Trade and investment have witnessed robust growth in Thailand over the past 30 years, as rapid industrial development led manufacturing to overtake agriculture as a primary economic engine. This has had a dramatic impact on exports, with the country rising to become a major regional exporter of electronics, automotive parts and food products. Trade relations have also expanded in recent years on the back of improved bilateral relations with China and the US: Thailand is poised to enter into a major global free trade agreement with each – respectively, the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP).

However, trade growth faces a subdued near-term outlook. Although Thailand’s trade balance swung into the black in 2015 on the back of low fuel prices, exporters also witnessed a concurrent drop in revenue, as commodity prices fell. Simultaneously, foreign direct investment (FDI) plummeted after the government moved to reform existing investment policy, although these reforms will ultimately support the development of high-tech industries, mitigating an anticipated labour shortage and helping it avoid the middle-income trap.


The second-largest economy in ASEAN after Indonesia, Thailand has developed a positive international reputation on the back of its pro-investment policies and well-developed infrastructure, standing as one of the most liberalised and business-friendly markets in the region.

Thailand’s Board of Investment (BOI) acts as the country’s central investment promotion authority, offering investment incentives applied uniformly to both domestic and foreign investments. The Ministry of Commerce (MoC) also oversees new business development in Thailand, setting policy and approving applications for foreign investment across a host of restricted industries. The Industrial Estate Authority of Thailand (IEAT), established under the Ministry of Industry (MoI) in 1972, is responsible for managing the country’s network of industrial estates and Map Ta Phut Industrial Port. It is also supporting the development of a network of proposed super-clusters and special economic zones (SEZs), both of which aim to spur investment across a host of critical production bases. At present, IEAT’s portfolio comprises BT2.85trn ($85.79bn) of investment and 4242 factories employing 562,000 people.

Legal Framework

The primary piece of legislation governing foreign investment in Thailand is the Foreign Business Act (FBA) of 1999, which stipulates which industries are open to foreign investment. Although there is no general prohibition against foreigners doing business in Thailand, foreign investment in most service sectors is limited to 49%, and the FBA contains specific restrictions on foreign ownership in certain sectors, including banking, insurance and telecommunications.

Industries where foreign investment is prohibited or restricted are listed in three annexes. Annex 1 prohibits foreign investment in print, radio, and television media; rice, arable, and orchard farming; livestock, forestry, timber activities, fisheries, antiques trading and manufacturing or casting of Buddha images in a commercial capacity.

Annexes 2 and 3 list industries in which investment is restricted, but still permitted under certain circumstances, usually if the project receives cabinet approval and a licence from the MoC. However, projects which have obtained promotional privileges from the BOI or IEAT can engage in these industries without obtaining a license from the MoC.

Annex 2 industries include businesses concerning national safety and security, and those which have an impact on arts, culture, customs, local handicrafts and natural resources. This includes firearms, aircraft and military vehicles manufacturing activities. Any company engaging in an Annex 2 business must be at least 40% owned by Thai nationals, and two-fifths of its directors must be Thai nationals, although the MoC and cabinet can grant permission to reduce these requirements to 25%.

Annex 3 industries are open to foreign investment provided they receive a license from the MoC’s director-general, and approval from the Foreign Business Committee. Annex 3 industries include rice milling, forestry plantations, plywood and lime manufacturing, accounting, legal, architectural and engineering services, construction (outside of critical public projects such as public utilities or transportation), brokerage, retail businesses with a total minimum capital of less than BT100m ($3.01m), advertising, hotels (apart from hotel management services), tourism, and food and beverage sales.


Nationals of countries that have signed bilateral treaties are granted the same status as Thais under the FBA in respect of restricted industries, including the US, Japan, Australia and the ASEAN Economic Community (AEC). The government may also, as a temporary measure, permit a foreigner to carry out any restricted businesses, for example in a government-sponsored infrastructure project.

The government has also moved to relax restrictions in certain industries recently, with the Ministry of Commerce announcing in February 2016 that commercial banking, representative offices of foreign banks, and insurance activities had been removed from Annex 3 of the FBA, effective February 19, 2016.

