Thailand´s FTA Strategy: Current Development and Future Challenges

Abstract

I. Introduction For some, the recent proliferation of Thailand's bilateral trade agreements (FTAs) can be attributed to the desire to provide more markets for its own exports after the failure of the WTO negotiations in the Doha Development Round. For others, this represents a shift in the Thai trade policy from multilateralism that Thailand advocated for two decades since it became a GATT member in 1982. Either way, new challenges abound for all parties due to this recent policy change leaning towards bilateralism and regionalism instead of multilateralism. Thailand has undertaken to build bilateral and regional trade arrangements with a number of trading partners in Asia and the world. The country has accelerated its FTA policy, and there will be implications for the country since many are not broadly multilateral. With regards to the impact of the FTAs, costs and benefits, and adjustment mechanisms are still major areas of concern. For the moment, the government is determined to explore these alternative liberalization paths that have become an integral part of Thailand's new trade strategy. Indeed, economists are used to saying that governments set policies and these in turn affect economic performance (Dornbusch 1993; Dixit 1998; Yusuf et al. 2003). In the Thai context, questions concerning whether government policy on bilateral and regional FTAs is fundamentally compatible with Thailand's national interests have been raised. As for the country's growth strategy based on outward orientation, would this policy be consistent with its track record built successfully up to the present? This paper aims at discussing key issues of FTAs development and future challenges for Thailand. Section II will provide an overview of how the country, like the rest of ASEAN, is so busy with its own agenda to adapt ASEAN Free Trade Area (AFTA) in consistence with the global economy. Then, Section III will discuss a new development and delve further into regional and bilateral FTAs. The implications of FTA formation for Thailand will be analysed in Section IV. Consequently, policy dimensions will be discussed in Section V before the conclusion is drawn in the final section. II. A Beginning with AFTA Trade has always propelled Thailand's growth and development. Its value stands at more than the country's GDP. The role of imports is also important, especially for raw materials and intermediate and capital goods, to meet demand arising from both local and foreign firms. Generally speaking, the country is well endowed to benefit from growth of intra-Asian trade and global production networks. In fact, Thailand saw the benefits of the multilateral trading system upon its trade during the double-digit growth years of 1988-90. The linkages between trade, investment (especially foreign direct investment or FDI), and production had dramatically altered the features of the Thai economy. The manufacturing sector has since become intricately linked with the global markets. This gives Thailand more confidence and enthusiasm to move its own economy against the changing world economic conditions. The idea of creating a free trade area had become a reality in the Southeast Asian region as ASEAN upgraded its former cumbersome preferential trading arrangements (PTAs) to respond to the increasing regionalism in Europe and North America (Chirathivat 1996). At the beginning of 1990s, Asia was virtually an FTA vacuum. So, ASEAN's initiative to form an AFTA opens a new window of opportunities for countries in the region. Thailand was one of the countries that advocated such a formation and the proposal was accepted. (1) Thailand proposed the formation of AFTA to demonstrate her intent and determination to eliminate the country's protective trade regime. Indeed, Thailand had tried its own move from import substitution to export promotion at the beginning of the 1980s when the country still faced the effects of the second oil shock and the world recession at large. …