Identifier
Created
Classification
Origin
09BANGKOK151
2009-01-21 10:10:00
UNCLASSIFIED
Embassy Bangkok
Cable title:  

THAILAND: 2009 INVESTMENT CLIMATE STATEMENT

Tags:  ECON EFIN EINV ELAB ETRD KIPR OPIC KTDB USTR TH 
pdf how-to read a cable
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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0151/01 0211010
ZNR UUUUU ZZH
O 211010Z JAN 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5712
INFO RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUCPCIM/CIMS NTDB WASHDC IMMEDIATE
RUCNASE/ASEAN MEMBER COLLECTIVE IMMEDIATE
UNCLAS SECTION 01 OF 17 BANGKOK 000151 

STATE FOR EEB/IFD/OIA, EAP/MLS
STATE PASS TO USTR FOR WEISEL AND BISBEE
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA

SIPDIS

E.O. 12958:N/A
TAGS: ECON EFIN EINV ELAB ETRD KIPR OPIC KTDB USTR TH
SUBJECT: THAILAND: 2009 INVESTMENT CLIMATE STATEMENT

REF: 08 STATE 123907

UNCLAS SECTION 01 OF 17 BANGKOK 000151

STATE FOR EEB/IFD/OIA, EAP/MLS
STATE PASS TO USTR FOR WEISEL AND BISBEE
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA

SIPDIS

E.O. 12958:N/A
TAGS: ECON EFIN EINV ELAB ETRD KIPR OPIC KTDB USTR TH
SUBJECT: THAILAND: 2009 INVESTMENT CLIMATE STATEMENT

REF: 08 STATE 123907


1. (U) Per reftel request, below is Post's draft of the 2009
Investment Climate Statement (ICS) for Thailand. We also e-mailed a
Microsoft Word version to EB/IFD/OIA (J. Nathaniel Hatcher and
Gregory Hicks),per reftel instructions.


2. (U) Begin text of the 2009 Investment Climate Statement for
Thailand:

Chapter 6: Investment Climate
--------------

- Openness to Foreign Investment
- Conversion and Transfer Policies
- Expropriation and Compensation
- Dispute Settlement
- Performance Requirements and Incentives
- Right to Private Ownership and Establishment
- Protection of Property Rights
- Transparency of Regulatory System
- Efficient Capital Markets and Portfolio Investment
- Political Violence
- Corruption
- Bilateral Investment Agreements
- OPIC and Other Investment Insurance Programs
- Labor
- Foreign-Trade Zones/Free Ports
- Foreign Direct Investment Statistics
- Web Resources

Openness to Foreign Investment
--------------

Thailand maintains an open, market-oriented economy and encourages
foreign direct investment as a means of promoting economic
development, employment, and technology transfer. In recent decades,
Thailand has been a major destination for foreign direct investment,
and hundreds of U.S. companies have operated here successfully.
Thailand continues to welcome investment from all countries and
seeks to avoid dependence on any one country as a source of
investment.

In February 2008, the inauguration of an administration formed by a
parliamentary coalition led by the People's Power Party (PPP) marked
the return of a democratically-elected government to Thailand,
almost 17 months after the 2006 coup d'etat. For much of 2008, the
People's Alliance for Democracy, a political group, engaged in

street protests that placed significant pressure on the PPP-led
government; these protests included the occupation of Government
House for more than three months, and the occupation of Bangkok's
airports for more than one week near the end of the year.
Additionally, Constitutional Court rulings forced Prime Minister
Samak Sundaravej out of office in September and then, on December 2,
dissolved the PPP and forced Prime Minister Somchai Wongsawat out of
office. A subsequent realignment in the parliament resulted in the
election of Abhisit Vejjajiva, leader of the Democrat Party, as
Prime Minister. As of January 2009, most investors were cautiously
hopeful that the political situation would become less tumultuous
and allow the government to pursue business-friendly policies. One
of newly-elected Prime Minister Abhisit's most difficult but
immediate tasks will be restoring the business and investor
confidence in Thailand's economy after months of political turmoil,
including the stand-offs at Bangkok's airports.

Despite the political unrest in 2008, the Thai economy outperformed
its 2007 growth levels, registering 5.1 percent year-on-year growth
for the third quarter and 4.3 percent year-on-year growth for the
first nine months of 2008. This growth was largely attributed to
strong exports of goods and services that grew at an 8.5 percent
annual rate in real terms. Domestic demand and private investment,
in contrast, grew by only 2.6 and 2.7 percent respectively. Exports
are not expected to grow at the same pace for the last quarter of
2008 or during much of 2009 due to the forced shutdown of the two
Thailand's international airports and the predicted slower global
economic growth. The government has revised its economic growth
projection to between zero and 2.0 percent for 2009. With a new
government in place, government spending is expected to provide some
fiscal stimulus during 2009 and the government's investment in key
mega-projects could be an engine for economic growth. The goal is to
boost consumer spending and domestic business confidence given that
economic recession in major developed world markets will likely
prevent exports, which represent 60 to 70 percent of GDP, from
growing much.

