Thai Food Companies Hit by U.S. Human Trafficking Downgrade

The Wall Street Journal - Market & Finance

Thai Food Companies Hit by U.S. Human Trafficking Downgrade

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Investors are dumping shares in some of Thailand’s largest food companies as the shrimp-fishing titan faces the possibility of U.S. sanctions following a furor over the use of forced and child labor in its fishing supply chains.

Shares in agri-businesses such as Charoen Pokphand Foods PCL CPF.TH +0.94%, headed by tycoon Dhanin Chearavanont, have fallen sharply since U.K. newspaper the Guardian published an expose on June 10 detailing labor abuses in the Thai seafood industry. CP Foods is down 6.1%, Thai Union Frozen Products PCL TUF.TH 0.00% has fallen 3.6% and GFPT PCL GFPT.TH +0.78% 1.5%. In the same period, the SET benchmark stock index has risen 0.8%.

The U.S. State Department earlier this month downgraded Thailand’s ranking to the lowest level in its annual human trafficking report, alongside countries like North Korea and Cuba.

Thailand exports over $2 billion worth of shrimp each year, much of it to the U.S. It is the world’s largest shrimp exporter.

Maybank Kim Eng said in a note dated Tuesday that worse could be in store for the Thai seafood industry, flagging the possibility of an “increased risk of non-tariff barriers” for the industry. If the U.S. bans Thai seafood imports, it is “likely that the [European Union] and/or Japan will impose a ‘sympathetic’ ban, overtly or covertly,” it adds. A full ban on Thai shrimp exports could cut nominal GDP by almost 1%.

The Thai Frozen Foods Association has said that there is no use of illegal labor in the industry. CP Foods said in response to the Guardian report it would audit its entire supply chain and condemned all aspects of human trafficking and slavery in a statement on June 16. Thai Union Frozen said it will join with Thailand’s trade association and industry bodies to work on an agreement with the U.S. on possible sanctions. The company “has made it very clear to our suppliers that any misconduct in relation to human trafficking will result in immediate termination of trade relationships with no compromise,” it said in an emailed statement to The Wall Street Journal.

Some foreign supermarket chains such as France’s Carrefour SA CA.FR +0.65% and Norway’s ICA have already suspended CP Foods from their list of shrimp suppliers.

CP Foods and GFPT did not immediately respond to requests for additional comment for this article.

Maybank adds that CP Foods is likely to suffer most from the fallout because of the contribution of shrimp to its total revenues and its greater profitability than livestock. “While further weakness in the shrimp-related business may not have a significant impact on CPF’s revenue, it will affect the profitability of the Group,” Maybank said.


EU suspends free trade talks with Thailand

Shrimp, Thailand. Photo: Harnpon Juapetch

The European Union has suspended its free trade negotiations with Thailand in light of the military coup and continuing military regime in the country.

The suspension comes as Thailand faces a loss of all preferential tariff agreements on shrimp and tuna exports to the EU as of next year.

“Concerning the negotiations on the EU-Thailand Free Trade Agreement, let me be very clear: we have cancelled the next negotiating round tentatively scheduled for July, and it goes without saying that we do not intend to have any further negotiating rounds against the current background,” a spokesperson for the European trade commission told Undercurrent News.

On Monday, EU foreign ministers announced that all official visits to and from Thailand will be suspended and all partnership agreements shelved, in a bid to pressure the ruling National Council for Peace and Order to restore democracy.

The EU and Thailand concluded a second round of talks towards an FTA last September, and a third round had been proposed for July.

The FTA has been seen as a solution to Thailand’s loss of preferential agreements with the EU since this year, with higher tariffs due next year including for shrimp and tuna exports.

Thailand has already seen its tariffs to the EU go up this year, and next year will lose all its preferential tariffs under the EU’s Generalised System of Preferences (GSP) as the World Bank still classifies it as a middle-to-upper tier income country.

This means the tariff on raw shrimp from Thailand will go from 4.2% to 12% in 2015. Under graduation, the tariff on processed shrimp — excluding cooked, shell-on –went up a year earlier, at the start of 2014, from 7% to 20%.

For tuna, Thailand will see its tariff go up as well next year but more mildly, from 21.5% to 24%.

Spanish canners have denounced the FTA talks and warned of the threat it would cause to the European tuna industry. However, Thai processors have pointed out that they have already lost significant advantages, including through tariff-free competition form the Philippines and Papua New Guinea.

In a comment, a spokesperson for Thai Union Frozen Products said the company has been keeping working with customers to discuss the implications of the EU’s actions.

“As per our understanding, EU actions are more of specific measurements on diplomatic relations rather than commercial restrictions. All measures against Thailand are believed to be non-trade related,” said the spokesperson.

“However, we have been keeping meaningful dialogues and working closely with our customers and key stakeholders ensuring they understand the details and actual implications of the issue with EU actions.”

The spokesperson said the group was joining with the Trade Associations and Federations Industries of Thailand to support the Thai government in working out solutions for Thailand.

She further stressed that Thai Union adheres to strict labor practices.

“Thai Union Group has made it very clear to our suppliers that any misconduct in relation to human trafficking will result in immediate termination of trade relationships with no compromise.”

“We will continue to provide our utmost support to current Thai administration and the upcoming interim government to swiftly construct a forceful action plan to rigidly enforce all applicable laws to freeing victims, preventing trafficking and bringing traffickers to justice and serve the way forward in supporting industries, organizations and NGOs in order to rectify Thailand’s human rights violations and labor malpractices of any kind and ultimately hope improve Thailand image as a whole.”



Thai agencies preparing counter-reports for US

June 25, 2014, 5:39 pm

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Thai government officials are planning to head to the US next month to counter allegations made by the US “Trafficking in Persons” (TIP) report and reports by civic groups and foreign media alleging Thailand’s fishing and seafood industry uses forced labor and slavery.

Thailand’s Foreign Ministry is preparing a report to explain the issue within the next three months, before sanctions are imposed by the US, reports the Bangkok Post.

Thailand’s Commerce Ministry is also countering the allegations with a plan to lead a delegation to the US next month to clarify working conditions in the seafood industry to officials and consumer group.

Meanwhile, the private sector’s trade groups have plans to present to the National Fisheries Institute on how Thailand’s operations comply with rules laid down by the International Labor Rights Organization (ILO).

The US is a key export destination. It buys 22% or BHT22 billion of Thailand’s tuna exports. It is also expected to import about 38% of the 200,000 tons of shrimp Thailand plans to ship out this year.

Shrimp and tuna processors and exporters in Thailand are also challenging non-governmental agencies and importers worldwide to see for themselves what the labor conditions are like in their fishing industry.

Associations such as the Thai Fishery Producers Coalition contend that they have been working for years to improve the working conditions in the industry to make sure there is no child labor or forced labor in the supply chain.

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