New Draft Of Fba Easier On Foreigners

[Tornado]

New draft of FBA easier on foreigners

NLA version aims to restore confidence

source: Bkk Post

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.

[Paul MBMG]

You could say that all the lobbying worked ........or that the government's attempts to persuade investors to use methods of control other than voting rights has failed - I think that they OVERESTIMATED the abilities and taste of their audience

Either way, as we said all along, I don't think that there was ever any real problem here and maybe now the hysteria and paranoia can die down??

[cclub75]

It's unfortunate that you didn't give your opinion about the NLA draft.... rather than to copy the stupid propaganda of BKK Post.

First point : this draft was written by a group of members of NLA.

The cabinet will "review" this draft mid april.

So, high odds that the "new-new" draft will go to toilets... But politely of course.

As for the proposal, I'm sorry, but it's not "easier on foreigners".

Basically here is the core of this proposal :

-the voting rights issue (over 50%), to define a company as foreign, is kept intact

-but (fasten your seat belt), it will not be automatic !

The brains of NLA proposed to establish "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".

Can you imagine ? You create a company... And then your faith (to be classified as a thai or foreign company) will be taken care of by... a black box, at Commerce ministry, probably full of other thai brains. How they will decide ? On case by case basis, yes sure. I mean : stop the press. Even a child could understand that it's not serious.

Voila. After a big controversy, large pressure from the foreign business community, thai politicians are still able to imagine such stupid system, and still say that it's "better".

Day after day, Thailand is pushing the limits of insanity.