Special Study on Cross Border Trade and Commerce in Thailand : Policy Implications for Establishing Special Border Economic Zones

CROSS-BORDER TRADE AND COMMERCE IN THAILAND:
POLICY IMPLICATIONS FOR ESTABLISHING SPECIAL
BORDER ECONOMIC ZONES

by

Choen Krainara

A special study submitted in partial fulfillment of the requirements for the
degree of Doctor of Philosophy in
Regional and Rural Development Planning

Examination Committee: Professor Dr. Jayant Kumar Routray (Chairman)
Dr. Mokbul Morshed Ahmad (Co-assessor)

Nationality: Thai
Previous Degree: Master of Science
Asian Institute of Technology
Bangkok, Thailand

Scholarship Donors: RTG Fellowships and AIT Fellowship Scheme

Asian Institute of Technology
School of Environment, Resources and Development
Bangkok, Thailand
December 2008

Acknowledgements

The author would like to express his deepest sense of gratitude to his advisor and
Chairman Professor Dr. Jayant Kumar Routray, who provided constructive guidance
and inspiration throughout the study. The researcher would also like to thank
Dr.Mokbul Morshed Ahmad as co-assessor for offering valuable comments to make the
study complete.

A very special appreciation is extended to Khun Laaiad Wongthong at Office of
Information Technology and Communications of the Department of Customs, Thailand
for supplying cross-border trade data of Thailand with neighboring countries at
exceptional rate. If these data were not made available, the study would have not been
possible. Also, I wish to express thanks particularly to Khun Anusit Kanchanapol at
Padang Besar Customs House for providing top ten cross-border export and import of
commodities of Thailand with neighboring countries at selected border checkpoints as
well as insights by sharing informal cross-border trade practices.

Lastly, I would like to express my profound thankfulness to my mother, sisters, brothers
and friends for their understanding and moral supports for the duration of the study.

ii

Abstract

The Greater Mekong Sub-region (GMS) regarded as a geo-spatial unit is very important
economic bloc due to it shares common culture, religion and linguistic base with a big
threshold of population and resources. This region also has great potential for development
underpinning by the GMS Development Cooperation and the Ayeyawady-Chao Phraya-
Mekong Economic Cooperation Strategy (ACMECS). Thailand located at the strategic
location of South East Asian region has been intensifying economic interdependence with
neighbouring countries through increasing cross-border trade and people’s mobility which
made possible by means of greater degree of physical connectivity in the form of economic
corridors, continuous trade and investment facilitation. As a result, it opens up new
opportunities for Thailand to engage cross-border production and supply chain linkages
with neighbouring countries by establishing special border economic zones in prospective
locations in order to take advantage of cheap labor from Cambodia, Lao PDR and Myanmar
and wider access to their primary markets as well as penetrating to regional and global
markets.

Robust cross-border trade relations between Thailand and neighbouring countries have been
observed over last 13 years in which trading patterns are becoming quite diverse
depending on their comparative advantage, division of labor and specialization of
production. In general, Thailand mainly exports consumer, intermediate and some capital
goods to neighbouring countries, and imports primary goods such as agricultural, fishery
products and ranges of resources from neighbouring countries. Cross-border trade gaps
between Thailand and individual neighbouring countries greatly vary from one country to
another. In addition, cross-border retail trades particularly carried out by rural poor are
always conducted at specific allowed border crossings. Though the growth of cross-border
trade and commerce is flourishing, it is probable that this progress might lead to some
extent variation in regional development impacts. However, Thailand is facing significantly
chronic interregional inequalities in which the Northeastern has long been a backward
region followed by Northern region as well as obvious intra-regional differences. Out of 30
border provinces, 19 backward border provinces were identified. Taking these cross-border
trade interactions and people’s mobility as major factors, it can preliminarily be identified
possible eight special border economic zones corresponding with priority manufactured
commodities to be created in Thailand linking with neighbouring countries in order to
bridge not only intra-regional and interregional disparities within Thailand but also
international development gaps with Cambodia, Lao PDR, Malaysia and Myanmar,
respectively.

Such policy implications for establishing special economic zones in Thailand need to be
addressed with awareness in six main aspects: political, economic, social, infrastructural,
environmental and institutional. Recommendations to promote special border economic
zones have been made centering around exploring more geographical border areas as
special border economic zones in Thailand and possible linkages with neigbouring
countries, setting up a system for managing and administering special border economic
zones, establishing local supply chains networks to link up with the proposed special border
economic zones, providing cross-border logistics services, fostering close cooperation and
coordination on managing social problems associated with cross-border migration, as well
as rendering capacity building for integrated regional and local public administration
system.

iii

Table of Contents

Chapter Title Page

Title Page i
Acknowledgements ii
Abstract iii
Table of Contents iv
List of Tables vi
List of Figures vii
List of Matrix and Maps ix
Abbreviations x

1 Introduction 1
1.1 Background and Rationale of the Study 1
1.2 Objectives of the Study 2
1.3 Scope of the Study 2
1.4 Methodology 3
1.5 Conceptual Framework 3

2 International Trade, Border Economics and Special Border 6
Economic Zone
2.1 Concept of International Trade 6
2.2 Concept of Trade and Development 6
2.3 Concept of Border Economics 6
2.4 Concept of Special Border Economic Zone and 7
Applications

3 Overview of Cross-Border Trade and Commerce
in Thailand 11
3.1 Geographical Locations and Physical Linkages of 11
Thailand with Neighbouring Countries
3.2 Transport and Telecommunication Networks 11
3.3 Types and Number of Nation-Wide Border Checkpoints 16
3.4 Trade Agreements between Thailand and Neighbouring
Countries
3.4.1 Trade Agreements 18
3.4.2 Trade-Relevant Cooperation 22
3.5 Thailand’s Trade Policies with Neighbouring Countries 23
3.6 Cross-Border Trade and Commerce Relations between
Thailand and Neighbouring Countries
3.6.1 Markets of the Neighbouring Countries 24
3.6.2 Overall Assessment of Cross-Border Trade and 25
Commerce Relations Between Thailand and
Five-Neighbouring Countries (Cambodia, China,
Lao PDR, Myanmar and Malaysia)
3.6.3 State of Cross-Border Trade Relations With 32
Individual Neighbouring Countries
3.7 People’s Mobility Along the Border
3.7.1 People’s Movement Through Border 59

iv

Checkpoints/Border Crossings
3.7.2 Nation-Wide Share of Peoples Movement Through 61
Border Crossings
3.8 Thailand’s Cross-Border Investments in Four-Neighbouring
Countries
3.8.1 Cambodia 63
3.8.2 Lao PDR 63
3.8.3 Myanmar 64
3.8.4 Malaysia 64
3.9 Impacts of Cross-Border Trade, Commerce 64
and Investments Dealing with Neighbouring Countries
on Thai Economy and Society

4 Status of Regional Development in Thailand 67
4.1 Interregional Disparities 67
4.2 Intra-Regional Disparities Particularly for the Border Provinces
4.2.1 Eastern Region 70
4.2.2 Northeastern Region 71
4.2.3 Northern Region 72
4.2.4 Western Region 73
4.2.5 Southern Region 74
4.3 Existing Industrial Development Along Thai Border Area 76
4.4 International Development Disparities Between Thailand and
Neighbouring Countries 78

5 Prospects for Developing Special Border Economic Zones 80
in Thailand
5.1 SWOT Analysis on Prospect for Promoting 80
Special Border Economic Zones
5.2 Potential Geographical Border Areas and Economic 82
Sectors for Cross-Border Development and
Cooperation toward Development of Special Border
Economic Zones Linking with Neighboring Countries

6 Conclusions and Recommendations 84
6.1 Conclusions 84
6.2 Policy Implications for Establishing Special 86
Border Economic Zones in Thailand
6.3 Recommendations 87

References 89
Appendixes 93

v

List of Tables

Table Title Page

3.1 Types and Numbers of Border Checkpoints in Thailand Physically 16
Connecting with Neighbouring Countries
3.2 Numbers of Commodity That Thailand Granted AISP Treatment 19
To CLMV Countries
3.3 Time Frame For Import Trade Tariff Reductions 22
3.4 Cross-Border Trade Gaps Between Thailand and 30
Five-Neighbouring Countries During 1996 To 2008
3.5 Top Ten Cross-Border Export Commodities from Cambodia To 33
Thailand Through Aranyaprathet Border Checkpoint in 2007
3.6 Top Ten Cross-Border Import Commodities From Cambodia To 35
Thailand Through Aranyaprathet Border Checkpoint in 2007
3.7 Top Ten Cross-Border Trade Export Commodities From Thailand 39
To Yunnan Province of Southern China Through Chiangsaen
Border Checkpoint in 2007
3.8 Top Ten Cross-Border Import Commodities From Yunnan 41
Province of Southern China To Thailand Through Chiangsaen
Border Checkpoint in 2007
3.9 Top Ten Cross-Border Export Commodities From Thailand To 45
Lao PDR Through Nong Khai Border Checkpoint in 2007
3.10 Top Ten Cross-Border Import Commodities From Lao PDR 47
To Thailand Through Nong Khai Border Checkpoint in 2007
3.11 Top Ten Cross-Border Export Commodities From Thailand To 51
Myanmar Through Maesod Border Checkpoint in 2007
3.12 Top Ten Cross-Border Import Commodities From Myanmar 52
To Thailand Through Maesod Border Checkpoint in 2007
3.13 Top Ten Cross-Border Export Commodities From Thailand 56
To Malaysia Through Sadao Border Checkpoint in 2007
3.14 Top Ten Cross-Border Import Commodities From Malaysia To 57
Thailand Through Sadao Border Checkpoint
3.15 A Multi-Facet Impacts of Cross-Border Trade, Commerce 64
and Investment Dealing with Neighbouring Countries on
Thai Economy and Society
4.1 Gross Provincial Product of Eastern Border Provinces 68
4.2 Gross Provincial Product of Northeastern Border Provinces 69
4.3 Gross Provincial Product of Northern Border Provinces 73
4.4 Gross Provincial Product of Western Border Provinces 74
4.5 Gross Provincial Product of Southern Border Provinces 75
5.1 Potential Geographical Border Areas and Economic Sectors 83
For Developing Special Border Economic Zones in Thailand

