ASEAN integration should help not hinder Thai auto parts makers but the government needs to quickly clear hurdles to growth, say industry executives.

The government needs to accelerate revamping the tax structure and allow the establishment of an upstream steel facility to ensure the competitiveness of local parts makers down the road.

The elimination of the 5% import tax for parts traded within ASEAN, effective from Jan 1 under the ASEAN Free Trade Area (Afta), could help expand direct exports of parts from Thailand to the region, said Thavorn Chalassathien, chairman of the Auto Parts Industry Club at the Federation of Thai Industries.

ASEAN currently consumes 40% of auto parts shipped from Thailand, with Indonesia and Malaysia among the top three overseas destinations for the industry along with Japan. Other markets include India and the Middle East. Parts exports in 2010 are expected to return to the 2008 level of 300 billion baht after experiencing a contraction of 30% in 2009, he added.

"Thai manufacturers will have more opportunities [to ship parts] not produced in neighbouring countries. Indonesia has a number of automotive plants operating there," said Mr Thavorn.

"But in terms of cost, Thailand's auto-parts industry loses out to its regional peers, partly because of higher wages here. Meanwhile, imported materials are still subject to much higher tariffs than finished parts."

Suparat Sirisuwanangkura, president of the Thai Auto Industry Association, said the auto-parts sector had bounced back sharply in line with the automotive industry in general.

Vehicle production this year is expected to rise by 20-30% from the admittedly poor totals of 2009, with domestic sales reviving to at least 600,000 units, slightly better than the 2008 total.

Mr Suparat, also an executive of Toyota Motor Thailand, sees a chance for international automakers to source cheaper parts from other ASEAN countries.

However, problems with Thailand's import duty structure and the lack of an upstream steel plant could lessen the competitiveness of Thai parts makers.

"But I think most of Thailand's auto parts industry is competitive. At the same time, many automakers, especially Japanese ones, have their own part suppliers operating here," he said.

Stock analysts also say ASEAN liberalisation should pose minimal risks to the Thai auto parts industry, given the significant rebound in the past few months.

"Automakers have tried to trim their inventories to control costs. Consequently, I think chances for those locating in Thailand to import parts from neighbouring countries are rare,"said Surachai Pramualcharoenkit, an analyst with Kim Eng Securities.

Among listed auto parts companies, Mr Surachai said Somboon Advance Technology Plc (SAT) and Thai Stanley Electric Plc would be the biggest beneficiaries from the industry's recovery.

Kim Eng forecasts SAT's sales could grow 25% to 5.5 billion baht in 2010.

The 15% projected growth of the automotive industry, coupled with new orders from agricultural machinery manufacturer Kubota, should result in SAT utilising 90% of its capacity this year.