Economic Cooperation between Thailand and India and Its Implication on the Asian Community

Economic Cooperation between
Thailand and India and
Its Implication on the Asian
Community
By
Ms. Chularat Suteethorn
Deputy Director-General
Fiscal Policy Office, Ministry of Finance
Outline
• Background
– Trade between Thailand and India
• Reasons to Expand Economic
Cooperation with India
• Thailand Trade and Investment Policies
and Opportunities
• FTA Agreements
– Thai – India FTA Agreement
– ASEAN – India FTA Agreement
– BIMSTEC FTA Agreement
• Future Prospects and Challenges
Table 1 Showing Trade Volume between Thailand and India
Million of
USD
Total Trade Volume
Export
Import
Year
Volume
Share
%
Volum
e
2000
1,122.60
0.85
-
499.7
0.72
-
622.9
1
-
-123.2
2001
1,154.10
0.91
2.81
483.1
0.74
-3.32
671
1.09
7.72
-187.9
2002
1,184.80
0.89
2.66
413.7
0.61
-14.37
771.1
1.2
14.92
-357.4
2003
1,508.50
0.97
27.32
638.6
0.8
54.36
869.9
1.16
12.81
-231.3
2004
2,049.00
1.06
35.83
913.4
0.93
43.03
1,135.60
1.2
30.54
-222.2
Note :
Share
%
Volume
Share
%
Balance of
Trade
Share = Trade between Thailand and India compared with Total Thailand Trade
% = Growth rate compared with previous year
Soure:
Thai Customs Department
Table 2 Top Ten Thailand’s Export Products to India
in 2004
Categories
Export volume
1. Machinery and mechanical
appliances
173.24
2. Electronic machinery and
equipment
134.92
3. Plastics and articles
92.85
4. Vehicles and parts
64.91
5. Rubber and articles
62.31
6. Iron and Steel
46.28
7. Jewelry and precious metals
33.16
8. Man-made staple fibres
30.09
9. Organic chemicals
25.17
10. Textiles articles
24.51
Table 3 Top Ten Thailand’s Import Products
from India in 2004
Categories
Import Volume
1. Jewelry and precious metals
281.32
2. Iron and Steel
144.35
3. Prepared animal fodders
119.61
4. Copper and articles
92.26
5. Mineral fuels and mineral oils
90.25
6. Organic chemicals
75.22
7. Machinery and mechanical
appliances
69.36
8. Silk
29.05
9. Miscellaneous chemical products
27.24
10. Tanning or dyeing extracts
22.91
Reasons to Expand Economic
Cooperation with India
• High Tariff (about 18%)
• Look East Policy
• 30% of Population are Rich or High
Income
• High Tech Hub of Asia
• High Growth Rate but Deficit in Fiscal
Balance
Thailand Trade and Investment
Policy and Opportunities
• Look for New Market
• A Gateway to India from Southeast
Asia and the Rest of the Pacific Rim
• Improve in Infrastructure
– Ground Transportation
– Overseas Transportation
– Air Transportation
Presenting Thailand:
• Why Thailand
Thailand #3 FDI location in Asia
2005-2008
RANK OF FDI
PROSPECTS IN ASIA
Top 1
China
Top 2
India
Top 3 THAILAND
Top 4
Vietnam
Top 5
South Korea
ƒ UNCTAD survey of
world’s 325 largest
transnational
corporations
ƒ Asia region has most
FDI prospects
ƒ Thailand ranked #9 in
world overall
UNCTAD Global Investment Prospects Assessment, Sept. 2005
2005 Global Ranks
Hong Kong
2
Singapore
3
Taiwan
11
Japan
21
34
31
30
29
27
Improved
Competitiveness
’01 ’02 ’03 ’04 ‘05
Due to govt. efficiency, economic
performance
9 High productivity growth of labor
Thailand
#27
Malaysia
28
Korea
29
9Government understands business
challenges for effective policies
China
31
9 Low VAT: 7% compared to ave. 17.2%
India
39
9 Low Internet costs
9Adaptability of government policy to
economic changes
Source: IMD Institute for Management Development
Promising Countries for
Japan manufacturers:
Thailand #2
Overseas Business
Operations FY2004
1
Thailand Top Factors
China
#2 Thailand
3
India
4
Vietnam
5
U.S.
