New Thai Investment Act Bars New Foreign Investors From Having Full Control

[nokia]

New Thai investment act bars new foreign investors from having full control

Tue, Aug 07, 2007

Reuters

BANGKOK, Aug 7 (Reuters) - Thailand's army-appointed parliament is expected to approve a new Foreign Business Act on Wednesday that will bar new foreign investors from having control of everything from telecommunications firms to supermarkets.

The law, which represents a major tightening of the restrictions on foreign ownership of companies, will be enacted only when signed by King Bhumibol Adulyadej, a formality that could take anywhere between one and 90 days.

However, foreign embassies were already preparing a challenge in the World Trade Organization (WTO), arguing that Bangkok would have shifted its foreign investment goalposts from those used during its entry negotiations in the 1990s, diplomats said.

"This would be one step closer to formal action being taken on the WTO front," one diplomatic source told Reuters.

At face value, revision of the law stemmed from probes into the dealings of ousted Prime Minister Thaksin Shinawatra, most notably his family's $1.9 billion sale of their controlling stake in the Shin Corp telecoms empire to Singapore.

However, it is also about Bangkok's old business elite -- many of whom supported the September coup against Thaksin -- getting payback for having to sell their family firms to foreigners after the 1997 Asian financial crisis, analysts say.

Another diplomat said it was clear that ministers were declaring the new law to be WTO-compliant as part of a plan to allow the interim post-coup government to pass the law during its one-year term, which ends with elections slated for December.

Its successor will then have to deal with the fallout.

"The law will take a few months to be enacted by the King, so it will be the next government who will have to face the problem of international liabilities," the second diplomat said.

"But they don't care. This is only a political game to satisfy some influential power or families who just want to get revenge for the cheap sales they had to make during the 1997 crisis. They want to get control back."

OWNERSHIP AND CONTROL

For the last 35 years, Thailand's rules on foreign investment have been defined only in terms of share ownership, allowing foreigners to own just 49 percent of a company's equity but maintain control through preferential voting rights.

The revised law makes this illegal, forcing new outside investors to have only 49 percent equity and 49 percent voting rights, provisoes likely to dent the southeast Asian nation's reputation as a sound international investment destination.

The restrictions apply to highly sensitive sectors such as broadcasting, agriculture and armaments, as well as a wide range of services, including finance, retailing, telecommunications and hotels and tourism.

The National Legislative Assembly, a rubber-stamp parliament appointed after the coup, debates the bill on Wednesday and is expected to pass it late in the day.

Reaction on the stock market -- which could be harsh if foreign investors see it as another sign of nationalism taking hold of policymaking since the coup -- will be delayed until Thursday.

Foreign businessmen in Thailand have complained about being shut out of all consultations on the revisions, which finally emerged from vetting by a parliamentary subcommittee on Monday.

Despite their appeals, the committee refused to water down any of the major proposals in a draft approved by the cabinet.

One concession was to give foreign-controlled companies in the sensitive media, agricultural, mining and logistics sectors three years, rather than two, to adjust their share structure -- or "hand over the keys to Thais", as the second diplomat put it.

Existing companies in the service sector will be allowed to keep their shareholding structure under an amnesty clause.

[Chang_paarp]

I wonder how this will affect free trade agreements. In some such as the Australian FTA, Australians are permitted to own up to 60% of some business types, such as schools, mining and transport.

[cclub75]

Good to see that Reuters doesn't fall into the trap of misinformation... FBA 2 is indeed a serious liability.

Check this : http://thaicrisis.wordpress.com/fba-special/

As for the FTAs... sure it will create problems. Same with the Amity Treaty (special law for US investors)... It will weaken further more the position of Thailand regarding WTO.

[mouse]

Am I to understand that an American Amity company is basically exempt from this Act?

[onethailand]

Businesses set up under the Treaty of Amity are treated almost exactly as if they were Thai businesses. I highly doubt they will be subject to FBA2 unless the Treaty itself is revoked.

[dog412]

i would love to know WHO developed this perpetual weapon that not only seems not to run out of ammo, but continues to rebuild enough of the foot to keep aiming at. my sympathies and best wishes to the many Thai people that deserve so much more.

[womble]

Parliament to approve tighter foreign ownership rules

Parliament is expected to approve on Wednesday a law that will tighten limits on foreign ownership of businesses related to national security, culture, national resources and the environment.

The new law would also cover media, real estate, farming and antiques and protected industries where locals are not ready to compete with foreigners, such as rice milling, accounting and legal services, hotels (excluding hotel management) and retailers.

- The Nation

[Jai Dee]

Duplicate topic merged.

[LaoPo]

New Thai investment act bars new foreign investors from having full control

Tue, Aug 07, 2007

Reuters

However, it is also about Bangkok's old business elite -- many of whom supported the September coup against Thaksin -- getting payback for having to sell their family firms to foreigners after the 1997 Asian financial crisis, analysts say.

Another diplomat said it was clear that ministers were declaring the new law to be WTO-compliant as part of a plan to allow the interim post-coup government to pass the law during its one-year term, which ends with elections slated for December.

