KPRU Parliamentary Lecture

FTAs and the Automotive Industry in Thailand and Malaysia

Date: 29th October 2010 (Friday)Time: 2.30 pm to 3.30pmVenue: Bilik Jawatankuasa 1, Parliament, KLSpeaker: Dr. Kitti Prasirtsuk

FTAs and the Automotive Industry in Thailand and Malaysia

Dr. Kitti PrasirtsukThammasat University

October 29, 2010

Talk Overview

• The Development of the Automotive Industry

• The Impact of FTAs- Australia- Japan- AFTA

The Development of the Auto Industry in Thailand and Malaysia

• 1960s first domestic auto assembly plants (for import substitution)

• 1970s local content policy

• 1980s National Car vs. working with MNCs- 1987 Thailand offered various incentives for FDI following the 1985 Plaza Accord

Different approaches since 1980s

- Malaysia: National Car Project- Thailand: working with MNCs (J/V)

Nissan – Pornprapa FamilyMitsubishi – Pannachet FamilyIsuzu – Bunsoong Family Honda – Sarasin FamilyToyota – SCG

* Thai partners more involved in sales

Since 1990s

• Thailand: more liberal on auto, esp. during PM Anand (1991-92)- 1991 reduced tariffs more care imports impetus for competition- 1992 AFTA- reduced local content

• 2002 more Western auto FDI• Detroit of Asia (2004) vs. NAP (2006)

Turning Points for Thai Auto Industry

• Turning Point 1 : The 1997 Asian Financial Crisis from J/V to foreign ownership exports

• Turning Point 2 : FTAs (2005 onwards) even more exports

Thailand’s Strength• Pick-up truck (1 ton): - the 2nd largest market in the world, only next to

the U.S., since the 1990’s- now export bases to all over the world (except

North America) for Isuzu, Toyota, Mitsubishi• Small passenger cars: Toyota Vios, Yaris; Honda

City, Jazz; Nissan March• R&D Centers (Toyota and Honda)• Clusters of suppliers• Now 14th largest car producer in the world

“economies of scale”

World Ranking: Automobile Production by Country (2007)

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

No.141,287,346 unit

262,099 272,584 261,103 262,209

1,539 1,465 2,063 12,202 16,145 11,800 11,80128,053

52,341

154,256

196,810

240,640

297,677

145,78794,126 32,532 72,404 66,993 78,886

128,350

179,459

221,639

147,326

95,591

34,595

84,606 83,13890,686

140,151

207,512

273,980

416,355

469,394

501,743

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

-3%

575,525Revised as of

Dec-08

Original Plan

590,629Production VolumeDomesticExport

The Impacts of FTAs

• Thailand-Australia FTA- Since January 2005- windfall gains for the Thai auto industry- exports of both CBU and parts

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

2545 2546 2547 2548 2549 2550

(ม.ค.-ก.ย.)

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Thai Exports to Australia65.47% 109.72%

Thai Production Volume (units)

Auto Sales in Thailand

The Impact of JTEPA

• Cheaper parts imports from Japan (esp. core components) cheaper car prices in domestic market more competitiveness on exports

The Impact of AFTA

• Auto duty (HS: 8703) became 0% since Jan. 2010

• Thai auto exports were soaring during Jan.-Jun. 2010.

To ASEAN US$ 1.49 billion (24% share)

Indonesia, Philippines, MalaysiaTo Australia US$ 1.67 billion

2010 Thai Production & Exports

• Jan.-Aug. 2010 Auto production 1.05 million Units (+93%) - domestic sale 0.49 + exports 0.58 million

unitsExports Value 518 billion baht (+60%)

- cars 270 + parts 235 billion baht

Negative Impacts• Thailand: FTAs force closures of auto-parts firms

Local auto-parts manufacturers are being forced out of business by increased competition from free-trade agreements including the Asean Free Trade Area. Fewer than 10% of first-tier parts suppliers are wholly owned Thai companies at present compared with 80% a decade ago, according to the Thai Auto-Parts Manufacturers Association. 'The only advantage of the Thai auto-parts industry is skilled labour; the country lacks raw materials and technological know-how. (Bangkok Post, 11 March 2010)

Conclusion

• Liberal policies on the auto industry and FTAs benefit Thailand

• Yet, auto prices in Thailand remain high. More room for more liberal policies to reduce prices for the benefits of consumers.