(2) Trade and Foreign Investment Regime Vii

RESTRICTED WORLD TRADE WT/TPR/S/123 15 October 2003 ORGANIZATION (03-5280)

Trade Policy Review Body

TRADE POLICY REVIEW

Thailand

Report by the Secretariat

This report, prepared for the fourth Trade Policy Review of Thailand, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Government of Thailand on its trade policies and practices.

Any technical questions arising from this report may be addressed to Mr. Masahiro Hayafuji (tel.: 022 739 5873) and Mr. Michael Daly (tel.: 022 739 5077).

Document WT/TPR/G/123 contains the policy statement submitted by the Government of Thailand.

Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Thailand. Thailand WT/TPR/S/123 Page iii

CONTENTS Page SUMMARY OBSERVATIONS vii

(1) ECONOMIC ENVIRONMENT vii

(2) TRADE AND FOREIGN INVESTMENT REGIME vii

(3) POLICIES AND MEASURES AFFECTING TRADE AND FOREIGN INVESTMENT viii

(4) SECTORAL TRADE POLICIES ix

(5) OUTLOOK x

I. ECONOMIC ENVIRONMENT 1

(1) RECENT ECONOMIC PERFORMANCE 1

(2) MAIN ECONOMIC DEVELOPMENTS 4 (i) Macroeconomic policies 4 (ii) Structural policies 5

(3) DEVELOPMENTS IN TRADE AND FOREIGN INVESTMENT 7 (i) Trade in goods 7 (ii) Trade in services 8

(4) FOREIGN INVESTMENT PATTERNS 11

(5) OUTLOOK 12

II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 14

(1) OVERVIEW 14

(2) GENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK 14

(3) STRUCTURE OF TRADE POLICY FORMULATION 15 (i) Executive branches of government 15 (ii) Advisory, planning, and other bodies 16

(4) TRADE POLICY OBJECTIVES 18

(5) TRADE LAWS AND REGULATIONS 18

(6) TRADE AGREEMENTS AND ARRANGEMENTS 20 (i) Thailand and the WTO 20 (ii) Preferential, regional, and bilateral arrangements 22

(7) TRADE DISPUTES AND CONSULTATIONS 26 (i) Dispute settlement under the GATT/WTO 26 (ii) Other 26

(8) FOREIGN INVESTMENT REGIME 27 (i) Recent performance and developments 27 (ii) Basic framework 27 (iii) International agreements 30

III. TRADE POLICIES AND PRACTICES BY MEASURE 32

(1) INTRODUCTION 32

(2) MEASURES DIRECTLY AFFECTING IMPORTS 33 (i) Customs procedures 33 (ii) Tariffs 35 WT/TPR/S/123 Trade Policy Review Page iv

Page (iii) Non-tariff border measures 44 (iv) Contingency measures 47 (v) Government procurement and countertrade 49

(3) MEASURES DIRECTLY AFFECTING EXPORTS 51 (i) Registration and documentation procedures 51 (ii) Export taxes, charges, and levies 51 (iii) Export prohibitions, restrictions, and licensing 51 (iv) Export assistance 54

(4) MEASURES AFFECTING PRODUCTION AND TRADE 55 (i) Taxation 55 (ii) Investment incentives 58 (iii) Trade-related investment measures 60 (iv) Standards and other technical requirements 60 (v) Intellectual property rights 63 (vi) Involvement of state-owned enterprises in production and trade 67 (vii) Regulation of corporate practices 69

IV. TRADE POLICIES BY SECTOR 72

(1) INTRODUCTION 72

(2) AGRICULTURE 72

(3) POLICY DEVELOPMENTS IN THE ENERGY SECTOR 74 (i) Petroleum and petroleum products 74 (ii) Other energy 75

4) POLICY DEVELOPMENTS IN SELECTED MANUFACTURING SECTORS 75 (i) Textiles and clothing 76 (ii) Steel products 77 (iii) Motor vehicles 77

5) SERVICES 77 (i) Financial services 78 (ii) Telecommunications 84 (iii) Transportation 86 (iv) Tourism 88

REFERENCES 89

APPENDIX TABLES 91 Thailand WT/TPR/S/123 Page v

Page CHARTS

I. ECONOMIC ENVIRONMENT I.1 Product composition of merchandise trade, 1999 and 2001 9 I.2 Direction of merchandise trade, 1999 and 2001 10

II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES II.1 Thailand's new bureaucratic structure, effective October 2002 17

