Does Thailand's Foreign Business Act (FBA) really benefit most Thais?
By Jon Fernquest
Liberalizing Thailand's Foreign
Business Act (FBA)
was the subject of an op-ed piece this week in the Bangkok Post
which delved into the history of the law and
why the law continues to exist (Read a
previous article).
While attempts to liberalize the law "would be nothing short of political suicide," attempts to make the law stricter inevitably fail also.
The 2006 post-coup Surayud government failed in its attempt to make the law stricter (Read articles).
The article basically argues that "liberalising foreigner ownership would benefit both the Thai economy and its people" and that the FBA actually only benefits a small "elite" group.
In early 2008 Thaksin led a group of Saudi businessmen interested in investing in Thailand's agriculture. Obviously, Thaksin felt at the time that this could in some way be in the interests of farmers (Read article).
The article concedes that "there are understandable concerns that easing regulations would enable foreign multinationals to snap up agricultural land, drive up rents and force farmers from their land."
The situation in Laos with companies from China buying up large plantations and hiring the Lao back as low paid wage labour has to be the extreme case of what not to do (Read article and same point made by a reader in today's Post Bag).
Thailand's strict reliance on smallholder agriculture may also not be the best thing in the long-run for either Thai farmers or consumers. Contract farming has come under fire also (Read article) but agricultural productivity lags in Thailand (Read ANU New Mandala discussion #1 and #2) What to do?
There must be some middle ground.
Today's article begins after the vocabulary.
Foreign Business Act (FBA)
- Thailand's current law that regulates how foreign
businesses can conduct business in Thailand( See Foreign
Investment in Thailand: Review of the Current Legislative Regime (2002)
liberalize - reduce rules and restrictions on an activity
liberalising foreigner ownership - reduce rules on foreign ownership
op-ed piece - a newspaper article that expresses the opinion either of the newspaper or an expert columnist
delved into - look at deeply, analyze, and investigate
would be nothing short of political suicide - will end your political career if you do it
inevitably - must happen for sure (cannot avoid)
in the interests of farmers - farmers will benefit from it
concedes - to admit a point that goes against what you are argueing
multinationals (MNCs) - large companies that operates in many countries (See Wikipedia)
snap up agricultural land - buy farm land quickly
drive up rents - cause rents to increase
plantations - a large farms in a tropical country with many workers working for usually low wages, plantations usually grow crops such as sugar, pineapples, coffee, or rubber
smallholder agriculture - the situation where most farms are small and run by a family (See Wikipedia)
strict reliance on smallholder agriculture - relies on small family farms rather than larger farms run as a business
contract farming - when a farmer produces agricultural products for a company under a contract with a fixed price (See the many possible definitions of "contract farming")
liberalize - reduce rules and restrictions on an activity
liberalising foreigner ownership - reduce rules on foreign ownership
op-ed piece - a newspaper article that expresses the opinion either of the newspaper or an expert columnist
delved into - look at deeply, analyze, and investigate
would be nothing short of political suicide - will end your political career if you do it
inevitably - must happen for sure (cannot avoid)
in the interests of farmers - farmers will benefit from it
concedes - to admit a point that goes against what you are argueing
multinationals (MNCs) - large companies that operates in many countries (See Wikipedia)
snap up agricultural land - buy farm land quickly
drive up rents - cause rents to increase
plantations - a large farms in a tropical country with many workers working for usually low wages, plantations usually grow crops such as sugar, pineapples, coffee, or rubber
smallholder agriculture - the situation where most farms are small and run by a family (See Wikipedia)
strict reliance on smallholder agriculture - relies on small family farms rather than larger farms run as a business
contract farming - when a farmer produces agricultural products for a company under a contract with a fixed price (See the many possible definitions of "contract farming")
productivity - the
amount produced for a given amount of resources (land and labour)
lags - only happens after a delay, is slow
lags - only happens after a delay, is slow
Opinion
LAND OWNERSHIP AND FOREIGN INVESTMENT
Keeping foreigners out serves whose interests?
1/12/2009Greg Lowe
Preventing foreigners from owning land and property in Thailand does many things: it protects powerful Thai landlords and agricultural monopolies, forces overseas investors to consider setting up shop in other regional markets, drives Thai capital from the country and provides a pool of nationalist bile for tub-thumping politicians to draw on and whip up a frenzy of anti-foreigner sentiment at the drop of a hat.
