Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the January 10, 2006 issue of the Bangkok Post
By Suthad Setboonsarng and Paul Sumner
Customs and trade issues are not entirely predictable, but a reasonable assessment of some of the issues can be made. For the coming twelve months, the Thai Customs Department will continue its modernisation process and, at the same time, increase its efficiency to accommodate a 20% increase in its revenue target.
There will be an increase in free trade agreements (FTAs) to compensate for the sluggish World Trade Organisation (WTO) process exhibited in the ministerial meetings last month in Hong Kong. Thailand will consolidate the trade arrangements it has with its Asian partners and intensify the effort with countries from North and South America, as well as Europe.
Continued modernisation of Thai Customs. Thai Customs will continue to implement programmes towards achieving a world-class standard, while at the same time, try to reach its 120-billion-baht revenue target.
In order to ensure the efficiency of compliance monitoring and improve clearing time, the Customs Department will be deploying modern equipment, such as X-ray machines, while improving management efficiency through restructuring, the use of an information technology system and by strengthening its human resources.
As the implementation rules and procedures of the Free Zone become clearer, it is expected that more companies will apply for Free Zone status which offers significant tariff benefits to manufacturers who import raw materials and sell the output in Thailand. If the finished product meets the appropriate rules of origin criteria, then the duty rate on the imported raw materials can be reduced to the preferential rate applicable to the finished product, based on the output value minus local raw material. The new Suvarnabhumi airport will be made a free zone, which will attract many investors.
FTAs, as well as other schemes to reduce tariffs, will further lower revenue collection and put more pressure on the Customs Department. Therefore, an increase in audit and investigation activity is likely. All importers should be aware of this. Being under-prepared for an audit can significantly increase the compliance burden and reduce the chances of a favourable outcome.
It is expected that Thai Customs will also continue to improve its outreach programme to address some of the concerns raised by importers and exporters over the past year. These include the timeliness of the appeals process, the management and finalisation of audits, the availability of written rulings, and the promotion of information (e.g. rulings, published guidance) that give transparency and certainty to the valuation and classification process. One area is the ''transparency and unity'' programme, on which several hundred companies have signed the initiative, many through national Chambers of Commerce.
Consolidation of trading arrangements with Asian countries. Thailand has implemented three FTAs in 2005: China (under Asean-China FTA), Australia and New Zealand. With the implementation apparatus fully in place, these FTAs will be in full steam in 2006.
In 2006, the FTA with India, Japan and possibly the USA will be concluded. Together with the Asean-Korea FTA, Thailand will have completed the trading arrangement with major Asian trading partners. The FTA negotiation under Bimstec, which links South Asian countries, will continue at a slow pace. But as the intra-regional trade is small, its impact will be limited.
The memorandum of understanding on the early-harvest package with Peru last year will eliminate the duty on over 50% of tariff lines imported from Thailand. This is just a start that will give Thailand a foothold into South America.
Current negotiations with EFTA, grouping Iceland, Norway, Switzerland and Liechtenstein, are expected to conclude in 2006. This will also give Thailand an anchor to Europe.
Once the dust has settled, and implementation sets in, the rules of origin will be at the centre of the implementation issue. The complexity of rules for each product will be compounded by the fact that products exported to different trading partners will be subject to different rules. A challenge for the exporter is to properly track the origin of its raw materials. Prudent risk management and planning should be the 2006 agenda.