III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Share of non-ad valorem duties, by HS section, 2003 38 III.2 Simple average applied MFN tariff rates, by HS section, 1999 and 2003 40 III.3 Frequency distribution of MFN tariff rates, 2003 41 III.4 Composition of tax revenue, fiscal year 2001 55

TABLES

I. ECONOMIC ENVIRONMENT I.1 Main economic and social indicators 2 I.2 Selected macroeconomic indicators, 1997-02 2 I.3 Net inflows of foreign direct investment by sector, 1998-02 11 I.4 Net inflows of foreign direct investment by country, 1998-02 12

II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES

II.1 Main trade-related legislation, as at May 2003 18 II.2 Status of notifications to the WTO, as at May 2003 20 II.3 Involvement in the WTO Dispute Settlement mechanism, as at August 2003 27 II.4 Business activities restricted for foreign investment 28

III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Structure of MFN tariffs in Thailand 35 III.2 Tariff quota commitments, actual imports under tariff quotas, and MFN/bound tariffs, 1999-03 38 III.3 Products subject to import licensing in Thailand, 2002 44 III.4 Anti-dumping measures, as at 31 May 2003 48 III.5 Export duties in Thailand, 2003 51 III.6 Products subject to export licensing in Thailand, 2002 52 III.7 Corporate income tax in Thailand, June 2003 56 III.8 Thai industrial standards (TISs), 1999-02 61 III.9 "Specific-controlled" food products administered by the Ministry of Public Health, 2002 62 III.10 Trade mark and patent statistics for Thailand, 1998-02 65 III.11 Activities against intellectual property rights violation, 1998-02 67 III.12 Selected publicly owned commercial companies, 2002 68

IV. TRADE POLICIES BY SECTOR

IV.1 Share of GDP by sector, 1999-02 73 IV.2 Share of employment by sector, 1999-02 73 WT/TPR/S/123 Trade Policy Review Page vi

Page APPENDIX TABLES

III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 Applied tariff escalation and tariff ranges, 1999 and 2003 93 AIII.2 Thailand's technical regulations (mandatory standards), 2001 96

IV. TRADE POLICIES BY SECTOR AIV.1 Thailand's textile and clothing quota utilization: Canada, European Union, and United States 97 Thailand WT/TPR/S/123 Page vii

