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Cablegate: Foreign Retailers Draw Ire of Thai Shopkeepers

VZCZCXRO6468
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2736/01 1360656
ZNR UUUUU ZZH
R 160656Z MAY 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 6923
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 03 BANGKOK 002736

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON TH
SUBJECT: FOREIGN RETAILERS DRAW IRE OF THAI SHOPKEEPERS

REF: A. 06 BANGKOK 5706

B. BANGKOK 2008

1. Summary. Econoff recently attended a National Legislative
Assembly seminar on the draft Retail Business Law, held to
solicit public feedback on the proposed act. Although few
were aware of the actual details of the draft law, it is
generally perceived as a means to limit the expansion of
largely foreign-owned large-scale retailers. As such the
response from the participants, mostly representing small
retailers, was overwhelmingly supportive. The response
revealed a strong streak of protectionist sentiment amongst
Thai retailers. The debate also brought out attitudes about
competition, development, and the sufficiency economy that
reflect current Thai attitudes. With other major
stakeholders (consumers, producers, and large scale
retailers) mostly absent or silent, it is unclear to what
extent the final law will accommodate the demands of the
small retailers. End summary.

-------------------------------
Explaining the Draft Retail Law
-------------------------------

2. On May 14 the Committee on Public Participation and the
Committee on Commerce of the National Legislative Assembly
(NLA) held a seminar on the draft Retail Business Law. The
seminar featured panel discussions of experts and industry
representatives and offered an open forum for public comment
on the proposed law. Although there was very little
discussion of the actual details of the draft law (septel
will include an analysis of the draft law), the seminar
provided insight into the attitudes shaping the debate on the
law.

3. Mr. Siripol Yodmuangcharoen, the Director General of the
Department of Internal Trade, in his comments on the draft
law characterized "modern trade" (i.e. large scale retailing)
as a "problem," and noted that the Ministry of Commerce had
been trying to curb its expansion in Thailand since 2001.
Although he argued that the objective of the law was to
promote the mutual benefit of all (consumers, producers,
large and small retailers), he noted that the RTG had a
policy to promote Small and Medium Enterprises, as well as
the sufficiency economy model of the King (Ref. A).


-----------------------------
Economic and Legal Viewpoints
-----------------------------

4. Dr. Narong Petprasert, Dean of the Economics Faculty at
Chulalongkorn University, discussed the economic aspects of
the act, arguing that the objective was not to curb the
expansion of modern trade, but to readjust the relationship
between small and large retailers, making the negotiating
power of the small operators more equal to their larger
competitors. One major disadvantage of modern trade cited by
Dr. Petprasert is reduced employment, since one large retail
outlet impacts 200-300 small shops, each with roughly 3
family members employed, but itself hires only about 300.

5. Another disadvantage of modern trade is its elimination of
entrepreneurship, replacing scores of small shopkeepers with
salary employees. According to Dr. Petprasert, many
development theorists emphasize the importance of
entrepreneurship for economic development and growth.

6. Dr. Petprasert also sought to include consideration of
public goods in the debate on modern trade. He argued that
modern trade has a negative impact on such things as traffic
congestion, and light and noise pollution. He did, however,
acknowledge that in retailing the customer is king, and in
that area modern trade had a distinct advantage.

7. Mr. Thitipan Cheuboonchai, Dean of the Law Faculty at
Thammasat University, speaking about the legal aspects of the
act, acknowledged that Thailand exists in a global economy
and there are limits on what restrictions should be placed on
foreign investors, yet characterized the behavior of foreign
operators as "insulting" in their efforts to find gaps in
Thai law. He cited in this context the nominee structures
currently under challenge by the RTG, ignoring the fact that
the major foreign retailers do not need to resort to such
structures under the Foreign Business Act as it now stands
(Ref. B). He observed that the framework of the act was
quite broad, speculating that this lack of precision might be
intended to allow flexibility in implementation. Noting that
foreign investors/operators would be concerned that this
imprecision would create uncertainty, he argued that the
scope of the law should not be broad. As an example he
argued that it was not clear on what basis the central
committee, which will be responsible for setting policy for

BANGKOK 00002736 002 OF 003


approval of retail operatins, would decide what constitutes a
restricted business.

---------------------
Stakeholders Disagree
---------------------

8. Mr. Tanapol Tangkananan, Chairman of the Thai Retailers
Association (TRA), was the only speaker to strongly argue
against the draft law. Modern trade brings many benefits,
including greater consumer choice, expanded distribution and
logistics networks, stimulation for suppliers, more taxes for
government, and even a boost to the construction industry.
With respect to the act itself, limiting competition from
modern trade will not promote any improvement in the quality
of traditional retailers, nor will it provide for improved
consumer choice. Competition and investment are necessary
for economic development, and placing restrictions on the
expansion of modern trade would hinder both.