6
Russia
7
Indonesia
8
Korea
9
Taiwan
10
Malaysia
Includes production, sales, R&D,
outsourced operations
1.
2.
3.
4.
5.
6.
7.
8.
9.
Market growth potential
Labor costs
Political and social stability
Supply base for assemblers
Base for exports
Developed local Infrastructure
Tax incentives for investment
Industrial clusters
Domestic market size
10. Policies to attract foreign capital
“Outlook for Japanese FDI”
conducted by Japan Bank for International cooperation (JBIC), Nov. 2004
Why Thailand
•
•
•
•
•
Stable Government, Economy, Society
Developed Infrastructure
Ease of Doing Business
Competitive Costs
Liberal Investment Regimes & Generous
Investment Incentives
• Strategic Access to Asia & FTAs
Stable Government, Economy, Society
• Decades of pro-business environment
• Tolerant society that values stability
• Dedicated workforce
• Friendly, welcoming culture to foreigners and
foreign business
New Suvarnabhumi Airport (2006)
Largest in Asia (IATA)
Near Bangkok, major industries
100 million passengers/year
Infrastructure
$42.5 Billion
for Mega-Projects
Deep sea ports: 5 million TEU
24 million mobile phones in ‘03
growing 6 million/year
- Improve Logistics
throughout the nation
Modern highways all provinces
4,000 km rail to Malaysia,
Singapore
57 industrial estates
- Rail, roads, highways,
mass transit
- Education, Healthcare
- Multimodal transport
INDIA
TAMU
MANDALAY
BAGAN
THEINZAYAT
YANGON
THATON
MAE SOT
THAILAND
ทางหลวงเอเซียและทางหลวงอาเซียน
เสนทางทีเ่ สนอโดยฝายพมา
Ranong Port would become the gateway for trade in the southwestern
region as it could link marine trade with many countries including
Bangladesh, India, Myanmar and Sri Lanka
4 -7 days
12-25 days
Ease of Doing Business: World Top 20
1
New
Zealand
11
Ireland
2
Singapore
12
Iceland
3
United
States
13
Finland
10 Areas:
Starting a business
Hiring and firing workers
4
Canada
14
Sweden
Enforcing Contracts
5
Norway
15
Lithuania
6
Australia
16
Estonia
Access to credit
Closing a business
7
Hong Kong
17
Switzerland
Registering property
8
Denmark
18
Belgium
9
United
Kingdom
19
Germany
10
Japan
20
Thailand
World Bank “Doing Business in 2006” evaluates
155 countries. www.doingbusiness.org
Investor protection
Licenses
Paying Taxes
Trading across borders
Monthly wages of industry workers (US$) in
2003
3000
2700
2000
1000
1520
1300
462
261
208
178
163
150
138
134
108
Source: JETRO
M
an
i
N
ew la
H
o
D
C
eh
hi
li
M
in
h
Ci
ty
Ja
ka
rta
Se
ou
l
Ta
ip
ei
Si
ng
ap
or
e
Sh
Ku ang
ha
al
a
Lu i
m
pu
r
Be
ijin
g
Ba
ng
ko
k
H
on
g
Ko
ng
0
Office rent monthly per square meter (US$) in 2003
50
46
45
39
40
30
38
37
24
22
21
20
17
20
10
10
8
Source: JETRO
M
an
ila
Se
ou
l
Be
ijin
g
Ta
ip
ei
N
e
H
w
o
D
C
eh
hi
li
M
in
h
Ci
ty
J
Ku aka
rta
al
a
Lu
m
pu
r
Ba
ng
ko
k
Si
ng
ap
o
Sh re
an
gh
H
ai
on
g
Ko
ng
0
Housing rent for expatriates (US$ per month) in 2003
5000 4,650
4,000
4000
3,461
2,836 2,800
3000
2,073 2,000
