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Thailand-India free trade: the impact so far
The framework agreement to establish the Thailand-India free trade agreement (Tifta) was signed on Oct 9, 2003. Trade negotiations to move closer to full liberalisation are still continuing and are expected to be concluded by 2010. To accelerate the realisation of benefits, both countries agreed to implement an Early Harvest Scheme (EHS) covering trade in goods for 84 products. The Tifta-EHS covered three-year period between Sept 1, 2004 and Aug 31, 2006 and has now ended.
At this stage, it is interesting to evaluate whether imports of any of the 84 items subject to tariff cuts resulted in trade diversion that may have led to a decline in the country's overall economic efficiency and welfare. This study attempts to empirically evaluate the impacts of post-Tifta-EHS tariff cuts on trade diversion using an econometric technique.
The 84 items (Harmonised System [HS] code six-digit level) under the Tifta-EHS included fruits (fresh mangosteens, mangoes, durian, rambutans, longans); fishery products (salmon, sardines, mackerel); electrical appliances (window/wall air-conditioners, colour TVs, ball-bearings); precious metal and jewellery; polycarbonates, and more. Tariffs on these goods were cut by 50% on Sept 1, 2004, 75% on Sept 1, 2005, and eliminated entirely on Sept 1, 2006.
The results of the study can be summarised as follows:
1. Although
2.
3. The Post-Tifta-EHS tariff revenue loss for all 84 product items is estimated around 51 million baht per year which is minimal in comparison to the net gains from the overall trade surplus
4. Only six out of the 84 items showed positive net imports from
5. Moreover, only the import shares of four items _ gearboxes, precious metal, aluminium oxide, and other appliances _ trended upward for the 2003-06 period, implying the tariff reductions may have had positive impact on raising imports from India and probably at the expense of Thailand's other trading partners. The
6. Nonetheless, results of the econometric analysis confirmed that only two of the six import items in question raised their import shares and caused trade diversion. They are the gearboxes and other appliance products. Increases in market shares of gearboxes and other appliance products from
The study recommended that although India is currently a small exporter of both products to Thailand, a continuation of zero import tariffs from India could definitely provide incentives and induce larger imports in the future, particularly for gearboxes where import elasticity value with respect to tariff was found to be greater than 1 (relatively elastic).
The increased imports from India could occur at the expense of not only reduced government import tariff revenue collection from Thailand's other trading partners through import substitution effects, but also of reduced exports to Thailand of other trading partners, especially the Philippines. To offset an undesirable consequence,
Authorities, however, should be very careful in listing the products to be included in the agreement, by examining the trade diversion impacts on the country's economy, efficiency and welfare.
Ake-Aroon Auansakul is director of the research division at the International Institute for Trade and Development. The opinions expressed here are his own. He can be reached at akearoon@itd.or.th