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Cablegate: Nla Fails to Pass Foreign Business Act Amendments;

VZCZCXRO7611
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #6240/01 3551021
ZNR UUUUU ZZH
R 211021Z DEC 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 1188
RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/USDOC WASHINGTON DC

UNCLAS SECTION 01 OF 02 BANGKOK 006240

SIPDIS

SIPDIS

SENSITIVE

STATE PASS USTR
USDOC FOR 4430/EAP/MAC/OKSA

E.O. 12958:N/A
TAGS: ECON EINV TH

SUBJECT: NLA FAILS TO PASS FOREIGN BUSINESS ACT AMENDMENTS;
INVESTORS RELIEVED

1. (SBU) Summary: A parliamentary committee failed to report out
proposed amendments to the Foreign Business Act in time for
consideration by the full National Legislative Assembly (NLA),
leaving any future changes to the next government. Although foreign
business groups overwhelmingly opposed the amendments, the
amendments' failure returns foreign investors to an uncomfortable
status quo. Foreigners operating in restricted sectors will not be
required to divest their holdings, but are wary of continuing the
convoluted ownership structures used to comply with the Act's
restrictions in the past. End Summary.

2. (SBU) Foreign embassy and business representatives met again on
December 20 with Mr. Somchai Sakulsurarat, deputy chair of the
special NLA committee on the Foreign Business Act (FBA), for a
post-mortem on proposed amendments that failed to clear his
committee this week. The amendments would have expanded the
definition of foreigner as it relates to limits on foreign ownership
of business in Thailand, proscribing certain ownership structures
commonly used by foreign businesses to maintain management control
of businesses in restricted service sectors. The amendments were
widely opposed by foreign investors as the new rules could have not
only limited future investment opportunities but also require some
companies to divest shares and give up company control. U.S.
business would have been less affected than European and Japanese
companies as many if not most U.S. investors have invested under
either the U.S.-Thailand Treaty of Amity and Economic Relations,
which provides national treatment, or under Board of Investment
promotions, which allow majority foreign ownership.

3. (SBU) The amendments met their premature end after NLA President
Meechai Ruchupan decreed late last week that the NLA would cease
voting on legislation on Friday, December 21, and all legislation
would need to be out of committee by December 18. Meechai moved up
the NLA session's end date under pressure from civil society groups
protesting passage of important legislation on the verge of a
handover to an elected government. Somchai explained that the NLA's
ad hoc committee on the FBA hurriedly moved up a previously
scheduled meeting to finalize the amendments, but with many members
of the committee out on the hustings campaigning for election the
committee was unable to achieve a quorum and failed to report out
the bill before the deadline.

4. (SBU) Somchai said he regretted the failure of the amendments to
pass, and predicted that the next government would be politically
unable to undertake similar sweeping changes to the Act, some of
which may have been favorable to foreign business. Although the
amendments included a tightening of business ownership rules that
foreign investors opposed, Somchai said they had included a new
provision to reduce the list of restricted sectors for foreign
business within two years. Somchai said that although the political
parties vying for election on December 23 have espoused pro-business
platforms and support foreign investment, he believes that a
democratically elected government would be unable to take on local
interests that would oppose any further opening to foreign
investment.

Back to the status quo ante?
----------------------------

5. (SBU) With the failure to pass the amendments, foreign business
continues to be covered by the current Foreign Business Act, but
with lingering uncertainty. One foreign firm engaged in the retail
trade, a sector restricted under the current FBA, told Econoff its
subsidiary retail enterprises had formerly been structured as
"nominee" firms, wherein a Thai would nominally hold a majority of
shares without having a genuine investment in the company and
without rights to profits. The RTG considers the nominee structure
contrary to the spirit of the FBA and, while quietly permitting the
practice in the past, has pledged to initiate investigations into
companies that may be using nominee ownership structures. The
foreign firm is restructuring its ownership to a preference share
structure, which has a somewhat more solid legal footing.

6. (SBU) Comment: U.S. investors under the Treaty of Amity and
Economic Relations (AER) are allowed majority control in all but a
few service sectors and would have been relatively unaffected by the
FBA amendments. However, the AER is not in full compliance with
Thailand's WTO commitments, pending the outcome of FTA negotiations,
and could be subject to challenge by another country. Some U.S.
investors under the AER were relieved that the FBA amendments
failed, fearing that their passage would have given such a clear
advantage to U.S. investors that a WTO challenge would have become
more likely. With other foreign investors able to continue
operating as before, there should be less pressure on the RTG to
remove the AER privileges that U.S. investors enjoy.

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