SUMMARY OBSERVATIONS structural reforms to meet these formidable challenges. (1) ECONOMIC ENVIRONMENT 4. Thailand’s economic vulnerability to 1. Since its previous Trade Policy external factors has declined. In particular, Review in 1999, Thailand has pursued its the current account has recorded sizeable economic reform programme to revive growth surpluses since Thailand's previous Review; after the 1997 Asian financial crisis. The Thai for example, it reached 6.1% of GDP in 2002, Government has, by and large, resisted comprising positive trade and services protectionist pressures, opting instead for balances. The current account surplus measures aimed at reinforcing its already reflects excess national savings over domestic increasingly outward-oriented trade and investment; it also corresponds to capital investment policies. Trade plays an ever more outflows, and increased international important role in the economy; the shares of reserves. Total external debt has declined exports and imports in GDP have each risen substantially (from 93.2% of GDP in 1998 to to over 50%, compared with around 40% in 47.0% in 2002), and the debt service ratio has 1997. also fallen. Private external debt, which comprises mainly long term debt, has also 2. During the period under review (1999 declined. to 2003), Thailand's economy recovered steadily, and by 2002 real GDP had been 5. The real effective exchange rate of the restored to its pre-crisis level. Although real Baht has declined slightly since 1999; this GDP growth slowed in 2001, it rebounded in may have added a competitive edge to Thai 2002 to 5.3%, perhaps aided by a more stable exporters and producers competing with currency, low inflation, and early signs of imports on the domestic market. While fiscal consolidation in the Central Thailand’s overall share in major export Government. Thailand’s steady progress markets is relatively stable, competition from towards macro stabilization and key structural lower-priced exports, particularly from China, reforms, including financial-sector is intensifying. rehabilitation and trade and investment liberalization, have promoted growth in the 6. Manufacturing has contributed face of unfavourable global factors, such as substantially to growth. The sector’s share of weaker exports in some key markets (except in GDP rose from 32.7% in 1999 to 33.8% in China) owing to heightened prospects of 2002. Nevertheless, substantial, albeit recession. declining, excess capacity remains, reflecting past over-investment. Domestic spending, 3. While international factors will especially private consumption on motor continue to heavily influence Thailand’s vehicles and other durables, encouraged by growth prospects through export performance lower bank lending rates and rising consumer and capital inflows, continued macroeconomic credit levels, was the main stimulus for higher stability and fiscal consolidation are also production in 2002. Unemployment has fallen essential. Accelerated structural reforms continuously, from 4.4% in 1998 to 2.4% in would help restore the still fragile corporate 2002, with job growth most pronounced in and financial sectors burdened by debt and manufacturing, construction, wholesale and non-performing loans left after the crisis. retail trade, hotel and restaurants. Further opening of the economy would raise productivity, and thus competitiveness, and (2) TRADE AND FOREIGN INVESTMENT attract much needed foreign direct investment, REGIME which slumped in 2002. The Government has renewed its efforts for macroeconomic and 7. The structure of trade policy formulation in Thailand has not changed WT/TPR/S/123 Trade Policy Review Page viii substantially since its previous Trade Policy effective catalyst for free trade and Review in 1999. The Government has complementary to multilateralism. introduced measures to improve bureaucratic efficiency and governance, including 11. Thailand continues to operate a establishment of the independent National generally liberal foreign investment regime. Counter Corruption Commission, and has Negative lists restricting foreign direct continued to restructure the public sector. investment in some activities have been reduced. U.S. investors receive preferential 8. Thailand accords at least MFN treatment, being exempt from most FDI treatment to all WTO Members. During the restrictions under a 1966 Treaty. period under review, it has been an active participant in WTO activities. Under the (3) POLICIES AND MEASURES AFFECTING WTO dispute settlement mechanism, it has TRADE AND FOREIGN INVESTMENT been a party to six disputes, one as respondent and five as complainant. It participates in the 12. The general thrust of Thailand’s trade WTO Working Groups on Trade and and investment policy has remained liberal, Investment, Transparency in Government and new efforts have been made to facilitate Procurement, and Trade and Competition trade and improve market access. Such efforts Policy. have been particularly noticeable in the areas of customs valuation and foreign direct 9. Thailand is committed to trade and investment. investment liberalization as a means of improving competitiveness and thereby 13. The tariff remains a main instrument promoting sustainable economic growth and of Thailand's trade policy. Its structure is alleviating poverty. Such reforms are an rather complex owing to the multiplicity of important part of the Government’s "dual rates applicable to each of the 5,505 tariff track" development approach of strengthening lines; with a simple average applied MFN the domestic economy while integrating rate of 14.7% in 2003, the tariff affords a Thailand more into the global economy. relatively high level of protection. Moreover, Export growth, including diversification of with about a quarter of all tariff lines markets and moving into higher-valued unbound, and bound rates often considerably products, is a major thrust of trade policy. exceeding applied MFN rates, the authorities have considerable scope to raise tariffs at any 10. The Government supports free trade, time, by means of Royal decrees or ministerial and is committed to multilateral liberalization regulations and notifications, with Cabinet especially in agriculture. As an APEC approval. Nevertheless, during the period member, Thailand is also committed to "open under review, Thailand raised tariffs in only a regionalism" as a means of achieving free and few instances (concerning mainly food open trade and investment by 2020. It also products and automobiles). Thailand has engages in regional trade liberalization and, taken several anti-dumping actions during the in addition to AFTA, is now actively seeking to period under review. negotiate a network of bilateral preferential trading arrangements. Thailand is also 14. Import licensing for various items pursuing greater regional trade links within remains opaque and appears in some cases to ASEAN, including the establishment of an be equivalent to quantitative restrictions. ASEAN-China Free Trade Area within Most import licensing requirements are for ten years, the formation of an East Asia Free national security, health, and environment Trade Area between ASEAN members, China, reasons. A number of other non-tariff border Japan and Korea ("ASEAN plus Three"), and measures remain for other reasons, for an ASEAN-Japan Economic Partnership. example to protect infant industries; the Thailand believes regional FTAs can be an Thailand WT/TPR/S/123 Page ix effectiveness of these measures is Competition Commission has issued decisions questionable. in only three cases. This apparent weakness may reflect institutional, procedural, legal or 15. Thailand has not acceded to the resource limitations. The authorities believe Agreement on Government Procurement. that enforcement of the Trade Competition Act Government procurement continues to be used will be more effective following ongoing as an instrument of economic policy, with institutional and human resource development preferences being accorded to domestic as well as experience gained from suppliers. international cooperation.

