There is an emphasis on tariffs being an important form of trade barrier. As a result, tariff reduction tends to promote more trade and thus increase the social welfare of FTA partners, provided that there are no significant trade diversions. Analysis of the first five months of data (November 2007-March 2008) shows that JTEPA has produced tariff savings on Thai exports to Japan worth about $75 million. The top three beneficiary sectors were processed foods, textiles and garments, and jewelry and ornaments.
A Japan External Trade Organisation (JETRO) survey concluded that Japanese companies were more interested in JTEPA than in any other FTA that Japan had previously concluded.
Although Thai exporters appear to benefit from preferential treatment granted under JTEPA, they still face problems related to utilising JTEPA privileges. For example, small exporters complain that the ‘certificate of origin’ application procedure is complicated. Others say that preferential tariff margins are too low and rules of origin for some products are too restrictive to be useful.
As AJCEP has recently gone into effect, speculation relating to the pattern of its utilisation by various sectors may be carried out.
Jewelry and ornaments: Thai exporters have been major beneficiaries under JTEPA. However, the tariff margin granted under JTEPA will become even less significant when Japan reduces its tariff under other trade agreements.
Processed foods: The Thai food industry has utilised JTEPA’s tariff preferences at a moderately high level. Two major problems remain in utilising the privileges. First, rules of origin for some products, such as pet food, are considered too restrictive for Thai exporters. Second, Japan’s high standards for food safety imposed considerable costs on Thai producers, and thus reduce their access to the Japanese market.
Leather products: There has been modest utilisation of JTEPA privileges by Thai leather exporters. Some major Thai export items, such as sport shoes with outer composition leather, have not been granted any preferential tariff treatment. The Japanese leather market is still heavily protected.
Textiles and garments: Thai textile and garment industry is a major beneficiary of JTEPA. However, there are problems that prevent greater utilisation. In particular, rules of origin for certain products, such as carpets, are overly restrictive for Thai producers.
Electrical appliances and electronics: One main issue for JTEPA is to establish a mutual recognition agreement that would reduce duplicated testing costs. Implementation of this scheme is still ongoing.
Furniture: The Thai furniture industry stands to gain very little from JTEPA.
Automotives and parts: Japanese assemblers are major beneficiaries of JTEPA.
Iron and steel: Japanese producers expect to benefit from Thailand’s tariff reduction under JTEPA.
While JTEPA and AJCEP have the potential to increase the bilateral trade between Thailand and Japan, it seems that many issues still need to be addressed before agreements can be fully utilised.
From a Thai perspective, there is a series of policy suggestions that can be put forward. The Thai government should aim to negotiate further tariff reduction and relaxation of rules of origin for certain products. The Thai government should closely follow changes in Japanese trade policies and regulations, and provide for the private sector that will help them respond to the change.
This is a summary of a full article available here [pdf] from the TDRI Quarterly.
Somkiat Tangkitvanich is Vice President and Research Director for Information Economy, Science and Technology Development Program, Thailand Development Research Institute (TDRI).