Thai exports will suffer from GSP cut decision by US President Trump
Thai export sector suffers another blow after the US President Donald Trump on Friday announced to suspend USD1.3 billion worth of duty-free trade for certain items from Thailand, reasoning that Thailand has not taken steps to protect the labor rights.
In a letter written to US House of Representatives Speaker Nancy Pelosi and the president of the Senate, Vice President Mike Pence, Mr. Trump said he had suspended duty-free treatment of certain Thai products because the country had not taken steps to “afford workers in Thailand internationally recognized worker rights.”
The US Trade Representative’s office said the move amounted to a suspension of USD1.3 billion in trade preferences for Thailand under the Generalized System of Preferences (GSP) programme. At present, the GSP program covers around USD4.5 billion of Thai exports.
The suspension, which goes into effect in six months, will affect about a third of Thailand’s products included in the trade programme. Duty-free treatment will be revoked for all Thailand’s seafood exports to the US over labor issues, the USTR’s office said.
While the list of products subject for GSP suspension has not made available as of press time, the absence of GSP is likely to dampen the already grim prospects of Thai exports this year.
Several economic think tanks view that Thai outbound shipments in 2019 are likely to see a flat growth or a contraction for the first time in four years due to the worse-than-expected global economy, the prolonged trade war between the US and China and strong Thai baht.
Thai exports in September fell from the previous month, lower than the consensus of the analysts. Outbound shipments from Thailand in September 2019 declined by 1.4 percent compared to the same period last year. Although the figure is better than a 4-percent drop in the previous month, it is worse than the market expectations.
The US suspension on GSP does not come as a total surprise. Earlier this year, Thailand has narrowly avoided being labeled as a currency manipulator in the US Department of Treasury’s watchlist because Thailand does not meet all the three limits set by Washington.
Thailand’s current account surplus accounting for over 7 percent of the country’s gross domestic product in 2018, against the limit set by the US Treasury of 2 percent. Moreover, the amount of purchases of foreign currency does not increase from the previous year.
However, Thailand’s trade surplus with the US was USD19 billion, approaching the limit of USD20 billion.
While the US action toward countries labeled as currency manipulator is not clearly specified, Washington can unilaterally end the GSP benefits to take action against high trade deficits with its trading partners.
The US latest announcement is likely further impact Thai fishery business after the issue in the European Union (EU).
Even though the EU in January this year announced the lifting of a yellow card for Thailand in recognition of the progress Thailand has made in tackling illegal, unreported and unregulated (IUU) fishing, Thailand’s fishery exports to the EU has not fully recovered to the pre-IUU period so far.
Thailand is now the second biggest beneficiary of the US’s GSP after India, which was the largest GSP beneficiary with USD5.7 billion in imports to the US in 2017, until Washington decided to terminate India’s designation as a beneficiary developing nation in May this year.
At present a wide range of Thai export items receive the GSP benefits. The biggest beneficiary items are electrical appliances and electronics such as air conditioning components, electronic components and washing machine, followed by food and agriculture segment and machinery.
The prospects of GSP for Thai exports are not promising. Last year, the Office of the United States Trade Representative accepted a petition from the National Pork Producers Council challenging Thailand’s eligibility for the GSP trade preference program.
The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) also filed a petition to Washington to review of Thailand’s GSP eligibility, based on labor issue.
According to the information from the USTR, Thailand is the United States’ 20th largest goods trading partner, and two-way goods trade between them totaled USD44.5 billion in 2018. The U.S. goods trade deficit with Thailand was USD19.3 billion in 2018.