NLA FAILS TO PASS FOREIGN BUSINESS ACT AMENDMENTS;

UNCLAS SECTION 01 OF 02 BANGKOK 006240 SIPDIS SIPDIS SENSITIVE STATE PASS USTR USDOC FOR 4430/EAP/MAC/OKSA E.O. 12958:N/A TAGS: ECON EINV TH SUBJECT: NLA FAILS TO PASS FOREIGN BUSINESS ACT AMENDMENTS; INVESTORS RELIEVED ¶1. (SBU) Summary: A parliamentary committee failed to report out proposed amendments to the Foreign Business Act in time for consideration by the full National Legislative Assembly (NLA), leaving any future changes to the next government. Although foreign business groups overwhelmingly opposed the amendments, the amendments' failure returns foreign investors to an uncomfortable status quo. Foreigners operating in restricted sectors will not be required to divest their holdings, but are wary of continuing the convoluted ownership structures used to comply with the Act's restrictions in the past. End Summary. ¶2. (SBU) Foreign embassy and business representatives met again on December 20 with Mr. Somchai Sakulsurarat, deputy chair of the special NLA committee on the Foreign Business Act (FBA),for a post-mortem on proposed amendments that failed to clear his committee this week. The amendments would have expanded the definition of foreigner as it relates to limits on foreign ownership of business in Thailand, proscribing certain ownership structures commonly used by foreign businesses to maintain management control of businesses in restricted service sectors. The amendments were widely opposed by foreign investors as the new rules could have not only limited future investment opportunities but also require some companies to divest shares and give up company control. U.S. business would have been less affected than European and Japanese companies as many if not most U.S. investors have invested under either the U.S.-Thailand Treaty of Amity and Economic Relations, which provides national treatment, or under Board of Investment promotions, which allow majority foreign ownership. ¶3. (SBU) The amendments met their premature end after NLA President Meechai Ruchupan decreed late last week that the NLA would cease voting on legislation on Friday, December 21, and all legislation would need to be out of committee by December 18. Meechai moved up the NLA session's end date under pressure from civil society groups protesting passage of important legislation on the verge of a handover to an elected government. Somchai explained that the NLA's ad hoc committee on the FBA hurriedly moved up a previously scheduled meeting to finalize the amendments, but with many members of the committee out on the hustings campaigning for election the committee was unable to achieve a quorum and failed to report out the bill before the deadline. ¶4. (SBU) Somchai said he regretted the failure of the amendments to pass, and predicted that the next government would be politically unable to undertake similar sweeping changes to the Act, some of which may have been favorable to foreign business. Although the amendments included a tightening of business ownership rules that foreign investors opposed, Somchai said they had included a new provision to reduce the list of restricted sectors for foreign business within two years. Somchai said that although the political parties vying for election on December 23 have espoused pro-business platforms and support foreign investment, he believes that a democratically elected government would be unable to take on local interests that would oppose any further opening to foreign investment. Back to the status quo ante? -------------- ¶5. (SBU) With the failure to pass the amendments, foreign business continues to be covered by the current Foreign Business Act, but with lingering uncertainty. One foreign firm engaged in the retail trade, a sector restricted under the current FBA, told Econoff its subsidiary retail enterprises had formerly been structured as "nominee" firms, wherein a Thai would nominally hold a majority of shares without having a genuine investment in the company and without rights to profits. The RTG considers the nominee structure contrary to the spirit of the FBA and, while quietly permitting the practice in the past, has pledged to initiate investigations into companies that may be using nominee ownership structures. The foreign firm is restructuring its ownership to a preference share structure, which has a somewhat more solid legal footing. ¶6. (SBU) Comment: U.S. investors under the Treaty of Amity and Economic Relations (AER) are allowed majority control in all but a few service sectors and would have been relatively unaffected by the FBA amendments. However, the AER is not in full compliance with Thailand's WTO commitments, pending the outcome of FTA negotiations, and could be subject to challenge by another country. Some U.S. investors under the AER were relieved that the FBA amendments failed, fearing that their passage would have given such a clear advantage to U.S. investors that a WTO challenge would have become more likely. With other foreign investors able to continue operating as before, there should be less pressure on the RTG to remove the AER privileges that U.S. investors enjoy. BANGKOK 00006240 002 OF 002 BOYCE