Thailand has to date concluded five bilateral FTAs and one multilateral deal; those trade agreements being the Thailand-China FTA per the ASEAN-China FTA (ACFTA), the ITFTA (India-Thailand FTA), TAFTA (Thailand-Australia FTA), TNZCEP (Thailand-New Zealand Closer Economic Partnership), JTEPA (Japan-Thailand Economic Partnership Agreement) and AFTA (ASEAN Free Trade Area). KASIKORN RESEARCH CENTER (KResearch) has analyzed the impacts of FTA liberalization in trade on Thailand's auto parts, as noted herein.
During 9M08, exports of Thai auto parts grew 26.4 percent YoY, while imports of this product category had expanded 27.3 percent. As a result, Thailand recorded a trade surplus in auto parts of USD848.4 million. To the markets that have FTA agreements with Thailand, our exports of auto parts during the above period increased 40.7 percent YoY, representing 61.4 percent of Thailand's overall exports of this product. Among our FTA trade partners, ASEAN was the largest export destination for Thai auto parts, followed by Japan, Australia, India, China and New Zealand, respectively. Meanwhile, imports of auto parts from these countries also rose 22.7 percent YoY, accounting for 82.9 percent of Thailand's total auto-part imports. Thailand imported most auto parts from Japan, trailed by those from ASEAN, China, India, Australia and New Zealand.
Thailand recorded an overall global trade surplus in auto parts during 9M08. However, we experienced a trade deficit of USD135.9 million with our FTA partners, with the highest deficit incurred with Japan, up 13.3 percent YoY. Notably, Thailand's auto-part trade deficit with China increased markedly by 85.8 percent while we enjoyed a surplus with other FTA trade partners. Evidently, FTA deals come with both opportunities and challenges to the local auto parts industry.
On the plus side, our exports stand to flourish, encouraging development in the local auto industry to cope with intensified rivalry and improved production efficiency to ensure that we produce enough to realize the economies of scale. The FTA pacts also provide greater mutual investment between trade partner countries which result in technology transfer. Indirectly, Thailand also benefits from enhanced competitiveness via reduced import duties on raw materials, such as hot-rolled steel shipped from Japan. On the other hand, local auto parts manufacturers may be challenged by those same FTA pacts. Among the downsides are an influx of imported auto parts, foreign investors – especially from Japan – making greater presence felt here, which result in heightened competition with local auto parts makers and the possibility of lower investments in advanced technology from Japan. This may eventually affect our workforce employment levels, personnel careers and technological development. In addition, some countries may adopt other non-tariff barriers to replace revoked or reduced tariffs per FTA pacts.
In conclusion, although the Thai auto parts industry enjoys better export opportunities with FTA deals, we have been affected by rising trade deficits in this product category with some trade partners, especially China and Japan. Local auto parts manufacturers, especially, SMEs which may be affected should focus on new market penetration, higher technology in production and seek the economies of scale to ensure that they achieve lower production costs and proper pricing, thus remaining competitive.
As a matter of fact, Thailand relies heavily on exports of auto parts. Amid the global economic downturn, Thailand's 2008 auto-part exports are therefore projected to grow at a decelerating rate of 21.5 percent, against the 40.9 percent growth in 2007. Our exports are also expected to see a continued slowdown into next year. To cushion the impact of that, cooperation from the government is needed, especially when it comes to further negotiations on FTA deals with China, which has emerged as a major car producing country with favorably low wages. Emphasis should be placed on the preparedness of local auto parts manufacturers and liberalization timeframes, as well as preparations of all affected industries. Thailand should also brace for trade protectionism via non-tariff barriers imposed by other countries.
Local auto parts manufacturers should adjust their production plans over the short-term to match car production targets earmarked for domestic markets and exports. Effective cost control measures should also be sought, especially those available via forex hedging amid volatility in exchange rates, as well as maximizing the benefits of FTA deals.
Over the long-term, emphasis should be placed on enhanced production efficiency, investments in personnel development, marketing and R&D to shed light on diversity in consumer demand globally.
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