EU PROPOSING WTO ARGUMENT AGAINST THAI TELECOM REGS

UNCLAS SECTION 01 OF 02 BANGKOK 005741 SIPDIS SIPDIS STATE FOR EB/CIP, EAP/MLS JUSTICE FOR STUART CHEMTOB COMMERCE FOR EAP/MAC/OKSA TREASURY FOR OASIA STATE PASS TO USTR FOR WEISEL AND MCHALE E.O. 12958: N/A TAGS: ETRD ECPS EINV TH SUBJECT: EU PROPOSING WTO ARGUMENT AGAINST THAI TELECOM REGS REF: BANGKOK 115 BANGKOK 00005741 001.2 OF 002 ¶1. This is an action request, see paragraph 8. ¶2. Jean-Jacques Bouflet, Minister-Counselor for Economic Affairs at the EU Mission to Bangkok, called representatives from the Australian, Singapore, Japanese, Norwegian and US embassies for a meeting on September 18 seeking joint or coordinated action on draft regulations by the National Telecommunications Commission (NTC) prohibiting the takeover of Thai telecoms businesses by non-Thai entities. The NTC is expected to release the third draft of its proposed regulations within the next few weeks and will be seeking public comment. ¶3. Bouflet explained that on April 5 the EU Ambassador sent a letter to the NTC Chair indicating significant concerns with the draft regulations and the likelihood that they contravened Thai WTO obligations. On August 4, the Director General of the EU Directorate-General for Trade, Agular Machado, sent a follow-up letter (faxed to EAP/MLS) further outlining EU concerns and noting that "As foreign investors made their investments in telecommunications enterprises in Thailand on the basis of its existing WTO trade commitments, the adoption of a legislation modifying considerably such commitments through the introduction of new prohibitions unforeseen at the time when the investments were made could seriously harm foreign businesses already established in Thailand." No response to either letter was received by the EU. ¶4. The Thai actions are related to the controversy surrounding the selling of PM Thaksin's family company, Shin Corp, to Singapore's Temasek. While the political opposition clearly intended for regulatory action to be taken only against the PM's transaction, the Ministry of Commerce has now become involved and is scrutinizing the share structures of 16 large firms with complicated corporate structures and significant foreign ownership. This is seen by many as a political response to the opposition's action against Shin Corp, indicating a willingness to disrupt broad areas of the economy if the Shin transaction is unwound. ¶5. While no US company currently has any equity interests in Thailand's telecom sector, nor, so far as we know, is anticipating such investments, the prohibition against foreign majority ownership in the sector clearly limits the potential for US investment in this area. The Treaty of Amity and Economic relations between the US and Thailand, which covers most other areas of bilateral investment, specifically excludes telecom, so US legal rights in this sector are identical to those of the EU. ¶6. Bouflet, until recently a litigator at the WTO, argued to us that Thailand's horizontal commitments at the WTO includes a carve-out only for a maximum of 49 percent foreign equity participation, but makes no mention of foreign control. Since, in Bouflet's WTO experience, any limitations on market access must be very narrowly defined, the Thai effort to rewrite its regulations to make them more restrictive effectively violates both the spirit and the letter of its WTO commitment. Bouflet added "when Thailand took its WTO commitment, it was accepted based on a minimalist interpretation and legitimate expectations based on historic Thai practice; this is now being changed.". Bouflet indicated that the EU will seriously consider bringing this matter to WTO dispute resolution if the Thai continue on their current course. ¶7. Comment: We are concerned that in the current political battle in Thailand, both sides are playing a game of chicken in which foreign investors are caught in the middle. Recent actions to investigate long-established holding company structures, foreign ownership of land and small hotels, new visa regulations and limits on expansion of large retail stores are most likely all part of the political game in the run-up to elections later this year. The risk is that some real, albeit unintentional, economic damage is done as both sides keep upping the ante. ¶8. Action Request: The EU's contention that the NTC's proposed regulations may constitute a nullification or impairment of WTO signatories' rights is a new, potentially BANGKOK 00005741 002.2 OF 002 significant development, one that provides a firmer legal grounding for concerns over the direction of Thai telecoms investment policy. We request Washington agencies' views on the validity of the EU's legal argument, as well as views on how best to approach the RTG on this issue. While we are not necessarily opposed to joint or coordinated action with the EU and others in Bangkok, we are mindful of other channels, e.g., the WTO, that might have advantages. We await Washington's guidance on how to proceed. BOYCE