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The Free Trade Agreement of Thailand and its effects on import quotas.

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Introduction

Next year, 100,000 - 200,000 Thai garment workers will be unemployed once the import quotas are eliminated. Dej Pathanasethpong claims that inefficient manufacturers which cannot meet demand will be eradicated. However, he said the unemployment should be temporary. Since once both the Free Trade Agreement of Thailand with United States and Australia separately proceeds, competitive manufacturers will expand and employs more workers as the demand of exports increases due to lower import tariffs. Exports are forecast to grow 12 % this year to $3.2 billion and another 7 - 8 % next year. Import quotas are physical limit imposed upon the amount of imported goods; whereas import tariffs are either specific tax or valorem tax on imported goods. Free Trade Agreement is to move goods and services freely to one country to another but retains its own sovereignty with respect to outside countries. ...read more.

Middle

Shown in the other diagram, as demand shifts inwards from D to D*, the quantity demand for labour decreases as well as the wage. This is why many 'Thai garment industry workers risk losing their jobs once import quotas are eliminated.' 'But the jobless problems could be short lived of the United States and Thailand proceed in hammering out a free trade agreement that will likely lower tariffs on Thai garment exports.' and 'the Thai Australia free trade agreement, ... , would increase the Kingdom's garment export.' The diagrams below illustrate the effect of a free trade agreement. Since Thailand is exporting to United States and Australia in a lower tariff rate, the supply curve of garment shifts vertically down from S* to S**. The price is lower and the demand for garment in United States and Australia has rose from Q to Q*. ...read more.

Conclusion

The blue area is the gain in consumer surplus. Moreover, the government of United States and Australia is also affected by the free trade agreement; the green area indicates a loss in government revenue since lower tariffs on the import goods from Thailand. Another thing the author forgot to mention is whether the trading bloc leads to an increase in total world trade or not. This depends on the amount of trade diversion contrast to trade creation. Change in world trade = Trade created within the bloc - trade reduction with non- member countries Usually for free trade agreements, the trade barrier is low and there are few restrictions. Trade creation should be more than trade diversion, results in increasing world trade. To conclude, there are more economic strategies to protect the domestic producer such as imposing higher import tariffs, provide subsidies for firms, setting up administrative barriers and entering custom union or common market. ...read more.

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