THAI FINANCE MINISTER ON AMERICAN BUSINESS

C O N F I D E N T I A L SECTION 01 OF 03 BANGKOK 001574 SIPDIS E.O. 12958: DECL: 07/01/2024 TAGS: ECON ETRD PREL TH SUBJECT: THAI FINANCE MINISTER ON AMERICAN BUSINESS INTERESTS AND A POSSIBLE LAND REFORM REF: BANGKOK 1547 Classified By: Ambassador Eric G. John, Reasons 1.4 (b) and (d) ¶1. (C) Summary: In a June 29 meeting with Finance Minister Korn Chatikavanij, the Ambassador raised concerns about less than fair and transparent treatment U.S. business receives from the Ministry's Customs Department. The Ambassador also raised the Megaports Initiative, encouraging the Thai government to accept full ownership of the program, while reassuring Korn of our long-term stake in it. Korn admitted that the Thai customs system is gravely flawed, assured that he would look into the specific commercial cases of American firms Amway and FedEX, and stated the Thai government is aware of its legal obligations to U.S. company GTECH. Korn noted steps already taken to address our business concerns, including the transfer of the Director-General of Thai Customs to an inactive position within the Ministry. He also confirmed that the Thai government's plan to procure Airbus A380 aircraft is off, and that he had issued a letter to help General Motors Thailand secure financing. With regards to broader economic issues, Minister Korn said the prospect of controlling expenditure of the Thai government's 1.43 trillion baht investment stimulus plan may have the ancillary benefit of keeping together the governing coalition at least through the end of 2010. He also detailed a yet to be unveiled land tax reform that would bring much needed revenue to the government coffers and promote a more equitable distribution of land in Thailand. End Summary. ¶2. (C) Comment: This meeting was part of an ongoing campaign by the Ambassador and the Mission's entire economic team to push for fair treatment for U.S. business interests in Thailand. Minister Korn said all the right things in the meeting, whether with regard to the treatment of American firms or the altruistic aims of the planned land reform. We believe that Korn understands the importance of the business concerns raised in regards to global perceptions about Thailand's business climate. The question remains though, given the tenuous nature of the governing coalition, how far Korn can push-up against the interests of those in his ministry who are members of other coalition parties and who, by nature of their position, have a personal financial interests that brush up against those of U.S. firms. This Mission will continue to raise these issues at all levels of the RTG, and with the public, as long as is necessary. End Comment. ¶3. (C) Ambassador John met with Thai Finance Minister Korn June 29 to raise a set of customs-related concerns of American businesses active in Thailand, as well as to discuss other economic issues. Accompanied by the Embassy,s senior economic and commercial staff, the Ambassador met Korn in the Minister's office and provided a readout of his recent U.S.-ASEAN Business Council visit to the United States (along with the U.S. Ambassadors to Vietnam and Indonesia) to promote bilateral business, trade, and investment. The Ambassador noted that while there is good will towards Thailand in the United States, much is misunderstood about what is happening politically. He noted how he explained to American businesses (and others) that the political unrest in Thailand has left Thailand's economic stability relatively untouched. Picking up on this theme, Korn stated he sent a letter to General Motors (GM) late last week to convey support to its efforts to secure local financing. (Note: On June 30, the Finance Ministry provided the Embassy a copy of the June 25 letter addressed to Steven Rattner and Harry Wilson of the Treasury Department and the President's Auto Task Force; Federick Henderson, President and CEO of GM; and Nick Reilly, President of GM Asia-Pacific. It states that while the Thai government can not provide direct financial support to GM, it is facilitating access to the local banking community and is optimistic that the prospects for securing loans are very good. The letter has been emailed to the Thailand Desk in EAP/MLS. End Note). The Ambassador thanked the Minister for his support, noting that it stemmed from a discussion the Ambassador had with Korn several months earlier. Separately, the Ambassador also noted that the Thai government's public diplomacy efforts in the United States have been hampered by the long absence of a Thai Ambassador in Washington. Customs Concerns: Amway and FedEX -------------- ¶4. (C) The Ambassador explained that dealing with Royal Thai Customs (which comes under the authority of the Finance Ministry) is by far the area of most concern to U.S. businesses, whether regarding improper valuation methods or BANGKOK 00001574 002 OF 003 the onerous penalty regime. He provided Korn with details of two cases emblematic of the business community's broad concerns: those of Amway and FedEX (Korn acknowledged he was not familiar with the specifics of either case). Amway has been engaged with Customs on a valuation dispute for years. If Customs rules against Amway at the conclusion of its investigation, the company will be ordered to pay an exorbitant amount (approximately $200 million including penalties) or, if it appeals the decision and loses, face a charge of close to two billion dollars and even jail time for the company executives in Thailand. In the case of FedEX, Thai Customs is trying to hold the company liable for a shipment that was improperly declared by three Thai companies. While under Thai law Customs can hold the carrier liable, it is FedEX,s understanding that it is only liable if conspiring in the fraud, which is not alleged. The Ambassador emphasized the USG simply wants to ensure fair and transparent treatment from Thai Customs for these well-respected American companies. ¶5. (C) Korn responded positively, stating the customs system is flawed and noting Prime Minister Abhisit specifically tasked him with aligning the practices of the Finance Ministry's Departments of Revenue and Customs with those of other agencies so as to not send mixed messages