Competitiveness, impacts, and possible choices of Thailand in the framework of TPP

Transcription

1 Competitiveness, impacts, and possible choices of Thailand in the framework of TPP Wannaphong Durongkaveroj 1*, Chamaiporn Roongsaprangsee 2 and TuangpornJanthok 2 ABSTRACT Trans-Pacific Partnership (TPP) becomes the newly interesting issue among developing countries located in Southeast Asia, especially Thailand which its economy mainly relies on exportation. The purposes of this study are to: derive the competitive and sensitive list of commodities for Thailand and TPP members so as to assess the possibility of trade s benefit through Revealed Comparative Advantage (RCA) index, and to quantitatively estimate the impacts from joining TPP through Computable General Equilibrium (CGE) model using Global Trade Analysis Project (GTAP) Model. According to the study based on mathematical framework, the findings reveal that TPP potentially provides the opportunity for Thailand to increase the export in processed foods and manufacturing products. However, the domestic market for many products, for example, fur, cork, ores, and nickel, is likely to be sensitive which is possible to yield the negative impacts for these domestic sectors. Moreover, empirical analysis results of this study indicate that Thailand enjoyed a huge increase of Gross Domestic Product (GDP) after participating TPP agreement. However, the best choice is to become a member of this regional economic integration after the success of TPP s first track. Thus, Thailand should take the advantage of this economic integration by joining TPP after other countries and exporting its competitive goods including processed foods and industrial products. Key words: TPP, economic integration, trade liberalization, RCA, GTAP.. *Corresponding author; address: wannaphongd@gmail.com 1 Fiscal Policy Research Institute, Bangkok, Faculty of Economics, Chiang Mai University, Chiang Mai, 50200

2 INTRODUCTION As we known, Thailand is one of the export-led growth countries whose its total exports is worth around billion US dollars in 2013 accounting for 70 percent of its Gross Domestic Product (GDP). Among its trading partners, China is the main Thailand s exporting market which is followed by the U.S., Japan, the E.U., and Hong Kong. Its major exporting products are automobile, rubber products, electronic commodities, and agricultural products, for example, processed rice and sugar. While its main importing products are fuel and intermediate inputs for its manufacturing industries, gold (unwrought), and iron ore. However, in the last two years, its export sector is likely to be fluctuated from the familiar partners, for example, ASEAN countries, China, and the E.U. Thus, the challenges in the next period are to sustain the economic relationship with current market and to expand the opportunity to more potential market. When exportation is the driving force of economy growth (Emery, 1967), trade agreement is necessary to encourage the traded commodities. Since the unsuccessful Doha round, bilateral and inter-regional trade agreements likely to be widespread around the world. Nowadays, Thailand has already signed the Free Trade Agreement (FTA) with many countries, for example, Australia, New Zealand, Chile, and Peru. There are also many agreements under the Association of Southeast Asian Nations (ASEAN), for example, China, and South Korea. Besides FTA, Thailand has economic agreement aimed at boosting trade with Japan (JTEPA) and launches FTA initiative with Turkey and Canada. Unavoidably, another interesting trade agreement is the Trans-pacific partnership (TPP). TPP is the world's largest trade agreement developed from the pacific 4 (P4) members including Chile, Brunei, New Zealand, and Singapore. In 2008, the United States has joined this economic integration which further expanded to cover twelve countries including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The object of the TPP as argued by Akgul, Villoria and Hertel (2014) is to enhance trade, investment, and development for leading sectors of emerging market and advanced economy by creating platform for economic integration through the Asia-Pacific region. There are premises to create high trade standards and to reduce the trade barriers in order to develop such a great benefit to the member countries. The framework of TPP tends to cover the intellectual property, investment, E-commerce, medicines and health, environment, financial regulation, labor rights, tobacco control, and agriculture (Chan, 2013). For example, in terms of intellectual property, the concern about intellectual property protection has been raised for some industries such as IT company, film and music industries. With the possible gain from trade, there are many countries announced their interest to join the negotiation, for example, South Korea, Philippines, and Thailand.

