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Viewing cable 06BANGKOK969, THAILAND - INVESTMENT CLIMATE STATEMENT, 2006
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 06BANGKOK969 | 2006-02-17 01:32 | 2011-08-25 00:00 | UNCLASSIFIED | Embassy Bangkok |
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 12 BANGKOK 000969
SIPDIS
STATE FOR EB/IFD/OIA
E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV TH
SUBJECT: THAILAND - INVESTMENT CLIMATE STATEMENT, 2006
REF: SECSTATE 202943
Following is the 2005 Investment Climate Statement for Thailand.
Section headings conform to those provided in reftel paragraph 4.
OPENNESS TO FOREIGN INVESTMENT
The Royal Thai Government (RTG) has long maintained an open,
market-oriented economy and encouraged foreign direct investment as
a means of promoting economic development, employment, and
technology transfer. Thailand welcomes investment from all countries
and seeks to avoid dependence on any one country as a source of
investment.
In the wake of the 1997-98 Asian Financial Crisis, the RTG embarked
on an International Monetary Fund (IMF)-sponsored economic reform
program designed in part to foster a more competitive and
transparent climate for foreign investors. Legislation establishing
a new bankruptcy court, reforming bankruptcy and foreclosure
procedures, and allowing creditors to pursue payment from loan
guarantors was enacted in 1999. Other 1999 reforms include
amendments to the Land Code, Condominium Act, and the Property
Leasing Act, all of which liberalized restrictions on property
ownership by non-Thais. Many aspects of the IMF reform measures were
controversial, and were resisted strongly by the political
opposition and other powerful elements of Thai society. Inconsistent
political will for reform, weak bureaucratic implementation of some
measures and a strongly recovering economy has meant that reform
efforts have slowed considerably since the Thaksin administration
took office in 2000 and focused its efforts on stimulating domestic
consumption
Replacing the 1972 National Executive Council Announcement Number
281, otherwise known as the Alien Business Law, the Alien Business
Act of 1999 governs most investment activity by non-Thai nationals
and opened limited additional business sectors to foreign
investment. Nevertheless, foreign investment in most service sectors
is limited to 49 percent ownership.
The Thaksin government has begun a series of Free Trade Agreement
negotiations in an effort to gain a comparative advantage for Thai
products in key markets/regions. In addition to completed FTAs with
Australia, New Zealand, Bahrain, Peru and BIMSTEC, and 'early
harvest agreements with China and India, Thailand is holding talks
with, Japan, ASEAN-China, European Free Trade Area and the U.S. An
agreement with Japan is expected to be singed in April 2006.
On taking office, the Thaksin government implemented a "dual track"
development approach that combines building domestic economic
capacity with facilitation of foreign trade and investment. By all
accounts, this approach has been successful in reviving the Thai
economy. In 2003, gross domestic product (GDP) grew by 7.0 percent
as Thailand posted one of the fastest growth rates in East Asia.
Although the regional SARS outbreak affected tourism, it had little
impact on overall economic growth. Although consumer demand and
exports remained strong in the first part of 2004, the avian flu,
political unrest in the South, and rising oil prices moderated the
pace of GDP growth to 6.2 percent for the year.
On December 26, 2004, a tsunami hit six provinces in southern
Thailand, one of the country's most important tourist areas. As a
result of the resulting downturn in the tourism sector, higher oil
prices and a decline in consumer demand, the pace of economic growth
slowed to 4.4 percent over the first three quarters of 2005 and is
expected to have increased by 4.75 percent for the entire year.
Since the latter half of 2005, the RTG has been struggling to retain
its popular support amid clear signs of slowing economic growth and
persistent unrest in southern Thailand. It is widely anticipated
that both budget and current account will record deficits for the
next few years as the RTG raises expenditure to stimulate the
economy and restore its popularity with the electorate. Monetary
conditions have also been tightening in response to inflationary
pressures and the need to stabilize the Baht. With higher
investment demand from the RTG's infrastructure development
programs, GDP growth is forecast to improve to 4.5-6.0 percent in
2006 with a lower rate of inflation.
Treaty Of Amity: The U.S.-Thai Treaty of Amity and Economic
Relations (AER) was originally signed in 1833. The 1966 iteration of
the Treaty allows U.S. citizens and businesses incorporated in the
U.S., or in Thailand that are majority-owned by U.S. citizens, to
engage in business on the same basis as Thais, exempting them from
most of the restrictions on foreign investment imposed by the Alien
Business Act of 1999. Under the Treaty, Thailand restricts American
investment only in the fields of communications, transport,
fiduciary functions, banking involving depository functions, the
exploitation of land or other natural resources, and domestic trade
in agricultural products. Notwithstanding their treaty rights, many
Americans choose to form joint ventures with Thai partners, allowing
them to hold the majority stake because of their familiarity with
the Thai economy and local regulations.
In the Uruguay Round trade negotiations, all parties agreed that the
privileges provided by the Treaty of Amity to U.S. investors in the
service sector would be exempted from "Most Favored Nation" (MFN)
requirements for ten years, beginning with the establishment of the
World Trade Organization in January 1995. During this ten-year
period, Thailand was expected to liberalize its investment regime to
provide roughly equivalent treatment to all foreign investors in the
service sector. This has not yet been the case. Both the U.S. and
Thailand anticipate that the rights granted investors under the AER
will be replicated in the bilateral FTA currently under negotiation.
Free Trade Agreement: In October 2003, President Bush and Prime
Minister Thaksin announced the intention to begin bilateral free
trade agreement (FTA) negotiations. The first round of FTA
negotiations was held during June, 2004 in Hawaii, and the most
recent in January 2006 in Chiang Mai, Thailand. The Thailand FTA
will be the United States' second such agreement in Asia, following
the FTA with Singapore. In September 2005, the two leaders agreed to
target the completion of negotiations for the first half of 2006.
Registration, Work Permits: Any entity wishing to do business in
Thailand must register with the Department of Business Development
at the Ministry of Commerce. Firms engaging in production activities
need to register with the Ministries of Industry and Labor and
Social Welfare. American citizens can enter Thailand without a visa
for visits of up to thirty days. In order to apply for a work
permit, a foreigner must enter Thailand on a non-immigrant visa
(issued at Thai embassies and consulates) for a stay of three months
or, for foreigners with well-defined work or business plans, for a
stay of one year. Issuance of the three-month visa usually is
completed within two or three days; the one-year visa requires
approval from the Immigration Bureau of the Royal Thai Police in
Bangkok. Upon obtaining a work permit, a holder of a three-month
visa may apply for a one-year visa, which generally can be extended
every year. Foreigners holding non-immigrant visas who have lived in
Thailand for at least three consecutive years may apply for
permanent residence in Thailand if they meet strict criteria
regarding investment or professional skills.
