Thailand’s manufacturing sector is struggling to deal with challenges raised by US tariff rules on Thai imports, even as the rate was cut significantly in early August.
Washington decided to impose a 19% duty on Thai products in August, replacing its draconian rate of 36%. Yet exporters risk facing higher rates on some products if the items are considered by US authorities as being shipped to Thailand and then re-exported to America, often called transshipment.
Transshipment and dim prospects for exports are making manufacturers apprehensive as they attempt to overcome challenges this year and in the long term in their adaptation to new international trade rules.
HIGHER RVC
Thailand is expected to raise regional value content (RVC) to around 50% once ongoing US-Thailand negotiations to address transshipment are concluded, according to the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB).
RVC is the percentage of a product’s value that comes from a specific region. If the RVC of a product assembled in Thailand for export to the US is 50%, half of its value is calculated from domestically sourced raw materials, while the latter half comes from imported parts.
The proportional calculation is meant to tackle origin fraud and curb the re-export of Chinese goods as Thai products.
“If Thailand fails to meet the RVC requirement, the US will impose a 40% tariff on products regarded as being shipped via Thailand to the US,” said Kriengkrai Thiennukul, chairman of the Federation of Thai Industries (FTI), a key member of the JSCCIB.
An initial survey conducted by the FTI among 24 of its 47 industry clubs found three industries — electronics, steel and pharmaceuticals — with RVC of less than 40%.
The average local content of products in the electronics industry was the lowest at 22.5%, followed by 30% for steel and 35% for pharmaceuticals.
Industries with high local content on average are plywood and wood planks (85%), roofing materials (82.5%), food and beverages (75%), petrochemicals (70%), cars (66.6%), rubber (65%) and herbs (60%).
As of July 11, 13 industries had yet to provide information on RVC in products, while 10 others said they did not export products to the US.
COMPLIANCE URGED
Mr Kriengkrai stressed the need for entrepreneurs to comply with the RVC rule to maintain competitiveness in the US market.
“Industries will be severely affected if their products are subjected to an RVC-based tariff,” he said.
The Donald Trump administration’s more stringent import duty is believed to target Chinese manufacturers attempting to avoid steep tariffs on their products by exporting them to the US via third countries, especially those in Southeast Asia, according to media reports.
Earlier this year Trump vowed to impose stiff tariffs on solar panel imports from Southeast Asia following an investigation that began a year ago when several major solar equipment producers asked the US government to protect their domestic operations.
The tariffs target companies in Cambodia, Thailand, Malaysia and Vietnam in response to allegations of subsidies from China and the dumping of unfairly cheap products in the US market.
Solar panel exports from Thailand to the US raised concerns over transshipment as some Chinese manufacturers rebrand solar products here before re-exporting them to the US, according to Treerat Sirichantaropas, chief executive of New Energy Plus Solutions, which sells solar panels made by Shanghai-based Jinko Solar Holding.
Other Chinese producers focus on selling rooftop solar panels in Thailand, he said.
EV EXPORTS
The export of electric vehicles from factories in Thailand, mostly operated by Chinese EV makers, may not risk RVC tariffs as many producers announced plans to use domestically sourced materials for EV assembly.
The Board of Investment (BoI) said Chinese EV manufacturers vowed to buy their components in the country. Local content is expected to account for up to 90% of total EV components, noted the BoI.
Chongqing-based Changan Automobile, committed to investment in Thailand of up to 10 billion baht, will start with a local content proportion of 60%, rising to 90% in the future, according to Shen Xinghua, managing director and president of Changan Auto Sales (Thailand).
GWM expects 80-90% of EV components to be from local materials, said Michael Chong, general manager of GWM (Thailand).
The National EV Policy Committee is promoting EV exports by easing production requirements for EV manufacturers participating in state EV incentive schemes if they produce battery EVs for export.
The shift aims to ramp up efforts to make Thailand an EV export base.
The two schemes — EV3.0 and EV3.5 — require manufacturers to produce EVs locally to compensate for vehicles they imported since the start of the EV subsidy programmes in 2022, prior to commencing local production.
SHIPMENT SLOWDOWN
Thailand must not allow the RVC issue to slow down exports in the fourth quarter, as they are already projected to sag during this period, said the JSCCIB.
The panel attributed the decline in exports to global trade uncertainties and baht appreciation.
Exporters will lose competitiveness as the tourism industry is slumping and the economy remains sluggish, noted the JSCCIB.
A global economic slowdown could reduce demand for goods and services, affecting export-driven nations, said Poj Aramwattananont, chairman of the Thai Chamber of Commerce.
The JSCCIB projected Thai GDP growth of 1.8-2.2% this year, with export growth of 2-3% and inflation of 0.5-1%.