FTA, stands for Free Trade Area, is an international agreements between 2 countries (bilateral) or several countries (multilateral) cooperate to reduce trade barriers, both tariffs related and non-related.
1. Free Trade Area Background
The idea of free trade policy is a country would produce commodities they are specialize in at lower production cost so to say that their country take the most comparative advantage, and trade for commodities they are not specialize in or at disadvantage with beneficial countries. Both countries are then allowed to make a trade with win-win situation.
Free Trade Policy is as follows
- Division of Manufacturing which means produces only commodities at lower cost and higher production potential.
- Exempt Protective Duty to cover or protect domestic industry.
- No privilege or commodities prohibition for specific country. Trade with the same tax rate and give fair treatment to commodities from all countries.
- No Trade Restriction disturbing international trading. No import or export control disturbing international trading except some commodities categorized in healthcare and dangerous to human, and commodities concern morality or national security.
2. Free Trade Meaning
Free Trade means economic integration aims to reduce inter-party tax to the lowest rate or 0%, and apply higher tax rate to countries other than free trade member. In the past, free trade aims for goods liberalization by reducing tax and other trade barrier. Free trade nowadays includes service and investment.
3. Important Free Trade Area for Thailand
High value free trade area such as ASEAN Free Trade Area (AFTA), ASEAN-China, Thai – Japan and ASEAN – Korea.
Benefit and FTA Impact
Overall, FTA causes both benefit and impact, but Dialogue Partners need to gather information and negotiate for best mutual benefit or least impact.
However, specific environment and general environment of Dialogue Partners is different among FTA. Analyzing each aspects of each FTA, some industry group and product group would benefit, some product group would not take impact. The negotiation can extends tax reduction or exemption time period for affected production group until production sectors can adjust or aided and supported by government.
Overall FTA benefits are as follows
- Reduces trade barrier, both tax related and non-related.
- Add value to inter-party trading.
- Increase export opportunities, enter new market and expand existing market.
- Increase competitiveness.
- Build economic and political bargaining power.
- Customs cooperation. Knowledge exchange. Smuggling and evasion information, and dangerous and pirated products.
- Improves economic potential and attract foreign investors.
- Other economic cooperation and manufacture technology.
- Form closer relationship.