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In the wake of the 1997-98 Asian Financial Crisis, Thailand 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. The Foreign Business Act (FBA) 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.

Many U.S. businesses, however, enjoy investment benefits through the
U.S.-Thailand Treaty of Amity and Economic Relations (AER),
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 Thai companies, exempting them from
most of the restrictions on foreign investment imposed by the
Foreign Business Act. 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
the Thai side to hold the majority stake because of the advantages
that come from familiarity with the Thai economy and local
regulations.

Thailand began a series of trade negotiations during the government
of Prime Minister Thaksin Shinawatra in an effort to gain a
comparative advantage for Thai products in key markets and regions.
In addition to trade deals with Japan, Australia and New Zealand,
and "early harvest" agreements with India and China, Thailand
continues to participate in regional trade liberalization
discussions with ASEAN-India, ASEAN-Japan, ASEAN-Australia-New
Zealand, ASEAN-Korea, EFTA (European Free Trade Association) and
BIMSTEC (Bay of Bengal Initiative for Multisectoral Technical and
Economic Cooperation). The U.S. Government began FTA negotiations
with the Thai government in June 2004, and conducted seven rounds of
discussions through 2006. The negotiations were suspended following
a military-led coup against the Thaksin government in September

2006. The United States will continue to monitor and evaluate
developments in Thailand and will determine appropriate next steps.

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. U.S. 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
nonimmigrant 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.

A new Alien Occupation Act, replacing the 1978 Act, continues to
list occupations reserved exclusively for Thai nationals, including
professional services such as accounting, architecture, law,
engineering, the manufacture of traditional Thai handicrafts, and
manual labor. However, the law does not apply to diplomatic
missions, consular missions, representatives of member countries and
officials of the United Nations and specialized institutions,
personal servants traveling with and working for the above persons,
and persons who have been exempted for a special mission by the
Royal Thai Government. The Act also states that all non-Thai persons
working in Thailand, with limited exceptions, or an employer of a
non-Thai worker, must possess a work permit issued at the discretion
of the Ministry of Labor. Some foreigners already working in
Thailand are exempted through a "grandfather" clause. Factors that

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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
promoted by the Board of Investment (BOI) usually have little
difficulty obtaining work permits and typically receive working
permits within seven days of application and duration of the work
permit is generally tied to the length of stay permitted by the
visa. Government 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.

Currently, Thai laws allow the import of migrant workers from Burma,
Laos and Cambodia on manual labor in certain industries such as
textiles. Under the Alien Occupation Act, employers of unskilled
workers are required to deduct a certain amount (to be specified by
a Ministerial regulation issued by the Ministry of Labor) from
salaries of their foreign workers and submit to a newly established
'Deportation Fund' which will be managed by a committee. The amount
will be made in a single payment and can vary depending on the
associated cost of deporting such foreign workers back to their
native country if necessary. If the amount is not fully collected
from the foreign workers, employers are ultimately responsible for
the payments. Foreign workers will be given receipts and will be
reimbursed within 30 days after they have returned to their home
country at their own expense. However, foreign workers must make a
reimbursement claim with receipts within two years after their
departure from any immigration check-point. Interest (7.5 percent
per annum) will be paid only if the refund process exceeds 30 days
after a claim.

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 Act, foreigners who invest a minimum of 40 million
baht (approximately US$1.2 million) are permitted to buy up to 1,600
square meters of land for residential use with the permission of the
Ministry of Interior. The investment period requirement should be
maintained for not less than three years. If the required land is
not used as a residence within two years from the date of
acquisition and registration, the Ministry shall have the power to
dispose of the land. Petroleum concessionaires may own land
necessary for their activities. Rather than purchasing, many foreign
businesses instead sign long-term leases, then construct buildings
on the leased land. Under the 1999 Condominium Act, non-Thais were
allowed to own up to 100 percent of a condominium building if they
purchased the unit between April 28, 1999 and April 28, 2004. Under
the new Condominium Act B.E. 2551 (2007),foreign ownership in a
condominium building, when added together, must not exceed 49
percent of the total space of all units in such building, excepting
those purchased between 1999 and 2004. Foreign owners exceeding the
legal limit must divest their property within one year.

