Thailand is pressing hard to forge export markets and keep its economy powered up as deteriorating world conditions as well as the political turbulence and fallout of what is hoped to be the first successful General Election since 2011 are negotiated by the country’s leadership. The key economic goal for Thailand in 2019 is to pave the way for membership of the RCEP or Regional Comprehensive Economic Partnership in 2020. This will be the biggest free trade area and economic partnership agreement the world has ever seen. In the meantime, Thailand’s Deputy Prime Minister, Somkid Jatusripitak, on Friday ordered key officials in Thailand’s Commerce Ministry to prepare to also apply for membership of the smaller CPTPP or Comprehensive and Progressive Agreement for Trans Pacific Partnership. This is seen as a confident step to emphasize Thailand’s commitment to free trade and a more prosperous economy despite any other problems.
Thailand is facing a critical year in 2019. Already the General Election set for March 24th is generating controversy and its aftermath may leave the kingdom in an uncertain position. It comes at a time when the Thai economy is experiencing a testing year with the impact of a serious US China Trade war and gathering storms over the world economy. A hyper strong baht is also not helping the country’s competitive position against cheaper Southeast Asian competitors with younger work forces. Thailand, however, is taking action. The country is a founding member of what will soon be the biggest free trade bloc in the world pushing the European Union into third position. The Regional Comprehensive Economic Partnership or RCEP comprises of 16 Pacific nations including China and India but will not be effective until 2020. In the meantime, on Friday last, Thailand’s Deputy Prime Minister Somkid Jatusripitak gave the green light for Thailand to take steps to join the smaller CPTPP or Comprehensive and Progressive Agreement for Trans Pacific Partnership.
Thailand’s government may change tack and has made moves that may see the kingdom join the CPTPP. The long acronym stands for the Comprehensive and Progressive Agreement for Trans Pacific Partnership. This is an 11 country agreement among nations on the coast of the Pacific ocean originally promoted by the United States as the Trans Pacific Partnership but which the US withdrew from when Donald Trump became President in 2017.
Thailand pushing hard to join what will be the world’s biggest free trade area
The order for Thailand to take steps to apply for membership of the group came from Deputy Prime Minister Somkid Jatusripitak last Friday. He ordered Thailand’s Commerce Ministry to take steps to allow Thailand to begin preparations to apply for membership as soon as possible which will see a report submitted to the Thai cabinet by March. The minister had discussions at the ministry with key figures directing Thailand’s trade policy. It comes over a week after Auramon Supthaweethum the Director General of the Department of Trade Negotiations at the Commerce Ministry confirmed that Thailand was pushing hard to conclude what is known as the RCEP or Regional Comprehensive Economic Partnership, a proposed free trade agreement between 16 nations of the ASEAN community and other key Pacific nations already part of the Comprehensive and Progressive Agreement for Trans Pacific Partnership as well as China and India.
US China trade war has impacted Thailand
At a seminar in Bangkok on January 28th last, the Director General made it quite clear that the ongoing US China trade spat was affecting Thailand’s trading prospects with figures from last year showing trade down with China and up with the United States. ‘The ongoing trade war definitely has a significant impact on Thai exports, which contributes up to 70 per cent of total GDP,’ the Director General said at the well attended seminar which addressed the fallout from the trade war between Thailand’s two key trade partners. On Friday last, Thailand’s Deputy Prime Minister, former Commerce Minister and well known economist who has also in the past served under ex Premier Thaksin Shinawatra, gave the go ahead for preparations for the move to join the smaller CPTPP also. ‘The government’s clear stance on the CPTPP and the RCEP will help boost trade and investment sentiment,’ Mr Somkid said. ‘Despite the transition period before the next government is formed, continuous efforts to build up investor confidence are still a must.’
Thailand is committed to strong export growth in 2019 despite the pressures of world conditions
Thailand is anxious to continue to grow its export base despite the negative effects of the trade war not only in Asia but across the world. The country is also battling with an unusually strong Thai baht and large levels of personal debt in Thai households. The Thai economy is struggling to compete for investment with countries in Southeast Asia with a lower cost base and younger workforce. The much vaunted Thailand 4.0 plan in to which the government has invested heavily will yield in the medium term but right now, as Thailand faces an election and possible a turning point in the world economy, it is time for decisive action.
Thai Commerce Ministry to prepare a proposal by March 2019 for Thai cabinet to approve
Following Friday’s meeting, it is understood that the acting Commerce Minister, Chutima Bunyapraphasara, will pull together a working group within the ministry to consider the range of outcomes should Thailand join the new CPTPP trading block and community. The ministry will then prepare a report for the Thai cabinet which will make the final decision on the matter. This is expected to be ready in March. The trade deal provides for a free market but also stronger levels of protection for international copyright and other regulations.
Smaller community excludes China and represents 13% of world GDP and 7% of world population
The CPTPP community itself represents over 13% of the world’s GDP worth ฿330 trillion or $11 trillion. It represents a community of nearly 7% of the world’s population but notably it excludes China and the United States. However, the RCEP or Regional Comprehensive Economic Partnership is a far bigger trading bloc which includes both China, India and fourteen other nations including Thailand which is a founding member. It is essentially a free trade agreement but it has yet to come into force. This is expected to happen next year. The RECP, when confirmed and made effective, will be the biggest free trade area in the world relegating the European Union to third place and will account for over 50% of all world trade according to a recent estimate by Price Waterhouse Coopers.
