Thailand may hurt itself with nationalistic protections in the Foreign Business Act

Updated On: Aug 10, 2007

On Wednesday, 8 August, Thailand’s National Legislative Assembly (NLA) moved to significantly expand the scope of the Foreign Business Act (FBA) which will tighten restrictions on foreign ownership of businesses in Thailand.

This is to prevent a repeat of the Kularb Kaew incident in which the former Thai PM Thaksin Shinawatra profited handsomely from his sale of Shin Corp to Temasek Holdings of Singapore.

However, after the majority of the NLA voted 76 to 64 for amendments and pushed for stricter measures over and above the governmental draft, Commerce Minister Krikkrai withdrew the bill for improvement to prevent potential damage to the Thai economy. If the new FBA law is passed according to the NLA suggestions, it is predicted to deter future foreign investment and erode the credibility of the incumbent Surayud government which has continually fumbled in the management of the economy.

The current law defines a company as foreign if 50% or more of its shares are held by foreigners while the government’s draft FBA aims to include firms where 50% or more of the voting rights are held by foreigners. However, the NLA members felt that the government’s proposals “did little to close existing loopholes” and so “added a clause that defines a company as coming under the FBA if foreigners hold the authority to appoint or dismiss directors or the right to set a firm's strategy or direction”.

The new NLA proposals also include “a requirement to look at chain shareholdings, or shares held by a ladder of companies, to determine ultimate ownership and prevent nominee shareholding by firms registered as Thai but controlled by foreigners”. These new additions which span the areas of (a) media, land trading and agriculture, (b) weapons manufacturing, land transport, mining and handicrafts and (c) services and professional occupations, are predicted to cause a reclassification of “tens of thousands of companies” after the government’s review and incur the ire of many foreign investors.

Korn Chatikavanij, deputy secretary-general of the Democrat party, criticised the NLA move, saying, “The question that has never been answered is to what ends are these amendments being made. There has never been any explanation as to how the Thai public and economy will benefit from the amendments.” Korn added that the Democrats would “reevaluate the law if they were in the next government” by re-evaluating what sectors should be included in the FBA. Stock Exchange of Thailand president Patareeya Benjapolchai noted worriedly, “Should there be an extension of the power to control management via shareholding and voting rights in the original definition to control only share and voting rights, it will confuse and worry foreign investors and businessmen.”

Most ominously, foreign diplomats have warned that any further tightening of the FBA rules may “trigger a challenge at the World Trade Organisation”. It is uncertain how the Thai government will balance out all the juxtaposed claims from the foreign investors, the nationalistic protectionism which Thai parliamentarians clamour for and the state’s need to boost the wavering economy.

As it stands, Thailand is faced with a looming unemployment problem with the recent closure of many factories. Thousands have lost their jobs and more are said to follow suit. However, the government is assuring its citizens not to worry. Deputy Prime Minister and Industry Minister Kosit Panpiemras said on Wednesday that the folding up of the factories was because of singular difficulties and risks –that this was a common business phenomenon and was not due to a “domino effect”. He cited the case of Thai Silp South East Asia Import Export as closing down as “it failed to get purchase orders from overseas”.

Kosit admitted that there is a labour shortage in Thailand and the public and private sector needed to cooperate to rectify this problem. He added that the government has already established a “Bt5 billion fund set up to boost liquidity for small and medium-size enterprises”, and more aid would be given if necessary.

It is difficult to know what to make of all these claims by the government when whatever it has proposed is either retracted or does not show any efficacy. For the time being, Thailand will really need to review its FBA amendments, encourage foreign investment and look for ways to boost employment if it wants to stabilize a country already rent apart by its political strife. (9 August 2007)


Tighter curbs on foreign business (Bangkok Post, 9 August 2007)

Government withdraws Foreign Business Bill (Bangkok Post, 9 August 2007)

Move to push for tougher FBA amendment worries SET chief (Bangkok Post, 9 August 2007)

Thai Lawmakers Want Tougher Bill on Ownership (Dow Jones News Wires, 9 August 2007)

Foreign Business Act stopped (Bangkok Post, 9 August 2007)

Factories close for varied reasons, says deputy PM (TNA, 9 August 2007)