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Abstract
It has been argued that restrictions on industrial policy implemented under World Trade Organization rules in the 2000s have greatly reduced the ‘policy space’ in which developing countries can promote industrialisation. This paper examines the case of Thailand's policies in developing one of the most successful automotive industries in the Southeast Asian region. We show that Thailand's use of local content requirements, later abolished under WTO rules, helped promote local suppliers and did not deter foreign investors. Substantial tariff protection of vehicles and components production did not deter exports, and has continued to the present, even under liberalisation policies. Supplementing tariff protection by various fiscal means to promote product champions in the automotive industry, Thailand has succeeded in retaining substantial policy freedom.
Acknowledgements
The authors are grateful to Chris Edwards and an anonymous referee for comments on a draft of this paper, to Rajah Rasiah for discussions, and to the Japan Society for the Promotion of Science (JSPS KAKENHI 22730153) and Ritsumeikan Asia Pacific University for research finance, although the usual disclaimer applies.
Notes
♦The main research for this paper was conducted before the massive floods in Thailand in late 2011, which seriously affected the motor industry, if only temporarily. A subsequent visit, in September 2012, confirms that Japanese motor companies plan to remain in Thailand, and the Thai government, under Yingluck Shinawatra (former prime minister Thaksin Shinawatra's sister) has agreed to improve flood control. In fact, output by the end of 2012 is estimated to rise to 2 million vehicles, compared to the 1.6 million produced in 2010 (http://www.boi.go.th/tir/issue/201204_22_4/42.htm).
1. Seven years for least developed countries (see www.wto.org).
2. See, e.g. Natsuda et al. (Citation2010, especially 470–471).
3. See Alavi and Hasan (Citation2001), who are very informative on these issues, though in the Malaysian context.
4. However, at the firm level, minimum efficient size is much larger if the firm is to compete globally and undertake the massive R&D expenditure necessary to develop new models. Nolan (Citation2012, 25–26) estimates it to be as much as 5 million vehicles per year, and even luxury carmakers like Mercedes produce over a million.
5. There are also seven motorcycle assemblers, though these are not our focus.
6. For a fuller discussion of Thailand in the regional automotive economy, including intra-regional trade patterns, see Wad (Citation2009). We have also discussed these issues with major motor assemblers in interviews in Thailand and Singapore.
7. It also, of course, exposes Thailand to import competition, although the direction of sales is heavily influenced by the sales and location policies of the key Japanese motor multinationals.
8. LCR were further revised to 20% for CVs with windshields (effective in 1975) in 1974 (Higashi Citation2000).
9. FTI was under the strong influence of assemblers, particular Japanese corporations, which were opposed to localisation policies. By contrast, TAPMA was formed by local parts suppliers, who supported localisation policies (Higashi Citation2000).
10. Toyota, Nissan, and Isuzu started the project under BOI, and Mitsubishi was under MOI.
11. This was despite the apparent anti-export bias generated by tariff protection of the domestic market. Exporting strengthens economies of scale and avoids saturation of the domestic market, and there can be cross-subsidization of exports from (protected) domestic market profits. It is a typical ‘East Asian’ pattern (Chang Citation2002), expanding exports while keeping the domestic market protected.
12. This ratio includes 9% of ASEAN content.
13. Note, though, that LC figures achieved are sometimes in terms of the number of locally sourced components, rather than their value. We thank Rajah Rasiah for this point.
14. Depending on the location of investment – Zone 1 (Bangkok and the surrounding five provinces) for three years; Zone 2 (12 provinces outside of Zone 1) for five years; and Zone 3 (except for Zones 1 and 2) for eight years.
15. Interview with the President of TAIA on the 23rd August 2011.
16. The term ‘product champion’ is now widely in use in Thailand. See, for example http://www.bangkokpost.com/business/economics/293513/green-energy-next-frontier and http://www.nationmultimedia.com/business/Eco-cars-could-be-new-champion-product-for-Thailan-30177540.htmlon the Eco-car (the second product champion). The earliest statement we can find using the term is in 2004, with respect to the one-ton pick-up truck (see http://adrf.trf.or.th/ADRF6update/Full_Papers/Trade%26Investment/Samart_Chiasakul/Fullpaper_Samart.pdf).
17. JETRO BSCT Report (October 2003).
18. IMV production in 2010 accounted for approximately 350,000 units (Fourin 2011).
19. Isuzu Website: www.isuzu.co.jp/press/2010/3_26pup.html (accessed 5th August 2010).
20. According to the president of TAIA, VW does not own well-established supplier networks in comparison with Japanese competitors and so it was difficult to meet the Eco Car's requirements. TATA produces only LNG-engine vehicles, so they also could not meet the requirements.
21. According to the president of TAIA (also vice president of Nissan), the major reason of the relocation was a concern of continuous appreciation of yen after the global financial crisis.
22. Interview with Deputy Secretary General at BOI on 15th February 2011.
23. Interview March 2010.
24. Rural development clusters in Thailand were based on sub-districts, or tambons; hence the famous one tambon-one-product (OTOP) idea (Lauridsen Citation2009, 415), based on the earlier one-village-one-product movement in Japan (Natsuda et al. Citation2012).
25. Except, as noted earlier, the local content requirement for exports to other ASEAN countries under AFTA.
26. But note that not all non-AFTA sources are subject to protection. Witness the free trade agreement with Australia, as already indicated, and the Japan–Thailand Economic Partnership Agreement, signed 2007, that includes the progressive elimination of tariffs on vehicles and parts.
27. Interview with the Vice President of TMAP-EM on 5th March 2010.
28. However they do focus mainly on ownership requirements and intellectual property rights, and have almost nothing to say on LC or export requirements.
29. Although this metaphor is widely associated with Ha-Joon Chang's well-known work (Chang Citation2002), as Wade (Citation2003, 632) notes, it was originally coined in 1885 by the German writer on protectionism, Friedrich List.