Daunting Challenges Facing Thai Trade with EU in 2015 (Current Issue No. 2579 Full Ed.)

During 2015, Thai exporters to the EU will have to watch three major developments – efforts to turnaround the still-fragile Eurozone economy, falling competitiveness of Thai merchandise due to the appreciation of the THB versus the EUR (relative to the VND and IDR) and the EU's cancellation of GSP benefits to Thailand as of January 1. Without the GSP, Thai products will be priced higher given higher tariff rates assigned to Most Favored Nation (MFN) status, thus becoming less competitive.

KResearch supposes that increasing costs owing to forex rates and higher tariffs will likely put pressure on our shipments to the EU this year. Growth is now expected to be closer to our lower estimate of 0.5 percent (a range of 0.5-3.5 percent is projected), versus a forecast of 4.6 percent for 2014. These estimates have been calculated based on EU economic expansion of 1.1 percent during 2015, down from a projected 2014 growth of 1.3 percent. Nevertheless, if EU performance is worse than that, Thai exports to the bloc could encounter contraction.

Thai exporters will likely lose sales somewhat amid stiffer competition. It will be crucial for them to assure product quality, and use cost-effective management to mitigate disadvantageous forex trends and new tariffs that could increase prices by around 3-4 percent. Primary material exporters will probably lose EU customers because the EU may look for new suppliers in our neighboring states for such items as rubber and rubber products, processed chicken, gems and jewelry, chemical products and seafood. The situation may be easier for exporters in the supply chains of large industrial companies making computers, automobiles, air-conditioners, electrical appliances, etc., thanks to their more resilient cost management.

With adequate marketability and some business opportunities, Thai products should be able to cope well during 2015 after the loss of EU GSP benefits. Over the long term, however, rival suppliers with EU FTA agreements, or those still eligible for their GSP benefits, will slowly absorb our market shares because their products are manufactured with higher efficiency and thus are more competitive. To cap it all, should the EU stop buying from Thailand and turn to nations whose products have higher value, are more responsive to recent technological changes or cheaper, or should operators now in Thailand decide to relocate production bases elsewhere, we will lose such supply chain business and employment, further eroding Thailand's FDI and revenues more than thought.