The country's trade balance will highly likely slip into the red in 2005, the first time in seven years or since the country was forced to depreciate the baht in 1997.

In fact, export-driven Thailand is very good at selling merchandise, which explains the outstanding growth in the first ten months of 2004. Exports rose by 23% year-on-year to US$80 billion and are projected to increase by 20% by the end of 2004, up from $80 billion in 2003.

If it weren't for record high oil prices, 2004 could have been one of the most prosperous post-crisis years. Oil imports, as well as orders for capital goods including raw materials and machinery, pushed up the value of imports during the January-October period by 28% year-on-year to $79 billion, causing trade surplus to plummet by 63% to $1.6 billion compared with same period in 2003.

Aggravating the situation was an unabated appetite for oil across the country. Thailand bought $8.5 billion worth of crude oil in the first ten months of 2004, up 45% year-on-year. Refined oil imports also surged by 74% to $793 million, according to the Customs Department.
By the end of 2004, total import values are projected to jump by 28% from $52.8 billion in 2003. This is not good news for the Thaksin Shinawatra government which is expected to struggle with the challenge well into 2005.

Economists forecast that for 2005, the export sector, a key engine driving economic expansion for years, will lose its steam, in line with the global economy.

High oil prices will inevitably take their toll on the world economy. Besides, China, the key driver behind world economic growth in recent years, is widely expected to raise its interest rates, the first time in nine years, to cool down its accelerated growth. Both factors will eventually dampen consumption and purchasing power worldwide.

Under such a scenario, economists predicted Thai exports would grow by between 8% and 10% in 2005. They also revised up the forecast of the Brent oil price for the year to $33 a barrel from an earlier forecast of $26.
In any case, the export sector is still perceived as a major growth engine next year although the government has moved to reduce the country's dependence on exports, which heavily relies on the global economy.

In Mr Thaksin's view, the uncontrollable factors, for example the global economy, should not dominate the country's economic growth. That was why Mr Thaksin announced the dual-track economic policy that combined a focus on attracting foreign investment and producing exports. The policy has won plaudits from local and international economists alike as a new development paradigm.

Among the key economic engines, economists have credited the export sector, which accounts for half of the country's gross domestic product, as playing the most significant role in driving the country's economic growth to 6.3% this year. As well, good performance of international trade has prompted the government to announce strong economic growth for 2004 while other indicators, including local consumption and private investment, have expanded at a slower pace.

Rising oil prices, the bird-flu outbreak, as well as violence in the southernmost provinces, dampened the private sector's confidence and spending in 2004. They remain major challenges for the Thai Rak Thai-led government if the party is elected for a second term in 2005.

The bird-flu outbreak, in particular, has dealt a heavy blow to fresh chicken shipments from Thailand, which contracted by 90% to only $44 million in the first ten months of 2004. Japan and the European Union, the two major chicken-importing countries, have imposed bans on fresh chicken from Thailand until next March. But thanks to the improving economies of Thailand's major trade partners _ Asean, Japan, the European Union, the United States and China _ the country's export performance remained outstanding in 2004, said Charles Kengchon, an economist at Kasikorn Research Centre.

Furthermore, the prices of major export commodities such as rubber, rice, sugar and tapioca products were higher in 2004 than in 2003. As of August 2004, the main crop price index averaged at 73.5, up from 66.3 from 2003, according to the Bank of Thailand.

"However, those positive factors will not be as good [in 2005] as they are this year [2004]," Mr Charles noted. The US, the world's largest economy is projected to announce growth of 3.5% in 2005, down from 4.5% in 2004.

"If the US still holds on to the high interest rate policy, domestic demand will eventually be affected, and so will (Thai) exports in this market," said Mr Charles.

Meanwhile, Japan will likely see its growth decline somewhat to 2.25%, mainly because of diminishing demand from China. The world's second largest economy, however, registered the highest growth over a decade in 2004, at 4.5%, largely due to explosive growth in China and a sharp increase in domestic expenditures.

Fast-growing China also announced plans to cool down its overheating economy early in 2004. The mainland posted 9.7% growth in the first six months of 2004, with imminent signs of a soft landing.

With China's growth projected to slow to 8% in 2005, exports from other Asian countries to the mainland will diminish as well.

Europe does not seem to fare much better either, with growth forecasts for the eurozone cut to a measly 2.5% for 2005.

In terms of the price trends of farm products, the export price indices for some items have moderated since mid-2004. Judging from the central bank's records, their prices are likely to decline further over the next 12 months and it is premature now to predict to what extent the farm prices will fall.

While this development bodes ill for every government on earth, it represents an acid test for the Thai Rak Thai-led government, which was lucky to have come into the office riding an uptrend of world commodity prices.
Mainly, the economic slowdown of major trade partners, which together account for three-fourths of total export value, will become the major challenge for Thailand next year, Mr Charles concluded.

"When consumers feel everything is expensive, they will save money rather than spend it," Pornsil Patchrin-tanakul, vice-president of the agro-industry conglomerate Charoen Pokphand Group said.

The baht was likely to strengthen further against the US dollar in 2005, affecting the competitiveness of Thai exports in the world markets. As a result, the appreciating baht will become another headache for Thai exporters in 2005.

Mr Pornsil noted that the baht could get stronger under two circumstances. First, Washington resorts to the weaker dollar policy to cope with its huge current deficit and second, Beijing decides to make its renminbi more flexible to ease political pressure exerted by the US which records an enormous trade deficit against China.

But since the baht generally moves in line with other Asian currencies, Thai exports will not be much less competitive relative to those of other Asian countries, he added.

The soaring imports and trade deficit, an imminent challenge for whichever government coming to power after the upcoming general election in February 2005, are not worrisome as long as they grow in line with investment, he said.