The Alien Occupation Law of 1972 (Decree Number 322) lists
occupations reserved exclusively for Thais, including professional
services such as accounting, architecture, law, engineering, the
manufacture of traditional Thai handicrafts, and manual labor. The
Law also states that all non-Thais working in Thailand, with limited
exceptions, must possess a work permit issued at the discretion of
the Ministry of Labor, although some foreigners already working in
Thailand were exempted through a "grandfather" clause. Factors that
influence the granting of work permits include the degree of
specialization required by the position; the size of the firm in
terms of number of employees and registered capitalization; and the
ratio of Thai nationals to foreigners employed by the firm.
Foreigners working for the Thai government or working on projects
prompted by the Board of Investment (BOI) usually have little
difficulty obtaining work permits. The government's "Buy Thai"
policy creates a preference for Thai nationals in the hiring of
government consultants, although the government continues to hire
foreign consultants. Work permits in other areas are sometimes
difficult to obtain, despite the fact that senior manager and
technical personnel are in short supply. However, in the second half
of 2005, the RTG is considering relaxing rules and regulations on
foreign engineers and skilled technical personnel. This may be
in-line with the government's implementation of a Baht 1.7 trillion
(US$ 43.2 billion) 5-year megaproject infrastructure development
program. Currently, Thai laws allows the import of migrant workers
from three countries, Burma, Laos and Cambodia for manual labor in
certain industries such as textiles.
Land Ownership: In general, non-Thai businesses and citizens are not
permitted to own land in Thailand unless the land is on
government-approved industrial estates. Under the 1999 amendment to
the Land Code, foreigners who invest a minimum of 40 million baht
(around $1 million) are permitted to buy up to 1,600 square meters
of land for residential use with the permission of the Ministry of
Interior. Petroleum concessionaires may own land necessary for their
activities. Many foreign businesses instead sign long-term leases,
and then construct buildings on the leased land. Under the 1999
Property Leasing Bill, non-Thais are allowed to own up to 100
percent of a condominium building, although other restrictions
apply. Americans planning to invest in Thailand are advised to
obtain qualified legal advice. Such advice is particularly important
given the fact that Thai business regulations are governed
predominantly by criminal law, not civil law. Violation of Thai
business regulations can carry heavy criminal penalties, and
criminal liability can be assessed under numerous laws.
Privatization: With the aim of encouraging capital inflows and
relieving resource constraints in many key sectors of the economy,
the RTG has embarked on a privatization program for state-owned
economic enterprises and state monopolies. State-owned enterprises
operate primarily in the utility, energy, telecommunications,
banking, tobacco, and transportation sectors. In 2004, Thailand's 61
state-owned enterprises had total revenues of around 1.8 trillion
Baht (about $45.5 billion), employed over 272,549 (7 percent of the
Thai labor force), and accounted for approximately 28 percent of
Gross Domestic Product (GDP).
In 1998, the Cabinet approved a "Master Plan for State Enterprise
Reform". The Master Plan lays out a comprehensive strategy and
timetable for privatization of infrastructure and various
state-owned enterprises (SOEs). The 1999 State Enterprise
Corporatization Act provides the framework for the conversion of
state enterprises into stock companies, and corporatization is
viewed as an intermediate step toward eventual privatization. In
2001, the RTG partially privatized the Petroleum Authority of
Thailand (PTT) and Internet Thailand (note: "corporatization"
describes the process by which an SOE adjusts its internal structure
to resemble a publicly-traded enterprise; "privatization" means that
a majority of the SOE's shares is sold to the public, and "partial
privatization" refers to a situation in which less than half a
company's shares are sold to the public.)
In 2002, the RTG corporatized BankThai Bank and Krung Thai Card, a
subsidiary company of Krung Thai Bank, the Airport Authority of
Thailand (renamed to Airports of Thailand), and Telecommunication of
Thailand. In 2003, the RTG corporatized the Communication Authority
of Thailand, and partially privatized Krung Thai Bank. In March
2004, the RTG conducted a successful initial public offering of 30
percent of the shares in Airports of Thailand, and a second public
offering of Bangchak Petroleum Public Company and Thai Airways
International.
In early 2004, labor protests prompted the government to postpone
the planned corporatization of the Electricity Generating Authority
of Thailand (EGAT). The Stock Exchange of Thailand's (SET)
relatively weak performance in the first half of 2004 further
dampened the pace of privatization. In late June 2005, the RTG
successfully corporatized EGAT. However, EGAT's anticipated listing
in November was delayed following an order by the Supreme
Administrative Court that suspended its stock offering until the
court finishes its consideration of a petition filed by civil groups
which oppose the privatization. The RTG believes that the halt will
be only temporary, and the initial public offering will be able to
resume in 2006.
In mid-August 2004, the government corporatized the Mass
Communication Authority of Thailand (MCOT), which is listed on the
stock market a month later with an initial public offering in
November. However, the Ministry of Finance still is the majority
shareholder of the company (77.28 percent). The Metropolitan
Electricity and the National Waterworks Authority are next on the
docket of state-owned enterprises for corporatization.
Corporatization timetables have slipped repeatedly in the past,
however, and it is not clear if the share offerings will actually
take place before the end of the year.
Draft legislation for a State Investment Corporation (SIC) is
designed to set up a supervisory entity for state enterprise
privatization. The SIC will be 100 percent owned by the Ministry of
Finance, and will regulate state enterprises that have been
converted into private companies under the 1999 State Enterprise
Corporatization Act. The legislation, however, was rejected by the
Cabinet, and it will be reviewed and revised before forwarding to
the Cabinet to reconsider.
Other than PTT, AOT and MCOT, few significant privatizations have
occurred. Thailand has removed tax disincentives on buying domestic
financial institutions. The previous foreign ownership limit of 25
percent was raised to 49 percent in 1997. Foreign banks are still
limited to operation of a single branch.
In January 2004, the Cabinet approved a new Financial Sector Master
Plan (FSMP) designed to increase competition by eliminating
regulatory boundaries within the financial sector. The FSMP
classifies financial institutions as either commercial banks able to
provide all financial services except insurance, securities trading
and brokerage; and retail banks, which will focus on small- and
medium-sized enterprises (SMEs) and lower-income customers.
According to the FSMP, retail banks "...may provide virtually all
types of financial transactions with the same exceptions as
commercial banks." The FSMP allows foreign banks to operate as full
branches under the same conditions as Thai commercial banks, but
without the option of opening branch offices, or subsidiaries, which
would also operate as Thai commercial banks. Over time, the FSMP
foresees foreign banks receiving permission to open 3-5 branch
offices outside Bangkok but no timeframe is specified. All financial
institutions had six months from February 1, 2004 to apply for a
change of status. As a result of the FSMP, there are five new
banking licenses have been granted by the Thai financial authorities
in 2005. The FSMP is available in English at
www.bot.or.th/bothomepage/BankAtWork/FinInsti tute/
FISystemDevPlan/ENGVer/pdffile/eng.pdf.
