New Thailand-EU Partnership & Cooperation Agreement: a step towards a Free Trade Agreement?25 October 2022
"Crucially, the agreement has potential to provide the necessary framework upon which the parties could reach a comprehensive free trade agreement."
The PCA, a legally binding international agreement, effectively renews the legal foundation of the parties’ relationship and indicates intent from the EU to support Thailand in enhancing its economy and attracting greater business activity and diverse foreign investment. Moreover, the PCA is a progressive step in Thai-European trade negotiations, which had previously been on hold for several years.
Crucially, the agreement has potential to provide the necessary framework upon which the parties could reach a comprehensive free trade agreement (“FTA”); if successful, Thailand would become only the third ASEAN nation to partner with the EU in a FTA. The PCA will update the 1980 EU-ASEAN Cooperation Agreement, which currently governs cooperation between Thailand and the EU.²
What does the PCA entail, and what should companies in Thailand know about it?
Key Features of the Thailand-EU PCA
Although not yet formally ratified, the impact of the PCA is expected to be “mutually beneficial” in harmonising and coordinating the parties’ approaches to various issues.
In terms of the geopolitical motivations underlying the agreement, Thailand is seeking new and varied sources of growth to avoid an over-reliance on its tourism industry, particularly as the country emerges from the Covid-19 pandemic. China’s strict “Zero-Covid” policy has drastically reduced Chinese tourist inflow into Thailand, harming the economy. Additionally, the broader uptick in hostility between China and the United States (another important Thai trade destination) has encouraged the kingdom to strengthen ties elsewhere.³ The EU is Thailand’s fourth largest trading partner and the world’s largest economic bloc, making a closer relationship ideal.
"The PCA has broad scope. The agreement ranges from harmonisation of human rights standards to closer co-operation on counter-terrorism measures. However, the PCA’s core feature will be strengthened dialogue in the economic and trade domain."
Separately, the EU intends to mitigate the growing geopolitical risk entailed in its trade relations with China by forging bonds elsewhere in the region. To this end, the EU has already begun to diversify by concluding PCAs with five other ASEAN nations (Indonesia, Vietnam, the Philippines, Singapore and Malaysia). Thailand is an important addition to this group.
The PCA has broad scope. The agreement ranges from harmonisation of human rights standards to closer co-operation on counter-terrorism measures. However, the PCA’s core feature will be strengthened dialogue in the economic and trade domain. This is significant given the EU’s importance to Thailand’s trade goals, along with the substantial value of trade exchanged between the parties. In 2020, bilateral trade value amounted to €29bn, mainly in exports – Thailand exported €15.1bn worth of goods to the EU and, similarly, the EU exported €11.3bn worth of goods to Thailand. The PCA is set to further boost these figures whilst also enhancing bilateral supply chains and product quality standards in Thailand.
Aside from trade, the closer ties resulting from the PCA will likely make the Thai commercial market more attractive as a destination for foreign investment. The EU is currently the second largest investor in Thailand after Japan and the PCA is set to further encourage and diversify modern and innovative investment from Europe and investors further afield.
The PCA concludes seven rounds of negotiations between the parties which originally commenced in 2013 but stalled following a military coup in Bangkok in 2014. Furthermore, it effectively marks a thawing of frosty relations between the parties in the wake of the military takeover. The EU Council authorised resurrection of talks in 2019, which were formally re-started in July of 2021 and concluded nearly a year later, on 11 June 2022.
"The EU is currently the second largest investor in Thailand after Japan and the PCA is set to further encourage and diversify modern and innovative investment from Europe and investors further afield."
Given that PCAs are typically entered into for a ten-year period, and that the EU has recently concluded FTAs with two other Southeast Asian nations (Singapore and Vietnam) upon the foundation of prior PCAs, it is plausible that this Thai-European PCA could act as a “roadmap” for negotiations towards an eventual FTA.
Judging by the content of the Singaporean and Vietnamese FTAs, such an agreement with Thailand would signal expansive bilaterally preferential treatment for goods and services through a removal/reduction of tariffs, customs duties and other restrictions in certain sectors. Depending on the productivity of negotiations, a Thailand-EU FTA could also spell closer economic integration, trade liberalisation and harmonised rulemaking in such domains as environment, energy, science and technology, human rights, anti-terrorism measures, employment and agriculture.
Although not guaranteed, the successful conclusion of an FTA between Thailand and the EU further down the line would present substantial economic benefit for both parties. The upcoming EU-ASEAN summit of national leaders would seemingly present the next logical step for the parties to positively progress their bilateral relations.
