March 17, 2014 00:00 By Erich Parpart, Petchanet Pratr
The Kingdom is falling behind its regional competitors as the absence of a permanent government now hampers negotiations on the Thailand-EU Free Trade Agreement (FTA), the president of the European Asean Business Centre (EABC) has warned.
In an exclusive interview with The Nation, Rolf-Dieter Daniel urged all sides in the political conflict to sit down and find a solution, because the drawn-out situation was affecting investors’ confidence and damaging the country’s competitiveness.
"Investors from Europe are in the wait-and-see mode at the moment because of the political uncertainty and unfinalised FTA, as well as the lack of approvals [of tax privileges] from the Board of Investment," Daniel said. If they have to wait much longer, some foreign investors might consider other countries in Asean instead of Thailand.
Daniel said the most worrisome aspect was the FTA deal, because Thailand is falling behind its main competitors in the region such as Singapore (for banking and services), Malaysia (goods manufacturing) and Vietnam (agricultural products).
He said he believed that Thailand would be able to continue the talks with the European Union soon but their fourth round, which were previously scheduled to take place this month or in April, was likely to be suspended because Thailand lacked a head for its negotiating team. He noted that before December, developments were very positive, but after the political row flared up everything has been delayed.
The EU has completed an FTA deal with Singapore and is looking to conclude one with Malaysia before the end of the year. Vietnam has negotiated six rounds of talks. The EU is also considering talks with other Asean countries such as Indonesia, Myanmar and Cambodia.
"The initial target for the completion of the FTA agreement with Thailand was within 2014, but after the House dissolution, the only deals that can be made are technical, not political, and the country is gradually falling behind other countries in this region," Daniel said.
He said the Thai-EU FTA would benefit the Kingdom much more than the European side in terms of increased price competitiveness and technological exchanges and transfers. The latter would be crucial for the development of Thailand and its bid to become the regional centre in business and manufacturing when the Asean Economic Community is launched.
With neither an FTA nor the GSP, Thailand will lose competitiveness as tariffs on its goods will be higher than for trading rivals, he said.
"The [cancellation] of the GSP deal means that Thai exporters will stand to lose around US$2.6 billion [Bt84 billion] worth of tax benefits," Daniel said.
He said the products that would be most affected by the end of the GSP deal were canned and processed foods, textiles, jewellery, electronics and computer parts, along with agricultural products such as sugar, rice and rubber, for which market demand is already low because of oversupply and loss of price competitiveness.
Daniel said that besides political uncertainty, barriers to an FTA and other business deals in Thailand were its outdated regulations, sometimes overly strict or completely unnecessary, lacking standardisation and transparency, aggravated by lax enforcement of intellectual-property protections.
He added that political parties should be aware during election campaigns that policies designed to attract votes may work for a certain time, but in the long run would create problems. Examples were the higher minimum wage and the rice-pledging scheme, for which both farmers and taxpayers were suffering. Daniel said Thailand had to revise the Foreign Business Act, liberalise its service and logistics sectors, and get rid of some redundant regulations that are making the lives of investors and traders harder than they should be.
As an example, he pointed to the registration process for new kinds of medicine, which requires the manufacturer to reveal the ingredients before they can be sold in Thailand. This has deterred many pharmaceutical companies in Germany from distributing their products in the Kingdom because they do not want to reveal their manufacturing secrets. The same problem occurred with the telecommunications industry, which led to the delay of certain information and communications technology such as third-generation cellular and other Internet enhancements.
The Foreign Business Act, which does not allow foreigners to hold the majority of a company in Thailand, is also deterring investment. Daniel said the industry that is most affected by this "outdated" law was the retailing, because foreign investors have to distribute products via a Thai company that they cannot own, even if make products here. He also pointed to the restrictive rules related to car parts that are imported to Thailand and assembled here. "Why do car parts have to be unpacked and recheck again at customs when [they were] check by the European counterpart with more advanced technological standards?" he asked.