There is insufficient evidence to comment on how foreign investors
will be treated under the privatization program. Foreign purchases
were allotted 30 percent of the PTT and 12 percent of AOT initial
public offerings, for example. According to management consultants
retained by privatization authorities, foreign investors will have a
substantial role in future privatizations. Senior RTG officials have
also indicated that foreigners will be allowed to participate in
upcoming privatizations.
CONVERSION AND TRANSFER POLICIES
Exchange controls are governed by the Exchange Control Act of 1942
and Ministerial Regulation Number 13 of 154, and are administered by
the Bank of Thailand (BOT; Thailand's central bank). Inward
remittances are free of controls, but foreign currency must be
deposited in a foreign currency account or converted at an
authorized bank within seven days of being remitted to Thailand.
Foreigners staying in Thailand for less than three months,
embassies, and international organizations are exempt from this
requirement, however. The proceeds of exports with a value of more
than 500,000 baht ($12,900) must be remitted as soon as received and
within 120 days of export, and deposited within seven days of
receipt.
Commercial banks are authorized to undertake most routine foreign
remittance transactions without prior approval of the Bank of
Thailand. Nonresidents can open and maintain foreign currency
accounts with authorized banks in Thailand. Such accounts must use
funds that originate abroad. Thai nationals are subject to
quantitative limits on the amount of foreign currency that can be
remitted abroad without specific permission of the Bank of Thailand.
The limits vary depending upon the purpose of the transaction, and
range from $10 million per annum for business investment or loans to
subsidiaries, to $100,000 for remittances to family members. The
Bank of Thailand must approve the purchase of immovable assets or
securities abroad.
All remittances exceeding $10,000 for any purpose other than export
must be reported to the Bank of Thailand.
EXPROPRIATION AND COMPENSATION
Private property can be expropriated for public purposes in
accordance with Thai law, which provides for due process and
compensation. In practice, this process is seldom used, and has been
principally confined to real estate owned by Thai nationals and
needed for public works projects. U.S. firms have not reported any
problems with property appropriation in Thailand, and we are not
aware of any pending changes in RTG policies that would adversely
affect the property rights of U.S. nationals in Thailand.
DISPUTE SETTLEMENT
Thailand has a civil and commercial code, including a Bankruptcy
Act. Monetary judgments are calculated at the market exchange rate.
Decisions of foreign courts are not accepted or enforceable in Thai
courts. Disputes such as the enforcement of property or contract
rights have generally been resolved through the Thai courts.
Thailand has an independent judiciary that generally is effective in
enforcing property and contractual rights. The legal process is slow
in practice, however, and litigants or third parties sometimes
affect judgments through extra-legal means.
In addition, companies may establish their own arbitration
agreements. Thailand signed the Convention on the Settlement of
Investment Disputes Between States and Nationals of Other States in
1985, but has not yet ratified the Convention. Thailand is a member
of the New York Convention, however, and enacted its own rules on
conciliation and arbitration in the Arbitration Act of 1987. The
Arbitration Office of the Ministry of Justice administers these
procedures.
The Bankruptcy Act was amended in 1999 to provide Chapter 11-style
protection to debtors, and to give debtors and creditors the option
of negotiating a reorganization plan through the courts instead of
forcing liquidation. The Act now allows creditors to extend
additional loans to insolvent firms without losing the right to
claim compensation during a future restructuring or liquidation
process, but only if the new loan is intended to keep the firm in
operation. Also in 1999, the Act was amended to facilitate the
financial restructuring process. Higher minimum levels for
individual and corporate bankruptcies were established, and the
previous ten-year period of bankruptcy status was reduced to three
years.
In 2004, Parliament approved changes to the Bankruptcy Act including
tightening the rules under which some debtors can emerge from
bankruptcy status and streamlining the legal appeals process in
bankruptcy and restructuring cases.
In an effort to quicken the foreclosure process, amendments to the
Civil Procedure Code on Execution of Judgments have limited appeal
options available to debtors. Under the old regulations, debtors
were free to appeal each action taken with respect to the execution
of a bankruptcy judgment. Such appeals, often frivolous in nature,
were one of the tactics debtors used to delay the foreclosure
process. In June 2001, the Supreme Court set an important legal
precedent by ruling in favor of implementing a creditor-backed
corporate restructuring plan opposed by the former owner of the
business in question.
The Bankruptcy Court Act established a specialized court for
bankruptcy cases. Since beginning operation in mid-1999 to October
2005, the Court has issued verdicts on 15,863 cases. Individual
cases can take months or even years to work their way through the
legal system, however, and many businesses have urged the government
to speed up the bankruptcy procedure.
PERFORMANCE REQUIREMENTS AND INCENTIVES
In its December 1999 remarks, the WTO's Trade Policy Review Body
noted that Thailand has committed to implement all WTO agreements,
including Trade-Related Investment Measures (TRIMS). In its latest
review in November 2003, the WTO noted Thailand's steady progress
towards trade liberalization as well as macro-economic stabilization
and key structural reforms, including financial sector
rehabilitation, have promoted growth in the face of unfavorable
global factors. Further improvement in Thailand's market access as
well as progress in privatization and regulatory reforms, to make
domestic markets more competitive, would raise productivity an
attract much needed foreign direct investment and also assist a
sustained recovery. Thailand's next review is scheduled for November
or December 2007. The Board of Investment (BOI), established by the
Investment Promotion Act of 1977, is Thailand's central investment
promotion authority. The BOI lists five priority sectors (detailed
below), covering hundreds of types of businesses eligible for
investment incentives. Generally, the most generous incentives are
offered to those economic activities that bring new technology to
Thailand and locate investment in less-developed provinces. BOI
incentives are of two basic types: tax-based (including tax holidays
and tariff exemptions) and non-tax privileges (guarantees, special
permissions, services, etc.).
The BOI's revised investment policy, effective from August 1, 2000,
is as follows:
- In order to maximize the benefits of investment to the country,
and in line with policies supporting good governance, the BOI uses a
performance-based system that requires promoted investors to submit
evidence of compliance with the conditions of their approval in
order to claim incentive benefits.
- To increase the global competitiveness of Thai exports, projects
investment 10 million baht ($250,000) or more, excluding the cost of
land and working capital, will be required to obtain international
standards certification, such as International Standards
Organization (ISO) 9000.
- In order to ensure that Thai investment policy is in line with all
international obligations, the BOI has lifted all local content and
export requirements.
