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  1. #1
    Thailand Expat
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    Does Thailand want foreign investment?

    Does Thailand want foreign investment?

    The government's proposed changes to the Foreign Business Act (FBA) fail to recognise market realities and would send the wrong message to the outside world.


    Published on August 21, 2007




    Like many others, I have watched the developments concerning the government's proposed revisions to the FBA with a lot of anticipation.

    The portion of the proposed revisions which has caused the most resistance from foreign investors, as well as many Thais, concerns preferential voting rights for foreign shareholders of Thai-registered companies.

    Under the current rules, companies which are majority-held by Thais are allowed to give preferential voting rights to the company's minority foreign shareholders giving the foreign shareholders effective control of the company while still enabling the company to be legally classified as Thai-owned.

    The proposed revisions to the FBA would change this situation, however, by re-classifying companies which give preferential voting rights to foreigners as "foreign" instead of "Thai" even though the majority of the company's shares are held by Thais.

    This re-classification would subject affected companies to much more government regulation and may cause many of these companies to cease their operations.

    The government's reasoning behind the proposed changes is that companies structured in this way violate the spirit of the FBA, as the majority of Thai shareholders of these companies are merely nominees with no real ownership or authority.

    The government also argues that this change will be good for the foreign investment climate in Thailand over the long term because it would promote an environment of greater transparency in the market, which many foreign investors would like to see.

    I agree with the government that many companies in Thailand currently use nominee shareholders in violation of the law. There is no question about that. And I also agree that promoting transparency is generally a good thing.
    However, I do not agree with the government's position on this issue because I believe that the proposed revisions to the FBA would be detrimental to Thailand's interests in the short-, medium- and long-term for the following reasons.
    1) It would hurt Thailand's global competitiveness

    Revising the law as proposed would send absolutely the wrong message to the outside world.

    One of the reasons why Thailand has been so successful in attracting foreign investment over the years, in my opinion, is that its framework regulating foreign investment has been more open than that of its neighbours, specifically in comparison to China, Vietnam, Malaysia, India and Indonesia.

    When I say "open" here, I mean that foreigners were generally allowed to invest in more sectors in Thailand than they were in the above mentioned countries.

    This situation has subjected Thailand's local businesses to a lot of foreign competition, but as a whole, the country has received a net benefit from this policy through the jobs which have been created and the technology and know-how transferred to Thailand because of it.

    However, if the government implements the proposed changes to the FBA, then this competitive advantage will cease to exist for Thailand. Thailand will be seen as having a very similar foreign-investment framework to these countries. The situation would be far worse than that as the current trend in each of these countries has been to liberalise their foreign-investment laws and become more open to foreign competition and investment.
    If the government implements the proposed changes it would be clear evidence to the rest of the world that Thailand is moving in the exact opposite direction.
    2) It would not be fair to existing foreign-run companies operating in Thailand

    The changes proposed would be enforced against foreign investors retroactively.

    This would mean that many companies which have been established to date which are in 100 per cent compliance with the current law would be required to substantially change their corporate structures in order to be in compliance moving forward.

    Yes, the proposed change does provide for a grace period affording the affected companies some period of time to implement the measures necessary to come into compliance, but the point is that by doing this the government is establishing a disturbing precedent. The precedent would be that even though foreign investors complied with the letter of the law when they entered the Thai market, the government may now change its mind, and by doing so, force these companies to substantially restructure themselves because of it.

    As stated above, up until now companies were allowed to grant minority foreign shareholders preferential voting rights. Right or wrong this has been the status of the law for years, and many, many companies structured their businesses exactly like this.

    Now the government is telling those companies (if the proposed changes go through) that even though their companies were legally compliant at the time their companies were established, now they will be required to change.
    If the proposed change only affected new foreign investors, from a time standpoint anyway, it would at least be fair. However, to make the changes applicable to existing foreign investors as well is not fair.

    3) It would go against market realities

    Every country on the planet is dealing with the realities of an increasingly integrated world. It is how the governments of these countries choose to deal with these realities which will in large part determine the country's long-term global competitiveness.

