The Thai export sector will suffer another blow after the US President Donald Trump announced on Friday the suspension of 1.3 billion dollars worth of duty-free trade for certain Thai goods, claiming Thailand has not taken steps to protect the labor rights.
In a letter to US House of Representatives Speaker Nancy Pelosi and Vice President Mike Pence, Trump said he had suspended the duty-free treatment because Thailand had not taken steps to “afford workers in Thailand internationally recognized worker rights.”
The US Trade Representative (USTR)’s’s office said the move amounted to a suspension of 1.3 billion dollars in trade preferences under the Generalized System of Preferences (GSP) program. At present, the GSP covers around 4.5 billion dollars of Thai exports.
The suspension, which takes effect in six months, will affect about a third of Thailand’s products including all of Thailand’s seafood exports to the US.
While the list of products subject for suspension has not yet been made available, the absence of GSP is likely to dampen the already grim prospects of Thai exports this year.
Thai outbound shipments in 2019 are likely to see a flat growth or even a contraction for the first time in four years, due to the gloomy global economy, the prolonged trade war between the US and China and the strong Thai baht, according to several economic think tanks.
Thai exports in September fell from the previous month, and declined by 1.4 percent compared to the same period last year. Although the figure is better than a 4-percent drop from the previous month, it is worse than the market expectations.
The suspension on GSP does not come as a total surprise. Earlier this year, Thailand narrowly avoided being labeled a currency manipulator on the US Department of Treasury’s watchlist, because Thailand does not meet all the conditions set by Washington.
Thailand’s current account surplus accounted for over 7% of the country’s gross domestic product in 2018, versus the limit set by the US Treasury of 2%. Moreover, the amount of foreign currency purchases did not increase from the previous year. Thailand’s trade surplus with the US was USD19 billion, approaching the limit of USD20 billion.
While the US action toward countries labeled currency manipulator is not clearly defined, Washington can unilaterally end GSP benefits to take action against high trade deficits with its trading partners.
The announcement is likely further impact Thai fishery business after an issue in the European Union.
Even though the EU in January announced the lifting of a yellow card for Thailand in recognition of its progress in tackling illegal, unreported and unregulated (IUU) fishing, Thailand’s fishery exports to the EU have not recovered to pre-IUU levels so far.
Thailand is the second biggest beneficiary of the US’s GSP after India, which was the largest with 5.7 billion dollars in exports to the US in 2017, until Washington decided to terminate India’s designation as a beneficiary developing nation in May.
At present a wide range of Thai export items receive GSP benefits, the biggest being electrical appliances and electronics such as air conditioning and electronic components and washing machines, food and agriculture and machinery.
The prospects for GSP for Thai exports are not promising. Last year, the USTR’s office accepted a petition from the National Pork Producers Council challenging Thailand’s eligibility for the GSP program.
The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) also filed a petition to review Thailand’s eligibility, based on labor issue.
According to the USTR, Thailand is the United States’ 20th largest goods trading partner, and two-way trade between them totaled 44.5 billion dollars in 2018. The U.S. goods trade deficit with Thailand was 19.3 billion dollars in 2018.