Foreign Business Act Stopped

[Rooo]

Feared FBA bill pulled by govt

Krirk-krai acts after hardliners create chaos by voting for stricter measures

BANGKOK: -- The controversial proposed amendment to the Foreign Business Act was abruptly withdrawn from the interim Parlia-ment yesterday, raising uncertainty over whether the bill - dreaded by Thailand's key investment partners - will pass within the term of the military junta.

Commerce Minister Krirk-krai 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, which was considered more lenient than that of an NLA committee.

Krirk-krai was surprised and disappointed as hardline NLA members aggressively pushed for a tougher law. He decided to ask the NLA to withdraw the bill for further revision after a slight majority voted in favour of a proposal made by a group of NLA members to extend the power to control management via shareholding and voting rights, as a means of imposing more stringent measures in relation to the crucial nominee issue.

Seventy-six members voted for this version, while 64 members agreed with the government draft - authored by the Com-merce Ministry - to maintain the original definition to control only share and voting rights.

Krirk-krai admitted that the chance of passing the law, which oversees foreign investment and business, within the term of Prime Minister Surayud Chula-nont's administration was now uncertain.

"Now I can't tell if this government will be able to pass this law within its term," Krirk-krai said after the end of the session. He added that the Commerce Ministry would go through the bill article by article with the ad-hoc committee of the NLA be-fore resubmitting it for approval. He did not, however, give a time line for doing so.

The minister also refused to comment on the impact on foreign investment.

Nonetheless, the issues to be sorted out will be the definition of foreign companies, the question of management control, and the list of protected professions and investment sectors.

After losing the vote, Krirk-krai asked NLA members to decide whether the bill should be withdrawn from consideration so that its content could be revised. The absolute majority of 138 NLA members voted to withdraw the bill, while three members and the chairman abstained from voting.

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

An NLA member described the situation yesterday as "things getting out of control" after 76 members voted to extend the management control clause, which would prevent foreign investors from using nominees in order to dominate the management of Thai firms.

"The government was too complacent. Its whips underestimated the situation," an NLA source said. "Then, everyone votes to withdraw the bill because all hel_l broke loose."

The Surayud government had intended to amend the Foreign Business Act within its term to block the loopholes on the question of the nominee issue. Calls for amendment to the outdated Act were in response to last year's Temasek Holdings takeover of Shin Corp, which brought about a number of legal issues regarding nominees.

However, the unexpected vote has apparently put the process back to square one, as the ministry will have to revise the draft again.

Yesterday morning, Krirk-krai and Commerce Ministry officials appeared confident that the majority of NLA members would vote in favour of the government's version of the bill. Commerce permanent secretary Karun Kittisataporn said before the NLA session: "We should be able to complete the legal process in the next few months." He described the government's version as a balanced effort to control and open business opportunities for foreigners.

Krirk-krai said the government's version of the draft amendment was sufficiently protective, compared to the proposal to expand management control, which is too stringent and too difficult to examine.

"Thailand has to allow foreign investors to independently control company management as the country wants foreigners' know-how to help develop business. An expansion of management control, as some members of the NLA had proposed, would create difficulty for Thais in developing business efficiency," he said.

Somchai Sakulsurarat, an NLA member who advocated the stringent version of the bill, said: "The draft of the law could not prevent foreigners from engaging in protected business sectors, because foreigners can use other means to control companies other than voting rights."

Kamnoon Sithisamarn, another NLA member who preferred the more stringent version, said that if the government failed to amend the definition of foreign businesses according to the recommendation from his group, the law would fail to prevent foreigners from controlling local businesses.

Other NLA members who spoke in favour of the protective version of the law include Pan Perngsucharit, Bodin Aswananich, Pattara Khampitak and Viriya Namsiripongpan.

The NLA members said it was the most difficult law to decide upon because it would have a lasting impact on Thailand.

The version approved by the majority of the NLA stipulates that the law would extend the requirements on management control to shareholding and management voting rights. That is, a company registered in Thailand with foreign shareholders would have to limit the shares or voting rights of foreigners to below 50 per cent.

Viriya Namsiripongpan, a member of the NLA committee, said the tighter limitations on foreign ownership, share and voting rights and management control would ensure the country's sovereignty. He indicated that foreign investors would face difficulty circumventing the act after the extension of management controls.

