Does afta create More Trade for Thailand? An Investigation of Some Key Trade Indicators
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ISIC
Indon- esia Malay- sia Philip- pines Singa- pore Chi- na Ja- pan Korea Per cent of exports ISIC1
0.19 0.03
0.02 0.02
0.08 0.03
0.02 6.75
ISIC2 3.72
0.04 0.00
0.01 0.62
0.00 0.00
1.45 ISIC31
0.18 0.32
0.26 0.21
0.27 0.15
0.09 10.56
ISIC32 0.40
0.25 0.13
0.41 1.15
0.30 0.60
10.48 ISIC33
0.01 0.15
0.01 0.03
0.11 0.09
0.01 2.02
ISIC34 0.49
0.15 0.04
0.13 0.10
0.08 0.09
1.26 ISIC35
2.25 2.06
1.20 4.26
1.38 1.73
1.56 10.51
ISIC36 0.10
0.28 0.04
0.06 0.12
0.37 0.06
1.74 ISIC37
0.20 0.60
0.02 0.34
0.39 0.52
0.07 2.19
ISIC38 2.38
29.09 31.04
29.70 16.06
15.78 16.92
46.91 ISIC39
0.00 0.12
0.01 0.01
0.09 0.58
0.15 3.71
Source: Author’s own calculation. Calculated from PC-TAS, UN. Besides comparing trade structures among countries, the three indicators referred to above – ESI, IIT, and RCA rank correlation – can also determine trade diversion. Because all three indicators determine a high degree of trade similarity among AFTA member countries, trade diversion might be created within the AFTA trade bloc, while trade creation within AFTA is also less likely to be created if there is a high degree of trade similarity. Therefore, if we want to analyze the possibility of trade diversion among AFTA member countries due to the impact of China, due to the sufficiently high values of ESI, IIT, and RCA rank correlation indicators, Thailand will not suffer from China’s impact, but rather enjoy the benefits from trade diversion due to the Chinese economy. Nevertheless, China has a greater competitive impact on costs due to its relatively low labor costs. In addition, higher IIT values indicate a trend not only toward more economies of scale in production, but also toward product differentiation, long-term business relations, and quality upgrading among ASEAN member countries due to fiercer competition once free trade is fully implemented in the future. With regard to international trade, one can distinguish between market diversification and product diversification. Market diversification is ex- plained by analyzing the diversification of the country’s export and import markets. The risks from a given shock from a country’s trading partner might be lower if market diversification existed. Market diversification also 70 Piriya Pholphirul helps to decrease the aggregate volatility due to such shocks. Thailand’s potential market is composed of ASEAN members; Thailand’s exports to ASEAN increased dramatically from 12 per cent in 1990 to 21 per cent in 2003. Nevertheless, the increase in Thailand’s export share to ASEAN is a tradeoff for the reduction of its export share to other major export markets: European Union countries, Japan, and the United States, which amounted to 23 per cent, 17 per cent, and 23 per cent respectively in 1990 and to 15 per cent, 14 per cent and 17 per cent respectively in 2003. Product diversification of a country’s export structure also indicates a low dependence on primary export groups, the prices of which are volatile. Based on the traditional theory of international trade, product diversification in exported items might imply a comparative advantage for domestic production. Thailand’s major export items are computers and components (which make up around 10 per cent of its total exports), car assemblies and spare parts (6.9 per cent), electronics and circuits (4.7 per cent), petrochemical products (3.8 per cent), and para rubber (3.2 per cent) respectively. In comparison to other emerging countries, this evidence indicates that Thailand’s export structure is diversified among different product groups. The Herfindahl-Hirschman Index (HHI) is computed to measure the extent of Thailand’s export diversification. 17 The HHI is found to vary around 0.25 to 0.3, which implies a high degree of export diversification (or a low degree of export concentration). 18 A high degree of product diversification gives Thailand substantive opportunities for the use of market-penetration and market-development strategies on launching new and diversified products in the ASEAN market. 17 The Herfindahl-Hirschman Index is a quantitative measure of export concentration (or the inverse of diversification). The more diversified the composition of exports, the lower the value of this index. 18 Pholphirul and Vichyanond (2006) explain the importance of a high level of ex- ports for Thailand’s economy. They also point out why the external shocks that the country has suffered have failed to diminish its macroeconomic growth process.
Does AFTA Create More Trade for Thailand? 71
Figure 2: Herfindahl-Hirschman Index of Export Diversification Source: Author’s own calculation. Data collected from PC-TAS, United Nations. Even though the above results reveal that AFTA creates a low degree of trade for Thailand, the trade-diversion effect can also be small. ASEAN members, including Thailand, have not transferred their import transactions 0. 2 3 0. 2 4 0. 2 5 0. 2 6 0. 2 7 0. 2 8 0. 2 9 0.3
0. 3 1 199 5 19 96 1997
199 8 19 99 20 00 200 1 20 02 200
3 72 Piriya Pholphirul from non-member trading partners to member ones. This means that there has been no import trade diversion in the ten-year period since AFTA was established. One possible interpretation is that the dynamic network of domestic production together with foreign investment projects in ASEAN countries have caused these countries to prefer importing from non-mem- bers outside the region (Kien and Hazimoto 2005; Elliott and Ikemoto 2004).
