The free trade agreement (FTA) struck between Thailand and China in October 2003 is failing to deliver the benefits Thai exporters expected.

They face several barriers in their attempts to profit from cross-border trading, including difficulties agreeing secure letter of credit (L/C) terms with Chinese buyers.

Big mistake

Thai politicians, business leaders and academics say the FTA has proved disastrous to the country's farmers. "The arrangement has been a huge mistake," says Thai Senator Kraisak Choonhaven.

The FTA is currently limited to agricultural produce. A comprehensive agreement encompassing more sectors is not anticipated until 2010 - and there are second thoughts about this now that Thai farmers are being ruined as Chinese fruits and vegetables swamp the market.

L/C confusion

According to vice president of the Thai-China Business Council, Vikrom Kronsat, Thai exporters are experiencing difficulties with Chinese buyers.

"They often do not understand an L/C," he says amid a warning that doing business China carries considerable risk.

"Too often, Chinese businessmen do not honour their agreements. The price changes after the agreement. Payment is usually the biggest problem - they take the consignments but fail to pay," Kronsat says.

Gateway threat

Another Thai concern is that the FTA jeopardises the county's current position as a gateway for Chinese products to other South East Asian markets.

"Thailand will no longer remain China's gateway to the South," suggests Chulalongkorn University Professor Sompop Manarungsan.

Trade deficit

The Bangkok-based professor argues that Thailand will remain a good market for Chinese exports, but the trade balance is likely to widen.

"China desperately needs basic commodities, and Thailand has few products of interest. In the longer run, resource-rich countries like Indonesia, Malaysia and Burma will benefit. Even the Philippines may benefit more than Thailand," he says.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.