Thailand – the next FTA

29 Nov, 2018

Past governments have gone on a trade agreement signing frenzy resulting in numerous FTAs and PTAs, not to mention dormant trade blocs such as SAFTA and ECO. The Pak China FTA is indicative of most other trade agreements where the increase in exports has been marginal compared to the increase in imports, contributing to the high current account deficit.

The recently elected government appears to be taking a leaf out of past and negotiating an FTA with Thailand. A report by The Pakistan Business Council (PBC) advices caution to officials negotiating terms as Thailand is an export-oriented economy specializing in mechanical equipment, electrical machinery and automobiles. Given the lack of value addition in Pakistan’s basket, the odds of increasing exports that would offset imports appear slim. As it is Pakistan has nearly $1 billion trade deficit with Thailand.

While media reports indicate that Pakistan is concentrating on promoting textile exports, Thailand will likely require access to Pakistan’s auto sector which has been a hurdle in past negotiations. Ali Jamali, CEO of Indus Motors said in an interview earlier this year half of Pakistan’s imports from Thailand consist of auto parts in CKD form. Though Pakistan does have local manufacturing, some parts are too technical to be made in Pakistan as the country does not have the scale of operations required.

Auto vendors have shown discomfort in extending concessions to Thailand. For example, as per Jamali, 64 percent of a Corolla is manufactured with local parts. If duties are lowered under the FTA, there could be a rollback of localized parts and shelving of planned investments for further localization. The currency devaluation and higher interest rates have already impacted the auto sector. The Thai FTA could be another blow for local players.

While the auto sector is not part of the concessionary list in other trade agreements, arguments for opening up the sector to increase competition and efficiency could be made. The list of main imports from Thailand comprise of auto imports facing tariffs upwards of 50 percent. Extending market access could become a case of sink or swim for the auto sector. In the end it boils down to the strategic thinking and negotiation skills of the Pakistani side in coming up with a deal that would allow the country to gain more than lose.

The Pakistan Thailand FTA has been in the works since 2013. If the deal is inked in 2019 as is expected, it may well be the first trade agreement of the incumbent government. It remains to be seen whether PTI will do a better job of negotiating trade deals than their successors have in the past.

Copyright Business Recorder, 2018

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