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6 Oct 2015


TPP Deal Reached: Impacts on Thai Trade and Investment (Current Issue No. 2663 Full Ed.)

The Trans-Pacific Partnership (TPP) agreement signed by 12 countries on October 6, 2015, marks a watershed towards a new global free trade order during the 21st century. The short-term impact of this landmark trade deal on Thailand is primarily centered on our trade with the US, currently Thailand's largest export destination and a TPP member state that Thailand has not entered into a free trade agreement (FTA) with[1].
The immediate impact of trade diversion on Thai exports to the US as a result of the TPP agreement should be limited because our main shipments to the US include computer parts and other electronics that are not subject to any tariffs. However, Thailand may be indirectly affected because our products sent to China are largely for re-export to the US, representing a challenge for our exporters. In addition, there is a likelihood that the US may rescind GSP privileges on our exports in the future.
Meanwhile, the TPP trade pact will likely shape competitiveness between TPP member states and non-TPP countries. Thailand's attraction as an investment destination could be undermined, thus threatening our manufacturing and export sectors that are heavily dependent on foreign capital and technologies to move upward into upstream and midstream industries.
To cope with this, Thailand may preliminarily need to accelerate investment abroad, especially to neighboring countries or the so-called a “GSP (recipient) region”, e.g., Cambodia and Myanmar that are likely to receive US GSP privileges soon. This effort would be needed to build our ‘GSP-friendly' manufacturing capacity in those countries – with Thailand continuing as a production center and capital owner – by which we could brace for heightened competition ahead.

Thailand also needs to quickly improve its manufacturing structure and workforce skills to meet a new trade and investment landscape, especially exports focusing on value-added final products, rather than current exports that are labor-intensive. In addition, Thailand may consider joining the TPP later when domestic politics become more conducive to this.–

[1] TPP member states that Thailand has not entered into a FTA with include the US, Canada and Mexico.

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