- The BOI pursues a decentralization policy to encourage the
distribution of opportunities and prosperity to the least-developed
provinces. Projects locating in the least-developed provinces will
receive maximum incentives. These provinces consist primarily of
provinces in which average per capita income has been below 85
percent of the national average during the past three years,
including Sisaket, Nong Bua Lamphu, Surin, Yasothon, Maha Sarakham,
Nakhon Phanom, Roi-Et, Kalasin, Sakon Nakhon, Buri Ram, Amnat
Charoen, Phraea, Phayao, Nan, Satun, Pattani, Yala, and Narathiwat.
- To support the development of small- and medium-sized enterprises
(SMEs), the minimum investment amount shall remain at one million
baht ($26,000), excluding the cost of land and working capital.
- To promote investment in key sectors, five priority activities
have been identified:
-- Agriculture and agricultural products;
-- Environmental protection and/or restoration;
-- Direct involvement in technological and human resource
development;
-- Basic transportation, infrastructure, and services; and,
-- Targeted industries, including agro-industry, automotive,
fashion, information technology/electronics, high value-added
services, and semi-conductors.
Specific BOI incentives include:
- Tax incentives: exemptions/reductions of import duties on imported
machinery; reductions of import duties on imported raw materials and
components; exemptions from corporate income taxes for three to
eight years; and, deductions from net income of infrastructure
costs.
- Permissions: to bring in foreign nationals to undertake investment
feasibility studies; to bring in foreign technicians and experts to
work under promoted projects; to won land for carrying out promoted
activities.
- Guarantees: against nationalization; against competition by new
state enterprises; against state monopolization of the sale of
products similar to those produced by promoted firms; against price
controls; against tax-exempt import by government agencies or state
enterprises of competitive products; and, of permission to export.
Tax incentives are the BOI benefits that offer the greatest
advantage over non-promoted industries, though their relative value
has declined in recent years with the general reduction of import
duties and elimination of the former business tax system. The Value
Added Tax (VAT) Law, which eliminated the business tax exemption,
has no provision for the BOI to offer VAT exemptions or reductions.
Investors must submit an application form along with supporting
documentation to be considered for incentives. In most cases, the
BOI decides within sixty days whether or not a project is eligible
for investment privileges. BOI policy is to complete action on
applications for projects valued in excess of 500 million baht ($13
million) within 90 days.
As noted above, the following revisions to the BOI investment
promotion scheme became effective on August 1, 2000:
- For projects in the manufacturing sector, majority or total
foreign ownership is permitted in any zone.
- The maximum allowable debt-to-equity ratio was lowered from 4:1 to
3:1.
- Except for the electronic and agriculture industries, projects
investing less that 500 million baht (about $12 million) must
produce added value equal to at least 30 percent of sales revenue.
- For projects of more than 500 million baht (about $13 million), a
feasibility study must be presented at the time of application.
- The BOI will continue to promote relocation of projects to Zone 2
and Zone 3 (special groups of 12 and 58 provinces, respectively).
However, in order to be eligible for new incentives, projects must
relocate to an industrial estate.
- Projects submitted before December 30, 2004 that locate in Zone 2
industrial estates approved by the BOI before the date of the
announcement (i.e., August 2000) can enjoy a seven-year income tax
holiday. After that date, the income tax holiday will be five years,
in line with the new policy announcement.
- The 58 provinces of Zone 3 will be divided into two areas, based
on each province's state of development. New projects in Zone 3 will
no longer be eligible for a 75 percent reduction of import duty on
raw materials used for domestic sales but will be eligible for
exemption of import duty on machinery.
In 2001, the RTG amended its investment promotion conditions for
regional headquarters. Business projects with registered capital of
at least 10 million baht ($260,000), and in which overseas revenue
accounts for at least half of annual income, are now eligible to
receive BOI incentives, such as permission to own land, eased
provisions for hiring expatriate staff, and additional tax breaks.
In addition, the BOI has extended tax incentives in the automotive
machinery sector so that all automobile assemblers are eligible for
import duty exemptions on machinery, regardless of the BOI
geographic investment zone in which they operate. Total initial
investment costs for eligible projects must be at least 10 billion
baht (around $260 million).
In September 2002, the BOI promoted cluster development by relaxing
zoning regulations. Projects formerly required to locate in Zones 2
or 3 are now free to expand wherever they wish. On environmental
protection grounds, however, tanneries, bleaching and dying plants,
cyanide-based heat treatment facilities, and facilities for the
recycling/re-use of unwanted materials are ineligible for this
zoning relaxation.
The BOI has also made "call center" facilities eligible for tax
incentives. To be eligible, however, the project must be majority
Thai-owned.
Thailand's membership in the WTO has led to a relative decline in
the importance of tax-based investment incentives. In general,
therefore, the BOI is placing increasing emphasis on business
facilitation and investment services.
In June 2004, the BOI introduced special investment privileges to
promote investment in the four northeastern provinces, namely
Chiayaphum, Nong Khai, Ubon Racchathani, and Udon Thani due to their
low per capita Gross Provincial Product (GPP). With this
designation, all operations located in these four provinces will
receive special privileges (see below), regardless of their location
within or outside of industrial estates. These incentives include:
- A 50 percent reduction in corporate income tax for an additional
five years beyond the initial 8-year exemption;
- Double income tax deduction of costs for transportation and
utilities for a period of 10 years;
- Deduction of 25 percent of the project's infrastructure
construction costs from net profit (for tax purpose) for a period of
10 years.
Additionally, the BOI will provide one-stop service center for
investors in these provinces in order to work and coordinate with
related government agencies on their behalf.
In early December 2005, the BOI approved new incentives in the form
of tax advantages that are aimed at helping boost the
competitiveness of companies investing in Thailand's electrical and
electronics industries. In order to qualify for the new incentive
packages, electrical and electronics companies have to be long-term
investors with total investment of at least 15 billion Baht (about
$375 million) and other requirements. Those incentives include
8-year of corporate income tax exemption periods for projects in
zone 3. However, priority activities such as production of wafers
and solar cells, will receive 8-year corporate income tax holidays
regardless of project location. Furthermore, the BOI has granted
duty exemptions for all electrical and electronics projects - not
just those designed as long-term projects - permitting duty-free
imports of upgraded or replacement machinery for the life of project
operations. As long as they maintain BOI promotion status, projects
can import machinery duty free on an on-going basis. In addition,
the BOI has also expanded zone-based fiscal incentives for zone 1
and zone 2 (Bangkok and surrounding provinces) for all electrical
and electronics projects. For example, projects in Bangkok located
outside industrial estates were previously ineligible for corporate
income tax holidays. Under new incentives, they will be eligible
for 5-year exemptions.