2000
1,729 1,723
1,496
1,311
763
1000
Be
i jin
g
Sh
an
gh
Ho
ai
ng
Ko
n
Si
ng g
ap
or
e
Ja
ka
N e r ta
w
Ho
De
Ch
h li
iM
i nh
Ci
ty
Ta
ipe
i
Se
ou
l
Ba
ng
ko
k
M
a
Ku
a la nil a
Lu
m
pu
r
0
Source: JETRO
Electricity rate for business use (US$) per month in 2003
(at contracted power: 2,000 kW, amount of use: 500,000 kWh)
90000 77,660
52,240
60000
50,000
48,300
45,220
35,000
34,100
31,540
30,200
28,240
30000
26,700
25,440
r ta
ka
l
Ja
ou
Se
a
nil
Ma
Ba
ng
ko
ipe
k
i
Source: JETRO
Ta
ur
Lu
Ci
a la
i nh
Ku
iM
Ho
Ch
mp
t
re
po
ga
S in
De
Ne
w
gh
an
h li
ai
g
Be
i jin
Sh
Ho
ng
Ko
ng
0
Calculation example of selected annual cost in US$ in 2003
2,500,000
2,000,000
1,500,000
1,000,000
500,000
Seoul
Singapore
Shanghai
Kuala
Lumpur
Ho Chi
Minh City
Bangkok
1,824,000
554,400
313,200
249,600
160,800
195,600
Office 100 square meters
45,600
55,200
54,000
20,400
25,200
12,000
house rent for one expatriate
20,676
34,032
48,000
9,156
24,000
17,952
320,400
542,640
600,000
409,200
420,000
362,400
2,210,676
1,186,272
1,015,200
688,356
630,000
587,952
100 workers on payroll
average electricity usage
Total
Source: JETRO and GTCC
Cost structure index in 2003 (Bangkok = 100)
376
400
300
203
200
173
100
107
117
Bangkok
Ho Chi
Minh City
Kuala
Lumpur
100
0
Shanghai
Singapore
Source: JETRO and GTCC
Seoul
Liberal Investment Regime
ƒ No export requirements
ƒ No foreign equity restrictions in
manufacturing sectors
ƒ No local content requirements
ƒ No location requirements in all but
6 activities
(for environmental protection)
Basic Investment privileges and incentives
TAX INCENTIVES
•
Corporate income tax
holidays up to 8 years
•
Import duty reductions
or exemptions on
machinery and raw
materials
NON-TAX INCENTIVES
•
•
100% Ownership
Land rights for foreign
investors
•
Permission to bring in
foreign experts and
technicians
•
Work permit & visa
facilitation
6 Target Sectors:
ƒ Agro-Industry: food and
rubber products
ƒ Fashion: Jewelry,
Garments, Leather
ƒ Automotive
ƒ Electronics and ICT
ƒ Alternative Energy
ƒ High-Value Added
Services
FTAs & Strategic Location to Asian Markets
(Countries and populations)
Japan: 128 million
China: 1.3 billion
Japan-Thailand FTA
Early Harvest
China-ASEAN FTA
India: 1.1 billion
Taiwan: 23 million
Early Harvest Agreement
Thailand: 65 million
No. of Tourists >13 million/yr
ASEAN: 550 million
AFTA
New Zealand: 4 million
CEP
Australia: 20 million
TAFTA
INDIA
CHINA
NEPAL
JAPAN
BHUTAN
BIMSTEC
BANGLADESH
SRILANKA
ASEAN
EAST ASIA
(ASEAN+3)
THAILAND
SOUTH
KOREA
FTA Agreements
• ASEAN Free Trade Area (AFTA) :
Agreement signed in 1992
• Framework Agreement for Establishing
Free Trade Area between Thailand and
India signed in 2003
• Framework Agreement on Comprehensive
Economic Co-operation between the
Association of South East Asian Nations
and the Republic of India signed in 2003
• Framework Agreement on the BIMSTEC
Free Trade Area signed in 2004.