"But they don't care. This is only a political game to satisfy some influential power or families who just want to get revenge for the cheap sales they had to make during the 1997 crisis. They want to get control back."

It's all about [the Old Elite's] Power, Money, Greed and Protection, like it always has been.

They don't give <deleted> about the majority of Thai people....

I am surprised by the continues bashing and blaming on the previous government, whether that's justified or not, and at the same time there is so little comment of WHAT the INTERIM GOVERNMENT (installed by a Junta) is doing to/with Thailand....

Thailand knew what they had...NOT what they're getting....YET !

I'm afraid Thailand take a few steps back on the road to Democracy, not forward.

LaoPo

[bangkokrick]

So how will this affect those who purchased land through the company/business rule?

Cheers Rick

[Old Man River]

As soon as this FBA crap starts taking money out of the pockets of those who make the rules in future governments, either authorities will look the other way at the next loophole, or outright weaken the law.

[midas]

As soon as this FBA crap starts taking money out of the pockets of those who make the rules in future governments, either authorities will look the other way at the next loophole, or outright weaken the law.

I wish I could share your confidence

But besides that what all the damage to sentiment in the meantime ?

Now Thailand has some fierce competitors and cant afford to lose ground like this

[Gnarpjohan]

So this is effectively closing the door for foreign capital without a BOI stamp on it, or am I missing something?

Has someone responsible for the junta's economic policies provided some kind of analysis of likely consequences from implementing the tighter foreign ownership rules?

Less inflow of financial capital invested in new projects, less inflow of human capital (sometimes highly trained foreigners) needed for the projects. Fewer Thai people employed, less knowledge transfer, less competitive business/industry sector...but who gives a darn, now some old "elite" families might have the opportunity to steal some valuable firms.

Pretty amazing stuff in this time and age, really...

[bkk_mike]

I've been wondering how long Thailand had before other countries start taking it to the WTO.

After all - I would have sworn that their 100% import duty on cars had to be reduced soon - as there's no way it's valid under WTO rules except as some sort of initial exemption because Thailand is a "developing" nation.

If they're worried about shops like Tesco and Carrefour - just imagine how much fuss there would be if, under a WTO ruling, a 100% duty was applied to Thai rice, fruit, shrimp, chicken, etc. exports to the US or the EU.

At the moment, other countries haven't bothered because there isn't really a lobby complaining about Thailand. (In world trade terms - Thailand's a minnow.)

But if they were to kick out Tesco and Carrefour, they could start lobbying the EU to act against Thailand in some way, and the WTO status of their import tariffs or internal business laws would probably be an easy target, if only in retaliation. (probably why Tesco and Carrefour are exempt from the new law).

Foreign ownership laws in themselves are not illegal under the WTO though. - Look at the US - Rupert Murdoch had to become a US citizen in order to buy Fox television, as US TV and Radio stations are specifically restricted to majority US ownership. However, Thailand's law is possibly too broad, given that it covers all companies here, not just specific sectors.

Thailand will do nothing but lose from this. What foreign company is going to set up new factories here, when they can't have control. After all, this is not 20 years ago - Cambodia and Vietnam are both cheaper, and are now far more suitable places to do business than they have been at any time in the recent past.

[Old Man River]

As soon as this FBA crap starts taking money out of the pockets of those who make the rules in future governments, either authorities will look the other way at the next loophole, or outright weaken the law.

I wish I could share your confidence

But besides that what all the damage to sentiment in the meantime ?

Now Thailand has some fierce competitors and cant afford to lose ground like this

I have been here long enough to have seen similar situations and this is a given. However, you are correct that they will lose ground and this is what has to happen for them to realize the mistake. The current government cannot change it as it would be a huge loss of face and the next government will not change it as they will be too closely tied to the current government. It is those that follow that will start looking at what Thailand needs to do to compete for FDI. My view is that it will probably come as amendments to the BOI instead of an outright change in the law. That would be more politically correct than a reversal of what this government is doing (unless, of course, Thaksin get back in).

[thaigene2]

New Thai investment act bars new foreign investors from having full control

Tue, Aug 07, 2007

Reuters

However, it is also about Bangkok's old business elite -- many of whom supported the September coup against Thaksin -- getting payback for having to sell their family firms to foreigners after the 1997 Asian financial crisis, analysts say.

Another diplomat said it was clear that ministers were declaring the new law to be WTO-compliant as part of a plan to allow the interim post-coup government to pass the law during its one-year term, which ends with elections slated for December.

"But they don't care. This is only a political game to satisfy some influential power or families who just want to get revenge for the cheap sales they had to make during the 1997 crisis. They want to get control back."

It's all about [the Old Elite's] Power, Money, Greed and Protection, like it always has been.

They don't give <deleted> about the majority of Thai people....

I am surprised by the continues bashing and blaming on the previous government, whether that's justified or not, and at the same time there is so little comment of WHAT the INTERIM GOVERNMENT (installed by a Junta) is doing to/with Thailand....

Thailand knew what they had...NOT what they're getting....YET !

