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9 Jan 2018

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Delayed GSP Renewal has Limited Impact on Thai Exports to US (Current Issue No. 2894 Full Ed.)

Over recent years, Thai exports to the US have been relatively competitive, thanks to the US Generalized System of Preferences (GSP). However, while the US is considering the renewal of GSP, which expired at the end of 2017, exports from countries previously enjoying this trade preference, including Thailand, are now subject to full import duties.

It is quite difficult to ascertain when the US will reinstate their GSP because the US is giving priority to domestic economic issues, given that there will be midterm elections there this year. If the reinstatement of US GSP is delayed for not more than six months, such a situation should not have a significant impact on Thai exports to the US during 2018. However, if it is postponed longer than that, several Thai export categories will be jeopardized.

Our assessment of Thai export performance during an expired GSP scenario is as follows:

§ Thai exports having a large share of the US market versus rivals should not be threatened much, despite an increase in their prices in line with MFN tariffs, e.g., lenses and rubber gloves.

§ Thai exports subject to high MFN tariffs, but have low market shares, may face a risk of import substitutions, e.g., car keys, electric motors, processed foods, ceramic tableware, tire inner tubes, plastic products, canned lychee and electrical control panels.

§ Thai exports facing declining purchase orders will likely be threatened, in particular, consumer goods, because they would have low profit margins amid high import tariffs, thus likely causing the US to favor cheaper imports from other countries. However, Thai exports that have unique features and cannot be readily substituted should remain competitive.

Nevertheless, if US GSP benefits are reinstated fairly soon, our outward trade to the US should grow steadily in 2018. From this perspective, we at KResearch maintain our 2018 forecast for exports to the US at 5.3 percent growth YoY, or within a range of 4.8-5.8 percent, equivalent to some USD27.7 billion. However, if the renewal of US GSP benefits is postponed for a markedly extended period, our forecast for export growth to the US may be shaved by 0.5-1.0 percent, meaning our 2018 export growth to the US would be lower than that reported for 2017 due to a high 2017 base, especially during 11M17 when our shipments soared 8.1 percent YoY to USD24.3 billion.

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