Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
In May 2014, the Thai military suspended the constitution and took control of the government in a coup d’état. Since the coup, Thailand has embarked upon a gradual return to democracy. A new constitution was drafted, and a constitutional referendum secured approval in August 2016. The current administration held general elections in March 2019. Thailand’s economy has remained stable despite these political challenges.
Thailand initiated an Emergency Decree on March 25, 2020, in an effort to control the spread of the COVID-19 virus. This affected the Thai economy significantly, given the lockdown, social distancing, and temporary closures of some businesses classified as health risks. Airports were closed for months, and quarantine measures for arriving international passengers were imposed and still remain in place. U.S. businesses interested in doing business in Thailand will face challenges from new health codes and social distancing measures, which will continue until vaccines for COVID-19 are widely available in Thailand.
Thai industries face intense competition from both global and domestic suppliers of goods and services. Many domestic companies are family businesses that span generations and are now led by third-generation business leaders who are highly educated and possess deep knowledge of their industries.
Thai consumers are price conscious and generally served by local suppliers and low-priced imports. U.S. exporters with products that are competitive for reasons other than price should work with a local partner to undertake an appropriate market entry strategy.
About half of Thailand’s Most-Favored-Nation (MFN) tariff schedule includes duties of less than five percent, and approximately 30 percent of tariff lines are duty free, including certain chemicals, electronics, industrial machinery, and paper. Thailand’s average MFN applied tariff rate was 10 percent in 2019 (latest data available). Thailand’s average MFN applied tariff rate was 29 percent for agricultural products and seven percent for non-agricultural products in 2019. Thailand has bound 75 percent of its tariff lines in the World Trade Organization (WTO), with an average WTO bound tariff rate of 28 percent.
High tariffs in many sectors continue to hinder access to the Thai market for many U.S. products. The highest ad valorem tariff rates apply to imports competing with locally produced goods, including automobiles and automotive parts, motorcycles, beef, pork, poultry, tea, tobacco, flowers, beer and spirits, and textiles and apparel. For example, Thailand applies import tariffs of 80 percent on motor vehicles, 60 percent on motorcycles and certain clothing products, and 54 percent to 60 percent on distilled spirits. Thailand applies a ten percent tariff on most pharmaceutical products, including almost all products on the World Health Organization’s list of essential medicines, with the exception of some vaccines, antimalarials, and antiretrovirals, which are exempt.
Despite the new Thai Public Procurement Act in effect since 2017, corruption and lack of transparency in government procurements are major concerns for U.S. companies. Where corruption is suspected during the bidding process, government agencies and state enterprises reserve the right to accept or reject any or all bids at any time and may also modify the technical requirements. This allows considerable leeway for government agencies and state-owned enterprises to manage procurements, while denying bidders recourse to challenge procedures. There are frequent reports that the Thai government makes changes to technical requirements for this purpose during the course of procurements. Despite a Thai government commitment to transparency in government procurement, U.S. companies and the Thai media continue to report allegations of irregularities. Thailand is not a party to the WTO Agreement on Government Procurement (GPA), but it has been an observer to the WTO Committee on Government Procurement since 2015.
Customs law in Thailand does not fulfill the standards established by The International Convention on the Simplification and Harmonization of Customs Procedures, otherwise known as “the Kyoto Convention”. Major problem areas include Thailand’s Customs Penalty Regime and Customs Valuation Procedures. The penalty for undervaluing imports into Thailand, even if done through negligence or by mistake, can result in a prison sentence of up to 10 years. The system is incentivized by the distribution of rewards from these penalty payments to customs officials involved in the investigation of each case. Additionally, the procedure for determining “customs value” remains opaque as the valuation methodologies, determined by Ministerial Regulations, are subject to frequent change. Confusion over the guidelines can lead to an increased risk of misinterpretation and misapplication of goods valuation methods. In 2019, reforms did result in the resolution of a long-standing customs dispute and the dismissal of some large penalties under the rewards system.
U.S. businesses operating in Thailand should be aware that in 2018, the government amended its Civil Procedure Code to include class-action lawsuit provisions. This amendment increases rule of law and consumer protections in Thailand, but it may leave some businesses at higher risk. This may result in higher insurance premiums, especially for small businesses.