AMBASSADOR DISCUSSES CUSTOMS CONCERNS WITH DEPUTY FINANCE

UNCLAS SECTION 01 OF 05 BANGKOK 002320 STATE FOR EAP/MLS, EEB/TPP STATE PASS TO USTR FOR BWEISEL, DBISBEE, BKLEIN, AND VBROWN COMMERCE FOR EAP/MAC/OKSA FOR JKELLY DHS FOR CBP, ICE GENEVA FOR USTR TREASURY FOR OASIA SINGAPORE FOR FINATT BLEIWEIS SENSITIVE SIPDIS E.O. 12958:N/A TAGS: ECON ETRD PINR PREL TH SUBJECT: AMBASSADOR DISCUSSES CUSTOMS CONCERNS WITH DEPUTY FINANCE MINISTER REF: A. BANGKOK 2185 (Reforming Thai Customs) ¶B. BANGKOK 1684 (Deputy PM Korbsak on Customs) ¶C. BANGKOK 1574 (Finance Minister Discusses Customs) ¶D. BANGKOK 1305 (Deputy PM Suthep on Customs) BANGKOK 00002320 001.2 OF 005 ¶1. (SBU) SUMMARY: "I will work personally to address these customs problems," Deputy Finance Minister Pradit Phataraprasit told the Ambassador in a meeting on September 8. Pradit, a coalition member of the Abhisit Administration, is the face of the government's new reform plan to address at least some of the most egregious and longstanding complaints regarding Thai Customs (ref A). While applauding Pradit's willingness to tackle Customs inefficiencies, the Ambassador stressed the gravity of American business concerns, including the ongoing customs disputes of Amway, Philip Morris, and FedEx. The Ambassador offered the U.S. government's expertise and assistance to Pradit's team as they draft amendments to the Customs law (at least in part due to the Mission's commercial advocacy efforts) and also invited the newly-appointed Director General of the Customs Department, Dr. Somchai Sujjapongse, to present the details of the reform plans to American companies at an American Chamber of Commerce meeting in the near future. The Ambassador also raised business concerns about proposed amendments to the government's excise laws, which could result in a significantly higher and discriminatory tax burden on affected American companies. On a non-customs related note, the Ambassador discussed the commercial concerns of the American company G-TECH, which won a government contract in 2005 to implement a digital lottery. Pradit, who also oversees the Government Lottery Office, expects that the digital lottery project will move forward soon, alleviating G-TECH's concerns. END SUMMARY. Pradit's Customs Reforms -------------- ¶2. (SBU) As part of the Mission's continued, broad efforts to press the Thai government for fair and transparent treatment of American companies operating in Thailand, the Ambassador met with Deputy Finance Minister Pradit Phataraprasit on September 8 to learn more 
about Pradit's plans to "transition the Customs Department from a duty collector to a trade facilitator" (ref A). The Ambassador welcomed Pradit's August 19 announcement of proposed reforms to modernize the Customs Department, but he also stressed the significant Customs-related concerns of many American companies doing business in Thailand. The Ambassador explained that American companies continue to rate overall customs issues as the top impediment in Thailand, whether due to the lack of transparency (i.e., uncertainty about duty rates that are imposed),arbitrary valuation methods, or the onerous penalty regime. ¶3. (SBU) Pradit outlined three overall Customs priorities: 1) drafting a new Customs law; 2) opening a "Customs Clinic;" and 3) accelerating Thailand's implementation of its "National Single Window." Regarding the new Customs law, Pradit had promised the Prime Minister that a draft would be ready for review by the Cabinet within 60 days. Pradit told the Ambassador that unlike previous drafts, this new proposal will incorporate suggestions from the Thai and foreign business community. He specifically cited his plans to give more flexibility to the Customs Department and the judicial system when assessing penalties for companies that appealed the original decision. Pradit has proposed using a range of no more than four times the import value (anywhere from zero to four) rather than strictly applying the current fixed penalty of four times the duty-paid value of the imported goods. A previous draft of the law proposed increasing this penalty to five times the duty-paid value. ¶4. (SBU) The Ambassador offered the US Government's assistance and expertise to assist with Pradit's reform efforts, noting that several USG customs experts are resident in Thailand, in addition to numerous experts based in Washington, who can help review particular proposals and offer suggestions to the government. The Ambassador emphasized that, in order to be more business-friendly, the Customs BANGKOK 00002320 002.2 OF 005 Department should adopt internationally-accepted standards and procedures, and the drafting of a new Customs law is the perfect opportunity to ensure that Thai Customs procedures are compliant with these standards. (NOTE: A new Customs law has been in the works for several years; however, to the dismay of most business groups, many of the amendments proposed by the Customs Department in earlier drafts would have worsened the