Category Archives: History

2007: Proposed Amendments to the FBA – What Happened?

Following the 19 September 2006 coup that ousted the government of Thaksin Shinawatra (Thailand’s first non-constitutional change in over 15 years), the military did all of the things that you would expect of coup makers: it canceled upcoming elections, abrogated the Constitution, dissolved Parliament, banned protests and all political activities, suppressed and censored the media, declared martial law, and arrested Cabinet members.  The military also appointed members to a body called the ‘National Legislative Assembly’ (NLA), and the NLA began to consider and enact new ‘legislation’.

For the foreign business community in Thailand, proposed amendments to the Foreign Business Act (FBA) were the most controversial piece of new legislation. These amendments were intended to re-define what constituted an “alien business” under the FBA.  Foreign control would matter even if the company was majority owned by Thais.  From the post on the history on the FBA, you will recall that up until this time, Thai law expressly provided that a Thai majority owned company was not considered an “alien company” – even if it was foreign controlled – unless the Thai shareholders were  “nominees” of foreigners.

To attract investors, previous Thai governments had publicly emphasized this point when trying to explain the FBA to prospective foreign investors.  And in reliance on this very narrow definition of an “alien” in the FBA, 35 years of practice and repeated reassurances by prior Thai governments, foreigners established and controlled tens of thousands of companies, and done so for decades.  But it appeared that all of this was about to change.

The NLA put forward increasingly restrictive proposals.  Foreigners would essentially be forced to divest themselves of businesses they might have established decades ago in Thailand.  The money, time and effort that tens of thousands of foreigners had put into establishing businesses in Thailand – some of them household named businesses that employed thousands – would be subject to forced fire sales to local interests.

This was headline news in the early part of 2007 with front-page articles about pleas by foreign embassies that the NLA please refrain from enacting such legislation.  The EU said such measures would violate Thailand’s obligations under the WTO.

In the heated arguments over these controversial amendments, the then government put forward some rather interesting arguments to justify their proposed amendments to the FBA, such as

  • The new laws would only affect businesses that were already using illegal nominee structures; these businesses were already violating the law, and they therefore had no right to complain.  The response to this was obvious: if these businesses are already using illegal nominee structures, why change the law?
  • Senior officials in the Ministry of Commerce claimed that every “civilized country in the world” had laws restricting foreign ownership similar in breadth to that of Thailand’s FBA, and such laws determined a company’s “nationality” based on voting control.  While there may be some truth to the latter, the former was demonstrably untrue, unless the U.S., Australia and every member of the EU don’t count as civilized countries.  Thailand’s FBA was and is extraordinary in its breadth.

What happened? The foreign business community’s relationship with and confidence in the government was strained.  There was genuine concern – indeed, an expectation – that such changes would be enacted by the NLA before elections were held on 23 December 2007 to replace the appointed NLA with an elected parliament.  But the elections came and went without any change to the FBA.

The foreign business community sighed in relief. But even in the several weeks after those elections while the NLA remained in power before an elected parliament was seated, there was a strong press to make the FBA much more restrictive.

But it never happened.

Although no legislation was enacted, Thailand’s reputation with investors suffered tremendously.  And the foreign business community felt as though they had only gotten through this by the skin of their teeth.

In the next post on the FBA, I will take a look at the current state of the FBA.  Between now and then, perhaps something else.

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14th International Anti-Corruption Conference in Bangkok

The 14th International Anti-Corruption Conference was held in Bangkok last week.  I attended a good part of it.   Mr. Voranai Vanijaka of the Bangkok Post had a good article about the conference, which can be found here (http://www.bangkokpost.com/opinion/opinion/206286/an-existential-horror).  He and others observed that “[t]he most popular, and most baffling, statistic last week was the 76.1% of Thais who believe that corruption is OK, as long as the country prospers.”  Agree.  And:

To address this disconcerting find, the prime minister’s spokesperson, Thepthai Senpong, announced that the government will ask the Ministry of Culture to combat such attitudes head-on by building a new culture, creating a new consciousness for the Thai people, one that would not condone corruption

Good sentiment, but “creating a new consciousness” is quite an undertaking, and I have a few other suggestions involving legal reform.  Thai laws are often written in broad terms and grant broad discretion to officials to approve or disapprove registrations and applications.  Often little or no guidance is provided on how such discretion is supposed to be exercised.  I hoped to demonstrate this while looking at some Thai laws in my blogs (always better to show than tell), but this came up just after I started this blog, so please excuse me for jumping ahead a bit.

Thai laws and regulations are also often so over-the-top that they simply invite selective enforcement.  Look at Thailand’s anti-alcohol legislation (discussed in my last post).  While the best of intentions may lie behind this (and, to be quite frank, some of it may just be local businesses wanting to protect their turf from foreign competition), this sort of regulation is just too over-reaching to be practical.

It simply invites rent seeking behavior: “Mr. Official, you have undefined discretion to grant or not grant approval on a matter where you don’t really believe the regulation serves any useful purpose, perhaps I can help show you how you should exercise that discretion…”

I plan to return to the FBA in the next few days and, in the context of discussing that law, I hope to illustrate a few other uh, interesting, aspects of Thai law.  Stay tuned.