The Thailand-Australia Free Trade Agreement (TAFTA) has been in place since January 1. Matthew Brooks investigates opportunities for Australian exporters and finds the time is right to develop partnerships and reap success.
While Thailand actively pursues similar trade agreements with other countries, including the United States, the message for Australian exporters is clear: now, not later!
According to Ian Davey, Austrade’s Trade Commissioner in Bangkok, the balance of trade between Australia and Thailand is in Australia’s favour for the first time. This is further evidence that bilateral trade between the two nations is increasing, but is still below that of other, comparable Asian economies like Indonesia and Malaysia.
“Thailand is Australia’s 11th largest export market and second largest in South East Asia, worth over $2.8 billion annually,” Davey says. “However, we expect this to significantly increase with the introduction of TAFTA. Before the agreement, 75 percent of our exports there were subject to tariffs. Now, under the agreement, they are steadily being reduced to zero.”
Economic modelling undertaken on behalf of the Department of Foreign Affairs and Trade estimates TAFTA will increase Australia’s gross domestic product (GDP) by 0.03 percent by 2010, and increase Thailand’s GDP by 0.45 percent from 2020.
Yet the real message Davey wants Australian exporters to understand with the TAFTA is that time is of the essence. “The TAFTA signing is an ongoing process, due for review in three years,” he explains. “We view it as a living document because many of the sensitive sectors, such as textiles, automotive, and dairy, are still subject to tariffs. However, these will be gradually phased out by 2010.
“Thailand is busy negotiating bilateral trade agreements with a number of other countries, so Australian exporters have a finite time to capitalise fully on TAFTA.”
Austrade advises that the competitive advantage Australian companies now have under the agreement will be limited to 18 months to two years. “Therefore, it is imperative that Australian exporters seek to gain a foothold in the Thai market now so they are already well established when other trade agreements come into force,” Davey says.
Australian Business Limited’s International Trade general manager, Chris Gibbs Stewart, agrees, and adds that the Federal Government has skilfully negotiated TAFTA because the phasing out of Thai tariffs can be accelerated. “Because Thailand is negotiating a number of other trade agreements, part of TAFTA stipulates tariff elimination for Australian goods and services can be accelerated to match any other bilateral agreements Thailand might sign,” he explains.
“This is important because it means Australia is not at a disadvantage in signing one of the first trade agreements with Thailand. In fact, it means our early advantage can be maintained.”
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Inside Story
On February 6, Thailand went to the polls and the incumbent Prime Minister, Thaksin Shinawatra, was returned with a greater majority, endorsing his mandate to move Thailand from a supply-driven market to a demand-driven economy. As such his government is undertaking a number of large-scale infrastructure projects, encouraging greater direct foreign investment and actively pursuing further trade agreements.
Mark Driscoll, NSW chair of the Australia Thailand Business Council and former managing partner of Coudert Brothers Lawyers’ Bangkok office, says these initiatives afford a number of specific opportunities for Australia. “Australian companies should investigate the opportunities arising from Thaksin’s economic initiatives as well as the rapidly expanding Thai tourism sector. These include the construction of a new Bangkok airport, road, tram and train transportation, low cost housing, power generation, marina developments, hotels and shopping malls.
“For example, a staggering 15 new hotels are planned in the next 12 months for Koh Samui alone. The importance of TAFTA in relation to Thailand’s expanding tourism sector can’t be underestimated. There are big opportunities awaiting Australian companies here.”
Driscoll adds that the Thai Government is actively seeking further Australian investment, know-how, and personnel, across waste, water, and environmental management, and corporate training, as well as in the secondary and tertiary education sectors.
“As well as these opportunities, Thailand is seeking offshore expertise and products in agribusiness (ranging from pet food, pasta, fruit and veg through to fertiliser and machinery) as well as cosmetics and skincare, swimwear, solar energy, water pumps, boat handling, and engineering consultancy.”
Despite Thaksin’s recent landslide victory in February’s election, Davey says there are a number of factors Australian exporters and investors should be aware of. “Certainly Thailand is enjoying an era of unprecedented political and economic stability, with GDP growing between 5 and 6 percent. However, there are a number of challenges to continued growth and these include high oil prices, drought, escalating interest rates, the slow move to privatisation (despite commitments to the contrary), bird flu, and civil unrest in Southern Thailand.”