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. While foreigners rarely are jailed
for improper business activities, 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 previous Thaksin government led by Thaksin eagerly embarked on a
privatization program for state-owned economic enterprises and state
monopolies. The interim government that followed the September 2006
coup considered privatization too controversial and put it on hold.
State-owned enterprises operate primarily in the utility, energy,
telecommunications, banking, tobacco, and transportation sectors. In
2007, Thailand's 58 state-owned enterprises had total revenues of
around 3.05 trillion Baht (approximately US$90 billion),employed
approximately 270,000 people (0.7 percent of the Thai labor force),
and accounted for approximately 35.9 percent of Gross Domestic
Product (GDP). With or without privatization, the government is
trying to downsize overstaffed state-enterprises.

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 June 2007, the outgoing Prime Minister Surayud
initialed a proposed new Privatization Bill aimed at replacing the

BANGKOK 00000151 004 OF 017


1999 Corporation Act, which would have increased transparency in the
privatization process but limited the sectors in which state
enterprises could be privatized. The National Legislative Assembly
(NLA) did not have time to consider the bill before its session
ended in late December 2007, and the past two administrations under
Prime Ministers Samak Sundaravej and Somchai Wongsawat did not
consider any previous pending bills from the NLA

In 2001, the Thai government 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 Thai government 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 the
Telecommunication Authority of Thailand. In 2003, the Thai
government corporatized the Communication Authority of Thailand, and
partially privatized Krung Thai Bank. In March 2004, the Thai
government 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 June 2005, the Thai
government corporatized the EGAT. However, EGAT's planned listing
was delayed following an order by the Supreme Administrative Court
that suspended its stock offering until the court finished its
consideration of a petition filed by civil groups which oppose the
privatization. The Court later found that full privatization could
not proceed. Anti-privatization protesters filed a lawsuit
challenging the legality of PTT's 2001 partial privatization. The
Court ruled in December 2007 that the privatization was conducted
legally but that PTT must transfer its natural gas pipeline business
back to the government.

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 would regulate state enterprises that have been
converted into private companies under the 1999 State Enterprise
Corporatization Act. Despite previous rejection, the Ministry of
Finance is planning to resubmit it to the new government for
consideration.

Other than PTT, AOT and MCOT, few significant privatizations have
occurred. Thailand has removed tax disincentives on buying domestic
financial institutions. The Financial Institutions Act passed at the
end of 2007 raised the foreign ownership limit of 25 percent to 49
percent. Foreign banks in the form of full branches are still
limited to operation of a single branch.

In January 2004, the Cabinet approved the Bank of Thailand's
Financial Sector Master Plan (FSMP) designed to increase competition
by eliminating regulatory boundaries within the financial sector,
and at the same time to consolidate and strengthen the sector after
its initial recovery from the financial crisis of 1997. The Bank of
Thailand is Thailand's central bank. 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, and are allowed to open
four branches (one per year) in addition to the head office. As a
result of the FSMP, nine new banking licenses were granted by the
Thai financial authorities in 2005. For the next phase, the Bank of
Thailand will introduce the second Financial Sector Master Plan some
time in 2009. The second FSMP, a three-year plan, would broaden the
types of services financial institutions can provide and would open
up the sector to more competition. The first FSMP is available in
English at www.bot.or.th/bothomepage/BankAtWork/FinInsti tute/
FISystemDevPlan/ENGVer/pdffile/eng.pdf.

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Conversion and Transfer Policies
--------------

Exchange controls are governed by the Exchange Control Act of B.E.
2485 (1942),amended in 1984, and Ministerial Regulation Number 13
of 154, and are administered by the Bank of Thailand. Inward
remittances are free of controls. However, the Ministry of Finance
has issued a Ministerial Regulation, effective on October 28, 2007,
to require any person who brings foreign currencies in or out of the
Kingdom exceeding US$20,000 or the equivalent must declare the
amount at a Customs check point.

Foreigners staying in Thailand for less than three months, foreign
embassies, and international organizations are exempt from this
requirement. In July 2007, the Ministry of Finance and the Bank of
Thailand agreed to relax regulations on capital flows to balance
capital movements and to increase flexibility for Thai businesses in
managing their foreign currency holdings. The changes included
abolishing the surrender requirement for all foreign currency
receipts from abroad to be sold or deposited within 15 days;
doubling the amount of foreign currency deposited with financial
institutions in the country from US$0.5 million to US$1 million for
individuals; doubling the foreign currency deposited from US$50
million to US$100 million for juristic persons with future foreign
exchange obligations, and increasing to US$0.1 million for
individuals and to US$0.3 million for juristic persons without
obligation. 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 US$100
million per annum for business investment or loans to subsidiaries,
to US$1 million per annum for remittances to family members. The
Bank of Thailand must approve the purchase of immovable assets or
securities abroad. The new regulation, however, also increases the
limit of overseas fund remittances in foreign currencies up to US$1
million by Thai individual. In addition, the authorities also
relaxed the repatriation requirement for exporters with foreign
currency receipts by extending the period in which such receipts
must be brought into the country from within 120 days, to within 360
days and requiring that the foreign currencies be deposited or sold
with financial institutions within another 360 days.

