Trade Policy in Thailand: Pursuing a Dual Track Approach

Article excerpt

I. Introduction

Since the remarkable shift of economic policy from import substitution to export-led growth in 1972, Thailand's trade policy has always been liberal and outward-oriented, a crucial means to achieve developmental goals of the government. Over the past thirty years, the market-oriented reform programmes have been continuously implemented, despite the major economic crisis in 1997. Various measures have been undertaken to reduce or eliminate trade and investment barriers and also to integrate Thailand more into the global economy.

The aim of this paper is to review and evaluate the current trade policy of Thailand after the financial crisis, which is being pursued by the current administration. Section II of the paper summarizes the pre- and post-crisis trade policy of Thailand, sectoral trade policies, existing Uruguay Round and AFTA commitments, and institutional setting for trade policy formulation. Section III discusses the recent engagements of Thailand in bilateral, regional, and multilateral fora with particular focus on its positions on the key negotiation issues in the current round of multilateral negotiations. Finally, Section IV presents an outlook for Thailand's trade policy as well as some anticipated engagement in a bilateral, regional, and multilateral fora.

II. Policy Trends

II.1 Overview of Economy: Pre- and Post-Crisis

Thailand's economy has been transformed from import substituting to export-led economy since 1972 when the Industrial Promotion Act came into force. Between 1986 and 1990. (1) Thailand stood as one of the fastest growing economies in the world with an average real GDP growth rate of 11.5 per cent. An average real GDP growth rate during 1990-94, however, moderated to around 8 per cent due to the tightening of fiscal and monetary policies as part of the government's objective to prevent overheating of the economy. The prudent financial management also stabilized inflation rate within the maximum band of 5 per cent per annum during the early 1990s. When the financial crisis took place in 1997, the real GDP growth contracted sharply to -1.4 per cent in 1997 and -10.5 per cent in 1998. The crisis was, by and large, rooted from the weak governance of financial institutions and corporations--poor accounting practices, lack of transparency in management, and inadequate supervision of banks and financial institutions.

In responding to the crisis, the Thai Government resisted protectionist pressure and continued its implementation of trade and investment liberalization programmes in order to speed up structural adjustment. (2) Measures undertaken by the government include, inter alia, streamlining import and export procedures, improving transparency in customs practices, continuation of tariff reduction, strengthening anti-corruption regime, privatizing state-owned enterprises, introducing competition law, modifying intellectual property legislation to implement WTO agreement on Trade Related Intellectual Property Rights (TRIPs), opening up the financial sector under the General Agreement on Trade and Services (GATS) extended negotiations (for example, temporary elimination of 25 per cent limit on foreign equity participation), and encouraging regional trading partners. The government also undertook bold steps to address weak corporate governance after the 1997 financial crisis including enhanced accounting practices, information disclosure, and strengthened auditing regulations to be in line with international standards. It also pursued monetary and fiscal policies aimed at achieving price stability, low inflation, and fiscal consolidation. As a consequence, the real GDP growth rate rebounded to 5.4 and 6.8 per cent in 2002 and 2003 respectively.

During 1981-85, average export and import values of Thailand registered at 165,561 and 229,259 million baht respectively, resulting in an average negative trade balance of 63,698 million baht (Table 1). …