Cablegate: Thai Retailing Law: Leave It for the Committee To

VZCZCXRO5758
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #3520/01 1770827
ZNR UUUUU ZZH
R 260827Z JUN 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 7866
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BANGKOK 003520

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON TH
SUBJECT: THAI RETAILING LAW: LEAVE IT FOR THE COMMITTEE TO
DECIDE

REF: A. BANGKOK 2008
B. BANGKOK 2736

1. SUMMARY. The draft Retail and Wholesale Business law has
produced no shortage of polemics, pitting small versus large
retailers (Ref. B). A close reading of the bill itself does
little to dispel the uncertainty generated in anticipation of
the law. The draft law lays out a variety of structures and
procedures, including provisions for National and Provincial
Wholesale and Retail Business Supervision Boards, but leaves
key questions about policies, licensing, criteria for
punishments, and even which businesses will be considered
controlled to the boards themselves to decide. If the law
passes in its current form uncertainty will persist for
investors until the boards flesh out the rules that will
apply. Depending upon how the rules are defined, it is not
yet clear how much of an ongoing role the boards will play,
and hence to what extent retail investment will be vulnerable
to the boards' subjectivity. End summary.

2. Thailand's new draft Retail and Wholesale Business law
has been hotly debated for what it will do for the country's
small retailers and the impact it will have on the rapid
expansion of large retailers. The polemics have carried
before the draft law was completed, and during the time it
was being revised, sometimes with little reference to it's
actual content. The knowledge that the law was in the works,
with little known definitely about what it would actually do
in practice has increased the level of uncertainty for
potential investors in the Thai retail market. Examination
of the now-available draft law reveals little about the
actual rules that retailers and wholesalers will be subject
to.

3. Key features of the draft law are the establishment of
National and Provincial Wholesale and Retail Business
Supervision boards. The boards have significant authority.
To a great extent, in fact, it is the boards that will
determine the actual regulatory regime that the retail and
wholesale industry will operate in. The National board will
have the authority to define the policy regulating such
things as location, surroundings or business size for
business operation, store concentration levels, or
surroundings (????). The National board will also define the
types of controlled businesses by specifying the type,
characteristics or size of retail and wholesale businesses,
as well as defining the criteria, means and conditions for
operating any type of retail or wholesale business. The
board will define the criteria, means and conditions for
business licensing, as well as the criteria for
administrative punishments.

4. Provincial boards will notably consider business's
applications for operation, change, expansion or reduction of
branches. They will also act as the responsible body for
several provisions of the new law, including monitoring
retail and wholesale businesses, retail and wholesale
business promotion, and administrative punishment. They will
also provide opinions to the National board as it formulates
its decisions establishing policies and regulations.

5. The composition of the boards is a mix of fixed and
selected positions. At the national level half of the
members of the boards will be the incumbents in government
positions, including the Minister of Commerce as chairman and
the permanent secretaries or secretary generals of the
Commerce, Interior, Industrial, Public Health ministries, the
State Council, the NESDB, the Consumer Protection Board, the
Small-Medium Enterprise Office, and the Bangkok Metropolitan
Authority Governor. The remaining members will include four
experts and five representatives of institutions or NGOs.
These members will go through a nomination process by a
selection committee, which will also set procedures for the
nominees to self-select the board members for Cabinet
approval. The slightly smaller provincial boards have an
analogous composition and selection process.

6. The effect of these provisions of the draft law is to
transfer the formulation and application of the regulatory
regime for the retail and wholesale business from the
government to the yet to be formed supervisory boards.
Accordingly, the extent or absence of limits to expansion of
large retailers, or protections or assistance provide to
small retailers - the issues of most prominent concern -
remain unknown. Even after this uncertainty is resolved,
potential investors will need to account for potentially
different application of the regulations by different
provincial boards.

7. Another significant element of the draft law relates to

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the transition period. Once the law comes into effect, it
stipulates that existing businesses will need to apply for
licensing within 90 days. Although it is not expected that
existing businesses would be denied a license, they would
need to comply with the provisions of the law and the
regulations determined by the national board in their future
operations. In cases where the new regulations would create
situations where existing businesses are automatically out of
compliance (rules governing store location, for example) it
is not clear whether existing businesses would be
grandfathered or forced to bring their operations into
compliance, perhaps following an adjustment period.

8. When this draft law will take effect is itself unclear.
Recent reports indicate that the Council of State's review of
the draft has been progressing slowly. If the Council fails
to complete its review of the draft for submission to the
National Legislative Assembly by the end of July it may not
be possible for it to complete the legislative process under
the current government.

Comment

9. Thailand's first-ever Retail and Wholesale Business law
has been in the works since its first drafting in 2002. It
is now much closer to becoming a reality, but the uncertainty
surrounding what it will mean for the retail and wholesale
business environment is still great. To date this
uncertainty has not prevented significant investment and
expansion by mostly foreign owned large retailers in the Thai
market, and this is unlikely to change unless and until the
proposed supervisory boards establish restrictive policies
governing the retail industry. Businesses requiring a long
lead time for investment face a substantial uncertainty risk,
as do current investors who may face the need to take
corrective action to come into compliance with future
regulations. Nevertheless, at the moment some businesses
aparently feel that, to paraphrase, presence is nine-tenths
of the law, and are seizing the opportunity to expand now
before more restrictive regulations are formulated.
BOYCE

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