Fig leaf to be or not to be?
Changes to Thailand's Foreign Business Act
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
 |
The Foreign Business Act (FBA) became a contentious issue once again this week.
The government's draft amendment to the FBA was defeated by the National Legislative Assembly (NLA).
NLA members voted against the act for a full range of different reasons, some diametrically opposed:
1. Those in favour of capital market liberalisation to attract foreign investment objected to stricter rules and their retroactive application to businesses that are already operating in Thailand.2. Those who want to revive the "spirit" of the original FBA objected that the nominee shareholding structures that Shin Corp and other foreign held corporations have employed were not addressed by the act.
3. Others objected that this was an issue that should be left for a democratically elected government.
Transparency, or "what you see is what you get," would be good for any future FBA, as today's Bangkok Post editorial argues.
In the past, the conflicting motives of: 1. attracting investment to Thailand, and 2. at least appearing to be protecting the interests of Thai citizens, have created a stalemate where the FBA says one thing and does another.
Many currently restricted activities might be profitably opened up to foreign participation, suggests the editorial.
For example, foreign investors in Thailand's first science park are not likely to be stealing jobs from Thais. Why not a blanket exemption? (see Bangkok Post Database article)
Small for-profit charities using the recent Google model might be attracted to Thailand for the better good of the nation. [See previous article and Google.org the charitable arm of the famous corporation]
Software companies, another leading-edge sort of business worth attracting to Thailand, are often very lightweight, consisting of a few smart people who made a lot of money during the internet dotcom boom days, traveling with their suitcases, settling down in rural Thailand or Phuket to run an internet business. Working in Thailand over the internet and earning an income from this business without the immigration department's blessing. The internet being what it is nowadays, who could even tell whether what they are doing? Are they playing ("len internet") or working? Why insist that they hide in their bedroom with their PCs to escape detection? Why not throw the doors open to this sort of "techie-nerd," let Thais participate too, and learn by osmosis. [See a previous article on encouraging software companies to locate operations in Thailand]
Many foreigners surreptitiously participate in the Thai real estate market as brokers, investors, or supervisors of building projects, often because their foreign clients trust them more then they do a Thai firm sometimes for good reasons.
Large investments are always favoured when it is sometimes the smaller but more strategic knowledge-based investments, often made by foreigners, that count (e.g. software, telecommunications, science, architecture, engineering).
For further reading, read information on the Foreign Business Act (FBA) prepared by the Department of Business Development, Commerce Ministry:
1. The Foreign Business Act Amendment: a Brief Explanation (8 May 2007) [link]2. The Foreign Business Act Amendment: Q&A (19 Jan 2007)[link]
3. More documents for free download [link]
Check out an online information leaflet on the FBA prepared by the American Chamber of Commerce in Thailand.
Read an interesting pro-globalisation argument for increasingly inward-looking American citizens from the American Chamber of Commerce.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Exactly what law regarding foreign business in Thailand was defeated this week? Who defeated it? Who was defeated?
2. What are some of the reasons why different interests do not like the defeated law?
3. What exactly does the FBA do?
4. How common is it worldwide for countries to have a set of laws like Thailand's FBA?
5. What is the purpose of the three lists in the FBA?
6. How has foreign ownership traditionally been defined in Thailand?
7. How have foreign companies traditionally got around the legal definition of foreign ownership?
8. How long have they been doing this for?
9. Why have all opposing parties been satisfied with the flexible application of the FBA that was used in the past?
10. What event caused the traditional flexbility in the FBA to suddenly become a big issue?
11. Should a new complete transparency or the traditional old "flexibility" be more important in drafting a new Foreign Business Act, according to the authors?
12. Why should the restrictions on foreign participation in the Thai economy be reviewed and perhaps loosened, according to the authors?
