Strengthening Thailand’s supply chain

The Indo-Pacific Economic Framework for Prosperity (IPEF) is a US-led economic initiative launched in May 2022 to deepen economic relations among Indo-Pacific nations. It comprises four key pillars: Trade (Pillar I), Supply Chain (Pillar II), Clean Energy (Pillar III), and Fair Economy (Pillar IV).
This agreement does not include market access. Each pillar was designed as a separate potential agreement. Negotiations on each pillar move at a different pace and conclude at different times. Member countries were allowed to determine which pillars they wanted to participate in.
At present, IPEF has 14 member countries, including Australia, Brunei, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Korea, Thailand, the Philippines, the US and Vietnam.
IPEF negotiations had proceeded relatively smoothly for three of the four pillars. However, for Pillar I, negotiations may not be concluded in time for the US presidential elections in November 2024.
The IPEF agreement relating to supply chain resilience, known as the Supply Chain Agreement, entered into force on Feb 24, 2024. Pillar II aims to build resilient and inclusive supply chains that can better withstand disruptions, ensuring that goods flow efficiently even during global crises such as pandemics, natural disasters or geopolitical tensions.
Pillar II focuses on resilience and inclusiveness. The resilience calls for strategies to identify and address vulnerabilities in supply chains, overdependence on certain regions or critical raw materials and to establish frameworks for rapid response to disruptions such as natural disasters, health emergencies, or political instability and promoting the diversification of sourcing materials, components, and finished goods across multiple countries to avoid bottlenecks.
The inclusiveness calls for assurance for SMEs’ easy and full participation in global supply chains by improving access to trade financing, logistics, and digital tools, promoting economic opportunities for traditionally underserved sectors and regions, aiming to spread the benefits of economic growth more evenly across the Indo-Pacific and encouraging the adoption of high labour and environmental standards to create sustainable and fair supply chains.
Key initiatives under Pillar II include collaboration between the government and industry to map out supply chain dependencies and identify weak points that could cause disruptions. IPEF members will share best practices, technological expertise, and resources to enhance supply chain robustness and develop systems to detect and respond to disruptions, helping member countries mitigate the impact quickly.
Pillar II stems from supply chain disruptions caused by the concentration of production in certain regions or countries, which pose risks to international trade and investment.
Examples include the shortage of personal protective equipment during the Covid-19 crisis and the concentration of semiconductor production.
These disruptions may increase if trade-tech wars or natural disasters occur.
In response to such challenges, many countries are reducing risks by relocating production back to their home countries or alliance nations to reduce dependency on countries where there is a concentration of products. For instance, Japan has implemented policies to support Japanese companies in reshoring or offshoring in Southeast Asia countries.
Under this agreement, member countries will jointly identify critical sectors and key goods or products that involve supply chain risks to ensure the flexibility and efficiency of supply chains.
Pillar II also establishes coordination mechanisms between member countries through two bodies: the IPEF Supply Chain Council, where member countries will target critical sectors and key goods regarding supply chain disruptions, and the IPEF Supply Chain Crisis Response Network, which will provide a critical communication channel to share information and request assistance.
Additionally, the agreement calls for creating an “IPEF Labor Rights Advisory Board” to promote labour rights and workforce development across IPEF supply chains.
Driving the Thai economy requires linking trade and investment with the global market. In the past, Thai businesses have been integrated into international supply chains across various products and have encountered challenges.
Joining the IPEF supply chain will allow relevant industries to gain early access to information through exchanges with member countries and have the opportunity to set agendas and standards related to supply chains. Moreover, Thailand could benefit if member countries relocate their production bases to Thailand.
There are opportunities and risks for specific industries to participate in Pillar II.
TDRI, supported by the National Research Council of Thailand, examined the challenges, opportunities, and risks of Thailand’s participation in Pillar II in certain industries that may be designated as critical sectors and key goods under Pillar II.
The findings are as follows:
Automotive and parts: Supply chain disruptions have been caused by shortages of certain parts. Joining Pillar II presents opportunities for attracting investment in key goods such as batteries. The risks to Thailand are minimal since the country is not a major producer of high-risk key goods within the supply chain.
Microelectronics: The global chip shortage has impacted production in many industries. Pillar II may indirectly benefit Thailand by improving supply chain transparency, which could assist in planning to mitigate chip shortages. The risk is the high concentration of hard disk drive production in Thailand, which might lead to the relocation of production bases, though this is unlikely as hard disk drives are not considered key goods.
Medical products: Shortages of items such as vaccines, medicines, and PPE created health security concerns during the Covid-19 pandemic. Participating in Pillar II may allow Thailand to receive allocations of previously scarce items during health crises and possibly become a base for production, clinical trials, and vaccine research. The risk of production relocation is low since Thailand is not currently a key production base.
Processed food: In the past, the processed food industry faced challenges such as the avian influenza outbreak, which affected the poultry industry, and labour protection issues in the fishing sector. The opportunity from joining Pillar II is to become a protein supply source for various countries during food shortages. As for the risks, there are likely no additional risks beyond the existing ones related to environmental and labour issues in the supply chain.
In conclusion, Thailand could benefit from participating in Pillar II in several ways:
1. Thailand could contribute to developing supply chain mechanisms, enabling the government and businesses to receive timely information, adapt, and protect the interests of local businesses, workers, and consumers.
2. Thailand would gain access to information and benefit from various cooperative mechanisms, especially the IPEF Supply Chain Crisis Response Network.
3. Thailand could attract investment in key goods from both IPEF member countries and non-member countries.
4. Thailand could use Pillar II as an additional channel to request member countries to reduce trade barriers for Thai exports, both tariff and non-tariff, to enhance the flexibility and efficiency of critical sectors and key goods supply chains.
To maximise these benefits, Thailand should integrate efforts between government agencies and closely coordinate with the public and private sectors. Additionally, Thai representatives in the IPEF Supply Chain Council and the IPEF Supply Chain Crisis Response Network should take a proactive approach by compiling a database of parts manufacturers and monitoring developments related to goods that may be impacted by Thailand’s key production status in IPEF, preparing preventative measures and responses for potential risks.
The government should also consider reviewing domestic regulations to facilitate business and data sharing while protecting confidential and sensitive information. A mechanism should be established to develop standards for protecting such information, ensuring Thailand benefits maximally from this agreement.
Khanitha Pakinamhang is a researcher at the Thailand Development Research Institute. Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.