Thailand Crisis

Good news. The will to amend the Foreign Business Act (long story, read my special dossier) is vanishing… victim of the current tricky and highly volatile politicial situation.

But it might be temporary. Governements change quickly in Thailand…

The Foreign Business Act (FBA) amendments proposed by the previous military-backed government will not be pursued by the current administration, said Suwit Khunkitti, the deputy prime minister and industry minister.

Mr Suwit offered the reassurance in an address to the Asia and Europe Partnership and Opportunities luncheon held yesterday by the Belgian-Luxembourg/Thai Chambers of Commerce.

He said the Samak Sundaravej government would do everything to ensure convenience for foreign investors.

The confirmation came in response to concerns voiced by European chambers, EU ambassadors and foreign businessmen, who were unclear on the Samak government’s stance on the FBA.

”The FBA amendments would create unfavourable investment conditions in Thailand, and it is not possible for the government to touch the act when it wants foreign investors to help GDP growth reach the 6% target,” Mr Suwit said.

The previous government had sought to toughen the FBA and its enforcement because of what it saw as abuses of loopholes through the use of Thai nominees by foreign businesses.

The amendments, which died when the government’s term expired, could have forced thousands of foreign companies to restructure their business ownership, which prompted widespread frustration in the foreign business community. (Bangkok Post)

But still, it’s a confirmation that everybody know that there are -big- loopholes (nominees, dual shares system, read here).

The issue will come back. Probably.

But later.

Another statement, this time from the Commerce Minister (via Bangkok Pundit).

All revisions to Thailand’s Foreign Business Act (FBA), which would have brought tighter rules for outside investors, have been scrapped, Commerce Minister Mingkwan Sangsuwan said on Friday.

“Why close the door to foreign investment? That’s why I don’t bring it back,” he told Reuters, referring to the controversial revisions which have been in legislative limbo since last year.

“Don’t worry. No more. Finished,” he said. (Reuters)

Because of the “performances” of the Commerce Minister, particularily with the prices controls policy (read here), I don’t trust him… He has also some totally idiotic ideas (to patent… the “full moon party” !)… I mean this guy is a living joke. And apparently, he’s in a weak position versus Samak (about the rice problem).

So I repeat a basic rule in Thailand : what is true today… can change tomorrow.

Tesco Lotus went too far ? After libel suits against 2 journalists and a politician with insane claims from 100 millions THB to 1,1 billion (!)… there could be a serious backfire for the supermarkets operator…

Consider this :

The Thai Journalists Association (TJA) will play a major role in investigating the business operations of Tesco Lotus and its Thai operator, Ek-Chai Distribution Systems (Thailand).

The move is aimed at determining whether the operations comply with the Foreign Business Act (FBA).

The decision was announced yesterday after discussions about Tesco Lotus’s libel suits against Krungthep Turakij senior editor Nongnart Harnvilai, Krungthep Turakij columnist Kamol Kamoltrakul and Jit Siratranont, a former MP who is now vice general secretary of the Thai Chamber of Commerce.” (Nation)

To fully understand the threat… you need to read my special dossier about Foreign Business Act…

According to this law, a company owned by foreigners (more than 50 % of shares) can’t operate a retail business (List 3 of the FBA, unless a special licence is asked for).

But Ek-Chai Distribution Systems is a thai company. It means that foreign shareholders (if there are any, I don’t know) have less than the majority (otherwise, the company would be labelled as “foreign”, and then the FBA’s provisions would apply… do you follow ? )

In my dossier, I say that (from my point of view) only a fool would accept to invest, to put large amount of money… in a company that he doesn’t control. Again from my point of view, it’s a basic principle of business (however, there are exceptions of course).

The thai journalists want now to investigate this issue, in a kind of retaliation.

I think we should fully support such move. A very, very powerfull company that tries apparently to impress individuals, and especially journalists, by threatening them with label suits linked to insane amounts of money… doesn’t deserve any respect.

Tesco Lotus has been doing a great job in Thailand. The people, obviously, like to shop in those supermarkets (Carrefour too). So the company should be able to keep its nerves and must accept that some people do not agree, or are against its expansion. Where is the problem ?

With these libel suits the company appears… weak… and afraid of something, or willing to hide something. In Asia, it’s always bad to appear weak…

Anyway. On the other hand, we can think that such investigation will lead… nowhere.

Thailand is a country where the police and several official agencies… are still unable to say, yes or no, if nominees were used in the Shin Deal (The Deal of the Century, january 2006, when Thaksin sold his group to Temasek).