Bangkok Post Article August 10, 2007
A clear-cut FBA is the answer
Commerce Minister Krirkkrai Jirapaet's stunning defeat on Wednesday in his attempt to get a new Foreign Business Act approved means that the status quo will continue. Unresolved are a number of key questions that will affect the country's future economic growth and the role foreign investors and businesses play in the Thai economy. Still, praise is due to the National Legislative Assembly for reminding the government that principle, not expedience, should underpin the law. The government's draft amendment to the 1999 Foreign Business Act (FBA) pleased no one. Foreign investors expressed dismay that the law was being tightened and applied retroactively. Nationalists cried foul that the law would do little to curb the creative nominee structures now widely used to comply with the letter, but not spirit, of the law. Others objected on principle, viewing that the critical debate regarding foreign businesses in Thailand should be left to a democratically elected government, not an interim one.
|
The original FBA defined foreign ownership strictly by the number of shares held by foreign residents. Therein lies the rub. [See painting on right of Hamlet asking himself this question] For decades, the government has turned a blind eye to the legal structures set up by foreign companies to remain "Thai". The FBA has always served as simply a cosmetic fig leaf [See picture below of statue with fig leaf]to satisfy the demands of national pride while still feeding the country's hunger for inflows of dollars, euros and yen.
|
Some NLA members correctly reason that building a bigger fig leaf is not the solution. If the intention of the FBA is to reserve certain businesses for Thais, then the law should not leave any room for compromise. The NLA's move to enhance the criteria of foreign ownership by looking at the issue of management control and chain shareholdings will help close loopholes that should never have been left open in the first place. The FBA has always been loosely drafted but cast over a wide range of business sectors, resulting in problems of enforcement and bureaucratic discretion. It would be more logical to tightly draft the law to brook no compromise.
Also, we should honestly review the protected sectors and consider what should be liberalised - one must remember that stringent controls on foreign participation limits market competition and ultimately harms consumers through lower-quality, higher-priced goods and services. Competitive restrictions in all too many cases only benefit vested interests and long-established oligarchies at the expense of the public.
Vocabulary (in discussion above)
1999 Foreign Business Act (FBA) - Thailand's current law that regulates how foreign businesses can conduct business in Thailand (Read text of the law)
1972 Alien Business Law - the predecessor of the 1999 Foreign Business Act (FBA) law
List 3 - businesses from which foreign companies are excluded because "Thai nationals are not yet ready to compete with foreigners." Service businesses including banking, insurance, hotels, tours, selling food and beverages, wholesale, small scale retail, and most construction. Professional services are also included such as such as accounting and legal services, advertising, architecture, and auctions. Agricultural industries include rice milling, flour production, fisheries, forestry and the production of various kinds of wood, and plant cultivation. Lime production is also included.(See Foreign Investment in Thailand: Review of the Current Legislative Regime, page 16)
National Legislative Assembly (NLA) - the legislative branch of the government of Thailand (See Wikipedia)
a contentious issue - an issue with disagreement and argument
diametrically opposed - completely opposite
capital market liberalisation - reducing regulations and restrictions on capital flows in and out of a country
retroactive - applies to a date in the past (not the date the decision or law was made)
retroactive application, applied retroactively - the law will be used for violations of the law before the law existed
a nominee, a nominee shareholder - a Thai national who holds shares in a company for the real foreign owner
nominee shareholding structures - the complicated legal structures used to disguise who the real owner who controls the company is (See previous article for diagram)
shareholding structure - the many levels of holding companies and nominee shareholders used in some companies
the spirit of - the intention of, the motivation of, the thoughts and feelings behind
revive the "spirit" of - give life to the original spirit
the spirit of the law - the intention of the law, what the writers of the law intended (some parts of the law may not be clear, what the people who wrote the law intended is then used)
the letter of the law - exactly what the law says (may be different than what was intended since some steps may have been left out)
comply with - follow, observe, adhere to
* comply with the letter, but not spirit, of the law -
transparency - being visible, not hidden
learn by osmosis - learn gradually and almost effortlessly by observing and being near and example
surreptitiously - secretly
for-profit charities - charities with the intention to generate profit, but the possibility that they may not
American Chamber of Commerce in Thailand - (See website)
clear-cut - distinct, easy to see and recognise
status quo - the present situation ("maintaining the status quo" implies you don't like change and want to keep things the way they are)