vi

List of Figures

Figure Title Page

1.1 Conceptual Framework 5
2.1 Proposed Special Border Economic Zones in Thailand 10
and Its Potential Linkages with Neighbouring Countries
3.1 Aggregate Cross-Border Trade Export and Import 27
Between Thailand and Four-Neighbouring Countries
and Transit Trade To/From China During 1996 To 2008
3.2 Aggregate Balance of Cross-Border Trade between 29
Thailand and Four-Neighbouring Countries and Balance
of Transit Trade With China
3.3 Share of Aggregate Cross-Border Trade to International 31
Trade Between Thailand and-Five Neighbouring Countries
3.4 Cross-Border Export Values From Thailand to Cambodia 33
From 1996 To 2008 Through Major Border Checkpoints
3.5 Cross-Border Import Values From Thailand to Cambodia 33
3.6 Share of Aggregate Cross-Border Trade to Aggregate 37
International Trade Between Thailand and Cambodia
During 1996 To 2008
3.7 Cross-Border Export Trade Values through Transit Mode 39
From Thailand to China During 1996 To 2008 Through Major
Border Checkpoints
3.8 Cross-Border Import Trade Values Through Transit Mode 41
From China To Thailand during 1996 To 2008 Through Major
Border Checkpoints
3.9 Share of Border Trade Values Through Transit Mode To 43
International Trade Values Between Thailand and China
During 1996 To 2008
3.10 Cross-Border Export Values From Thailand To Lao PDR 44
3.11 Cross-Border Trade Import Values from Lao PDR To 46
Thailand From 1996 To 2008 Through Major Border Checkpoints
3.12 Share of Cross-Border Trade Values To International Trade 49
Values Between Thailand and Lao PDR During 1996 To 2008
3.13 Cross-Border Export Values From Thailand To Myanmar 50
During 1996 To 2008 Through Major Border Checkpoints
3.14 Cross-Border Trade Import Values from Myanmar To Thailand 52
Values between Thailand and Myanmar During 1996 To 2008
3.16 Cross-Border Export Values From Thailand to Malaysia 55
3.17 Cross-Border Trade Import Values From Malaysia To Thailand 57
Values Between Thailand and Malaysia During 1996 To 2008

vii

Figure Title Page

3.19 People’s Movement at Major Border Crossings in Thailand 60
During 2002 To 2006
3.20 Nation-Wide Share of People’s Movement Through Border 62
Crossings To Share of People Movement Through Other
International Ports of Entry and Exit in Thailand
During 2002 To 2006
4.1 Gross Regional Product Per Capita in Thailand During the 68
Years 1981 To 2007
4.2 Primacy Index of Bangkok and Vicinities During 1999 To 2007 69
4.3 Gross National Income Purchasing Power Parity Gaps Between
Thailand and Neighbouring Countries at Current International Price 77
4.4 Gross National Income Per Capita Purchasing Power Parity Gaps 78
Between Thailand and Neighbouring Countries

viii

List of Matrix

Matrix Title Page

3.1 Cumulative Cross-Border Trade Values of Thailand With 26
Five-Neighbouring Countries During 1996-2008 (January-April)

List of Maps
Map Title Page

3.1 GMS Corridors Network 14
3.2 Geographical Distribution of All Types of Key Border 17
Checkpoints in Thailand Connecting With Neighbouring
Countries
3.3 Geographical Cross-Border Trade Relationships Between 36
Thailand and Cambodia Through Aranyaprathet Border
Checkpoint in 2007
Thailand and China Through Chiangsaen Border Checkpoint
in 2007
Thailand and Laos PDR Through Nong Khai Border
Checkpoint in 2007
Thailand and Myanmar Through Maesod Border Checkpoint
in 2007
Thailand and Malaysia Through Sadao Border Checkpoint
in 2007

ix

Abbreviations

ACMECS Ayeyawady - Chao Phraya - Mekong Economic Cooperation
Strategy
ADB Asian Development Bank
AEC ASEAN Economic Community
AFTA ASEAN Free Trade Area
AISP ASEAN Integration System of Preferences
ASEAN Association of South East Asian Nations
BIMSTEC Bay of Bengal Initiative for Multi-Sectoral Technical and
Economic Cooperation
BOI Board of Investment
CBTA Cross Border Transport Agreement
CEPT Common Effective Preferential Tariff
CIQ Customs, Immigration and Quarantine
CLM Cambodia-Lao PDR-Myanmar
CLMV Cambodia-Lao PDR-Myanmar-Vietnam
CLMT Cambodia- Lao PDR- Myanmar- Thailand
ECS Economic Cooperation Strategy
ESB Eastern Seaboard
EU European Union
GMS Greater Mekong Sub-region
GPP Gross Provincial Product
GRP Gross Regional Product
GSP Generalized System of Preferences
IL Inclusion List
IMT-GT Indonesia-Malaysia-Thailand Growth Triangle
JTC Joint Trade Committee
NAFTA North America Free Trade Area
NESDB Office of the National Economic and Social Development Board
RTA Regional Trade Agreement
SBEZ Special Border Economic Zone
SMEs Small and Medium Enterprises
SSB Southern Seaboard

x

Chapter 1

Introduction

1.1 Background and Rationale of the Study

There is underlying reason of what a country chooses to produce such commodities.
This is mainly dependent on resource endowments that a country possesses supported
by key factors of productions. When two countries want to conduct international trade,
though they all may have absolute advantage over another country, they can in fact gain
from trade as long as the extent of comparing gain and loss of relative costs of
production between the two countries are apparently different. This means a country
should specialize in products and services in which it has highest return. David Ricardo
(1817) called this “Theory of Comparative Advantage” which is the principal
determinant of undertaking international trade. He concludes that a country should
select and export commodity which is most comparative advantage, and import such
commodity which is least comparative advantage.

In the present day, changing economic phenomena within the unique contexts entailed
by geo-politics and greater cross-border economic integration in many regions of the
world have driven the increasing attention on border economics. One of the key features
of the border economics characterized by a population variable which was the
exemplarily substantial income differentials between Mexico and the United States.
When accompanied by high rates of joblessness, income disparities between countries
frequently result in migratory outflows from low earnings regions to higher income
markets, (Harris and Todaro, 1970; Borjas, 1994; Durand, Massey, and Zeneno, 2001,
cited in Fullerton, 2003).

In response to this economic observable fact, Special Border Economic Zone (SBEZ) or
Maquiladora or export manufacturing sector has primarily been developed along the
border of Mexico and the United States since 1965. Its objectives were to take
advantage of available cheap labor in Mexico, proximity to primary markets and
regional supply networks in the United States, (Weiler and Zerlentes, 2003). The
implementation of the North America Free Trade Agreement (NAFTA), which phases
out existing trade barriers between Mexico, Canada and the United States, was expected
to increase to the dispersion of Maquiladoras along the northern border of Mexico. In
Asian region, this concept has in recent decade been gaining impetus as a fashionable
model in realizing economic complementarities between two neighbouring countries
which have different stages of development. There have recently been implemented in
some bordering countries between North Korea and South Korea. Though this is quite
initial stage, the progress of undertaking seems pronounced.

In ASEAN region, regional cooperation and integration program is advancing through
the ASEAN Economic Community. Wide economic development gaps between
ASEAN member countries have opened up vast opportunities, for example between
Southern region of Malaysia and Singapore, to cooperate joint-production in the form of
Special Border Economic Zones along border areas in order to exploit
complementarities. Located at the cross-roads of mainland South East Asian region,
Thailand which is regarded as developed pocket similarly shares common border with
four-neighbouring countries namely Lao PDR, Cambodia, Myanmar and Malaysia.

1

Continuously fostered by the regional economic cooperation programs namely the
Greater Mekong Sub-region, the Ayeyawady - Chao Phraya - Mekong Economic
Cooperation Strategy (ACMECS) and the Indonesia-Malaysia-Thailand Growth
Triangle (IMT-GT), the cross-border trade relations between Thailand and these
neighbouring countries have been flourishing since a recent decade and are continuing
to increase signifying that the economic interdependence becomes intensified due to
better physical connectivity and the gradual effects of several trade agreements signed
with neighbouring countries. These can be evident from increased intra-regional trade
and investments, and greater people’s mobility.