The Boxing Day Tsunami has not had a negative economic effect on Thailand as previously thought. Despite tourism suffering a moderate downturn (Phuket operating at 40 percent and increasing), the short-term effects on overall economic activity will be largely offset by follow-on reconstruction, which the Thai Government has committed to achieve without any international aid. Thailand, like other Tsunami affected South Asian countries, is using the disaster rebuilding processes to improve infrastructure.
“Our latest forecasts are that the Tsunami will reduce Thailand’s GDP over the short to medium term by as little as 0.1 to 0.3 percent,” Davey says. “Australia has gained great respect from the Thai people for being the leading nation in victim identification in the devastated areas, but there are limited opportunities for Australian companies in the immediate reconstruction. Once these areas are back to full capacity opportunities for Australian companies, as a result of both TAFTA and the expanding Thai tourism market, will significantly increase.”
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FACT FILE
Population: 64.6 million
Status: Former monarchy, now a democracy with Thailand’s King still deeply respected and maintaining a stabilising, behind the scenes role. Member of WTO, key part of ASEAN, and founding member of The Cairns Group and APEC.
Gross domestic product (GDP): US$176.7 billion (2005 EIU forecast).
Average GDP growth over last decade: since the Asian economic crisis of 1997 average GDP growth has been approximately 5 percent.
Foreign direct investment: Levels of Australian investment in Thailand remain low; ABS figures from 2003 at $480 million, while Thai investment in Australia is even lower at $161 million. It is envisaged TAFTA will significantly increase this.
Trade with Australia: Over $2.8 billion annually and increasing. Presently Thailand is Australia’s 11th largest trading partner.
Customs: Thais hold both the Royal Family and Buddhism in high regard and foreigners should respect this absolutely. For example, it is a criminal offence in Thailand to talk disrespectfully about the Royal Family. Maintaining strong business contacts, proper etiquette and image is more important than actually doing business. This is achieved via social engagements, which play an important part in developing trust. These tend to take place outside of office meetings. In Thailand the head is sacred, so touching a Thai person on the head is considered offensive. Shoes are often removed at places of work.
Profit from Waste
World Waste Solutions based in Western Australia has been successfully exporting its signature product, Grease and Odour
Eliminator (GOE), to Thailand for one and a half years. The company’s managing director, Chris McLaughlin, says it is all about establishing effective partnerships … while trying to negotiate Bangkok traffic!
“Our GOE product encourages enterprise to replace traditional toxic, dangerous chemicals in waste management with natural, safe, environmentally responsible solutions,” McLaughlin says. “We were encouraged by Austrade to undertake a marketing visit to Bangkok, and under the New Exporters Program five appointments were made with a range of established companies in Thailand.”
One of these appointments bore fruit, with a distribution arrangement being forged with Asian Chemicals and Engineering (ACE).
“ACE already had a joint venture with Australia’s Transfield Engineering so they were used to dealing with Australian companies and this helped our cause,” McLaughlin says. “They were looking for an enzyme-based product which they could encourage their clients to use instead of the carcinogenic chemicals used previously.”
These clients include hotel chains, tourist resorts, and industrial areas.
“Anywhere, where large scale waste management is a concern,” McLaughlin added.
He believes Thailand is one of the increasing numbers of South East Asian countries becoming far more environmentally aware, which means expanding export opportunities for Australian innovation in this sector.
“Thailand is one of the former Asian Tigers which, since the economic crisis, has sought to upgrade and improve infrastructure, processes, and environmental concerns.”
Conducting business in Thailand was easier than he expected, and language difficulties he expected were not an issue. “It was my experience that nearly everyone spoke English, as it is primarily the Thai’s second language. The Thai people are very friendly, enthusiastic, and extremely encouraging of Australians coming over to do business with them. As long as Australians are familiar with and respectful of Thai customs, doing business there is very easy and straightforward—just ensure you leave plenty of time between meetings in Bangkok because the traffic there is just unbelievable!”
So what advice would he offer other Australian companies looking to take full advantage of TAFTA? “It is extremely important to establish partnerships or joint ventures. Going solo is not the way to go as established connections and networks are vitally important. However, be very selective of these partnerships and explore as many as possible. We are now actively seeking more partnerships in Thailand and this is the best way to move into the market. Establish a successful partnership and once that has been set, seek further opportunities.”
