THAI CABINET APPROVES FOREIGN BUSINESS ACT

UNCLAS BANGKOK 000152

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MAC/OKSA
TREASURY FOR OASIA
PASS TO USTR FOR WEISEL
PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
PASS TO FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT

E.O. 12958: N/A
TAGS: ECON EINV PREL TH
SUBJECT: THAI CABINET APPROVES FOREIGN BUSINESS ACT
AMENDMENTS

REF: A. 06 BANGKOK 7650


B. 06 BANGKOK 7435

C. 06 BANGKOK 6363


1. (U) On January 9 the Thai cabinet approved amendments to
the Foreign Business Act (FBA). The key changes are:
- An alien company is now defined as one in which ownership
and voting control are both 51 percent non-Thai. Previously
voting rights were not addressed.
- Increased monetary penalties for non-compliance accruing
from the date the amendments specify that companies must
restructure (i.e. 2 years from the date the amendments take
effect)..
- Industries on List 3 of the Act (the vast majority of
service sector businesses) that are currently operating in
Thailand may apply for a foreign business license - which is
assured approval - and thereby "continue operations." This
waiver will not be offered to companies currently under
investigation for violation of the FBA thereby capturing the
Shin Corp-Temasek transaction; the political impetus for the
amendments (see reftels).
- Industries on List 1 and List 2 of the Act have two years
in which to restructure to become Thai owned and controlled.


2. (SBU) Lists 1 and 2 relate primarily to agriculture,
traditional handicrafts, national defense industries, and
mining. However, List 1 specifically mentions "land trade"
which could capture thousands of foreigners, including
Amcits, who have established holding companies to own
property. List 2 includes inland transportation and therefore
may capture foreign express delivery companies. We have not
been able to identify other industries in these lists which
have any significant foreign participation.

3.(SBU) Deputy Prime Minister Pridiyathorn has invited
delegates from the Joint Foreign Chambers of Commerce to meet
with him on January 10 to discuss the amendments. They will
seek clarification whether there are any limits on the
ability of grandfathered firms to conduct operations
including purchasing other companies in Thailand, increasing
capital or entering new lines of business. They will also
inquire whether any exemptions may be made to entities on
Lists 1 and 2.


4. (U) Next steps are for the Council of State, essentially
legal advisors to the cabinet, to review the amendments to
ensure they conform with other Thai laws. Then the National
Legislative Assembly will consider enacting the amendments
into law.


5. (SBU) Comment: The initial reaction of the foreign
business community is relief that the amendments weren't more
onerous and few, if any, companies should be required to
divest of any shares. The Thai stock exchange index, however,
closed down 2.7 percent on the news that cabinet had approved
the amendments in expectation of a chill on new foreign
direct investment in the services sector and concern about
foreign reaction to another RTG move against foreign
investors following the December 18 application of capital
controls. US companies have been exempt from many FBA
limitations due to our bilateral Treaty of Amity and Economic
Relations (AER). If investors from third nations are no
longer able to enter the Thai market with operational control
over their investment while US investors are largely
exempted, these nations may put considerable pressure on the
RTG to move towards terminating the AER.
BOYCE