Limits to diversification
The Thai government should therefore consider the diversification of exports in parallel with its efforts to increase imports from the United States? Given the size and depth of the American market, it is not clear how much Thailand can, or should diversify.
Diversification involves more than finding new buyers outside the United States; It requires a broader reconfiguration of global supply chains to reduce dependence and improve resilience. This is particularly relevant for Thai exporters engaged in the manufacture of original equipment (OEM), such as those producing photosensitive devices and image sensors.
These companies often operate under contract for major multinational brands, providing components highly specialized in closely integrated overall value chains. These manufacturers often link producers closely to a few main dominant companies. This limits the flexibility of Thai exporters to rotate to new markets.
The widening of free trade agreements (Alf) was an approach. Thailand currently has 15 FTA in place with partners. Multilateral executives such as ASEAN and regional complete economic partnership further increase the export potential by expanding market access and improving regional integration. New agreements with blocks like the Pacific Alliance and the Southern Common Market (also known as Mercosur) are also promising.
However, the signature of more affairs comes with its own set of challenges. For companies, compliance with the requirements of the rules of origin can be expensive and complex, potentially limiting the practical advantages of expanded commercial transactions.
Although the expansion of ALF offers significant opportunities for market access and economic growth, the fight against compliance complexities and the guarantee that companies can fully capitalize on these agreements will be crucial for their success.
The Thai government must go beyond a short-term plan and mobilize resources to combat non-tariff obstacles, reconfigure supply chains and improve the competitiveness of the private sector. This includes targeted budgetary policies, research and development investments and regulatory reform.
Without a coherent strategy, Thailand may lose its competitive advantage in global value chains and to face long -term disturbances.
Wannaphong Durongkaveroj is invited to the Isse – Yusof Ishak Institute and Associate Professor at the Faculty of Economics of the University of Ramkhamhaeng, Thailand. This commentary appeared for the first time On ISEAS – The blog of the Yusof Ishak Institute, Fulcrum.