--The Nation 2007-08-09

Edited August 9, 2007 by george

[dsfbrit]

For Now ! - will do me just fine

It is becoming increasingly difficult for the authorities to implement this legislation - its the 'fine print' that is very hard for them to agree on. Its OK to say in principle they dont want foreigners to control their companies nor own their land. Trying to put this into a form of words that satisifies everyone, not only Parliament but foreign investors is not so easy to do.

Interesting times indeed!

[george]

Foreign Business Act stopped

BANGKOK: -- Thailand's army-appointed government withdrew its draft Foreign Business Act on Wednesday after parliament inserted a clause at the last minute preventing foreigners from having majority management control.

Diplomats have said the new law, which already tightened restrictions on new foreign investment by defining ownership in terms of voting rights instead of shareholding, would trigger a challenge at the World Trade Organisation.

Despite this, analysts say the goverment's draft left scope for foreigners to control the companies in which they invested by having a majority presence on the board -- a loophole the last-minute addition was designed to close.

Previously, foreigners investing in many Thai sectors were limited only to holding 49 percent of equity, but could still exercise control of the company by having preferential voting rights.

It is not know when the draft law will be resubmitted to the parliament, which was appointed by the army after a military coup last September against Prime Minister Thaksin Shinawatra.

The last minute insertion of clause on management control was voted through by 76 votes to 64.

The government then withdrew the bill, saying it would have to make it all consistent with the clause on management control -- which foreign businessmen say smacks of economic nationalism.

At face value, revision of the law stemmed from probes into Thaksin's business dealings, most notably his family's $1.9 billion sale of its 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.

--Agencies 2007-08-09

[george]

Government withdraws Foreign Business Bill after vote defeat

BANGKOK: -- The government has withdrawn Wednesday the controversial Foreign Business Bill from the final stretch of the law-making process to incorporate more amendments suggested by law-makers.

The National Legislative Assembly, the law-making body, met for the third reading of the draft. Following objections from the minority wing, Commerce Minister Krirkkrai Jirapaet decided to withdraw the bill from the process in order to prevent it from being killed.

A group of NLA members proposed amendments to the definition of “foreign” voting rights and control. These last two issues, they argued, were more important substantively in determining whether a company was “foreign.”

Somchai Sakulsurarat, an NLA member, who opposed the version of the bill being debated on Wednesday argued that it should address the management control issue in line with recommendations by the Council of State.

“I disagreed with claims that having tight definition of management control would undermine foreign investor’s confidence. We are trying to avoid recurrence of such charade as the Kularbkaew case,” he said, referring to the proxy company set up to facilitate share transactions between Shin Corporation and Singapore’s Temasek Holdings.

He said the draft proposed by the government would fail to close such gaps as foreign entities could come up with many other ways to exercise management control.

Mr Somchai was adamant that the definition of “foreigner” he wanted to see would not deter “honest foreign investors” who chose to do business in Thailand for good reasons.

After the majority of the NLA voted 76 to 64 for amendments, Commerce Minister Krikkrai withdrew the bill for improvement. The NLA thereafter voted for the bill to be returned for further reading after amendment.

--TNA 2007-08-09

[Netfan]

For Now ! - will do me just fine

It is becoming increasingly difficult for the authorities to implement this legislation - its the 'fine print' that is very hard for them to agree on. Its OK to say in principle they dont want foreigners to control their companies nor own their land. Trying to put this into a form of words that satisifies everyone, not only Parliament but foreign investors is not so easy to do.

Interesting times indeed!

This delay is not about "satisfying foreign investors". This is about a group of legislators who feel the bill does not go far enough. They want it t be even more restrictive. The impasse might means the old regulations remain for now, but there may have to be even more restrictive language written into the bill to get it passed. This is not good news for foreign business or Thailand, in the long run.

[A_Traveller]

As I posted overnight, the two versions were difficult and very difficult and after very difficult succeeded, the government pulled the bill, which the chamber agreed to.

A description of the events made to me suggested that it was a shambles, with tempers running very high.

Regards

[alh]

I bet a lot of people will be having a drink on this one

[thymode91]

I bet a lot of people will be having a drink on this one

[froglegisgood]

I wonder what will happen to the money taken (30% of investment over $20K) by the Bank of Thailand???

anybody knowledgeable about this? we have a fair amount stuck there for another 9 months with no interest...

oz

[John K]

It is not over.

[Bruce1]

This is clearly evidence that people ARE getting stupider!