Cautious Optimism

After months of street protests in 2013 and 2014, the country’s government was overthrown in a bloodless military coup in May 2014. This has had a negative impact on investor sentiment and foreign diplomacy, although the military government, led by Prime Minister Prayuth Chanocha, has since moved to appoint an interim government and legislature, enacting a host of sweeping reforms already under way under the previous administration, and moving to improve growth and investor sentiment through a number of stimulus packages, rising spending and infrastructure investment.

Although it fell three places in the World Bank’s “Doing Business 2016” survey, Thailand retained its position within the world’s top 50 economies in terms of ease of doing business, ranking 49th of 189 countries. It rose by eight spots in the “dealing with construction permits” category to 39th place globally, and remained in 11th place in the “getting electricity” category, although it fell by five spots in the “starting a business” category, to 96th place, and by seven spots in the “getting credit” category, to 97th place.

Indeed, Thailand continues to welcome investment from all countries, and has seen trade with many of its key partners expand significantly over the previous decades, with trade expected to expand further over the longer term on the back of investment policy reforms, ASEAN integration and potential membership in TPP and RCEP.

FDI: Thailand’s economic development has been significantly aided by FDI, and the country is an important ASEAN destination for new investment, benefitting from an array of attractive incentives on offers, accommodative government policies, and a well-diversified economy, which boasts upper middle-income status as of 2011.

According to the United Nations Conference on Trade and Development (UNCTAD), Thailand has been among eight priority destinations for foreign investment since 2012. UNCTAD reports that FDI inflows rose by 52.8% between 2012 and 2013 to hit $14.01bn, while the country’s total FDI stock rose by 3.3% and 11.8% in 2013 and 2014, respectively, to reach $199.31bn. In 2013, 30.6% of FDI inflows went to the metallurgy and machinery sector, followed by electronics (25.3%), services (18.9%), and paper and chemical goods (15%).

In 2014 Thailand was the seventh-largest FDI recipient in East and Southeast Asia, with the government reporting that in the same year, FDI in the country rose by 95% to hit a record BT1.02trn ($30.7bn). However, much of this growth can be attributed to the BOI’s changes to the Investment Promotion Law of 1977, which codifies investment incentives.

International Trade

Thailand has seen international trade surge in recent years, both within the ASEAN region and with China, the US and India. Bank of Thailand (BOT) data shows export revenues rose by 93.2% between 2005 and 2015 to reach $214.38bn, peaking at $229.11bn in 2012, before moderating to $228.5bn in 2013, $227.52 in 2014, and $214.38 in 2015, largely as a result of falling commodities prices.

Imports rose by 71.4% over the same 10-year period, peaking at $250.41bn in 2013 and ending 2015 at $202.65bn. The 19.1% decline in total imports between 2013 and 2015 can be attributed to falling global oil prices, as fuel imports comprised BT1.59trn ($47.86bn), or 19.5% of total imports, in 2013. As a result of falling oil prices, the country ended 2015 with an $11.72bn trade surplus, its first in five years.

Manufacturing exports stood at $190.42bn, or 88.8% of total exports, while the BOT reports that export receipts for agriculture, of which rice and rubber comprise 60.2%, totalled $16.06bn in 2015. Thailand’s top five exports by value in 2015 were electronics ($32.08bn), agro-manufacturing products ($25.61bn), machinery and equipment ($19.25bn), food ($14.88bn) and electrical appliances ($12.05bn). In 2015 export revenues in these five categories reached $119.96bn, or 56% of total revenues.

Main Trading Partners

The US, China, Japan, Hong Kong and Malaysia were Thailand’s top five export markets in 2015, as the US edged ahead of China for the first time to become its largest trading partner by exports. Exports to the US hit $24.06bn in 2015, with $23.74bn going to China, $20.08bn to Japan, $11.83bn to Hong Kong and $10.19bn to Malaysia, according to BOT data. The EU is another major trading partner, with Thai exports to the EU rising by 45.3% between 2005 and 2015 to hit $21.97bn, despite contracting by 6% in 2015. Although trade with India remains comparatively low, it has also surged in recent years: imports rose by 105.5% between 2005 and 2015, while Thailand’s exports to India jumped by nearly 250%, from $1.53bn to $5.3bn.

