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11 Aug 2005

Trading

Thailand-Japan FTA: Prelude to Competition within the Region

คะแนนเฉลี่ย

Even though Japan has accepted in principle to allow Thai products to enter its market with no obstacles vis-เ-vis the Rule of Origin (ROO) under the Thailand-Japan FTA agreement, however, negotiations on ROOs, in detail, will be the key indicator of whether or not certain types of Thai exports, i.e., fishery products, canned vegetables/ fruit, textiles, processed cassava flour, grain-based products, as well as cat and dog food, will benefit from tariff reductions under the Thailand-Japan FTA accord, or not. Some interesting points on the Thailand-Japan FTA negotiations related to agricultural products, industrial products, investment and service trade are summarized in the following:

Agricultural Products

Presently, production of farm goods in Japan is inadequate for domestic consumption. Hence, Japan is the world's largest net importer of agricultural products and food, with their import value steadily increasing. Under the Thailand-Japan FTA accord, Japan will open its market to Thai farm produce through the reduction of tariffs on fresh shrimp, chilled cooked shrimp, processed shrimp, processed vegetables and fruit, canned vegetables and fruit, as well as tropical fruit. Also, Japan has rendered a quota on Thai agricultural products, including bananas, molasses and processed tapioca starch. With these allowances, Thai products will have a greater chance to enter the Japanese marketplace. However, Thai negotiators still have to work hard on the issue of ROOs on each item so that their Japanese counterparts will allow Thai products to enter their market without ROOs that are too stringent, which may deprive them from receiving the full privileges of the FTA pact. For instance, strict ROOs have been imposed on fishery products, where only Thai crewmembers are allowed on board the fishing boats making the exported catch.

Industrial products

Steel and vehicular issues: Liberalization in the steel and automotive industries under the Thai-Japanese FTA agreement will likely lead to restructuring in these industries. They must gradually adjust themselves to cope with competition, which will result in production of higher quality products. This is in line with commitments under the ASEAN Free Trade Area (AFTA), where Thailand and other ASEAN countries are required to mutually slash tariff rates. Currently, levies imposed on more than 90 percent of ASEAN products are in the range of 0-5 percent. These tariff rates will be completely eliminated by 2010. As a result, foreign investors will be able to invest in ASEAN countries and export to Thailand duty-free. Thus, the Thailand-Japan FTA accord is regarded as a prelude for Thailand to tougher competition within the region that may lead to production of higher quality steel and automobiles at lower costs.

Shoes/Jewelry/Textiles: Japan admits that it will abolish quotas on these goods, and will reduce tariffs on shoes to zero within 7-10 years. For jewelry and textiles, the tariff will be reduced to zero immediately (except on artificial cultured pearls that Japan will abolish tariffs on within 7 years). This will allow Thai shoes, jewelry and textiles to have the chance to grow more in the Japanese market. But Thailand should negotiate on ROOs for these Thai goods entering Japan under the Thailand-Japan, so that obstructions due to strict ROOs do not appear, such as the case where criteria state that Thai textiles must use 100 percent domestic raw materials, etc.

Investment

Establishing the FTA with Japan should be a positive factor that will allow more Japanese investments to enter Thailand ? which is competing with China, an important rival ? and help in attracting Japanese investment capital. At present, the investment value of Japan in China is higher than that in Thailand. This FTA will support Thailand's target to become an investment hub of the region, and create more employment within the country. However, Thailand should speed up development of Thai workers' skills to have greater quality and quantity sufficient to demand. Moreover, Thailand should encourage Japan to invest in producing finished goods in fully-integrated circles here to create added value for Thai goods before exporting them to other countries. This would benefit Thailand, as it would enhance technology transfer, create higher value for Thai export goods, alleviate the problem of the trade deficit with Japan ? due to the reductions in some imported items such as intermediate iron and steel products, and auto parts from Japan ? as well as increase the investment potential of Thailand, in Japanese investors' eyes, over other ASEAN countries.

Trade and Service

Japan will open their market for Thais to offer various services in Japan such as allowing in Thai male and female chefs, Thai language teachers, Thai arts and cultural instructors (for such as disciplines as Thai dancing, boxing, music, etc.), spa staff and caretakers for senior citizens. At the same time, apart from the chance that Thai people will be able to offer services in Japan, attracting Japanese to receive services in Thailand and drawing income into the country is also an important benefit for Thailand. At present, Japan has a high proportion of senior citizens, and Japanese are known to maintain relatively high savings. So drawing Japanese persons to long-stay residence in Thailand, or to receive health care/medical services here would create more foreign currency earnings for the country, as well as promote services that have a unique Thai identity, such as Thai massage and Thai spas.

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