New Thailand-EU Partnership & Cooperation Agreement: a step towards a Free Trade Agreement?25 October 2022

The PCA, a legally binding international agreement, effectively renews the legal foundation of the parties’ relationship and indicates intent from the EU to support Thailand in enhancing its economy and attracting greater business activity and diverse foreign investment. Moreover, the PCA is a progressive step in Thai-European trade negotiations, which had previously been on hold for several years.

Crucially, the agreement has potential to provide the necessary framework upon which the parties could reach a comprehensive free trade agreement (“FTA”); if successful, Thailand would become only the third ASEAN nation to partner with the EU in a FTA. The PCA will update the 1980 EU-ASEAN Cooperation Agreement, which currently governs cooperation between Thailand and the EU.²

What does the PCA entail, and what should companies in Thailand know about it?

Key Features of the Thailand-EU PCA

Although not yet formally ratified, the impact of the PCA is expected to be “mutually beneficial” in harmonising and coordinating the parties’ approaches to various issues.

In terms of the geopolitical motivations underlying the agreement, Thailand is seeking new and varied sources of growth to avoid an over-reliance on its tourism industry, particularly as the country emerges from the Covid-19 pandemic. China’s strict “Zero-Covid” policy has drastically reduced Chinese tourist inflow into Thailand, harming the economy. Additionally, the broader uptick in hostility between China and the United States (another important Thai trade destination) has encouraged the kingdom to strengthen ties elsewhere.³ The EU is Thailand’s fourth largest trading partner and the world’s largest economic bloc, making a closer relationship ideal.

Separately, the EU intends to mitigate the growing geopolitical risk entailed in its trade relations with China by forging bonds elsewhere in the region. To this end, the EU has already begun to diversify by concluding PCAs with five other ASEAN nations (Indonesia, Vietnam, the Philippines, Singapore and Malaysia). Thailand is an important addition to this group.

The PCA has broad scope. The agreement ranges from harmonisation of human rights standards to closer co-operation on counter-terrorism measures. However, the PCA’s core feature will be strengthened dialogue in the economic and trade domain. This is significant given the EU’s importance to Thailand’s trade goals, along with the substantial value of trade exchanged between the parties. In 2020, bilateral trade value amounted to €29bn, mainly in exports – Thailand exported €15.1bn worth of goods to the EU and, similarly, the EU exported €11.3bn worth of goods to Thailand. The PCA is set to further boost these figures whilst also enhancing bilateral supply chains and product quality standards in Thailand.

Aside from trade, the closer ties resulting from the PCA will likely make the Thai commercial market more attractive as a destination for foreign investment. The EU is currently the second largest investor in Thailand after Japan and the PCA is set to further encourage and diversify modern and innovative investment from Europe and investors further afield.

Outlook

The PCA concludes seven rounds of negotiations between the parties which originally commenced in 2013 but stalled following a military coup in Bangkok in 2014. Furthermore, it effectively marks a thawing of frosty relations between the parties in the wake of the military takeover. The EU Council authorised resurrection of talks in 2019, which were formally re-started in July of 2021 and concluded nearly a year later, on 11 June 2022.

Given that PCAs are typically entered into for a ten-year period, and that the EU has recently concluded FTAs with two other Southeast Asian nations (Singapore and Vietnam) upon the foundation of prior PCAs, it is plausible that this Thai-European PCA could act as a “roadmap” for negotiations towards an eventual FTA.

Judging by the content of the Singaporean and Vietnamese FTAs, such an agreement with Thailand would signal expansive bilaterally preferential treatment for goods and services through a removal/reduction of tariffs, customs duties and other restrictions in certain sectors. Depending on the productivity of negotiations, a Thailand-EU FTA could also spell closer economic integration, trade liberalisation and harmonised rulemaking in such domains as environment, energy, science and technology, human rights, anti-terrorism measures, employment and agriculture.

Although not guaranteed, the successful conclusion of an FTA between Thailand and the EU further down the line would present substantial economic benefit for both parties. The upcoming EU-ASEAN summit of national leaders would seemingly present the next logical step for the parties to positively progress their bilateral relations.

Takeaways

The parties will sign the agreement once all internal procedures are complete. Once ratified, it will enter into force. Meanwhile, both sides are moving to capitalise on the new deal. Thailand’s Ministry for Foreign Affairs recently held a stakeholder seminar on the new PCA, intended to “raise awareness and increase understanding of how to use the TH-EU PCA as a compass to further promote Thailand-EU cooperation”. Seminar attendees expressed hope that the PCA will soon generate FTA negotiations.⁴