Move seen as a confident one reducing Thailand’s reliance on the two largest economies
The move comes as Thailand has seen signs of strengthening exports to countries in the ASEAN region. Up to recently, Thailand had voiced concerns about the CPTPP bloc and opted out of the Trans Pacific Partnership which was the United States led precursor to the current bloc. This was thought to be due to concerns relating to Thailand’s agricultural industry.
The move is certainly seen as a response to turbulence facing Thailand in 2019. The General Election, for which political parties are currently campaigning, is underway. It has produce a febrile atmosphere and no one is quite sure how matters will stand when the new Thai parliament meets sometime in late May or early June. Thailand’s economy experienced strong counter pressures in the latter quarter of 2018 and it is thought that consumer confidence may have declined as the uncertain outlook takes hold domestically as well as internationally. The strong impact of the US China trade war has heightened the tension and there is concern about the negotiations currently taking place between Beijing and Washington.
World economy could be facing a moment of crisis as IMF leader issues strong warning in Dubai
This uncertainty was crystallized on Sunday when the IMF Chairwoman, Christine Lagarde, stated pointedly that the world economy could be plunged into a storm. She was speaking at the World Government Summit held in Dubai. She highlighted ‘four clouds’ which consisted of trade tensions including the US China trade war and issues with the European Union, a tightening of financial liquidity with governments worldwide already over borrowed, the possible effects of Brexit and a dawning realization that the Chinese economy may be losing its momentum. Many observers fear that a new world economic crisis may be more damaging now than ten years ago because of high debt levels incurred by many nations particularly western nations. There is also concern about large levels of household debt worldwide. ‘When there are too many clouds, it takes one lightning (bolt) to start the storm,’ the IMF boss said ominously.
The RCEP or Regional Comprehensive Economic Partnership is the big one for Thailand which is a founding member and takes effect in 2020
The US-China trade war, which started as soon as US President Donald Trump was elected but which reached a peak last year when both countries imposed steeper and steeper tariffs on each other’s key exports, has caused every economy to deal with the crisis in its own way. Among the most resilient countries, Thailand has pivoted towards ASEAN nations and the new Pacific nations bloc. The Regional Comprehensive Economic Partnership (RCEP), a trade deal between ASEAN members and key partners, could be the cornerstone of Thailand’s economic policy moves this year, according to Auramon Supthaweethum, the Director General of the Department of Trade Negotiations. Thailand is working intensively to conclude the Regional Comprehensive Economic Partnership negotiations in the next 11 months against the mounting tensions of the trade war, Supthaweethum said at the seminar held in Bangkok on January 28th to specifically address Thailand’s trade policy.
Export trade is the key pillar that props up the Thai economy as Thailand seeks 8% growth
Speaking at that seminar entitled ‘Preparing Thailand for the impacts of the Trade War,’ the Director General said that RCEP would increase Thailand’s exports and attract more investments in to the country. Accounting for 70% of Thailand’s GDP, the export sector is an important pillar of the Thai economy. This has made it particularly vulnerable to the US China trade war. Thailand’s Commerce Ministry has set a goal to achieve a 8% growth rate for this year, a target that will be difficult to reach even if the world’s two biggest economies reach a deal after 90 day trade war truce, agreed earlier this year, expires in March. As things stand there is no guarantee.
US and China are 20% of Thailand’s export trade
The value of Thailand’s exports to China and the US in 2018 reached $58 billion, contributing to one fifth of the country’s overall export value. In fact, Thailand has already experienced the fallout of the feud between the two giants particularly evidenced by a dramatic fall in the value of Thailand’s exports of machine components to China last year.
New free trade area will be the biggest in the world and is Thailand’s top economic priority
To counterbalance the negative effects of the trade war, Thailand has concluded or signed free trade agreements with numerous economies around the world. The most important trade deal is the RCEP which will include the 10 ASEAN members along with India, Japan, South Korea, Australia, New Zealand, and China. The negotiations for the agreement are still ongoing but if concluded, the RCEP will account for 39% of global GDP according to 2017 figures. At over 50% of world trade value, it will represent the biggest free trade pact ever signed. Because RCEP prospective members also already account for 60% of Thai exports in 2017, reaching an agreement is the top priority for Thailand which also assumes the chairmanship of ASEAN this year.
Thailand in the world market for more trade deals as 2019 sees it at the head of the ASEAN community
Meanwhile, Thailand is working on three bilateral trade agreements with economies in South Asia. Supthaweethum said that her department was trying to finish the drafts of free trade agreements with Sri Lanka, Turkey and Pakistan by the end of this year so that they would be in effect the following year. However, the effectiveness of Thailand’s reliance on trade agreements remains to be seen. Even if everything goes as planned, Thailand will still not benefit from RCEP until 2020, by which time the trade war will possibly have resumed and possibly have wreaked further havoc with the world economy. It is not unlikely that the US and China will fail to reach a compromise. Established financial institutions and think tanks in Thailand like Siam Commercial, Kasikorn Research Centre and the National Economic and Social Development Board have downgraded economic forecasts for this year’s economic growth in Thailand ranging between 3.5 and 4.6%.