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. If nonresidents have underlying
liabilities or transactions in Thailand, they can open and maintain
Thai Baht accounts under Nonresident Baht Accounts (NRBA) with
authorized banks in the country; however, the combined outstanding
of all NRBAs for each NR at the end of the day can not exceed 300
million Baht (approximately US$8.8 million). Since February 2008,
the Bank of Thailand has segregated the NRBA into two types:
Nonresident Baht Account for Securities (NRBS) for investment in
securities and other financial instruments, and Nonresident Baht
Account (NRBA) for general purposes. The cap on NRBAs was introduced
in October 2003 with the goal of limiting speculation on the Thai
Baht. All remittances exceeding US$10,000 for any purpose other than
export must be reported to the Bank of Thailand.

In an effort to slow currency speculation, the Bank of Thailand in
December 2006 introduced new measures requiring all financial
institutions to hold in reserve for one year 30 percent of all
capital inflows not related to trade in goods or services or
repatriation of Thai residents' investment overseas. However, the
measure was never fully implemented and in February 2008, the
measure was completely lifted.

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.

Dispute Settlement
--------------

Thailand has a civil and commercial code, including a Bankruptcy
Act. Monetary judgments are calculated at the market exchange rate.

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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. During the first seven months of 2008, the Court
issued verdicts on 12,047 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.

The 2003 case of Thailand Petrochemical Industry (TPI),the
country's largest corporate debtor, raised serious concerns about
the transparent and fair application of the Bankruptcy Act. In a
protracted battle between creditors and the company founder for
control of TPI, the Central Bankruptcy Court removed a
creditor-backed foreign firm as managing administrator of the TPI
holding company and decreed that the Ministry of Finance would
administer TPI. In 2006, debt-holders approved a new TPI
restructuring agreement that reduced their equity in the company and
gave management control of TPI to PTT, a large Thai oil and
chemicals company.

Performance Requirements and Incentives
--------------

Thailand has committed to implement all WTO agreements, including
Trade-Related Investment Measures (TRIMS). In its latest Trade
Policy Review in November 2007, the WTO noted, "Thailand has
maintained its support and commitment to the liberalization of the
multilateral trading system, especially for agriculture. It also
remains committed to "open regionalism" and considers regional trade
liberalization an effective catalyst for freer trade and
complementary to multilateralism." The report continued that WTO
negotiations would improve market access and the predictability and
stability of trade and investment. The report notes that a key
challenge for Thailand's future economic performance is the
government's ability to restore private investor confidence and to
proceed with pending structural reforms, including stalled
privatizations that would help improve the country's
competitiveness. The report also underlines the need for Thailand to
expand its tariff bindings and to simplify its relatively complex
tariff regime. The services sector, which makes up a large part of
the Thai economy, has benefited so far from liberalization but would

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grow further if multilateral commitments under the GATS were
expanded, according to the review.

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 investment policy 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
with an investment 10 million baht (approximately US$300,000) or
more, excluding the cost of land and working capital, are 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 (approximately $30,000),excluding the cost of land and working
capital.

- To promote investment in key sectors, five priority areas have
been identified:
- Agriculture and agricultural products;
- Environmental protection and/or restoration;
- Direct involvement in technological and human resource
development;
- Public utilities, infrastructure, and services and;
- Targeted industries, including agro-industry, automotive,
information technology/electronics, high value-added services,
semi-conductors, manufacture of machinery and equipment, software
parks, and high-quality upstream steel.

Besides the five priority activities, the BOI has identified other
activities which are also eligible for promotion as follows:

- Mining, ceramics and basic metals;
- Light industry;
- Metal products;
- Chemicals, paper and plastic;
- Services and public utilities

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 own 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

BANGKOK 00000151 008 OF 017


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 750 million baht
(approximately US$22 million) within 90 days.

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. However, for projects in
agriculture, animal husbandry, fishery, mineral exploration and
mining and service businesses under Schedule One of the Foreign
Business Act (FBA) B.E. 2542, Thai nationals must hold shares
totaling not less than 51 percent of the registered capital.

- The maximum allowable debt-to-equity ratio was lowered from 4:1 to
3:1 for a newly established project, but expansion projects will be
considered on a case-by-case basis.

