TPP OR NOT TO BE?

Thailand 2017 | DIPLOMACY | FOCUS: TRANS PACIFIC PARTNERSHIP

Despite initially opting-out of the 12-nation partnership, the Kingdom of Thailand's membership to the TPP could in fact be on the horizon.

On October 5, 2015, 12 Pacific Rim countries came to an agreement after five years of negotiations concerning the economic policy of the Trans-Pacific Partnership (TPP). The 12 countries include Brunei, Chile, New Zealand, Singapore, Australia, Canada, Japan, Malaysia, Mexico, Peru, the US, and Vietnam; however, Thailand was not on the list. The consequences of not being a part of this agreement have been widely speculated, with many business experts feeling the country's competitiveness could be damaged unless the government firmly stated its intention to join the partnership in the near future.

The TPP is one of the largest free trade agreements (FTAs) ever signed, taking in some of the largest economies in the world. The TPP seeks to lower trade barriers, including tariffs, as well as establish a common framework for intellectual property, enforce standards for labor and environmental law, and establish an investor-state dispute settlement mechanism. While members will enjoy the benefits of the agreement when trading across the Pacific, non-members exporting goods into the bloc will face higher tariffs, making their goods more expensive and less competitive. Even though the agreement has not come into effect and will not until each member state ratifies it, Thailand could feel the effects within a year, including reduced export orders and possibly a decline in FDI. The private sector in the country is worried that it may be left out of this lucrative deal as foreign buyers shift to deal with TPP members, specifically its close neighbors and main competitors Malaysia and Vietnam. In the long term, key US and Japanese investors are expected to stay within the TPP due to the ease of doing business and lower tariffs. Two sectors to particularly be affected are garments and electronics, which could find it difficult to compete in the bloc against Japanese- and US-made products. The export of raw materials will also be affected, again as TPP members shift orders to the cheaper alternatives in the bloc.

With TPP members accounting for 40% of Thailand's trading value, 10% of which is from the US, Mexico, and Canada, with whom Thailand has no FTAs, the stakes are high. As such, Thailand's Development Research Institute (TDRI), a non-profit, non-governmental policy think tank, has been tasked to study the agreement very closely. High tariffs will specifically harm exports to the US of garments, tuna, electrical appliances, vegetables and fruit, food preparations, footwear, and rubber gloves, according to the think tank. A country that could significantly benefit from the TPP is Vietnam, due to the fact it has a similar export offering that would be significantly more competitive compared to Thailand. There is also the possibility that some companies could relocate from Thailand to neighboring member states to reap the gains of the agreement. Considering all this, the TDRI suggested the government use the interim period while member states ratify the agreement and study it carefully, while also clearly declaring the country's intent to join the TPP. This would calm many business owners and investors in the country and likely reduce the risk of losing companies to its neighbors and competitors. Asked whether he felt the country would seek membership, TDRIs President Dr. Somkiat Tangkitvanich told TBY “It is still early to say, but with Vietnam and Malaysia joining it is difficult for Thailand not to."

However, some in Thailand are not worried about the agreement. A spokesman for the Bank of Thailand looked to settle some nerves, saying the TPP would not affect the country greatly as Thailand already has FTAs with many of the member states apart from the US, Mexico, and Canada. Thailand also remains eligible for tax privileges for certain products in the US due to the Generalized System of Preferences (GSP). In July 2015, the US and Thailand agreed to reinstate the GSP for a further four years and five months. The GSP had previously expired on July 31, 2013. This means that Thailand is entitled to tax refunds for two years for 3,400 items worth approximately THB6.2 billion in mainly ceramics, sanitary ware, and processed foods. The central bank also stated it would monitor the situation carefully and, in the meantime, companies should focus on accelerating the development of high-quality products to keep Thailand as competitive as possible on the global stage.
Moreover, in recent months, advocates of Thailand's accession to the TPP have been getting louder, suggesting that a membership request could, perhaps, come after all—and is imminent. In June 2016, Deputy Prime Minister Dr Somkid Jatusripitak told a Japanese business delegation in no uncertain terms that, “Thailand was ready to join the TPP." According to Dr Somkid, following months of deliberation and thorough study, Prime Minister Chan-o-cha had confirmed Thailand's readiness and had set-up a committee chaired by the Minister of Commerce, Apiradi Tantraporn, to initiate the move.