9. In reply Mr. Somchai Ponratanacharoen, Chairman of the
Thai Wholesalers-Retailers Association, argued that the law
was necessary to protect Thai people from being taken
advantage of by modern trade. Small scale retailers cannot
compete against the marketing power of modern trade, or their
unscrupulous pricing practices (dumping). He argued that
even the conservative 33% market share for modern trade
claimed by the TRA was already too much for only five
operators. Significantly, he argued against focusing on
economic growth, saying that "we don't want growth at the
expense of the poor."

---------------------------------
Public Opposition to Modern Trade
---------------------------------

10. In the open comment portion of the seminar a consumer
group representative, noting that consumers mainly want good
quality goods at low prices, criticized several aspects of
the draft law. He said that the legal framework of the act,
and the definitions used are unclear, that it gave too much
power to the committees, that it is redundant with other
acts, that it damages the investment climate, and that on the
whole it hinders modern trade but does nothing to actually
help small retailers. Another speaker, identifying himself
as an academic and an advisor to the government, also
criticized the draft act for not including any limits on
advertising, and not clearly stipulating standards for
selection of the committees which will be responsible for
approving new retail operations.

11. Most of the speakers, however, were from the small
retailing sector, including members of the Confederation of
Thais Opposing Foreign Retailers, and were strongly
supportive of the draft law. Although few seemed to know the
details of the law, the pervasive opinion was that it would
be a means to limit the expansion of modern trade, which
small retailers view as a threat. Comments ranged from
charges that modern trade was destroying the livelihoods of
poor Thais, to more moderate but NIMBY-laced claims that the
small operators don't want to negate foreign retailers, but
don't want them to come to local communities. Some noted
that farmers following the King's sufficiency economy model
grow mixed crops, and that the surplus that they bring to
market does not reach the volumes necessary in order to sell
to modern trades.

-------
Comment
-------

12. Remarks made throughout the seminar, by panelists and
public commentators, revealed a uniquely Thai slant to the
debate on modern trade. Several speakers referred to the
sufficiency economy model promoted by the King. The model
was used to highlight the vulnerability of producers to the
loss of traditional markets, extol the virtues of small scale
operators, and condemn modern trade for selling people more
goods than they need and promoting increased public
indebtedness.

13. Several speakers also criticized modern trades for
'creating conflict.' They lamented that modern trade comes
into communities to 'fight' with traditional small-scale
retailers. On one level this reflects a criticism of what
are viewed as unfair business practices and an abuse of the
legal system. On a deeper level it reflects a very Thai
cultural aversion to conflict. In that sense the conflict
that the speakers are complaining about is simply the very
competition that is central to western concepts of capitalism.

14. Although the NLA seminar on the draft Retail Law provided
little real discussion of the draft act itself, it was

BANGKOK 00002736 003 OF 003


instructive for understanding the context of the debate
surrounding the act. Clearly the strongest forces driving
the act is the perceived threat posed by large-scale
retailers to traditional small-scale Thai shopkeepers.
Because the large scale retailers in Thailand are
predominantly foreign owned, the debate frequently takes on
nationalistic tones. Additionally, distinctly Thai attitudes
towards avoiding conflict (competition) color the perceptions
of modern trade retailers. This distaste for being forced to
compete for business exacerbates the distress felt by small
retailers from the fact that they are generally not
commercially competitive with modern trade retailers. This
may in part explain why the draft act provides mechanisms to
limit the expansion of modern trade, but does not address
measures to improve the competitiveness of traditional
retailers. The royally-inspired, government-supported
concept of the sufficiency economy only serves to give
official sanction to the anti-modern trade sentiment.

15. The level of response from the retailing community at
this public comment session is not surprising, given that
this is the group most directly affected by the issue. The
future of Thai retailing and the extent to which modern trade
continues to expand in the country is likely to have a
significant impact on consumers and producers as well. With
input largely missing from these groups it is difficult to
determine whether their views support or oppose those of the
retailing community. It is also difficult to determine to
what extent the final Retail Law will take into account the
larger community, or only respond to a vocal small retail
sector steeped in a traditional Thai culture not especially
in harmony with western economic expectations.

16. Septel will examine the details and practical aspects of
the draft law.
BOYCE

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