- Except for the electronic and agriculture industries, projects
investing less than 500 million baht (about US$15 million),
regardless of overall investment size, must produce added value
equal to at least 20 percent of sales revenue.

- For projects of more than 500 million baht (about US$15 million),
excluding land and working capital. A feasibility study must be
presented at the time of application.

- State-enterprise projects are not eligible for BOI promotion, but
concession projects (either Build Transfer Operate or Build Operate
Transfer) by the private sector are eligible with some restrictions.
For privatization of state enterprises, only expansions after the
privatization are eligible for BOI promotions.

- 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 or a promoted industrial zone. The
income tax holiday is now five years for qualifying investments but
the project with capital investment of 10 million baht (about
US$300,000) or more could be eligible for income tax holiday of
eight years if it is relocated to certain provinces in zone 3

- 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 Thai government amended its investment promotion
conditions for regional operating headquarters (ROHs). Business
projects with registered capital of at least 10 million baht
(approximately US$300,000),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 (such as a
preferential corporate income tax rate of 10 percent versus 30
percent and a flat 15 percent personal income tax rate for foreign
employees for four years). In July 2008, the BOI waived import
tariffs on machines for research and development for ROHs in order
to attract more investment. There are currently 65 BOI-promoted ROH
projects, most of which are in the manufacturing and service
sectors, including U.S. companies such as Exxon Mobil Co., Ltd.,
Chevron Asia South Co., Ltd., General Motors Southeast Asia
Operations Co., Ltd., and Ford Services (Thailand) Co., Ltd.

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 (approximately US$300 million).


BANGKOK 00000151 009 OF 017


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 four northeastern provinces, namely
Chiayaphum, Nong Khai, Ubon Ratchathani, 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 a 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 should help boost the competitiveness of
companies investing in Thailand's electrical and electronics
industries. In order to qualify for new incentive packages,
electrical and electronics companies have to be long-term investors
with total investment of at least 15 billion Baht (approximately
US$450 million) among other requirements. Those incentives include
8-year 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.

In late 2006, Kosit Panpiamrat, then Deputy Prime Minister and
Minister of Industry, announced that the BOI should adopt a strategy
focusing on strengthening the future industrial sector. The policy
consists of the development of engineering and supporting industries
complying with the development of knowledge and intellectual
capital, promotion of linkages between foreign investment and
domestic industries, and support of Thai-owned investment in
traditional service industries.

In mid-2007, to promote energy conservation, the BOI introduced a
special package for the manufacture of "eco-cars." BOI conditions
require that the vehicles meet international standards and other
specifications such as production of 100,000 units per year from the
fifth year of operation, five liters per 100 kilometers of engine
fuel consumption, and a minimum pollution standard of EURO 4 or
higher. Minimum investment is required to be at least five billion
baht (or approximately US$150 million). Regardless of plant
locations, the privileges will include a corporate income tax waiver
of eight years and duty-free importation of machinery. However, the
application window closed on November 30, 2007, with seven auto
makers making submissions. The BOI granted eco-car privileges to
Honda Automobile (Thailand),Suzuki Automobile Thailand, Siam Nissan

BANGKOK 00000151 010 OF 017


Automotive, Mitsubishi Motors (Thailand),Toyota Motors (Thailand),
and Tata Motors (Thailand).

In an attempt to revive the economies of the three southernmost
provinces (Pattani, Yala, and Narathiwat),the BOI launched a
special package for investment projects in the area in mid-2007. The
package includes maximum tax incentives and 100 percent tax
deductions for capital investment for three years. Applications must
be submitted to the BOI by the end of 2009.

In November 2008, the BOI and the Thai government began offering
maximum incentives in six priority industries to celebrate
Thailand's Investment Year 2008-2009. The measures are aimed at
boosting investment during the projected global economic slowdown in

2009. Under the special offer with BOI, investors can submit
investment applications in the following six target sectors located
in any provinces except Bangkok by the end of 2009. The special
incentive package includes eight-year exemption of corporate income
tax, a 50 percent reduction of corporate income tax for five more
years, double deduction of transportation and utilities costs, and a
25 percent deduction from net profit for facility installation and
construction costs on top of normal depreciation capital. The six
target sectors are:

- Energy saving and alternative energy related businesses such as
fuel produced from agricultural products;

- High technology businesses such as functional fiber, medical
equipment and vehicle parts;

- Environmental-friendly materials and products manufacturing;

- Mega projects-related businesses;

- Tourism and real estate-related businesses; and

- High-tech agricultural material-based business such as sweetener,
dextrin and modified starch manufacturing.

