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25 Nov 2009

Agriculture

AFTA: Impact on Thai Palm Oil Industry (Business Brief No.2693)

คะแนนเฉลี่ย
On January 1, 2010, the six founding ASEAN member countries – Thailand, Malaysia, the Philippines, Indonesia, Singapore and Brunei – will be committed to eliminating import duties on palm oil products as part of the ASEAN Free Trade Agreement (AFTA).
Among the eligible palm oil products will be crude and refined palm oil (per Customs tariff codes 1511.10 and 1511.90) and palm kernel oil (per Customs tariff codes 1513.21 and 1513.29) which are in the IL (Inclusion List). However, the Philippines – a founding ASEAN country – will maintain their tariff rates on crude palm oil and kernel palm oil at 3 percent. Meanwhile, the elimination of tariffs on palm oil by the newer ASEAN member countries – Cambodia, Laos, Vietnam and Myanmar – will take place in 2015.
Given the prevailing global palm oil market and export capacity of Indonesia and Malaysia – which are among the world's largest palm oil producing and exporting countries – Thailand has made the right decision to comply with the AFTA framework on these tariff cancellations. If we had chosen to opt out of the AFTA framework and postpone the tariff cancellations, Thailand would have faced claims for compensation from the affected countries, i.e., Malaysia and Indonesia.
However, close attention should be paid to surges in imported palm oil shipments from them once the duty-free status and cancellation of import quotas come into effect, due to the reduced import cost. Thailand may also encounter an influx of refined palm oil from both those countries because they normally cost around 20 percent less than Thai oil. (Thai crude palm oil prices are based on those of Malaysia.)

Thai refined palm oil manufacturers will be directly affected by the possible surges in import shipments of refined palm oil that will be cheaper than local products. Indirectly, local palm oil extraction plants and palm growers will suffer. However, downstream palm oil industries, as well as consumers, will be the main beneficiaries of the availability of cheaper oil.

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Agriculture