I should add that the current issue is even hotter and sensitive, because supermarkets operators are under fire too with the… Retail Law (basically, lot of small shops owners are complaining about the expension of large supermarkets in Thailand. The previous government tried to reactivate a new Retail Law… without success).

So the situation is getting… rather complicated. Like always in Thailand.

[my previous articles about the Retail Law, here, here and there]

Umicore and Nyrstar divested a combined 46.9 per cent in Thai zinc producer Padaeng Industry for Bt6.45 billion, due mainly to the foreign-shareholding limit. “

Our minority interest in Padaeng meant we had limited influence over the company and due to Thai regulations would not have been able to secure control. Our decision to sell releases additional capital that can be better deployed elsewhere,” said Paul Fowler, chief executive officer of UK-based Nyrstar.

With 24.6 per cent, Nyrstar had no management control. Any increase in its holding beyond 25 per cent would trigger a mandatory tender offer for the remaining shares, but Thai regulations restrict foreign ownership of natural resources to less than 50 per cent. (Nation)

“Padaeng, which was founded in 1981 and operates a silicate zinc mine and smelter in Tak, reported 2007 profits of 930.37 million baht on revenues of 12.16 billion, down from 2006 profits of 1.76 billion on revenues of 10.39 billion. Paid-up capital for the company is 2.26 billion baht.

Other major shareholders of Padaeng include the Finance Ministry at 13.81% and Bangkok Bank at 3.23%. “(Bangkok Post)

Umicore made a net capital gain of some 3 millions.

But Nyrstar took a loss of 16 million “from the drop in Padaeng’s share price since last August 31, as well as the decrease in the value of the baht against the euro“.

This story is a cas d’ecole. Due to the Foreign Business Act, foreign investors can’t own the majority in many businesses (read here). With no majority, no control.

It’s important to remember that minority shareholders can be well protected in Europe and USA… And if there is a conflict between shareholders, it’s always possible to rely on an efficient judicial system… But in Thailand ? It can be different, very different.

At worst, a minority shareholder is just a “picture” on the wall and the thai owners can do whatever they want (watch out : I don’t say that it was the case at Padaeng Industry).

-Control = majority. This is a basic rule of business.

-Majority is impossible in many cases because of the Foreign Business Act (unless cheating)…

-Ergo : any foreign investors must understand this before to put his money at risk.

Last word : the statement of Paul Fowler (”due to Thai regulations we would not have been able to secure control“) is rather strange.

There is nothing new here. The FBA was enacted in 1999. And before that, mining business was also forbidden to foreigners. So ? They had wrong information ? They thought that regulations would change ?

That’s the problem with FBA : in many aspects, it’s a virtual law… But it can become very real… against you.

He’s back ! Who ? The Foreign Business Act of course.

To follow the saga, please visit my special FBA Dossier (the most comprehensive source of infos about this law).

Okay, let’s try to decipher the article of the Nation.

Four additional restricted businesses - rental, operations leasing, financial leasing and factoring - will be made more open to foreign ownership this week.

“For these four businesses, it will be easier to hold more than 50 per cent in the company,” Kanissorn Navanugraha, director-general of the Business Development Department, said last week.

Great. But the List 3 has 21 entries. And “easier” doesn’t mean “automatic“.

The contract-manufacturing business will be next to be relaxed under the Foreign Business Act, followed by the brokerage, internal trade involving agricultural goods, advertising agency, hotel operating, beverage and food retailing, seed development, computer service, warehouse control service, pawnshop, school and entertainment businesses.

All of them will still be listed in Annex III of the Foreign Business Act, but will receive more flexible conditions to operate here.

Here we go… Previously, with the FBA 2 project, the idea was to remove some items of this famous list 3 (to compensate the fact that FBA 2 was much harder).

This list (”businesses which Thai nationals are not yet ready to compete with foreigners”, basically all the services related businesses) is nothing less than a national shame.

Apparently, the thais are not ashamed to put on this list… “guided tour“, “selling food or beverages“… or “retailing“, “hotels“… and even “production of lime” !

Plus the famous joker, the item # 21 : “(21) Other categories of service business except that prescribed in the ministerial regulations.” It means… all other services ! Convenient, isn’it ?

You don’t believe it ? Check the text of FBA 1 (here).

