Publication Code: Y89G
by Thammanun Pongsrikul and Somchai Ratanakomut
Being a trade deficit country, Thailand faces a variety of different international trade and investment issues in several sectors. Issues on trade in services had been rarely addressed until they came to the forefront in discussions on the possibility of extending the scope of the General Agreement on Tariffs and Trade (GATT) to cover these traded services. As a result, Thai economists have recently paid more attention to the service sector, and TDRI has included this topic into the 1989 Year-End Conference.
Thailand has experienced a deficit balance of trade in both merchandise and services. The existence of this deficit does not imply that a limitation be imposed on service expansion. Since the service sector is in turn influenced by domestic factors; product prices, government policies, and international environment, the growth of the service sector is derived from economic growth. Therefore, it should not be too difficult for Thailand to have a surplus in traded services, since there are many potential areas for expansion, i.e., tourism, labor and air passenger services, the major sources of foreign exchange earnings, particularly from tourism. An improvement in electronic and offshore banking will also generate new business and stimulate Thailand's economic growth. Further, improvements in the transportation systems and related infrastructure will benefit both the country's domestic and international economy.Efficient transportation systems and an improvement in the service industries will lead to lower costs, which in turn will yield higher trade volumes and foreign exchange earnings and improve Thailand's balance of trade and current account.
The policy and sectoral analysis on services can make a substantial contribution towards formulating more effective policies to obtain a surplus balance in traded services and raise social welfare. With the present widespread restrictions in internationally traded merchandise, the possibility of expanding this sector has become less promising. Introducing appropriate policies to turn the position of traded services from a deficit to a surplus will thereby compensate for the expected slowdown in merchandise exports. In addition, the effect of these alternative policies will assist the policy makers to consider various options and make their choice, based on the international trade theory, applicable to the service sector.
The trade in services project is one of seven projects presented by TDRI's research program for the 1989 Year-End Conference. The main objective of this study was to analyze the role of trade in services in the economic development of Thailand. While the immediate objectives were to maintain Thailand's competitiveness in traded services and its position as an attractive place for investment, the ultimate objective is to encourage this sector to contribute the most to the development of Thailand. To achieve these objectives, merchandise trade theories have been applied to traded services to determine the pattern and produce policy recommendations. The study comprises six chapters, of which Dr. Somchai Rattanakomut is responsible for the third and sixth chapters and Dr. Thammanun Pongsrikul takes care the rest of the report.
The completion of this project is of considerable importance to Thailand because it comes at a time when the government is planning the Seventh National Economic and Social Development Plan. Even though the study may not as comprehensive as it would like to be, the major fact findings and policy recommendations can help the planers to develop sound economic policies for the service sector, at can be considered as a stepping stone towards a further in depth study on the trade in services.
December 1989