Southeast Asia in the WTO

4. Thailand and WTO

4. Thailand and WTO 43© 2004 Institute of Southeast Asian Studies, Singapore 43 Chapter 4 TRADE POLICY FRAMEWORK Thailand retains relatively high protection by the standards of other ASEAN-5 countries, despite trade and investment liberalization in the 1980s and 1990s. Its average applied tariff is approximately 16 per cent — almost twice as high as that for Malaysia, Indonesia, and the Philippines (Table I). Thailand also has greater tariff dispersion and escalation, with forty-six different rates and peak tariffs on agriculture and food products, alcoholic beverages, cars and car parts, and textiles. Import surcharges were levied in the wake of the Asian crisis, followed by piecemeal trade liberalization. Non-tariff barriers were reduced through the 1990s but are still not insignificant, especially in the form of a complex licensing system. Thailand has hardly ever used anti-dumping measures or other trade remedies. The Foreign Business Act provides the legislative framework for FDI, with foreign equity limits of 49 per cent in services sectors, unless otherwise indicated, and of up to 100 per cent in manufacturing. FDI in manufacturing is encouraged, as it is in Malaysia. The Thai Board of Investment (BOI) is the lead agency on FDI and reports directly to the Prime Minister’s Office. It operates a complex system of selective incentives to attract inward investment in goods sectors, and often grants 100 per cent foreign ownership. Thailand and WTO 44 Free Trade Agreements in Southeast Asia© 2004 Institute of Southeast Asian Studies, Singapore Thailand also resembles Malaysia in having a protectionist trade-in-services policy. Ownership, entry, establishment, and operating restrictions are higher and more rigid in services sectors than they are in manufacturing. In telecommunications, there are two quasi-monopolistic state-owned operators which effectively control domestic and international services. Concessions have been granted to large, well-connected local companies for wireless and fixed-line operations. The planned corporatization and privatization of the state-owned operators have been delayed due to political wrangling. In 2001, the Thai Parliament passed legislation limiting foreign ownership in local telecoms firms to 25 per cent, but the government is attempting to increase the ownership limit back to the previous 49 per cent. Two independent regulatory agencies are supposed to be established to oversee the telecoms and broadcasting sectors, but this has proved politically messy, with allegations of nepotism and corruption in making appointments. Regulation of licensing, terms of interconnection, and standards setting remain opaque and discriminatory. The state-dominated telecoms sector also keeps the costs of e-commerce artificially high and hampers its development. The Communications Authority of Thailand, the state-owned international services operator, has mandatory shares in licensed Internet service providers. Financial services have been liberalized as a result of the IMF’s structural adjustment programme agreed with the Thai Government in 1998. Full foreign ownership of banks and other financial companies is allowed for ten years. After that period, new local injections of capital are intended to take foreign ownership down to 49 per cent. Four out of thirteen commercial banks in Thailand are now in majority foreign ownership. However, foreign-controlled banks are subject to tight operating 4. Thailand and WTO 45© 2004 Institute of Southeast Asian Studies, Singapore restrictions: they can have a maximum of three branches, only one of which can be located in Bangkok; other restrictions include high minimum capital requirements and narrow limits on employing expatriate management personnel. Tight restrictions also apply in professional services. Foreign participationisconfinedtojointventuresandminorityshareholdings in local firms. In public procurement a “Buy Thai” policy is in operation, with domestic bidders given a preferential price margin. Foreign investors complain of excessive red tape and corruption in customs administration. More generally, government regulation lacks transparency. For example, policy changes are usually made by ministerial announcement, often without forewarning or adequate explanation. This reinforces the impression of unpredictability and incoherence in policy-making. The new, liberal-minded Thai Constitution, promulgated in 1997, introduces checks and balances intended to promote transparency and public accountability. It has set in train a major programme of regulatory reform, among which are the establishment of an independent National Counter-Corruption Commission and new competition legislation. The results, however, leave something to be desired. Thailand’s average bound tariff in the GATT is about 29 per cent (26 per cent for industrial products, 34 per cent for agriculture) with 36 per cent of tariffs unbound (Table I). Bound tariffs are below-average by developing country...