| Abstract | The study attempts to assess the production and cost impact of ASEAN Free Trade
Area (AFTA) Agreement on selected Thai industries of the Fast-Track Scheme, namely,
vegetable oils, cement, chemicals and chemical products, fertilizer, plastics, pharmaceutical
products, rubber products, leather products, pulp and paper products, textiles, ceramic and glass
products, gems and jewelry, electronic and electrical appliances, and wooden and rattan
furniture.
The increase in imports and exports is estimated and used as a proxy to measure the
maximum net change in the domestic production. The increase in imports and exports is
estimated by applying the static partial equilibrium trade model based on price elasticity
approach. Price elasticities of demand for imports and for exports are estimated by regression
analysis. The empirical results revealed that there was a net positive impact of 1.13 per cent
in terms of the expansion on domestic production for chemicals and chemical products. Net
negative impacts in terms of contraction on domestic production for the rest of product groups
under consideration were found, with rubber products showing a high of 40.93 per cent, pulp
and paper products in a low of 0. 03 per cent, and the rest mostly in the 8-15 per cent range.
A simulation was done using the final rate of tariff reductions of 0 per cent for all ASEAN
countries. The results indicated that there would be net positive impacts for chemicals and
chemical products and pulp and paper products of 2.34 and 1.12 per cent, respectively. Net
negative impacts were shown for the rest of the product groups, with rubber products indicating
a high of 48.79 per cent, cement to a low of 4 per cent, and the rest mostly in the 7-19 per
cent range.
Turning to cost effect, a static 'sectoral cost' model using linear programming was
developed. The cost effect refers to the change in total net industry cost which is defined as
production cost plus import cost minus export revenue, the impact of the Fast-Track Scheme
on rubber products would be assessed. The reason for selecting the rubber product industry
(comprising pneumatic tyres for motor cars, rubber gloves, sheath contraceptives, and v-belts
industries) is that its domestic production was found to be most affected by the implementation
of the Fast-Track Scheme. Results indicate that the total net industry cost would decline by
2.92 per cent by 2000 (using 1992 as the base year) when Thai tariff is at the 5 per cent target
rate. This reduction in total net industry cost was mainly the result of the reduction in cost of
raw materials as well as the cost of final product imported. Furthermore, results indicate that
in order to significantly reduce the total net industry cost for rubber product industry, Thailand
would have to reduce tariff across the board for both ASEAN and non-ASEAN products. Total
net industry cost for rubber product industry would most likely increase due to increasing
domestic demand which has a stronger impact on cost than that resulted from tariff reduction
and cost of natural rubber.
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