No products in the basket.
Thailand’s loss of trade privileges with US is credit negative
Thailand’s loss of trade privileges with US is credit negative amid challenging external environment, according to an article from Moody’s Credit Outlook, 4 November 2019 issue.
On 25 October, the US (Aaa stable) announced the removal of approximately $1.3 billion in trade preferences for Thailand (Baa1 positive) under the Generalized System of Preferences (GSP), effective 25 April 2020.
Citing inadequate protection from internationally recognized labor rights, particularly in the seafood and shipping industries, the Office of the US Trade Representative said the US would suspend trade preferences for 573 categories of Thai exports, which could face import tariffs of up to 5% relative to their current duty-free status.
Thailand’s export-oriented economy in a difficult environment
The development is credit negative because Thailand’s export-oriented economy is in a difficult external environment given that a broad-based export slowdown and strong Thai baht are weakening the competitiveness of goods exporters and the country’s tourism industry.
However, the removal of trade preferences alone is unlikely to weaken Thailand’s GDP or export performance in 2020 because GSP privileges apply to a relatively small subset of Thai exports and recently announced stimulus measures will support domestic demand in the coming quarters as external conditions remain subdued.
Exports account for around half of Thailand’s GDP and the US is its second-largest export partner after China (A1 stable). Merchandise exports to the US totaled $28 billion in 2018 (11.1% of total merchandise exports, 5.5% of GDP).
Together, the $1.3 billion in targeted goods account for only a third of GSP-eligible exports to the US, which totaled $4.4 billion in 2018.
The effect of potentially higher tariffs on this subset of exports will be minor because it only accounts for 5% of total Thai exports to the US. A higher import tariff of 4.5% on average would reduce exports to the US by around $30 million, according to the Thai government’s preliminary estimates, equivalent to just 0.1% of total exports to the US and 0.01% of total Thai merchandise exports.
Thailand’s merchandise exports contracted by 2.1% year over year in the first nine months of 2019 after growing by 8.6% in the same period in 2018. The contraction reflects the direct effect of trade tensions between the US and China, the slowdown in the global electronics cycle given Thai exporters’ integration in regional electronics supply chains, and overall weaker global growth.
Exports to the US have grown steadily over the past year, even though overall trade volume has declined (see exhibit).
The government intends to negotiate with the US to restore full GSP access. In addition to promptly initiating such talks, we also expect the government to implement policy measures to soften any effect on exports to the US, including promoting such exports ahead of the April 2020 deadline and accessing other markets for adversely affected products.
The government has also prioritized resuming negotiations over a free trade agreement with the European Union (Aaa stable) and its participation in negotiations on the proposed Regional Comprehensive Economic Partnership.
Michael Higgins, Associate Analyst, Sovereign Risk Group, Moody’s Investors Service
Martin Petch, Vice President – Senior Credit Officer, Sovereign Risk Group, Moody’s Investors Service
Discover more from Thailand Business News
Subscribe to get the latest posts sent to your email.
Related Posts
LatestNews
Other people are reading
© 2024 Siam News Network