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https://www.nationthailand.com/blogs/business/corporate/40019897
Thai Companies To Prepare For Shifting Global Trade Policies
BY LINE : THE NATION
FRI, SEPTEMBER 09, 2022
With Global Geopolitical Tensions Rising, The Most Prominent World Economic Powers US, EU And China Have Been Reshaping Their Trade Policies. These Policies Will Impact Southeast Asian Economies, Including Thailand And Thai Companies Face Both Opportunities And Challenges In This Regard.
Over the past years, China has already been expeditiously rolling out its Belt & Road Initiative to integrate the Chinese economy into Asian and African markets through infrastructure development, investment and financing projects. The US on the other hand unveiled its Indo-Pacific Economic Framework for Prosperity (IPEF) earlier this year seeking closer cooperation with selected Asian countries on trade and economic matters, including standards on digital trade, creating supply chain resiliency, green energy and fair economy rules. While not much more than a ‘symbolic’ agreement at this stage, it sets the foundation for potential far reaching engagements. Thai companies are set to benefit from increased investment and trade opportunities with both China and the US under these initiatives, however they may also have to weigh the opportunities against the risks of running counter to restrictions by either trade partner on the other.
The most remarkable and potentially most impactful trade policy developments for Thailand may however be coming from the EU. Under its Open, Sustainable and Assertive Trade Policy, the EU continues to seek Free Trade Agreements (FTAs) with countries in the APAC region, including Thailand, to attain reciprocal market access, harmonize rules and reduce barriers to trade. These objectives are in line with most ASEAN countries’ desire to support economic growth through international trade. However, the EU’s “New Generation FTAs” now focus more than ever on the topic of sustainability, the umbrella term for environmental protection, advancement of human rights and social justice. In its effort to drive the necessary shift to a more sustainable global economy, the EU has decided to expand partner obligations in FTAs and strengthen its enforcement of the sustainability provisions with sanctions. FTA negotiations between the EU and Thailand have stalled but are set to resume once both parties can agree on a basic common framework. If the negotiations proceed, sustainability will without a doubt present a major component in the agreement and require enforceable commitments from Thailand.
The extra-territorial reach of the EU’s sustainability agenda does not stop there. In the past year(s), the EU has rolled out a number of legislative proposals which place requirements on economic operators in the EU market to reduce their greenhouse gas emission levels, implement environmental protections and enforce human rights. Importantly for companies in Thailand looking to supply the EU market, a number of these legislative requirements indirectly cover overseas suppliers. A few prominent examples follow here.
1) The Carbon Border Adjustment Mechanism (CBAM): Under the EU Emissions Trading System, in place since 2005, a cap is set on the total amount of certain greenhouse gases that can be emitted by covered operators in the EU. This cap is reduced over time. Within the cap, EU operators receive or purchase a limited number of allowances to cover their emissions, which they cannot exceed, or they become subject to fines. To prevent that these carbon reduction efforts on the EU market are being offset by companies increasing their emissions overseas and then importing “unsustainable” goods into the EU, the CBAM requires importers to report the emissions embedded in imported goods and purchase carbon certificates corresponding to the carbon price that would have been paid had the goods been produced in the EU. This would then affect the competitiveness of the products exported by the overseas suppliers. The reporting Phase of the CBAM is expected to apply from 1 January 2023 and the payment system from 1 January 2026. In a first phase, imports of cement, iron & steel, aluminum, fertilizers, and electricity will be covered. The product coverage can be expanded in next phases.
2) Corporate Sustainability Due Diligence Directive: This proposal imposes requirements on large EU companies and certain non-EU companies with significant revenue in the EU to put in place internal due diligence frameworks to identify, report and mitigate adverse impacts of their company activities and international supply chain on human rights and the environment. These due diligence requirements will also extend to the overseas suppliers of the EU operators and failure to address the identified issues will result in sanctions.
3) Regulation on deforestation-free products: If implemented, this policy will ban products associated with deforestation or forest degradation, regardless whether they were produced in the EU or in overseas markets. Products currently covered in the proposal are cattle, cocoa, coffee, palm oil, soy and wood. In a next phase, this could be expanded to other products as well. To obtain access to the EU market, EU operators will have to gather and report data that demonstrates the products are not from deforested land and comply with the producer-state’s local environmental rules. Inability to produce the necessary due diligence or non-compliance with the requirements will result in a ban of the products on the EU market.
The implications of these proposed rules for overseas suppliers increase the global reach of the EU’s sustainability agenda. For Thai companies supplying the EU market, now is the time to make themselves familiar with the contents of these upcoming sustainability policies to understand the potential impact on their business operations and to plan ahead what they must do to adapt and thrive.
By Tom Cachet
Senior Manager | Global Trade Advisory
Deloitte Thailand
Sang Anakot Thai was formed by Uttama and Sontirat, former leader and secretary-general of the ruling Palang Pracharath Party (PPRP). Uttama and Sontirat formed the PPRP to support former coup leader General Prayut Chan-o-cha to the post of prime minister only to see themselves removed from top posts of the party and the Cabinet later, prompting them to leave the PPRP and form the new party
Uttama said the meeting was held to make preparations for contesting the next election so that all party members would work in the same direction.
