Although the immediate impact from the US decision to suspend the Generalized System of Preferences (GSP) on Thai exports is limited, the prospects of Thailand’s outbound shipments to the US still face uncertainty due to the possibility of Washington’s additional trade measures amid the slowing economy worldwide especially in the US, the research houses predicted.
On October 25th, the Office of the U.S. Trade Representative (USTR) announced that the United States will be suspending certain benefits for imports from Thailand under the United States’ GSP program for failure to “adequately provide internationally-recognized worker rights.”
As a result, 573 U.S. Harmonized Tariff Schedule line items from Thailand, including all seafood, will no longer be subject to duty-free GSP treatment as of April 25, 2020. The removal of benefits for these imports affects approximately one-third of Thailand’s GSP trade, which totaled USD4.4 billion in 2018, according to the USTR figures.
Siam Commercial Bank’s Economic Intelligence Unit (EIC) said the US suspension will affect USD1.3 billion worth of Thai products under the GSP program, accounting for 4.1 percent of the total exports to the US or only 0.5 percent of the total Thai exports to the world.
SCB economic think tank said the products depend on the US trade benefits are not high, representing only 10 percent. The figures show that a majority of Thai exports do not depend on the GSP benefits.
It added that chemicals and building material construction may rely on GSP’s duty benefits than other sector as 16 percent of Thailand’s building materials and steels use GSP benefits and 14.8 percent of chemicals are exported to the US under the GSP program.
Meanwhile, 7.2 percent of Thai automotive products, 4.8 percent food and beverages, 2.9 percent of rubber, 1.4 percent electronics and 1.2 percent of agricultural products are exported to the US under the GSP program.
While the GSP suspension will affect merchandise which depends on the GSP benefits, its overall impact on Thai exports will not be severe, the economic research unit said.
The GSP suspension will result in an increase of tariff rates of these products up to 21 percent, depending each product type. EIC estimates that it will cause additional tax expense of USD52 million and make Thai products more expensive by 3.9 percent on average.
EIC incorporates the price elasticity of Thai products in this calculation and reports that the GSP cuts will dent the overall exports by 0.006-0.012 percent of the total exports.
Nonetheless, although the overall impact may not be significant, small and medium sized companies may suffer because many of them compete in terms of pricing. Moreover, the world economy is slowing amid the strong baht which undercuts Thailand’s competitive edge.
Siam Commercial Bank’s EIC also warns that the US may introduce another measure to address the US trade deficit with Thailand. For example, Washington may put Thailand on its monitoring list of currency manipulator because of Thailand’s high current account surplus which is expected to be over 6.4 percent of the country’s gross domestic product this year. Moreover, the current Thai trade surplus with the US is now standing at USD19 billion, compared to the limits set by the US Treasury Department of USD20 billion.
Ms. Pimchanok Vonkorpon, Director-General of the Commerce Ministry’s Trade Policy and Strategy Office, said the US decision to suspend the GSP benefits on Thai exports will have a minimal effect on Thai imports. She put the figure at 0.01 per cent of total annual export value.
Thailand exports just 355 of the 573 products on the list with a combined value of USD1.28 billion, she noted. These include processed seafood, pasta, beans, fruit jams, juices, soy sauces, chemical products, household tools, electric motors, steel, musical instruments and fishing gear.
The GSP cuts will add Thai export costs by USD50.33 million because the tariff rate will be increased to 4.5 percent on average, according to the Commerce Ministry’s figures.
Kasikorn Research Center also reported that the impact from the GSP suspension is limited because products subject to the GSP suspension accounts for only 4.1 percent of all Thai exports to the US.
Products, which are expected to suffer from the GSP suspension, include ceramic, metal lock for motor vehicles, headbands, and ornaments which depend on GSP because these products will have to bear the most favored nation (MFN) tariff rate between 3.0-13.9 percent.
Kasikorn Research Center expects that the Thai exports to the US in 2019 should increase at least 6 percent after they registered 14.1 percent growth in the first nine months of this year.
However, the future of Thai outbound shipment in the US is not bright, due partly to the next year enforcement of Washington’s GSP suspension. Additionally, the grim sentiment is attributed to the lackluster performance of the US economy, sluggish world trade and the strengthening Thai baht against the US dollar.
