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Viewing cable 07BANGKOK2403, FOREIGN BUSINESS ACT CHANGES IMMINENT

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Reference ID Created Released Classification Origin
07BANGKOK2403 2007-04-27 10:14 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Bangkok
VZCZCXRO9213
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2403/01 1171014
ZNR UUUUU ZZH
P 271014Z APR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 6524
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 3493
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY
UNCLAS SECTION 01 OF 02 BANGKOK 002403 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
COMMERCE FOR EAP/MAC/OKSA 
TREASURY FOR OASIA 
STATE PASS USTR FOR WEISEL 
FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN 
 
E.O. 12958: N/A 
TAGS: EINV ECON PREL TH
SUBJECT: FOREIGN BUSINESS ACT CHANGES IMMINENT 
 
REF: A. BANGKOK 2071 (CABINET SENDS INVESTMENT BILL TO 
        LEGISLATURE) 
     B. BANGKOK 883 (FOREIGN MISSIONS RESPOND TO FBA) 
 
BANGKOK 00002403  001.2 OF 002 
 
 
1. (U) On April 25, the Thai National Legislative Assembly 
(NLA) approved for consideration the cabinet-proposed version 
of amendments to the Foreign Business Act (FBA). The purpose 
of the bill is to tighten restrictions (or, as the RTG 
prefers to term it; "close loopholes") in the current version 
of the FBA which has heretofore effectively permitted foreign 
investment in a variety of service sector industries 
nominally closed to majority foreign ownership. 
 
2. (U) The key amendments to the 1999 bill as shown on the 
NLA website include: 
-     Companies in sectors under lists 1 (businesses not 
permitted to aliens for "special reasons" such as media, 
agriculture and land-owning) and 2 (business related to 
national safety and security such as weapons, natural 
resources and domestic transport) of the three lists of 
proscribed industries will have three years to sell down 
their shareholdings to below 50 percent voting rights and 
equity ownership. 
-     Companies on List 3 (businesses in which Thai are not 
yet ready to compete including the professions, construction, 
retail and wholesale, and anything else not defined) may 
continue in business indefinitely without restructuring 
unless they are  determined to be a nominee (defined as a 
company or individual acting in order to allow foreigners to 
operate a business in the proscribed areas in avoidance or 
violation of the provisions of this act) in which case they 
have one year to wind up their business or sell majority 
ownership and control to a Thai entity. 
-     Penalty for non-compliance increased from up to 3 years 
imprisonment to up to 5 years. 
-     Definition of a "foreign company" is expanded to 
include not only majority equity ownership but also majority 
foreign voting rights. 
 
3. (U) An ad hoc committee comprised of 18 NLA members, 5 
persons from the Ministry of Commerce (including the 
Minister) and four others will consider the bill and propose 
amendments before a second reading of the bill. While there 
is no timeframe for this second reading, our sources have 
said they expect it within two weeks. A third and final 
reading of the bill, essentially approval by the whole house, 
would be shortly after the second reading. 
 
4. (SBU) A committee member told us that the committee is 
likely to include two additional clauses. One would prohibit 
companies that are grandfathered under list three from adding 
new branches or expanding their sales or production capacity 
by more than 30 percent beyond 2007 levels. A second would 
prohibit boards of directors of companies in proscribed 
sectors from being controlled in any way by foreign board 
members or members somehow under the control of foreign 
shareholders. 
 
5. (SBU) Six foreign embassies in Bangkok have demarched the 
RTG arguing that redefining what comprises a "foreign" entity 
to include voting rights is contrary to Thai commitments 
under GATS. The RTG has never responded to these demarches 
but Commerce Minister Krirk-Krai, who previously was the Thai 
Ambassador to the WTO, has assured his Prime Minister that 
Thailand is within its rights despite reserving only equity 
ownership under its exemptions to its 1995 GATS accession 
commitments. 
 
6. (SBU) Due to our bilateral treaty of Amity and Economic 
Relations, we know of only three companies which will be 
impacted by the amended FBA. Post is currently in touch with 
these companies and working with them in their interactions 
with the RTG. There may be U.S. citizens who formed holding 
companies through Thai nominees to get around restrictions on 
individuals owning land in Thailand, but none has yet 
contacted us. 
 
7. (SBU) Comment: With the Thai economy slowing significantly 
and the flow of foreign direct investment in decline, it is 
hard to understand the strong drive behind these further 
restrictions on foreign investment at this time. Several 
analysts believe that the following factors are behind this: 
 
BANGKOK 00002403  002.2 OF 002 
 
 
-     The Thai elite lost significant assets in the aftermath 
of the 1997 financial crisis. Now that the elite is again 
flush, this is an opportunity to repurchase assets (at good 
prices) from foreigners who previously purchased low-priced 
assets from Thais when the Thai sellers were in distress. 
-     Thaksin embraced globalization. In the current 
government, everything must be anti-Thaksin. 
-     The preference is for a bigger piece of a smaller pie. 
Foreigners are still welcome to invest in manufacturing (to 
take advantage of foreign technology and supply chains) but 
for services -sold only within the nation- that is to be 
reserved for Thais. 
-     The fact that for the 35 years the FBA has been in 
existence there has never been a case of a company 
successfully prosecuted for violating the FBA (and only one 
court case) is seen not as foreigners using what the law 
provides but foreigners taking advantage of Thai's easy-going 
nature. The amendments are to implement the law's intent, 
according to its proponents. 
 
8. (SBU) Comment continued: Thailand is in the midst of 
political confusion and a resulting wave of nationalism. Many 
sophisticated Thais know that these amendments are not in 
Thailand's longer term interest but are reluctant to speak 
out for fear of being branded "a slave to the farangs" as one 
Thai industrial estate developed termed it. This cycle will 
pass, but the country's economy will be far more vulnerable 
to downturns and find it more difficult to attract FDI in the 
future. 
 
 
 
 
ARVIZU