So now, the government seems to take another route : no change to the core criteria of FBA (how to define a company as foreign or thai), but some cosmetics changes about the content of the list… and the way the list 3 is working. Hum…

Presently, foreigners who want to operate an Annex III business have to ask for approval from the Foreign Business Act committee. As the new conditions go into effect, foreign investors will no longer be required to ask for the committee’s permission. The application procedure and approval process will be predictable and more transparent.

What does it mean ? No need anymore to ask for a licence, but there would be still “an approval process“… ?

Deputy Commerce Minister Banyin Tangpakorn has instructed the department to set up a committee to come up with a concrete plan on whether to amend the act by next month.

The new amendment should be friendlier to foreign investors, while still ensuring the survival of local enterprises, as the last version was too strict in controlling foreign investors, he said.

Several points.

First : it’s very good, they officially aknowledge that FBA 2 was a totally lunatic project.

Second : watch out, we are here in a “thai calendar”. A committee is going to be set up. Then, this committee will submit a “concrete plan“… The process will of course take more than one month.

Third : I’m afraid that we are going to see the perfect thai compromise…

I mean a status quo disguised, once again.

“Friendlier to foreign investors“… and meanwhile “ensuring the survival of thais companies“… They need to understand that those 2 aims are antinomic !

The only solution that would put foreign investors at ease would be to clean up the list 3 and remove many items of it. Period.

Thailand must -officially- open its services sector and stop playing with words (the famous section 8 of FBA, related to List 3 : forbidden, “unless permitted by the Director-General with the approval of the Committee“).

To replace a “licence” with an “approval process” is… like replacing water by ice cubes…

Eventually, the fog of war will remain… Keeping the doors open for corruption, favoritism, and protectionism. Some project will be approved, other not. And we need to look at the criterias.

Anyway : let’s wait and see.

They will never give up !

Who’s coming back ? The Foreign Business Act of course ! You can follow the saga in my special dossier (here)… and if you don’t have time, you can peruse the timeline.

The Joint Foreign Chambers of Commerce of Thailand (JFCCT) yesterday called for the government to push through amendments to the Foreign Business Act (FBA) in order to boost inward investment.

The chairman of the meeting, Industry Minister Suwit Khunkitti, said Thailand’s promotion privileges should provide clearer investment conditions.

Overseas investors want to see transparent measures and practices, such as the government’s recent lifting of capital controls.

The minister will work closely with the Commerce Ministry on issues crimping investment.

“The government believes that the changes to the [Foreign Business] Act will create a win-win situation,” Suwit said. (Nation)

It’s not clear what the Minister is thinking regarding a “win-win situation”.

And it’s not clear which amendments the JFCCT would like to push… If they think about the package (FBA 2) that the Junta wanted to vote (but failed)… then it’s not a good news.

Like always, on issues related to foreign interests, thai authorities do not speak clearly.

I was the first to note the astonishing bozoness of “Dr” Surapong, economic adviser of the PPP, who is likely to be appointed Finance Minister, and guilty of the first PPP-’s U-Turn.

End of december, he said that PPP should scrap the capital controls (30 % reserve rule). Then one month later, not anymore.

Here are some new statements that cast more light on his personality.

”We did say in our campaign platform we want to scrap this policy [capital controls] but now we are in the government. We have to be careful about what we say or do,” Dr Surapong said.

Beautiful “style figure”, isn’t it ? You should write it down and give it to your children for their education. It’s powerful.

As for the Foreign Business Act… what to do with this political hot potato ? Hum… A rather difficult question.

But “Dr” Surapong is a poet, with strong skills of Master-Zen-Talking-Bullshit. So the solution is easy actually.

”The existing law must be modernised to meet world standards, but it must not be an attempt to burn the entire forest just to kill a rat,” Dr Surapong said.

Nice, huh ?

An interesting piece published this week by Nation, about… the Foreign Business Act.

It seems that the BDD is seeking its “Warhol 15 minutes of fame”. I mean in a week with official mourning (death of the princess) and very intense power play regarding the new government, high tension… it’s rather strange to speak about FBA again, especially after the slap received with FBA 2.

But anyway, let’s talk about it (ThaiCrisis is the place to be regarding FBA issues…).

To put things into perspectives, the very dangerous draft of FBA 2 has apparently died just before the elections of december 23, the NLA didn’t have time to reach a consensus and to vote it.

The Business Development Department is considering liberalising 12 business categories under the Foreign Business Act to brighten up the investment climate.

“If the listed [businesses] are deleted from Annex III, foreign-investor sentiment about investing here should pick up as business conditions will become more flexible,” director-general Kanissorn Navanugraha said yesterday.

