8% of Thailand’s total exports and 8% of direct investment flows into Thailand annually.
The largest potential impact from the agreement on Thailand is greater competition in the US market from TPP members.
Exporters are concerned that Thai exports to the US will be less priceattractive than similar products from TPP member countries, as the tariffs charged on Thai products will be higher than on those from TPP member countries.
In exploring how deep these concerns are, we will need to take a closer look at the major products that Thailand exports to the US, namely, garments, agriculture products and automobiles.
Thai exports of garments and certain agricultural products to the US will probably be negatively affected when the TPP takes effect. Tariffs on those products in the US market will be zero for TPP members.
Currently, key garment exports from Thailand to the US, namely, rubber gloves, men’s knitted trousers, women’s underwear, and baby knitted cotton clothing are charged tariff rates of 5.7 to 21.6%.
Key agriculture exports such as prepared and preserved tuna, sugarpreserved vegetable, fruits and nuts, and other prepared foods are charged 8.4 to 11.7% tariffs. Given the high tariffs on these Thai export products, their price competitiveness in the US market will likely be less than similar products from Vietnam or Mexico, which are TPP members.
On the other hand, the short-term impact on Thai automobiles and autoparts exports is limited.
The reasons are: 1) Under the TPP, the tariff reduction on cars will be gradual over 30 years (tariffs on imports from Malaysia and Vietnam will be zero after 10 years). 2) US import tariffs on Thai passenger cars are low at 2.5%. 3) US import tariffs on Thai pick-up trucks are high at 14.5-25.0% but Thailand exports only a few trucks to the US a year. 4) The local content requirement among TPP members of 45-55% will not affect Thai exports of parts to Japan much, as Japan is using just about that amount of local content for automobile exports from Japan to the US.
Another concern some businesses in Thailand have is that the country will be a less attractive destination for FDI from US companies compared to Vietnam or Malaysia.
As investment protection among TPP member countries will be stronger, this could deter some new investments from the US to member countries instead of Thailand.
This would apply mainly to manufacturing, such as electronics.
On services, Thailand has a treaty with the US which already allows US companies to invest in many service businesses in Thailand.
On the other hand, TPP member countries have agreed to implement more stringent intellectual property protection and labour standards according to the ILO conventions.
These could raise the costs of related businesses in those countries, making their products and services less price competitive.
SHOULD THAILAND JOIN?
Whether or not Thailand should join the TPP in the future will depend on a careful analysis of the benefits and costs to Thailand both financially and socially.
The important issue will also be how the costs can be minimised.
If Thailand does not join the TPP, the losers are the exporters of garments and certain agricultural products to the US, some industries that rely on FDI from the US, and the workers in these industries.
Other costs are the fact that employees in Thailand are not well-protected as they would have been under the ILO’s labour standards.
Can these costs be minimised? Can Thailand, for example, find new markets for its garments and agricultural products?
Can Thai firms move their production of labour-intensive manufacturing like garments to Cambodia or Vietnam? Could Thailand improve its compliance to the ILO labour standards even if it does not join the TPP so that employees are better protected?
On the other hand, if Thailand joins the TPP, there are concerns the country will have to comply with intellectual property rights of TPP members, including those of medicine.
Doing so could make medicine in Thailand much more expensive than it is today.
There are also concerns from existing businesses in the service sector that if Thailand were to join the TPP, it will open up its highly-protected services sector to greater competition from TPP member countries.
In any case, the benefits and costs should be carefully evaluated at the national level rather than only at an individual level or group level.
Opening up the services sector, under the TPP or not, can bring about higher productivity and quality and lower prices of services.
Hence, opening up may be a cost to the current players in the service sector as they will face higher competition, but will benefit the country as a whole.
Similarly, the cost and benefits of intellectual property rights will have to be examined in a comprehensive manner before a conclusion is reached.
As in all trade agreements, there will be winners and losers.
The success of joining any of the agreements is making sure that the benefits accrue to the majority of the people and the losers are able to adapt to minimise the costs to them and perhaps even benefit from the agreements later on.
Kirida Bhaopichitr PhD is research director for the International Research & Advisory Service, Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the ‘Bangkok Post’ on alternate Wednesdays.
First published: Bangkok Post, November 25, 2015