3 After expressing the interest to join TPP, Thailand received the invitation to join this initiative but there is no official announcement from Thai government to join that agreement. However, the content of TPP was studied and discussed through many seminars set by Department of Trade Negotiation under the Ministry of Commerce. The two main purposes of this study are to derive the competitive and sensitive lists of goods of Thailand and match them with other members of TPP using Revealed Comparative Advantage (RCA) index and to quantitatively estimate the impacts of joining Trans-pacific partnership (TPP) among many scenarios through Computable General Equilibrium (CGE) model using Global Trade Analysis Project (GTAP) model version 8.0. MATERIALS AND METHODS For the first purpose, RCA (Balassa, 1965) which is based the concept on Ricardian comparative advantage was calculated to derive the competitive and sensitive list of commodity. RCA is widely accepted from many authors, for example, Khatibi (2008) and Sanidas and Shin (2010). This study focuses on the commodities at HS-2 digits among thirteen countries using the data from international trade centre. Also, only the significant commodity is list. The significance is measured by RCA value - the top five commodities which have the highest and lowest RCA value are listed. For the second purpose, GTAP Model which is one of the Computable General Equilibrium (CGE) models was performed. The GTAP model version 8.0 written by GEMPACK software is a static model assumed the Walras s law of perfectly competitive market with fixed employed labor and capital. A set of simultaneous equations displays agent's behaviors, for example, firm, household, and government. GTAP model can simulate the impacts from many exogenous macroeconomic shocks, especially a change in import taxes. Its basis relies mainly on the information of Social Accounting Matrix (SAM). However, GTAP model has various limitations. Firstly, the database in each country is not in the same year but the relationship across sectors (Leontief s coefficients from I-O table) is seemed to be unchanged over time. Secondly, there are only 57 sectors which it is restricted to modellers to carry out a large model. Thirdly, the number of exogenous demanded shocks is less than other CGE models. Lastly, GTAP cannot use to be certainly accurate forecast in short term but the direction of gains from trade liberalization is widely accepted due to the economic structure under SAM. As CGE model can solve some economic problems beyond econometric model, GTAP is a well-designed tool to help economists guide trade policy properly. There are various papers studied on trade integration using CGE model through GTAP model, for example, Stern and Stevens (2000) studied the possible effects of FTA between India and Brazil which found that benefits borne to two economies are modest. In 2002, Nakajima found a positive impression of FTA between Japan and South Korea. With macroeconomics effects, the South Korea s GDP will increase in the long-run while Japan will have the limited gains in real GDP.

4 However, both countries will gain benefit in terms of equivalent variances. Additionally, Scollay (2004) studied the role of China in the regional Trade Liberalization in East Asia and the Asia-Pacific and found that larger and more inclusive trade arrangements are best option for China s welfare. Moreover, Ando and Urata (2006) found that FTA among ASEAN+3 yields the desirable outcome to its member countries which is correspondent to Petri, Plummer and Zhai (2012) which found that real incomes of ASEAN economies could rise by 5.3 percent from deeper integration of ASEAN and full elimination of tariff. Other than FTA among ASEAN members, Petri, Plummer and Zhai (2011) again examined the quantitative assessment on the TPP and they found that the TPP will benefit for all members, but specified that the benefit would be relatively slow. Their study is correspondent to Areerat, Kameyama, Ito and Yamauchi (2012) which investigated the economic effects of TPP and found that Vietnam and South Korea will dramatically benefit from an increase in real GDP and welfare. To the extent, Lee and Itakura (2013) suggested that to enlarge the framework of TPP provides the greater impact of the member. Recently, Thorstensen and Ferraz (2014) suggested that Brazil will not enjoy an increase in export unless Brazil decides to Transatlantic Trade and Investment Partnership (TTIP) between E.U. and the U.S. In this study, there are three main scenarios in consideration. The first scenario is that Thailand decides to join TPP. The second scenario is that there is trade liberalization among all TPP members but Thailand decides not to join TPP. And the last scenario is that Thailand eventually joins TPP after refusing to be the member initially (to be a member after the first phase of TPP). Each scenario is displayed by three sub-scenarios including Sub-scenario I: The extreme case of full liberalization in all commodities is implemented. The tariff rate of all commodities is entirely eliminated among TPP members. Sub-scenario II: There is full liberalization in light and heavy manufacturing products while tariff rate of agricultural product is halved of current rate among TPP members. Sub-scenario III: There is full liberalization in light and heavy manufacturing products while there is no liberalization for agricultural product and other sector as well. Even though some sub-scenarios are likely to be unrealistic, they are implemented to explore the extreme case of trade agreement which is related to the core of export-led growth policy. Due to a large model, the impacts, even positive or negative, are displayed through only the change of Gross Domestic Product (GDP) which is able to roughly refer to total welfare.

5 RESULTS AND DISCUSSION 1. Competitive and sensitive list between Thailand and TPP members Using RCA index through HS-2 digits analysis based data on 2013, the competitive and sensitive goods of Thailand and twelve members of TPP can be guided us about the opportunities and challenges of this economic integration, as shown in table 1. Table 1 Competitive and sensitive commodities among TPP members represented by HS-2 digits Countries Commodities a Competitive b Sensitive c Australia Brunei Canada Chile Japan Malaysia Mexico New Zealand Peru Singapore The U.S Vietnam Thailand a The commodities are shown at HS-2 digits, for example, 26 means HS Code of Chapter 26 which is Ores, Slag, and Ash b Competitive list is ranked by country s highest RCA value in 2013, for example, Brunei s highest RCA value is mineral fuels, mineral oils, and products of their distillation (HS code of chapter 27). c Sensitive list is ranked by country s lowest RCA value in 2013, for example, Peru s lowest RCA value is prepared features and down and article made of feathers or of down (HS code of chapter 67) It is clear that non-agricultural products (HS code of chapter 25-97) are more competitive than agricultural products (HS code of chapter 01-24) for all countries. Tin and articles thereof (HS code of chapter 80) is likely to be the most familiar products as it is the competitive list of four countries including Malaysia, Peru, Singapore, and Thailand. In addition, vegetable plaiting materials; Ores, slag, and ash; and pulp of wood, fibrous cellulosic material (HS code of chapter 14, 26, and 47, respectively) are the most common competitive goods. For sensitive list, Furskins ; silk; and umbrellas (also walking-sticks) represented HS code of chapter 43, 50, and 66, respectively are the most

