FTAs and the Automotive Industry in Southeast Asia

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KPRU Parliamentary Lecture
FTAs and the Automotive Industry
in Thailand and Malaysia
Date: 29th October 2010 (Friday)
Time: 2.30 pm to 3.30pm
Venue: Bilik Jawatankuasa 1, Parliament, KL
Speaker: Dr. Kitti Prasirtsuk
FTAs and the Automotive Industry
in Thailand and Malaysia
Dr. Kitti Prasirtsuk
Thammasat 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 Family
Mitsubishi – Pannachet Family
Isuzu – Bunsoong Family
Honda – Sarasin Family
Toyota – 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”
8,
87
2,
95
6
10
,6
26
,8
70
12,000,000
10
,7
64
,7
53
World Ranking:
Automobile Production by Country (2007)
10,000,000
6,
19
9,
70
7
8,000,000
6,000,000
0
n
pa
Ja
A
US
in
Ch
a
G
m
er
y
an
a
re
Ko
sil
a
Br
da
na
a
C
in
a
Sp
dia
In
M
ex
ico
ce
an
Fr
s
Ru
sia
K.
U.
an
ail
Th
d
Ita
ly
ey
rk
Tu
1,
09
9,
41
6
1,
21
5,
12
3
1,
28
7,
34
6
2,000,000
1,
46
4,
97
3
1,
51
2,
37
3
1,
92
8,
90
8
2,
10
5,
90
2
2,
25
1,
63
6
2,
47
2,
32
1
4,000,000
2,
57
8,
40
9
2,
81
4,
66
3
3,
74
4,
58
0
No.14
1,287,346 unit
Original Plan
Production Volume
Domestic
Export
590,629
-3%
501,743
469,394
416,355
575,525
Revised as of
Dec-08
273,980
207,512
140,151
147,326
95,591
84,606
145,787
1,539
1996
94,126
1,465
34,595
32,532
2,063
72,404
12,202
1997
1998
1999
83,138
66,993
16,145
2000
90,686
2001
297,677
262,209
261,103
240,640
196,810
221,639
154,256
179,459
128,350
52,341
78,886
11,800
262,099
272,584
11,801
2002
28,053
2003
2004
2005
2006
2007
2008
The Impacts of FTAs
• Thailand-Australia FTA
- Since January 2005
- windfall gains for the Thai auto industry
- exports of both CBU and parts
Thai Exports to Australia
65.47%
109.72%
มูลค่ า : ล้านบาท
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
2545
2546
2547
2548
2549
2550
(ม.ค.-ก.ย.)
พ.ศ.
รถยนต์ อุปกรณ์ และส่ วนประกอบ
เหล็ก เหล็กกล้ าและผลิตภัณฑ์
เครื่ องปรั บอากาศและส่ วนประกอบ
อาหารทะเลกระป๋องและแปรรู ป
เครื่ องคอมพิวเตอร์ อุปกรณ์ และส่ วนประกอบ
นา้ มั นดิบ
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, Malaysia
To 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
units
Exports 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 AutoParts 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.
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