situation by increasing penalties. END NOTE.) ¶5. (SBU) Pradit proudly announced to the Ambassador his plans to unveil a new Customs website on September 15. He explained that Customs modeled the website after that of Singapore's Department and expressed hope that the new site will be business friendly, with easier access to the correct tariff data and the required forms. He also touted the new "Customs Clinic," which officially opened on September 7. He explained that the Customs Clinic will be able to provide guidance to companies in advance of their shipments to improve the transparency and predictability of Customs decisions. ¶6. (SBU) Thailand will also accelerate implementation of its "National Single Window," according to Pradit. He explained that shippers will be able to deal with a single point of contact at Customs to handle all of the required paperwork and formalities required by the various ministries. Six government agencies are already committed to the project, but he hopes at least nine more agencies will join in the Single Window efforts. He recognized that in order to fulfill its ASEAN commitments, Thailand should have completed its National Single Window process by 2008, but he hopes the remaining tasks will be completed by the end of 2009. Rewards Sharing System: "Too Sensitive" -------------- ¶7. (SBU) The Ambassador inquired about Pradit's plans to address the reward sharing procedures at the Customs Department, a systemic problem in which the Customs officers who determine whether a penalty should be imposed benefit financially from that decision, receiving a significant portion of the penalty as a reward. Customs officials can share up to 55 percent of the penalty amount, which is be divided between the officers in the unit involved in assessment of the penalty and the chain of command, up to and including the Director General. The Ambassador advised that the reward sharing system negatively impacts Thailand's overall business climate and discourages new business investments in Thailand. ¶8. (SBU) Pradit acknowledged the litany of complaints from businesses regarding the rewards system and the conflicts of interest the system may perpetuate, but he indicated that issue is simply "too sensitive" to change at this time. He said that the Ministry was looking at international standards and studying other rewards systems to see if anything can be done. He noted that even Finance Minister Korn had complained about the procedures, but Pradit still argued, "We probably need to have a rewards system." Pradit opined that the rewards system has some positive attributes, including enabling the Customs Department to reward informants in customs cases. In these cases, a certain portion of the penalty can be shared with an informant (30 percent of 55 percent of the penalty amount),while the balance (70 percent of the 55 percent) is then divided and awarded among the Customs officials. The Ambassador responded that although rewarding informants outside the Thai government might be an internationally acceptable practice, rewarding civil servants under the current system could not be justified. Advocacy on Behalf of American Companies -------------- ¶9. (SBU) The Ambassador also raised several troubling ongoing customs cases and expressed our concern about the treatment these companies continue to receive from the Customs Department. The Ambassador sought Pradit's assistance to resolve these cases in a fair and transparent manner. (NOTE: The Ambassador has previously BANGKOK 00002320 003.4 OF 005 raised these cases with the Prime Minister, the Deputy Prime Minister, the Finance Minister, the Foreign Minister, and others within the government. END NOTE.) ¶10. (SBU) Amway: The Ambassador noted our interest in the Customs treatment of Amway, the largest importer of American goods in Thailand. Amway has been engaged with Customs on a valuation dispute for several years regarding the addition of bonuses and marketing expenses to the declared customs values of the company's imports. The Ambassador explained to Pradit that if Customs rules against Amway in this particular case, the company could be ordered to pay an exorbitant amount (approximately $200 million including penalties) or face a penalty payment of close to two billion dollars and even jail time for the company executives in Thailand. Pradit said he was familiar with the case but needed more time to closely study how to resolve the matter. The Ambassador emphasized that Amway is the largest US exporter to Thailand and the disposition of this case, particularly if the outcome is non-transparent, will attract significant negative attention. ¶11. (SBU) Philip Morris: The Ambassador outlined his concerns about the handling of an ongoing customs dispute with Philip Morris. In 2006, the Customs Department refused to accept Philip Morris's declared prices on its tobacco imports and began applying its own reference invoice prices to the company's products. After numerous meetings where Philip Morris