Complete information on BOI policies, programs, incentives, and
application procedures can be found on the BOI web site at
www.BOI.go.th.
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Private entities may establish and own business enterprises. The
principal forms of business organization under Thai law are sole
proprietorships, partnerships, limited companies, and public limited
companies. In addition, branches of foreign corporations are
recognized, and a "representative" or "liaison" office of a foreign
company may receive special recognition. Regardless of the form of
business organization, most businesses must apply for business
registration. Establishment of a business in certain sectors by a
foreign entity may be restricted by the Alien Business Act, or may
not benefit from the Treaty of Amity and Economic Relations as
discussed above.
A Thai public limited company is similar to a corporation in the
United States, and may be wholly owned by a foreigner unless the
corporation is involved in a business activity reserved for Thai
nationals. A public limited company is allowed to offer its shares
to the public. Eight laws pertaining to individual industries limit
foreign ownership of companies listed on the Stock Exchange of
Thailand.
PROTECTION OF PROPERTY RIGHTS
Property rights are guaranteed by the Constitution against
condemnation or nationalization without fair compensation. Secured
interests in property are recognized and enforced.
Thailand has a civil law system under which all laws are embodied in
statutes or codes promulgated by the government. This practice is in
contrast to the common law system in many Western countries, where
court interpretations of statutes serve as governing legal
precedent.
There is an independent judiciary that provides a forum for fair
settlement of disputes. A great deal of status is attached to being
a judge, and the examinations to enter the judiciary are very
difficult. The judiciary jealously guards its independence.
Agencies of the government, as parties to commercial contracts, may
be sued in the courts, and cannot raise a defense of sovereign
immunity. However, state property is not subject to execution.
There are four basic codes: Civil and Commercial Code, Criminal
Code, Civil Procedure Code, and Criminal Procedure Code. In adopting
these codes early in the twentieth century, Thailand selected
features of the two major Western legal systems (common law and
civil law), and adapted to circumstances in Thailand provisions
drawn from Britain, Germany, Switzerland, France, Japan, Italy,
India, and other foreign systems. Decisions and rulings of the
judiciary and civil service can have considerable force as
precedents.
There are three levels to the judicial system in Thailand: the Court
of First Instance, which handles most matters at inception, the
Court of Appeals, and the Supreme Court. There are specialized
courts such as the Labor Court, Family Court, Tax Court, the Central
Intellectual Property and International Trade Court, and the
Bankruptcy Court.
Intellectual Property Protection: Thailand has passed all
TRIPS-mandated legislation by passing the Geographical Indications
Act which went into force April 28, 2004. Thailand is a signatory to
the Berne Convention, but not the Paris Convention, the Patent
Cooperation Treaty (PCT), or the World Intellectual Property
Organization Performances and Phonograms Treaty (WPPT). With the
establishment of a specialized Central Intellectual Property and
International Trade Court in 1997, Thailand has a solid legal and
administrative infrastructure for intellectual property rights (IPR)
protection.
Despite a good working relationship between foreign business
entities and Thai enforcement authorities, however, IPR piracy
continues at high levels. U.S. copyright industries reported an
estimated annual trade loss of more than US$175 million from IPR
infringement in 2004, and a majority of Thai and foreign companies
operation in Thailand are estimated to use illegal software. Since
November 1994, Thailand has been on the U.S. Special 301 "Watch
List".
There are many obstacles to effective IPR enforcement. Thailand's
patent office lacks sufficient resources to keep up with its volume
of applications, and patent examinations can take more than five
years. The copyright law is ambiguous regarding de-compilation, and
regulations for enforcement procedures leave loopholes that
frustrate effective enforcement. The Thai government is in the
process of amending the Copyright Law in order to bring it in line
with the WIPO treaties. The Optical Disk Manufacturing Control bill
entered into force in August 2005. This legislation is designed to
enhance the authority and capabilities of the Thai government to act
against operators of illicit optical disk factories and to control
the production materials and machines of legal producers. U.S.
copyright industries express concern that the Act's penalties are
not sufficiently deterrent to pirates and do not enhance the
government's enforcement and oversight powers enough. The Trade
Secrets Act that entered into force in 2002 allows government
SIPDIS
agencies, under certain circumstances, to disclose trade secrets to
protect any "public interest" not having commercial objectives,
giving rise to concerns that authorities will not be required to
protect approval-related data against unfair commercial use.
Implementing regulations for the Act have yet to be approved.
Although conviction rates in IP prosecutions are very high,
corruption and a cultural climate of leniency can complicate some
phases of case administration.
TRANSPARENCY OF THE REGULATORY SYSTEM
In 1999, Thailand enacted a new Trade Competition Act intended to
strengthen the government's ability to regulate price fixing and
market monopolies. The law established a Trade Competition
Commission with the authority to place limitations on market share
and revenues of firms with substantial control of individual market
sectors, to block mergers, and other forms of business combinations,
and to levy fines for price-fixing and other proscribed activities.
The government continues to have the authority to control the price
of specific products under the Goods and Services Price Act of 1999.
In practice, very few commodities are subject to formal price
controls. Currently, out of 34 controlled commodities, only one
"sugar" was subject to a price ceiling. In a development related to
rising oil prices associated with political tensions in the Middle
East, the RTG imposed price imposed oil price controls between
February 8 and May 19, 2003 period, and January 10, 2004 to October
21, 2004 (for benzene), and January 10, 2004 to July 13, 2005 (for
diesel) . During the second period (January 2004 to July 2005), the
cost of oil subsidy to the RTG was recorded at 92.1 billion Baht (or
$ 2.3 billion). The government also uses its controlling stakes in
major suppliers of products and services such as Thai Airways and
PTT to influence prices in the market.
Thailand has extensive legislation aimed at the protection of the
environment, including the National Environmental Quality Act, the
Hazardous Substances Act, and the Factories Act. Food purity and
drug efficacy are controlled and regulated by a Food and Drug
Administration with authority similar to its U.S. counterpart.
Likewise, labor and employment standards are set and administered by
the Ministry of Labor.
Despite the good intentions of most regulatory regimes, consistent
and predictable enforcement of government regulations remains an
obstacle to investment in Thailand. Gratuity payment to civil
servants responsible for regulatory oversight and enforcement
remains a common practice. Through such payment, transactions can be
expedited. Firms that refuse to make such payments can be placed at
a competitive disadvantage when compared to other firms in the same
field. However, most observers believe that the overall trend in
this respect is positive, especially in foreign-owned businesses.