There are understandable concerns that easing regulations would enable foreign multinationals to snap up agricultural land, drive up rents and force farmers from their land.
interests of Y in event X -
the ways that Y could benefit or profit from event X (depending on
outcome)
serve the interests of Y - when an event benefits Y
monopoly - companies that have complete control over a market
setting up shop - starting a business
nationalist bile - hatred inspired by nationalist ideas and ideology
nationalism (noun) - patriotism, love of country and willingness to sacrifice for it, also (more negatively) the belief that your national culture and interests are superior to any other (See Wikipedia)
nationalist (adjective)
ideology - a set of political goals and ideas, a political way of looking at and understanding the world (See Wikipedia)
tub-thumping - making a lot of noise (by banging loudly on a metal tub for washing clothes)
draw on - use
whip up a frenzy - make people very angry, very quickly
sentiment - feelings
anti-foreigner sentiment - feelings directed towards foreigners
at the drop of a hat - very quickly
provides a pool of nationalist bile for tub-thumping politicians to draw on and whip up a frenzy of anti-foreigner sentiment at the drop of a hat - provides an easy way to quickly create anti-foreigner feelings among Thai people (in order to further other unrelated goals)
multinationals (MNCs) - large companies that operates in many countries (See Wikipedia)
snap up - grab, take quickly
snap up agricultural land - quickly buy agricultural land
drive up rents - cause the rent paid for land to increase
serve the interests of Y - when an event benefits Y
monopoly - companies that have complete control over a market
setting up shop - starting a business
nationalist bile - hatred inspired by nationalist ideas and ideology
nationalism (noun) - patriotism, love of country and willingness to sacrifice for it, also (more negatively) the belief that your national culture and interests are superior to any other (See Wikipedia)
nationalist (adjective)
ideology - a set of political goals and ideas, a political way of looking at and understanding the world (See Wikipedia)
tub-thumping - making a lot of noise (by banging loudly on a metal tub for washing clothes)
draw on - use
whip up a frenzy - make people very angry, very quickly
sentiment - feelings
anti-foreigner sentiment - feelings directed towards foreigners
at the drop of a hat - very quickly
provides a pool of nationalist bile for tub-thumping politicians to draw on and whip up a frenzy of anti-foreigner sentiment at the drop of a hat - provides an easy way to quickly create anti-foreigner feelings among Thai people (in order to further other unrelated goals)
multinationals (MNCs) - large companies that operates in many countries (See Wikipedia)
snap up - grab, take quickly
snap up agricultural land - quickly buy agricultural land
drive up rents - cause the rent paid for land to increase
What it does not do, however, is support the development of a sustainable and competitive local economy.
The Land Act and the Foreign Business Act (FBA) are the two main laws restricting the foreign ownership of businesses and land, capping the maximum foreign share at 49% in most cases.
sustainable - can
continue working and operating for a long time without problems
the Land Act, the land code - Thailand's laws reagarding land, dating from 1954 (Read law)
cap - limit
capping the maximum foreign share - limiting how much of company foreigners can own
the Land Act, the land code - Thailand's laws reagarding land, dating from 1954 (Read law)
cap - limit
capping the maximum foreign share - limiting how much of company foreigners can own
The FBA has its roots in the Revolutionary Party's Announcement of National Executive Council No. 281 issued in 1972 by the then military government. This was a time when waves of refugees and immigrants were flooding in from China and the legislation was passed to prevent newcomers from poaching jobs as hairdressers and tuk-tuk drivers from Thais.
Since then its remit has developed into protecting areas where "Thais are not yet ready to compete". Through its evolution into the FBA, the law has been tinkered with a number of times, mostly around what constitutes foreign ownership.
refugees - people
feeling from some bad political situation (here: fleeing China during
Mao's "Cultural Revolution")
poaching jobs - taking jobs away from
tinkered with - changed in small ways (attempting to improve)
X constitutes Y - Y is defined to be X
what constitutes foreign ownership - what is the (legal) definition of foreign ownership
poaching jobs - taking jobs away from
tinkered with - changed in small ways (attempting to improve)
X constitutes Y - Y is defined to be X
what constitutes foreign ownership - what is the (legal) definition of foreign ownership
In 1991, the Anand Panyarachun administration took the view that such ownership should be based on the amount of registered foreign capital. The Surayud Chulanont government attempted to use a more reactionary definition which would have back-pedalled on these liberal developments if it had been passed.
These technical definitions can and will have a profound effect on investment in Thailand and the country's long-term economic and social development.
Whether a full recovery from the current economic crisis is underway remains to be seen. But one of the key lessons learned by Thailand and many other Asian countries is that they must move away from an over-reliance on exports and international trade, and build a more sustainable base that can better weather any future economic storms.
