Nominal Protection

In document Industrialization in Thailand : MNEs and global integration (Page 111-115)

Theoretical Model of Technology Spillover

Chapter 3: Thai Manufacturing: The General Investment Climate and Incentive Structure

3.3 The Trade Policy Regime

3.3.3 Nominal Protection

The past three decades have seen a significant reduction in nominal tariffs. The simple average applied tariff rate sharply declined from 40 per cent between 1985 and 1994 to 23 per cent from 1995 to 1996 and 17 per cent in 1997 (Table 3.5). The downward trend of average tariff was temporarily reversed during the onset of the crisis. The average tariff rate was further reduced to 13.3 per cent in 2003, and was expected to decline further to 12 and 11 per cent in 2004 and 2005-8, respectively.

Table 3.7

A Chronology of Official Tariff Changes in Thailand, 1970-2003

Period Event

1971 The gap in tariffs between finished consumer goods and intermediate goods widened as a result of tariff increases in the former.

1974 Tariffs for machinery and equipment for both agricultural and industrial use were reduced.

1980 The government addressed tariff reform in the Fifth National Economic and Social Development Plan of Thailand.

Oct 1982 The first attempt to narrow the gap of tariff rates by increasing tariff rates for intermediate chemical products and machinery.

1982-4 - The change in October 1982 was abolished and the previous tariff structure was restored.

- A special surcharge on imports was temporarily imposed to generate public revenue.

(contd.)

13See the special issue of ASEAN Economic Bulletin (2005) Vol. 22, No.l for the comprehensive discussion of trade policies in Southeast Asia.

Table 3.7 (contd.)

1985 Raise tariffs by 5 per cent on raw materials and intermediate goods, 10 per cent for finished goods.

1988 Lower tariff rates on several electronics and electrical appliances.

1990 Launch a comprehensive tariff restructuring (reduction and rationalization), implemented in 1995 and 1997.

Oct 1997 - Raise tariff for luxury products e.g. perfumes, cosmetics, clothing, leather products, glassware and crystal products, certain shoes and jewelry, etc. for two years.

- 10 per cent surcharge on other goods whose tariff rates are equal to or greater than 5 per cent for two years.

2003 Tariff reduction on 900 intermediate products.

Source: Author’s compilation

Despite the persistent decline in tariffs, Thailand remained a high-tariff country by regional standards until about the mid-1990s. During this period, Thailand’s simple average tariff rate continued to exceed levels in Malaysia, the Philippines, Indonesia, and even China by a wide margin. Nevertheless, the utilization o f non-tariff measures, represented by the coverage ratio o f non-tariff barriers (NTBs), in Thailand has been low compared to most other East Asian countries (Table 3.8). This makes tariffs virtually the sole means o f border protection.

Despite the persistence o f escalating tariff structures, the distribution o f tariff lines has significantly changed between the p re - and p o st- m id-1990s tariff restructuring (Table 3.9). Since during 1997-2002, there was no significant change in tariffs, this study uses the 2002 tariff rates to represent the tariff structure during 1997-2002. In 2002, more than 50 per cent o f products were subject to tariff rates lower than 10 per cent. This was in sharp contrast to the pre-restructuring period where only around 30 per cent o f total tariff lines were at rates between 0-10 per cent and almost half were at rates o f 20 per cent or above.

Table 3.8

Coverage Ratio of Non-tariff Barriers (NTBs) in Import Trade* (unweighted, per cent)

1984-87 1988-90 1991-93 1997-2000

China 10.6 23.2 11.3 5.7

Indonesia 94.7 9.4 2.7 3.1

Korea, Rep 8.8 4.0 2.6 1.5

Malaysia 3.7 2.8 2.1 2.3

The Philippines 44.9 n.a. n.a. 1.8

Thailand 12.4 8.5 5.5 2.1

Notes: n.a.= not available

*Calculated as a percentage of the import value of HS6 tariff lines affected by NTBs in total imports. NTBs include quantitative restrictions in the form of all types of licenses and import authorization, quotas, import prohibitions, advanced import deposits, foreign exchange restrictions, fixed customs valuations, and state trading monopolies. Figures reported under a given sub-period relate to a single year within that sub-period.

Source: Athukorala, Jongwanich and Kohpaiboon (2004) based on Hoekman et al. (2002, Table

A -l) for the period 1985-89; WTO, Trade Policy Review - Country Report (various) and individual country tariff schedules available from the Asia Pacific Economic Cooperation (APEC) Secretariat online data base, www.apec.org for other years.

