A Telangana-Thailand bond
The Telangana government last month signed a Memorandum of Understanding (MoU), or more broadly a Mini-Free Trade Agreement, with the government of Thailand to explore trade and investment in key sectors. This is the first time that an agreement has been signed between the Ministry of Commerce of Thailand and a State government in India. […]
The Telangana government last month signed a Memorandum of Understanding (MoU), or more broadly a Mini-Free Trade Agreement, with the government of Thailand to explore trade and investment in key sectors. This is the first time that an agreement has been signed between the Ministry of Commerce of Thailand and a State government in India. The MoU also marked the 75th anniversary of diplomatic relations between India and Thailand.
The MoU enables exploring the possibility of potential trade and investments in sectors such as agro-based food processing, wood processing, wood-based industry, apart from discussing other areas of mutual interest for potential cooperation and collaboration, including the development of SMEs and startups.
This mini-FTA/MoU helps in identifying areas where Thailand may like to cooperate with Telangana. It will also help in identifying products which Telangana may export to Thailand, and expand export potential as and when an FTA between India and Thailand is signed, say trade experts. Also, SMEs, if properly trained/hand-holded, may take advantage of the MoU and increase their exports to Thailand, once a full-fledged FTA is in place.
The MoU will also facilitate business programmes such as seminars, workshops, business matchings, trade fairs, trade missions to share information, knowledge, professional expertise and technology. Telangana’s business incubator and innovation ecosystem ‘T-Hub’ and ‘Thaitrade.com’ of Thailand will be leveraged to connect small and medium enterprises (SMEs) and startups.
Including the MoU with Telangana, Thailand has signed four mini-FTAs — with China’s Hainan province, Japan’s Kofu city, and China’s Gansu province.
Mini FTAs
SMEs are the backbone of the Asian economy. According to an ADB study (2018), they make up more than 96% of all Asian businesses, providing two out of three private-sector jobs in the continent. SMEs have continued to influence trade — SMEs in the People’s Republic of China and India accounted for more than 40% of the total export values, followed by 26% in Thailand, 19% in the Republic of Korea, and 16% in Indonesia.
As per the World Trade Organization (WTO), countries may engage in trade agreements between each other, provided the agreements cover a substantial portion of trade, and they can also trade at duties lower than those agreed in the WTO. For example, if India and Thailand have an agreement, they can, under the agreement, trade with each other at duties lower than those agreed in the WTO. These lower duties are only applicable between countries that are signatory to the trade agreements.
Trade analysts say while these agreements come in various formats, broadly speaking the umbrella term ‘Trade agreements or Free Trade Agreements’ may apply to them. In this regard, mini-FTAs are not part of the WTO understanding as they are not legally binding or enforceable.
India and Thailand
India’s ‘Look East’ policy (since 1993) and Thailand’s ‘Look West’ policy (since 1996) have now metamorphosed into ‘Act East’ and ‘Act West’. The bilateral trade in 2018 stood at $12.46 billion — about $7.60 billion in Thai exports to India and $4.86 billion in Indian exports to Thailand. In the ASEAN region, Thailand ranks as India’s 5th largest trading partner after Singapore, Vietnam, Indonesia and Malaysia.
Telangana’s gross State domestic Product (GSDP) for 2021-22 (at current prices) is estimated to be close to Rs 11.5 lakh crore. It contributes 5% to India’s GDP. The mini-FTA with Telangana is expected to help grow Thai exports to India by 4-5%, according to Bangkok Post.
As far as trade relations go, India has an Early Harvest Trade Agreement with Thailand and is also connected with the country through the ASEAN–India FTA (AIFTA). It would have been connected through the Regional Comprehensive Economic Partnership (RCEP) as well if not for India’s withdrawal from it.
The fact that Thailand is identifying regions to work in within the country exhibits its continued interest in creating value chains involving India. This is a good indicator for India’s own ambitions to step up participation in global value chains to encourage domestic production and employment.
Though Telangana is better known for its startup ecosystem and flourishing information technology sector, it has been home to pharma, bulk drugs, engineering and industrial sectors, quietly creating a vibrant space for its SMEs.
On the other hand, for Thailand, exports are a key driver of its economy, According to its Ministry of Commerce, the government has been implementing in-depth trade cooperation to drive exports via mini-FTAs. “The mini-FTA with Telangana will help it better access the market of 40 million people.”
As exports are increasingly being driven by global value chains, these agreements help industries identify foreign partners with whom they want to trade with or set up future centres of production, say analysts. It also helps countries integrate better in global value chains thereby increasing exports, leading to greater production and generation of employment.
(Sources: Govt of Telangana websites, ADBI, ADB SME Monitor, 2020)
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