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31 Dec 2021

International Economy

Launch of RCEP on January 1, 2022 Set to Reinvigorate Regional Trade and Investment, but Thailand May Face Increased Competition in Attracting Investment (Current Issue No.3298)


The Regional Comprehensive Economic Partnership (RCEP), the world’s biggest free trade agreement, is scheduled to come into force on January 1, 2022, following almost decade-long negotiations. The RCEP, which is made up of 15 members, is aimed at facilitating trade within the bloc through a number of measures, including the reduction of customs clearance time to 6-48 hours and deployment of a digital system in customs clearance procedures. In terms of international trade,  KResearch is of the view that additional benefits from the reduction in import tariffs under the RCEP framework for Thailand are relatively limited because most Thai products are already subject to tariff cuts under the existing FTA+5. Therefore, direct benefits that Thailand will enjoy from the RCEP rest with its exports to China and South Korea, particularly agricultural commodities, food products and several industrial products of which export volumes to those countries are quite low. Meanwhile, indirect benefits that Thailand will get from exporting to +5 nations may be seen from products in existing supply chains such as automobiles, auto-parts, plastic pellets and products, chemicals, latex and rubber products, electrical appliance parts and electronics.
In terms of investment, a comprehensive international cooperation framework under the RCEP will allow Thailand to benefit from supply chains in Asia, but the amount of foreign direct investment (FDI) that Thailand will receive may rest with competition with other ASEAN member states, particularly Vietnam and Indonesia, that are set to benefit from increased FDI under the RCEP. The Rules of Origin provisions that cover 15 nations will make investment in the region even more attractive. The RCEP will allow Thailand to benefit from future FDI needed to boost the manufacturing of products, using traditional technologies such as HDDs, ICs, PCBs and automobiles. However, Thailand may face increased competition in attracting a new wave of FDI from rivals, especially in technologies that are imperative for Thailand to upgrade its manufacturing structure in order to promote S-Curve industries such as smart sensors, nanoelectronics, microprocessors and IOTs.

As Thailand will have to compete with other ASEAN nations in attracting FDI, particularly Vietnam and Indonesia, all sectors must join forces in making Thailand a more attractive investment destination. This can be achieved by 1) Entering FTA agreements to reduce obstacles to trade and investment, especially those that our rivals have already done such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, and FTA agreements with the US, EU and Britain; 2) Creating an investment climate that gives the business sector greater flexibility to cope with new technological advances; 3) Putting plans in place to brace for the prevailing environmental, social and governance (ESG) trends; and 4) Having investment promotion measures in place to promote investment in the government’s targeted S-Curve industries.

International Economy