I'm afraid Thailand take a few steps back on the road to Democracy, not forward.

LaoPo

Yes, I'm also amazed by those who still cling to the old "Thaksin was a corrupt as+hole and we had to get rid of him" routine. "So ok-Yes, he was a corrupt as+hole"...but that wasn't why the ELITES got rid of him. NOW DO YOU UNDERSTAND? Well done Reuters..this is exactly what some of us had said since day one when middle class college kids were having their photos taken next to the tanks! So sad - so Thai (but not so Thai-Chin!)

[A_Traveller]

Apparently the act has been stopped in its tracks.

Breaking news 21.42 Bangkok Post

Nation Report

Regards

Edited August 8, 2007 by A_Traveller

[Rionoir]

Apparently the act has been stopped in its tracks.

Breaking news 21.42 Bangkok Post

Nation Report

Regards

A temporary sigh of relief here... Getting my business going has been such a rollercoaster ride!

[LaoPo]

Apparently the act has been stopped in its tracks.

Breaking news 21.42 Bangkok Post

Nation Report

Regards

A temporary sigh of relief here...

I don't think so, unfortunately....:

"Commerce Minister Krirkkrai Jirapaet asked the National Legislative Assembly to withdraw the bill in the last minutes of a heated NLA session after his ministry lost in its attempt to push through its version of the bill, considered more lenient than that of an NLA committee.

Krirkkrai was surprised and strongly disappointed as hardline NLA members aggressively pushed for a tougher law. He decided to ask NLA to withdraw the bill for further revisions after a slight majority of NLA members voted in favour of the proposal made by a group of NLA members to extend the management control which would impose stringten control on the nominee issue in the bill by 7664."

and:

Even with the government's softer version, the proposed amendment has become a major point of contention, largely criticized by foreign investors familiar with lax regulations while doing business here.

Question: who has more power...?

The NLA or the Minister of Commerce...

The Interim Government Ministers are puppets on a string...

LaoPo

[nick2k]

I wonder how telenor of norway feel about this? correct me if I'm wrong, but I think they own DTAC.

[andy1308]

I wonder how telenor of norway feel about this? correct me if I'm wrong, but I think they own DTAC.

I think you will find that with a lot of the SET companies too. I saw the shareholder listing for KasikornBank yesterday and their 10 largest shareholders are all foreign companies or funds.

My concern is that I understand there might be some limits to prevent the foreign control of Thai registered companies. By control does this mean management? I work for a Thai company yet three of our four directors are non-Thai so this has a potential impact on us, and I imagine a lot of other companies here.

[LaoPo]

I wonder how telenor of norway feel about this? correct me if I'm wrong, but I think they own DTAC.

I think you will find that with a lot of the SET companies too. I saw the shareholder listing for KasikornBank yesterday and their 10 largest shareholders are all foreign companies or funds.

My concern is that I understand there might be some limits to prevent the foreign control of Thai registered companies. By control does this mean management? I work for a Thai company yet three of our four directors are non-Thai so this has a potential impact on us, and I imagine a lot of other companies here.

This is what the article in the Nation says:

"Seventysix members of NLA voted to extend the power to control management through voting rights and shares as recommended by a group of NLA members, while 64 NLA members agreed with the government's draft authored by the Commerce Ministry to maintain on the original definition to control only share and voting right.

"

The problem, IMHO, is the difference between a draft law/theory law and daily life in a company which includes important decisions (to be made).

I can't imagine a Japanese company, for instance, and their board, sitting and waiting for a Thai majority to vote over important financial, restructure or production & Sales decisions....The owners/investors can and will make their own decisions.

If they're not allowed to do so anymore by this draft law (now withdrawn for the time being), they'll leave the country.

Maybe the NLA underestimates the power of foreign (Japanese/French/UK/US) investors and their money...

The Thai government is promoting Thai investors to invest and build factories abroad; would they accept foreigners (from Vietnam, Malaysia, China etc.) to control THEIR investments ?

Give me a break.

Power, Greed, Money and Protection*.....

* keep the foreigners and their money OUT of Thailand.

What a stupid decision would that be...

LaoPo

[Old Man River]

I wonder how telenor of norway feel about this? correct me if I'm wrong, but I think they own DTAC.

I think you will find that with a lot of the SET companies too. I saw the shareholder listing for KasikornBank yesterday and their 10 largest shareholders are all foreign companies or funds.

My concern is that I understand there might be some limits to prevent the foreign control of Thai registered companies. By control does this mean management? I work for a Thai company yet three of our four directors are non-Thai so this has a potential impact on us, and I imagine a lot of other companies here.

Andy, this is going to have an impact on a lot of companies, even with the "watered down" version that the Commerce Minister is proposing. It is a mistake and ultimately, after taking money out of the pockets of those who want money in their pockets, it will be changed. It may take some time for this to happen, but it will happen.

On K Bank, one should remember that Thai companies do not list the majority of their shares outstanding so while foreigners may be the biggest ownership block of listed shares, the Lamsam family and their designates are still the majority owners of the bank.