FPRI-FTA Seminar Series 1 Summary: The Impacts of Thailand Australia Free Trade Agreement on Major Industries of Thailand

Transcription

1 FPRI-FTA Seminar Series 1 Summary: The Impacts of Thailand Australia Free Trade Agreement on Major Industries of Thailand Automobile Industry Turning attention to the impact of Thailand-Australia FTA on the automotive industry, Dr. Piriya Polpirun of National Institute of Development Administration (NIDA) yesterday was discussing about the FTA impact on the automobile sector. On the production side, he concluded that there is a significant difference between the two nations whereby Thailand has the capability to produce cars and car parts alongside the diversification of products released into the market especially the one tonne pick-up truck. Conversely, Australia is still dependent on car imports (around 70 percent) with commercial cars leading the way. And the interesting note is that most of its pick-up truck imports are from Thailand. The current trend of Thailand-Australia s trade in automobile business is certainly one to look out for as Australia imports of automotive from Thailand is in its top five, capturing 20 percent of the market. The most notable example is Thailand s exports of pick-up truck to Australia. On the other hand, Thailand depends very little on imports of automotive from Australia. For car parts, Thailand still has the upper hand in terms of its net exports but perhaps at a more contestable level with Australia. Regarding to the tariff structure prior to and after the FTA agreement, both countries are expected to abolish tariff of passenger cars and commercial cars altogether by 2005 with Australia having much to gain since current tariff level in Thailand is at an astonishing 60 percent for passenger cars and 40 percent for commercial cars while Australia s current tariff rate only stand at 5 percent. As for car parts, most of the current tariff level in Thailand stretches from 7.7 percent for engine to 30 percent for rubber and glass but within 6 years these rates should come down to zero. The similar timeframe has also been set for Australia but with its tariff rates being lower than 10 percent for all car parts, the reduction is expected to be much more gradual. The impact of this FTA agreement is expected to be more complementary than competing for both countries with most benefit will fall mostly on Thai pick up truck exporters, and to a certain degree for car rubber parts and engines. For Australia, motor, plastic and hi-tech materials should be able to reap the most from such FTA trade. To conclude the session, Dr. Piriya argued that Thailand must attempt to bring down the cost of production as competitors from China, Taiwan and Malaysia are more capable of producing automobiles and motorcycles at cheaper rate. Moreover, the higher defect ratio in Thailand than Australia, low technology and the lack of skilled workers are problems that need to be cured. And to attain greater market share, Thailand should look into establishing brand names for their products.

2 Textile and Fashion The Free Trade Agreement between Thailand and Australia is expected to bring a slightly positive impact to Thailand s textile industry, according to the study by NIDA In the Thailand-Australia FTA seminar yesterday held by FPRI, the research by NIDA has shown that the textile products that should benefit most from the import tariff reduction are lingerie and polyester fiber products due to their high competitiveness and a strong demand in Australian market. However, Thailand wouldn t reap much from importing textile machinery and production materials from Australia as the existing import tariffs are already low and Australia itself is not specialized in the products that are in Thailand s demand. Currently, textile trade between Australia and Thailand is still moderate. In 2002, Australian textile exports to Thailand are valued at 208 million USD, or 9 percent of the total textile imports of Thailand. Thailand is the 20 th highest exporter to Australia or 1.02 percent of Thailand s total textile exports. In short, this FTA agreement should result in greater trading opportunity between the two countries. However, the study also revealed that Thailand s competitiveness in terms of textile industry when compared with other exporters to Australia is set to remain low and has gradually fallen since 2000 mainly attributed by the inability of Thailand to compete in terms of labor cost with neighboring countries, especially India and China. In order to attain higher exports to Australia, the study suggests that producers have to adjust themselves by boosting their production efficiency, cutting cost, increasing management capability, establishing its own brand names within the international market, and expanding market access. Beef Cattle Farms Another agricultural products affected by Thai-Australia FTA is certainly the beef cattle farm. The beef cattle population in Thailand nowadays has reached 5.9 million head. Almost 1 million families in rural area of Thailand have involved in this farming activity in 2003, a huge jump from only 30,000 families in Last year, there were 1.30 million of the new-born beef cattle and around 0.15 million of beef cattle have been smuggled or legally imported from the neighboring countries. The beef cattle farming in Australia is one of the most competitive agricultural sectors of Australia. Australian beef cattle are famous for their high weight-to-meat rate, excellent quality of the meat, disease-free guarantee, and also the variety of choices to suit each customer s need. Farmers in Australia also have an advantage of the cheaper production cost due to the faster growing cattle and the perfection of pedigree itself. Australian beef producers have also the high quality of packing service for delivery. Meanwhile, Thailand will be disadvantaged from the old breeding cattle, although they already well adapt to the local environment and become immune to the tropical disease. However, it should be noted that Thailand has made some good progress on

