BANGKOK: Thai garment manufacturers are studying ways to benefit from the ASEAN-China free trade agreement (FTA), which should enable them to take advantage of lower costs and access to a market of 1.3 billion people.
Although the products subject to ASEAN-China FTA tariff cuts are still limited, since the agreement is still in the early stages, a number of Thai businesses are already planning their expansion strategies. And the FTA is creating a rocky road for some of Thailand's farmers.
With foreign competitors benefiting from low duties, Thai garment manufacturers feel forced to improve their production.
The Nice Apparel Group, the largest Thai garment manufacturer, sees India and China as holding great potential for its off-shore expansion in the next five years. The company is also considering Bangladesh, Cambodia, Indonesia, Malaysia, Myanmar, Pakistan, the Philippines, and Viet Nam.
Managing director Prasop Jirawatwong says the Nice Apparel Group's study focused on competitive factors rather than free-trade benefits. It sees offshore expansion as strengthening the company's export competitiveness in the long run.
Cheaper Chinese labour
China enjoys advantage in labour costs compared with Thailand. A survey by a European research company reports the estimated total cost per minute of labour in China is 0.40 euro (US$0.52) while Thailand's is 0.90 euro (US$1.18).
Prasop says the company has to consider other risk factors before investing.
The company recently invested 100 million baht (US$2.82 million) to set up its first offshore plant in China, with 600 employees. Production will focus on both export and domestic markets.
The FTA is an important catalyst driving Thai garment firms to achieve manufacturing integration and encourage fabric diversification and development.
The FTA is expected to create diversification in the import of raw materials from different sources, which would encourage product development in each country.
Suchart Chantranakaraj, a long-time businessman in the textile industry, says the FTA would create a domino effect in the Thai textile industry. It would force Thai manufacturers to restructure both manufacturing and management to take bigger orders to meet customer demand.
Paiboon Polsuwanna, chairman of the Food Industry Club of the Federation of Thai Industries, says that the ASEAN-China agreement should promote trade and investment opportunities. It should enhance the market potential for ASEAN markets compared with the European market.
Meanwhile, observers warn Thai businesses they should not be overly hopeful that ASEAN-China FTA will enable them to burst onto the huge Chinese market. Realistically, they may only be able to tap into some of China's southern provinces.
The original six ASEAN members and China are scheduled to end tariffs by January 2010. The four new members Cambodia, Laos, Myanmar and Viet Nam have until 2015 to end tariffs.
Local economists expect that both exporters and importers will get few benefits from the ASEAN-China free trade agreement. The products covered by tariff reductions are limited and the average tariff cuts are small at this point, compared with other FTAs in the region.
Nonetheless, local economists are urging the Thai Government to accelerate improvement of its logistics network. They say that without better logistics, the ASEAN-Chinese FTA will merely serve as an opportunity for Chinese investors to re-export their products from ASEAN countries to avoid trade barriers, especially from the United States.
Thai farmers hurt
There are concerns in Thailand that eventually, the FTA might benefit Chinese at the expense of Thais. The bilateral trade agreement, effective from September 2003, virtually wiped out Thailand's garlic and onion farms. In response, hundreds of farmers in northern Thailand staged a rally protesting against the influx of Chinese fruits and vegetable exports earlier this year.
A number of Thai farmers growing non-tropical fruits and vegetables say they could not compete with the cheaper products from China. Some Thai exporters say they could not enjoy access to the Chinese market because of China's regulations at the provincial level.
In the first nine months of this year, the free-trade agreement between Thailand and China has resulted in a US$1.16-billion bilateral trade deficit for Thailand due to an influx of Chinese fruit and vegetables, according to Thai Ministry of Commerce officials.
Since the 2003 signing of the ASEAN-China FTA, which allows 5,140 types of fruit and vegetables to enter Thailand, Sino-Thai trade has risen remarkably. Overall exports to China were worth US$7.52 billion ending September, while imports were valued at US$8.68 billion.
Thailand's exports to China are rubber, electrical goods, tapioca and petroleum.
Jeerawat Na Thalang is a correspondent with the English-language Thai newspaper The Nation.
(
