Thai-Bhutan Trade Pact Moves Closer to Ratification
The Thai cabinet has given its approval to forward a Free Trade Agreement (FTA) with Bhutan to parliament for consideration. This significant step, announced following a cabinet meeting, aims to pave the way for the agreement to officially take effect on January 1, 2027.
The pact, signed by Thailand and Bhutan in April of last year, is designed to foster stronger trade relations between the two nations. It represents the first-ever trade deal between Thailand and Bhutan and encompasses 10 chapters and four annexes. The core objectives include liberalizing and simplifying trade, dismantling trade barriers, promoting economic and technical collaboration, and establishing clear, mutually beneficial trade rules.
Key Provisions and Market Access
A notable aspect of the agreement is its inclusion of Bhutan’s Gelephu Mindfulness City, a newly designated special administrative and economic zone. Under the market access commitments, Bhutan will eliminate customs duties on a substantial 99.8% of its tariff lines for Thai products. In return, Thailand will grant duty-free access to 94% of its tariff lines for goods originating from Bhutan.
Thai products anticipated to see increased export opportunities include automobiles and their components, agricultural and food items such as dried fruits, fruit juices, instant rice vermicelli, and processed foods. Additionally, textiles, garments, chemicals, rubber and plastic products, and electrical appliances are expected to benefit. Conversely, Thai businesses are poised to gain access to a wider array of raw materials from Bhutan, such as minerals, cordyceps, matsutake mushrooms, and temperate-climate fruits like apples.
Economic Impact Projections
Economic impact studies suggest that the FTA could contribute between 0.02 to 0.03 percentage points annually to Thailand’s Gross Domestic Product (GDP), translating to an estimated 4.13 to 4.34 billion baht. Projections indicate a significant surge in Thai exports to Bhutan, potentially rising by 229% to 266% per year, amounting to 12.4 to 14.4 billion baht. Furthermore, foreign direct investment into Thailand could see an increase of 0.05% to 0.06% annually, approximately 1.79 to 1.99 billion baht.
While the government anticipates a modest annual loss of customs revenue, estimated at around 215,696 baht, the projected economic gains for Thailand are expected to significantly outweigh this figure. The FTA is viewed as a crucial step in expanding export markets within South Asia, creating new avenues for Thai enterprises, boosting competitiveness, and strengthening long-term economic partnerships.
ACFTA 3.0 Protocol Also Approved
In related news, the cabinet also approved the submission of a protocol to enhance the ASEAN-China Free Trade Area (ACFTA) framework agreement, known as ACFTA 3.0, to parliament for review and approval. A primary focus of ACFTA 3.0 is on trade facilitation and improving the efficiency of business operations among member countries. Existing commitments regarding market access for goods, services, and investment remain unchanged, with no new tariff reductions or market-opening measures introduced.
The revised agreement introduces updated customs procedures and trade facilitation measures, emphasizing greater utilization of electronic systems, increased transparency in publishing import and export information, and expedited clearance for perishable goods, aiming for clearance within six hours of arrival. The protocol also reinforces standards related to technical regulations, sanitary and phytosanitary measures, and economic and technical cooperation, aligning them with international benchmarks.
