Thailand to weigh new foreign business ownership rules

International Herald Tribune

Published: April 22, 2007

BANGKOK: Thailand’s military-appointed legislature
will debate this week proposed changes to foreign business ownership
rules that are still making foreign firms nervous despite government
efforts to soothe their fears.

Business chiefs fear foreign companies will be driven away by the
new rules, which emanate from the furor generated by the takeover of
Shin Corp., the telecommunications giant founded by the former prime
minister, Thaksin Shinawatra, by Temasek, the Singapore government
investment firm.

At the least, the changes could stifle foreign investment in the export-dependent economy, business executives said.

“While other Asian countries, with less political and economic
worries and larger markets, are opening up the doors for foreign
investment, Thailand is doing the opposite,” said Paul Strunk, head of
the German-Thai Chamber of Commerce.

“At present, the risks for Thailand’s further economic development
seem to originate more from the inside than from outside the country,”
he said.

Foreigners had poured money into Thailand over the past 30 years
using gray areas in the old rules to run companies with less than a
majority stake by using Thai frontmen.

But then the government installed by the military after a coup in
September decided to launch an assault on the use of proxies, which it
alleges were used illegally in the Temasek deal to give it control
without a formal majority stake. Temasek has denied any wrongdoing.

The National Legislative Assembly will start debating the rule
changes on Wednesday, with deliberations expected to last two to three
months, an assembly member, Somchai Sakulsurarat, said. If passed, the
changes would need the king’s approval before becoming law.

But there is still considerable uncertainty over how some of the new
rules will work and how they will be implemented, especially one change
aimed at ending the longstanding practice of using proxies to stay
under a 49.99 percent ceiling on foreign ownership.

“Many Japanese companies are very concerned about the new law,” said
Tetsuji Banno, head of the Japanese Chamber of Commerce. “If they don’t
understand it well, they may put new investment elsewhere.”

That is despite the fact that the changes will not affect foreign
manufacturers such as Japanese and American auto firms, which enjoy
investment privileges from the Board of Investment.

The announcement of the changes in January and a central bank move
in December to impose tough capital controls sent Thailand’s share
market sharply lower. Board of Investment data show that the value of
foreign investment applications, mainly from Japan, dropped by 23
percent in the first two months of this year from a year earlier.

Foreign investment applications in September 2006 through February 2007 dropped about 49 percent from a year earlier.

“Making any investment law more strict and difficult in terms of
easing ability to invest in Thailand will have a negative impact on the
flow of investment,” said Peter van Haren, the head of the Joint
Foreign Chambers of Commerce in Thailand, a coalition of 28 national
business groups representing 10,000 companies.

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