4 Conclusion and Policy Recommendations The aim of this paper was to examine whether the ASEAN Free Trade Agreement (AFTA has created trade for and/or diverted it away from Thai- land by referring to three trade indicators: the Export Similarity Index, Re- vealed Comparative Advantage (RCA) rank correlation, and the Intra-Indus- try Trade Index. Consistent with previous studies quantifying the effects of AFTA by using the gravity model, it shows a high degree of similarity be- tween the trade structure of Thailand and AFTA, which indicates fewer benefits of trade creation from AFTA and a greater possibility of trade diversion when the AFTA scheme is fully implemented. This similarity pattern explains the reasons for future collaboration among member coun- tries and supportive arguments for the future extension of ASEAN to be- come “ASEAN+”. In addition to gains from trade in different structures explained by RCA rank correlation, intra-industry trade implies gains from product varieties. The estimated results of product differentiation and intra- industry trade patterns show that trading with ASEAN countries should enhance the trade gains for Thailand, not only by widening product ranges, but also by expanding product varieties. This paper has focused on trade in manufacturing goods, one of the most dynamic export sectors of recent decades, provoking drastic changes in the composition of exports among ASEAN countries. As well as promot- ing intra-regional trade among the ASEAN members, a more investment- friendly policy should be adopted throughout the region; the AIA should attract more foreign direct investment (FDI) inflows from both ASEAN and non-ASEAN source countries. The goal of the AIA is to create a liberalized and transparent investment environment for ASEAN investors by 2010 and for any investor by 2020. Therefore, the AIA should directly benefit Thailand, which will then create more ways of attracting foreign direct investment. This greater attractiveness will stem from the economies of scale of the expanded ASEAN market as well as the free movement of goods between the ASEAN economies. Nevertheless, within the region, Thailand is competing against other ASEAN countries for FDI, especially in
Does AFTA Create More Trade for Thailand? 73
areas where it has a comparative advantage relative to other ASEAN econo- mies.
The greatest challenge that Thailand has faced so far within the ASEAN context was when China started to become a formidable competi- tor for foreign investment and began to grow more active in export markets. Labor-intensive manufacturing activities then started to get relocated to China. Theoretically, with a market covering 500 million people, ASEAN has no reason to feel discouraged. The new challenge is in finding out how Thailand and other ASEAN members can obtain market access to China by expanding the ASEAN-China framework as well as other ASEAN+ agree- ments. 19
A number of issues ought to be of concern to relevant policymakers in Thailand (as well as in other ASEAN countries). First, Thailand should make an effort to reduce its transaction costs and improve trade facilitation. Even though a number of studies such as those by Siah et al. (2009) and Hapsari and Mangunson (2006) found that distance has no significant effect on trade volume among ASEAN countries, improving trade facilitation helps reduce transaction costs not only in intra-ASEAN trade, but also with respect to other trade blocs. Second, besides trade cooperation in an FTA context, Thailand should strengthen and deepen its cooperation in various ways, for example promoting trade in services (e.g. education, tourism, construction), cultural exchange and personal movement, and investment. The strengths and weaknesses of Thailand (as well as each member country) should be identified. Third, if there is some concern about trade diversion, then Thailand has to enforce AFTA’s rules of origin requirement to make goods more difficult to import from non-ASEAN nations. Theoretically, the way to mitigate the degree of trade diversion is to set the long-term goal of moving ASEAN into global free trade arrangements. However, in the short to medium term, the expansion of ASEAN to include other potential coun- tries (ASEAN+) has to be emphasized, as this study makes clear. Nevertheless, ASEAN+ may possibly distract Thailand as well as other member countries due to the effect called the “spaghetti bowl” in which free trade agreements between Thailand and other countries may overlap with 19 Sudsawasd and Mongsawad (2007) support the idea of focusing on ASEAN+ by investigating the economic impact of bilateral free trade agreements (FTAs) be- tween the ASEAN-5 member countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) and the seven FTA candidates (Australia, India, Japan, New Zealand, South Korea, and the United States). By using the gravity model and the Computable General Equilibrium (CGE) model, they suggest the strategy of ex- panding the ASEAN-5’s partners: ASEAN + 3 FTA, ASEAN-China FTA, ASEAN-US FTA, ASEAN-Japan FTA, and ASEAN-India FTA. 74 Piriya Pholphirul the ASEAN+ framework. These agreements (summarized in the table below) have already been signed and named as different agreements, such as the bilateral agreements between Thailand-India, Thailand-Japan (JTEPA), Thailand-Australia, Thailand-New Zealand, and BIMSTEC at a multilateral level. With limited resources, Thailand (as well as each member country) may have to prioritize all its potential agreements. This is both a political and an economic issue determining the order of PTA attractiveness. Table 6: Thailand’s Bilateral and Regional Trading Initiatives Yüklə 248,57 Kb. Dostları ilə paylaş:
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