Harmonizing two regions into one in terms of business and trade law, from Latin America to Asean community is without doubt a highly complex issue. Nevertheless, it is a fact that Thailand and Latin America Trade and Investment relationship have been developing and growing year by year.
The globalization is reducing fast the boundaries between the two regions, besides facilitating trade, investment, and building up closer cooperation between countries with very different regulations and law. Thailand, as potential business center in the middle of Asean region, served as important key to access into Southeast Asia Market to different Latin American companies and products. Moreover, trading from Thailand to other Asean member countries, China, Japan, Korean and India are feasible from the legal perspective because of the golden location itself and a number of Free Trade Agreements (FTAs) Thailand has already signed or negotiated.
Apart from being an ASEAN member country, Thailand has its own separate FTAs which are signed and in effect with China, Japan, Laos, New Zealand, Australia, Chile and Peru. In addition, various FTA are on process of negotiation, under consultation and study.
Thailand and Latin America have been looking for the way to do business together before the first FTA of Thailand – Peru was successfully finalized in 2010. Bilateral regional trade flows are remarkably different due to trade direction and capacity. Imports from Thailand are manufactured products, while Latin America exports are mostly primary commodities. FTA between Peru and Thailand is the first key access and milestone to liberalize trade and investment between the regions.
International Trade Agreement plays an important role to open gates between countries, decrease limitations and trade barriers. Free trade agreements (FTAs) provide a wide range of benefits to businesses. The goods and products in those countries will be reduced or eliminated tariff rates which means the cost for business will be reduced. The companies from countries with FTA will minimize the cost of trade and investment. Moreover, companies also can access to new business opportunities for example new resource, new market, new business partner, new portfolio of client. F
This article written by H&P Lawyers in Bangkok comprises a preliminary gaze to the trade and investment relationship of Thailand and Latin America with FTAs. Thailand and Latin America countries’ FTA which are currently signed and enforced are with the Republic of Peru, Republic of Chile. Two significant FTAs Thailand-Colombia and Thailand-Mercosur are under proposal and study processes.
Republic of Peru and the Kingdom of Thailand
The jurisdiction of Peru in Latin America, located on west side of Latin America has bilateral trade between Peru and Thailand has been gradually rising up since the start of FTA negotiations in 2004. In 2011, the Protocol between the Kingdom of Thailand and the Republic of Peru enforced to Accelerate the Liberalization of Trade in Goods and Trade Facilitation. The key point of such protocol consisted of tariff reduction on 70% of total tariff lines, where import tariff applicable to 50% of total tariff lines would be erased down to 0% immediately while those applicable to the other 20% of the total tariff lines would be dropped down to 0% within 5 years.
The free trade agreement between Thailand and Peru covered trade in goods, trade in services, investment, rules and regulation and economic cooperation in such areas as trade and investment promotion, SMEs, agriculture, fishery, forestry and foods, services and tourism, energy, science and technology. The agreement would serve as a mechanism that both sides may utilize to further strengthen relations and strategic partnership in economic, trade and investment fronts.
After this attempt to connect two regions closer, in 2018, Thailand exported to Peru around 348.2 million USD and imported from Peru around 103.2 million USD. Thailand exercised the right to export to Peru under FTA around 9.5 million USD, significantly increasing 62% and right to import from Peru 17 million USD, remarkably rising up 18.8% of total trading volume. The main products imported from Thailand consist of automobile, home appliance and machinery.
Republic of Chile and the Kingdom of Thailand
Thailand was looking for a politically stable and developed business partner in Latin America, and discovered Chile due to being a rich on natural resources. That matched with the vision of Thailand for the Latin American region. Thailand did not see Chile only as a top copper producer but also as a fish producer.
The Kingdom of Thailand and the Republic of Chile enforced the Bilateral FTA on 2015. The ceremony was held at the prestigious Landmark Hotel in Bangkok and Mr. Jose Herrera, Managing Partner of H&P delivered a speech on the legal aspects of this FTA with other selected speakers such as Mr. Diego Osses of Prochile, H.E. Javier Becker, Ambassador of Chile to Thailand, Mr. Roberto Paiva, ProChile Chairman, Mr. Rafael Sabat Head of ProChile International Department and Khun Passavudh Rimcharone, Minister Counselor at the Ministry of Commerce of Thailand.