Although the world economic outlook seems less stable next year, the private sector has already taken that fact into account and adjusted themselves to better cope with the prospect.
Of particular concern are garment and textile exports, which will face tough competition next year after the 30-year global quota system is lifted on Jan 1, 2005. Private operators have thus sought the government's assistance.

"That is why we (garment exporters) have encouraged the government to seriously promote the mulit-billion-baht Bangkok Fashion City project to upgrade the garment export industry as a whole," said Viroj Amatakulchai, a veteran garment exporter and senator.

Meanwhile, chicken exporters have turned the bird-flu crisis into an opportunity by switching their focus to adding value to processed chicken rather than trying to export fresh chicken, said Pornsri Laurujisawat, manager of the Thai Broiler Processing Exporters Association.

The outlook for industrial goods, such as electronic products and automotive and parts is not so bad in 2005, as they are expected to expand in line with rising foreign direct investment.

A silver lining to the gloomy outlook is the fact that member countries of the World Trade Organisation took an important step in July 2004 in the long struggle to remove massive agriculture subsidies and open markets for poor countries.

FTA negotiations with various countries have progressed but economists warn of the dangers that come with the lack of focus and direction

Woranuj Maneerungsee

IN JULY 2004, Prime minister Thaksin Shinawatra flew to Australia to seal Thailand's first comprehensive bilateral free trade agreement with a developed country. Critics say, however, that this does not mean the country is ready for similar deals with other developed countries such as the United States and Japan, the world's most powerful economies.

With the victory of George W. Bush in the US presidential election in early November 2004, negotiations on bilateral trade talks with Washington will likely remain on track. Although a large number of non-Americans all over the world might have wished for the victory of his archrival, John Kerry, for political reasons, the Thai business community applauded Mr Bush's victory, saying that the direction of Thai-US FTA talks would remain unchanged.

As well, with the Republican victory in the Senate, it is expected that Mr Bush's Trade Promotion Authority (TPA) will be extended automatically for another two years next June. The TPA allows the US president to negotiate trade agreements with other countries in good faith without fear of further congressional intervention because future international trade agreements will be subject to an up-or-down vote, but not amendment, in Congress. The TPA is intended to promote freer trade by giving other countries confidence that the agreements they negotiate with Washington will not be subject to subsequent renegotiation.

But the lack of clear direction in the negotiations is a major stumbling block for the next government of Thailand in dealing with Washington and Tokyo, a critic from a private think-tank says.

In November 2004, the Thailand-US Business Council conducted a conference to discuss the challenges of the Thai-US FTA, despite the fact of two rounds of the talks had already taken place in Hawaii in June and October.

Washington has made it clear that it is willing to trade manufacturing goods for further market access in the services sector including telecommunication and banking.
Tokyo also has a strong intention to urge Bangkok to open its door to services related to its manufacturing businesses such as advisory and accounting services. Thailand, meanwhile, closes the doors to everything until they are knocked.

"Focusing on spa, healthcare or Thai chef ... I would not say this is the policy," said Deunden Nikomborirak, the researcher at the Thailand Development Research Institute.
"If the government says the FTAs will help increase the country's trade, it should decide whether it wants to promote products that have already been traded or new products that we never traded before," Ms Deunden added.

In fact, many economists and the private sector have applauded the government for entering into bilateral FTAs with both countries. After all, both are Thailand's major trade partners, accounting for more than one-third of the total export value annually.

Ms Deunden said in theory, having bilateral free trade agreements with major partners was the right policy since it would help the country enhance international trade. Unfortunately, policymakers were blamed for failing to come up with a clear policy for the negotiations.

Mr Thaksin prefers the bilateral and regional free trade pacts to multilateral ones. He has rushed to engage in bilateral free trade talks with eight countries at the same time, from developing to developed countries such as Bahrain, China, India and New Zealand. Besides, the country has already been members of two regional FTAs _ Asean and Bimstec with South Asian countries.

The Thai-Australian FTA, taking effect on Jan 1, 2005, will benefit industrial goods exporters the most, in particular, manufacturers of automotives and parts. But given Australia's strong, highly competitive dairy industry, Thai farmers of similar products will likely be the hardest hit.

Nitaya Pibulsonggram, the chief of the Thai-US negotiating team, admitted that the US demands were difficult to follow, especially with regard to the financial sector, strong intellectual property protection, competition policy, environment as well as labour issues. High on its agenda were the environment and labour issues, which are part of the TPA. Thailand, however, is reluctant to embrace both issues in the framework of the negotiations.

Responding to the criticism of the directionless FTA negotiations, Mr Thaksin in November 2004 re-organised the body overseeing the FTAs by appointing his right-hand man, Finance Minister Somkid Jatusripitak, to chair the committee setting the strategies and directions of the free trade agreement negotiations. Actually, the committee is an exclusive club of " top hands" _ ministers and permanent-secretaries from economic ministries, the foreign affair minister and several respected officials from the National Economic and Social Development Board.

The newly appointed committee is likely to take over the jobs from the two committees responsible for FTAs negotiations now _ one that has crafted the negotiating strategies and the other which has monitored the impacts of the FTAs. Two advisers to the finance minister _ Sompol Kiatpaibool, a former permanent-secretary for commerce, and Narongchai Akrasanee, a former commerce minister _ have chaired both committees respectively since June 2004.

A government source said both committees had neither followed up all FTAs negotiations properly nor co-ordinated with related agencies. "They sometimes have meetings among themselves and that's all. Others do not know what they have done. Perhaps, (because) they have no authority to direct others," said the source.
As the secretary of the newly appointed committee, Panpree Bahiddha-Nukara, the assistant to the Commerce Minister, is positive that the new body has the authority to give mandate to FTA negotiating teams. It plans to meet every month to enable the government to monitor the FTA progress closely.