On Tuesday, 3 March 2007 Japan's Prime Minister Shinzo Abe and Thailand's acting Prime Minister General Surayud signed a historic free trade pact, the Japan-Thailand Economic Partnership Agreement ("JTEPA"). Under the JTEPA, around 90% of trade between Thailand and Japan would be tariff-free within 10 years and Japanese investors would be given greater legal protection.
The JTEPA, a free-trade deal with additional economic co-operation pacts, was initially agreed in late 2005, and both sides were set to sign the deal in April 2006. However, the dissolution of Thailand's parliament in February 2006 and the subsequent political turmoil forced the signing to be postponed.
Now that the JTEPA is in place trade between Thailand and Japan should strengthen as around 90% of trade between Thailand and Japan would be tariff-free within 10 years. Similarly, 97% of Japanese exports to Thailand will become duty-free over the same period.
Auto And Industrial Products Tariff Reduction
Japan will immediately remove tariffs on almost all industrial products from Thailand. Thailand will do away with tariffs on Japanese auto parts, except for certain specified engine and engine part items. Tariffs on these items will be removed at a later date. Thailand will immediately scrap tariffs on about half of all Japanese steel imports and will knock down tariffs on the remainder, such as hot-rolled plates, within 10 years. Thailand will also cut tariffs on Japanese automobiles with an engine displacement of 3000 cc or larger to 60% from the current 80% within the first 4 years of the signing of the JTEPA and plan to resume negotiations on tariff cuts for Japanese vehicles with engines of up to 3000 cc 5 years after the signing of the JTEPA.
Agricultural Products Tariff Reduction
Among farm products, Japan will reduce tariffs on Thai boneless chicken from the current 11.9% to 8.5% over five years. Japan will also halve tariffs on cooked chicken from the current 6.0% over the same period. Furthermore, Japan will immediately eliminate tariffs on processed shrimp and tropical fruit such as mango, papaya and durian.
Thailand, meanwhile, will do away with tariffs on Japanese apples, pears and yam, either immediately or in a few years. The two nations had agreed to exclude sensitive agricultural products for Japan, such as rice, wheat and dairy products, from the bilateral trade liberalisation talks. Thailand has also requested that items such as raw silk and tobacco not be subject to tariff cuts.
Thailand has pledged not to toughen rules for existing Japanese investments. New investments, however, will be subject to current Thai currency controls which require that 30% of all incoming investment be held by financial institutions for up to one year, subject to certain Bank of Thailand approved exceptions.
The JTEPA seeks to improve the investment climate between Thailand and Japan through removing barriers to the cross-border flow of goods, investment, services and persons which should ultimately allow for greater bi-lateral trade liberalisation between the two nations.
Author: Sonya Kalnin