Rethinking Trade and Investment Policies in Thailand

Thailand needs an economy that delivers better wages, secure jobs, and real competitiveness. But today’s trade and investment rules stand in the way. Without reform, the country risks falling behind in an increasingly cut-throat global economy.

Key Takeaways

• Trade and investment rules hinder competitiveness, rewarding low-value industries and protecting inefficiency.
• Outdated tax frameworks distort incentives, especially in auto and electric vehicle industries.
• Quota systems in agriculture (coffee, wheat, corn) raise costs, block new entrants, and reduce quality improvements.
• Service sectors face heavy restrictions (foreign ownership caps, slow permits), limiting competition and innovation.
• Weak regulation allows unsafe, ultra-cheap imports, hurting local businesses and consumers.

Instead of driving growth, these rules reward low-value industry, protect inefficiency, and weaken competition. They protect the wrong things, at the wrong time.

If the economy is to move forward, trade and investment rules must change with it.

Obsolete Tax Framework

The first problem lies in an outdated tax system.

Under World Trade Organization rules, Thailand’s official import taxes have fallen sharply over the past 20 years, averaging about 10% today. On paper, this suggests a more open economy. In reality, the tax structure still shields key industries from real competition.

For decades, tariffs were used to support export-oriented manufacturing. Imported raw materials were taxed less than finished products. This lowered cost for local producers and helped Thai factories compete abroad.

The auto industry is a clear example. Imported parts faced low tariffs, while fully built cars—especially from Europe—were taxed heavily. Local assembly became cheaper, helping Thailand grow into a major vehicle manufacturing base.

But that advantage is fading. As free trade agreements expand, the tax gap between parts and finished products has narrowed. The old system no longer protects local assembly. Manufacturers must adapt—or lose ground.

Under WTO rates, EVs face higher tariffs than EV parts, which should encourage local assembly. But under the Thailand–China free trade agreement, fully built EVs from China enter duty-free, while key components such as batteries still face tariffs. Importing a whole car can be cheaper than importing parts to build one.

Global Pressures

• Thailand faces retaliatory tariffs, oversupply from China, and stricter environmental/labour standards in Europe.
• Competing on low prices alone is no longer viable.

That discourages local production.

Meanwhile, EVs imported from Japan still face higher taxes, putting a long-standing investor at a disadvantage due to inconsistent taxation.

The same distortion affects Thai producers of patient-care service robots, who pay higher tariffs on imported motors than on fully assembled machines. Local firms lose before they even start.

Quota system

Tariffs are only part of the problem. Other trade barriers often do more harm.

Take coffee. Thailand drinks a lot of it, but coffee roasting remains small. The quota system is a big reason. Imported beans within the quota face a 30% tax; outside it, the rate jumps to 90%. By contrast, instant coffee is taxed at 49%. It is often cheaper to import ready-made coffee than to bring in beans and roast them in Thailand.

Free trade deals within ASEAN do little to help. Even with lower taxes, importers must buy local beans in matching amounts. This clears stock but removes any push to improve quality.

The same pattern appears across agriculture. Import wheat, and you must also buy local corn. These rules raise costs, keep new players out, and favour those already in the system, since quotas are based on past imports.

Unlike tariffs, quotas bring in no revenue. What they create instead is a system where access matters more than efficiency.

When economists translate these barriers into costs, the impact is clear. In farming and meat products, they add costs as high as—or higher than—import taxes, on top of licences, fees, and red tape.

Service-oriented businesses encounter significant limitations

Service businesses face heavy restrictions. Foreign ownership is capped at 49%. Work permits are slow and complicated. New players are discouraged, and competition stays weak.

According to the Service Trade Restrictiveness Index, Thailand ranks among the most restrictive countries for services—4th out of 51—with little change over the past decade. 

These rules keep investment low and limit good service jobs. With weak competition, firms have little reason to improve quality. Ownership limits also encourage nominee arrangements, weakening accountability, with sometimes serious consequences.