demonstrated its declared import prices were compliant with WTO valuation principles, the Thai Customs Valuation Division ruled in a written notification in March 2008 that the company's original invoice pricing methodology was correct. Despite this ruling (which under the current legal regime is non-binding),the Customs Suppression Division charged Philip Morris with "undervaluation" and "tax evasion" in the amount of $500 million. The Philippines, where Philip Morris was producing these products, then filed a case against Thailand at the WTO in June 2009, arguing that the actions taken by Customs Suppression Division violated WTO valuation principles. Unfortunately, the Department of Special Investigations, under the Ministry of Justice, unexpectedly filed criminal charges against Philip Morris and its top executives in August 2008, escalating the situation even further. The Ambassador added that of even greater concern was that someone in the government leaked details of the case to the press, in what appeared to be a smear tactic against the company's reputation in Thailand. The Ambassador asked that the government at least suspend further actions until the WTO has ruled on the case. ¶12. (SBU) FedEx: The Ambassador explained how the Customs Department is holding FedEx liable for shipments that were improperly declared by three Thai exporters. Because there is no express clearance system, FedEx batches 30 airway bills together and is shown as the Exporter of Record. In this particular case, in which improperly declared diamonds had been sent through FedEx, Customs settled with one of the exporters but was unable to settle with the other two, whom FedEx helped to identify and locate. While Thai Customs can hold the exporter, carrier, and/or the shipping company liable under a strict interpretation of customs laws, the Ambassador stressed that FedEx should only be liable if the company is suspected of intentional fraud. FedEx has been asked to pay a penalty of $345,000 to settle the case. Pradit assured the Ambassador that he personally would look into the matter and report back very soon. ¶13. (SBU) G-TECH: The Ambassador also asked for Pradit's assessment of the government's plans to implement the digital lottery. The American firm G-TECH was awarded the contract to establish the lottery in 2005 during the Thaksin Administration, but the project has since been held up with numerous changes in government leadership. Earlier this year, Pradit, who also oversees the Government Lottery Office, expressed his support for the project to move forward, following a decision from the Council of State approving the legality of the plan. Pradit told the Ambassador that a government-funded poll to determine public opinion on the project showed favorable results, with more than 50 percent supporting the plans. Pradit said he had briefed the Prime Minister and hopes to BANGKOK 00002320 004.2 OF 005 resolve the issue very soon. The Ambassador asked that Pradit continue to keep us informed on any developments or decisions, particularly since the American company G-TECH is anxiously waiting to complete the project. Since 2005, G-TECH has expended nearly $60 million on the infrastructure build-out of the digital lottery. Related Concern: Amendments to Excise Laws -------------- ¶14. (SBU) The Ambasasdor briefed Pradit on new business concerns about Thailand's excise tax laws. While customs reforms may be underway, many companies are alarmed about potential changes to the excise tax regime that could counter the positive efforts made by Customs and even negate some of the benefits of Thailand's trade agreements with a number of countries. ¶15. (SBU) U.S. business representatives have expressed concerns about two provisions in these proposed amendments to the excise laws. (NOTE: We will report septel on the details of these proposals. END NOTE.) The Ambassador explained that one of the amendments would give the Director General of the Excise Department the discretionary authority to determine its own import value for a product, rather than relying on the Customs-determined value. Since both Excise and Customs are under the auspices of the Ministry of Finance, introducing two standards for the valuation of the same imported product would be both unnecessary and confusing. ¶16. (SBU) Another amendment would change the method used to calculate the base value of imported excisable goods from countries that have free trade agreements with Thailand. The Excise Department could use the higher Most Favored Nation (MFN) duty rate when calculating the excise tax base rather than using the preferential trade agreement duty rate that an importer actually pays, resulting in a significantly higher excise tax burden on the companies. Pradit noted he was not familiar with the issue but assured the Ambassador someone from his staff would look into the matter in more detail. New Director General at Customs -------------- ¶17. (SBU) Immediately prior to the meeting with Pradit, the Cabinet