ASEAN Free Trade Area
(AFTA)
• Agreement signed in 1992 and started
implementation January 1, 1993
• Reduction Intra-ASEAN tariffs to 0-5%
- ASEAN-6 by 2003
- Viet Nam by 2006
- Laos and Myanmar by 2008
- Cambodia by 2010
• Elimination of tariffs for ASEAN-6 by 2010
and for CLMV by 2015 (with some flexibility to
2018)
Framework Agreement for Establishing
Free Trade Area between Thailand and India
• The Agreement was signed by the Trade
Ministers during Indian PM’s visit to Thailand on
October 9, 2003
• The key elements of the Framework Agreement
cover FTA in Goods, Services and Investment, as
well as various Areas of Economic Cooperation
• The Agreement also provides for an Early Harvest
Programme with a common list of 82 items on
which tariff will be gradually eliminated within 3
years (September 2004 –September 2006)
Framework Agreement for Establishing
Free Trade Area between Thailand and India
FTA in Goods
• Negotiation commenced January 2004 and to be
concluded by March 2005 (will be extended to 2006)
• The tariff reductions will start in 2005/2006 and tariff
rates to be gradually reduced/eliminated by 2010
• Substantial coverage of all trade
• Normal Track and Sensitive Track of tariff
reduction/elimination including reciprocity principle
• Non-Tariff Barriers
• Provisions for Safeguards, Disputes etc.
Framework Agreement for Establishing
Free Trade Area between Thailand and India
FTA in Services
• Negotiations commenced January 2004 and to be
concluded by January 2006
• Progressively liberalise trade in services with
substantial sectoral coverage
FTA in Investment
• Negotiations commenced January 2004 and
concluded by January 2006
• Bilateral Investment Protection and Promotion
Agreement (BIPA) between Thailand and India
signed on July 10, 2000
Framework Agreement for Establishing
Free Trade Area between Thailand and India
Area of Economic Cooperation
• Trade Facilitation (MRA, Removal of NTBs,
Customs Cooperation, Trade finance, Business
Visa and Travel Facilitation)
• Sectors of Cooperation (Fisheries, ICT, Space
Tech., Biotech., Finance & Banking, Tourism,
Infrastructure Dev., Health Care, Construction,
Education, and Government Procurement)
• Trade and Investment Promotion (Fairs and
Exhibitions, India-Thailand Portal, and Business
Sector Dialogues)
• Industrial Cooperation IPR, SMEs, Energy, etc.)
Framework Agreement for Establishing
Free Trade Area between Thailand and India
Early Harvest Programme: EHS
• A common list of 82 items of which its tariff
started to be reduced from September 1, 2004
and be eliminated by September 1, 2006
Products coverage
• Agriculture products :Fresh Fruits (Mangoesteen,
longans, rambutans, durians..) Durum wheat,
canned sardines, salmon, mackerel, crab
• Industrial Products : Gems and Jewelry,
Precious stones, Plastic Pellets, Aluminium, Fans,
Air conditioners, Refrigerators, TV, Radio, Auto
parts, etc.
Table 4 : 82 EHS Products (Jan – Oct 2005)
2004
(Jan-Oct)
Before EHS
2005
(Jan-Oct)
%Δ
2005/2004
Total Trade
175.9
340.7
+93.7%
Export
116.3
273.5
+135.2%
Import
59.6
67.2
+12.7%
Balance of Trade
56.7
206.3
+263.9%
Unit: Million USD
Export EHS Products (Jan – Oct) 2004 2005
%Δ
• 390740 Polycarbonates
11.3
86.2 +666.0%
• 852812 Televisions
32.7
76.2 +133.4%
• 854011 Cathode-Ray TV
Picture Tubes
3.7
18.4 +397.6%
• 841510 Air Conditioners
5.7
14.3 +150.0%
Import EHS Products (Jan - Oct) 2004
• 870840 Gear Boxes
2005
%Δ
1.4
25.0
+1,734.7%
• 760110 Aluminum, Not Alloyed 3.3
7.8
+136.1%
• 711319 Jewelry and Parts
5.6
+205.7%
1.8
Framework Agreement on
Comprehensive Economic Co-operation
between ASEAN and India
• The Framework Agreement was signed by
Leaders of ASEAN and India on October 8, 2003
during the ASEAN Summit in Bali, Indonesia
• The key elements cover Trade on Goods,
Services and Investment as well as other Areas of
Economic Cooperation
• Products under trade in Goods divided into 3
Groups :
– Early Harvest Program, Tariff reduction under the EHP
shall commence from 1 November 2004, and be
eliminated by 31 October 2007 for ASEAN-6 and India,
and 31 October 2010 for CLMV.