The government has said it wants to make such aims policy. But these grand goals will remain mere pipe-dreams without opening up the economy to foreign investment, economists say.
registered capital - the
amount of money that can be put into a Limited or Unlimited company in
the form of shares
registered foreign capital - the amount of foreign that can be put into company in the form of shares
reactionary - trying to prevent changes to the political or social system of a country
back-pedalled on these liberal developments - move backwards and end these liberal developments
have a profound effect on investment - have a very big and important effect on investment
recovery from the current economic crisis is underway -
over-reliance - need too much
weather any future economic storms - continue existence during bad economic times
pipe-dreams - dreams and plans that cannot be achieved (unrealistic and only a dream)
registered foreign capital - the amount of foreign that can be put into company in the form of shares
reactionary - trying to prevent changes to the political or social system of a country
back-pedalled on these liberal developments - move backwards and end these liberal developments
have a profound effect on investment - have a very big and important effect on investment
recovery from the current economic crisis is underway -
over-reliance - need too much
weather any future economic storms - continue existence during bad economic times
pipe-dreams - dreams and plans that cannot be achieved (unrealistic and only a dream)
Thai exports perform well not simply because of their intrinsic value but due to their reliance on foreign capital, which is much more efficient than Thai capital, says Supavud Saicheau, managing director and head of research at Phatra Securities. Allowing this more efficient capital to percolate into the Thai economy would improve a wide range of industries, particularly at a time when global funds are scarce.
This scarcity of global capital is also leading Thai companies to make more overseas investments, significantly increasing the risk of losses, Dr Supavud said.
"What is interesting is the more protectionist we are, the more we chase away our own capital. That's very unfortunate, because at the end of the day you want to have plentiful capital in Thailand to make labour relatively scarce and drive up wages," he said.
"You do that by flooding the country with good capital, both foreign and domestic... I don't know a way out; it will just get worse because there will be a greater scarcity of capital in Thailand at the expense of wages."
reliance on foreign
capital - need foreign investment for continued existence
efficient - producing a lot using few resources
percolate into - move slowly and gradually into
capital - money invested in a business
scarce (adjective) - not enough for everyone's needs
scarcity (noun) - a situation when there is not enough of a good or service to meet everyone's needs
scarcity of global capital - around the world there is not enough money for investment in businesses
efficient - producing a lot using few resources
percolate into - move slowly and gradually into
capital - money invested in a business
scarce (adjective) - not enough for everyone's needs
scarcity (noun) - a situation when there is not enough of a good or service to meet everyone's needs
scarcity of global capital - around the world there is not enough money for investment in businesses
Observers say most Thai governments have known that liberalising foreigner ownership would benefit both the Thai economy and its people.
This is why the rhetoric over cracking down on the use of Thai proxies and nominee companies to buy land and businesses never transforms into action despite being illegal; any such move would drive out foreign investment and have a devastating impact on the country.
But allowing greater foreign participation would be nothing short of political suicide. "The political cost [of liberalisation] is too great for the politicians to risk," says Dr Deunden Nikomborirak, research director at the Thailand Development Research Institute and an expert on the FBA.
chase away
our own capital
- when money inside Thailand that could be invested in Thai businesses
chooses to leave the country and invest outside the country
plentiful capital - lots of capital
drive up wages - cause wages to increase
scarcity of capital - not enough investment money for businesses (so good business opportunities lost)
liberalising foreigner ownership -
rhetoric - language that tries to convince or persuade people (but may not be completely honest and sincere)
cracking down on - enforcing laws and punishing people who break them
proxies - Thai people working for foreigners (to help them do business or own things in Thailand)
nominee companies - companies acting for others (too avoid laws)
transforms - changes
drive out foreign investment -
devastating - very harmful and damaging
a devastating impact on the country - a very harmful and damaging effect on the country
political suicide - doing something that will end your political career
would be nothing short of political suicide - would be the same as ending your political career (you could expect it)
liberalisation - freeing up and acticity and getting rid of rules
plentiful capital - lots of capital
drive up wages - cause wages to increase
scarcity of capital - not enough investment money for businesses (so good business opportunities lost)
liberalising foreigner ownership -
rhetoric - language that tries to convince or persuade people (but may not be completely honest and sincere)
cracking down on - enforcing laws and punishing people who break them
proxies - Thai people working for foreigners (to help them do business or own things in Thailand)
nominee companies - companies acting for others (too avoid laws)
transforms - changes
drive out foreign investment -
devastating - very harmful and damaging
a devastating impact on the country - a very harmful and damaging effect on the country
political suicide - doing something that will end your political career
would be nothing short of political suicide - would be the same as ending your political career (you could expect it)
liberalisation - freeing up and acticity and getting rid of rules
While there are understandable concerns that easing regulations would enable foreign multinationals to snap up agricultural land, drive up rents and force farmers from their land, most resistance to such change is not born from a desire to protect the poor but to maintain existing monopolies.
Defending the status quo is a highly profitable affair for an elite group of business people, politicians and bureaucrats.
Statistics on the concentration of wealth in the private sector are both illuminating and disturbing. Some 10% of companies listed on the Stock Exchange of Thailand create 86% of the sector's wealth. PTT and its subsidiaries alone account for about 52%.
