In 2023, it is expected that the European Union (EU) will use a Carbon Border Adjustment (CBA) mechanism for goods and services that are imported from third non-EU countries as part of the European Green Deal – an ambitious package of measures aimed at preserving Europe's natural environment. During the initial enforcement, import taxes will be imposed on goods of certain sectors. Therefore, goods in the sectors determined to be at high risk of carbon leakage, such as minerals, fuels, iron, metals, chemicals and plastic, will directly be affected.
Regarding Thailand's outward trade to the EU (27 member states, excluding the UK), it has been found that around 10 percent of Thailand's total exports are destined for the EU. That figure is almost on par with the share of each ASEAN member state's exports to the EU, such as Vietnam, Malaysia and Indonesia. Meanwhile, the combined export value of goods, such as minerals, fuels, iron, metals, chemicals and plastic, from Thailand, Vietnam, Malaysia and Indonesia to the EU are relatively modest, meaning they will not be affected much by the EU CBA mechanism.
We at KResearch are of the view that key Thai exports to the EU, namely electrical appliances and electronics (E&E), will likely be affected by the EU CBA mechanism as their export cost per unit may increase on par with those of our rivals, such as Vietnam and Malaysia, if the enforcement of the CBA mechanism is based on a level playing field. However, since the share of Thailand's E&E exports to the EU is smaller than that of Vietnam's and Malaysia's, their export costs to the EU will likely be higher.
Although tightened compliance with environmental regulations will cause businesses to incur additional costs, they can make prior adjustments to enhance its long-term competitiveness through the government's assistance measures. Looking ahead, Thailand may need to allow greater participation from medium-sized enterprises and expand the scope of targeted industries by reducing redundancies and engagement costs. These can be achieved through a number of measures, offering participating businesses greater access to funding source for the development and utilization of alternative energy or production efficiency enhancement, for example. Meanwhile, the government must put in place a cooperation program between competent participants and new ones or establish a grouping of entrepreneurs in a bid to reduce carbon leakage and brace for the impact that may partially arise from the EU CBA mechanism. To ensure overall sustainable economic development, the EU may consider carbon compensation for countries that have developed the emission trading scheme (ETS) or other measures aimed at reducing the impact of greenhouse gas emissions on the environment.