    My own country, the US, is dealing with this as well.

    Last year many people in the US went crazy when Chinese companies made serious bids to purchase Unocal and Maytag. A couple of decades before that it was the Japanese who caused alarm by buying big chunks of real estate in California and the Western US.

    In both of these situations there were cries for the US government to legislate against such foreign investment.

    But it didn't, and the reason that it didn't was because the government knew that in the long-term the US would benefit more by not being reactionary to what was happening at the time, but rather, by using the situation as an opportunity to show the world that the US remained open to foreign investment.

    The same is true of Thailand.

    In the short-term, due to political events which have transpired here and other reasons, it may be very easy for the government to justify imposing measures such as the changes to the FBA which would make it considerably more difficult for foreigners to invest here.

    However, in the long term, I believe this move would show to the world that instead of becoming more integrated into the global economy Thailand seeks to isolate itself from it. That instead of embracing globalisation and finding creative ways to balance both local and international interests - Thailand withdraws.
    I, for one, hope this does not occur.

    Michael Doyle


    Michael Doyle is a US attorney and author of the book "Doyle's Practical Guide to Thailand Business Law". His e-mail address is michael@serimanop.com

  2. #2
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    I believe yes, that Thailand does want foreign direct investment, but only on its own terms, not on "world class" terms. That means preservation of the existing property laws, visa laws, etc..

    As a result, I expect Thailand to continue to be moderately successful, but fail badly as against China and other more progressive countries in the region.

  3. #3
    watterinja
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    I wonder if Singapore does things differently?

  4. #4
    I am in Jail
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    This is excellent, it will keep the pirates at bay

  5. #5
    ding ding ding
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    China will finish Thailand as a manufacturing base in the next five years.

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    Quote Originally Posted by Spin View Post
    China will finish Thailand as a manufacturing base in the next five years.
    Yes, even though you don't back up this claim with any argument, it is indeed mostly true. If Thailand doesn't move quickly out of low end manufacturing it is dead as against China. Auto and agriculture remain strong.

  7. #7
    たのむよ。
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    Let them do what they think is best.

  8. #8
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    Quote Originally Posted by watterinja
    I wonder if Singapore does things differently?
    Singapore was smart, focused on service industry like a real country

    Thailand is still a third world manufacturing base, mostly for cheap labor and to keep the elite in control

  9. #9
    Thailand Expat
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    Carnt be bovvered reading the atcle.
    Thai needs foreign investment, competence and knowledge.
    I can not influence how long it will take them to realise, but Necessity is the Mother of Invention.

  10. #10
    Thailand Expat
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    Foreign Business Act attacked by experts

    INVESTMENT LEGAL RESTRICTIONS
    Foreign Business Act attacked by experts

    UMESH PANDEY

    Officials in charge of amending the Foreign Business Act (FBA) should either suspend the process or amend the contentious ''List 3'' to avoid a mass exodus of foreign investors, local experts say. ''Whatever the government does, its next step is going to be crucial and all I can do is to advise them two ways. First is that we hope that the government drags its feet and lets the bill die its own death, and second it is that the government revises 'List 3' down to zero or near zero,'' said M.R. Pridiyathorn Devakula, a former finance minister and central bank governor.

    ''The new revised version of the FBA is going to scare investors away, especially the services sector _ a sector where Thailand continues to need the expertise of foreign partners,'' he said at a seminar on the FBA at the Sasin Institute of Business Administration at Chulalongkorn University on Tuesday.

    The FBA was passed by the cabinet and needed NLA approval but it was withdrawn after some NLA members proposed a stricter version.

    On Aug 8 a majority of the NLA voted in favour of expanding the definition of foreigners to include: a) the power to appoint or remove a majority of directors, b) the power to determine the company's future direction, and c) in the case of multi-tier holding company structure, a proposal to categorise each tier in the structure as foreign.

    ''What we want to stress is that one single case should not be used as a benchmark to disturb the entire structure, because if the Commerce Ministry wants it can use the existing rules and regulations to punish and catch those who are breaking the law,'' said Deepak Mittal, the vice-chairman of the Joint-Foreign Chambers of Commerce.