China & Japan

With $64.81bn in total bilateral trade in 2015, China remains Thailand’s dominant trade partner and leading import market. Thailand imported $41.1bn of Chinese goods in 2015, according to BOT data, compared to $13.86bn in imports from the US. Japan, Thailand’s third-largest export market, has also expanded its trade with Thailand considerably in recent years. Thai exports to Japan rose by 33% between 2005 and 2015, while Japanese imports to Thailand concurrently rose by 20% to hit $31.24bn. However, exports to both nations contracted in 2015 – by 5.35% to China and 7.66% to Japan – largely as a result of ongoing economic slowdowns in both nations (see Economy chapter).

Investment Reforms

FDI inflows from Japan and China have also fallen. Japan retained its spot as the leading investor in the country during the first nine months of 2015, with Japanese FDI making up roughly 60% of total inflows, although amendments to existing investment promotion regulations had an impact on both Japanese and Chinese investment in 2015; the amount of Japanese FDI in Thailand dropped by 81% to BT28.3bn ($851.83bn) between January and November, while funds from China slid by 21%, to BT13.3bn ($400.33m).

Some of the recent declines in FDI can be attributed to ongoing investment policy reforms. On January 1, 2015, the BOI enacted a new seven-year investment promotion policy offering preferential benefits to investments based on the level of technology involved in the proposed activities.

Companies that employ a high level of advanced technology qualify for an array of generous incentives from the state, including an eight-year exemption on corporate income tax, which was permanently reduced from 23% to 20% in 2016.

The new strategy – in effect from 2015 to 2021 – envisions a transformation of current economic activities into value-added production: for example, developing a base of hybrid and electric automobile manufacturers in place of traditional combustion engine producers, eco-friendly polymers in place of current plastics production, and biomedical products in place of raw agricultural exports.

Avoid The Trap

In theory, the reasoning is sound: if Thailand is seeking to make a smooth transition to upper-income status, it will need higher-paying jobs and diversification away from labour-intensive industries. National unemployment rates stood at less than 1% in 2014, and Thailand’s population is currently one of the oldest in the AEC.

UN data shows that Thailand’s working-age population – those between 15 and 64 years old – will peak in 2017. Its population of citizens aged 65 and older, which stood at 8.9% in 2010, is also predicted to rise to 19.5% by 2030. Furthermore, the new policy is expected to have a positive long-term impact on wage growth, another crucial priority in middle-income trap avoidance (see Economy analysis).

However, the new policy also reduced the number of industries that are eligible for incentives from 243 to 190, with industries including sewing, basic metal production, and certain types of paper production now ineligible. This led to a surge of investment applications at the end of 2014, before the changes were enacted, and a sharp fall in new investment applications once they took effect.

Indeed, FDI inflows plummeted in 2015, with the total amount of investment listed in direct applications to the BOI falling by 78% to BT93.8bn ($2.82bn) during the first nine months of the year, while the number of applications fell by 37% to 513 (see analysis). These drops also raised fears about Thailand’s regional competitiveness: the country’s share of regional investment has fallen from a high of 40% in 2004 to 20% in 2014, according to a June 2015 statement from ratings agency Moody’s.

Super Clusters

In addition to the seven-year investment plan, Thailand is also pushing the development of nine super cluster areas, decentralised industrial zones catering to targeted investment industries. Somkid Jatusripitak, Thailand’s former deputy prime minister, was appointed deputy prime minister in charge of the economy in August 2015. In September 2015 Somkid launched Thailand’s Super Cluster Strategy, which is part of an ongoing programme of targeted stimulus and support programmes aiming to stabilise and decentralise economic growth in the country.


The strategy envisions establishing manufacturing bases for targeted industries, including those benefitting from new investment promotion incentives and active in high-tech, value-added production.

