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24 Aug 2007

Thai Economy

Thailand-India FTA: Expediting Export/Investment Benefits before others seize Upper Hand (Current Issue No.1990)

India is a new export market that both the state and private sectors should cooperate as to support the expansion of Thai exports. This market could help diversify Thailand's export markets and reduce our dependence on existing key export markets like the US, where their economy is slowing. Thai exports have a good opportunity to grow well in India because, apart from India's nature as a large market with high purchasing power, the establishment of the Thailand-India FTA also yields benefits in mutual tariff waivers on 82 items of trade starting September 1, 2006, after tariff reductions on these goods had been gradually implemented since September 2004. This results in Thai export goods expand invariably in Indian market which is considered the new export source with the highest growth in the first 7 months of 2007 from the 66 percent growth compared with Thailand's aggregate exports in the same period which grew only 16.6 percent. Moreover, if further negotiations reach a conclusion, tariff reductions will extend to other normal track goods totaling around 5,000 items, which will further boost Thailand's exports to the Indian market. It is projected that the commencement of tariff reductions for the other 5,000 items will proceed within 2008, which will boost the trade value between the two countries to USD5 billion that year, from the value of USD3.4 billion in 2006. Both the Thai and Indian authorities have set targets to boost the counter-trade value to USD7 billion by 2010-2011. Moreover, service trade, joint investment in production and service businesses between Thailand and India will have also experienced increase in the future due to the liberalization of the service and investment sectors under negotiation at present. The success of this would help reduce inherent conditions and regulations on investment for establishing businesses on both sides.
However, KASIKORN RESEARCH CENTER (KResearch) holds the view that the Thai private sector should be careful and must be prepared for competition. India is negotiating to form FTAs bilaterally with other countries, including Japan and Malaysia (Singapore signed an FTA with India in June 2005), and on the regional level with the GCC (six nations), ASEAN (ten nations) and the EU (27 nations). Moreover, there are also other countries that are expected to negotiate FTA establishment with India such as New Zealand, China, the USA, Bangladesh, Vietnam and Israel. These negotiating countries are also Thailand's trade partners and/or rivals.
Competition in the Indian market – Thai exporters/businesses that produce goods for sale in India, including Thai service businesses established in India, must be ready to compete with goods that India imports from their other FTA trade partners and the businesses of India's negotiating counterparties that have extended their investments in India to sell goods/services with the hope of benefiting from the large market with high demand for consumption and investment.
Rivalry in third-party markets – Thai exporters that export goods to the countries that India is negotiating FTAs with, or Thai businessmen who set up production/service businesses in countries that are forming FTAs with India (which significantly includes ASEAN, Japan and the EU) will inevitably have to compete with cheaper exports from India and Indian production/service businesses that will set up in those third-party countries, and thus gain benefit from greater flexibility that Indian businesses will obtain from lowered trade barriers and more accommodative regulations in the service and investment sectors per FTAs.

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Thai Economy