Taking a Closer Look at Thailands Free Trade Agreement - Essay Example

The term "free trade" has become very politically loaded, and it is not uncommon for so-called "free trade agreements" to impose additional trade restrictions. Such restrictions on trade are often due to domestic political pressure by powerful corporate, environmental or labor interest groups. Free trade agreements are a key element of customs unions and free trade areas. The details and differences of these agreements are covered in their respective articles (Wikipedia Website). The spate of Thailand's bilateral FTAs had sprung from its intense need to supply more markets for its own exports after the failure of the WTO negotiations in the Doha Development Round.

For others, this represents a shift in the Thai trade policy from multilateralism that Thailand advocated for two decades since it became a GATT member in 1982. Either way, new challenges abound for all parties due to this recent policy change leaning towards bilateralism and regionalism instead of multilateralism (Chirathivat & Mallikamas, 2004 p. 37). Before this, Thailand already built bilateral and regional trade ties with a number of trading partners in Asia and the world. In further improving the nature of its FTA policy, there will be implications for the country since many businesses there are not broadly multilateral.

With regards to the impact of the FTAs, costs and benefits, and adjustment mechanisms are still being scrutinized. However, the government is strongly determined to realize these alternative liberalization paths and incorporate it as an integral part of Thailand's new trade strategy.To elaborate more on Thailand's pivotal decision of adapting new strategies in its FTA, Chirathivat & Mallikamas (2004, p. 40) mentioned that the financial crisis of 1997-98 could be the main reason. Thailand and generally the East Asian region felt the need to promote closer economic co-operation.

Although regionalism is regarded as the second-best policy, many countries have started to explore this alternative. The effect of competitive liberalization contributed in a way to the rise in regionalism worldwide and also in East Asia and Thailand. The advantages should maintain "competitive liberalization" that would open up favorable markets and ease the regulations within the group, which would put an outsider country in a possible unfavorable situation.As a result, foreign companies with a presence in Thailand are currently shifting strategy to take advantage of its FTAs.

For instance, Toyota Motor Corp. is shipping manual transmissions for pickup trucks from India to Thailand, and sending Corolla knockdown kits back the other way for assembly in India. Both items benefit from the lower tariffs of the FTA and greatly help increase Toyota's price competitiveness (Nagao, 2005). In addition, Japan is pressuring Thailand to eliminate import tariffs on cars with 3000cc engines and luxury cars over 3000cc before the seven-year period offering by Thailand. It seems Japan wants to increase import quotas of Japanese cars by 1-3 per cent of total production in Thailand.

In fact, Japan has warned Thailand that its proposal on luxury cars is the most important