UPDATE: Proposed amendments to FBA - NLA draft

A draft of the proposed amendments to the FBA, as proposed by the National Legislative Assembly, is currently doing the rounds.

In brief, the fundamental differences between this version and the previous version of the proposed amendments to the FBA, as proposed by the Ministry of Commerce and approved by the Thai Cabinet in Jan. '07, are:

(a) the grandfather and amnesty provisions that were in the previous version have been removed; and

(b) the definition of "foreigner" has been amended so as to allow majority foreign ownership (in voting rights) under certain conditions.

Will keep you updated on this as and when I hear anything.

One thing is for sure, the deletion of the grandfather and amnesty provisions is unlikely to make the foreign business community happy!

^ Fascinating, I'm sure.

You still owe me an email, you slacker.

William, can you be more specific about the grandfather & amnesty clauses? What are typical applications; to whom would they apply/have applied; how would this affect future business?

Thanks.

essentially if you were operating a type 3 list annex business, then the old proposed draft would have given you an amnesty and grandfathered you from being a naughty boy. Type one and two businesses had a period within which to rectify their mistake - 2 years.

It would appear this will no longer be the case (if this version goes ahead in its current form).

Thanks William.

What kind of businesses have typically operated under List 3? Would this represent any treat to the way falangs, for instance, purchased land, companies, ran consultancies etc (No barb intended). Could this present a long-term issue for falangs & if so, would they be wise to make contingency plans before the mud hits the fan - given that the Thais are obviously out to perform a total overhaul (reversal) of any loopholes in the system?

Thanks again. I personally think that this kind of proposal shows a lot of latent intent which actually worries me a lot. I actually wonder exactly how far this whole reversal is going to go?

^ the attached link will show you the businesses included in the lists (one, two and three) at the end

http://www.boi.go.th/english/downloa...tment-laws.pdf

*turn to page 16 or so*

Thx. Nice document to have on hand.

New draft of FBA easier on foreigners

NLA version aims to restore confidence

POST REPORTERS
A group of more than 50 members of the National Legislative Assembly have proposed a new draft Foreign Business Act potentially more friendly to foreign-owned joint ventures operating in Thailand than the government's version of the bill. A copy of the draft obtained by the Bangkok Post says that a business would not be automatically defined as foreign even if voting rights held by foreigners were more than 50% _ a controversial clause currently present in the government's own proposed FBA amendment.

Instead, the NLA version proposes establishing a new screening committee to evaluate issues such as voting rights and nominee structures on a case-by-case basis for the purposes of the FBA.

The draft was prepared by Somchai Sakulsurarat, an experienced banker and former president of Bangkok Metropolitan Bank and the Bank of Ayudhya.

NLA members who have signed the draft include Borwornsak Uwanno, Somkiat Onvimol, Sungsidh Piriyarangsan, Purachai Piumsombun, Vachara Phanchet, Pol Col Nitiphum Navarat and Sqdn Ldr Prasong Soonsiri, the chairman of the Constitutional Drafting Council.

The government's FBA amendments passed the cabinet in January despite stiff opposition from foreign business groups.

The FBA changes, as originally proposed by the Commerce Ministry, would automatically define as foreign any company in which foreign entities hold more than 50% of shares or control more than 50% of voting rights. Rules and penalties for nominee shareholdings would also be strengthened, and companies would be required to register their status with the ministry and adjust their legal structures within one or two years.

Although the government says the new FBA exempts most exporters, manufacturers and companies receiving Board of Investment privileges, analysts and foreign business leaders have resoundingly blasted the stronger law and warn of a sharp decline in foreign investment flows.

Mr Somchai said the NLA draft aimed to restore foreign investor confidence.

''The draft Commerce Ministry version is problematic and has weakened investor confidence,'' he said. ''All companies are deemed foreign so long as voting rights exceed 50%, even if they are straightforward and honest businesses.''

The Commerce Ministry version also was unbalanced in its treatment of the rules, since existing companies would be offered time to adjust their structures unless they were under investigation for possible wrongdoing, he said.

''Discriminatory practices are unacceptable based on the universal principles of law,'' Mr Somchai said.

Thirteen companies are now under investigation for possible FBA violations, including Shin Corp, controlled by Singapore's Temasek Holdings; DTAC, the second-ranked mobile operator owned by Norway's Telenor; and the retailing giants Carrefour and Tesco.

Mr Somchai said the NLA version would set up a foreign ownership review committee headed by the Commerce Ministry permanent secretary to review whether companies in which foreigners held a majority of voting rights were meeting legitimate business needs.

The committee would also check whether Thai partners had genuinely invested in the business. It would monitor whether the rights and benefits to Thai shareholders were legitimate or if they were acting as illegal nominees.

''A company with foreign voting rights of over 50% will not automatically be defined as foreign under the NLA draft,'' Mr Somchai said.

He said that many multinationals felt the need to maintain majority voting rights for sound reasons, such as to control the use of their brands or intellectual property.

