Few trade gains from ’early harvest’: Sino-Thai pact misunderstood

Posted on: Thursday, 27 October 2005

Few Trade Gains From ’Early Harvest’: Sino-Thai Pact Misunderstood

By Woranuj Maneerungsee, Bangkok Post, Thailand

Oct. 27—Tariff reductions on fruit and vegetables agreed on two years ago between Thailand and China have provided little benefit to the local economy, according to the Thailand Development Research Institute.

The tariff cuts were part of an "early harvest" agreed as part of a free-trade area agreement, now to be managed under a broader Asean-China deal.

But analysts say that based on trade data, the benefits of liberalisation have been less than claimed.

"The government should not take credit for a big accomplishment from this FTA pact with China," said Dr Somkiat Tangkitvanich, a research director at the TDRI.

Both countries eliminated tariffs on selected fruit and vegetables on Oct 1, 2003. However, they agreed to suspend further tariff cuts on industrial goods.

The two countries also have close trade ties under the Asean-China FTA that began to take effect on July 20 this year.

Though the TDRI’s research found that Thailand has had a surplus with China in fruit and vegetable trade, the country recorded an "economic welfare" gain of just US$9.6 million. Of note, the elimination of tariffs on all products would result in a gain of $580.6 million.

The TDRI defines "economic welfare" as a measurement of consumers’ purchasing power, expenditures and savings for expenditure in the future.

Meanwhile, the economic welfare gain for Thailand under the Asean-China FTA agreement would drop to $521.8 million as it will lose the advantage it holds over other Asean nations from the early harvest programme, according to the research. Details can be found at www.ftadigest.com.

Two-way trade in fruit and vegetables accounts for less than 2 percent of total trade between Thailand and China.

"A trade surplus should not be regarded as the ultimate goal of an FTA agreement. Instead, the government should look at economic welfare and the country’s production efficiency," said Dr Somkiat.

He noted that Thailand has entered a number of bilateral and regional FTA pacts, but was unlikely to gain substantial benefits from any of them.

He attributed this to the fact that under the agreements, Thailand will cut import tariffs on products in which other countries excel, limiting the possibility for Thailand to enjoy better goods at cheaper prices.

Taratorn Ratana-narumitsorn, another researcher, said the public had some misconceptions about the Sino-Thai pact.

Contrary to what was believed, he said, the pact had not boosted Thailand’s trade deficit with China because exports of raw materials and capital goods had increased.

He also said there was only a temporary surge of Chinese products into Thailand just after the early harvest took effect, while smuggling of apples and pears stopped completely due to zero tariffs.

In contrast, Thailand could take advantage of the programme by exporting more durians and longan, he said.

Another misunderstanding is that garlic and onion imports from China increased. He said Thailand still had a quota of approximately 500 tonnes with a high import tariff afterward on garlic and onions from China, and the reason for the increase was Chinese production efficiency.

Meanwhile, since the pact took effect, Thailand has increased its exports of tapioca products to China due to increased demand and not lower tariffs, he said. Local producers of tapioca products would face tougher competition next year when China reduces tariffs on imports of the products from Indonesia and Vietnam, two rival producers, he added.

In the first eight months of this year, Thailand’s surplus in fruit and vegetable trade with China stood at 8.6 billion baht, up 42.1 percent from the same period last year.

source: Bangkok Post