Thailand works to secure profitable regional trade agreements

As one of the biggest beneficiaries of rising consumption in ASEAN and the Cambodia, Laos, Myanmar, and Vietnam (CLMV) market, Thailand has seen regional trade become an increasingly critical trade growth driver. Although the country was not a signatory to the Trans-Pacific Partnership (TPP) free trade agreement (FTA) – which all but collapsed following the most recent US presidential election campaign – it continues to negotiate the Regional Comprehensive Economic Partnership (RCEP), a large FTA between ASEAN, China, Japan and India, among others. The US withdrawal from TPP has intensified the regional focus on RCEP, which could offer significant long-term economic benefits to Thai exporters, while ASEAN Economic Community (AEC) integration will likely continue to drive trade and export growth in the near term, particularly with regards to Thai-CLMV trade.

ASEAN Benefits

ASEAN countries account for a significant portion of Thailand’s export market, even though exports to many of its largest ASEAN partners have levelled off in recent years.

The Ministry of Commerce (MoC) reports that Thailand’s trade surplus with ASEAN members hit BT613.98bn ($17.3bn) in 2016, an 11.4% increase on the BT551.23bn ($15.5bn) surplus recorded in 2015. ASEAN exports stood at BT1.91trn ($53.8bn) in 2016, comprising 25.4% of the country’s BT7.53trn ($212bn) of total exports. This was a 2.6% increase on BT1.86trn ($52.4bn) of exports in 2015.

According to the University of the Thai Chamber of Commerce’s Centre for International Trade Studies, Thai agricultural exports to the ASEAN region rose to BT121.7bn ($3.4bn) in 2016 against BT108.9bn ($3bn) in 2015, primarily driven by growth in processed meat, seafood and corn exports.

Malaysia retained its position as Thailand’s top ASEAN export market in 2016 with exports hitting BT337.7bn ($9.5bn). However, exports to Malaysia have fallen for the past two years, dropping from BT410.29bn ($11.5bn) in 2014 to BT342.84bn ($9.7bn) in 2015. This is in keeping with a broader regional trend observed among Thailand’s traditional ASEAN export markets: exports to Singapore have fallen each year since 2013, dropping from BT339.78bn ($9.6bn) to rest at BT288.4bn ($8.1bn) in 2016, while exports to Indonesia dropped from an all-time high of BT346.27bn ($9.8bn) in 2012 down to BT283.25bn ($8bn) in 2016.

CLMV Focus

Fortunately, these declines are being offset by new growth in the CLMV market, with Thailand taking advantage of its existing relationship with the group, as well as its proximity.

“Priority countries for Thailand are without a doubt the CLMV countries, which have recorded strong GDP growth recently. In Myanmar, for example, GDP growth is averaging 7% annually. We are able to benefit from the growth in these countries, because for Thailand it is not a relationship only about trade and business – we also have very close cultural and historic ties with the CLMV,” Pimchanok Vonkorpon, director-general of the MoC’s Trade Policy and Strategy Office, told OBG.

According to MoC data, trade between Thailand and the CLMV market has expanded rapidly over the past decade. Trade volumes rose from just BT375.75bn ($10.6bn) in 2006 to hit BT518.49bn ($14.6bn) in 2008 and BT779.04bn ($22bn) in 2012. Volumes crossed the BT1trn ($28.2bn) threshold for the first time in 2015, with BT1.08trn ($30.4bn) in total recorded trade flows, before inching up to BT1.12trn ($31.6bn) at the end of 2016.

Thailand has maintained strong trade surplus growth with the CLMV market since 2006, when the surplus stood at BT87.2bn ($2.5bn). Indeed, its trade surplus with the CLMV market has widened for 10 consecutive years, reaching BT269.72bn ($7.6bn) in 2012 and a record BT439.57bn ($12.4bn) in 2016.

Much of this growth is attributable to a rising focus on reducing non-tariff barriers and improving land border trade flows following AEC integration, which has paid dividends for Thailand. Cross-border trade is estimated to have grown by 1.27% in Thailand in 2016 to hit BT1.47trn ($41.4bn).

Myanmar Trade Growth

Myanmar has risen to become a major trade growth driver, and Thailand has seen its sizeable trade deficit with the country reverse into a ballooning surplus after the two invested in new border trade centres meant to aid the flow of goods travelling by highway.

Trade between the two has grown rapidly since Myanmar began liberalising its economy in 2011, with trade volumes rising by 23.6% that year to BT192.39bn ($5.4bn), up from BT155.63bn ($4.4bn) in 2010, reaching BT211.34bn ($6bn) in 2012 before hitting an all-time high in 2014 at BT263.55bn ($7.4bn), and moderating to BT230.03bn ($6.5bn) in 2016. Large purchases of natural gas from Myanmar kept Thailand in a trade deficit with Myanmar for years, with the deficit reaching a 10-year high of BT68.57bn ($1.9bn) in 2008, before shrinking to BT20.6bn ($580.3m) in 2011 and BT9.17bn ($258.3m) in 2013. In August 2014 Bangkok Bank forecast the deficit would swing into surplus by 2016, as rising cross-border trade enabled double-digit growth in the volume of Thai exports to Myanmar.

