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Cablegate: Eu Proposing Wto Argument Against Thai Telecom Regs

VZCZCXRO5691
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #5742/01 2610900
ZNR UUUUU ZZH
P 180900Z SEP 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 1711
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2452
RUEHBS/USEU BRUSSELS PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 1717
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BANGKOK 005742

SIPDIS

SIPDIS

STATE FOR EB/CIP, EAP/MLS
JUSTICE FOR STUART CHEMTOB
COMMERCE FOR EAP/MAC/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL AND MCHALE

E.O. 12958: N/A
TAGS: ETRD ECPS EINV TH
SUBJECT: EU PROPOSING WTO ARGUMENT AGAINST THAI TELECOM REGS

REF: BANGKOK 115

BANGKOK 00005742 001.2 OF 002


1. This is an action request, see paragraph 8.

2. Jean-Jacques Bouflet, Minister-Counselor for Economic
Affairs at the EU Mission to Bangkok, called representatives
from the Australian, Singapore, Japanese, Norwegian and US
embassies for a meeting on September 18 seeking joint or
coordinated action on draft regulations by the National
Telecommunications Commission (NTC) prohibiting the takeover
of Thai telecoms businesses by non-Thai entities. The NTC is
expected to release the third draft of its proposed
regulations within the next few weeks and will be seeking
public comment.

3. Bouflet explained that on April 5 the EU Ambassador sent a
letter to the NTC Chair indicating significant concerns with
the draft regulations and the likelihood that they
contravened Thai WTO obligations. On August 4, the Director
General of the EU Directorate-General for Trade, Agular
Machado, sent a follow-up letter (faxed to EAP/MLS) further
outlining EU concerns and noting that "As foreign investors
made their investments in telecommunications enterprises in
Thailand on the basis of its existing WTO trade commitments,
the adoption of a legislation modifying considerably such
commitments through the introduction of new prohibitions
unforeseen at the time when the investments were made could
seriously harm foreign businesses already established in
Thailand." No response to either letter was received by the
EU.

4. The Thai actions are related to the controversy
surrounding the selling of PM Thaksin's family company, Shin
Corp, to Singapore's Temasek. While the political opposition
clearly intended for regulatory action to be taken only
against the PM's transaction, the Ministry of Commerce has
now become involved and is scrutinizing the share structures
of 16 large firms with complicated corporate structures and
significant foreign ownership. This is seen by many as a
political response to the opposition's action against Shin
Corp, indicating a willingness to disrupt broad areas of the
economy if the Shin transaction is unwound.

5. While no US company currently has any equity interests in
Thailand's telecom sector, nor, so far as we know, is
anticipating such investments, the prohibition against
foreign majority ownership in the sector clearly limits the
potential for US investment in this area. The Treaty of Amity
and Economic relations between the US and Thailand, which
covers most other areas of bilateral investment, specifically
excludes telecom, so US legal rights in this sector are
identical to those of the EU.

6. Bouflet, until recently a litigator at the WTO, argued to
us that Thailand's horizontal commitments at the WTO includes
a carve-out only for a maximum of 49 percent foreign equity
participation, but makes no mention of foreign control.
Since, in Bouflet's WTO experience, any limitations on market
access must be very narrowly defined, the Thai effort to
rewrite its regulations to make them more restrictive
effectively violates both the spirit and the letter of its
WTO commitment. Bouflet added "when Thailand took its WTO
commitment, it was accepted based on a minimalist
interpretation and legitimate expectations based on historic
Thai practice; this is now being changed.". Bouflet
indicated that the EU will seriously consider bringing this
matter to WTO dispute resolution if the Thai continue on
their current course.

7. Comment: We are concerned that in the current political
battle in Thailand, both sides are playing a game of chicken
in which foreign investors are caught in the middle. Recent
actions to investigate long-established holding company
structures, foreign ownership of land and small hotels, new
visa regulations and limits on expansion of large retail
stores are most likely all part of the political game in the
run-up to elections later this year. The risk is that some
real, albeit unintentional, economic damage is done as both
sides keep upping the ante.


BANGKOK 00005742 002.2 OF 002


8. Action Request: The EU's contention that the NTC's
proposed regulations may constitute a nullification or
impairment of WTO signatories' rights is a new, potentially
significant development, one that provides a firmer legal
grounding for concerns over the direction of Thai telecoms
investment policy. We request Washington agencies' views on
the validity of the EU's legal argument, as well as views on
how best to approach the RTG on this issue. While we are not
necessarily opposed to joint or coordinated action with the
EU and others in Bangkok, we are mindful of other channels,
e.g., the WTO, that might have advantages. We await
Washington's guidance on how to proceed.
BOYCE

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