expedience - temporarily helping the present problems (short-term solution may not be good in the long-term)
underpin x - be the foundation of x, provide support to x
principle, not expedience, should underpin the law -
draft - not finished yet, before the final version, can still be commented on, revised, and rewritten
amendment - a change to a law before it becomes official and active
draft amendment - amendment to a draft law (in the NLA)
dismay - a surprised and upset feeling when something bad happens
expressed dismay - expressed surprise and displeasure
cried foul - claim that someone acted illegally or unfairly
curb - stop, put to end
objected on principle - disagreed because of some general rule (not just to solve a particular problem or make a special group of people happy)
interim - temporary
liberalised - made free, regulations lifted (See glossary)
deemed of, deemed to be - considered to be, judged to be
have an interest in x - own part of x, or stand to benfit if x succeeds (for example, we should get input from everyone who has an interest in the deal)
the interests of x, the vested interests of x - (for example, the union looks out for the interests of the workers in the company)
the national interest - the national advantage, things that will benefit the country
* sectors deemed of strategic national interest
prohibited outright - completely prohibited, with no exceptions
a fig leaf -
a. (metaphor) covering up and hiding an act or an object that is embarrassing or disagreeable
b. (pejorative metaphor) a cover for any thing or behaviour that might be considered shameful with the implication that the cover is only a token and the truth is obvious to all who choose to see it.
c. a large leaf that served as clothing in paintings and statues of naked people (See Wikipedia on Fig Leaf)
* served as simply a cosmetic fig leaf
* building a bigger fig leaf
therein lies the rub - that's the problem or dilemma,
employing the words on death and impermanence
that Shakespeare puts in the mouth of Hamlet
(similar here to the words of the Buddha):
To be, or not to be: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them. To die: to sleep;
No more; and by a sleep to say we end
The heart-ache, and the thousand natural shocks
That flesh is heir to, 'tis a consummation
Devoutly to be wish'd. To die, to sleep;
To sleep: perchance to dream: aye, there's the rub;
For in that sleep of death what dreams may come,
When we have shuffled off this mortal coil,...
(Hamlet's Soliloquy: link #1, link #2)
turn a blind eye to x - pretend x doesn't exist (even though you know it does)
proud (verb) - feeling satisfied and important
pride (noun) - feeling of satisfaction and importance
national pride - the feeling that your country is important, being proud of your country
Shin Corp - Thaksin's company that he sold to Singapore which started the street protests which led to the coup which led to Thaksin's ouster (See Wikipedia on Shin Corp and the Shin Corp Sale)
Temasek Holdings - the investment arm of the Singapore government and owned 100% by the Ministry of Finance (See Wikipedia)
x inherent in y - x is an important and essential part of y
caused the contradictions inherent in the FBA to explode into the public
consciousness -
seized on the case as y - enthusiastically treated the case as an example of y
rent seeking - using your power to monopolise and profit from something (manipulating the economic environment rather than by making a profit through trade and production of wealth, the extraction of uncompensated value from others without making any contribution to productivity, such as by gaining control of land and other pre-existing natural resources, receiving a telecommunications concession from a friend with political power, or by creating policies favorable to yourself and your cronies) (See rent seeking)
policy corruption - rent seeking with policies
a quandary - when people can't decide what to do to solve a problematic situation
* in a real quandary
fragile - easily broken or upset
fragile balance - two or more forces are balanced, but one of them could easily get the upper hand and dominate
rebuild the fragile balance between -
compromise - reaching an agreement through both sides reducing their demands
not leave any room for compromise - there is no way both sides can reduce their demands to reach an agreement
brook no compromise - allow no compromise
issue of management control and chain shareholdings -
loopholes - legal ways to avoid a law (parts of a law that allows people to violate the spirit of the law without actually breaking the law)
close loopholes - repair the law to prevent loopholes
loosely drafted - written unclearly (so there will likely be loopholes
tightly drafted - written with few loopholes (written clearly to cover all cases, written with precision)
discretion - using "discretionary powers," when officials use their authority and act according to their interpretation of the law
problems of enforcement and bureaucratic discretion -
tightly draft the law to brook no compromise -
stringent - with extreme limits
stringent controls - controls that limit extremely
oligarchy - government by a small group of powerful people (See Wikipedia)
Answer Key:
1. Exactly what law regarding foreign business in Thailand was defeated this week? Who defeated it? Who was defeated?
The "government's draft amendment to the 1999 Foreign Business Act (FBA)" was defeated by the National Legislative Assembly.