Recognizing the large development disparities with neighbouring countries, Thailand
has directed policies toward distributing production bases to border regions in order to
internationally cooperate based on sister city and special border economic zone
concepts by taking advantages of regional accessibility, good access of quality raw
materials, labor and market proximity in neighbouring countries. Simultaneously,
Thailand is able to not only bridge intra-regional and interregional disparities within her
country but also to strengthen closer ties with neighbouring countries by means of co-
production scheme so that it can help sharing the benefits of economic
complementarities, appropriately managing huge numbers of illegally immigrant labor
inflows as well as sustainably bridging development divergences. This initiative is
considered having significant implications toward changing economic geography of
mainland South East Asian region as new regional production platforms for deeper
integration with the global supply chains and markets.

For this reason, it is necessary to explore the fundamental economic and social rationale
for establishing the special border economic zones in Thailand taking cross-border trade
and commerce prospects into major consideration in order to help identify the potential
geographical border regions resulting from greater connectivity and accessibility and
economic sectors to be promoted. In addition, status of regional development and extent
of interregional and intra-regional disparities are essential components to be assessed so
that insights on state of regional development and identification of backward border
regions and needed policies to support the establishment of special border economic
zones can be accurately carried out.

1.2 Objectives of the Study

The specific objectives of this review research were:
1) To study the factors and the trend of cross-border trade scenarios between
Thailand and neighbouring countries.
2) To determine impacts of cross-border trade, commerce and investment
dealing with neighbouring countries on Thai economy and society.
3) To identify potential geographical border areas/regions and economic sectors
for developing special border economic zones.
4) To recommend policy implications necessary for promoting special border
economic zones in Thailand.

1.3 Scope of the Study

This study covered a review of trade and investment agreements as well as trade
policies between Thailand and neighbouring countries. It also conducted assessment of

2

cross-border trade relations between Thailand and four-neighbouring countries and
transit trade with China with particular emphasis on Yunnan Province for a 13 year
interval during 1996-2008. Particularly for the year 2008, data were available only for
four months from January-April which at the time of collecting data was considered as
the most complete availability of cross-border statistics maintained by the Customs
Department of Thailand. Cross-border’s people mobility will also be included. In
addition, status of regional development in Thailand will be evaluated incorporated
interregional and intra-regional disparities. In addition, international development
disparities between Thailand and neighbouring countries will also be highlighted.

1.4 Study Methodology

This study is descriptive research. It mainly used time series secondary data source for a
13 year interval on export-import of cross-border trade statistics compared with
international trade figures between Thailand and neighbouring countries from the
Customs Department of Thailand which is regarded as official statistics. In addition,
various reports, studies, and internet websites are key sources of most up to date data.

Particular data are gathered from relevant key agencies as follows:

• Overall Greater Mekong Sub-region strategies, sectoral strategies, policies and plans
are mainly from the Asian Development Bank.
• National development policies and plans, policies for economic cooperation with
neighbouring countries, Gross Regional Products (GRP), Gross Provincial Product
(GPP) are from Office of the National Economic and Social Development Board.
• Trade policies and trade agreements are from Department of Trade Negotiations,
Department of Foreign Trade, Ministry of Commerce and Ministry of Foreign
Affairs
• Cross-border people’s mobility is from Immigration Bureau.
• Direct foreign investments from Thailand to neighbouring countries are from the
Board of Investment.
• ASEAN cooperation and ASEAN statistics are from ASEAN Secretariat.
• Gross National Income of neighbouring countries are from the World Bank

Data analyses techniques applied were (1) quantitative analysis used such as number,
mean, percentage, share or ratio, trend analysis using time series data, and are variously
presented by graphs, pie diagram, matrix and tables. (2) qualitative analysis of
secondary data utilized literature review and SWOT analysis. Mapping techniques were
actively employed.

1.5 Conceptual Framework

The conceptual framework of this study centers on cross-border trade and commerce in
Thailand. It will begin by analyzing overall cross-border trade relations, people’s
mobility between Thailand and neighboring countries as well as investigating trade and
investments agreements and trade policies which will affect state of cross-border trade
between Thailand and neighboring countries. Then it will examine current infrastructure
support for enhancing transport and telecommunications linkages and impacts of cross-
border trade and commerce on Thai economy and society. Status of regional
development in Thailand will be assessed incorporated interregional and intra-regional

3

disparities plus international development disparities between Thailand and neighboring
countries. It will also be proposed potential geographical border areas and economic
sectors preliminarily suitable to be developed as special border economic zones. Finally,
it will recommend policy implications needed for fostering the proposed establishment
of special border economic zones. The detail of conceptual framework is illustrated in
Figure1.1

4

Figure 1.1 Conceptual Framework

Cross-Border Trade and Commerce in Thailand

Ø Trade relations with neighbouring Trade and investment agreements and Infrastructure support for enhancing Impacts of cross-border trade and
countries through export-import of trade policies with neighbouring transport and telecommunications commerce in Thailand
major commodities at key border countries under linkages through • Political aspect
checkpoints connecting: • Bilateral agreements • Land transport • Economic aspect
• Eastern region with Cambodia • GMS agreements • River transport • Social aspect
• Northeastern region with Lao PDR • ACMECS agreements • Telecommunications networks • Infrastructural aspect
• Northern region with Myanmar, Lao • AFTA agreements • Environmental and natural
PDR and Yunnan province of China • WTO agreements resources aspect
• Southern region with Malaysia • Institutional aspect
Ø People’s mobility between Thailand
and neighbouring countries through
major border checkpoints.

Potential Border Areas and Economic Sectors for
Promoting Cross-Border Development
• Cross-border trade
Direct Investment from Thailand to
Neighbouring Countries • Industry
• Agriculture
• Services and Logistics
• Tourism

Policy Implications for Developing Special
Border Economic Zones in Thailand

5

Chapter 2

International Trade, Border Economics and Special Border Economic Zone

2.1 Concept of International Trade

There is underlying reason of what a country chooses to produce such commodities.
This is mainly dependent on resource endowments that a country possesses together
with mobilization of key factors of productions. Though two countries all may have
absolute advantage over another country, they can in fact gain from trade as long as the
extent of comparing gain and loss of relative costs of production between the two
countries are apparently different. This means a country should specialize in products
and services in which it has highest return. David Ricardo (1817) called this “Theory of
Comparative Advantage” which is the principal determinant of undertaking
international trade. He concludes that a country should select and export commodity
which is most comparative advantage, and imports such commodity which is least
comparative advantage.

2.2 Concept of Trade and Development

UN Millennium Project (2005) emphasized that trade openness can be a powerful driver
of economic growth, which is indispensable to reduce poverty and foster a country’s
development. Trade alone can not induce for achieving development; it should therefore
be associated with other institutional, macroeconomic, and microeconomic conditions
plus well designed social policies to attain development. On the other hand, opening up
markets to international trade may leave local producers flooded with more competitive
foreign producers, (Wikipedia, 2008). Sustained strong growth over longer periods is
strongly related to poverty reduction, while trade and growth are strongly linked.
Countries that develop always enhance their integration with the global economy.
Export-led growth strategy has been a key part of many countries’ successful
development.

Continents, countries and sectors that have not developed and remain largely poor have
comparative advantage in three main areas, (Wikipedia, 2008). :
• Natural resource exploitation, i.e. natural capital such as rain forest timber;
• Low-education labor-intensive manufacturing, due to high population densities
and little suitable land per person;
• Agriculture, due to low population densities and relatively large areas of suitable
land per person.

The latter two are labor-intensive, helping to ensure that growth in these sectors will be
poverty-reducing. However, low value-added, price instability and unsustainability in
these commodity sectors mean they should be used only temporarily as catalyst of the
path to economic development.

2.3 Concept of Border Economics

Fullerton (2003) argues that border economics is still a new subject area. It has
originated from growing recognition to study economic phenomena within the unique

6

contexts entailed by geo-politics. It is now gaining much attention due to greater cross-
border economic integration in many regions of the world. He highlights key features of
border economics being undertaken research efforts in the five variables:

• Population: Many studies involve border between economies that are
characterized by substantial income differentials such as Mexico and the
United States. When accompanied by high rates of joblessness, income
disparities between countries frequently result in migratory outflows from
low earnings regions to higher income markets. (Harris and Todaro, 1970;
Borjas, 1994; Durand, Massey, and Zeneno, 2001 cited in Fullerton, 2003).

• Business cycle transmission: Economic integration in association with
rapid financial and commercial liberalization influence border economic
performance including retail border trade.

• Exchange rates: Most border economies still conduct business transactions
that are affected by exchange rate transaction in addition to the world wide
emergence of dominant currencies such as the dollar and the euro. Impacts
of currency market fluctuation on retail segments in border contexts have
been directly studied.

• Industrial development and labor markets: Devaluation of currency can
accelerate foreign direct investment for example in Maquiladora or export
manufacturing sector which both sides of the border/city pairs gained
benefits, it may nevertheless not be the case in other parts of the world.
Cross-border industrial linkages influence a wide range of regional economic
outcomes (Hanson, 1998b; Love and Lage-Hidalgo, 2000 cited in Fullerton,
2003).