16. The authorities recognize the need to 21. An efficient capital market capable of remove impediments to investment rather than mobilizing and channelling savings into relying on tax-based incentives, which have productive uses is essential for Thailand's been used widely. Thus, various subsidies tied successful economic restructuring and long- to exports have been removed and investment term development. This requires good incentives have been streamlined. On the governance Improving corporate governance other hand, the Government appears to be through better transparency and disclosure taking a more proactive approach to requirements and enforcement of accounting industrial policy and the pursuit of improved rules is a government priority as many competitiveness, with measures apparently corporations face weak balance sheets. targeted at certain industries, such as agri- industry, automobiles, textiles, electronics, (4) SECTORAL TRADE POLICIES and high-valued services. Most local-content and export performance-requirements, 22. Agriculture continues to present a including those attached to incentives for new contrasting policy between the "Cairns investments, were abolished during the period Group" liberalizing approach to agricultural under review. trade and the relatively high tariff protection in favour of selected food stuffs. 17. Considerable progress has been made to corporatize state-owned enterprises in 23. The authorities consider that there is preparation for their eventual privatization, little incentive for state-owned enterprises but the privatization programme as a whole with monopoly power, to improve seems behind schedule. However, in 2003 the productivity; recognizing that this results in Government established the "Vaynpak Fund", an inefficient use of resources, Thailand has a mutual fund, with some B 100 billion in been promoting privatization of various state- capital; the fund will invest in industries owned enterprises. While private believed to show bright prospects. participation in the energy sectors – gas, electricity, and petroleum products – has 18. The number of Thai industrial increased gradually through the standards based on international "norms" has corporatization of state-owned companies and increased since the previous Review of partial deregulation. These sectors continue Thailand. Various laws related to quarantine to be heavily dominated by influential state- requirements have also been amended. owned providers (including statutory monopolies). 19. Intellectual property legislation has also been strengthened and the Government 24. Most local-content requirements in has taken various actions to enforce manufacturing have been eliminated. Tariffs protection. on certain industrial goods, such as automobiles and motorcycles have been 20. The implementation of competition increased. In 2002 and 2003, Thailand policy appears to be weak; since its introduced provisional anti-dumping inauguration in 1999, the Office of Trade WT/TPR/S/123 Trade Policy Review Page x measures on certain steel products. Under- The Bank of Thailand's growth projection for utilization of Thailand's quotas for textiles and 2004 is between 4.5%-6%. It has readjusted clothing exports suggest that the sector's downwards forecasts for core inflation, of less international competitiveness may be weak in than 1% in 2003, but slightly higher headline certain products. inflation, of 1% to 2%, caused by the rise in world prices of oil and commodities. Both 25. Thailand has unilaterally reformed core and headline inflation are expected to some services, including higher foreign equity average around 1%-2% in 2004. Aggregate limits in banking. Majority Thai ownership is demand, buoyed by exports and low real nevertheless required in many services, and interest rates, is expected to remain strong must be at least 70% in domestic shipping and and a major source of non-inflationary aviation. While the financial sector has been growth, given substantial excess capacity in restructured substantially, the slow pace of production and low cost-push pressures. corporate rehabilitation has constrained economic recovery. The sector is being 27. Robust growth will depend upon gradually deregulated and prudential controls continued structural reforms and enhanced. The Thai Asset Management macroeconomic stabilization, especially fiscal Corporation was formed in 2001 to consolidation and sound public debt restructure non-performing loans, which management. The high public-sector debt and remain high. Bank privatization, after some substantial contingent liabilities associated initial success, has waned. The basic with financial sector rehabilitation remain a telecommunications market is to be fully significant downside risk, as does the large liberalized in 2006. However, other planned overhang of corporate debt and non- deregulation in the sector has slowed, mainly performing loans after the crisis. The due to delays in establishing the independent maintenance of fiscal discipline, notably regulator. State monopolies over basic ensuring that the balanced budget objective is domestic and international telephone services met, would enhance future growth prospects. remain. By contrast, more competition in Further improvement in market access as well mobile telephones has triggered greatly as progress in privatization and regulatory improved productivity. Greater private-sector reforms to make domestic markets more involvement in transport, including the sale of competitive, would also assist a sustained 23% equity in Thai Airways International, is recovery. Prospects also hinge on envisaged. Majority foreign investment in international economic developments and hotels, including accommodation and their impact on Thai exports and inward restaurant activities, and guided tour and foreign investment, both of which are vital for travel services, requires approval under the Thai growth. Expanding export shares in 1999 Foreign Business Act. major markets, especially as competition from Chinese products intensifies, and rekindling (5) OUTLOOK foreign direct investment, especially after the sharp fall in 2002, will be key factors 26. Thailand’s economic prospects influencing Thailand’s economic performance. appear to be favourable. Growth in early 2002 was strong, despite the uncertain international climate and the adverse effects on tourism of the SARS outbreak. The Government forecasts about 4.5%-5.5% growth in 2003.