However, the second round o f tariff restructuring in 2002 did not alter the distribution o f tariff lines. It basically involved shifting the tariff lines from the 16-20 per cent bracket to a lower bracket with little impact on lines above the 20 per cent bracket (Table 3.9). The changes proposed for the next two years appear to follow the same pattern, while the changes proposed for 2006-2008 seem negligible. This will result in a further widening o f tariff differences between intermediate and finished products.

Table 3.9

Share of 4-digit Harmonized System (HS) Categories of Applied Tariff Rates in Thailand, 1989-2008 Tariff bands 1989 1995 2002 2003 2004-08 0 2.5 2.6 5.6 5.7 6.0 0.1-5 14.4 17.3 33.3 37.7 48.8 5.1-10 14.2 17.6 14.1 14.2 14.8 10.1-15 12.7 3.2 3.9 4.5 3.6 15.1-20 15.4 16.4 21.4 17.9 8.4 20.1-30 15.8 16 13.8 14.3 12.7 30-100 25 26.8 7.8 5.8 5.7

Source: Data for 1989 and 1995 from WTO (1990) and (1995), respectively. Data for 2002-08

In general, tariff rates are higher for manufacturing, compared with agriculture and other primary product sectors. This is indicated in Table 3.10 by the fact that the average applied tariff rates (without the various exemption) for the manufacturing sector are higher than those for the overall economy between 1980 and 2003. This is consistent with patterns observed in other developing countries and reflects the belief in industrialization as the road to economic independence. Furthermore, the comparison of tariff rates across industries clearly points out the presence of a tariff escalating structure. Tariff rates are particularly high for agricultural-processing, especially beverages, food processing, and import-substituting consumer products e.g. garments, footwear. Intermediate products like metal products, machinery, chemical products are generally subject to lower tariff rates.

Table 3.10

Nominal and Effective Rates of Protection in Thailand, 1980-2003 (per cent)

1980 1985 2002 2003

Nominal rate of protection (NRP)

Agro-processing 34.4 30.9 22.7 20.3

Textile products 41.0 27.8 18.9 18.6

Leather and Footwear products 54.1 26.8 18.8 18.5

Wood products 31.6 28.2 13.7 13.5

Paper and pulp 24.0 17.8 14.4 10.5

Chemical and petroleum products 32.8 21.4 9.4 8.4

Rubber products 29.1 26.8 23.2 23.2

Other non-metal products 36.7 23.0 15.0 10.0

Metal products 25.2 16.6 13.2 10.7

Machinery 22.4 14.3 6.2 6.2

Consumer goods and motor vehicles 31.2 19.7 11.4 10.6

Total Manufacturing 32.9 23.8 16.4 15.4

Overall n.a. 22.9 14.7 13.9

Effective rate of protection (ERP)

Agro-processing 58.1 135.2 26.9 21.2

Textile products 74.5 118.4 35.6 35.4

Leather and Footwear products 87.8 152.7 26.3 28.5

Wood products 65.4 62.0 25.2 25.4

Table 3.10 (contd.)

1980 1985 2002 2003

Paper and Pulp 20.4 53.5 46.8 31.8

Chemical and Petroleum products 43.0 44.5 15.6 13.9

Rubber products 2.1 42.0 65.3 65.6

Other Non-Metal products 72.1 108.5 32.5 20.1

Metal products 35.6 70.9 23.0 18.5

Machinery 27.1 29.3 2.0 3.1

Consumer goods and motor vehicles 48.4 45.6 15.3 15.3

Total manufacturing 51.7 78.4 25.2 23.6

Overall n.a. 65.9 20.6 18.2

Coefficient variation (CV) o f ERPs 120 200 188 204

Spearman Rank Correlation Coefficient with 2002 ERP 0.5618 n.a.

Spearman Rank Correlation Coefficient with 2003 ERP 0.4809 n.a. 0.9334 1

Notes: detail of ERP estimates for 1985 is not available. Spearman Rank Correlation Coefficient

r r2 ^

where d= the difference in statistical rank of

(rho) is defined by 1 - 6 X

N ( N 2 - 1 )

corresponding variables.

Source: ERP estimates for 1980 are from Akrasanee and Ajanant (1986), those of 1985 from

World Bank (1988) and of 2002-3 are from Athukorala, Jongwanich and Kohpaiboon (2004). See details in Appendix 5.

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