Fancy being more concerned about protecting the power of a business elite than in the good of your country. I mean, this place already has pretty much the lowest growth rate in Asia, and they want to discourage foreign investors? How stupid is that.

Bring on the elections ASAP. Meanwhile, the govt. should do nothing on this issue.

[wolfmanjack]

I wonder what will happen to the money taken (30% of investment over $20K) by the Bank of Thailand???

anybody knowledgeable about this? we have a fair amount stuck there for another 9 months with no interest...

oz

This is wreaking havok with my business also. Every time a payment is sent to my customer they freeze 30% and it has affected his cash flow which has affected my cash flow. he manages to get it released after a couple of months every time but it is getting ridiculous to have the money held until you can prove it is for purchase of export products every single payment.

The article mentions that it is okay to limit equity, voters rights and members of the board since there are other ways to control the company. My guess is that after every other way becomes known then these "elite" will pass amendments to close those also.

Edited August 9, 2007 by wolfmanjack

[Martin]

" I mean, this place already has pretty much the lowest growth rate in Asia, and they want to discourage foreign investors? How stupid is that."

It could be a reflection of wisdom.

The days when growth rate was felt to be the be-all and end-all finished at the moment of the coup.

Remember the PM's words when he took office:

"I will not focus on GDP as the previous governments, but I will adhere to the sufficiency economy advocated by the King. I will focus on the happiness of the people rather than the GDP."

And then to the Ambassadors and the JFCCT in January:

“In fact, the “Sufficiency Economy Philosophy” is a Thai model for sustainability, the importance of which is only now becoming recognized around the world. As an early adopter of a sustainable approach to development, Thailand should, I believe, be praised, for it is a path down which every country or company will have to travel sooner or later.”

Adding to GDP by growing more rice is laudable. Adding to GDP by building more casinos is not.

There is probably as much of disenamourment with the results of following the Western industrialised countries behind this as there is of the reasons surmised by the commentators.

[Foggy Bottom]

This saga becomes more interesting by the minute - The final sentence in post #3 may be a key point.

Excluding Burmese occupation before the "Colonial Era", and a brief period of Japanese occupation in WW2, Thailand's frequently voiced pride in never having been subjected to foreign rule, and standing alone in being able to make that claim in SE Asia, continues to instill a warped sense of what foreigners do and don't do when they invest in Thailand.

If the NLA hardliners were to compare the current state of Thailand's inward investment market and business sector performance against those of former "colonies" (e.g. HK, Singapore, Malaysia, Taiwan, even Japanese performance since WW2 and US occupation) then they may realise they are doing the Kingdom a disservice with the exclusionary protectionism they advocate.

Formerly available on the BOI website were stats that showed in year 2000, over 2000 foreign funded investment projects were approved for BOI privileges status. In 2001 that dropped to under 200 approved (and that was the total of Thai and foreign funded projects). By then the ammendments in the Foreign Business Act (1999) - brought into force in early Dec '99, and a government often criticised as Nationalist had arrived. But then, those who ignore history are doomed to repeat its mistakes.

Some simple examples of where foreign involvement have proved beneficial include the current state of the State Railways - infrastructure as built a century (ish) ago under foreign direction, and never expanded except by the Japanese (Western Line) in WW2. It now suffers near weekly derailments due to aging lines and line beds etc.

Also look at any inner city road with a brick-cobble surface. When western companies lay such surfaces, or have to do sub-surface works and re-lay them, the surface is good for decades (whether here or in the west). When Thai firms do it, the surface becomes an ankle-breaking ploughed field within 2 years, due to cost-skimming through failing to include mortar-lime in the bedding mix.

Almost every attempt by Thai firms in such infrastructure works, large or small, could be included in the list, but I won't labour the point.

Then there is the case of firms like the cement company (I think it was a cement company - too early for the brain to be running on all cylinders) a few years back. The company went into government administration because it had billions in debt, and the founder was officially bankrupted, then he tried to regain control of the company by paying off the company's debtors from his personal assets. ????

Bankrupt means all assets are siezed - right? Apparently not here. The guy had enough stashed to buy the company out of insolvency, and one must ask why he had that amount of cash when the company did not, and after he was made officially bankrupt. But no Thai ever asked that question. The government administrators did however block him from getting back into the company's board. This was all at a time when foreigners were excluded from being accountants and from providing accountancy consultancy services - nuff said?

Some of George's news clippings hint at the old guard and elite seeking payback for 1997 - a crisis they created themselves, but which many Thai's still blame foreign investors and the IMF for.