    ''Usage of nominees is not permitted even under the current structure.''

    Kanissorn Navanugraha, a Commerce Ministry official, said the amendments under the proposal approved by the cabinet were made in order to clarify the definition of who was a ''foreigner''.

    He said that businesses in the manufacturing, export and some other industries were not affected and that investors should not panic. Instead the laws were being drafted to create greater transparency and accountability.

    He said companies that were already operating in Thailand should not worry as most could seek to ''grandfather'' their operations by applying for a permit from the ministry within a year after the law is passed and restructuring their operations within two years.

    Other panelists disagreed, saying that applying for the grandfather clause would mean that the company was admitting it had breached the law.

    ''What happens if the next government says that it is getting rid of the grandfather clause? The companies that admitted to the breach of law would then be in clear violation of the law,'' Mr Mittal said.

    Mr Kanissorn said that his agency was already working to amend the rules but was not sure if they can be passed during this government's tenure, as new elections are set for late December.

    ''What we are drafting is legislation that would give fair treatment to both Thai and foreign investors, and thus create a level playing field for all parties,'' he said.

    Kittipong Urapeepatanapong, a partner at Baker & McKenzie, was opposed to the law, arguing that nearly all companies listed on the Stock Exchange of Thailand could need restructuring, adding that no country in the region had such restrictive laws.

    ''If these laws passed by the NLA are put into force, we could see a lot of companies in Thailand close and move out,'' added M.R. Pridiyathorn, who was a proponent of the FBA in its earlier form.

    ''Those who proposed the new amendments are living in a different world, thinking that by closing Thailand they still can attract investments, but the on-the-ground realities are different. Other countries such as China, India, Vietnam, Malaysia, and Indonesia have all opened up and investors can go anywhere they like.''

    Vincent Milton, managing director of Fitch Ratings Thailand, said it was Thailand's own decision on where it wanted to go in the long term and policies needed to be drafted in line with those goals.

    Bangkok Post

  11. #11
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    Quote Originally Posted by Butterfly View Post
    Quote Originally Posted by watterinja
    I wonder if Singapore does things differently?
    Singapore was smart, focused on service industry like a real country

    Thailand is still a third world manufacturing base, mostly for cheap labor and to keep the elite in control
    Also Singapore isn't nearly as corrupt.

    Thailand can't compete with China for quantity (who can), but it could for quality.

    Meanwhile, OTOP seems to have gone... nowhere.

  12. #12
    Hansum Man! panama hat's Avatar
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    [quote=Hootad Binky;373726][quote=Butterfly;372354]
    Quote Originally Posted by watterinja

    Meanwhile, OTOP seems to have gone... nowhere.
    How untrue . . . I bought an OTOP broom and OTOP durian chips the other day.

    Clearly the flagship of local Thai industry!

  13. #13
    Thailand Expat
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    Khun Jada, a senior executive at Govt-owned finance institution, IFCT, once told me that Thailand is happy for foreigners to buy Thai assets, but not the good quality ones.

  14. #14
    Bounced
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    OTOP woodchip booze is good stuff.

  15. #15
    Thailand Expat
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    ^ I tried that stuff.

    I didn't know it was supposed to be decanted from the twigs and sugared.

    God it was horrible !

  16. #16
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    Quote Originally Posted by Hootad Binky View Post

    Thailand can't compete with China for quantity (who can), but it could for quality.
    Dunno about that at all.There are some very good high quality products coming out of China.It's not all shite.

  17. #17
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    Quote Originally Posted by chinthee View Post
    I believe yes, that Thailand does want foreign direct investment, but only on its own terms, not on "world class" terms. That means preservation of the existing property laws, visa laws, etc..

    As a result, I expect Thailand to continue to be moderately successful, but fail badly as against China and other more progressive countries in the region.
    Tend to agree with the above,
    Im my opinion for Thailand to move to the next level some fairly basic changes need to take place and I see no desire from the ruling elite to make these changes.