In February 2017 Myanmar’s Directorate of Trade reported that its earnings from border trade with Thailand crossed the $1bn threshold for the first time during FY 2016/17, attributing the growth in earnings to the establishment of border trade centres in Tachilek, Myawaddy, Kawthoung, Myeik, Nabule, Mawtaung and Maese.

Thailand outperformed Bangkok Bank’s expectations, and the MoC reported that its trade balance with Myanmar swung into a surplus of BT9bn ($253.5m) in 2014, with trade surplus growth accelerating even more rapidly in the years since. According MoC data, Thailand recorded a BT62.9bn ($1.7bn) trade surplus with Myanmar in 2016, which is an increase of approximately 221% over the BT19.6bn ($552m) surplus recorded in 2015.

Vietnam Trade Growth

Thai-Vietnam trade has also benefitted from ongoing economic liberalisation, with trade volumes rising from BT151.4bn ($4.3bn) in 2006 to hit BT274.69bn ($7.7bn) in 2011 and a record BT487.07bn ($13.7bn) in 2016. As with the other CLMV countries, Thailand’s trade surplus with Vietnam has shown impressive growth. The surplus narrowed to BT106.92bn ($3bn) in 2012, but regained momentum to hit BT117.55bn ($3.3bn) in 2013, BT125.28bn ($3.5bn) in 2014, BT163.37bn ($4.6bn) in 2015, and BT173.17bn ($4.8bn) in 2016.

Long-Term Focus

Thailand’s trade ambitions extend beyond ASEAN and the CLMV market; the TPP’s recent cancellation offers new impetus for RCEP negotiations, which could create significant trade benefits for the country should an outsized trade deficit be addressed by the new FTA. Thailand was not a signatory to the TPP – a proposed FTA between 12 Pacific Rim countries, including the US, Japan, Vietnam, Australia, Canada and Mexico that collapsed following the 2016 US presidential election, with both of the leading candidates declaring that they would exit the TPP if they were elected. With the pact’s fate uncertain at best, major trade stakeholders are now looking to RCEP as the world’s next major FTA, which would be pivotal for Thailand.

RCEP

Launched in November 2012, RCEP aims to expand trade ties and economic cooperation between the 10 ASEAN members and six partners: China, India, Japan, South Korea, Australia, and New Zealand. RCEP members represent a cumulative 29%, or $9.5trn, of global trade. Under the agreement, members would eliminate tariffs on 80% of all goods produced, or 8000-9000 items, with ASEAN members expected to eliminate tariffs on 92% of all goods. RCEP’s 16 members have missed a deadline to conclude negotiations twice, in 2015 and 2016, with 17 rounds of negotiations conducted since 2012, the most recent held in Japan in February 2017.

In January 2017 Somkid Jatusripitak, the deputy prime minister, told media the TPP’s collapse had given Thai officials new impetus to conclude RCEP negotiations, as the country seeks to boost trade and investment with emerging partners.

The potential benefits of RCEP membership are significant for Thailand, according to a report from the law firm Rödl & Partner, which found that exports to RCEP countries comprised 56% of Thai exports by value in 2014, while RCEP imports accounted for 58% of the total by value.

RCEP was also expected to help Thailand offset losses, particularly agricultural losses and waning competitiveness as an investment market, should TPP have moved forward. With TPP now off the table and RCEP negotiations ramping up, Thailand remains well positioned to continue building on recent regional trade growth.

Deficit Concerns

While trade between Thailand and RCEP partners has grown significantly over the previous decade, Thailand has recorded a trade surplus with RCEP members just once in the past 10 years, meaning it would likely benefit from reduced tariff barriers. Alternatively, it may find itself at risk of a growing trade deficit with some of its main import partners. The MoC reports that trade volumes between Thailand and the 15 other RCEP members have jumped by 62.8% since 2006, rising from BT5.27trn ($148bn) in 2006 to an all-time high of BT8.58trn ($241bn) in 2016.

Still, its trade deficit with RCEP nations, while shrinking, remains significant: the deficit jumped from BT360.05bn ($10.1bn) in 2006 to a peak of BT571.8bn ($16.1bn) in 2012, before moderating to BT241.11bn ($6.8bn) in 2015 and BT168.47bn ($4.7bn) in 2016. Addressing this trade imbalance and negotiating reduced tariffs on agricultural, electronic and automotive exports remains a critical priority for Thailand in its future RCEP negotiations.