The clusters will be located in nine provinces: Nakorn, Ayutthya, Patumthaini, Prachinburi, Chacheongsao, Chonburi, Rayong, Chiang Mai and Phuket. On unveiling the strategy, which falls under the management of the MoI, the government announced it will encourage investment in six industries under the Super Cluster Strategy, including automotive and parts, eco-friendly petrochemicals, digital industries, processed food, medical and biomedical products, electronics, electrical appliances and telecommunications equipment.

Under the strategy, qualifying industries will be exempt from corporate taxes for eight years, and receive a 50% corporate tax exemption for the next five years afterwards. Additional benefits are on offer for businesses whose investments reach 70% or more of the applied-for amounts by the end of June. Under the “Investment Policy Special Measures” policy, these businesses will receive an additional four years of corporate tax exemptions.


 In addition to nine super clusters, Thailand is also in the process of developing its portfolio of SEZs. The government launched an initial pilot of five in 2015, with another five to follow in 2016. The zones include two along the border of Myanmar, one on the Thailand-Laos-Myanmar border, three on the Thailand-Laos border, two on the Thailand-Cambodia border, and two along the southern Thailand-Malaysia border, enabling investors to take advantage of ample labour supply from surrounding countries.

Each zone has a target business activity determined by regional business conditions. For example, the southern Songkhla SEZ, located near the ocean and densely forested areas, targets agricultural and fisheries investments, as well as garments, textiles, leather products and furniture. A total of 13 labour-intensive and non-labour-intensive industries are targeted under SEZ development, including agriculture, textiles, furniture, gems and jewellery, pharmaceuticals, logistics, industrial estates and tourism.

SEZ Incentives

Investor incentives are considerable – the Customs and Excise Department, through the BOI, will offer qualifying SEZ investors corporate tax reductions and exemptions, in addition to import duty exemption for the machines and raw materials needed for export production, exclusive rights to use foreign labour and stimulus measures including soft loans, land occupation rights and double tax deductions for transportation, electricity and water supply costs for up to 10 years. Furthermore, target activities will be entitled to fiscal incentives under the BOI and measures under the Ministry of Finance.

SEZs also offer one-stop service centres with Customs checkpoints, as well as enhanced services for licensing and permission applications. The zones are expected to offer significant economic benefits to the country, with the MoC reporting that they could boost cross-border trade by as much as 50%, to reach BT1.5trn ($45.15bn) annually.


With cross-border trade set to surge in the wake of ASEAN integration, Thailand is also looking further abroad to boost trade and is currently negotiating the TPP and the RCEP, which will have significant long-term ramifications. As the world’s largest FTA, the TPP will cover roughly 40% of global trade, and counts Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam as signatories. The government is also planning to join RCEP, with signatories including the 10 member states of ASEAN, and six countries with which ASEAN has individual FTAs, including China, India, Japan and South Korea.

Back & Forth

Both FTAs offer potential benefits and drawbacks to Thailand. Membership in the TPP could result in Thailand recording the second-largest income gains of any signatory, for example, although provisions regarding the pharmaceutical industry and intellectual property rights would likely be deeply unpopular. RCEP, for its part, could offer more favourable tariffs for Thailand’s well-established industrial base, in addition to supporting trade growth with rising global powers, China and India.

Many stakeholders expect the country will eventually sign on to both (see analysis), although other important negotiations have taken a hit in light of recent political events – negotiations for an FTA with the EU, for example, were suspended in November 2014, with EU Trade Commissioner Cecilia Malmstrom telling press an agreement will “never be ratified” as long as a military government is in power in Thailand.


Despite uncertainty regarding the country’s political future, as well as rising concern about falling regional competitiveness, cautious optimism prevails in Thailand. The government’s investment promotion agenda, while perhaps more complicated than in previous years, also addresses the dual challenge of labour shortages and the middle-income trap through promotion of both labour-intensive and high-tech industries, while potential membership in two major trade blocs could see regional and international exports soar in the coming years.

Though the near-term forecast is dampened by global volatility, weakening demand and the impact of China’s slowdown, trade in Thailand will remain on an upwards trajectory in 2016, and investment, though unlikely to meet government targets, is nonetheless expected to bounce back from a challenging 2015.