But if no clear business need was proven, then the majority rule would be enforced, Mr Somchai added. The NLA draft would not automatically clear Temasek Holdings and the questions regarding Kularb Kaew, the holding entity it set up for the Shin acquisition, he added.

''But at least under the new draft, foreign investors would not say that Thai law is discriminatory and fails to meet international standards,'' Mr Somchai said.

The NLA draft would also stiffen penalties for illegal nominees to up to five years in jail and impose fines of up to five million baht for both foreign and Thai nationals violating the FBA.

Mr Somchai said the NLA would review the proposed draft within two weeks.

''The draft doesn't represent pressure on the government even though the NLA has proposed the law itself. Actually, this represents a collaboration between the government and the NLA to solve the problems,'' Mr Somchai said.

Business leaders expressed uncertainty about the new draft and its conditions.

Peter Van Haren, president of the Joint Foreign Chambers of Commerce, said he was uncertain about the proposed law. ''The moves [to ease restrictions] are positive, if it is true,'' he said.

Thanawat Patchimkul, the head of research at KGI Securities, said the latest move would prompt considerable confusion in the market.

''If it is true that [the NLA] is looking to get rid of the voting-rights rule, then the question is, what happens to everything that has happened to date?'' he asked.

''The entire situation stemmed from the nominee question. If they say it is okay now, then the authorities need to be very clear, or else this will be just another flip-flop in policy. You can't shake up investor confidence and then come back and say nothing has happened.''

Santi Vilassakdanont, the chairman for the Federation of Thai Industries, declined to comment on the NLA proposal, which he said had yet to be circulated within the business community.
''But actually, I think the Commerce Ministry version was discussed quite widely among the Industry Ministry, the FTI, the Thai Chamber of Commerce and the Thai Bankers' Association,'' he added.

FOREIGN BUSINESS ACT
Govt urged to consider an amnesty
https://teakdoor.com/images/smilies1/You_Rock_Emoticon.gif
Move is 'needed to restore confidence'



Academics believe the government should give an amnesty to all foreign-owned companies after the amended Foreign Business Act (FBA) is implemented to regain the confidence of foreign investors, which is declining amid the current political and economic situation.

Nonetheless, the academics also suggested the police speed up the legal process to prove quickly whether Kularb Kaew had violated the law prior to the enactment of the new foreign business law. The quick conclusion of the case would pave the way for clear policy direction on foreign business operations in Thailand, they said.

Speaking at a seminar yesterday on the FBA, Thitipan Chuerboonchai, dean of the Faculty of Law at Chulalongkorn University, urged the police to finalise the Kularb Kaew investigation quickly.

He also urged the Commerce Ministry to wrap up the investigation into allegations against other companies to see whether they had used nominees.

Amid eroding confidence among foreign investors, Thitipan said the government should provide the remedy by offering an amnesty to all foreign businesses.

"The amnesty could be the best solution to increase foreign-investor confidence. However, in the case of Kularb Kaew, which is a controversial issue, the government should conclude the

final case before completing the act amendment," he said.

The amendment of the FBA was largely a result of Singapore-based Temasek Holdings' takeover of Shin Corp. Kularb Kaew was accused of holding shares on behalf of Temasek to enable foreigners to hold shares above the legal limit.

The amended version of the law stipulates clearly the sectors where foreigners are not allowed to hold majority shares. The interim Cabinet approved the act amendment early this year.

Thitipan also urged the government to clarify the definition of nominee to avoid misunderstanding among foreign investors, who feared their businesses might be taken back by the Thai government.

Besides, Thitipan also urged the government to adopt a liberal approach. The government must decrease the list of businesses subject to protection under Annexes I, II, III as much as it could. This would not only create a better environment in the Kingdom, but also create a competitive environment for Thai businesses and force them to develop themselves as well as benefit consumers.

Additionally, he said the draft should control not only ownership in shares and voting rights but also the rights of the management process.

Skol Harnsuthivarin, secretary to the commerce minister, said: "It is quite difficult for the government to control all three levels. It's nearly impossible to verify the management process in every company."

He said the draft amendments were being considered by the Council of State before being proposed to the Cabinet for approval.

Kitti Tangjitrmaneesakda, deputy secretary-general of the Federation of Thai Industries (FTI), said the federation agreed with the Commerce Ministry about amending the act.

He believed it would not affect foreign investment in the industrial sector, particularly in huge projects, because projects approved by the Board of Investment will be exempted.

Adisak Rohitasune, FTI vice chairman, said he agreed with the act's amendment because it would treat foreign investors with the same standard. "We have to speed up announcing the new act in order to make the policy direction clear in the eyes of foreign investors. Many of them now believe that we are impeding them from investing here."
In the future, Thailand's policy will be opened wider for foreign investors due to some pacts such as free-trade agreements. However, some industries in which local operators are not ready to compete with foreigners should be reserved, he added.

Petchanet Pratruangkrai,

Chalida Ekvitthayavechnukul
The Nation