Thailand Trys To Allay Fears About Review Of Foreign Business Law

The Straits Times reports….

A top Thai official has sought to calm fears that a government review of a foreign business law in Thailand would spark an investors’ exodus, further slowing an already sputtering economy.

“We have not amended the law yet, we are just studying it,” said Ms Pongpun Gearaviriyapun, director-general of the Commerce Ministry’s Department of Business Development, which has held three consultations on the issue since last month.

The intent of the review, she told The Straits Times yesterday, was to facilitate foreign investment rather than impede it.

Her department was also looking into opening up the insurance and banking sectors – currently off limits to foreign companies.

The assurance comes after weeks of anxiety fuelled by a proposal that the Foreign Business Act (FBA) would be amended to classify a company as “foreign” if foreigners control voting rights in the company – even if the company is majority-owned by Thais.

Analysts say such a change would threaten the status of many joint ventures, potentially scaring away much-needed new investment.

Thailand is staring at a full-year economic growth of just 1 per cent this year, in estimates announced by state think-tank National Economic and Social Development Board yesterday.

The FBA restricts foreign companies in many sectors of the Thai economy.

Foreign businesses are barred from areas where “Thais are not ready to compete” including legal services, architecture and several trades in the service sector.

As a result, foreign partners in joint venture companies often use preferential shares or Thai nominees to maintain management control over the businesses.

If followed through, the change would be deemed protectionist, noted Thammasat University’s associate professor of international business Pavida Pananond.

“The use of nominees is widespread and is also practised by Thai businesses,” she said.

“But amending the FBA for this only targets foreign businesses, not local ones.”

The last attempt to tighten foreign ownership criteria in the Act was made in 2007, after Singapore state investment company Temasek Holdings was accused of using Thai nominees to circumvent foreign ownership restrictions to take over telecommunications company Shin Corp.

Then, like now, the military had just seized power through a coup and the country was being governed by an interim non-elected administration.

The attempt fell through.

The chairman of the Singapore-Thai Chamber of Commerce, Mr Oh Lock Soon, reckons it may fail again.

“The current Foreign Business Act already makes it very difficult for foreigners to invest here compared to other countries,” he said.

If Thailand insisted on proceeding, “they will be nailing their foot to the ground”.

The Joint Foreign Chambers of Commerce had stressed that the FBA needs to be relaxed to strengthen key sectors of the Thai economy.

Strategic sectors like financial services and telecommunications “should be performing better and contributing more to the economy” but “continue to suffer from unhelpful restrictions”, it said.

Ms Pongpun said recommendations will be forwarded to the Minister of Commerce in the next few months.

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