6 common sensitive list among TPP members. About Thailand, the highest RCA value in 2013 meat, fish, and seafood preparation (HS code of chapter 16), and followed by rubber and rubber thereof (HS code of chapter 40) and the product of the milling industry (HS code of chapter 11) while the lowest RCA value is cork and articles of cork (HS code of chapter 45), followed by Furskins (HS code of chapter 43) and works of art, collectors pieces, and antiques (HS code of chapter 97). For the possibility of trade after liberalization, countries tend to export their competitive commodities and import the less potential products. For example, the U.S. may export its works of art, collectors pieces, and antiques (HS code of chapter 97) to Malaysia, Mexico, and Thailand while import wool and animal hair (HS code of chapter 51) from Australia and New Zealand. Also, Vietnam may dramatically export its footwear and gaiters (HS code of chapter 64) to Japan while import nickel and articles thereof (HS code of chapter 75) from Canada. However, there are thirty commodities not matched between competitive list and sensitive list which is possible that the domestic sector may not be enjoy the gain from trade, for example, live animal (HS code of chapter 01), wood and articles thereof (HS code of chapter 44), and Zinc and articles thereof (HS code of chapter 79). 2. Impacts of joining TPP under various scenarios Using GTAP model version 8.0, the impacts of joining TPP for Thailand and other members in GDP under various scenarios are shown in table 2. Table 2 Change of Gross Domestic Product (GDP) in various scenarios of TPP Unit: Percent Countries Scenario I Scenario II Scenario III I II III I II III I II III Australia Brunei Canada Chile Japan Malaysia Mexico New Zealand Peru Singapore Thailand The U.S Vietnam

7 Becoming a member of TPP and entire opening domestic market (Sub-scenario I) allows Thailand to enjoy percent increase in GDP. The highest positive impact is borne to Vietnam which its GDP is increased by percent. However, there is a negative impact to the economy of Brunei, Canada, Mexico, Peru, and the U.S. Comparing to all three sub-scenarios, full trade liberalization, elimination of tariff in all sectors, will be the best choice of Thailand if Thailand decides to join TPP together with other twelve countries. However, Thailand s economy may be experienced a mild recession if it decides not to join TPP. The worst case for Thailand is that all twelve countries grant a market access to each other without levying a cost tariff. However, the result is likely to be better, for Thailand, if TPP member decide not to open its agricultural market. In the third scenario, it is assumed that trade liberalization among twelve countries is already taken place and Thailand decides to be the 13 rd member. Thailand receives a huge increase in welfare due to percent increased in GDP (Sub-scenario III). Also, it is clear that Vietnamese economy may received a negative impact from rapidly losing the market share to Thailand, especially electrical machinery and rubber product. While all economic growth borne to Thailand is the long term benefit of joining TPP, the cost is to change the domestic law and regulation correspondent to the main issue of TPP in many areas, for example, intellectual property and environment which may create the unavoidable cost to for adaptation. Also, government may consider to create fund aimed at helping the stakeholders who are negatively affected from this agreement. CONCLUSION Unavoidably, regional free trade agreement aimed at boosting trade and development, namely Trans-Pacific Partnership (TPP), is an interesting issue for Thailand which its economy relies on exportation. While the opportunity of Thailand s products in joining TPP are preparations of meat, fish, rubber, products of milling, sugar, and Tin, the comparative disadvantage is occurred in fur, cork, ores, nickel, and works of art. Nevertheless, an increase of traded goods tends to happen among TPP members through matching the competitive products and sensitive products. Because of the large market, participating in TPP is likely to yields a positive impact to the economy of Thailand. Elimination of the entire tariff imposed to each other in agricultural and manufacturing is the best option for trade liberalization. Nevertheless, Thailand should join TPP after the success of TPP is already occurred and widespread throughout all economies of the current twelve members. For future study, analysis of competitiveness should expand to HS Code 6 to 10 digits to derive the commodities in more details. Also, other CGE models performed through other sites should be implemented. Nowadays, there are several models allowed researchers to develop the study of FTA, for example, GAMS. For GAMS, researcher can use the more realistic and updated SAM because the structure of SAM mainly affects the results of impact analysis.

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