Cablegate: Industrial Zone Transforms Little Lamphun

VZCZCXRO4816
PP RUEHDT RUEHHM
DE RUEHCHI #0123/01 1870949
ZNR UUUUU ZZH
P 060949Z JUL 07
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0515
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBK/AMEMBASSY BANGKOK PRIORITY 0745
RUEHCHI/AMCONSUL CHIANG MAI 0564

UNCLAS SECTION 01 OF 02 CHIANG MAI 000123

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ELAB EINV TH
SUBJECT: INDUSTRIAL ZONE TRANSFORMS LITTLE LAMPHUN

CHIANG MAI 00000123 001.2 OF 002

1. Summary: While agriculture and tourism dominate the economy
of northern Thailand, an industrial zone in Lamphun has brought
in foreign investment and new employment opportunities to the
region. Growth in turn has brought sprawl, hazardous waste,
labor concerns and social disruption to the sleepy town and
surrounding province 30 km south of Chiang Mai. End summary

2. With a population of only 400,000, Lamphun is one of the
least populated provinces in Thailand. A 1983 policy decision
by the central government to decentralize industry created the
Northern Region Industrial Estate (NRIE) on the rural outskirts
of the provincial capital, transforming the area around the
ancient town.

3. Thanks to this industrial estate, now 20 years old, the
province tops the northern region in foreign investment and per
capita income (USD 3,454 in 2005). Exports grew rapidly in the
past decade, increasing by 200 percent to USD 1.952 billion in
2006 vs USD 645 million in 1996.

--- Women at Work ---

4. The estate has attracted a labor force of mostly young women
from the north and northeast who assemble electronics, cut
diamonds, and produce agricultural and other products including
jewelry and accessories, optical lens, cosmetic and painting
brushes, cigarette lighters, wire netting, aircraft interior
parts and upholstery. From 14,000 employees in 1990, the NRIE
has reached capacity with 76 plants employing 50,000 workers.
Additional companies, such as PepsiCo/FritoLay, operate near but
not in the industrial estate.

5. The NRIE, the first industrial estate in the northern region,
was originally planned for agricultural processing, including a
rice mill, noodle factory, and animal feed mills. When these
didn't pan out, Japanese investors in the electronic assembly
industry were attracted by the relatively low humidity of the
region, a pool of young female laborers, lower-than-Bangkok wage
scales, the proximity of Chiang Mai, and tax incentives.

6. Most of the work is labor intensive, with little technology
transfer involved. Consulate visitors to Hana Microelectronics
observed young women assembling small parts, many manufactured
elsewhere, whose end application is still a few steps away. As
at a number of other NRIE facilities, these parts are sent on to
China for final finishing in products such as mobile phones and
notebook computers.

7. With many of the components coming from other countries,
Lamphun is only one stop along the international virtual
assembly line. The value of goods exported from NRIE in 2006,
USD 1.952 billion, exceeded the value of imports by USD 408
million. While officials acknowledge that these figures show
only modest export benefit, they argue that the employment
opportunities and spill-over effect on the service sector make
significant contributions to the region's economy.

--- Investment Incentives ----

8. The Board of Investment (BOI) made the NRIE attractive by
offering maximum incentives, equal to those in the
least-developed and three southern-most provinces. Basic
incentives in "Zone 3", the RTG's target area of industrial
decentralization, include the duty free import of machinery,
corporate income tax exemption for eight years, and exemption
from import duty on raw material used for export goods. In the
NRIE, as in the least-developed provinces in Zone 3, additional
incentives for investors go beyond the original eight-year
period to include a 50 percent reduction of corporate income tax
for an additional 5 years and double deduction from tax on
transportation, electricity and water costs for an added 10
years. Chiang Mai BOI staff noted that the original Japanese
investors in the industrial estate were also attracted by the
geography and living conditions of Chiang Mai valley, which they
found reminiscent of Japan.

9. Currently, 22 electronic assembly plants operate in the
NRIE's duty-free or export processing zones. Women make up 70
percent of the total workforce. Japanese investment constitutes
65 percent of the total (USD 1.3 billion) followed by Americans
at 21 percent (USD 410 million). Other investors are Thai,
Korean, Swiss, Dutch, Taiwanese, French, Belgian and Indian.
American investors include Innovex, Hana Microelectronics,
Pioneer Hi-Bred, and FM Brush.

