Thai Government Moves To Approve US Tariff Agreement in Parliament; Sets Sights on Origin Regulation Discussions
The Thai Cabinet has approved a draft trade statement between Thailand and the US, marking a significant step forward in the bilateral relationship. While not a formal free trade agreement (FTA), the US-Thailand agreement resembles one in scope and substance.
One of the key aspects of this agreement is the establishment of a minimum Regional Value Content (RVC) threshold of approximately 50% for determining origin compliance and local content requirements for Thai exports to the US. This means that to qualify for preferential tariff treatment, goods exported from Thailand to the US must have at least 50% of their value added within Thailand or its allied countries, excluding certain countries like China.
The RVC rules have several key implications:
- 50% RVC Threshold: Thailand has agreed in principle to a 50% regional value content requirement for products to qualify under the agreement. This is higher than the typical 40% minimum local content often seen in trade agreements and aims at tightening control on imports to protect local industries while facilitating trade growth with the US.
- Inputs from Allied Countries: The RVC calculation includes raw materials and components sourced not only from within Thailand but also from allied countries (primarily ASEAN member states), while explicitly excluding countries like China that do not have a tariff agreement with the US. This regional approach helps integrate supply chains within Southeast Asia.
- Local Content Flexibility: Although the RVC is set at around 50%, Thai officials indicate local content requirements are somewhat flexible and subject to negotiation, depending on the industry. For example, in certain high-tech sectors like computers where foreign components dominate, achieving 50% RVC might be challenging.
- Transshipment Controls: The US side has introduced a transshipment threshold of 40%, which means goods passing through third countries may face penalties if suspected of circumventing origin rules. This enforces stricter origin compliance and requires clearer definitions of RVC to prevent misuse.
- Impact on Tariff Rates: Products meeting the RVC and origin criteria would benefit from reduced or zero tariffs under the agreement, while those failing to meet the threshold might face higher tariffs (potentially up to 19% or more). Thai exporters will need to ensure their products comply to obtain preferential treatment.
- Industry-Specific Considerations: Agricultural products, relying mostly on domestic inputs, are less affected by RVC rules. However, many industrial products and certain high-tech goods depend heavily on imported inputs, making compliance with the 50% RVC challenging but essential for tariff benefits.
- Ongoing Negotiations: The exact RVC percentages for different product categories and finer origin compliance rules are still under discussion. Thai authorities are consulting stakeholders, including farmers and trade associations, to balance trade benefits with protecting local industries.
The US tariff on Thai goods will be reduced from 36% to 19%, requiring parliamentary approval. Once signed, the full details of the agreement must be made publicly accessible. Thai law currently imposes a 0% tariff on soybean imports and 2% on soybean meal, which may be revised by ministerial regulation following parliamentary approval.
The agreement also involves multiple stakeholders and has long-term implications for Thailand. Non-tariff barriers (NTBs), such as sanitary measures, have been a focus of negotiations in the US-Thailand agreement. The US has not yet agreed on the local content percentage in detail, and Thailand has proposed 40% as the standard.
The agreement allows Thai imports into the US under a 19% tariff, while Thailand commits to lowering import tariffs for US goods. Both sides may use a general threshold of 40% local content as a baseline, but the Thai side aims to finalise clearer terms soon. Thailand will grant a small quota of US pork imports for market testing, with US exporters having the option to supply pork that meets Thai standards.
Several Thai laws will need amendment, especially those governing customs tariffs, import quotas, and sanitary standards, following parliamentary approval. The proposed deal includes a phased tariff reduction framework: some US goods will receive a 0% import tariff, certain goods will be reduced over 3-5 years, and some products will remain protected.
In conclusion, the 50% RVC requirement in the US-Thailand trade agreement is designed to ensure a substantial portion of value is added regionally to Thai exports, thereby qualifying them for preferential tariffs. This incentivizes developing local and regional supply chains, limits third-country transshipment abuses, and creates a trade compliance framework aligned with both countries’ economic interests.
- The Thai Cabinet's approved draft trade statement with the US, which resembles a free trade agreement in scope, establishes a minimum Regional Value Content (RVC) threshold of approximately 50% for determining origin compliance and local content requirements for Thai exports to the US.
- To qualify for preferential tariff treatment under the US-Thailand agreement, goods exported from Thailand must have at least 50% of their value added within Thailand or its allied countries, excluding certain countries like China.
- The RVC rules have implications for both countries, as they require clearer definitions to prevent misuse and enforce stricter origin compliance through transshipment controls.
- Products meeting the RVC and origin criteria would benefit from reduced or zero tariffs, while those failing to meet the threshold might face higher tariffs, potentially up to 19% or more.
- The 50% RVC requirement in the US-Thailand trade agreement is designed to ensure a substantial portion of value is added regionally to Thai exports, thereby incentivizing the development of local and regional supply chains that are aligned with both countries’ economic interests.
