Joining TPP key to export competitiveness, experts warn

Economy October 19, 2015 01:00

By ACHARADEBOONME
THE NATION

2,442 Viewed

THAILAND will lose its export com?petitiveness unless it joins the Trans-Pacific Partnership (TPP), with the garment industry the hardest hit and the auto industry the least affected, a seminar was told last week.



While the garment-textiles, footwear and seafood producers will suffer the longer Thailand stays out of the TPP, according to research, the auto industry will survive thanks to decades of investments by Japanese automakers. 
Under the trade initiative, the first major global deal in two decades, Vietnam is widely expected to benefit the most, along with other emerging markets that are striving to expand their share of exports to the TPP mem?bers, chiefly the United States. At a seminar last week, Nopporn Thepsithar, chairman of the Thai National Shippers Council, said the US apparently attempted to turn Vietnam into a supply base to replace China, which is focusing on more value-added products and becoming direct competitors to the US on the economic and political front. 
His notion is worth listening to. 
The United States sees the TPP as a vehicle to boost American exports to Asian economies. A report by the Peterson Institute predicts that TPP could yield US$78 billion (Bt2.75 tril?lion) in annual income gains for the US.
The US is now the biggest export market for Vietnam. According to the US Trade Representative, Vietnam was the United States’ 20th largest supplier of goods in 2013. In that year, imports from Vietnam jumped by 22 per cent year on year to $24.6 billion. The top import categories were: knit?ted apparel ($4.7 billion), woven apparel ($3.3 billion), footwear ($2.9 billion), furniture and bedding ($2.6 billion) and machinery ($2.1 billion).
Once TPP takes effect, tariffs on garment-textiles will be immediately slashed. This will immediately boost the market share of Vietnam’s prod?ucts. Meanwhile, Thai products will remain subjected to some tariff rates, which range from 6.4 per cent to above 20 per cent.
According to the Thailand Development Research Institute, Thailand earned hundreds of millions of dollars from products in these cat?egories each year. 
“Vietnam and Malaysia stand to benefit the most from the deal. Their export value is high and shows strong growth. The growth pace will even be faster than now,” said Duanden Nikomboriraks, research director at TDRI. “Thailand stands to lose the most in this sector due to the yarn-for?ward theme, which calls for TPP mem?bers to source materials first within the bloc.” 
A sizeable portion of Thailand’s gar?ments and textiles targets the US mar?ket: for example, about 70 per cent of men’s knitted trousers and women’s knitted panties. 
Adam Sitkoff, executive director of the American Chamber of Commerce (AmCham) in Hanoi, said Vietnam’s Ministry of Industry and Trade pre?dicts that the TPP will raise the coun?try’s gross domestic product (GDP) by an additional $23.5 billion in 2020 and $33.5 billion in 2025. Yet, unlike previous free-trade agreements that mainly focused on lowering import tariffs, the TPP sets standards that will shape commerce in the 21st century and addresses many non-traditional issues such as climate change, collec?tive bargaining rights, music piracy and even rules about how online data is stored. This is expected to bring chal?lenges to the country.
“Vietnam’s key export sectors, including garment-textiles, footwear and seafood products, are expected to see great growth under TPP. The agreement also makes Vietnam a more attractive destination for for?eign investment so I expect that US-Vietnam trade will continue strong growth. The TPP will bring in more foreign investment and opportuni?ties and the provision in the agree?ment can help drive the reform process here,” he said. The good news is that Thailand’s automotive indus?try should not face a similar fate. 
The tariff cut will be phased in, apparently to reduce pressure on Japan, which has strengthened its auto supply chain in the past decades. To be eligible for zero tariff, Japan asked for the limit of local content (to be sourced in TPP member countries) at 30 per cent. This would allow it to further rely on content from Thailand. 
Siam Commercial Bank’s Economic Intelligence Centre noted that Japanese auto companies have invested hugely in research and devel?opment in Thailand in the past few years. Meanwhile, only 5 per cent of Thailand’s auto exports goes to the US, Mexico and Canada, the three from the 12 member countries with whom Thailand has no free-trade agreement. All four Asean countries joining TPP are also connected with Thailand through the Asean Free Trade Agreement. 
The bank does not anticipate direct competition between Thailand and Mexico in terms of auto manu?facturing. Rather, it foresees greater competition in terms of technology.
“Trade deals like TPP will increase in the future. Those suppliers whose products could be sourced elsewhere would be affected by the changing environment,” it said.
It will take some time before TPP takes effect. All 12 countries will need to ratify the pact. Sitkoff noted that the ratification process would be quite long and complicated in the US.
First, US President Barack Obama must formally send Congress a notice of intent to sign the agreement, which starts a 90-day waiting period. 
Next comes the public phase when the full trade deal will be open for anyone to review for 60 days, allow?ing interest groups like AmCham to provide feedback. Then, the US International Trade Commission would conduct a full economic review of the deal within 105 days. Once the bill is introduced in the House and the Senate, Congress has a maximum of 90 days to approve or disapprove the deal.