That’s fair. From a FBA 2 that would have changed totally the rules of the game… to brush off only the famous (and old) List 3 is a good idea.

The businesses under review are brokerages, firms trading domestically in agricultural goods, advertising agencies, hotel operators, food- and beverage-retailers, seed-developers, computer service firms, warehouse-control service-providers, group consultants, pawnshops, schools and entertainment venues.

Perfect. Just to remind you : businesses on List 3 are “forbidden” to foreign companies, ““unless permitted by the Director-General with the approval of the Committee.“, because “thais are not ready to compete“…

Basically, and virtually, all services related businesses are forbidden to foreign companies.

It’s a good occasion to laugh at the whole stupidity of the List 3… I mean “hotels“, “food and beverage retailers“… Thai people are not able to compete in these activities ?

A study of the protected list will be finished in August as part of the department’s regular revision of the FBA and in response to the wishes of foreign investors to explore new fields.

Ah ! First “bullshit alert” ! The “regular revision“… is pure bullshit. It is indeed written into FBA law… But it was NEVER applied ! The content of List 3 remains the same since 1999, when the law was enacted…

If the department finds that local firms can compete with foreign players, those businesses may be withdrawn from the protected list and opened up for foreign investors.

Here we go again… “august“… “if we find that local firms can compete“… Again everybody knows the answer… So, I would press the second “bullshit alert”. They are loosing their and our time.

The department believes that if the government allows foreign investors to operate those businesses, it should increase the capability for domestic competition.

That’s correct. And it’s precisely why… the pressures were strong to not… allow foreign businesses… Competition is a very bad word for many thai businesses interests…

And those business interests are of course linked to political interests.

Thai enterprises may also receive more high technology from foreign investors.

Sure ! To manage a hotel and to run a restaurant, we foreigners have super high tech goodies (even some aliens technologies, from outer space).

The department is considering transferring to police the cases of 12 companies over nominees of foreign owners.

Attention ! Third “bullshit alert” ! Now the article focus on this old story… Thai authorities (junta) were willing to investigate and prosecute some “thais” companies that allegedly violated the FBA (by using nominees).

I mean what’s the direct link with the first part of the article ? What’s the point ? Strange…

The investigation has been going on for a year, but progress has been very slow due to lack of cooperation from the companies in handing over documents, Kanissorn said.

You bet !

The department discovered that the case of the original 12 companies accused of breaching the FBA actually involved more than 50 firms due to convoluted shareholding structures.

Yes baby, and it’s like that with actually hundreds of companies (thousands ?). But as usual, the Thais always look like they have just discovered that hot water is… hot indeed.

But of course, nobody is fooled.

The thai authorities know very well that FBA is a dead law, since its creation, bypassed by many people and even by thai investors, and this is why they were willing to make it real with FBA 2.

The department is striving to complete its investigation this year.
At first it will fine three business groups Bt5,000 for each instance of withholding evidence.
The department has many times asked for evidence such as shareholding structure and financial report status but received nothing, he said.

5 000 THB. Yeah sure, that’s a powerfull leverage.

The firms facing complaints of non-compliance with the FBA are Ucom; Bolero-Tak Wu Holdings; Telenor; Hutchison CAT Wireless Multimedia; Asia Aviation, a major shareholder of Thai AirAsia; Thai Sky Airline; CenCar, the operator of Carrefour; Ek-Chai Distribution System, the operator of Tesco-Lotus; Siam City Cement; DHL Logistics (Thailand); Burapa Lumpini Land; and Izumi Zenkosha (Thailand), an event-organiser.

Now… this is of course the best part… Ladies and gentlemen.. they’re investigating… Tesco Lotus, Carrefour, DHL, Hutchison, Telenor !

On the paper, all those companies are “thais“, this allow them to work within fields that are clearly forbidden to foreigners (telecoms, transports, retailing). They are not “foreign” (regarding their shareholdings and the definition given by FBA).

Now you start to understand the huge stakes around the FBA issue…

The circus shall continue.

UPDATE 21 JANUARY
Bangkok Post publishes the same story. With one tasty detail. “According to Mr Kanissorn [director of the Business Developement Departement], the department last year proposed 11 businesses under the List 3 for revision, but the Foreign Business Board [chaired by the permanent secretary for Commerce] disapproved and said it was necessary to continue protecting Thai nationals from foreign competition.”

At last, a good news !