• Natural resources economics: Environmental consequences of industrial
expansion and economic growth at border regions are one of major concerns
particularly on negative externalities. It is challenging to jointly manage and
utilize natural resources and public utility e.g. energy services.

2.4 Concept of Special Border Economic Zone and Applications

The Special Border Economic Zone (SBEZ) concept commonly known as
Maquiladoras or export manufacturing sector has primarily been developed along the
border of Mexico and the United States since 1965. Its objectives were to take
advantage of available cheap labor in Mexico and proximity to primary markets and
regional supply networks in the US, (Weiler and Zerlentes, 2003). The implementation
of the North American Free Trade Agreement (NAFTA), which phases out existing
trade barriers between Mexico, Canada and the United States, was expected to increate
to the dispersion of Maquiladoras along the northern border of Mexico.

7

This concept has increasingly become fashionable in realizing economic
complementarities between two countries which have different stages of development in
Asia. It is also adopted to create vast jobs as well as attracting foreign investments. In
East Asian region, North Korea has joined a collaborative economic development with
South Korea in developing Kaesong Industrial Park in 2002. It is located six miles north
of the Korean Demilitarized zone with direct road and rail access to South Korea. South
Korean firms are taking advantage of cheap labor available in the North to compete
with China to produce low-end goods such as shoes, cloths, and watches. By 2012, it is
expected that the industrial zone will cover 25 square miles and could create 725,000
jobs. Recently, more than 1,000 South Korean firms are reconsidering planned shifts of
production from China and South East Asia region to Kaesong (Wikipedia, 2006).

Similarly in South East Asian region, cross-border city pair’s cooperation concept is
widely recognized and applied as follows:

• In 2006, Malaysia has initiated Iskandar Malaysia, an economic, industrial
and services cluster, in southern part of Johor Bahru state in order to attract
foreign investments particularly from neighbouring Singapore.

• Cambodia is being set up a special border economic zone at Poipet, in
Banteay Meanchey province expected to cross-border link with Thai side at
Aranyaprathet district, Sakaeo province.

• Lao PDR has found Savan Seno Special Economic Zones in Savannakhet
province in 2003. It has 2 separate sites: Site A at Khanthabouly city in
pursuit of networking with Mukdahan city of Thailand, and Site B at Seno
town located 28 kms. East from Khanthabouly city.

• Myanmar is in planning process in building special border economic zones
at least two cities namely Myawaddy and Koh Song for connecting with
Maesod and Ranong cities of Thailand.

• While Vietnam has directed three SBEZs. The first two SBEZs are at
Xamat, 150 kms from the center of Ho Chi Minh city and Moc Bai in Tay
Ninh province connecting with neighbouring Cambodia. The third one is at
Lao Bao city in Quang Tri Province linking with Dansavan city,
Savannakhet province of Lao PDR. All these SBEZs also intended to

8

explore opportunities to perform cross-border co-production activities with
their respective city pair’s counterparts in neighbouring countries.

• Thailand has initially planed to establish special border economic zones in
Chiangrai, Tak and Songkhla provinces. A small industrial zone will also be
set up in Mukdahan province. There is a question whether Thailand could
additionally designate more geographically potential areas towards special
border economic zones or not judging from the thriving growth of cross-
border trade and commerce relations as well as the immediate requirement
to address the continually large illegal immigration of labor from
neighbouring countries into Thailand. Therefore, Thailand could probably
turn this confronting threat into prospective closer economic and social
integration with her neighbouring countries.

Please find the locations of proposed special border economic zones in Thailand and its
potential linkages with neighbouring countries in Figure 2.1.

9

Figure 2.1 Proposed Special Border Economic Zones in Thailand and Its Potential Linkages With Neighbouring Countries

Source: Adapted from Vimolsiri, P. (2008). Subregional Cooperation in GMS, ACMECS, IMT-GT: The Way Forward to Regional Integration, NESDB, Bangkok

10

Chapter 3

Overview of Cross-Border Trade and Commerce in Thailand

3.1 Geographical Locations and Physical Linkages of Thailand With Neighbouring
Countries

Thailand is located at the strategic crossroads of mainland South East Asian region, in
which it shares common land border with four-neighbouring countries with total length
of 5,582 kms, (Exim Bank, 2004). In total, there are 30 provinces physically connect
with neighbouring countries. The physical linkages with individual countries are as
follows:

• Myanmar: Ten provinces of Northern, Central and Southern regions of Thailand
link with Myanmar with longest total length at 2,400 Kms namely:
Ø Northern region comprising provinces of Chiang Rai, Chiang Mai, Mae Hong
Son, and Tak
Ø Western region comprising provinces of Kanchanaburi, Ratchaburi, Phetchaburi,
and Prachuapkhirikhan
Ø Southern region comprising provinces of Chumphon and Ranong

• Lao PDR: Eleven provinces of Northern and Northeastern regions of Thailand
connect with Lao PDR with total length at 1,810 Kms namely:
Ø Northern region comprising provinces of Chiang Rai, Phayao, Nan, Uttaradit,
and Phitsanulok
Ø Northeastern region comprising provinces of Loei, Nong Khai, Nakhon
Phanom, Mukdahan, Amnat Charoen and Ubon Ratchathani

• Cambodia: Seven provinces of Northeastern and Eastern regions of Thailand share
common border with Cambodia with total length at 725 Kms namely:
Ø Northeastern region comprising provinces of Ubon Ratchathani,
Si Sa Ket, Buri-Ram and Surin
Ø Eastern region comprising provinces of Sakaeo, Chantaburi and Trat

• Malaysia: Four provinces of Southern region of Thailand share common border with
Malaysia with total length at 647 kms namely Satun, Songkhla, Yala and Narathiwat.

3.2 Transport and Telecommunications Networks

3.2.1 Road Transports and Bridge Links

NESDB (2007) indicated that Thailand currently has total road length approximately at
179,944.9 kms dividing into:
• Special highways at 450 kms
• National highways at 51,297 kms
• Rural roads at 44,000 kms
• Concession highways at 22 kms
• Municipal roads at 84,000 kms
• Express ways in Bangkok and vicinities at 175.9 kms

11

It is perceived that road transport networks in Thailand are rather well developed both
within intra-regional and interregional linkages. In recent decade, Thailand has further
expanded road transport connections with major border cities of neighbouring countries
in order to facilitate cross-border trade and people mobility. These actions were partly
influenced by Thailand’s participation with the Greater Mekong Sub-region
Cooperation Program in order to foster regional transport integration towards
multimodal linkages (ADB, 2007). Where there is bordered by rivers, bridge links were
then constructed as follows:

• Thailand-Myanmar Friendship bridges built are as follows:

Ø Maesai district, Chiang Rai province and Thachilek city, Thachilek province
crossing Maesai river. In addition, another bridge crossing Maesai river in Chiang
Rai province linking with Thachilek province of Myanmar already in place.
Ø Maesod district, Tak province and Myawaddy city, Myawaddy province crossing
Moei river.

• Thailand-Lao PDR Friendship bridges crossing Mekong river are as follows:

Ø Nong Khai province and Vientiane, capital city of Lao PDR
Ø Mukdahan province and Savannakhet province
Ø Nakhon Phanom province and Khammouan province. It is now in planning
process.
Ø Chiang Khong District, Chiang Rai province and Huisai city, Bokeo province. It
is now in planning process.

• Thailand-Malaysia Bridges crossing Golok river are as follows:

Ø Sungai Golok district, Narathiwat province and Rantau Phangan city, Kelantan
state
Ø Ban Buketa, Wang district, Narathiwat province and Bukit Bunga city, Kelantan
state
Ø Takbai district, Narathiwat province and Pengkalan Kubo city, Kelantan state. It is
currently under planning process.

3.2.2 Rail Transport

Thailand has rail network of total length at 4,129 kms covering 47 provinces. This
comprises single track at 3,881 kms, double track at 165 kms and triple track at 83 kms.
The major railway link to neighbouring countries recently operated is the route
Bangkok to Thanalang (3.5 kms from Thai border) in Vientiane, Lao PDR. The Trans
GMS railway connection so called the Singapore-Kunming Railway Link (SKRL) is
under planning process. This route will link Singapore-Kuala Lumpur-Bangkok-
Aranyaprathet-Poipet-Srisophon-Phnom Penh-Hochiminh City-Hanoi and terminates in
Kunming. In the future, rail mode will play an important role in carrying bulk quantity
of commodities, stimulating GMS intra-trade, promoting industrial zones as well as
enhancing efficient utilization of the land along the railway line where it passes by the
mentioned cities/countries.

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3.2.3 River/Water Transport

Within the context of the GMS, Chiangsaen River Port, operated in 2003, plays vital
role in connecting Northern region of Thailand with southern part of China. The
transshipment trend at Chiangsaen River Port is on the rise as in 2004 such throughput
were at 74,414 Tons. While in the first half of 2005, it accommodated at 74,742 Tons.
In response to this increase, Department of Maritime is building the second Chiangsaen
River Port just about 10 kms downstream away in order to handle movement of goods
at maximum 0.524 Million Ton/year.