This is a "grave concern for Thailand", says Dr Deunden.
"When you look at the biggest Thai companies, none of them compete overseas, they compete in the domestic market, they compete on the basis of rules and regulations that continue to favour them."
Thailand Development Research
Institute
(TDRI) - Thailand's first
public policy think tank with economics research a specialty (See website)
the status quo - the way that things currently are, the current social system (See Wikipedia)
maintain the status quo - keep things the way they are, keep the current social system
defending the status quo - defend the way things are currently done, defend the current social system
elite - the most powerful, rich, and talented people in a society
concentration of wealth in the private sector - when a small number of people and companies control most of the economy's money and wealth
illuminating - explains the situation, provides insight, tells you why
grave concern - a very important thing to be worried about
compete on the basis of rules and regulations that continue to favour them - they compete with rules that help them
the status quo - the way that things currently are, the current social system (See Wikipedia)
maintain the status quo - keep things the way they are, keep the current social system
defending the status quo - defend the way things are currently done, defend the current social system
elite - the most powerful, rich, and talented people in a society
concentration of wealth in the private sector - when a small number of people and companies control most of the economy's money and wealth
illuminating - explains the situation, provides insight, tells you why
grave concern - a very important thing to be worried about
compete on the basis of rules and regulations that continue to favour them - they compete with rules that help them
A look at the board of powerful firms quickly stifles any hope of change. The PTT's board of directors includes high-ranking officials from the Finance Ministry, Ampon Kitti-ampon the secretary-general of the National Economic and Social Development Board, Attorney-General Chaikasem Nitisiri and Khunying Pornthip Jala, secretary-general of the Council of State.
"Whose interests are they protecting? They are government employees, but they receive PTT's very handsome honorarium of, I think, 12 million baht per year," says Dr Deunden, adding that the boards of other state enterprises and major firms reveal the same picture.
"This is how it works," she says. "Perks given to bureaucrats. This is why we cannot break this cartel."
stifle - prevent
from continueing
stifles any hope of change - prevent any social change from happening
NESDB (National Economic and Social Development Board or "Sa-pa-pat") - Thai government planning agency for economic development, creates five year plans with an agenda of: 1. Alleviation of Poverty and Income Distribution problems, 2. Enhancing Thailand’s Competitiveness, 3. Promoting Social Capital Development, 4. Promoting Sustainable Development (See Wikipedia)
Council of State - who hold authority on laws and regulations
protect interests of Y - make sure that Y does not lose from future events
honorarium - a payment made for professional services
a handsome honorarium - a very large honorarium
perks - extra things a person receives in addition to their salary
bureaucrats - government officials known for following rules very strictly
a cartel - group of companies that try to increase profits by price-fixing and not competing
break this cartel - destroy and end this cartel
stifles any hope of change - prevent any social change from happening
NESDB (National Economic and Social Development Board or "Sa-pa-pat") - Thai government planning agency for economic development, creates five year plans with an agenda of: 1. Alleviation of Poverty and Income Distribution problems, 2. Enhancing Thailand’s Competitiveness, 3. Promoting Social Capital Development, 4. Promoting Sustainable Development (See Wikipedia)
Council of State - who hold authority on laws and regulations
protect interests of Y - make sure that Y does not lose from future events
honorarium - a payment made for professional services
a handsome honorarium - a very large honorarium
perks - extra things a person receives in addition to their salary
bureaucrats - government officials known for following rules very strictly
a cartel - group of companies that try to increase profits by price-fixing and not competing
break this cartel - destroy and end this cartel
Protecting Thai businesses until they can compete in the global market is fair and just. But any such moves must involve governmental commitment to developing those sectors so they can punch above their weight in the global arena.
Next time the usual suspects emerge to block liberalisation, we should be asking who and what are they really fighting for: the average man and woman on the street, or their own bank balances?
commitment - a
promise to do something in the future
punch above their weight - are stronger than expected for their size
global arena - the global marketplace where companies from all countries compete
the usual suspects - the people you normally expect are the cause of something unpleasant (originally: the criminals that the police usually think committed a crime, because they do a lot of crime)
block liberalisation - prevent the reduction of rules and restrictions, prevent the freeing up of an activity or industry
punch above their weight - are stronger than expected for their size
global arena - the global marketplace where companies from all countries compete
the usual suspects - the people you normally expect are the cause of something unpleasant (originally: the criminals that the police usually think committed a crime, because they do a lot of crime)
block liberalisation - prevent the reduction of rules and restrictions, prevent the freeing up of an activity or industry
(Source: Bangkok Post, LAND OWNERSHIP AND FOREIGN INVESTMENT, Keeping foreigners out serves whose interests?, 1/12/2009, Greg Lowe, link)