Commerce Minister Krirk-krai Jirapaet admitted yesterday that amendments to the Foreign Business Act and the new Retail and Wholesale Business Act would not be approved by the current government.

”The [National Legislative Assembly] only has two meetings left, and previous meetings were adjourned due to the lack of a quorum,” he said.

Mr Krirk-krai said he was personally willing to push ahead with the two controversial bills, but said efforts to move the legislation forward had been undermined by various special interests. (Bangkok Post)

“The drafts drew huge opposition and it will be the next government’s responsibility to support the bills as both the Retail Business Bill and the FBA’s amendment are essential for the country,” said Commerce Minister Krirk-krai Jirapaet. (Nation)

Krirk-Krai was the designer of the FBA 2 draft… Result of this ? More than one year of uncertainty for investors. Congratulations mister Minister.

Now, let’s see what will do the next governement…

“The Commerce Ministry is considering withdrawing some businesses under Annex III of the to-be-amended Foreign Business Act in order to make more sectors open to foreign investors.

Commerce Minister Krirk-krai Jirapaet said yesterday the FBA amendment subcommittee would finalise its comments on the issue this week.

Business Development Department director-general Kanissorn Navanugraha said the House panel would try to complete the amendment details this week, to ensure that the Act is proposed for ratification by the National Legislative Assembly (NLA) before the December 23 general election.” (Nation)

Two comments :

-the political will to vote FBA 2 is still, apparently, very strong.

-regarding the issue of List 3 : in the first draft of FBA 2, the Commerce Ministry went already very far… They removed “Guided tours” (read here) !

Reminder : the List 3 contains “the business which Thai nationals are not yet ready to compete with foreigners.” (basically all services related businesses).

Those businesses are forbidden to “foreign company” (as defined by FBA), “unless permitted by the Director-General with the approval of the Committee.”

To remove a few more items of the List 3 would not change the core of this amended law, and the core of the problem : the new rules to define a company as “foreign“.

It’s a pathetic red herring, designed to save face and ease foreign investors fears.

I just want to remind my dear readers that the thai government didn’t feel any shame to put on the List 3 (”Thai nationals are not yet ready to compete with foreigners“) :
-Hotels
-Advertising
-Accounting
-… and even “Selling food or beverages” (read the complete current List 3, here).

I guess “thai nationals” are really and definitely stupid, right ?

It shows that the whole law is a farce. Since 2000.

The corpse is still moving. And the thai authorities seem to take a great pleasure to extend the drama… They are working on a new version of the Foreign Business Act since… october 2006 (see our special dossier) ! And today, we still don’t know if the NLA will be able to adopt it.

With less than 2 weeks before the general elections, this obstinacy is ridiculous. They should leave the hot potato to the next -elected- government.

“The Commerce Ministry will make a strong effort to ensure that the Foreign Business Act (FBA) and the Retail Business Act (RBA) pass second and third readings by the National Legislative Assembly (NLA) next week.

The two Acts must win NLA approval and be implemented prior to December 23, the date of the general election.

Business Development Department director-general Kanissorn Navanugraha said the House committee to draft the FBA today would consider the remaining details, particularly for Annexes I, II and III.

However, there are two different ideas about Annex III: one seeks no change and another would withdraw businesses in which Thais could not compete with foreigners.

“We hope we can reach a conclusion in the meeting today and propose the Acts to the NLA for approval before December 23,” Kanissorn said.

NLA member Somchai Sakulsurarat said today’s House Committee meeting would be the last time to make a final decision on whether to amend Annex III.” (Nation)

“European Commission (EC) director-general for trade Philippe Meyer said last weekend in Bangkok that the EU was watching developments here with mounting concern.He said the legislation amounted to an attempt by Bangkok to restrict foreign companies doing business here.

“We used to think the foreign-business law might affect 1,000-2,000 companies. But now it appears it might affect even more,” Meyer said.

Meyer criticised the lack of transparency in the legal process here. He said outsiders were unable to see the wording of legislation or receive information about the directing in which laws were headed.

“We don’t get the legal text [of laws] on time or know how it will look like. We don’t know, either, how it will evolve,” he said.”

Meyer said the act lacks predictability - something businesses do not like - and adequate consultation with the foreign business communities as well as transparency. The wording of the law is changing all the time, too, he said.

Of the retail-business law, Meyer said it was difficult for outsiders to obtain access to the text in a timely fashion and that companies were not sure how to manage their business. (Nation)

I’ve got only one comment : at last !

(to follow the news regarding the Foreign Business Act, click here)