Surayud boxed into a corner with FBA amendments

By Thanong Khanthong
The Nation
Publication Date: 20-04-2007 Last Thursday (April 12), prior to the Songkran festival, representatives of the Commerce Ministry held a meeting with the government whip of the National Legislative Assembly on the draft amendments to the Foreign Business Act.
They agreed to harmonise their respective versions of the amendments before forwarding the final draft to the National Legislative Assembly for a first reading next Wednesday.
It is now widely expected that the National Legislative Assembly will accept the bill for deliberation at that first reading. It would then immediately set up a scrutinising committee to review the bill section by section.
The action taken by the scrutinising committee would then be considered the second reading. A legal adviser told me that after talks with a leading member of the National Legislative Assembly, he gets the impression that the bill would pass this second reading in about two months, or before the end of June.
The foreign business community, including the Joint Foreign Chambers of Commerce, has been up in arms against both drafts by the Commerce Ministry and the National Legislative Assembly. Foreign businesspeople and investors have warned that the passage of the bill would further dampen investor confidence in Thailand at a time when the country has yet to establish a democratically elected government.
Yet Commerce Minister Krirk-krai Jirapaet is pushing hard for the amendments to the Foreign Business Act. He vowed at one point that any attempt to block the amendments would succeed only over his dead body. He also indicated that only a few foreign investors who had breached the foreign business law were against the amendments.
Both Krirk-krai and the bill's sponsor, National Legislative Assembly member Somchai Sakulsurarat, have good intentions in revising the Foreign Business Act in the best interests of the country. Yet the ramifications of this legislation are anybody's guess.
Now it appears that the Surayud government will pass the draft amendments. The final version approved by the scrutinising committee could have more stringent provisions. That is, a company registered in Thailand with a majority foreign voting share or under foreign control (either through its board of directors or management or otherwise) could be considered a foreign company even though Thai shares might equal 51 per cent or more.
It is expected that the bill will be sent back to the National Legislative Assembly in July for a third and final reading and if the assembly accepts the version approved by the scrutinising committee, there will be a vote to pass the bill into law and present it to His Majesty the King for consent and publication in the Royal Gazette to complete the enactment process. This step could take another two months, so there is a strong possibility that the amendments to the Foreign Business Act will be effective by the end of August.
The Surayud government is facing a dilemma in its handling of these amendments, as it was not elected and is about to amend a law that will have a major impact on foreign investors, who in general already have a poor sentiment towards Thailand.
Foreign companies have thus far had no problems doing business in Thailand by using nominees to circumvent the ownership restrictions in the Foreign Business Act. Foreign companies and foreign investors set up companies by having Thais control 51 per cent of the company's shares, while they retain voting rights through preferred stocks or other methods of management control. They have then proceeded to do business in areas restricted to foreigners.
Thailand now restricts foreign companies from doing business in three categories - Annex I (agricultural industries, handicrafts), Annex II (national security, insurance, banking, transport) and Annex III (service and trading). Annex III will be liberalised.
The matter blew up after Temasek Holdings of Singapore bought up Shin Corp last year, allegedly using nominees to circumvent the foreign ownership law. It has become a hot political issue. The Singaporeans were complaining behind the scenes that the Thai government was going after them alone. What about the hundreds or thousands of foreign companies also using nominees?
This prompted the Commerce Ministry to move to amend the Foreign Business Act in a wholesale manner. It would not compromise on the use of nominees to circumvent the foreign business law. Other foreign companies are shocked because if the law were to be passed, they would be required to unwind their ownership ties. In the past, the Thais they were doing business with said there would be no problem in using loopholes to do business in restricted sectors here. Now they are saying it is not OK.
If foreign companies were to be forced to restructure their ownership set-up, they would also have problems telling their shareholders about corporate governance practices. Why did they get involved in businesses that they are restricted from in the first place?
Both the Thai government and the foreign companies have a difficult way out. Thailand needs to plug the loopholes, while at the same time foreign companies, who were welcomed and allowed to do business in restricted areas in the first place, are not at fault.
Is there any compromise? I am not sure. Probably, it might be better for the next elected government to handle the issue. By the way, the election is not too far away.