Framework Agreement on
Comprehensive Economic Co-operation
between ASEAN and India
- Normal Track
The tariff reduced or eliminated over a period from
1 Jan 2006 to 31 Dec 2011 for ASEAN-6, and India
1 Jan 2006 to 31 Dec 2016 for the Philippines and India
1 Jan 2006 to 31 Dec 2011 for India and 1 Jan 2006 to 31
Dec 2016 for CLMV.
- Sensitive Track
The tariff reduced/eliminated within timeframes to be
mutually agreed between the Parties.
Framework Agreement on
Comprehensive Economic Co-operation
between ASEAN and India
Current Status
• FTA on trade in goods still under negotiations on Modality
of tariffs reduction/elimination, products in sensitive list and
ROO
Framework Agreement may need to be amended due to the
ROO negotiations as follows:
• ASEAN and India agreed not to pursue EHP
• Negotiations on trade in goods will be extended from June
30, 2005 to June 30, 2006
• Starting date of tariff reduction will be extended from
January 1, 2006 to Jan. 1, 2007
• Base rate of tariff reduction will be changed from “MFN
Applied Rate as of July 1, 2004” to “July 1, 2005”
• Set up DSM by September 30, 2006
Framework Agreement on the BIMSTEC FTA
Background
• Signed by Minister of Trade on February 8, 2004 in Phuket,
Thailand
• The key elements cover Trade on Goods, Services and
Investment as well as other Areas of Economic Cooperation
• Products under Trade in Goods Divided into 2 Groups :
1. Fast Track
Countries
India, Sri
Lanka,and
Thailand
Bhutan, Myanmar,
Bangladesh, and
Nepal
For India, Sri Lanka and For Bhutan, Myanmar,
Bangladesh, and
Thailand
Nepal
1 July 2006
to 30 June 2009
1 July 2006
to 30 June 2007
1 July 2006
to 30 June 2011
1 July 2006
to 30 June 2009
Framework Agreement on the BIMSTEC FTA
2. Normal Track
Countries
For India, Sri
Lanka, and
Thailand
For Bhutan, Myanmar,
Bangladesh, and
Nepal
India, Sri Lanka, and 1 July 2007
to
30 June 2012
Thailand
1 July 2007
to
30 June 2010
Bhutan, Myanmar,
Bangladesh, and
Nepal
1 July 2007
to
30 June 2015
1 July 2007
to
30 June 2017
Framework Agreement on the BIMSTEC FTA
Current Status
• Fast Track, Normal Track, Negative
List, and Rules of Origin are under
Discussed and will be Concluded
within Dec. 2005
• Service and Investment Negotiations
will be Concluded within 2007
Future Prospect and Challenges
•
•
•
•
•
•
•
Trade Volume between Thailand and India Increases 32.5%
in the First Nine Month of 2005
Expected to be Double in the Next Three Years
By 2010
– ASEAN 6 100% in IL would have tariff of 0%
– Most Products in FTA between Thailand and India
would have tariff of 0%
Benefit from low cost of raw materials
Attract FDI due to enjoy Market Access in various FTA
Agreements
Thailand and India would have mutual benefits in various
industries: Jewelry, Automotive, and Electronics & ICT
Investment enhancing in term of partnership
Future Prospect and Challenges
•
•
•
•
A Country which has many FTA Agreements gains some
advantages
A Country becomes the preferred location for Investments
A Hub for some Industries
More Competitiveness
- Improving and Adjusting the Internal Policies and Tax
Systems
- Improving Quality of Products to meet International
Standard
- Investing more in R&D
- Promoting Technology Transfer, Joint Ventures & MA
- Creating Cluster (Forward and Backward Linkages)
In Conclusion