There seems to be an almost Agincourt-like defence being put up to protect the vested interests of that old guard, interests which, with time, may unveil scandals as emotive as Shin & Temasek, but for which, once again, foreign investors will bear the backlash.

In post #3, it was heartening to see that diplomats believed the WTO would protest the Bill. It would be more heartening to believe Thailand had learned its lesson last December when the SET lost 20% in one day over a similarly protectionist issue, but ..........

.

[cathyy]

The situation isn't as simple as all that. There is good economic reason to discourage foreign investment at present, specifically the exchange rate of the baht. Disregarding the disproportionate change in the rate versus the dollar, which is obviously due to a weakness of the dollar as shown across all currencies, the baht is holding a much higher value than it has for years. This adversely impacts industries which primarily export, such as clothing manufacturing and food. The globalization of business means that corporations will close their Thai facilities and relocate someplace where the effective cost of doing business is cheaper. A strong currency is bad for an exporting country.

Now, I am not saying there is no nationalism nor xenophobia involved in this situation. There must be, particularly when the legislature is proposing permanent anti-foreign investment cures to temporary currency exchange problems.

[astral]

Phew.............

Time to get out whilst I still have control of my assets.

[midas]

Phew.............

Time to get out whilst I still have control of my assets.

but is not going to be applied retrospectively is it ? if you already have

a company set up I understood you're at no disadvantage ?

[argus]

Phew.............

Time to get out whilst I still have control of my assets.

but is not going to be applied retrospectively is it ? if you already have

a company set up I understood you're at no disadvantage ?

Where it is retrospectively is depending on new wording they said they want to find. The fact is that Foreign Inverstors are even more in the dark until this FBA get scapped or become the law. The hardliners have claerly the up hand right now. SCARRY!

Edited August 9, 2007 by argus

[Bruce1]

The sufficiency economy principle is all well and good if the economy can produce sufficient to satisfy the needs and wants of the people. However, in fact, it can't. Its just a utopian myth for rural poverty. No economy can satisfy all the needs and wants of the people of that country. I can't see the Thai people being happy to go back to living in straw roofed shacks, walking everywhere, and growing a subsistence diet. There would be rioting in the streets. People are moving to the cities because they want a better lifestyle. All economies are interconnected. Pretending any country can be a self-sufficient island is a fantasy - it's impossible. Do they really want this place to go like failures such as Zimbawbe, Burma or North Korea? Unfortunately, this country is currently run by the military, bureaucrats and academics who have little or no idea of how the world economy actually works. The sooner we have elections so the government is answerable to the people the better it will be for this country. Until then, we're just marking time or even going backwards.

[quiksilva]

Blimey, well at least there is a little more breathing room before things go completely pear shaped. Now we just have to hope that it takes equally as long to get the final final final revisions to be made.

[Bruce1]

Hopefully the govt will adopt a policy of masterly inaction and do nothing until after the elections, when reality might revive.

[nick2k]

man, some of you guys just don't get it. ..the writing is on the wall. their intent is to confiscate whatever they want. to take, take, take. they are showing their true colors. carrefour, lotus, dtac, ibm, ford, etc. they are all going to get taken over.

all the money that foreigners have spent here (not invested) for setting up shop, all the technology that was GIVEN to this country will be TAKEN. the morons who advocated building the factories here will get their just deserves when the stockholders learn of ALL the money lost from the takeovers.

smacks of what chavez is doing.

[Payboy]

stock markets up 4 points - changes must mean something to local investors....

[jumnien]

Market up in Thailand this morning because US market up last night.

[Gnarpjohan]

"I will not focus on GDP as the previous governments, but I will adhere to the sufficiency economy advocated by the King. I will focus on the happiness of the people rather than the GDP."

Most people would argue that there is a connection between GDP growth and happiness, especially for poor people. The poorer people are, the more utility from money. More money comes from economic development that can be proxied by GDP growth.

Adding to GDP by growing more rice is laudable. Adding to GDP by building more casinos is not.

You serious Let's pile up mountains of rice, what's laudable with that? Create an excess supply, guess what will happen with the price? Will the farmers now be happy to sell rice at a loss? Who said the choice would be between rice growing and casinos in the first place? How about rice growing vs a modern economy with jobs that pay decent salaries for work done? You don't think people would get more utility from well-paid jobs instead of the current sweatshop/rice growing life most are stuck in?

