Problems relating to Trade and Investment on Thailand

 
1. Restrictions on entry of foreign capitals
Issue
Issue details
Requests
Reference
(1) Restricted FFEs' Entry into Service Sectors - Government of Thailand (GOT) restricts FFEs' entry into business, by Business Licence acquisition requirement, particularly into service sector (including Contract Business), in which FFEs' equity ownership ratio is restricted.
- FBA(Foreign Business Act)'s preclusion remains on MFOE's entry into the service sector.
-- MFOE (whose majority shares are owned by foreigners or foreign funded enterprises (FFEs)) is prohibited from engaging in the business sector (for manufacture and sales of products, such as electric appliances and machineries) that also provides simultaneously fee-based services, such as maintenance service.
-- In the electronics business sector, the crux of the competition lies in provision of quality customer service, in addition to the differentiated hardware. Customers' interest is eroded by the restrictions on the foreign capital ratio in the service sector.		 - It is requested that GOT deregulates restrictions on FFEs' entry into business.
- It is requested that GOT repeals at once the restrictions on MFOE.		 - Foreign Business Act
- Alien Company Control Act, Article 8
  (Action)
- In May 2006, Ministry of Commerce (MOC) issued a new regulation that stringently compels Thai investors to disclose the source of operation capital fund in a joint venture company in which foreign capital owns certain share capital ratio. The regulation also compels disclosure of the source of operation fund to Thai investors and foreign directors investing into a joint venture company in which foreign investors own 40%-49% share capital. FBA prohibits Thai shareholders from acting as nominee shareholders on behalf of foreign shareholders, and violators are penalized by fine and imprisonment with labour. FBA also prohibits transfer of business concession and business license to foreign investors. FBA prohibits foreign investors from entering into cell-phones, TV stations, satellite communication, airway transport and security related or media related businesses. On the other hand, enterprises with less than 50% of foreign ownership are deemed as Thai enterprises exempt from the stated prohibitions. On 9 January 2007, Thai Cabinet approved in principle the Bill to amend FBA that defines foreign business entity as an entity in which foreign investors own more than 50% of the voting shares, in support of MOC's proposal.
- On 10 April 2007, Thai Cabinet formally approved the Bill to amend FBA. This amendment plugs the loophole for foreign investors to conduct business in the restricted area, and removes ambiguity in the legal interpretation. The major amendments include redefining "foreign entity" in which foreign shareholders own the majority voting shares. What this means is that the Thai entity in which Thai nationals own 51% without voting right, or less than majority owned Thai industry is an alien entity. The amendment Bill includes the following exceptions under List 3:
-- Telecom business
-- Business relating to future trading
-- Securities business
-- Futures trading business
-- Commercial banking business
-- Financial business and credit foncier business
-- Insurance against lost business
-- Other service business prescribed in the Ministerial Regulations
- On 10 August 2007, Minister of Commerce announced the withdrawal of the Bill to amend FBA to effect further review for subsequent re-introduction.
- The draft approved by the Cabinet introduces a range of transitional provisions. Entities that obtain a certificate that operate businesses restricted by "List 1" or "List 2" will be permitted to continue operating their business for two years from the date the amendments take effect. After the expiry of the two-year period, those entities must cease operations or restructure their voting rights so that Thai nationals hold the majority of voting rights.
- On 27 March 2007, the Cabinet rejected the Retail and Wholesale Business Act, which was proposed by MOC. The Bill comprising of 60 items is drafted to develop a fair competition between the foreign and the traditional domestic retailers. After the Cabinet's decision was handed down, MOC called for a meeting attended by the drafting committee and representatives of both traditional domestic retailers and foreign retailers in order to redraft the Bill. When the new amended draft Bill is prepared, it will be resubmitted by MOC to the Cabinet. By means of zoning and other regulations, it will restrict a further expansion of large-scale outlet stores in the metropolitan areas.
- Article 16 of the new Financial Institutions Business Act B.E. 2551, enforced on 3 August 2008 provides: "more than 75% of the total shares of a financial institution must be Thai shareholders, while more than three-fourth of the directors on the board must be Thai nationals also".