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 Foreign Business Act, or for
U.S. investors may benefit from the Treaty of Amity and Economic
Relations (AER) 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
settlement of disputes. 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.

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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:

Widespread counterfeiting and piracy continue to plague intellectual
property rights owners in Thailand. Particular areas of concern
include counterfeiting of pharmaceuticals, apparel, and accessories;
and optical media piracy, signal theft, book piracy, camcording and
end user software piracy. In a trend of particular concern, an
increasing volume of pirated and counterfeited products manufactured
in Thailand is exported. The lack of sustained and coordinated
enforcement, and, in particular, the lack of prosecution, remains a
substantial problem. In 2007, Thailand was elevated from the Special
301 Watch List, where it had been since 1994, to the Priority Watch
List, reflecting an overall deterioration in the protection and
enforcement of IPR. Thailand remained on the Special 301 Priority
Watch List in 2008.

Thailand's legal regime is in general compliance with the WTO
Agreement on Trade Related Aspects of Intellectual Property (TRIPs),
but questions remain about Thailand's implementation of obligations
to protect pharmaceutical and agricultural test data from unfair
commercial use, treatment of conflicting trademarks and geographical
indications, broadcasting, and digital copyright issues. Thailand is
a signatory to the Berne Convention, but not the World Intellectual
Property Organization Copyright Treaty (WCT) or Performances and
Phonograms Treaty (WPPT). In January 2008, the National Legislative
Assembly approved Thailand's inclusion in the Patent Cooperation
Treaty and the Paris Convention. Procedures to formally accede are
still underway.

Transparency of 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.
Since the law's implementation, several foreign motorcycle
distributors were found guilty of violating the Act by forcing sales
agencies to sell only their brands. The government continues to have
the authority to control the price of specific products under the
Act Relating to Price of Merchandise and Service B.E, 2542 (1999),
which was meant to be phased out with the advent of a Competition
Act. The Department of Internal Trade under the Ministry of Commerce
administers this law and interacts with the affected companies
although only the "Committee on Price of Merchandise and Service"
make the final decision on what products to add or remove from price
controls. As of January 2009, out of 36 controlled commodities, only
sugar is subject to a price ceiling. Besides the 36 controlled
commodities, practically any producer of consumer products is
prohibited from raising prices without first notifying the Committee
of its intention to do so. 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

BANGKOK 00000151 012 OF 017


and predictable enforcement of government regulations remain
problematic for 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 toward
transparency in regulatory enforcement is positive, especially for
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 2002, Thailand established National Corporate Governance
Committee (NCGC),chaired by the Prime Minister or Deputy Prime
Minister, which 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. Under
the new Financial Institutions Business Act (implemented in August
2008),foreign share holders may retain a 49 percent stake in
financial institutions, up from 25 percent under the previous acts.
Foreign ownership between 25 percent and 49 percent requires prior
approval from the Bank of Thailand. The new law also allows the Bank
of Thailand to authorize foreign ownership above the 49 percent
limit if deemed necessary to support the stability of the overall
financial system in an economic crisis. This type of emergency
action also requires the support and approval of the Minister of
Finance. 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 and financial institution
borrowing. The Ministry of Finance is working on developing
Thailand's debt markets.

Following the 1997 financial crisis, banks generally overhauled
their lending systems and have since taken a more conservative
approach. Thai borrowers were also reluctant to take on more debt
due both to overcapacity and a desire to maintain clean balance
sheets. In recent years, external factors such as problems in the
U.S. sub-prime market raised the volatility of international
investment flows and the global financial system, adding risks to
Thailand's overall macroeconomic and financial stability. Due to
perceived increased risk and ongoing concerns about their credit
quality since the global economic downturn, financial institutions
have tightened their credit standards for loans and credit lines to
enterprises, as well as to households. After peaking at 47 percent
of total lending in May 1999 from the financial crisis,
non-performing loans slowly declined to stand at 3.29 percent of
total loans in September 2008.

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. 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

BANGKOK 00000151 013 OF 017


the Financial Institution Development Fund (FIDF). Interest paid by
the bonds is 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.

Political Violence
--------------

On September 19, 2006, the military overthrew the administration of
Thaksin Shinawatra in Thailand's first coup since 1991. The
bloodless coup took place in a period of political uncertainty while
the PM and most of his cabinet were abroad. Opposition to the coup
was mostly limited and non-violent, though on New Year's Eve 2006 a
series of eight bombs exploded in different areas of downtown
Bangkok, killing three people and wounding thirty-eight. Interim
Prime Minister Surayud initially blamed the explosions on elements
loyal to Thaksin, but to date no formal charges have been brought
against any individual or group and there are numerous theories as
to the actual perpetrators and their motives.

