Foreign firms fear tighter restrictions

Foreign firms fear tighter restrictions

Nominee loopholes in the firing line

Foreign business chambers and embassies have expressed concern about a government proposal to restrict foreign control over joint-venture companies in Thailand.

Members of the Joint Foreign Chambers of Commerce in Thailand (JFCCT) have been active in trying to help the junta push investor confidence in the country since the coup, such as this event in June. But now there is bitterness over the attempt to bring in even more restrictions on business. (Photo by Pawat Laopaisarntaksin)

In an internal briefing document circulated among foreign embassies and seen by the Bangkok Post Sunday, fears are raised about possible amendments to the Foreign Business Act (FBA), which governs the activities of foreign businesses in Thailand.

The amendments, which the document says are being mooted by the Commerce Ministry's Business Development Department, propose closing loopholes that allow Thai nominees to be used by foreign companies.

One embassy believes the initiative is being pushed by the Thai Chamber of Commerce (TCC) as a means to benefit local businesses who are afraid of competition from foreign companies, according to the document. "The minister of commerce is planning to present this amendment and it appears that the PM might be supportive as well," the document says.

Chatchai Mongkolvisadkaiwon, who chairs the TCC's trade in services and investment policy committee, confirmed that Thai businesses have requested an amendment to the FBA to limit foreigners having the majority say in company boards, mainly in the service sector.

"There has been an attempt by many [Thai business] associations, but it would not be easy to pass as a law in the current context of liberalisation," he told the Bangkok Post Sunday.

Currently, Thai nationals need to hold more than 50% of stock in a joint venture for it to qualify as a local company.

However, the FBA does not prohibit foreigners from making up the majority of the board of directors. It also does not prohibit them having different classes of shares with different voting rights.

Lyman: Changes 'scare the hell' out of investors.

This means that in some instances a company may appear "local" even though foreign interests control it.

Mr Chatchai said allowing foreigners to determine the policy of the company may harm the interests of Thai shareholders. "Business operators are afraid that it will be a case of the big fish eating the small fish," he said.

The document also raises the prospect of removing restrictions on some industries that are off-limits to non-Thais, which could appease some foreign companies.

The Commerce Ministry is expected to organise a public hearing for foreign and local chambers of commerce and businesses in the next few weeks, before finalising the draft amendment at the end of this year, the document said. The law could be passed as early as next year.

Landy: Going the wrong way.

Business Development Department director-general Pongpun Gearaviriyapun confirmed the Commerce Ministry is pushing to amend the FBA, and added that the first meeting with foreign and local business groups would be held this week. She said a key proposal would be to classify a company as "foreign" even if foreigners hold only 49% of the shares but have control of the board and "company direction".

When asked if foreign investment would suffer if the changes went ahead, she said the government would have to offer other incentives, such as tax breaks, to offset any negative impact.

David Lyman, a former chairman and founder of the Joint Foreign Chambers of Commerce, said if the proposal was adopted there would be dire consequences for Thailand's foreign investment environment and the economy in general.

"The stated policy of the government is to rebuild confidence in the country and to expand Thailand's reach and GDP, not to contract them, which would indeed happen," Mr Lyman said.

He said any inkling that the government and local business organisations were seriously contemplating amending the FBA to further limit foreign ownership and control of Thai enterprises will "scare the hell out of both existing investors and those contemplating investing in this country".

"Unless I am mistaken, such a reaction is not what is sought or desired, unless the powers that be do not really care."

Simon Landy, the immediate past chairman of the British Chamber of Commerce, said such changes would send the wrong signal to the international business community. "As competitors in the region are liberalising, Thailand is in danger of giving the impression that it is going the other way, which could be in breach of its obligations under [the World Trade Organisation's] General Agreement on Trade in Service," he said.

The changes would likely be strongly opposed, not only by the foreign business community but also by the majority of Thai businesses who are aware of the benefits of an open economy, Mr Landy said. Questions concerning the proposals were raised with deputy prime minister MR Pridiyathorn Devakula at a meeting last week by American businesses, a participant said.

However, MR Pridiyathorn, also the economic adviser to the military-led National Council for Peace and Order, said while he proposed the changes seven years ago as Finance Minister, it was not on the agenda this time, as "he had learnt his lesson".

The proposed amendments to the FBA in 2007 did not go through because of "timing issues", according to the internal briefing document. But with the current government, "there is concern that the amended FBA could be fast-tracked to become law", it said.

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