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Asean Affairs  8 December 2010

When is free trade not really free trade?

By  David Swartzentruber
AseanAffairs     8 December 2010

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Noel Jones, Ph.D., an Irish academic, who studies free trade issues, gave a stimulating talk on free trade at the Foreign Correspondents’ Club of Thailand on Tuesday, December 7, on free trade issues.

This is currently an extremely important topic in Asean. Free trade agreements (FTA) with and within Asean are proliferating like rabbits in Australia. Among these are the China-Asean Free Trade Agreement and within Thailand, as an example, there is the Australian-New Zealand Free Trade Agreement with the European Union-Thailand Free Trade Agreement currently under review by the Thai Parliament. India would also like to conclude its free trade agreement with Asean and start it up as soon as possible. Asean appears to be holding out on the services part of the India-Asean agreement, thus delaying the implementation of the whole pact.

As these free trade arrangements are just a year old, the short and long-term impacts have yet to come into focus but in one small sector, the wine trade, there is an interesting scenario developing that Noel Jones was able to explain as “when free trade is not free”.

As background, it should be noted that Thailand has a notoriously high import duty on wine amounting to 360 percent. Most tourists to Thailand can attest to the high price of wine in Thailand.

With the advent of the Australia-New Zealand FTA in January 2010, import duties on Australian and New Zealand wine took their first cuts. Drops in the import duties will continue toward zero percent in four more years.

The results are immediately noticeable with Australian wines now on the shelf in the 200 to 300 baht range (US$6 to$10 range). However, Thailand has a domestic wine industry and at the start of the year, the Thai Winemakers Association complained that the new FTA had brought the prices of imported wines below the cost of their products.

About 10 years ago, the Thai wine industry started to grow (there are now eight wineries) and the Thai government ,always looking to find new sources of revenue, (as opposed to supporting a new agricultural industry with minimal taxes) placed heavy taxes and requirements on the fledgling industry.

Although the Thai Winemakers Association complained about the situation at the beginning of 2010, when the import reductions started, nothing much happened until November. In that month the head of Thailand’s Excise Department proposed that the excise tax on wines should be raised “to protect consumers from low-quality” products As though the duty of the excise department was to somehow “protect consumers” by raising prices.

Dr. Jones explained that this Thai example was not unique in the world of free trade agreements and that most of the free trade agreements put into effect did not bring free trade but something short of it. Governments continually found ways, such as excise taxes and tariffs, to skirt the provisions of FTAs , so that, in fact, most FTAs brought few consumer benefits at all. FTAs usually don’t deliver what they promise, according to Dr. Jones.

Paul A. Ebeling, Jnr

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