Tuesday, January 5, 2010

No reason for Thais to fear regional free trade

If Thai companies are prepared and willing to develop a new outlook, they can benefit from zero tariffs under the Asean Free Trade Agreement

Starting this year, six original members of Asean will eliminate 7,881 tariff lines to zero, bringing the number of tariff lines under the Asean Free Trade Area (Afta) to 54,457 or 99.11 per cent of the total. This means that the initiative to form a free trade area in Asean, which started taking shape from 1992, has now become fully realised.

In effect, the average tariff rate for these countries is set to further decrease from 0.79 per cent in 2009 to 0.05 per cent in 2010. The agreement will ensure that most goods in the Asean region move freely across borders, including agricultural products that were exempted from the Afta agreement in the past. Meanwhile, the Asean China Free Trade Agreement also starts to take effect this year.

For Thai businesses, the regional free trade agreements can be seen both as an opportunity and a threat. Thailand prides itself on being a major exporting nation for agricultural produce, but Thai farmers fear an influx of farm products from neighbouring countries. Palm oil, maize and coffee beans aside, Thai rice is not immune to competition from neighbouring countries. Vietnamese rice farmers are fast catching up with us, with ever increasing productivity and yields per hectare.

The Afta agreement also includes chilli, fish and soy sauces, consumer products such as air-conditioners, as well as intermediate materials such as motorcycle components and car cylinders. Other products include iron and steel, plastics, machinery and mechanical appliances, chemicals, prepared foodstuffs, paper, cement, ceramics and glass.

Afta is meant to be Asean's commitment to serve as a catalyst for the development of a single market and a production base for the Asean Economic Community (AEC) blueprint. Asean governments have come up with the framework to boost the regional economy of scale in response to the rise of China and India. Now, it's up to the private sector to make the most of the agreement and to explore the opportunities provided.

Asean countries manufacture similar products, such as electrical appliances, therefore, Thai industrialists are expected to face tougher competition in this sector if they fail to improve their product lines. Small- and medium-sized firms that produce such machinery and parts may be affected, while bigger multinational companies may move certain assembly lines from Thailand to neighbouring countries such as Indonesia and Vietnam, which have lower production costs.

Nonetheless, Afta can open up opportunities for industries with strong competitiveness. Thai processed foods and fishery products may be able to expand their marketing base since the investment procedure in neighbouring countries will be made easier under Afta.

Now that the agreement is in full force, the Thai private sector cannot stand idle if it wants to survive the competition. Firms should think seriously about how to benefit from the agreements. Some Thai industries must move away from low-cost manufacturing to more sophisticated lines of production in order to differentiate Thai products from others. The government should also help industries, especially the smaller ones by, for instance, providing soft loans or advice on how to explore opportunities in neighbouring countries.

Afta should serve as a reminder that Thai companies must strive to highlight their strengths by enhancing their products. Thai industries have a strong foundation but they lack sufficient innovation to move up the ladder of technological development. We must also look to the future of green technologies, which should be well suited to Thailand's agricultural background.
Thai farmers must be given help to develop their methods and to improve productivity per rai. Chemical-free pesticides should be promoted to add value to Thai products for export to Japan, the European Union and the US.

Afta does not have to be a zero-sum game if industries and farmers learn how to benefit from the agreement. As Asean Secretary-General Surin Pitsuwan has said, the business community should stand to gain: "The lower cost of inputs will allow businesses a wider choice of goods, and in the process they will move towards becoming more competitive globally."

If the Thai business community fails to compete with Afta, it is unlikely to sail through the whirlwind of globalisation. In fact, the regional free trade agreement serves as a preparation for it to compete globally. It's too late for it to resist the change. The smart ones should now think how to embrace the change in their production lines. The Nation, Bangkok

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