Nowadays, 90% of the Goods in the list of both parties have been reduced to 0% tariff rate and is expected to reach 100% in 2066.
In order to be more competitive, Thailand and Chile agreed to negotiate more goods to be listed in the FTA in order to enforce FTA benefits to a wider sphere of products. In addition, parties agreed to accelerate decreasing goods tariff rate at 0% on specific goods category. Thailand requested rice, sugar, tire, textiles and garments, however Chile focused on salmon, sea product, oil, fruit, and juice. In order to facilitate business, trade and cooperation between parties, it is agreed to negotiate about rule of origin and the possibility to adopt electronic system for the purpose of rule of origin tariff reduction in the future.
In 2018, Thailand and Chile trade value total reached around 998 million USD, segregated into 632.1 million USD exportation and 365.9 million USD of importation which count as 18.2% increased value. Moreover 90% of this trade market volume use FTA benefits.
Chile economy has gradually grown up. Chile is an open country in international trade with other countries even in its own region. Obviously, this is one of the reasons why Thailand considers Chile as a gateway for more trade and investment in Latin America.
Republic of Colombia and the Kingdom of Thailand
This bilateral FTA between Colombia is still not enforceable. This FTA is still on its early stage of study and under consultation. Colombia is one of the 30th largest economies in the world with a GDP of about US$380 billion, and has been consistently among the fastest-expanding economies in Latin America. Colombia exports to Thailand only 1% of its exporting ratio to Asia, therefore the regulators understand that its implied that there are still room for both counties to tie up more trade and investment relationship. Most of goods exported to Thailand are oil, precious stones and leather. On the other hand, most of products that Thailand is exporting to Colombia are auto-parts, machinery, and electric appliance.
MERCOSUR and the Kingdom of Thailand
This will be a regional FTA between Brazil, Argentina, Uruguay, and Paraguay and the Kingdom of Thailand. Bilateral FTA between individual countries and FTAs with multiple countries in the region can overlap. The countries having both FTA types provide more benefits to its country’s business than only one type. For example, if the company operate in a country where multiple FTAs apply, and trading in certain goods designated in the FTAs, the company can select the most favorable tariff rate.
MERCOSUR is a strategic huge market in Latin America for Thailand, as MERCOSUR member population is up to 270 million. The main purposes of MERCOSUR are free trading of goods and resources within regional members and exercising same tariff rate. If Thailand success on this FTA, it will enhance numerous business opportunities for both parties.
Latin America has becoming Thailand newly targeted market of auto-part, machinery, electric appliance and there is still a lot more to explore. As member of Asean community, Thailand continues to be an attractive place to invest and market for foreign direct investment.
Conclusions
The advice of H&P lawyers is that in order to enjoy the benefits of FTAs, investors primary obligation is to check the application requirements of the FTA tariff rate. FTA tariff rate is applicable for goods included in to the agreement and for the FTA country member. The goods will enjoy benefit as long as the goods are specified in the list of goods which have been classified in Harmonized System Code (HSC) on the agreement.
In terms of international trade operations, we have to keep in mind that even we refer to the same goods but if the goods fall on different HSC, the tariff rate and benefits would be different. When we assist to Thai companies who are seeking for export or import goods, we recommend to check the qualifications of goods, rule of origin, and required documents with the Department of Foreign Trade, Ministry of Commerce.
In order to acquire efficient benefits of the FTAs, the company should emphasize on the understanding on Harmonizes Goods and rule of origins so that company can significantly reduce or completely eliminate tariff rate. Moreover, if such country joins many bilateral FTAs and multiple FTAs, the company and investor can pick the most advantage clauses of the FTA accordingly.
In the opinion of our lawyers, with the continued focus on trade liberalization, Thailand will continue negotiate FTA with more Latin America Countries with the purpose of accessing to billion of people around the world. As it was said, Thai Government attempt to tie both regions in to one, Trade and Investment Promotion between Thailand and Latin America Countries, not only individual FTA but also regional FTA.