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT
The Thai government maintains a regulatory framework that broadly
encourages investment and largely avoids market-distorting support
for specific sectors. Government policies generally do not restrict
the free flow of financial resources to support product and factor
markets, and credit is generally allocated on market terms rather
than by "directed lending." Legal, regulatory, and accounting
systems are largely transparent, despite significant problems in
some areas. The Thai government has devoted considerable effort to
bringing these systems into line with international norms, and
important progress has been made. However, much remains to be done
to implement legal and regulatory changes, and human resource
constraints will limit overall progress in some areas, particularly
auditing, for the foreseeable future.
In 2001, a new Telecommunications Bill reduced the maximum stake a
foreign firm could own in a telecommunications company from 49 to 25
percent. The change prompted a widespread outcry from the foreign
business community, and the Cabinet has approved an amendment to the
legislation that will raise the foreign ownership limit back to 49
percent. The amendment has not yet been approved in Parliament,
however.
In 2002, the National Corporate Governance Committee (NCGC), chaired
by the Prime Minister, was assigned to implement
international-standard corporate governance policies. In conjunction
with Thai Rating and Information Services Co., Ltd. (TRIS), the
Stock Exchange of Thailand (SET) and the Thai Securities and
Exchange Commission (SEC) began rating companies on their corporate
governance practices. The NCGC claimed that Thai corporate
governance policies cover most key points addressed by the
Sarbanes-Oxley Act in the U.S.
Foreign investors are not restricted from borrowing on the local
market, but there are a number of regulations that affect foreign
portfolio investment. Thailand maintains regulatory maximum foreign
ownership limits, and shares of listed companies are traded on both
a domestic and alien (or foreign) board to enable authorities to
track foreign ownership. Limits on foreign ownership of Thai
companies are perhaps most prominent in the financial sector.
Foreign firms are limited to a 49 percent stake in financial
institutions.
In theory, the private sector has access to a wide variety of credit
instruments, ranging from fixed term lending to overdraft protection
to bills of exchange and bonds. In fact, however, private debt
markets are not well-developed, and most corporate financing,
whether for short-term working capital needs, trade financing, or
project financing, is commercial bank/finance company borrowing. The
Ministry of Finance is working on developing Thailand's debt
markets.
Following the 1997-1998 financial crisis, banks have generally
overhauled their lending systems and taken a more conservative
approach. Thai borrowers were also reluctant to taken on more debt
due both to overcapacity and a desire to maintain clean balance
sheets. With the rapid growth of the Thai economy over the last
several years, however, bank lending has started to increase. As of
November 2005, total commercial bank credits were 6.4 percent above
their level of a year earlier, and 5.1 percent above their level
before the Asian Financial Crisis began in July 1997. After
factoring in write-offs of outstanding debt and loans transferred to
asset management companies (AMCs), commercial bank credits in
November are up 8.2 percent from the same period last year and up
26.7 percent from July 1997.
The overall health of the banking sector remains affected by the
high levels of non-performing loans (NPLs) banks carry on their
books. After peaking at 47 percent of total lending in May 1999,
NPLs slowly declined to stand at 9.92 percent of total loans in
November 2005. Ongoing debt restructuring will make the NPL level
decline further, but progress has been slow.
The Thai Asset Management Corporation (TAMC) is a major component of
the government's financial reform plan. With broad legal powers to
expedite debt restructuring and press creditors and debtors to the
negotiating table, the TAMC has taken over 15,302 cases with book
value of 778.1 billion baht ($19.5 billion) in bad loans from local
financial institutions and asset management companies as of June
2005, at the transfer price of 264.7 billion baht or around 34.02
percent of the book value of the total transferred assets through
the end of the second quarter of 2005, TAMC has successfully
restructured 99.27 percent of the total impaired assets transferred
to the TAMC with the expected recovery rate of 48.2 percent of book
value.
Assets are transferred at collateral value, excluding personal
guarantee, with payment coming in the form of ten-year
non-negotiable bonds issued by the TAMC and guaranteed by the
Financial Institution Development Fund (FIDF). Interest paid by the
bonds will be tied to average deposit rates quoted by Thailand's
five largest banks.
In addition to legal limits on foreign ownership in certain sectors,
Thai firms employ defenses against foreign investment primarily
through cross- and stable-shareholding arrangements. Such defenses
against hostile takeovers are typically applied against all
potential investors, rather than against foreign potential investors
alone. Companies are permitted to specify limits on foreign
ownership more strict than those established by the government. In
general, limits on foreign ownership and participation in the Thai
economy have eased since the Asian Financial Crisis.
In 2001, the government announced five new investment funds designed
to stimulate activity in the Thai capital market. Several of these
funds are open to foreign participation, including the Thailand
Equity Fund, which is investing $250 million in large Thai
industrial firms undergoing corporate restructuring, the Thailand
Recovery Fund, an off-shore fund that focuses on medium-sized Thai
firms, and the Thailand Corporate Recovery Fund, which is raising
$500 million for investment in Thai firms, especially businesses
undergoing restructuring through the TAMC (see above). These funds
have not yet been fully implemented, however.
In June 2003, the government announced the creation of the "Vayupak
Mutual Fund", a new national investment fund. According to
implementing regulations, the fund is under the authority of the
Ministry of Finance, and operates according to Thailand Securities
and Exchange Commission (SEC) regulations. The Vayupak Fund I, with
capital of 100 billion baht (about $2.3 billion), invests in
state-owned enterprises and state-owned financial institutions, as
well as common stocks, bonds, preferred shares, and other debt
instruments specified by the Ministry and approved by the Cabinet.
The fund has a 10-year maturity, with the option to extend. It
offers a yield-guarantee on its investment. The Ministry of Finance
holds 30 percent of the fund while the rest is held by public. On
December 3, 2003, the Vayupak Fund I (VAYU1) was listed on the Stock
Exchange of Thailand with 7,000 million units worth 10 baht ($0.24)
each.
Initially the Ministry also planned to launch "Vayupak Fund II"
after the Vayupak Fund I listed on the stock market with around 50
billion baht ($1.25 billion) in capital, with a focus on large-scale
infrastructure investment.. However, the plan has been shelved, and
there is no clear time frame when the Ministry will dust off the
plan.
POLITICAL VIOLENCE
In recent years, Thailand has developed a much more stable and
transparent political system, although in the past there were
frequent changes in government, often by military intervention. The
last coup was in 1991, followed in 1992 by political unrest and a
confrontation in the streets of Bangkok in which over 50 civilian
demonstrators were killed. The "May 1992 events" were a shock to the
Thai political system, and stimulated a remarkable democratic
recovery. Since 1992, the military has not interfered in the
operation of the civilian government, and this situation appears
likely to remain the case for the foreseeable future. In this
period, there have been four successful elections (1992, 1995, 1996,
and 2001), and five peaceful transitions of government. A
non-partisan assembly re-wrote the nation's constitution, which was
put into force in October 1997. One of the main reforms of the new
constitution was the establishment of a number of independent
agencies to provide checks and balances in the political system.
