Foreign Business Act Needs More Clarity

[george]

EDITORIAL

Foreign business act needs more clarity

Government's plan to amend the law should be fair to overseas investors and local industry

BANGKOK: -- The Samak government plans to review the Foreign Business Act, which governs foreign businesses in Thailand.

The Commerce Ministry is studying the details of a legal blueprint before forwarding its conclusion to the government next month. The Commerce Ministry blueprint is designed to address the problems arising from the ambiguity of the old law, which became a source of controversy during Temasek Holdings' take-over of Shin Corp, which ultimately brought down the government of Thaksin Shinawatra.

The old law - along with the previous government's decision to impose capital controls and the compulsory licensing of drugs - brought a negative perception towards Thailand - that the government was trying to implement an inward-looking policy. The interim Surayud government wanted to amend the law to prevent this sort of confusion, but the then Commerce Ministry's plan to update the legislation was suspended after it was upstaged by the National Legislative Assembly's conservative quarter, which wanted to tighten the regulations to control foreign businesses. Eventually, the effort to amend the law was halted.

It is now up to this government to create suitable rules to regulate foreign businesses in the 21st century environment. According to the Commerce Ministry, the most important parts of the amendment are the Annex III list of businesses subject to protection, the definition of the nationality of the corporate entity, and the punitive measures to punish investors who violate the law by, for instance, having foreign shareholders holding more shares than are reported to the Commerce Ministry.

The decision to make the law clear and transparent is a desirable improvement. Otherwise, some foreign investors might be hesitant about whether they should do business in Thailand. It is hoped that the result will be a clear-cut and fair government policy to regulate foreign businesses. However, the government should take into consideration several factors. First of all, the government has to be aware of the fact that Thailand is, like it or not, dependent on the presence of foreign businesses here. Some NLA members unsuccessfully tried to create the nationalistic sentiment by proposing the over-regulated foreign business law which requires the sophisticated procedure to trace the nationality of shareholders in a company.

The Thai government should open up sectors in which locals cannot develop or in which they lack expertise. This will enable Thailand to catch up with innovations and technological developments, and will attract exceptional foreign talent. However, the process of opening up the business sector should also ensure that sufficient knowledge and technology is transferred to locals.

The key to regulating the Foreign Business Act is balancing the need for a foreign presence and the interests of Thai business, especially when the country can be easily affected by massive international capital inflow. Indeed, financial services have developed faster than the outdated regulations are able handle.

The central bank was hesitant to remove the capital control requirement, largely because it feared that if capital flow was allowed to increase, then international property funds would begin to speculate and property prices in the country would rise.

The recent decision by the US Treasury to tackle the US financial crisis by tightening the rules reflects these concerns about under-regulating the market. It shows that full-blown liberalisation does not always bode well for an economy.

So, the government should aim to strike a balance, to ensure that foreign business is not over-governed or under-regulated. The government should take a realistic view of several factors affecting business and industry. If it does, the foreign business blueprint should help the Thai economy effectively operate in the 21st century.

-- The Nation 2008-04-04