Phuket, a popular tourist destination and port in southern Thailand
Courtesy Thai Airways International

International Trade

Thailand sustained a trade balance deficit from the early 1970s to the mid-1980s. Although the trade balance had improved during the first part of the 1970s, it worsened after the oil shocks of 1973 and 1979. In fact the net value of oil imports went from US$52.5 million in 1970 to US$684.7 million in 1982, with dependence on foreign oil reaching 75 percent in 1980 and declining to 50 percent by 1985. Although there was a general decline in the export performance of developing countries in the early 1980s, Thailand's recovery from the oil shock was further delayed by a loss in export competitiveness, a slowdown in the economies of major trading partners, and a growing debt service obligation resulting in part from rising interest rates. The current account balance deficits were not as severe as the trade deficits as a result of improving service balances. By 1986 the balance of payments had moved into surplus on current account (see table 7, Appendix). The major contribution to the service balance surplus was tourism, which increased from 630,000 tourists in 1970 to 2.6 million in 1986. Tourism was the top foreign exchange earner from 1981 to 1986. The trade deficit was caused in part by a decreasing growth rate of exports between 1980 and 1983, which improved slightly by 1985. The growth rate of imports also declined, but at a slower rate. Despite an increase in tourism, the trade deficit reached a peak in 1983 of US$3.9 billion. In 1985 exports totaled US$7.1 billion and imports US$9.2 billion, leaving an unfavorable trade balance of US$2.1 billion. By 1986 the deficit had decreased even further, with some of the reduction a result of the lower cost of imported oil.

The composition or structure of merchandise exports changed substantially between 1965 and 1985. Primary commodities accounted for 95 percent of Thailand's exports in 1965, and manufactured exports accounted for only 4 percent. By 1986 manufactured products comprised 55 percent of total exports, with textile products increasing from less than 1 percent in 1965 to 13 percent by 1986 (see table 8, Appendix). Other major manufacturing exports in the mid-1980s included rubber products, processed foods, integrated circuits, metal products, jewelry, footwear, and furniture. Although agricultural exports as a percentage of total exports declined during this period, rice and other agricultural exports remained important for the Thai economy. By the mid-1980s, rice took the highest share of total agricultural exports. Cassava products, maize, sugar, rubber, fruit, and marine products were the other main exports in this category.

Between 1965 and 1985, the destinations of merchandise exports shifted from 54 percent of 1965 exports destined for developin 1354 ng countries to 56 percent of 1985 exports going to industrialized countries. This increase in the percentage of exports to industrialized countries, in combination with the changing structure of merchandise exports from predominantly agricultural to manufactured products, has fueled Thailand's economic growth (see table 9, Appendix). Thailand's major industrialized trading partners included the EEC, the United States, Japan, and the Netherlands. Furthermore, Thailand has developed significant trade relations with the newly industrializing countries (NICs) of Singapore, Hong Kong, the Republic of Korea (South Korea), and Taiwan. Additionally, Thailand has developed trade relations with Malaysia, the Philippines, Indonesia, and China (see table 10, Appendix).

Tariff barriers on imports from the developing countries had dropped with the implementation of the Tokyo Round (1973-79) of the General Agreement on Tariffs and Trade ( GATT--see Glossary). Rising nontariff barriers, resulting from domestic and international economic conditions in industrial countries, had more than offset the tariff reductions. In the United States the proportion of imports subject to such barriers more than doubled, and in the other industrial countries it rose by as much as 40 percent. Examples of nontariff barriers were quotas, voluntary exports restraints, the Multifiber Arrangements, sanitation rules, and subsidies.

Thai rice exports encountered the stiffest barriers in Japan, where the tariff rate was 15 percent and a global quota was in force. In the United States, tariff on rice was only 2.6 percent, and no explicit nontariff barriers existed except for stringent controls by the United States Food and Drug Administration. In the other industrialized countries, Thai rice exports faced varying levies. Thai agricultural exports to the developing countries met with stiff competition from subsidized United States cereal exports. Thailand entered into a voluntary export restraint with France for its cassava exports because of strong resistance to imports from the French producers of cereal-based animal feed. Rubber did not face major barriers except for quotas imposed by Japan. Maize exports did relatively poorly because of subsidized production and high tariffs in the industrialized countries. Sugar exports also faced subsidy problems in Western Europe and a 50 percent quota reduction by the United States. Despite nontariff barriers, Thai agricultural and manufactured exports faced less protectionism than the NICs in the early 1980s.

Of Thailand's manufactured exports, textiles were most affected by barriers because Thailand had to enter into bilateral agreements with industrial countries, which were similar to the voluntary export restraints under the Multifiber Arrangements. In addition, tariffs escalated with the degree of processing. For example, in the United States the average tariff for cotton fabrics was 9.6 percent, whereas it was 18 percent for garments. The United States imposed countervailing duties on Thai textile exports in protest against Thai government subsidies to textile exporters in the form of export packing credits, rediscount facilities for industrial bills, electricity discounts, and tax certificates.

Tariffs in Thailand before the 1970s were primarily used to generate revenues rather than to influence domestic production. The rates ranged from 15 to 30 percent, with higher rates applied to finished consumer goods imports. In the 1970s, however, tariff rates on finished consumer goods imports increased 30 to 50 percent. Rising protectionism continued in the late 1970s and early 1980s, with high tariff rates and the application of surcharges, quantitative restrictions, price controls, and domestic contents requirements (see table 11, Appendix).

Data as of September 1987