The parties will sign the agreement once all internal procedures are complete. Once ratified, it will enter into force. Meanwhile, both sides are moving to capitalise on the new deal. Thailand’s Ministry for Foreign Affairs recently held a stakeholder seminar on the new PCA, intended to “raise awareness and increase understanding of how to use the TH-EU PCA as a compass to further promote Thailand-EU cooperation”. Seminar attendees expressed hope that the PCA will soon generate FTA negotiations.⁴
"We expect the agreement to generate more EU investment in Thailand’s renewable energy space, especially in solar and wind projects."
Moving forward, those tracking the PCA’s progress alongside broader Thai-EU relations will be paying close attention to the following areas:
- No individual investment protections (yet): Generally, cooperation agreements do not grant individual guarantees or rights to EU investors operating in Thailand (and vice versa). Rather, they merely detail areas of common focus and collaboration between the two governments. Similarly, full-scale tariff reduction and protections for important company assets like intellectual property are usually left for FTAs and investment protection agreements. Companies interested in the EU-Thailand relationship have much to cheer, but they will likely have to wait for a future treaty to realise concrete individual benefits;
- Changes to investment dispute resolution: As is often noted, investment dispute resolution may be moving away from traditional forms of arbitration.⁵ The EU-Vietnam FTA’s companion Investment Protection Agreement, for example, foregoes traditional investor-state dispute resolution in favour of a permanent standing nine-member tribunal, which will hear investor disputes as requested. The agreement includes an appeals mechanism (rare for investment arbitration) and encourages pre-dispute consultation and mediation. The system is fairly untested, so its impacts are not yet clear. A future agreement with Thailand could include a similar mechanism;
- Improved investment in renewable energy generation: Southeast Asia is seeing explosive growth in renewable energy production and Thailand is no exception. Climate change is a key area of cooperation in the EU-Thailand PCA – the text will likely mirror the EU-Vietnam PCA, with the parties committing to improve the energy performance of their economies and promoting a transition to a low-carbon future.⁶ We expect the agreement to generate more EU investment in Thailand’s renewable energy space, especially in solar and wind projects. Additionally, the EU is currently weathering a stiff energy shock sparked by Russia’s invasion of Ukraine and the global sanctions on Russian oil and gas exports. It is already looking to Southeast Asia for replacements.⁷ With the PCA’s arrival, Thailand will play a more important role in the EU’s energy future; and
- Spurring green production in Thailand: Thailand’s primary exports to the EU include machinery, electronics and transport equipment, miscellaneous manufactured articles and food products.⁸ The EU, which aims to make Europe the world’s first climate-neutral continent by 2050, regularly introduces new sustainability requirements for products entering the EU market. These will impact trade from Thailand, requiring Thai exporters to supply deforestation-free products or reduce carbon-intensive operations to access EU consumers.⁹ The PCA will likely increase this trend, helping to green Thailand’s supply chains.
 European External Action Service, The European Union and Thailand initial Partnership and Cooperation Agreement (2 September 2022), available at: https://www.eeas.europa.eu/eeas/european-union-and-thailand-initial-partnership-and-cooperation-agreement_en
 Cooperation Agreement between Member Countries of ASEAN and European Community (Kuala Lumpur, 7 March 1980), available at: https://asean.org/cooperation-agreement-between-member-countries-of-asean-and-european-community-kuala-lumpur-7-march-1980/
 The Bangkok Post, EU and Thailand cap turbulent decade with a partnership agreement (8 September 2022), available at: https://www.bangkokpost.com/business/2387301/eu-and-thailand-cap-turbulent-decade-with-a-partnership-agreement
 The Nation, Ministry organises stakeholders seminar on Thailand-EU Comprehensive Partnership and Cooperation Agreement (TH-EU PCA) (30 September 2022), available at: https://www.nationmultimedia.com/pr-news/more/pr-news/40020563
 Watson, Farley & Williams, The 2022 ICSID Rules – What Do They Mean For Asia?, available at: https://www.wfw.com/articles/the-2022-icsid-rules-what-do-they-mean-for-asia/
 EU-Vietnam Partnership and Cooperation Agreement (PCA) (October 2012), Article 31, available at: https://www.eeas.europa.eu/sites/default/files/pca.pdf
 DW, How the EU’s new energy plans impact Southeast Asia (27 September 2022), available at: https://www.dw.com/en/how-the-eus-new-energy-plans-impact-southeast-asia/a-63256213
 The European Commission, EU Trade Relations with Thailand (last accessed 7 October 2022), available at: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/thailand_en
 European Institute for Asian Studies, Thailand’s “Green Transition”: Implications of the EU Green Deal and improving EU-Thailand Trade Relations (July 2022), available at: https://eias.org/wp-content/uploads/2022/07/EIAS-Policy-Brief-Thailands-Green-Transition.docx.pdf
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