The government was defeated, more specifically the member of the government who was pushing the draft amendment, Commerce Minister Krirkkrai Jirapaet.
2. What are some of the reasons why different interests do not like the defeated law?
a. Foreign investors objected to the law being tightened and applied retroactively.
b. Thai nationalists objected to the fact that the law did not deal with the nominee shareholding structures that many existing companies have used as a loophole.
c. Others objected that such an important issue should be left to a democratically elected government to work out.
3. What exactly does the FBA do?
The FBA is a legal framework that specifies which sectors of the Thai economy are reserved for Thai companies only as Thailand's economy is "gradually liberalised to foreign investment."
4. How common is it worldwide for countries to have a set of laws like Thailand's FBA?
Very common, in fact nearly universal.
("Nearly every country in the world has similar laws restricting foreign participation in sectors deemed of strategic national interest.")
5. What is the purpose of the three lists in the FBA?
The three lists specify which sectors of the Thai economy foreign businesses may participate in.
List One includes the most sensitive sectors (highly critical for the national interest) including media, land trade, and agriculture.
List Two contains 16 sectors including weapons manufacturing, transportation, and handicrafts that allow foreign ownership of up to 75% with cabinet approval.
List Three contains 21 sectors mostly in service industries such as law, accounting, and construction that allow 100% foreign ownership with approval from the Commerce Industry.
6. How has foreign ownership traditionally been defined in Thailand?
Strictly by the number of shares held by foreign residents.
7. How have foreign companies traditionally got around the legal definition of foreign ownership?
By setting up legal shareholding structures that make the company look Thai-owned even though it actually isn't.
8. How long have they been doing this for?
For decades.
9. Why have all opposing parties been satisfied with the flexible application of the FBA that was used in the past?
a. The national pride of nationalists was satisfied because the interests of Thais appeared to be defended against the inroads of foreign corporations.
b. The country's need for foreign investment inflows was satisfied because the interests of foreign corporations and their Thai partners were upheld.
10. What event caused the traditional flexbility in the FBA to suddenly become a big issue?
The surprise sale of Shin Corporation in January 2006 to Singapore's sovereign wealth fund Temasek Holdings without any public consultation or input at all into the matter.
Like most foreign-held companies Shin Corp's ownership by Temasek was concealed under a complex structure of holding companies and nominee shareholding. Thaksin also paid no tax on the sale.
The commerce secretary of the interim government Mr Krirkkrai was "forced to review the FBA to rebuild the fragile balance between nationalist interests and economic ones."
11. Should a new complete transparency or the traditional old "flexibility" be more important in drafting a new Foreign Business Act, according to the authors?
Any new Foreign Business Act should be completely transparent, according to the authors.
("Some NLA members correctly reason that building a bigger fig leaf is not the solution. If the intention of the FBA is to reserve certain businesses for Thais, then the law should not leave any room for compromise. The NLA's move to enhance the criteria of foreign ownership by looking at the issue of management control and chain shareholdings will help close loopholes that should never have been left open in the first place. The FBA has always been loosely drafted but cast over a wide range of business sectors, resulting in problems of enforcement and bureaucratic discretion. It would be more logical to tightly draft the law to brook no compromise.")
12. Why should the restrictions on foreign participation in the Thai economy be reviewed and perhaps loosened, according to the authors?
a. Tight controls on foreign participation limits market competition.
b. Tight controls on foreign participation harms consumers through lower-quality, higher-priced goods and services.
c. Competitive restrictions in all too many cases only benefit vested interests and long-established oligarchies at the expense of the public.