Unfair trade

At the same time, weak regulation fails to stop the flood of cheap imports, especially from China.

Consumers face real risks. Many ultra-cheap goods do not meet basic safety standards. During online sales, T-shirts sell for 12 baht, and plastic plates for one. At such prices, no one knows how safe the products are.

Local businesses are paying the price. A survey by the Federation of Thai Industries found that 45% of members saw sales fall by more than 20% because of cheap or low-quality imports.

The damage goes further. Lax environmental and health rules have also turned Thailand into a destination for polluting factories relocating from countries with stricter controls.

Global pressures

Thailand’s domestic weaknesses are colliding with a tougher world economy.

The country faces retaliatory tariffs from the Trump era, global oversupply—especially from China—and stricter environmental and labour rules in major markets such as Europe. Competing on low prices alone no longer works.

Businesses must meet higher standards. The government must push a greener economy, open new export markets, and stop the flood of cheap, substandard imports.

Protection is not the answer. Higher tariffs risk breaking trade commitments, inviting retaliation, and pushing up prices at home—hurting consumers most.

What must change

Needed Reforms

• Modernize tariffs and remove unnecessary barriers.
• Align production and sustainability standards with global norms.
• Increase transparency in procurement and adopt open technical standards.
• Allow more foreign ownership and skilled professionals in shortage sectors.
• Strengthen competition law, enforce product standards, and regulate online platforms.
• Expand exports by accelerating trade talks, especially with the EU, and cutting non-tariff costs.

First, Thailand must upgrade how it produces, link factories and services to global value chains, help firms meet international standards, build modern services, and create decent jobs.

That means fixing old rules. Tariffs should be more even across trading partners. Gaps between raw materials and finished goods must narrow. Unnecessary barriers should be replaced with clear rules—or removed. Production and sustainability standards must match global norms. Public procurement must be transparent and accountable.

In areas like smart cities, open technical standards can prevent dependence on a single supplier, bring Thai firms into supply chains, and encourage technology transfer. Companies should also be responsible for equipment at the end of its life.

Pet food shows the path forward. It has strong export potential—but only if producers meet strict hygiene, sustainability, and traceability rules in Europe and the US.

Upgrading also means greater openness. Becoming a health hub, for example, requires fewer barriers and allowing foreign ownership where it brings skills and investment.

In shortage fields, foreign professionals should be allowed to work and pass on skills, alongside faster training for Thai workers. Data protection rules must also meet global standards, especially in Europe.

Second, Thailand must take unfair trade seriously. Competition law is weak, especially in telecoms and digital platforms. Regulators need real power. Product standards must be enforced, anti-dumping rules made workable, and online platforms held responsible for unsafe goods.

Third, Thailand must expand exports. Nearly half of Thai exports go to markets without free trade deals, such as the US and EU, where Thai goods face higher tariffs than rivals, especially Vietnam. Trade talks must move faster, and existing agreements expanded.

Cutting non-tariff costs—often higher than tariffs themselves—matters as much as cutting tariffs. Talks on standards, services, and skills will be crucial. Negotiations with the EU will be a key test, with tough demands on fair competition, data protection, and sustainability.

Who pays

None of this will be painless. Quotas must be phased out, with clear timelines. Support must be real—from compensation and retraining to helping farmers raise productivity and small firms adjust.

Trade reform is not just about trade. It is about who bears the cost of change—and whether the state helps people through it.

Thailand wants stronger industries and a better quality of life. But its trade rules stand in the way. Until they change, those goals will remain out of reach.

Note: Supanutt Sasiwuttiwat is a research fellow, and Newin Sinsiri is an advisor of the Thailand Development Research Institute (TDRI). This article is an edited version of his keynote speech at TDRI’s Annual Conference on Reimagining Thailand’s Development Model, held on November 17. TDRI’s policy analyses appear in the Bangkok Post on alternate Wednesdays.

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