In August, 2007, the National Legislative Assembly approved a new
constitution, replacing the 1997 constitution. On December 23, 2007,
peaceful national elections were held to restore a
democratically-elected government. Throughout the second half of
2008, a political protest group called the People's Alliance for
Democracy (PAD) held large demonstrations against the government. In
late August 2008, PAD protestors occupied Government House, where
the Prime Minister's Office is located; they held the compound for
months. PAD protestors also occupied Bangkok's civilian airports on
November 25, impeding the facilities' functioning and departing only
on December 3, after the collapse of the government headed by
then-PM Somchai Wongsawat.

During late 2008, there were occasional firearms discharges and
explosions in the vicinity of the Government House compound and the
airports, when they were under PAD occupation. The explosions seemed
intended to injure PAD sympathizers. Several people died as a
result, and dozens were injured. An October 2007 PAD protest at the
parliament led to a clash between PAD and the police, with at least
two PAD sympathizers killed and over 100 PAD protestors and police
injured. Protestors sympathetic to Thaksin, and opposed to PAD, have
also held large rallies in Bangkok. These gatherings have been
largely peaceful, although PAD and pro-Thaksin demonstrators have
confronted each other violently on occasion. The protests largely
died down by the end of December 2008, as a new government led Prime
Minister Abhisit Vejajjiva settled into office.

An important political problem for the Thai government is the
ongoing political violence in Thailand's southern-most provinces
(Yala, Narathiwat, and Pattani). Efforts to quell the
ethno-nationalist insurgency, which has led to over 3,000 deaths
since 2004, have not yet had much effect.

Corruption
--------------

Thailand has laws to combat corruption. The independent National
Counter-Corruption Commission (NCCC) coordinates official efforts
against corruption. In December 2003, Thailand is a signatory to the
U.N. Convention against Corruption but has delayed ratification
pending a review of legal issues.

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 comply with 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
Department. 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.

BANGKOK 00000151 014 OF 017


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. The leaders of the 2006 coup announced that the
key impetus to their action was the "widespread corruption" of
Thaksin and his government. An "Asset Examination Committee" was
created to examine suspect transactions of the previous regime, and
formal charges were levied against several members of Thaksin's
family in 2007.

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 Thai nationals. 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, customs, investment, biotechnology, and other areas
of mutual concerns.
Thailand also has bilateral investment agreements (called agreement
on the promotion and protection of investment) with 42 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 can provide political risk insurance for
inconvertibility and transfer, expropriation, and political violence
for U.S. investments including equity, loans and loan guarantees,
technical assistance, leases, and consigned inventory or equipment.
OPIC Insurance is currently insuring three U.S.
corporations/organizations involved in telecommunications,
humanitarian services, and economic development in Thailand. Most
recently, OPIC provided insurance to the Asia Foundation. OPIC
direct loans and loan guarantees are also available for business
investments in Thailand, and cover sectors as diverse as tourism,
transportation, manufacturing, franchising, power, and others.
Historically, OPIC has committed over US$32.5 million in financing
to investments in Thailand. In addition, OPIC supports seven equity
funds that are eligible to invest in projects in Thailand.

OPIC established a special line of credit of up to US$175.75 million
to mobilize U.S. private sector investment in the reconstruction of
nations devastated by the December 2004 tsunami. The credit line was
part of an OPIC Tsunami Reconstruction Finance Initiative intended
to help speed the rehabilitation of housing and infrastructure in
affected countries, including Thailand. Thailand became a member of
the Multilateral Investment Guarantee Agency (MIGA) in October

2000.

OPIC-financed loans of up to US$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 new private equity
funds that are eligible to invest in clean and renewable energy
projects in emerging markets worldwide, including Thailand. Through
OPIC, investors have access to political risk insurance, debt
financing, and equity.

Labor

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--------------

According to the National Statistics Office, as of October 2008,
Thailand has a labor force of 38.34 million workers out of a total
population of 66.51 million. This figure includes Thai nationals
fifteen years of age or older.

The official unemployment rate averaged 1.38 percent during 2008,
but does not include an estimated one to two million seasonally
unemployed agricultural workers. As a result of the global economic
downturn, the manufacturing sector has begun to show signs of
increased unemployment since May 2008. The agricultural and service
sectors have been able to absorb the unemployed works from the
manufacturing sector, keeping the overall rate very low.
Unemployment is currently close to the level that prevailed before
the 1997-98 financial crisis.

