China-Thailand Free Trade Area to Be Upgraded

By Shi Xiaoyu



China-Thailand Free Trade Area to Be Upgraded

By Shi Xiaoyu

December 31， 2015 witnessed the formal establishment of the ASEAN Community. Chinese Foreign Ministry spokesperson Lu Kang said on the same day： “China warmly welcomes the establishment of the ASEAN Community， which marks a milestone in ASEAN integration process. The ASEAN Community is also the first sub-regional community completed in Asia， elevating cooperation in East Asia to a new level”.

As an ASEAN member， Thailand gains new development opportunities in the process of promoting economic and trade exchanges with China.

Thanks to the free trade area， the total trade between China and Thailand has grown rapidly，and the commodity composition of exports and imports has been continuously optimized， revealing complementary advantages and creating a win-win situation. The range of products for trading between the two parties has gradually expanded from a focus on agricultural and forestry products to diversified products， and the composition of products for trading has become increasingly coordinated.

FTA Promotes Sino-Thai Trade

Since the establishment of the China-ASEAN Free Trade Area in 2010， Sino-Tai bilateral trade has been greatly promoted with each other's products gaining easier market access. According to data of the Chinese Ministry of Commerce， Sino-Thai bilateral trade reached US$8.561 billion in 2002. By country， Thailand was the 16th largest trading partner of China， and ranked third among ASEAN countries as trading partners of China. In 2010， the figure hit US$45.713 billion， and China replaced the United States as Thailand's largest export market， while becoming the second largest source of imports for Thailand. In 2014，the trade volume reached US$72.67 billion. China became Thailand's largest trading partner， and the latter was its fourth largest trading partner among ASEAN countries.

Thanks to the free trade area， the total trade between China and Tailand has grown rapidly， and the commodity composition of exports and imports has been continuously optimized， revealing complementary advantages and creating a win-win situation. The range of products for trading between the two parties has gradually expanded from a focus on agricultural and forestry products to diversifed products， and the composition of products for trading has become increasingly coordinated. The trade of agricultural products continues to maintain an important position， however， with constant development， and the proportion of trade of hightech products has also kept increasing.

One of the most significant roles of the free trade area is providing an important platform for the trade of agricultural products between China and Thailand. Due to an advantageous geographical position and climate， high-quality agricultural products have been important commodities exported by Tailand.

Opportunities and Challenges

To adapt to the changing situation， China proposed to build an upgraded version of the free trade area by further lowering tarifs， reducing tarif barriers， promoting substantial opening of the investment feld and actively carrying out a new round of trade negotiations. Tis will bring both opportunities and challenges for further development of Sino-Tai trade.

According to the World Bank's Doing Business 2015， the business environment in Tailand ranked 26th among the 189 countries and regions. In recent years， investment has become an important factor of economic growth in Thailand. In order to attract investment， it reduced the capital transfer fee from 2 percent to 0.01 percent， and cut the income tax of private enterprises from 30 to 20 percent. However， the statistics of theTai Board of Investment show total investment between China and Thailand in 2014 was 33.707 billion baht （US $940 million），a year-on-year decrease of 20.75 percent，but that between Thailand and Japan， the EU and the United States stood at 293.334 billion baht （US$8.19 billion）， 153.657 billion baht （US$4.29 billion） and 130.921 billion baht （US$3.65 billion） respectively. Thus，there is still much room for improvement in investment cooperation between China and Tailand.

In addition to the smaller-scale investment cooperation between the two countries，a bilateral trade imbalance cannot be neglected， either. Due to the zero tariff of the free trade area， the high-quality and inexpensive plastics and other traditional commodities and the mechanical and electrical products with low value-added have become the main Tai commodities imported by China，while China mainly exports mechanical and electrical products and mineral products to Thailand to meet its basic industrial construction. Since the labor-intensive products，resource-intensive products and primary products occupy a large proportion of bilateral trade， and their production technology is not high， the main production cost is largely a labor cost.

With a population of about 1.3 billion，China has abundant labor and natural resources， and thus can produce large numbers of cheap and fine products via advanced production technology and management. Te labor scale of Tailand is much smaller，and its labor costs are higher. How to better solve this problem is a test in development of economic and trade relations between the two countries.

How to Upgrade Sino-Thai Trade

Although great competition on labor-intensive products exists， the two sides still have their own comparative advantages. For example， Thailand has comparative advantage in such labor-intensive products as computers and parts and integrated circuits，and China's demand focuses on meeting the domestic development of computer technology and integrated electronics. Meanwhile，Thailand has an absolute advantage in natural rubber and related manufactured products. China's electrical appliances and parts， machinery and other capital-intensive manufacturing products have a comparative advantage. Thus， the two sides should give full play to their respective comparative advantages to and seek new directions for greater trade benefts. Eforts should also be made to develop bilateral trade in service products since physical goods now dominate，so as to optimize bilateral trade structure，promote common development of the two countries and achieve win-win results.

The development of China-Thailand Free Trade Area greatly promoted bilateral trade. Thai girls promoting Thai food at Thai Commodities Fair in Shanghai's Super Brand Mall.

Building an upgraded version of the free trade area requires an open market in the felds of goods， investment and services. Hence， China and Thailand need to make their markets free and convenient to a high degree. They should further open their goods markets and encourage and support more demonstration projects similar to the Thai-Chinese Rayong Industrial Park. With respect to services， they should be committed to opening the sectors of professional services， construction， transportation and tourism， and so on， and make full use of each other's comparative advantages to optimize the export structure to promote the further development of services. As for investment，the two sides should tap each other's fields for investment， such as Tailand's agricultural products， machinery， energy resources and transportation， and encourage enterprises to “go global” through investment and joint venture while simplifying approval procedures.

The Chinese believe building roads is the frst step to become rich. At present， the highway and railway links between the two countries remain much to be desired， and there is also large space for building airports and seaports. The clearance procedures of the two sides are still very complicated， increasing the transaction costs of zero-tariff free trade. Tus， the two sides need to further strengthen interconnection by making use of China's rich technology and experience to promote the building of the Belt and Road Initiative and the comprehensive sea，land and air channels of the 21st-Century Maritime Silk Road so as to reduce logistics costs. It is advisable to solve the financing problems by virtue of the China-ASEAN Investment Cooperation Fund to create a new pattern of interconnection.

To keep up with the times and conform to the development of the times is also a requirement for Sino-Thai trade development. Thailand is an important partner of China in building the 21st-Century Maritime Silk Road. Te two countries should actively seize the business opportunities brought by the building of the Belt and Road， make full use of the China-ASEAN Maritime Cooperation Fund to strengthen cooperation in fishery，marine tourism， desalination of sea water， development of marine renewable resources and research on ocean climate change， and expand Sino-Tai marine economic cooperation.