Among the most notable are the Election Commission, the National
Counter-Corruption Commission, and the Constitutional Court.
Although political problems such as vote-buying remain endemic,
these organizations have taken major steps toward cleaning up the
system and instituting political reform. An important political
problem for the RTG is the ongoing political violence in Thailand's
southern-most provinces (Yala, Narathiwart, and Pattani). Efforts to
quell the violence, which has been confined only to three provinces,
through an expanded military presence and increased government
investment have not yet had much effect.
CORRUPTION
Thailand has laws to combat corruption. The independent National
Counter-Corruption Commission coordinates official efforts against
corruption. American executives with long experience in Thailand
advise new-to-market companies that it is far easier to avoid
getting started with corrupt transactions than to stop such
practices once a company has been identified as willing to operate
in this fashion. American firms that operate under the strict
guidelines of the Foreign Corrupt Practices Act are able to compete
successfully in Thailand.
Despite recent improvements, both foreign and Thai companies
continue to complain about irregularities in the Thai Customs
Service. Recent Thai administrations have stated publicly their
intention to improve transparency in the evaluation of bids and the
awarding of contracts. Increasing media scrutiny of public figures
has raised political pressure to curtail favoritism and corruption.
However, convictions against public officials on corruption-related
charges are rare, and the legal system offers inadequate deterrence
against corruption. Nonetheless, the press features frequent
allegations of irregularities in public contracts, most notably over
the use of public lands, procurement favoritism (e.g., revising
requirements so that a preferred company wins over its competitors),
and police complicity in a variety of illegal activities.
According to some studies of Thailand, a cultural propensity to
forgive bribes as a normal part of doing business and to equate cash
payments with finders' fees or consultants' charges, coupled with
the low salaries of civil servants, encourages officials to accept
illegal inducements.
BILATERAL INVESTMENT AGREEMENTS
The 1966 iteration of the U.S.-Thai Treaty of Amity and Economic
Relations (AER), discussed above, allows U.S. citizens and
businesses incorporated in the U.S., or in Thailand that are
majority-owned by U.S. citizens, to engage in business on the same
basis as Thais. Under the AER, Thailand is permitted to apply
restrictions to American investment only in the fields of
communications, transport, banking, the exploitation of land or
other natural resources, and domestic trade in agricultural
products.
In October 2002, the U.S. and Thailand signed a bilateral Trade and
Investment Framework Agreement (TIFA). The TIFA establishes a Trade
and Investment Council (TIC), which serves as a forum for discussion
of bilateral trade and investment issues such as intellectual
property rights (IPR), customs, investment, biotechnology, and other
areas of mutual concerns. This framework has helped lay a basis
foundation for the on-progress free trade agreement between U.S. and
Thailand, which is expected to be finalized by mid-2006.
Thailand also has bilateral investment agreements (called agreement
on the promotion and protection of investment) with 37 countries,
including Germany, the Netherlands, the United Kingdom, China, and
members of the Association of Southeast Asian Nations (ASEAN). These
agreements establish guidelines for expropriation compensation and
the repatriation of capital, but do not include national treatment
provisions.
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
The Overseas Private Investment Corporation (OPIC) is open for
business in Thailand, and has provided a $930,000 direct loan for a
tourist submarine in Phuket. OPIC is planning to establish a special
line of credit of up to $175.75 million to mobilize U.S. private
sector investment in the reconstruction of nations devastated by the
December 26 (2004) tsunami. The credit line will be part of an OPIC
Tsunami Reconstruction Finance Initiative that aims to help speed
SIPDIS
the rehabilitation of housing and infrastructure in affected
countries, including Thailand. The agency claimed that it is
currently providing almost $904 million in financing and political
risk insurance support for projects in Indonesia, Thailand, and Sri
Lanka, the three countries most devastated by the tsunami. Thailand
became a member of the Multilateral Investment Guarantee Agency
(MIGA) in October 2000.
OPIC finance loans of up to $200 million per project are also
available for business investments in Thailand, and cover sectors as
diverse as tourism, transportation, manufacturing, franchising,
power, and others. In addition, OPIC supports six equity funds that
are eligible to invest in projects in Thailand. Through OPIC,
investors have access to political risk insurance, debt financing,
and equity.
LABOR
According to the National Statistics Office, as of March 2005,
Thailand had a labor force of 35.28 million workers out of a total
population of 65.27 million. There are 14.26 million Thai citizens
over 15 years old who are not considered part of the labor force.
The unemployment rate was 2.5 percent during the first quarter of
2005, compared to a recent low of 1.5 percent for the second half of
2004, and a high of 4.4 percent in 1998 immediately following the
Asian financial crisis. The rise in unemployment in early 2005 was
largely caused by the tsunami disaster of December, 2004, which
significantly harmed the tourist sector. Statistics for the second
half of 2005 are expected to show a rebound in employment fueled by
strong export growth and a gradual recovery in tourism. The
official unemployment rate does not include an estimated 1-2 million
"seasonally unemployed" agricultural workers.
The general decline in the unemployment rate since the late 1990s is
explained by increasing economic growth, especially in the real
estate, manufacturing, construction, and financial sectors.
Unemployment is currently close to the level that prevailed before
the 1997-98 financial crisis, which caused a significant increase in
unemployment and underemployment through 2000.
The Thai government's decision not to forcibly repatriate large
numbers of foreign workers in the fisheries, construction, and other
semi-skilled sectors may also have affected employment levels. In
July 2004, 1.2 million migrants registered during a one-month
window. The workers were allowed to remain in Thailand for one
year, and were granted the right in 2005 to extend their stay for
another year. The Thai government concluded labor memorandums of
understanding (MOUs) with Laos, Cambodia, and Burma in an effort to
organize workers from those countries, although there are
significant numbers of non-Thai workers who remain in the country
illegally.
Despite past rapid growth in the industrial and service sectors, 35
percent of the Thai labor force is still employed in the
agricultural sector. However, the shift of workers from agriculture
is continuing, especially in the Northeast, where agricultural
productivity and investment are lower. As a consequence, recent
years have seen a constant flow of rural, generally unskilled Thais
seeking work in Bangkok and the more industrialized regions, both
seasonally and on a permanent basis. This ready availability of
migrant labor contributed to the rapid growth of Thailand's
industrial and construction sectors.
The economic downturn of the late 1990s stemmed labor market
shortages of workers with at least a secondary education. As
Thailand's economy resumes growth, however, highly skilled and
experience engineers, technicians, and managers are again in short
supply. In the past, many multinational firms brought in expatriate
professionals because qualified local personnel simply were not
available, even at high salaries. Finding, training, and retaining
qualified employees to work in the manufacturing facilities being
developed in industrial estates, such as those along the Eastern
Seaboard, will continue to be a challenging government priority.
