Effects of September 11 Terrorist Attacks on the Thai Food Industry -Trade preference and Tariffs   Published on October 26, 2001

The September 11 attacks on the United States shook the world. Six weeks after the initial attacks people around the world are looking for ways to restore shattered consumer confidence in a weakening economy. Thailand, an export-oriented country, depends on international demand for its products. In a time of unusual circumstances, the Thai food industry will have to adjust its trade patterns, products, markets, logistics, tourism and travel so they can remain competitive in a changing world market.

Trade preference

On September 23, 2001 the U.S. Congress imposed sanctions against India and Pakistan in the wake of their respective nuclear tests in 1998. In 1999, additional sanctions were applied to Pakistan after General Musharraf led a military coup that ousted the government of Nawaz Sharif.

In the weeks following the September 11 attack, the United States removed all tariffs and textile quota restrictions on Pakistan and India. Islamabad anticipates a loss of $ 1.4 billion for fiscal 2001 due to canceled export orders following last month's terrorist attacks. Pakistan's exports to the U.S totaled
$ 2.12 billion in fiscal 1999. With increased trade preferences, Pakistan is sure to become a noteworthy competitor with Thailand, especially in terms of rice exports.

Thailand is the world's leading rice exporter. It is projected that Thailand will remain the leading rice exporter in the year 2001, exporting approximately 6.7 million metric ton of rice. Vietnam is the second largest exporter with 4 million metric ton, while the Unites States is ranked third with 2.65 million metric tons.

Although Pakistan is not ranked in the top three, it is quickly expanding its export volume and it is predicted that its world market share will expand to 2.25 million metric tons by the end of 2001. In 1998, the export volume was about 1.8 million metric tons. In 2000, export volume increased 10 per cent to 2 million metric tons. Thailand's rice exports, however, only increased 4.5 per cent over the same period.

A change in tariffs

According to recent news reports, the success of the country's increased crackdown on intellectual property violations bodes well for the continued extension of tariff privileges by the United States to Thailand.

Generalized System of Preferences, GSP, reduces or eliminates tariffs on selected products exported from developing countries in order to help them increase their competitiveness in the world market. Kantathi Suphamongkhon, the Thai Trade Representative, said he had received a warm response in August when he briefed the acting U.S. Trade Representative. However, due to the September 11 attacks, Washington has not yet made a formal announcement with regard to extending GSP privileges for Thailand, but such announcements are expected to come in the months ahead.

Thailand was first granted GSP privileges in 1976, and is in the third round of the program, which started in 1995. The third round has been extended three times, with the most recent extension running from July1, 1999 to September 30, 2001. About 4,650 items of Thai agricultural and industrial goods qualify for GSP. Last year, the export value of Thai products that received preferential tariffs was $ 2.2 billion, or 13.5 per cent of the country's total exports to the Unites States.

Besides GSP, Thailand is also affected indirectly by current policies in the U.S. On September 19, 2001, the U.S Trade Representative announced that the Bush Administration would grant duty-free status on certain Indonesia products in an effort to expand U.S.-Indonesia trade relations and as a measure to show the U.S.' support for the new Megawati government. The trade preference granted to Indonesia, is expected to expand Indonesia's benefits under the GSP to 11 more products ranging from lumber and mining to fishing. Tuna and skipjack, not in airtight containers (frozen tuna loin), are included under the new GSP agreement. These new benefits will exempt these products from duties and encourage more trade. They estimate that these new trade benefits cover over $ 100 million in imports.

Indonesian tuna is sold in domestic and international markets. In 1998, its total tuna production was about 320,000 metric tons, about 19 per cent of which was exported as fresh and frozen tuna, 32 per cent processed and exported as canned tuna, and 49 per cent sold to domestic wet markets as fresh and processed fish. During the period 1994-1998 tuna exports increased by an average of 10 per cent in volume and 7.25 per cent in value. The main destinations for its fresh and frozen tuna are Japan, the U.S., as well as other markets in Asia.

Problems may arise as frozen tuna loin from Indonesia will enter the U.S. duty free, while frozen tuna loin from Thailand will still pay a duty of about 0.011 per cent on the total value. Thailand's exports of skipjack (not in airtight containers) during January-August, 2001 stood at 16.6 million tons, valued at 2.1 billion baht. Thailand supplies about 5.78 million tons valued at 659.6 million baht. This figure represents 12.6-per cent growth over same period in 2000. As tuna processors look to reap gains in export oriented production, Thailand might begin to face stronger competition from Indonesia.