3.2.4 GMS Corridors Network

The GMS adopts area-based approach in the form of economic corridor to spearhead
regional development in a transnational fashion. Originally, three major economic
corridors were proposed namely the North-South, East-West and Southern Economic
Corridors. Later in 2007, six more economic corridors were added to reflect dynamic
sub-regional cooperation as well as extending further links to South Asian region
immediately connecting with India. Please see details of total nine economic corridors
in Map 3.1 below.

13

Source: GMS Transport Sector Strategy, Coast to Coast and Mountain to Sea: Towards Integrated
Mekong Transport Systems. (2007). Asian Development Bank
Map 3.1: GMS Corridors Network

14

Out of nine, six GMS corridors will pass through Thailand consisting of:

• North-South Economic Corridor (NSEC) : Kunming-Bangkok
• East-West Economic Corridor (EWEC) : Danang-Mukdahan-Maesod-Mawlamyine
• Southern Corridor : Dawei-Bangkok-Quy Nhon and Dawei-Bangkok-Vung Tau
• Southern Coastal Corridor : Bangkok-Nam Can
• Central Corridor : Kunming-Sihanoukville/Sattahip
• Northeastern Corridor : Nanning–Bangkok/Laem Chabang

It is spatially planned that GMS corridors will connect major urban regions in the GMS.
GMS corridors could also influence a certain extent of urbanization process. So it is
challenging on how to convert them into full-fledged economic corridors. Rural
development along the corridors could probably be one of the means to respond to these
greater connectivity and accessibility in order to bridge regional disparities in Thailand.
In addition, an array of practices including spatial governance, inter-sectoral linkages,
cross-border coordination, public-private partnerships and central-local coordination
could also be made possible for the realization of the GMS economic corridors, (Vries
and Priemus, 2003). Also, these key economic corridors are overlapping with the Asian
Highway routes crossing the Greater Mekong Sub-region, which will additionally
influence toward spearheading faster geographical links of the GMS with South Asian
and East Asian regions.

3.2.5 Telecommunications Networks

According to the NESDB (2007), the overall telephone network of Thailand from IMD
World Competitiveness Year Book 2007 found that in 2005 Thailand had fixed line
users per 1,000 populations at approximate 110 numbers which was rather low rate
when compared with Malaysia at 168, Japan 453, Korea 492 and Taiwan at 598
numbers, respectively. Even so, the tariff rates of international calls including to
neighbouring countries were already at competitive prices facilitating greater
convenient business transaction and social contacts regionally and globally. However,
there exist reasonable gaps in numbers of fixed line telephone users between rural and
urban areas. Mobile phone users are quite high at 430 numbers per 1,000 populations,
which are good alternative to connect with neighbouring countries. In terms of internet
usage, in 2004, the internet users in urban areas were yet higher than rural areas for 2.28
times.

Regarding the cooperation of Telecommunications sector under the GMS, this initiative
complements and supplements the national missing links as well as strengthening GMS-
wide network so that it can support regional economic growth. The key projects
included GMS Information Superhighway Network (ISN), in which the first phase was
finished and is now about to implement. Various services such as voice, internet,
international bandwidth and e-government/ e-commerce applications will be offered
throughout GMS. Importantly, promoting rural ICT development as a means for
reducing poverty has been seriously taken into account, which can help bridging digital
divide and promote cross-border trade undertaking, (ADB, 2007).

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3.3 Types and Number of Nation-Wide Border Checkpoints

Cross-border trade is transacted through major border checkpoints nation-wide.
Department of Foreign Trade (2008) classifies that there are three broad categories of
border checkpoints linking Thailand with neighbouring countries as follows:
• International border checkpoint It is internationally opened for people of the two
neighbouring countries as well as facilitating trade, tourists and vehicle movements.
It must be approved by both governments. In Thailand, it is under the purview of
Ministry of Interior with prior approval from the Cabinet.

• Temporary border checkpoint It is temporarily opened for specific purposes in a
given time period which shall not affect national security. When reached the allowed
time period or completed its mission, the temporary border checkpoint shall be
immediately closed.

• Local border crossing It is opened for cooperating with neighbouring countries for
humanitarian reasons as well as extending special treatment for conducting retail
border trade e.g. consumer goods and necessary medicines among local rural
peoples, which both sides of local authorities have agreed upon. It is under the
purview of Provincial Governor with prior approval from Ministry of Interior.

There are 71 combined border checkpoints in Thailand linking with four neighbouring
countries. For detailed figures of each type of border checkpoints, it is presented in
Table 3.1 below.

Table 3.1: Types and Numbers of Border Checkpoints in Thailand Physically
Connecting With Neighbouring Countries

International Temporary Local
Neighbouring
border border border Remarks
countries
checkpoints checkpoints crossings
1. Myanmar 3 1 10 Sangkhlaburi is
considered as both
temporary and local
border crossings.
2.Lao PDR 13 1 21

3.Cambodia 6 - 8

4.Malaysia 8 - -

Total 30 2 39
Source: Division of Foreign Affairs, Ministry of Interior cited in Changhlam, 2005, Promoting Thailand-
Myanmar border trade: paper presented at the seminar on “Turning new face of Maesod as
gateway of East-West Economic Corridor” at Central Maesod Hill Hotel, Maesod district, Tak
province on 23 September 2005

In relation to national geographical distribution of all types of border checkpoints in
Thailand, it is shown in Map 3.2.

16

Source: The Customs Department, Thailand
Map 3.2: Geographical Distribution of All Types of Key Border Checkpoints in
Thailand Physically Connecting With Neighbouring Countries

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3.4 Trade Agreements Between Thailand and Neighbouring Countries

In the recent two decades, Thailand has undertaken a number of trade agreements and
trade-related agreements with neighbouring countries bilaterally and regionally. These
consist of the following:

3.4.1 Trade Agreements

1) Bilateral trade and investment agreements

Trade agreements between Thailand and neighbouring countries are mostly coordinated
by Ministry of Commerce. In 2000, Thailand signed trade agreement with Malaysia in
order to develop and strengthen trade facilitation and economic relations on the basis of
mutual benefit, (Department of Trade Negotiations, 2000). These agreements were
effective for at least 10 years. Through this agreement, a Joint Trade Committee (JTC)
was established in order to ensure proper and successful implementation of this
agreement as well as acting as a body for resolving trade problems. Presumably,
Thailand might have already singed these sorts of agreements with the rest of
contiguous countries. Currently, JTC was a useful mechanism in expanding trade
relations with bordering countries.

Additionally, Thailand through coordination of Ministry of Foreign Affairs has
extensively engaged bilateral agreements on promotion and protection of investments
with 42 contracting parties all over the world. The primary objectives of these
agreements were to create favorable conditions for greater economic cooperation
between both States particularly for the investment by investors in another country,
(Ministry of Foreign Affairs, 2008). It is recognized that promotion of such investments
and the reciprocal protection of investments will be conducive to the stimulation of
individual business initiative, and will increase prosperity of both States. So far,
Thailand has signed these bilateral agreements with four-neighbouring countries,
namely Cambodia in 1995; China in 1985; Lao PDR in 1990 and Myanmar in 2008.
Under these agreements, both sides will consider to issue Certificate of Approval for
Protection (C.A.P.) to requesting investors of another contracting party. Normally, these
agreements will be effective for at least 20 years, and is extendable upon further
decision of both countries. These agreements are also served as broad guidelines for
strengthening close cooperation as well as fostering free flows of capital with
neighbouring countries.

2) Regional trade agreements (RTAs)

In recent decade, regional trade agreements have progressively played more pivotal role
in expanding intra-regional trade as tariff barriers are gradually diminished. As a result,
member countries could eventually enjoy effects of freer trade flows resulting from
multiple trade agreements, which will bring about greater welfare and better quality of
life of peoples in participating countries. The key regional trade agreements between
Thailand and neighbouring countries are as follows:

• Ayeyawady - Chao Phraya - Mekong Economic Cooperation Strategy
(ACMECS) in short called ECS It is a four-nation economic cooperation strategy
initiated in 2003. The member countries consisted of Cambodia, Lao PDR, Myanmar

18

and Thailand (CLMT). Its objectives were to reduce trade barriers, improve transport
linkages and upgrade major border checkpoints. Trade and investment facilitation
and agricultural and industrial cooperation are the two important aspects among the
five keys strategic areas of cooperation. (Ministry of Foreign Affairs, 2008). In 2004,
Thailand implemented a significant project to improve livelihood conditions along
border areas of neighbouring CLM through the Contract Farming Initiative by
exempting import duties known as “One Way Free Trade” to exporters from CLM
into Thailand comprising 11 major agricultural produces. These were sweet corn,
corn for livestock, cashew nut, soybean, ground nut, eucalyptus tree, potato, sesame,
caster bean, pearl barley, and green gram- bean. In 2008, Thailand planned to import
these produces at 1.2 million tons from Cambodia, 0.5 million ton from Lao PDR
and 0.2 million ton from Myanmar, (Thairath, 2008). The Thai buyers/importers
utilized these commodities as raw material for agro-processing industry both for
domestic consumption and exports as well as partly using as sources of energy
substitution. This initiative proved rather successful, and the trend of contract
farming with neighbouring countries is flourishing.

