FBA Issue 31: March / April 2010

 

  

 

 

Outside Thailand, the common perception is that AFTA (the ASEAN Free-Trade Area) is gravy for the region's second biggest economy. In Indonesia, the lingering fear about the economic accord is that its market, the biggest in the ASEAN, would be swamped by Thai exports.

 

The same fear prevails in the Philippines, where hog and corn farmers, among other sectors, are worried that their produce will be no match to Thailand’s, which get heavy government subsidies.

 

The agreement, which takes effect January 1 for original ASEAN members Thailand, Brunei, Indonesia, Malaysia, the Philippines and Singapore will cut tariffs to 0-5 percent on most products, including 23 agricultural goods.  Newer members Cambodia, Laos, Myanmar and Vietnam will have their turn in 2015.

 

 

Along with the removal of import caps, the tariff cuts are a major concern for Filipino, Indonesian and Malaysian farmers. A leading exporter of agricultural goods, Thailand enjoys several advantages over its neighbors. It has advanced agricultural infrastructure and over the years sufficiently mastered the art of efficient production, not to mention an abundance of raw materials.  All this makes Thai meat, crops and seafood products comparatively cheaper.

 

Take the case of sugar, a major argument being used in the Philippines against AFTA. In Thailand, it is said, a typical sugar planter would be happy if he sells a 50-kilo bag of sugar at P400/bag while the Philippine cost of production alone for that same bag of sugar is around P800/bag.

 

Filipino hog raisers also raise the same point against AFTA. Interestingly, they also single out Thailand as a stiff competitor, pointing out that the government subsidies Thai hog producers enjoy give them competitive pricing advantage in the world market. Ironically, Thais themselves consider swine the one segment of the country’s meat and livestock industry that is low quality and not ready to export.

 

...but Thailand fears ASEAN imports

 

Strangely, despite these perceived advantages, there’s opposition in Thailand against AFTA. Although the nation will enjoy cheaper imports and an increase in exports, concerns have persisted over the agreement’s benefits for Thai local farmers. The Horticultural Association of Thailand, for one, sought to delay implementation of AFTA to allow Thai farmers of highly sensitive goods such as corn, palm oil, coffee, silk, coconut and garlic, "to restructure their marketing plans" and avoid drastic drops in prices.

 

Interestingly, Thailand has been one of the brains of the "free trade area." It proposed the formation of AFTA to streamline the region's cumbersome preferential trading arrangements (PTAs) to respond to the increasing regional trade flows created by the EU and NAFTA.

 

Like the Filipino corn farmers who feel that AFTA could drive them out of their farms due to cheaper corn imports, Thai farmers also feel vulnerable. The Thai palm oil sector expects its domestic oil to lose out to Malaysian exports, which are 25 percent cheaper. Malaysian farms enjoy also lower production costs as their fertilisers and agricultural chemicals, which are half the price of those in Thailand.

 

Before AFTA, Malaysia’s price advantage was counterbalanced out in the Thai market by a 20 percent import tariff and transport costs. Under AFTA, Malaysian oil has a zero tariff in Thailand, making it 20 percent cheaper than its local counterpart, according to the Kasikorn Research Center, the country’s leading think-tank.

 

 

But more strangely, even feed millers, who seem to have everything to gain from the free-trade accord, are also reluctant to embrace AFTA. For years, the Thai Feed Mill Association has been asking the government to remove tariffs on all imported feed ingredients to improve their profit margins, capped by government control on feed prices.

 

With AFTA, the vast Thai feed sector gets, in a challenging way, more than it bargained for. On one hand, as long as they are sourced from other ASEAN countries, tariffs on feed ingredients such as soymeal (2 percent), rapeseed oil cake (9 percent), fishmeal (10 percent,  plus a special duty), meat meal (1 percent), brans and sharps, cereals and legumes (5 or 9 percent), and brewing and distilling industry residues (9 percent) are all abolished.

 

On the other hand, a protective 9 percent import duty on prepared animal feeds is also abolished, leaving local feed products to compete with imports without protection. This however, is more a problem in theory than in reality. As one of the world’s leading feed producers, Thai integrators have nothing to worry about from any of its ASEAN neighbours, none of which are a major feed exporter.

 

Just the same, feed millers are wary about AFTA. Mr. Pornsilk Patcharintanakul, president of the Thai Feed Mill Association, recently warned the government that the impending full implementation of AFTA could lead to serious problems for the feed mill sector, particularly the livestock feed segment.

 

The government, he said, should carefully weigh the impact of AFTA on feed ingredients, especially corn. Under the free-trade agreement, corn trade among ASEAN members would be tariff-free. The scheme, Pornsilk said, could open up a floodgate of cheap corn imports from neighboring countries.