approved a new slate of officials to lead the various Finance Ministry agencies, including the Customs and Excise Departments. Pradit told the Ambassador that current Director General Wisudhi Srisuphan, who will reach mandatory retirement at the end of September, will be replaced by Ohio State graduate Dr. Somchai Sujjapongse, currently the head of the Finance Ministry's brain trust, the Fiscal Policy Office. Somchai, who is known as a close advisor to Finance Minister Korn, will take the reins at the Customs Department on October 1. ¶18. (U) Other appointments include Areepong Bhoocha-Oom, the current Director General of the State Enterprise Policy Office, as head of the Excise Department; Satit Rungkasiri, a Deputy Permanent Secretary, as Areepong's replacement as the Director General of the Fiscal Policy Office; and Pongpanu Svetarundra, the current Director General of the Public Debt Management Office, as the Comptroller General. Megaports and 100 Percent Cargo Scanning -------------- ¶19. (SBU) The Ambassador thanked Pradit for his continued support and cooperation on the Megaports Initiative at the Laem Chabang Port. The Ambassador explained that the Customs Department's cooperation on Megaports gives us 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. The Ambassador clarified that we want the Customs Department to take full-ownership of the project in the near future, but assured Pradit that the United States would continue to provide long-term support. A U.S. Department of Energy official recently arrived in Bangkok to BANGKOK 00002320 005.2 OF 005 provide this assistance. (NOTE: The Megaports Initiative was established by the Department of Energy's National Nuclear Security Administration, and the implementing partner in Thailand is the Customs Department. The project provided $3 million in passive radiation scanning equipment to the Laem Chabang Port and a guaranteed five years of service and support for the equipment. Total USG investment is approximately $20 million, including the equipment, repairs, training, and personnel costs. END NOTE.) ¶20. (SBU) Pradit inquired about U.S. plans to implement the 100 percent cargo scanning requirement on all ships bound for U.S. ports and specifically asked whether the Laem Chabang Port would be considered a qualified port under these new scanning requirements. The Ambassador noted that the specific details regarding the implementation of the 100 percent cargo scanning requirements are under discussion in Washington, but we would provide more details to his office when available. The Ambassador added that many USG officials, including those from the Department of Homeland Security and the Department of Energy, will attend a Ministry of Foreign Affairs seminar on the 100 Percent Cargo Scanning Requirements, to be held September 21-23 in Bangkok. Bio Notes: Pradit Phataraprasit -------------- ¶21. (SBU) Pradit Phataraprasit, a well-spoken politician from the Ruam Jai Thai Chart Pattana Party, became Deputy Finance Minister under then Prime Minister Samak in 2007. He stayed on in this same position through Prime Minister Somchai's term in office, and then Abhisit re-appointed him as part of the sitting coalition government in December 2008. There are two Deputy Ministers at the Ministry of Finance; these positions have typically gone to coalition partners to secure the party's support for the Prime Minister since the positions oversee the lucrative revenue collecting agencies of the Ministry. Pradit supervises both the Customs and Revenue Departments, while Pruektichai Damrongrat from Puea Paendin oversees the Excise Department. ¶22. (SBU) Born December 25, 1955, to a wealthy tycoon family in the Phichit Province, Pradit became a businessman at a young age and managed several of his family's multi-million dollar corporations, including the Phataraprasit Group, a large conglomerate with interests in the hotel, real estate, and banking sectors. Pradit entered politics in 1995 to represent his hometown in Parliament. He has been re-elected to office each time since. Pradit was considered a rising star within the Democrat Party, as was Abhisit Vejjajiva, but Pradit left the party along with current Deputy Prime Minister Sanan Kachornprasat, after an internal conflict with Abhisit and the party's leadership. Democrat Party insiders allege that Pradit walked out the door with party funds, leading to bad blood that persists to this day and hampers close cooperation with Finance Minister Korn. Pradit then joined the Ruam Jai Thai movement, which later merged with Chart Pattana. He became the Secretary General and the party's financier. ¶23. (U) Pradit completed his undergraduate studies in business and economics in 1979 at Franklin Pierce University in New Hampshire. He received a Master's in Political Science from Thammasat University in 2004. He is married to Aphamas Phatarapradsit and has four children, including one who is currently an undergraduate at his father's alma mater, Franklin Pierce. JOHN