• ASEAN Integration System of Preferences (AISP) It is a measure to grant special
treatment from old six countries of ASEAN to new members comprising Cambodia,
Lao PDR, Myanmar and Vietnam under Initiative for ASEAN Integration: IAI,
which is bilaterally given “One Way Free Trade” basis of import without prior
negotiation, (www.wood4season.com). Its key objectives were to promote and
expand trade and investments within intra-ASEAN region, as well as reducing
development gaps between old and new ASEAN member countries. The time frame
for implementing this scheme was at eight years beginning on 1 January 2002 until
31 December 2009. The numbers of commodity that Thailand granted AISP
treatment to CLMV from 2004 until at present are shown in Table 3.3.

Table 3.2: Cumulative Numbers of Commodities that Thailand Granted AISP
Treatment to CLMV Countries
Unit: commodity
Numbers of Commodity that Thailand granted
Year AISP treatment
Cambodia Lao PDR Myanmar Vietnam
2002 48 26 72 19
2003 49 27 72 19
2004 309 187 160 34
2005 340 300 850 63
Source: www.wood4season.com, retrieved on 24 May 2008

As a result of this scheme, Thailand imports key commodities from CLMV countries as
follows:
Ø Cambodia : Live cow and buffalo, fish fingerling, prawn (fresh or dried), crab,
sweet corn, longan, dry chili, soybean, sesame, lichee, milk bottle, mattress,
woven made of artificial fiber, textiles (made of cotton, synthetic thread, artificial
fiber and wool), underwear, shoes and metal structure, etc.

Ø Lao PDR : Live cow and buffalo, fresh fish, cabbage, nuts, asparagus, sweet
corn, lichee, snap bean, longan, fresh or frozen banana, corn, ground nut, canned

19

fruits, granite stone, marble, juniper, woven artificial fabrics, stocking, woven
made of artificial fiber, textiles (made of cotton, synthetic thread, artificial fiber
and wool), underwear, wood furniture, reed furniture and bamboo made from
ceramics, etc.

Ø Myanmar : Ornamental fish, crab, prawn, fish, mussel (fresh or dried) chicken
and duck egg, honey, bird nest, nuts, onion, barley rice, sorghum, corn flour,
guava, mangosteen, sunflower seed, fat and vegetable fat, bread, fruit juices, soft
drink, liquor, fragrance, mosquito repellent, shampoo, motorcycle tyres, school
bags, tableware and kitchenware made from woods, woven fabrics (made of
cotton, synthetic thread, artificial fiber and wool), woods, carpet, textiles (made
of cotton, synthetic thread, artificial fiber and wool), stocking, underwear, shoes
and circuit board, etc.

Ø Vietnam: Chili, seeds of anise, cashew nut, diamond cutter or polishing
machines, woodfree paper, leather and bovine leather products, print circuit board,
and parts of footwear, etc.

• ASEAN Free Trade Area (AFTA) The old six member countries of ASEAN
comprise Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, while
the new members’ countries are Vietnam, Lao PDR, Myanmar and Cambodia. The old
member countries will reduce import duties of Inclusion List (IL) within the Common
Effective Preferential Tariff Scheme (CEPT) to 0-5 % within 2003 and to become zero
(0) % within 2010. Whereas the newer member countries will lower import duties of IL
within CEPT to 0-5% in 2006 for Vietnam; Lao PDR and Myanmar in 2008; Cambodia
in 2010 and all four countries to become zero (0)% in 2015.

The list of commodities under CEPT covers 105,123 items, (ASEAN Secretariat, 2008).
To be eligible for these trade benefits, export commodities must totally be used local
contents. In any case, if it does not wholly obtain local content materials from an
ASEAN member country, a minimum of 40% of local content of F.O.B prices will be
accepted as ASEAN product origin. In addition, it can also be calculated cumulative
rules of origin within ASEAN member countries with required minimum of combined
local content at 20%, (Department of ASEAN Affairs, 2008). It is also compulsory
among member countries to concurrently phase out non-tariff barriers so that it can help
advance towards ASEAN Economic Community (AEC) within 2015. Thailand’s total
trade with ASEAN expanded significantly after entering into effect of AFTA. For
instance, in 2006, the share of Thailand’s total trade within ASEAN represented at
20.30 % of Thailand’s total trade with the world.

• ASEAN-China Free Trade Agreement
Agreement on Trade in Goods of the Framework Agreement on Comprehensive
Economic Cooperation between the ASEAN and China has been signed on 29
November 2004 leading to gradual trade liberalization of both parties for two major
categories: These are Early Harvest Program and Tariff Reduction for General
Commodities Program. Regarding the Early Harvest Program, it consisted of
agricultural products within the customs Harmonized Standard numbers 01-08
comprising livestock, meat and other edible parts of animal, fish, dairy products, eggs of
chicken and duck, animal products, trees, vegetables and fruits and edible nuts,
including specific products which were effective only on bilateral basis.

20

Under this agreement, China and old ASEAN member countries started reducing import
tariffs on 1 January 2004, and were lowered to zero (0) % by 1 January 2006. The rest
of newer ASEAN member countries were given flexible treatment on tariff lines and
time frame for tariffs reduction, but there must be zero (0) % by 2010, (Department of
Industrial Promotion, 2008). It was conditionally reduced tariffs only within import
quotas particularly on onion and garlic. Furthermore, Thailand and China bilaterally
accelerated tariff elimination for the Early Harvest Program of the customs Harmonized
Standard number 07-08 consisting of vegetables and fruits to become zero (0) % by 1
October 2003.

In relation to Tariff Reduction for General Commodities Program, it was divided
into 2 tracks; these are Normal Track and Sensitive Track.

• Normal Track It was agreed to reduce tariffs which were higher than 20% to
become 20% by 1 January 2005. If there is already lower than 20 %, it shall be
reduced periodically. And tariff rate of all commodities will be reduced to zero (0) %
by 1 January 2010 (5 years). There are 150 commodities to be granted flexibility to
reduce tariff at zero (0) % until 2012. Thailand’s flexible commodities were wool,
cotton, textile materials, synthetic fibers, etc. In addition, it should increase
commodities which were having tariff at 0-5 % from 40% to 60 % by 2007.

• Sensitive Track There will not be over 400 commodities and not over 10% of
import values. It was agreed that tariff will be reduced to be 20% by 2012, and will
be final tariff at 0-5 % in 2018. For Highly Sensitive Track, it was initially agreed to
be not over 40 % or 100 commodities out of total sensitive list. It should be selected
such criteria for having least numbers of commodities, and then reduce tariff to
become 50 % by 2015.

Rules of Origin are applied which some commodities should be wholly obtained,
while others should compulsorily be used minimum 40 % of local contents. Both
sides also agreed, upon facing trade dispute, to use safeguard measures effective for
at least four years during transitional implementation of specific products. These can
be done in the form of anti-dumping measure in order to counter influx of
commodities as well as protecting specific domestic industries.

• Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC)

BIMSTEC consisted of seven countries namely India, Sri Lanka,
Thailand, Bangladesh, Bhutan, Myanmar and Nepal. It has a combined population at
1,300 millions or 21 % of world populations, but currently there are limited trade
transaction and values among member countries. So, there still have vast opportunities
for further cooperation. BIMSTEC is sort of south-south cooperation; it is also a
convergence of foreign policies between “Look West” of Thailand and “Look East” of
India, (Ministry of Foreign Affairs, 2008). Member countries have signed agreement on
BIMSTEC Free Trade Area on 8 January 2004, and became effective by 1 July 2006. Its
principal objectives were to stimulate trade and investments within intra-BIMSTEC as
well as attracting foreign investment into BIMSTEC Free Trade Area. The time frames
for gradual tax reduction for goods, which were voluntarily selected by each member

21

country, were classified into two groups. These are Fast Track and Normal Track. Its
specific details of time frame are shown in Table 3.3.

Table 3.3: Time Frame for Import Trade Tariff Reductions

Fast Track Group
Time frame for developing Time frame for LDC
Countries
country parties party
India, Sri Lanka, and 1 July 2006-30 June 2009 1 July 2006-30 June 2007
Thailand
Bangladesh, Bhutan, 1 July 2006-30 June 2011 1 July 2006-30 June 2009
Myanmar and Nepal
Source: BIMST-EC Secretariat, retrieved from http://www.bimstec.org/, on 22 May 2008

Normal Track Group
Time frame for developing Time frame for LDC
Countries
countries party
India, Sri Lanka, and 1 July 2007-30 June 2012 1 July 2007-30 June 2010
Thailand
Bangladesh, Bhutan, 1 July 2007-30 June 2017 1 July 2007-1 July 2015
Myanmar and Nepal
Source: BIMST-EC Secretariat, retrieved from http://www.bimstec.org/, on 22 May 2008

3.4.2 Trade-Relevant Cooperation
• Greater Mekong Sub-region Development Cooperation Program

The GMS was initiated in 1992 to foster regional economic cooperation and integration
consisting of six countries namely Cambodia, Lao PDR, Myanmar, Yunnan and
Guangxi Zhuang Provinces of China, Thailand and Vietnam. In terms of trade, it
promotes and facilitates intra-GMS and extra-GMS trade particularly on agricultural
trade, investment and tourism, which are keys to foster economic growth as well as
helping alleviate poverty in the GMS. Priority is given to the main economic corridors.
This can be done through customs modernization, investment promotion and facilitation
of cross-border trade as well as mobility of tourists and business peoples, (ADB. 2007).
To materialize this initiative, Cross-Border Transport Agreement (CBTA) with total 20
annexes was set up in 2003 aiming to deals with speedy facilitation of customs and
immigration procedures at the border-crossing points thus resulting in increase trade
flow both intra-GMS and extra-GMS. Full implementation of this agreement and its
annexes and protocols is expected to complete by 2009, but in fact it will face a delay.
The pilot border crossings are Lao Bao-Dansavanh, Poipet-Aranyaprathet, Mukdahan-
Savnnakhet, Bavet-Mocbai, Maesod-Myawaddy, Maesai-Tachilek, and Hekou-Lao Cai,
(Tsuneishi, 2008).

• Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT)

This economic cooperation framework covers fourteen southern provinces of Thailand,
eight northern states of Malaysia and ten provinces of almost the whole area of
Sumatera island of Indonesia. The program aims to establish seamless transportation
network and facilitate cross-border trade and extra-IMT-GT trade as well as enhancing

22

least cost logistics services. Besides, it also regionally intends to ease greater flows of
tourists and labor mobility.

3.5 Thailand’s Trade Policies With Neighbouring Countries

With respect to macro foreign and international economic policies, the Royal Thai
Government proactively reaffirms initiatives to expand cooperation and diplomatic ties
not only with ASEAN member countries but also toward East Asian and South Asian
regions as well as actively engaging with other regions of the world, (Royal Thai
Government Statement, 2008). Nevertheless, development partnerships between
Thailand and neighbouring countries and other Asian countries are among priority
regions. In terms of trade, the Royal Thai Government places significant emphasis on
upholding AFTA, promoting trade and investment with neighbouring countries,
enhancing cross-border trade toward development of common regional production bases
for goods and services in the region.

Specifically, the key policies for increasing trade flows with neighbouring countries are
as follows:

• Increase volume and values of cross-border trade and transit trade in order to
continuously keep pace with the growth of GMS regional economy.

• Undergo cross-border trade reform towards international standard system so that it
can solve cross-border trade problems, improve faster customs procedures, as well
as extending assistance to develop necessary infrastructure in linking with
neighbouring countries. This will help facilitate trade, reduce production cost as well
as boosting degree of national competitiveness.

• Explore new markets. And cross-border markets will not only be confined to border
areas but will also link up with the rest of domestic markets of neighbouring
countries as well as further transiting to the nearby large neighbouring countries
markets. This will therefore open up new markets access for Thailand’s and co-
production products.

• Establish special border economic zones along GMS economic corridors by
adopting co-production and cross-border supply chains schemes with city pairs as
well as seriously taking cooperation on labor management with neighbouring
countries into account. This will become new regional production networks in
ASEAN, widen up market access to neighbouring countries as well as facilitating
transit trade to large nearby markets in China, South East Asian, South Asian and
East Asian regions, and global market at large.

• Promote contract farming in neighbouring countries in order to increase supply of
raw materials for industrial and energy sectors both along border areas and in
respective inner regions of Thailand as well.

• Relocate some industrial, agricultural and services investments to neighbouring
countries in order to help generate jobs, distribute income and narrow development
gaps between Thailand and neighbouring countries in parallel with sharing of natural
resources, labor, capital, technology and expertise. The target industries are agro-

23

processing, wood industries, sugar industry, energy, construction, tourism, and hotel
and services.

• Actively negotiate on transit trade regime with neighbouring countries e.g. Lao PDR,
Myanmar and Vietnam to facilitate freer flow of goods to nearby neighbouring
countries markets in South East Asian, South Asian, and East Asian regions.

It is remarkable that the trade policies and progress of physical infrastructure
development between Thailand and neighbouring countries has to some extent been
converging which can help match policy supports for expanding cross-border trade
activities and actions for promoting speedy flows of goods and peoples. This can partly
generate positive impacts of trade and development and minimize negative impacts on
transboundary basis. Also, the existing bilateral and regional trade policies have
concertedly facilitated toward the establishment of special border economic zones in
Thailand linking with potential border areas in neighbouring countries.

3.6 Cross-Border Trade and Commerce Relations Between Thailand and
Neighbouring Countries

Cross-border trade is one of the key indicators of closer interdependence between
Thailand and neighbouring countries. In 1988, Thailand has proclaimed a policy of
turning “Indochina battlefields into a marketplace” (Chandoevwit, et at. 2005). This,
coupled with the GMS Regional Economic Integration Program has further pushed
Thailand to deepen economic relationships with neighbouring countries. Since then,
cross-border trade is flourishing despite occasional political conflicts. As a result,
greater flows of goods and people mobility are evident.

3.6.1 Markets of Neighbouring Countries

Thailand has possessed strategic locational advantages at the junction of mainland
South East Asian region allowing businesses and private sectors to conduct both cross-
border trade and transit trade. The market can be divided into two groups namely:

• Neighbouring countries markets which can be transacted through cross-border
trade with total prospective consumers at 93.22 million populations, (Population
Division of the Department of Economic and Social Affairs, 2008). This can break
down into Malaysia 25.65 millions, Myanmar 47.96 millions, Lao PDR 5.66 millions
and Cambodia 13.95 millions.

• Nearby neighbouring countries markets which can be transacted through
transit trade with total prospective consumers at 2.689 billion populations,
(Population Division of the Department of Economic and Social Affairs, 2008). This
can classify their populations into Vietnam 85.02 millions, India 1,134.40 millions,
Bangladesh 153.28 millions, China 1,312.97 millions, and Singapore 4.32 millions.
To reach these nearby markets, Thailand is able to use land transport for onward
movement of commodities passing her border checkpoints through respective
neighbouring countries destinations which can significantly shorten travel distance
resulting in a reduction of logistics cost as well as enhancing Thailand’s degree of
competiveness of goods.

24

3.6.2 Overall Assessment of Cross-border Trade and Commerce Relations
Between Thailand and Five-Neighbouring Countries (Cambodia,
China, Lao PDR, Myanmar and Malaysia)

1) Cumulative Cross-Border Trade Values of Thailand With Five-
Neighbouring Countries During 1996 to 2008 (January-April)

There is a dichotomy of border trade behaviors. The following analyses are formal or
official cross-border trade statistics of Thailand with five-neighbouring countries,
whereas the data on extent of informal cross-border trade are unknown. According to a
customs official, the trend of informal cross-border trade is declining as a consequence
of continued government efforts to formalize such cross-border trading. The data
consist of a 13-year interval from 1996-2008. Specifically for the year 2008, the data
were only available for four months beginning from January to April.

During 1996-2008 (January-April), the cumulative cross-border trade values of
Thailand with five-neighbouring countries were significantly amounted at 2,317.53
billion Baht represented at 20.51 % of cumulative trade values of Thailand with five-
neighbouring countries. The cumulative share of cross-border export from Thailand to
these neighbouring countries was as high at 59.06 %. While the cumulative share of
cross-border import from these neighbouring countries were at 40.94 % divided into
2.31 % for Lao PDR; 17.77 % for Myanmar; 0.52 % for Cambodia; 0.59 % for China
and 19.71 % for Malaysia. As a result, Thailand gained significant cumulative balance
of cross-border trade at 420.36 billion Baht. Please see details in Matrix 3.1.

25

Matrix 3.1 : Cumulative Cross-Border Trade Values of Thailand With Five-Neighbouring Countries During 1996 to 2008 (January-April)
Unit: Billions of Baht
Thailand Lao PDR Myanmar Cambodia China Malaysia Total
Country
CBT IT Total CBT IT Total CBT IT Total CBT IT Total CBT IT Total CBT IT Total CBT IT Total

1,849.0 3,971.6
1.Thailand X X X 230.96 47.08 278.04 143.19 101.44 244.64 192.32 118.62 310.94 158.08 2,499.79 2,657.88 644.39 1,204.69 8 1,368.94 2 5,340.57

2.Lao PDR 53.75 24.45 78.20 X X X X X X X X X X X X X X X 53.75 24.45 78.20

3.Myanmar 412.01 55.16 467.17 X X X X X X X X X X X X X X X 412.01 55.16 467.17

4.Cambodia 12.14 0.83 12.98 X X X X X X X X X X X X X X X 12.14 0.83 12.98
5.China
(Yunnan 3,113. 3,113.8
Province ) 13.70 89 3,127.59 X X X X X X X X X X X X X X X 13.70 9 3,127.59
1,815. 1,815.9
6.Malaysia 456.98 92 2,272.91 X X X X X X X X X X X X X X X 456.98 2 2,272.91

5,010. 1,849.0 8,981.8
Total 948.58 25 5,958.83 230.96 47.08 278.04 143.19 101.44 244.64 192.32 118.62 310.94 158.08 2,499.79 2,657.88 644.39 1,204.69 8 2,317.53 7 11,299.40
Remarks: CBT refers to cross-border trade of Thailand with five-neighbouring countries.
IT refers to international trade of Thailand with five-neighbouring countries.

