WHILE THAILAND BEGS FOR FDI, NORTHERN INVESTORS VOICE

UNCLAS SECTION 01 OF 02 CHIANG MAI 000074

SIPDIS

E.O. 12958: N/A
TAGS: EINV BTIO EIND ECON TH
SUBJECT: WHILE THAILAND BEGS FOR FDI, NORTHERN INVESTORS VOICE
COMPLAINTS

REF: A. 08 CHIANG MAI 160 (LAMPHUN INDUSTRIAL ESTATE)

B. 08 CHIANG MAI 128 (SPACE FOR INVESTMENT)

CHIANG MAI 00000074 001.2 OF 002


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Summary and Comment

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1. Amid a downward trend of foreign direct investment (FDI) in
Thailand and the northern region in particular, the Board of
Investment (BOI) expressed Thailand's thirst for a new wave of
foreign capital by highlighting a range of incentives for new
investment to an audience of foreign business owners in Chiang
Mai on May 27. These foreign investors, who already operate in
the northern region, reacted assertively to the BOI's
presentation, calling for Thailand to relax labor laws and
improve BOI services for current foreign investors before
putting its effort on attracting new ones.




2. Comment: A revision of BOI policy -- from encouraging
investment in certain lesser developed regions of Thailand to
encouraging any investment anywhere in the country -- highlights
Thailand's desire for more FDI as a possible aid to economic
recovery. With current investors being so unhappy with the
legal and cultural barriers of operating here, the RTG will have
to do much more than provide tax breaks to attract new foreign
capital. After all, Thailand's current investors may be its
best bet for new foreign capital. End Summary and Comment.



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Amid Falling FDI, BOI Expands Incentives

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3. The disappointing downward trend of foreign investment in
Thailand and in the northern region in particular were the
opening comments of Board of Investment (BOI) Secretary General
Atchaka Brimble during a May 27 open forum she hosted with
foreign investors in northern Thailand. The SecGen reported
that in the first quarter of 2009, the number of new foreign
investment projects country-wide dropped 29% from the same
quarter last year, and the value of new investments dropped 10%.
In the north, the news was gloomier with the number of projects
dropping 42% and the value of FDI dropping 50% in the first
quarter.




4. The SecGen tried to balance the bad news with the good. She
reminded foreign investors about generous BOI incentives for
certain types of new investment (for which the BOI certification
application is due before the end of this year). Benefits from
new investments filed by the end of 2009 include eight years of
corporate tax exemption, and exemption of import duties for
machinery. The SecGen also highlighted that these incentives,
which have historically been reserved for new foreign investment
in lesser developed regions of the country, now apply to
investment anywhere outside of Bangkok, a policy the BOI calls
"one country, one zone." (Comment: The BOI's shift away from
trying to manipulate where investors choose to operate
highlights the RTG's desire for more FDI country-wide as an aid
to economic recovery.) The BOI is also targeting investment in
certain sectors that it would like to see Thailand develop as
competitive advantages, including energy-saving technologies,
eco-friendly products, high-tech agricultural business,
logistics, and tourism.



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Investors Complain of "Crippling" Labor Laws

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5. After a generally cheery presentation by the SecGen, the
dialogue turned sour as investors bombarded her with complaints.
A U.S. firm and a Singaporean firm told her that strict Thai
labor laws were "crippling" their firms' ability to pull
themselves out of the current economic crisis. A representative

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of the U.S. firm Innovex, which produces small electronics parts
at the Lamphun Northern Regional Industrial Estate (ref A),
recounted that incentives for Thai laborers to work harder over
years of employment decreases because of the nature of Thai
labor laws, which require that severance pay for laid off
workers be proportional to the length of time employed by the
firm. Thus, according to Innovex, higher-ranking Thai staff
become non-performing employees who are extremely costly to
dismiss. The Innovex representative pleaded with the SecGen to
address this issue with the RTG and said that "the costs of
these strict labor laws are so high that they are offsetting the
benefits of operating in northern Thailand." The Singaporean
firm echoed Innovex's comments, and the SecGen responded that
she would be meeting with the Labor Minister on June 16 and
plans to raise the issue at that time.



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A Welcoming Invitation, but A Lousy Host?

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6. Aside from costly labor laws, which the SecGen agreed are
among the most costly obstacles that foreign firms face in
Thailand, foreign investors raised a range of other complaints
that they say make operating in Thailand challenging or costly.
Most of the complaints were problems caused by poor BOI
services, particularly in the north. A Pepsi-FritoLay
representative complained that BOI staff would not approve the
duty-free importation of certain used machinery because the
machines were available on the Thai market, a BOI regulation.
His argument was that the machines should be duty-free since
they are not produced here and Thai sellers import the machines
used from Japan. The SecGen agreed and invited the company to
contact the local BOI office.




7. A European firm complained about a lack of understanding
among the Thai courts, lawyers, and the BOI about Thailand's
regulations on majority Thai ownership of shares. Thai
regulations allow for foreigners to own majority shares in
several industries; however, firms complained that lawyers and
judges generally believe that any firm operating in Thailand
must be owned (with a majority of shares) by a Thai citizen.
The BOI SecGen admitted that this was a misunderstanding.




8. Several U.S. and European firms raised complaints about poor
communication between the BOI and registered foreign investors.
One firm representative complained that the forum was the first
time he had heard of many of the BOI's new incentive programs;
and, with only half of the year remaining, the firm has very
little time to apply to take advantage of them. Others
complained of poor English skills among BOI staff and the lack
of English-language BOI resources and correspondence. A
Singaporean firm called for the RTG to do more to develop
technical skills in the northern region, a complaint U.S. firms
have raised previously with us (ref B). Several expatriate
investors complained of excessively strict Thai visa policies,
particularly for investors' family members. One investor
commented broadly to the BOI SecGen, "We want to invest in
Thailand, but you are making it difficult for us. Help us to
invest here; make it easy for us to invest here."




9. This cable was coordinated with Embassy Bangkok.
MORROW