    Decisions appear to be taken purely for the benefit of this elite.

    Keep the masses poor and uneducted.

    The bulk of the populace are still dependent upon agriculture for the livliehoods and in the integrated and interdependent world in which we live I see that as unsustainable.

    Other countries in the region appear to see the future more clearly for the moment

    I can easily envisage very worrying times ahead for Thailand

  18. #18
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    Quote Originally Posted by shazbut View Post
    Quote Originally Posted by Hootad Binky View Post

    Thailand can't compete with China for quantity (who can), but it could for quality.
    Dunno about that at all.There are some very good high quality products coming out of China.It's not all shite.
    Agreed, especially in the high-tech department. You can buy a Chinese-made laptop (Acer) now at Walmart for $469 CAN.

    But everything in Walmart is from China, it seems.

  19. #19
    Mid
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    Americans question new Business Act


    Americans question new Business Act




    Manila - US business interests in Thailand remain concerned about possible tougher provisions in the amended Foreign Business Act, Thai Commerce Minister Krirkkrai Jirapaet said Sunday.
    Mr Krirkkrai said he had met US businessmen on the sidelines of the Asean Association of Southeast Asian Nations) economic ministers meeting in Manila.

    They said they were concerned about Thailand's FBA which is being amended by the National Legislative Assembly (NLA) for fear that they might not have sufficient control of their business ventures in the kingdom and therefore will have to transfer investments elsewhere.

    On August 8, Mr Krirkkrai withdrew the controversial amendments to the FBA from the final round of a heated Assembly session following a failure to push through the Ministry's version since some NLA members aggressively pushed for a tougher law.

    Federation of Thai Industries (FTI) chairman Santi Vilassakdanont earlier expressed concern over the proposed NLA change in the original definition of foreign voting rights stating that control would affect investment decisions by new foreign investors.

    The commerce minister said he had explained to US business representatives men that the issue was now beyond his authority, as NLA members wanted to amend the Act. If the businessmen were dissatisfied they could discuss it with NLA members.

    Referring to Thailand's exercising compulsory drug-licensing as part of the national agenda in an attempt to improve the country's health care system, Mr Krirkkrai said US businessmen felt that concerned officials from both countries should discuss not only medicines but that the scope of the proposed discussion should cover the entire health care which also includes food.

    The minister said he agreed with the idea and that he would raise the US proposal so that a solution could be made.

    Thailand last year issued compulsory licences for Efavirenz, Kaletra and Plavix from Merck's MSD (Thailand), Abbot Laboratories and Sanofi-Aventis. The first two drugs are used to treat AIDS while the last medication is for treatment of heart disease.

    Concerned officials in the pharmaceutical business have said that Thailand's new elected government could easily issue compulsory licences for new drugs because the Public Health Ministry had succeeded in producing heart-disease medicines and could import a cheap drug. (TNA)

  20. #20
    ding ding ding
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    Quote Originally Posted by chinthee
    Yes, even though you don't back up this claim with any argument
    ok.....

    Many beleive that Thailand became unable to compete with the likes of China etc when the baht went below 35.5 to the Dollar.
    Many exisiting export order contracts are being fullfilled at a loss now we're at 34.

  21. #21
    Mid
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    The commerce minister said he had explained to US business representatives men that the issue was now beyond his authority, as NLA members wanted to amend the Act. If the businessmen were dissatisfied they could discuss it with NLA members.

  22. #22
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    I won't cite the article here, but you can google it, or maybe the kindly Mid will post it. China is going to stiffen its inward investment laws against foreigners, and you know why? Because they are swimming in cash - the article said something like for so many years now foreign businesses have been bringing in buckets of cash and setting up business. There is now a lot of foreign control of business in China. China is acting intelligently to moderate (there's that word again) its economy and balance this, AFTER it's already been flooded with investment and industry/service upgrades. It's now a world class export provider, with shiny new factories pumping things out at the lowest cost.

    If Thailand follow a similar policy, it could keep some competitiveness. Failing that, it will still be fairly ok, but will not see growth to compete with others like Vietnam and India.

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