--- First Labor Union ---

10. The NRIE spawned the first registered labor union in the
region, formed in mid-2006 in the Israeli diamond cutting EFD
Company with 500 of the 800 workers registered. Earlier efforts
to organize five years ago with the support of the American
Center for International Labor Solidarity (ACILS) failed when

CHIANG MAI 00000123 002.2 OF 002

employers fired workers for attempts to organize.

11. Chiang Mai University labor expert Dr. Vorawit Charoenlert
reported that labor unionists from Bangkok and the Friends of
Women Foundation worked secretly for three months with local
workers to collect enough names for registration. He sees this
first union, Gemstones and Jewelry Labor Union, as a solid
foundation for bargaining power in northern Thailand.
Activities are now focused on empowering leaders and members, he
said; the Friends of Women Foundation plans training on labor
rights as well as social, political and economic topics.

12. In general, occupational health care and working conditions,
rather than wages or financial benefits, are the major labor
problem in Lamphun, according to Dr. Vorawit. Workers can earn
up to Baht 10,000 a month with overtime, 50 percent more than
wages outside the estate. However, most of the work requires
good eyesight, ruling out older employees. Health conditions
are anotQr concern. In the early 1990s, twenty workers died
mysteriously; while employers blamed AIDS, health officials and
labor unionists suspected hazardous fumes from lead soldering
combined with excessive overtime work.

13. Lamphun Province's Deputy Welfare and Labor Protection
Officer, Sujintana Sritaraso, described working conditions in
the electronic assembling plants as stressful, noting that
"these young workers need to focus on the production line, with
minimal conversation." Calculating that most workers will burn
out after 5-6 years, she would like to see government training
programs to prepare the workers for other occupations. She does
not share Dr. Vorawit's optimism about the future success of
labor unions, arguing that northern people are "softer" than
workers in Bangkok.

--- Burden or boon? ---

14. The sprawl around the industrial estates is overwhelming the
ability of local administrators to cope with problems of city
planning, sewage, and solid waste management. Waste water is
polluting the canals and river; one source claims that
underground water has been contaminated as well. Many villagers
are unhappy over the new town that has risen next to the
industrial estate, with dormitories, karaoke, shop houses, and
supermarkets. Young workers spend their spare time in karaoke
bars. Local tax goes to road construction, buildings, waterway
improvement while education is underfunded.

15. With no incentives for laborers from other districts to
change their household registration to Lamphun, central
government subsidies of Baht 500 (USD 14) per person are
allocated for only the registered population of 8,000. Danai
Sarapruek, deputy manager of the Tambon Administration
Organization (TAO) where the NRIE is located, noted that his
district accommodates 300 dormitories, 200 restaurants and
karaoke bars, which generate 30 tons of trash a day, and that
the TAO has to cover the cost of waste collection and
infrastructure for roads, drainage systems, and waterway
improvement. Even though revenue from various taxes provides
sufficient revenue to cover these expenses, Danai is unhappy
that the TAO does not receive any subsidy from the central
government for the more than 40,000 workers who are registered
elsewhere.

16. In the face of so much population growth, social change, and
pollution concerns, no government entity is prepared to manage
the impact. The NRIE issues industrial operation and factory
construction permits and is responsible for the control and
treatment of all types of waste in the estate, but labor
welfare, public health, and education issues are under the
control of various central ministries and local governments,
including the Ministries of Labor, Education, and Public Health,
the TAO, the Provincial Public Health Office, and Lamphun
Municipality.

17. Comment: The industrial estate has brought jobs and new
income into the regional economy while also creating service
businesses and public facilities to support the manufacturing
companies in the estates. However, the attendant problems are
just now, after two decades, being recognized by the overlapping
set of government offices with responsibility for the area.
While the NRIE provides employment alternatives to migrating to
Bangkok, it also transfers some of Bangkok's pollution and
health issues to the province. The decentralization policy that
led to setting up the industrial estate did not extend to giving
authority or budgets to local authorities to help them deal with
the social and environmental results.
CAMP

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