26

2) Overall Annual Cross-Border Trade Values Between Thailand
and Five-Neighbouring Countries

For the sake of simplifying such comparisons, trading categories between Thailand and
neighbouring countries are purposively divided into (1) cross-border trade and (2)
international trade which consists of export and import of goods through sea-borne and
air-borne mode of transportation. Transit trade relations between Thailand and China
are regrouping under cross-border trade category in order to collectively present
significant picture of total trade values between Thailand and five-neighbouring
countries. Cross-border trade has played steadily significant role in bridging closer
relations between Thailand and neighbouring countries reflecting greater extent of
interdependence in the GMS. Due to cross proximity, coupled with multiple regional
trade agreements effects with bordering countries and gradually convenient transport
networks, cross-border trade has shown on the rising trend as appears in Figure 3.1.

Unit: Millions of Baht
450,000 Million Baht

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 (Jan-
April)
Aggregate cross-border trade export values from Thailnd to four-neighbouring countries and transit trade to China
Aggregate cross-border import values from four-neighbouring countries and transit trade from China to Thailand
Aggregate cross-border trade values between Thailand and four-neighbouring countries and transit trade with China

Source: Cross-border trades statistics for various years, The Department of Customs, Thailand

Figure 3.1: Aggregate Annual Cross-Border Trade Export and Import Between
Thailand and Four-Neighbouring Countries and Transit Trade
To/From Yunnan Province of China During 1996-2008 (January-
April)

In relation to the aggregate border trade values with five-neighbouring countries, it
steadily increased from 34.916 billions Baht in 1996 to 60.495 billions Baht in 1999.
Later, it steeply rose from 106.423 billion Baht in 2000 up to 401.360 billions Baht in
2007. The average annual cross-border trade growth of goods during 1996-2007 was at
26 %. With respect to export of goods originated both from border regions and other

27

regions of Thailand, during 1996-1999, it slowly increased from amounting 24.297
billions Baht to 39.660 billions Baht. After that, it rather steeply surged from 73.113
billions Baht in 2000 to 235.630 billions Baht in 2007, which accounted for as high
growth at 222.28 %. The average annual cross-border export growth of goods from
1996-2007 was at 25%.

Regarding import of goods, it was quite similar trend with the latter, but the base value
of import was much lower than export values. It steadily increased during 1996-1999,
and then it quickly rose from amounting 33.226 billions Baht in 2000 to 165.729
billions Baht in 2007, which represented at distinct growth rate at 398.79 %. The
average annual cross-border import growth of goods from 1996-2007 was at 30 %. So,
the average annual cross-border import growth in recent decade was higher than that the
average cross-border export growth at 1.2 times reflecting strong economic
interdependence between Thailand and five neighbouring countries. In 2006, the
aggregate cross-border trade values between Thailand and five-neighbouring countries
accounted for 22.59 % of Thailand’s total trade with ASEAN, or at 3.83 % of
Thailand’s total trade with the world.

This is considered as high performance of both cross-border export and import due to it
can constantly keep pace of growth strongly revealing continuous efforts made by the
Royal Thai Government, neighbouring countries governments, ADB and development
partners in realizing economic and cross-border trade prospects in the GMS. It is
difficult to quantify specific factors or determinants of such growth. Rather, the
achievement was presumably upheld by multiple-effects of regional trade agreements
ranging from AFTA and ASEAN-China in general, and one way free trade initiative in
pursuit of reducing development disparities among countries in the GMS in particular. It
should be noted that Thailand has conducted cross-border trade directly with four-
neighbouring countries namely Cambodia, Lao PDR, Myanmar and Malaysia; trading
with Yunnan province of Southern China is in the form of transit arrangement. Overall,
it is optimistically indicating that the trend of cross-border trade keeps increasing, which
partly can help sustain macroeconomic growth. This growth may somehow contribute
to regional development toward the improvement of better quality of life of all Thai and
neighbouring countries citizens including to some extent those rural poor and
marginalized groups residing along border areas.

3) Aggregate Balance of Cross-Border Trade Between Thailand and Four-
Neighbouring Countries and Transit Trade Balance With Yunnan
Province of China

Indeed, aggregate balance of cross-border trade in goods was somewhat striking as it
revealed with positive and negative trade balance scenarios. In general, Thailand has
gained favorable trade balances with bordering partner countries, which were rather
reasonable amount from 13.678 billions Baht in 1996 to 18.827 billions Baht in 1999.
Later, it steeply escalated, despite facing negative trade balance with Myanmar, from
39.887 billion Baht in 2000 to 69.901 billions Baht in 2007 reflecting as high growth at
34 % during this period. Yet, Thailand acquired most positive balance of cross-border
trade with Lao PDR, followed by Cambodia, Malaysia and China, respectively. The
average annual growth rate of balance of cross-border trade from 1996-2007 was at
28.5%, which is regarded as high performance due to certain uncontrollable factor
intervened; that is the fluctuation of the Thai Baht currency resulting in a 10 % increase

28

of price for Thai products exported to neighbouring countries markets particularly to
Cambodia, (Thai Chamber of Commerce, 2007). However, it appears that Thailand is
still slightly gaining favorable balance of cross-border trade with five-neighbouring
countries. Please see details in Figure 3.2.
Unit: Millions of Baht
435,000 Million Baht

385,000

335,000

285,000

235,000

185,000

135,000

85,000

35,000

-15,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(Jan-
Apr)
-65,000
Malaysia
China
Cam bodia
Lao PDR
Myanmar
Aggregate Balance of Cross-Border Trade Between Thailand and Four-Neighbouring Countries and Balance of Transit Trade W China
ith
Aggregate Cross-Border Trade V alues Between Thailand and Four-Neighbouring Countries and Transit Trade Values With China


Figure 3.2: Aggregate Balance of Cross-Border Trade Between Thailand and
Four-Neighbouring Countries and Balance of Transit Trade With
China

On the contrary, balance of cross-border trade between Thailand and Myanmar has been
represented somewhat high extent of interdependence between these two countries.
During 1996-2000s, Thailand had secured favorable trade balance with Myanmar with
slightly large amount ranging from 2.090-6.671 billions Baht with average annual
growth rate as high at 49.5%. However, when started importing a large amount of
natural gas from Myanmar for domestic electricity generation in 2001 through
Sangklaburi local border crossing, since then Thailand has been confronting persistently
deficit balance of cross-border trade. During 2001-2007, it jumped from -22.261
billions Baht to -54.861 billions Baht showing average annual negative balance of
cross-border trade at -62.75 %. The average balance of cross-border trade between
Thailand and Myanmar during 1996-2007 was as much negative at -21.81%, and the
tendency may be increasing depending on the likelihood of economic growth in
Thailand.

29

4) Cross-Border Trade Gaps Between Thailand and Five-Neighbouring
Countries

Table 3.4 Cross-Border Trade Gaps Between Thailand and Five-Neighbouring
Countries During 1996-2008 (January-April)
Unit: Number of time
Countries Year
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(Jan-
April)
1.Lao PDR 3 3.46 6.4 3.76 4.49 4.31 4.12 4.21 4.9 5.44 3.6 3.29 3.31

2.Myanmar 4.9 7.61 3.72 4.47 2.14 -3.4 -4.84 -2.53 -2.84 -3.41 -4.56 -3.58 -3.18

3. Cambodia 1.21 1.05 3.44 4.85 28.92 30.9 36.21 34.58 22.1 22.52 25.8 19.56 21.55

4. China 10.31 8.63 1.13 1.4 4.53 4.84 9.35 8.58 9.27 13.45 16.3 15.03 16.26
(Yunnan
Province)
5.Malaysia 1.92 2.16 1.89 1.42 1.61 1.52 1.22 1.4 1.39 1.27 1.34 1.32 1.46


As mentioned previously, Thailand generally gained significant balance of cross-border
trade with neighbouring countries. Consequently, there has been emerging of
considerable trade gaps. This is mainly resulted from different stages of development,
diverse extent of government supports on cross-border trade undertaking and divergent
degree of entrepreneurship. During 1996-2008 (January-April), the average annual
cross-border trade gaps between Thailand and neighboring countries greatly varied from
one country to another. Cambodia has been experiencing such fluctuating trade gaps
with Thailand, in which the cross-border export of goods from Cambodia to Thailand
were much lower than that of cross-border import of goods from Thailand to Cambodia
for the annual average of 19.43 times. As a result, Cambodia ranked first of
neighbouring countries with highest widening cross-border trade gaps. It then followed
by Yunnan province of China with cross-border trade gaps at annual average at 9.16
times. Lao PDR came third with cross-border trade gaps at annual average at 4.17 times,
which is still considered as high inequality. Malaysia ran fourth with cross-border trade
gaps at reasonable annual average at 1.53 times. On the other hand, Thailand has been
facing substantial negative cross-border trade gaps with Myanmar at annual average at -
0.42 time. Thailand alone seems likely to constantly secure favorable balance of cross-
border trade with least developed and developing neighbouring countries leaving the
tendency of cross-border trade gaps to be existed at steady state. Therefore, one of the
means to bring down these persisting trade gaps can be fostered through enhancing
closer cross-border supply chain networks between Thailand and these neighboring
countries.

5) Share of Aggregate Cross-Border Trade To International Trade
Between Thailand and Five-Neighbouring Countries

Trade data are disaggregated into two categories: these are (1) share of aggregate cross-
border trade and (2) share of international trade. From this assessment, it to some extent

30

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