Thailand-EU FTA Set for 2025: Impact on Trade and Growth

Thailand and the European Union (EU) will aim to complete a much-anticipated free trade agreement (FTA) by 2025, with the fourth round of talks set to be held on November 4, 2024.

Negotiations were relaunched in 2021 after almost a decade of trade talks collapsing due to the military coup in Thailand in 2014.

This landmark agreement is expected to significantly impact key areas such as investments, taxation, and sustainable development. By fostering deeper economic cooperation, the Thailand-EU FTA is poised to attract increased foreign direct investment, streamline cross-border taxation, and promote sustainable business practices, making it a crucial development for both regions’ economic future.

Impact on investments

The EU was Thailand’s fifth largest trading partner in 2023 with total trade reaching US$41.6 billion with Thai exports to the EU reaching US$21.8 billion. For the first five months of 2024, total trade tallied to US$18 billion, an increase of 1.58 percent year-on-year.

As such, a free trade agreement will significantly boost bilateral trade. Lower trade tariffs and reduced non-tariff barriers are anticipated, creating new opportunities for Thai exporters, enhancing market access, and improving the competitiveness of Thai products in the European market. According to the Institute of Future Studies for Development, an EU-Thai FTA could increase Thailand’s annual economic growth by 1.2 percent. In comparison, exports to the EU are expected to increase by 2.83 percent and imports by 2.81 percent.

The trade balance shows a healthy exchange of industrial goods and high-value products between the two regions, with a focus on machinery and technology exports from the EU and a robust electrical machinery market for Thailand. This trade relationship underscores the complementarity of both economies, making the FTA even more crucial for future growth.

Impact on taxation

The proposed Thai-EU Free FTA aims to gradually eliminate tariffs, boosting the competitiveness of Thai exports in the EU. Further, the agreement will promote the alignment of regulations, particularly in areas such as intellectual property and business operations. This alignment reduces administrative burdens and operational costs for businesses, thereby improving tax compliance and overall efficiency.

Impact on sustainability in Thailand

The Thai-EU FTA is structured not only to enhance economic cooperation but also to promote sustainability. With a strong focus on environmental protection, labor rights, and social responsibility, the FTA is designed to improve Thailand’s sustainability standards by aligning with the EU’s rigorous regulations. Key areas of impact include environmental compliance, green economy promotion, and trade and sustainable development (TSD) commitments.

Environmental Provisions

Thai exporters must meet the EU’s stringent environmental regulations to receive preferential market access. This includes compliance with measures such as Sanitary and Phyto-sanitary (SPS) regulations, genetically modified organisms (GMO) restrictions, hazard analysis and critical control points (HACCP), good agricultural practices (GAP), organic food labeling, and health certifications.

Promoting a Green Economy

The FTA emphasizes the integration of green economic models, such as Thailand’s Bio-Circular-Green (BCG) approach. This model encourages the adoption of circular economy principles, sustainable production practices, and environmental innovations within Thailand’s policy framework, helping the country transition toward a greener economy.

Robust TSD Disciplines

The agreement includes comprehensive Trade and Sustainable Development (TSD) provisions that uphold high standards for worker protection, environmental sustainability, and climate action. These disciplines are in line with the EU’s Environmental Governance Directive (EGD) and aim to ensure that trade is conducted with a strong commitment to social and environmental responsibility.

Boosting Innovation and Sustainability

The agreement promotes digital trade by reducing barriers and encouraging innovation. Intellectual property protections and the recognition of geographical indications are key components of this strategy, which supports the development of sustainable economic models. These innovations will foster environmentally friendly solutions and drive long-term sustainability efforts.

Thailand’s pursuit of FTAs amidst slow economic recovery
Thailand is actively seeking FTAs as part of its strategic efforts to address its slow economic recovery, which has been notably sluggish following the COVID-19 pandemic, growing only 1.9 percent in the first half of 2024, trailing behind the Philippines (6.3 percent) Vietnam (6.9 percent), Malaysia (5.9 percent) and Indonesia (5.05 percent).

This delayed recovery is largely due to Thailand’s heavy dependence on tourism and its substantial informal economy, both of which were hit hard by the pandemic’s effects.

Source: Asean Briefing