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7 Jan 2022

Econ Digest

Free trade deal RCEP comes into force on January 1, 2022, to boost regional trade and investment


        The Regional Comprehensive Economic Partnership (RCEP) agreement that enters into force on 1 January 2022 will boost trade among member countries. KResearch views that in terms of trade, the added benefits from tax cuts will have a limited positive effect on Thailand, as most of the products have already enjoyed zero tariff treatment under ASEAN Plus 5 (China, Japan, South Korea, Australia and New Zealand) FTA. As to direct benefits, certain agricultural, food and industrial products that Thailand does not export much are expected to benefit from exports to China and South Korea, while the exports of certain fresh seafood products and raw leather to Japan will be subject to lower tariffs under the RCEP. At the same time, benefits from exports to Australia and New Zealand will remain unchanged.  In addition, the products that will receive indirect benefits will be those that Thailand exports to Plus 5 countries in existing production chains, such as automobiles and parts, plastic resins and plastic products, chemicals, rubber and rubber products, electrical appliance and electronic parts.

       RCEP is FTA ready in terms of fully integrated production, covering upstream, midstream and downstream producing countries. It is the first time that Asian countries such as China, Japan and South Korea, that have developed their own production technologies, join the same free trade framework, which will help Thailand to stay connected to the global production chain in Asia. Moreover, the Rules of Origins (ROOs) covering 15 countries make the region more attractive for investment. For Thailand, RCEP gives Thailand future investment opportunities to expand production of traditional technologies such as HDDs, ICs, printed circuit board assembly and automotives. However, Thailand must compete to attract new FDI with its competitors, especially investment in technologies that are the key for upgrading Thailand’s manufacturing structure to the S-Curve industries, such as the production of smart sensors, nano electronic components, processing chips in products and IOT

        In order to compete with ASEAN countries to attract FDI, all related sectors of Thailand shall cooperate to 1) make use of FTA to reduce trade and investment barriers, especially trade frameworks that competitors have joined but Thailand has not, such as CPTPP and FTAs with the U.S., EU and UK; 2) create an investment environment that keeps business agility and is ready to cope with changes in technology trends; 3) be prepared to support business trends in consistency with ESG principles; and 4) develop measures to promote investment in the s-curve industries.

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