To Fix Thailand’s Trade, Change Its Customs

08-Jun-2016 Intellasia | WSJ | 6:00 AM Print This Post

Last week, Thailand’s deputy prime minister, Somkid Jatusripitak, announced that his country is ready to join the Trans-Pacific Partnership (TPP), a free-trade agreement that, if ratified, would unite 12 Pacific Rim countries in a pact covering 40 percent of the world’s economic activity. In order to fulfil its new ambition and hopefully restart its economy, however, Bangkok must first tackle its customs regime at home.

Although growth picked up in the first quarter of 2016 after the government doubled expenditure, exports and private consumption are two drivers of growth that remain sluggish. Exports have fallen 8.1 percent in the 12 months to October 2015, while imports dropped 11.3 percent in roughly the same period. Seventy percent of Thailand’s gross domestic product is from exports.

Thailand’s new trade minister, Apiradi Tantraporn, has been asked to lead Bangkok’s TPP preparation. She is the most-experienced trade diplomat in the Association of Southeast Asian Nations, having served as a counsellor and ambassador to the World Trade Organisation. Apiradi has laid out a comprehensive strategy to restore growth and drive domestic economic reform through greater market access, increased cooperation, more trade agreements and more competition in domestic markets.

It’s a strategy similar to the one Bangkok used when the general Agreement on Tariffs and Trade cut tariffs, and when the World Trade Organisation was established in the 1990s.

But implementing this strategy won’t be easy. There are powerful vested interests in Thailand that will try to quash competition and preserve the systems that have worked so long to their benefit. One of the biggest challenges will be reforming Thailand’s customs agency.

Thailand’s customs department currently rewards officials for detecting customs evasions or avoidances. Other countries, such as the UK, have similar systems in place, but there the rewards are more limited.

In Thailand, these rewards can often exceed half the imposed fines, creating perverse incentives that result in officials frequently and arbitrarily finding faults in customs declarations. Most companies would rather settle than contest the fines, since Thailand’s customs agency has strong links to the rest of the government.

Huge tax penalties have been imposed on Japanese automobile imports. Thai importers have also been hit. Even failure to properly complete import forms can result in huge fines and jail terms, according to Thai law firms.

Global antibribery laws have helped level the playing field. Nike, a major investor in the country, successfully challenged the custom department in Thailand’s Supreme Court regarding claims it had failed to pay the proper duties on golf balls imported from the US

In another major case, the Philippines complained to the WTO over Thailand’s treatment of cigarette imports. So far, the case has dragged on for more than eight years, with two rulings already in Manila’s favour. Yet the customs agency remains defiant. The Thai public prosecutor maintains that the importer of the Philippine cigarettes, Phillip Morris Thailand, has underpaid duties of approximately $550 million and is liable to a $2 billion fine. Criminal charges have been laid against former and present company executives.

Thailand’s trade ministry recognises that TPP membership would help restore competitiveness and expand trade. But the arbitrary application of its customs laws remains a sore spot with trade partners. For the past four years, Bangkok has been scored by the US Trade Representative’s annual report highlighting the failure of trade partners to meet trade obligations or to open markets. It’s unlikely the US, a signatory to TPP, would allow Thailand to join unless Bangkok cleans up its customs administration.

Thailand’s continual refusal to abide by WTO rules also sends the wrong signals to the international investment community and highlights the comparative attractiveness of neighbouring countries such as Malaysia and Vietnam, already signatories to the TPP, as less-risky investment destinations.

Reforming Thailand’s trade regime won’t be easy. But with so many trade agreements, including the TPP, on the horizon, the challenge to be competitive will only become harder.


Category: Thailand

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