3 developing a good pedigree beef cattle, a research project implemented by Kasetsart University in Kumphaeng Saen. The new cattle are not only easy to feed, but also have a good quality meat, despite the fact that their weight-to-meat rate is still not as high as Australian cattle. After all, Australia is still regarded as a major cattle breeder for the global market. The price for high quality meat in Australia is around 150 baht per kilograms and for the lower quality is about 60 baht per kilograms, while Thailand has average meat price at around 120 baht per kilograms. There are several market segments for beef products in Thailand ranging from the daily fresh market to the fine restaurants and five-star hotels. The domestic beef products should be able to compete in the former, which is the biggest market segment of the beef product in Thailand, whereas Australian beef is expected to have more advantages in capturing the latter, which demands a premium beef products to serve their customers. The consumption of Thai people is not much as Australian (80% of population are consuming meat), because of some cultural and religious beliefs. The seminar concluded that although TAFTA tends to have a less severe impact on the beef cattle, compared to the effect on the dairy cattle, Thai government still has to work hard on improving the breeding and feeding process, expanding the market channel for farmers, and lifting the quality of beef manufacturing. Accordingly, the government should provide the farmers with slaughtering instruments, build collaboration between related government agencies, minimize rules and regulations hindering the development of the sector, establish the farm standard through registration, and promote the processed beef industry. As for the cattle farmers, they have to improve their production efficiency in order to handle the effects of this FTA with Australia. This includes reducing the cost and improving the quality of the feeding system, attaining the international standard for its product, and building a strong network among producers. Moreover, in terms of manufacturing, producers should acquire good quality equipments, and ensure the high standard of meat quality, safety and cleanness. Dairy Cattle Farms The free trade agreement between Thailand and Australia (TAFTA) has also touched upon the issue of Thailand beef cattle, dairy cow and milk product industry which are included in sensitive agriculture list. One important protection is special safeguard for sensitive agriculture product as this measure will allow Thailand to increase tariff if the import exceeds the specified criteria for certain years. At this seminar Mr Akawan Sangvipak and Virot Dejnamboonchai of Kasetsart University discussed about the breeding of beef cattle and dairy cow. With regard to the size of land and the number of beef cattle and dairy cow, Australia has significant advantages in both aspects. Moreover, the Australian beef herd scheme is far more modern when compared with Thailand, not a surprising finding since Australian is currently the largest beef exporter in the world. Another interesting sighting from the ABS and Dairy Australian data source has found that the number of dairy cow farm in Australia has decreased from 22,000 to 11,000 farms in 2003 because the farmers have adjusted farm management, employed advanced technology with soil quality

4 test, animal quality maintenance, sanitary condition. Besides these factors, the weather condition in Australia is also contributing factor to its success. All in all, the rate of milk production in Australia is considerably higher than Thailand. From the Thailand side, farmers operate beef cattle and dairy cow on a smaller scale in terms of land usage and the number of beef cattle and dairy cow along with the milk production are lower than Australia. While some farmers in Thailand receive assistance from the government in the form of free vaccine, this industry still require further public investment as farmers have to pay for food for the cow and farm management. Besides the beef cattle and dairy cow were raised nearby the house in many locations of rural areas so the sanitary problem still exist and many farmers only operate in this field because they failed to excel in other types of agricultural practices. In terms of statistics, the number of dairy cow is lower than beef cattle as it accounts for around 7 percent of total number of cows. Also the quality of raw milk is not consistent so the farmers cannot have the guarantee price of 12.5 Baht per kg (In Australia, the average raw milk price is 33 Baht per kg), moreover the school milk project cannot help to absorb this abundant of milk because it accounts for only 280 days per year. According to the study of Kasetsart university, Thailand s raw milk cannot compete with the imported milk product from oversea due to the price factor. Tariff reduction Beef, milk, milk product and butter sector will have around years to undergo adjustment for import entry with zero percent tariff rate as the final goal. Nevertheless, if the import from Australia exceeds the specified quantity for certain years, Thailand can impose the old tariff rate (51 percent). Measure to encounter the impact of TAFTA on dairy cow: The government sector has to support the research and development of breeding which is suitable for environment such as weather condition in Thailand. One important thing is they need to raise beef cattle and dairy cow with high protein food. Moreover, the government should promote agriculture cooperatives and meeting of dairy cow farmer group along with the setting up of an organization to monitor the milk industry system and support the consumption of raw milk in other industries. Also the government has to closely monitor/follow the practice of Australian government under TAFTA along with Special Safeguard (SSG). As for the entrepreneurs, structural adjustments such as cost reduction, standard production and farm system improvement and establishment of standard for the product, for example, sanitary, safety, reliance, and networking cooperation are the key to compete with the potential imports Another essential issue for milk industry is the definition of Fresh Milk being used in milk industry by Thailand Food and Drug Administration (FDA) which needs to be modified. This is because it poses as major barrier for some product group such as sterilized milk products. As the price of raw milk in Thailand is higher than powder milk, skimmed milk product, etc. particularly the imported goods from oversea;

5 therefore, some producers have mixed or solely used it instead of raw milk to reap greater profit while the consumers rarely know about this issue. In term of milk consumption in Thailand, the rate of Thailand is quite low comparing with other countries especially western countries and efforts to raise milk consumption is another area worth exploring to assist the Thai farmers for the years to come.