THE SIGNING of two agreements to liberalise investment and services trade within Asean was the highlight of the 25th Asean Economic Ministers’ Retreat (AEMR), which concluded yesterday.
With the signing of these two agreements, Asean’s GDP is expected to increase by five per cent in the next five years, said Asean secretary-general Lim Jock Hoi.
The first agreement, the Asean Trade in Services Agreement [ATISA], aims to raise the standards and efficiency of services regulations within the region. This will, in turn, expand opportunities for services trade and investments for the region’s private sector.
“The role of services trade in the Asean economy is becoming more and more important,” acting Commerce Minister Chutima Bunyapraphasara said yesterday during the ATISA signing ceremony.
“Asean export of services has more than tripled from US$113.4 billion (Bt3.62 trillion) in 2005 to $360.5 billion (Bt11.51 trillion) in 2017. However, intra-Asean share of trade in services has remained stable over the years,” she stated. Hence, the ATISA is designed to address this issue.
The ATISA will replace the current Asean Framework Agreement on Services (AFAS), which has been in use since 1995.
The new agreement lays out the principles that will help boost trade in services, such as requiring equal treatment of foreign and local businesses. Another principle of the ATISA is to promote transparency and efficiency in services trade regulations and support the growth of Small and Medium Enterprises (SMEs).
Furthermore, the ATISA also requires member countries to publicise their trade and services regulations.
The ATISA will come into effect 180 days after the signing ceremony. Asean members are given five years to consider which regulations on services trade they would like to preserve after the agreement is effective.
“This agreement will allow Thai investors to find further opportunities to invest in sectors such as healthcare, tourism and hospitality within Asean,” Chutima said.
The second agreement, the Fourth Protocol to Amend the Asean Comprehensive Investment Agreement [ACIA], is aimed at making the region more attractive for investors through streamlining of regulations. It will be binding on the ACIA member countries to not establish regulations that may unnecessarily cause obstacles for investors in the region. For example, governments will be prohibited from requiring investors from Asean member countries to deliver their products only to certain markets.
New Thai strategy
The ATISA is in line with Thailand’s strategy to boost services trade to make up for weakening export figures. Deputy Prime Minister Somkid Jatusripitak had instructed the Commerce Ministry earlier this month to strengthen Thailand’s services sector for strong tourism figures.
Largely due to the ongoing US-China trade war and the weakening global economic condition, Thai exports in March contracted 4.9 per cent year on year, leading to a 1.6 per cent contraction in exports in the first quarter of this year compared to the same period last year, according to the Commerce Ministry. Observers see long-term benefits from these two new agreements, stressing the growing importance of services trade and investments in the region.
“Since the global financial crisis, global growth in goods trade, which is fuelled by the manufacturing industry, has been slowing, and the Asia Pacific region is by no means immune to this trend,” Andy Mason, lead economist for East Asia and Pacific Region of the World Bank, said.
To address this problem, Thailand will need to increase the productivity of its services sector as well as promote more trade in services, Mason suggested. “Thailand should enter into multilateral trade deals and commit itself to liberalising trade in services,” said Sudhir Shetty, chief economist for the East Asia and Pacific Region at the World Bank. Deunden Nikomborirak, research director in economic governance at the Thailand Development Research Institute (TDRI), said: “In the Asean region, up to 90 per cent of total foreign investment goes to the services sector. However, Thailand’s policies still lean heavily towards manufacturing, neglecting the services sector. Thailand contributes up to 18 per cent of total Asean GDP, but only attracts 2.9 per cent of total foreign investment in the Asean region.
“Therefore, Thailand is heavily underperforming and will benefit from liberalising regulations in the services sector,” she said. Key financial institutions such as the Bank of Thailand (BOT) and the National and Social Economic Development Council both stated earlier this year that Thailand should push for further private investment to drive growth amid weakening exports. “From now on, the growth engine of the country will be powered by tourism and investments,” said BOT Governor Veerathai Santiprabhob.