The Thai government's decision not to forcibly repatriate large
numbers of foreign workers in the agriculture, fisheries,
construction, and other semi-skilled sectors may also have affected
employment levels. Since 2004, the Thai government has allowed
illegal migrant workers from the neighboring countries of Laos,
Cambodia, and Burma, to register with the government to legally stay
and work in Thailand. As of November 2008, there were 560,000
migrants registered with the Thai government; however, private and
government sources estimate that the number of illegal migrants
currently living and working in Thailand could be as high as 1.5
million.

Despite past rapid growth in the industrial and service sectors, 37
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.

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 2008 was
100.35 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 percentage 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) was measured by the Thai government as 60.2 percent.
Of a total of 38.34 million employed persons in 2008, 31.1 percent
had education of less than elementary level, 21.9 percent had
elementary, 15.1 percent had lower secondary, 13.0 percent had upper
secondary, and 15.3 percent had university degrees.

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. In January 2009, the government announced a plan to pay for
uniforms, fees, school supplies and other expenses that had kept the
children from poor families from attending school despite the fact
that there were no tuition charges.

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.

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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.

The Thai government amended the Labor Protection Act in 2008 to help
promote standards for contract labor. The Act now requires an
employer to provide benefits and welfare without discrimination to
the contract laborers. The Act also extended protection for
employees against sexual abuse and harassment in the workplace.

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
employees' 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 two worker strikes recorded in
2007 and three employer lockouts. Less than two percent of the total
labor force is unionized; unionization rates are high only in state
enterprises. As of December 2007, there are 43 state-owned
enterprise unions with 170,630 members, and 1,243 private labor
unions with 331,250 members.

Foreign-Trade Zones/Free Ports
--------------

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 development of these estates. The
IEAT currently operates twelve estates, plus 26 more in conjunction
with the private sector in 14 provinces nationwide. Private sector
developers operate over 50 industrial estates, most of which have
received promotion privileges from the Board of Investment.

In addition, the IEAT established ten special IEAT Free Zones
(renamed from 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
(two),Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at Lad
Krabang),Ayuddhya (two),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.

Foreign Direct Investment Statistics
--------------

Foreign direct investment (FDI) (net inflows from non-banking sector
only),totaled US$8.3 billion in 2008 (Jan-Oct),compared with
US$10.2 billion in 2007 (full year),and US$10.5 billion in 2006.
Major FDI recipients included real estate financial institutions
(US$1.7 billion),real estate (US$1.1 billion),machinery &
transport equipment (US$1.1 billion),services (US$719 million),and

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mining and quarrying (US$545 million) sectors.

Japan was the biggest source of FDI in 2008 (Jan-Oct),at US$2.15
billion, closely followed by Singapore at US$2.04 billion. U.S. FDI
for the same period was US$983 million, and the United Kingdom FDI
was US$329 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 US$23 billion. According to the Board of
Investment (BOI),in 2008 (Jan-Nov),26 U.S. investment projects
approved by the BOI totaled 7.3 billion baht (US$221.5 million),
including the following (note that a U.S. investment is classified
as any investment with at least ten percent U.S. capital, and
companies below are based on January to June 2008 data only;
projects listed below could be either an expansion project or a
newly established factory):

- LSI (Thai) Ltd. with 7.2 billion baht (US$218 million) investment.
Integrated circuit with 700 million piece capacity; 100 percent
Colgate-Palmolive (Thailand) Ltd. with 739.6 million baht (US$23.0
million) investment in soap production with 75 percent targeted for
export;

- General Motors (Thailand) Co., Ltd. with 7.1 billion baht (US$214
million) investment. 48,000 vehicle units, 50 percent
Colgate-Palmolive (Thailand) Ltd. with 419 million baht (US$13.0
million) investment for body care products with 81 percent for
export;

- Xaloy Asia (Thailand) Ltd. with 130 million baht (US$4.0 million)
investment for production of parts for plastic injection machine
with 100 percent for export;

- Rubberon Technology Corporation Ltd. with 54 million baht (US$1.7
million) investment for synthetic rubber products with 90 percent
for export;

- Honeywell Electronic Materials (Thailand) Ltd. with 52.9 million
baht (US$1.6 million) investment for production of thermal interface
material for semiconductor with 100 percent for export.

Web Resources
--------------

- Financial Sector Master Plan (FSMP):
http://www.bot.or.th/bothomepage/BankAtWork/
FinInstitute/FISystemDevPlan/ENGVer/pdffile/e ng.pdf

- BOI web site at http://www.boi.go.th/

- IEAT web site at http://ieat.go.th/

To the best of our knowledge, the information contained in this
report is accurate as of the date published. However, the Department
of State does not take responsibility for actions readers may take
based on the information contained herein. Readers should always
conduct their own due diligence before entering into business
ventures or other commercial arrangements. The Department of
Commerce can assist companies in these endeavors.

JOHN