The impacts of the Thailand-Australia Free Trade Agreement and Thailand-New Zealand Closer Economic Partnership on Thai Dairy Import Prices

Abstract

This study investigates the impacts of the Thailand–Australia Free Trade Agreement and Thailand–New Zealand Closer Economic Partnership on Thailand’s dairy import prices. The study employs an import price model to examine the effects of a reduction in Thai tariffs for Australian and New Zealand dairy products on their prices. Empirical results show that the effects of a reduction in tariffs for Australian and New Zealand dairy products on Thai import prices of dairy products from both countries are small. Other factors such as exchange rates, competitor prices, and drought have significantly larger effects. Surprisingly, the effect of import tariffs on Thai import prices for Australian and New Zealand dairy products are negative. This indicates that a tariff reduction by Thailand increases Australian and New Zealand exporters’ markups and raises Thai import prices for Australian and New Zealand dairy products. This is because import demand for dairy products in Thailand is inelastic. Thus, Australian and New Zealand exporters do not need to raise prices, because a tariff reduction effectively increases profit without any effort on the exporter’s part.