The situation isn't as simple as all that. There is good economic reason to discourage foreign investment at present, specifically the exchange rate of the baht.

You are mixing apples with something else. The excessively strong bath is a short-term thing, that is likely to correct itself. Lower interest rates might do the trick. The issue at stake here is if foreign ownership should be allowed, something that has serious long-term impact on the industry structure in the country.

I am sure there will always be an opening for the Fords of the world to open another sweatshop, given the BOI road. But it should not be forgotten that large businesses started out small. This could shut the door for foreign involvement in many a small/medium-sized enterprise. Not saying that foreign human or financial capital is always needed, but it sure can help in many cases.

It's a step towards permanenting the sweatshop/rice growing economy, is that really what makes Thai people happy?

[Edwin Buurman]

I call this GOOD news! Better wait for a new law till after the elections. Most likely the Democrats will become a big player in the political arena. They are more cooperative to farangs then TRT was. Also don't forget that it was during Mr. Thaksin's period they started rewritting this FBA. The only big change for Thaksin himself now is that he was ousted/deposed mainwhile and that he himself, officially, bought property (Villa) and ownership (Manchester City) himself abroad mainwhile. (This should open Thai minds also). HERE in Thailand it was Thaksin's own telecom sale who thightened the regulations for us suddenly in a negative way for us. I strongly believe that a new government (with increasing needs and demands for fair freetrade, European talks coming up soon) will be more openmindend towards foreign ownership. So it is for me better to wait a bit longer for a new IMPROVED proposal and then final aproved one then it would have been to settle with a bad law yesterday.

buurmanb,Thailand

Edwin, [email protected]

[midas]

man, some of you guys just don't get it. ..the writing is on the wall. their intent is to confiscate whatever they want. to take, take, take. they are showing their true colors. carrefour, lotus, dtac, ibm, ford, etc. they are all going to get taken over.

all the money that foreigners have spent here (not invested) for setting up shop, all the technology that was GIVEN to this country will be TAKEN. the morons who advocated building the factories here will get their just deserves when the stockholders learn of ALL the money lost from the takeovers.

smacks of what chavez is doing.

I dont agree with you !! They could not be that shortsighted

[Arkady]

The situation isn't as simple as all that. There is good economic reason to discourage foreign investment at present, specifically the exchange rate of the baht. Disregarding the disproportionate change in the rate versus the dollar, which is obviously due to a weakness of the dollar as shown across all currencies, the baht is holding a much higher value than it has for years. This adversely impacts industries which primarily export, such as clothing manufacturing and food. The globalization of business means that corporations will close their Thai facilities and relocate someplace where the effective cost of doing business is cheaper. A strong currency is bad for an exporting country.

Now, I am not saying there is no nationalism nor xenophobia involved in this situation. There must be, particularly when the legislature is proposing permanent anti-foreign investment cures to temporary currency exchange problems.

Sorry but this is nonsense. One important factor behind the baht's strength that you have missed is the slowdown of direct investment growth to a snail's pace compared to other Asian economies. This means that firms have not been investing in new plant and machinery which would have required selling baht to buy dollars and would have offset some of the effects of inflows of dollars from export earnings. As well as helping keep the baht high, this has a big impact on export industries over the medium term as they have not upgraded plant and their products will not be competitive eventually and exports will suffer. Discouraging foreign investment has exacerbated this situation where Thai firms don't want to invest either. Even apart from this factor, the idea of trying to discourage long-term foreign direct investment which brings in a lot of innovation and productivity gains and a way to manage short term currency volatility would clearly be ludicrous.

[terryp]

Vietnam must be thinking how much better this can get

Thailand you are a country of complete buffoons ….just like the Pratt (Army Guy) yesterday who said Thais can no longer be bought ???????? (Bangkok post)

Looks like the baht could up to 50 to the $ yet

[solo siam]

man, some of you guys just don't get it. ..the writing is on the wall. their intent is to confiscate whatever they want. to take, take, take. they are showing their true colors. carrefour, lotus, dtac, ibm, ford, etc. they are all going to get taken over.

all the money that foreigners have spent here (not invested) for setting up shop, all the technology that was GIVEN to this country will be TAKEN. the morons who advocated building the factories here will get their just deserves when the stockholders learn of ALL the money lost from the takeovers.

smacks of what chavez is doing.

lol, are you the same guy that's always talking about how the USA should close all the international factories and return the jobs to US Citizens.