Thais keen as India gets Trump treatment

Thais keen as India gets Trump treatment

The US rollback of trade preferences for the subcontinent could benefit local firms without much downside

Global trade has been hobbled, not only because of the Sino-US trade spat, but also because the US has prioritised reducing its trade deficits with countries around the world. India is the latest victim.

US President Donald Trump recently decided to roll back export incentives provided to India under the Generalized System of Preferences (GSP) from June 5, saying it had "not assured the US that India will provide equitable and reasonable access to its markets".

The move is expected to affect India's exports to the US worth $5.6 billion under the programme.

The GSP is the largest and oldest US trade preference scheme and is designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.

Under the GSP, nearly 2,000 products including auto components and textiles can enter the US duty-free if the beneficiary developing country meets the eligibility criteria established by Congress.

India was the largest beneficiary of the programme in 2017 with $5.6 billion worth of exports to the US given duty-free status, according to a Congressional Research Service report issued in January.

India exported goods worth $54 billion to the US in 2018 and bought $33 billion worth of US goods, according to government data.

Marginal impact

Prim Jitcharoongphorn, president of the Thailand-India Business Council, said that even with the cuts, Thai companies which have invested in Indian factories should not be affected.

"Most Thai companies, such as SCG, CP and Sri Thai, invested in the Indian market to make and sell products mainly in India, not for re-export," Ms Prim said. "India is a huge market and there is still a need for products with international standards. Only some items are manufactured for export, such as electronics and rubber products."

Sanan Ungubolkul, vice-chairman of the Thai Chamber of Commerce and chief executive of Srithai Superware, which owns a melamine tableware factory in India, said the impact on Thai companies is minimal.

"Thai investors do not rely on India as a production base for exports," he said. "Thai investors mostly focus on the Indian market for sales, such as food, garments and footwear, or in the case of SCG, for packaging, and Italthai, for construction."

Mr Sanan said that if the GSP cuts were for Thailand, it would be terrible. He said the Thai economy as it exists is at a disadvantage from a strengthening currency, stronger than both Vietnam's and Cambodia's.

Moreover, in light of the US-China trade row, Chinese investments in Thailand are likely to slow. Chinese firms may opt to relocate their production bases to Vietnam, as that country borders China and provides more convenient logistics and supply chain.

Vietnam also has a free-trade agreement with the EU, Mr Sanan noted.

Visit Limlurcha, chairman of the food processing industry club of the Federation of Thai Industries, said it's too early to evaluate whether and how Thai businesses will suffer from the US-India trade dispute.

"Most Thai companies investing in India are large with huge investment projects, and we believe they can handle this situation," Mr Visit said, adding that small and medium-sized companies still have limited capability to enter India.

US consumers hurt

Ravi Sehgal, president of the India-Thai Chamber of Commerce, said there were 5,111 items of Indian products that were entitled to GSP rights, and GSP utilisation made up only $190 million or about 0.4% of total export value.

"The GSP cut would mostly affect products in the US, which will become more expensive," Mr Sehgal said.

He said Indian products exported to the US mostly consist of raw materials and intermediate goods used to make value-added or finished products in the US.

Bunn Kasemsup, managing director of SCG International Corporation Co, said India is unlikely to suffer much from the GSP cut.

Higher import tariffs after revocation of the GSP will increase costs for exported products to the US.

Mr Bunn said US products are expected to suffer from retaliatory measures in India, trimming their competitiveness.

SCG is unlikely to be affected by the GSP cut, he said.

Potential Thai benefit

Sunthorn Thongthip, a strategist with Kasikorn Securities, said the US revocation of GSP for Indian goods could be positive for Thai businesses competing with Indian companies.

The shrimp business is a notable example, as India has benefited from shrimp exports to the US because of the former's low labour and production costs, Mr Sunthorn said.

"Thai producers and exporters of shrimp may gain benefits from [India's] loss of GSP," he said.

Three SET-listed companies export shrimp to the US: Thai Union Group Plc, Asian Seafood Coldstorage Plc and Seafresh Industry Plc.

Regarding the likelihood of the US targeting other Asian countries for GSP revocation, Thailand has a low risk because it's not on America's list of countries with a pronounced trade surplus with the world's largest economy, Mr Sunthorn said.

The Commerce Ministry reported two-way trade between Thailand and India of $12.5 billion in 2018, up 20.2% from a year before. Exports from Thailand rose 17.3% to $7.60 billion, while imports were up 24.9% at $4.86 billion. Thailand enjoyed a trade surplus worth 2.77 billion last year.

In the first four months of 2019, two-way trade amounted to $4.27 billion, with exports rising 2.4% to $2.65 billion and imports climbing 9.4% to $1.62 billion.

Do you like the content of this article?
COMMENT