- On 22 December 2009, Abhisit Cabinet approved the latest Bill on Retail Business submitted by Ministry of Commerce (MOC). The Bill is aimed at controlling retail business by classifying them into 4-categories, (1) Extra-large retail shop, (2) Large retail shop, (3) Medium retail shop, (4) Small retail shop (such as convenience shop). This Bill approved by the Cabinet will be sent to the National Council, where it receives legal scrutiny. As soon as the National Council scrutiny is over, it will be resubmitted to the Cabinet for its approval, after which the final Bill will be submitted to the Parliament for its approval. Then, the Bill will be sent back to the Parliament for deliberation. According to MOC, the bill is still in the initial stage and is subject to changes by Cabinet direction and the Parliament examination. Bill must go three the 3-Readings before it is approved by the Parliament. MOC aims at enforcement of the Bill within this year (2010) after the Parliament's approval. Since 2004, despite the demand from the domestic retailers to curb the rapidly growing large-scale super markets, the procedure has been procrastinated to get the Retail Business Bill approved, over the three generations of the past Administration.
- On 14 January 2010, Mr. Alongkorn Ponlaboot, Deputy Minister of Commerce announced GOT's intention to review deregulation of The Foreign Business Act (FBA) to promote liberalisation of the Thai market to foreign capitals. This is the first step for GOT toward the execution of its obligations under FTAs, which are concluded between Thai and other parties to FTAs. The Fiscal Policy Office (FPO) of Ministry of Finance (MOF) in its latest Research Report recommends execution of deregulation over 13 business sectors included in List Three of the FBA within the forthcoming 3-6 years. List Three of FBA defines the business sectors in which foreign capital entry is prohibited. On the other hand, Deputy Minister Alongkorn cautions that prior to opening of the domestic service industry to foreign capitals, GOT needs to carefully consider the competitiveness and the readiness of the domestic enterprises. According to the personnel of MOF in charge, a draft Amended Bill for FBA will be submitted to the Cabinet by the end of March 2010.
- Projects having received grant of BOI incentives are required to be engaged in the business specified in List Two and List Three of Foreign Business Act.
  (Improvement)
- Under the Japan-Thailand Economic Partnership Agreement signed on 3 April 2007. GOT and GOJ undertook to improve among others by raising the foreign capital ratio from the ongoing less than 50% to 60%, 70% in the 8 business sectors, namely,
(1) wholesale and retail services,
(2) maintenance and repair service,
(3) logistics consulting,
(4) public relations service,
(5) hotel/lodging service,
(6) restaurant service
(7) marine transport agency service, and
(8) cargo handling service.
- In February GOT deregulated the cap on foreign capital contribution rate of less than 25% to less than 49% both in the bank and the insurance sectors.
(2) Restrictions on Factory Expansion - The Zoning Act prohibits factory expansion even within the allotted land property (on the own premises of our member firm's subsidiary (MFS)), in the case where factory is located outside the Industrial Zone. - It is requested that GOT gets the Law reviewed.
(3) Local Capital Majority Requirement - Should Foreign Funded Enterprises (FFEs) wish to establish a manufacturing and distribution company under OEM arrangement, list 3, No. 21 other services applies, whereby Thai majority share contribution applies.
- Except for the limited incentive zone, a foreign funded enterprise in manufacturing business with land ownership must face the demand for the Thai majority share ownership.		 - It is requested that Government of Thailand (GOT) takes step to remove the Thailand majority requirement on establishment of manufacturing and distribution company under OEM arrangement.
- It is requested that GOT removes the restrictions on the foreign share ownership ratio.		 - Land Code Act
- Foreign Business Act
(4) Expansion / Change made difficult by the Business Licence Requirement - It is necessary for aFFE to obtain Business Operation Licence (BOL) to operate the businesses (services business, retail trade, wholesale trade) subject to restrictions. Amendments or changes of the business categories under the lists (services, retails, and wholesale businesses) require acquisition of BOL. For each business category, increase in capital is also necessary, frustrating change or expansion of business lines at ease. - It is requested that GOT takes step to:
-- narrow the scope of business lines subject to restrictions, and
-- deregulate the requirements for foreigner's acquisition of BOL.		 - Foreign Business Act

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