Thailand's educational system is still geared to the needs of a
largely agrarian, traditional economy and society and lags behind
the country's contemporary skills requirements. The government has
made great progress over the last two decades in providing basic
education. Thailand's gross primary school enrollment in 2005 was
over 100 percent (note: The official primary enrollment age is 6-11;
in practice, however, children outside that age group may also
enroll in school, pushing the figure over 100). The "learning rate"
(the ratio of the population over 15 years of age which has
completed primary education to the total population of 15 years of
age and over) is estimated by the Thai government at 58.7 percent.
In 2003, Thailand had 384,875 students enrolled in public and
private colleges and universities. According to Civil Service
Commission records for students under its supervision, over 6,000
Thai students are currently studying abroad, including 1,800
students studying in the U.S.
An integral part of Thailand's educational reform program, the
country's first National Educational Act was promulgated in 1999.
The Act stipulates the right of all Thai citizens to receive free
basic education public education for at least twelve years and
raised the level of compulsory education from six to nine years.
Pursuant to the 1999 Act, the free basic education and compulsory
education provisions took effect in August 2002. Children are
required to enroll in a basic education institution from the age of
seven, and must remain in the educational system through the age of
sixteen.
All employees must define the terms of employment for their staff,
and employers with ten or more employees are required to specify
working regulations. The Labor Protection Act, enacted in 1998,
brought labor practices more in line with International Labor
Organization (ILO) standards. The law cut the workweek to a maximum
of forty-eight hours, including overtime for all types of work, with
overtime payable at one and one-half times the hourly rate.
Hazardous work may not exceed seven hours per day or forty hours per
week. All employees are entitled to a vacation of six workdays per
year, in addition to thirteen holidays traditionally observed in
Thailand. Under the labor law, the employment of children under the
age of fifteen is prohibited, and there are restrictions on the
employment of children and youths between the ages of fifteen and
eighteen.
Thailand's social safety net is considered inadequate by
industrialized-country standards. The social security scheme
consists of two systems. The Workmen's Compensation Act of 1994
requires employers with one or more employees to contribute 0.2-1.0
percent (depending on the assessed risk of the workplace) of the
employee's annual earnings to the Workmen's Compensation Fund. The
Fund provides benefits to employees who are injured, sick, disabled,
or die from work-related injury. Pay-outs range from a minimum of
2,000 to a maximum of 9,000 baht per month. The second major
system, the Social Security Act, has been in effect since 1990.
This Act also covers enterprises with one or more employees.
Contributions to the Social Security Fund from the government, the
employer, and the employee are mandated. The Social Security Fund
provides compensation to insured workers under six categories:
injury or sickness, disability, maternity, death, child welfare, and
pensions. In the first four categories, each party contributes 1.5
percent of the wages to the insured. For child welfare and old age
cases, three percent is contributed. Effective January 1, 2004, the
Social Security Fund covers unemployment compensation. If an
employee is laid off, he is entitled to receive 50 percent of his
wages for 180 days. In practice, disbursal of unemployment benefits
is dependent on the state of the economy and the government's
financial resources.
The labor relations climate is generally peaceful, and formal
strikes are infrequent. There were ninety-seven labor disputes
nationwide in 2003, but most were resolved through mediation. Only
one strike was registered in 2003, and there were four employer
lock-outs. Less than four percent of the total labor force is
unionized; nearly 11 percent of the industrial work force is
organized. Unionization is high in state enterprises, however, with
over half of state enterprise employees belonging to a union. In
2000, the union rights of state enterprise workers were successfully
restored after having been abolished in the wake of a 1991 military
coup. The State Enterprise Labor Relations Act (SELRA) was
reaffirmed by the Thai parliament and became law in 2000.
FOREIGN TRADE ZONES/FREE PORTS
Thailand has ten export processing zones (or free trade zones),
reserved for the location of industries manufacturing for export
only, to which businesses may import raw materials and export
finished products free of duty (including value added tax). These
zones are located within industrial estates, and many have customs
facilities to speed processing. The free trade zones are located in
Chonburi (2), Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at
Lad Krabang), Ayuddhya (2), and Chachoengsao. In addition to these
zones, factories may apply for permission to establish a bonded
warehouse within their premises to which raw materials, used
exclusively in the production of products for export, may be
imported duty free.
The Industrial Estate Authority of Thailand (IEAT), a
state-enterprise under the Ministry of Industry, established the
first industrial estates in Thailand, including Laem Chabang
Industrial Estate in Chonburi Province and Map Ta Phut Industrial
Estate in Rayong Province. More recently, private developers have
become heavily involved in the business. The IEAT operates twelve
estates, plus 22 more in conjunction with the private sector.
Private sector developers operate over 50 industrial estates, most
of which have received promotion privileges from the Board of
Investment.
FOREIGN DIRECT INVESTMENT STATISTICS
The Bank of Thailand (BOT) provided all statistics.
Foreign direct investment (FDI), including inflows from banking
sector, totaled 86.3 billion baht ($2.1 billion) in 2005 (Jan-Oct),
compared with 11.8 billion baht ($296 million) in 2004 (Jan-Oct),
and 61.8 billion baht ($1.5 billion) in 2003 (Jan-Oct). Major FDI
recipients included real estate ($237 million), machinery &
transport equipment ($203 million), financial institutions ($169
million), and services ($145 million) sectors.
Japan was the biggest source of FDI in 2005 (Jan-Oct), at $378
million, followed by Singapore at $305 million and U.S. at $290
million. There are no reliable statistics available for cumulative
investment by country of origin. The Embassy estimates the total
present value of U.S. investment in Thailand to be in excess of $21
billion.
According to the Board of Investment (BOI), in 2005 (Jan-Nov), major
U.S. investment projects approved by the BOI totaled 8.4 billion
baht ($210 million), including the following (note that a U.S.
investment is classified as any investment with at least ten percent
U.S. capital):
- Innovex (Thailand) Ltd. (printed circuit board; 100 percent
export)
- Avery Dennison (Thailand) Ltd. (self adhesive paper & film &
silicon & coated paper; 50 percent export)
- Euro Lotus Co., Ltd. (retirement homes and care centers; 100
percent export)
- Precision Valve (Thailand) Ltd. (plastic balls; 80 percent
export)
- Thai Aerodynamics Co., Ltd. (repair of aircraft component; 80
percent export)
- Avanex (Thailand) Ltd. (fiber optic telecommunication equipment; 0
percent export)
- Cargill Siam Ltd. (feed for aquatic animal: 0 percent export)
BOYCE