to the business community. Korn also confirmed that former Deputy Permanent Secretary of Finance Wisudhi Srisuphan and Director-General (DG) Utid at the Customs Department have swapped positions. Wisudhi is now the DG at Customs, with Utid deliberately moved to a largely inactive position removed from the customs process. (NOTE: Wisudhi is generally known as a technocrat, more professional than Utid. Unfortunately, he (and Utid) is scheduled to retire in September. End Note). Korn also shared that the European Union and Japanese have raised similar complaints with him. He told the Ambassador he would look into the FedEX and Amway cases. GTECH Advocacy -------------- ¶6. (C) The Ambassador raised with Korn the case of American company GTECH, which has an agreement with the Government Lottery Office to provide the technology for Thailand's proposed digital lottery (the government is considering not going forward with a digital lottery scheme, in breach of its agreement with GTECH). He emphasized that, regardless of what decision the Thai government makes, GTECH,s significant investment to date (more than 2 billion baht) should be protected. Korn told the Ambassador he tasked his staff to look into the legal obligations of the government in case it decides to not go forward with GTECH. Korn assured the Ambassador that he understands legal obligations need to be upheld and that, in the worst case, the Thai government would need to sit down with GTECH. Korn confided that, if he had it his way, he would do away with the existing system of paper lotteries all together since they are ripe for corruption. Megaports Initiative -------------- ¶7. (SBU) On a more positive note, the Ambassador thanked Korn for the cooperation of Royal Thai Customs on the Megaports Initiative, explaining it provides an opportunity to demonstrate our shared commitment to port security while enhancing Laem Chabang Port's reputation as one of the region's leading seaports. He told Korn the next step would be for Royal Thai Customs to accept full-ownership of the Megaports project. Assuring Korn that the USG will continue to provide long-term support to Megaports, he explained we are establishing two new Embassy positions specifically dedicated to the Initiative and that the U.S. Department of Energy has a five-year sustainability plan that includes equipment. No Airbus A380s for Thai Airways -------------- ¶8. (C) Minister Korn informed the Ambassador that he had lunch with Thai Airways' new CEO, Piyasvasti Amranand (known as a close ally of Korn),and that they confirmed the airline (majority owned by the Finance Ministry) will not go ahead with its planned procurement of six Airbus A380 aircraft. (NOTE: the Thai government had been studying the planned procurement in light of Thai Airways' economic woes due to reported mis-management and the impact of the global economic crisis. American firm Engine Alliance, with strong support from this Mission, had competed against Rolls Royce as the engine supplier for the A380s and complained to the Thai government that it was not selected over Rolls Royce due to BANGKOK 00001574 003 OF 003 irregularities in the bidding process. The issue now appears moot. End note). Investment Stimulus Package: Political Benefit -------------- - ¶9. (C) Korn noted with relief the Thai Parliament's passage of the emergency decree allowing the government to borrow approximately USD 12 billion (400 billion baht) to finance investment projects and reduce the government deficit (reftel). He explained the government plans to go to market with savings bonds in July to raise the first 50 billion baht and that the investment stimulus will amount to an approximate 8-9 percent fiscal injection into the economy over three years. Korn also noted the government's challenge will be the implementation of the 6,000 related investment projects. He also explained the opportunity to put into place such a large amount of spending gives incentive to the government's coalition partners to stay with the Abhisit government so they can claim credit for providing for their constituents. The total 1.43 billion baht investment plan breaks down in a way that provides for almost 600 billion baht to the transportation sector, 300 billion baht to the agricultural sector, and significant amounts to the energy, education, and health sectors as well. As Korn put it, why would coalition partners break from government and let someone else spend all these funds? As such, Korn expressed his guarded optimism that the Abhisit coalition will stick around for at least another year, perhaps until the end of ¶2010. Property Tax Legislation - New Initiative -------------- ¶10. (C) Minister Korn took the opportunity to brief the Ambassador on draft property tax legislation the Thai government is considering. Korn explained there is currently no tax on property in Thailand, but only a tax on income. In light of tax revenue shortfalls, the government is reviewing plans for a progressive tax on property that would be phased in over time and result in an eventual 0.5 percent annual tax on land. Plots valued at less than 1 million baht would be exempt from the tax. The arguments in favor of land tax reform are convincing, he stated. The Thai government receives only 10 percent of its revenue from assets, with the other 90 percent coming from income. "We are taxing people's efforts, not their wealth." What's more, while 90 percent of all land plots in Thailand will be exempt from the tax, the government will only lose 10 percent of revenue from the exemption. That is to say, 10 percent of land holders control 90 percent of the value of the land. Korn noted his subordinates in the Ministry's Revenue Department have already calculated how much Korn himself would owe under the new tax. He and his wife's reaction to the number was that they should sell a large plot of idle land they own rather than pay the tax. "And this is exactly what should happen," he said. "Idle land should be sold 4o someone s`g WOuld doQmkzm8GIt( it#Qg{hov4Qn' 4oe'Cqbmwc!QR'jd{\y52r% oo#J) XQ \b1eeeaction from within his own party has been mixed. He did not provide a timeline for a roll-out of his campaign in favor of the initiative, should it be pursued. JOHN