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Regulatory Reform and Competitiveness in Thailand-- delays in passing supporting legislation
By: Sakda Thanitcul
--Thai consumer behavior
--high tax/duties on imported beer
--ineffective antitrust enforcement in related industry (liquor)
--scarce upstream resources (barley)
4. Chicken processing
--barriers to chicken meat imports
--high tariff and non-tariff barriers to imported feed raw materials
--low productivity in upstream industries (com, soybean and chicken farming)
--historical requirement to build capacity ahead of demand
--slow-down of construction market
--clear success case example of liberal market conditions promoting modern retail formats
--non-level playing field (tax regulations and enforcement)
The report further argues that sector-specific regulations are by far the greatest barrier to higher productivity level in Thailand. It argues that this finding is consistent with previous research in 13 other countries around the world : in every country it surveyed, sector-specific regulatory distortions were found to be the greatest inhibitor to productivity(28). The previous studies estimated that reform of sector-specific regulations will contribute from 2% to 4 % of additional GDP/capita growth potential p.a. to those 13 nations surveyed(29).
The report makes policy recommendations to the 6 sectors as below:
1. Telecommunication The telecommunication industry is expected to undergo
rapid change over the coming year. As Thailand has committed to abide by WTO rules on telecommunication services by the year 2006, a substantial liberalization drive needs to be implemented. This will involve (1) clearly defining policy objectives for the sector, (2) setting up an independent regulatory agency, a framework, and a detailed roadmap to pursue these objectives, and (3) effectively privatizing state-owned enterprises in the sector(30).
2. Retail Banking The report recommends that in order to improve productivity in the Thai retail-banking sector, three key areas of policy changes should be made. This will involve (1) developing a financial sector master plan, (2) ensuring clear and efficient regulations, (3) speeding up supporting legislations i.e., Credit Bureau Act and the Deposit Insurance Bill(31).
3. Beer In order to support greater productivity among beer producers, the government should ensure a high level of competitive pressure within the industry. Increased competition will lead to industry consolidation, which will eliminate much of the current excess capacity and will compel less-productive players to boost their efficiency or exit the market. Two key policy measures should be undertaken: (1) strengthen monitoring of anti-competitive behavior, and (2) relax import tax/duties on beer(32).
4. Chicken Processing Several regulatory changes could help to further enhance the productivity in Thailand's chicken processing industry. These changes would need to focus on both upstream and down stream barriers to productivity.
The primary upstream objective should be to reduce the cost of chicken feed. As noted, the high cost of feed inflates prices throughout the value chain, reducing poultry producers's margins and rendering many activities economically unviable. To address this situation, the following steps should be taken: (1) removing import barriers and local protection on feed raw materials (2) encouraging private investment in R&D efforts to
improve agricultural yield of feed raw materials, and (3) establishing trading infrastructure i.e., online marketplaces, logistic networks.
Downstream objectives should be focus on increasing the viability of further processing activities by reducing the cost of basic chicken meat. As discussed, further processing--the highest value-added aspect of chicken processing--has not yet sufficiently taken off in Thailand because imports barriers help keep the cost of basic chicken meat at a relatively high level. Reducing or eliminating these barriers will allow cheaper chicken meat to be imported, making further processing economically viable and encouraging investment in such activities(33).
5. Cement To help Thailand's cement industry achieve its full performance potential, the government should pursue the following policy initiatives: (1) dismantling barriers to effective industry consolidation, (2) creating a free import-export market for cement and cement products, and (3) promoting the sue of low cost alternative fuels(34).
6. Retail Trade Unlike several of the other Thai industries surveyed, the retail trade sector does not require further deregulation in order to achieve its productive potential. Rather, the government should focus on (1) maintaining the current liberal regulatory environment, (2) ensuring a level playing field and fair competition, and (3) facilitating the transition to modern formats by, for example introducing a franchise law(35).
III Preliminary Evaluation of Current Regulatory Reform :
The author argues that most policy-makers and academic circles agreed with the regulatory reform detailed in the Master Plan on State Enterprise Reform but there is a serious doubt on the Mckinsey's report
(28) Id., at 22.
(30) Id., at 109-114.
(31) Id., at 90-92
(32) Id., at 166-168
(33) Id., at 152-153
(34) Id., at 129-130
(35) Id., at 70-73