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Cablegate: Ambassador Discusses Customs Concerns with Deputy Finance

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E.O. 12958:N/A
TAGS: ECON ETRD PINR PREL TH
SUBJECT: AMBASSADOR DISCUSSES CUSTOMS CONCERNS WITH DEPUTY FINANCE
MINISTER

REF: A. BANGKOK 2185 (Reforming Thai Customs)
B. BANGKOK 1684 (Deputy PM Korbsak on Customs)
C. BANGKOK 1574 (Finance Minister Discusses Customs)
D. BANGKOK 1305 (Deputy PM Suthep on Customs)

BANGKOK 00002320 001.2 OF 005


1. (SBU) SUMMARY: "I will work personally to address these customs
problems," Deputy Finance Minister Pradit Phataraprasit told the
Ambassador in a meeting on September 8. Pradit, a coalition member
of the Abhisit Administration, is the face of the government's new
reform plan to address at least some of the most egregious and
longstanding complaints regarding Thai Customs (ref A). While
applauding Pradit's willingness to tackle Customs inefficiencies,
the Ambassador stressed the gravity of American business concerns,
including the ongoing customs disputes of Amway, Philip Morris, and
FedEx. The Ambassador offered the U.S. government's expertise and
assistance to Pradit's team as they draft amendments to the Customs
law (at least in part due to the Mission's commercial advocacy
efforts) and also invited the newly-appointed Director General of
the Customs Department, Dr. Somchai Sujjapongse, to present the
details of the reform plans to American companies at an American
Chamber of Commerce meeting in the near future. The Ambassador also
raised business concerns about proposed amendments to the
government's excise laws, which could result in a significantly
higher and discriminatory tax burden on affected American companies.
On a non-customs related note, the Ambassador discussed the
commercial concerns of the American company G-TECH, which won a
government contract in 2005 to implement a digital lottery. Pradit,
who also oversees the Government Lottery Office, expects that the
digital lottery project will move forward soon, alleviating G-TECH's
concerns. END SUMMARY.

Pradit's Customs Reforms
------------------------

2. (SBU) As part of the Mission's continued, broad efforts to press
the Thai government for fair and transparent treatment of American
companies operating in Thailand, the Ambassador met with Deputy
Finance Minister Pradit Phataraprasit on September 8 to learn more
about Pradit's plans to "transition the Customs Department from a
duty collector to a trade facilitator" (ref A). The Ambassador
welcomed Pradit's August 19 announcement of proposed reforms to
modernize the Customs Department, but he also stressed the
significant Customs-related concerns of many American companies
doing business in Thailand. The Ambassador explained that American
companies continue to rate overall customs issues as the top
impediment in Thailand, whether due to the lack of transparency
(i.e., uncertainty about duty rates that are imposed), arbitrary
valuation methods, or the onerous penalty regime.

3. (SBU) Pradit outlined three overall Customs priorities: 1)
drafting a new Customs law; 2) opening a "Customs Clinic;" and 3)
accelerating Thailand's implementation of its "National Single
Window." Regarding the new Customs law, Pradit had promised the
Prime Minister that a draft would be ready for review by the Cabinet
within 60 days. Pradit told the Ambassador that unlike previous
drafts, this new proposal will incorporate suggestions from the Thai
and foreign business community. He specifically cited his plans to
give more flexibility to the Customs Department and the judicial
system when assessing penalties for companies that appealed the
original decision. Pradit has proposed using a range of no more than
four times the import value (anywhere from zero to four) rather than
strictly applying the current fixed penalty of four times the
duty-paid value of the imported goods. A previous draft of the law
proposed increasing this penalty to five times the duty-paid value.


4. (SBU) The Ambassador offered the US Government's assistance and
expertise to assist with Pradit's reform efforts, noting that
several USG customs experts are resident in Thailand, in addition to
numerous experts based in Washington, who can help review particular
proposals and offer suggestions to the government. The Ambassador
emphasized that, in order to be more business-friendly, the Customs

BANGKOK 00002320 002.2 OF 005


Department should adopt internationally-accepted standards and
procedures, and the drafting of a new Customs law is the perfect
opportunity to ensure that Thai Customs procedures are compliant
with these standards. (NOTE: A new Customs law has been in the works
for several years; however, to the dismay of most business groups,
many of the amendments proposed by the Customs Department in earlier
drafts would have worsened the situation by increasing penalties.
END NOTE.)

5. (SBU) Pradit proudly announced to the Ambassador his plans to
unveil a new Customs website on September 15. He explained that
Customs modeled the website after that of Singapore's Department and
expressed hope that the new site will be business friendly, with
easier access to the correct tariff data and the required forms. He
also touted the new "Customs Clinic," which officially opened on
September 7. He explained that the Customs Clinic will be able to
provide guidance to companies in advance of their shipments to
improve the transparency and predictability of Customs decisions.

6. (SBU) Thailand will also accelerate implementation of its
"National Single Window," according to Pradit. He explained that
shippers will be able to deal with a single point of contact at
Customs to handle all of the required paperwork and formalities
required by the various ministries. Six government agencies are
already committed to the project, but he hopes at least nine more
agencies will join in the Single Window efforts. He recognized that
in order to fulfill its ASEAN commitments, Thailand should have
completed its National Single Window process by 2008, but he hopes
the remaining tasks will be completed by the end of 2009.

Rewards Sharing System: "Too Sensitive"
---------------------------------------

7. (SBU) The Ambassador inquired about Pradit's plans to address the
reward sharing procedures at the Customs Department, a systemic
problem in which the Customs officers who determine whether a
penalty should be imposed benefit financially from that decision,
receiving a significant portion of the penalty as a reward. Customs
officials can share up to 55 percent of the penalty amount, which is
be divided between the officers in the unit involved in assessment
of the penalty and the chain of command, up to and including the
Director General. The Ambassador advised that the reward sharing
system negatively impacts Thailand's overall business climate and
discourages new business investments in Thailand.

8. (SBU) Pradit acknowledged the litany of complaints from
businesses regarding the rewards system and the conflicts of
interest the system may perpetuate, but he indicated that issue is
simply "too sensitive" to change at this time. He said that the
Ministry was looking at international standards and studying other
rewards systems to see if anything can be done. He noted that even
Finance Minister Korn had complained about the procedures, but
Pradit still argued, "We probably need to have a rewards system."
Pradit opined that the rewards system has some positive attributes,
including enabling the Customs Department to reward informants in
customs cases. In these cases, a certain portion of the penalty can
be shared with an informant (30 percent of 55 percent of the penalty
amount), while the balance (70 percent of the 55 percent) is then
divided and awarded among the Customs officials. The Ambassador
responded that although rewarding informants outside the Thai
government might be an internationally acceptable practice,
rewarding civil servants under the current system could not be
justified.

Advocacy on Behalf of American Companies
----------------------------------------

9. (SBU) The Ambassador also raised several troubling ongoing
customs cases and expressed our concern about the treatment these
companies continue to receive from the Customs Department. The
Ambassador sought Pradit's assistance to resolve these cases in a
fair and transparent manner. (NOTE: The Ambassador has previously

BANGKOK 00002320 003.4 OF 005


raised these cases with the Prime Minister, the Deputy Prime
Minister, the Finance Minister, the Foreign Minister, and others
within the government. END NOTE.)

10. (SBU) Amway: The Ambassador noted our interest in the Customs
treatment of Amway, the largest importer of American goods in
Thailand. Amway has been engaged with Customs on a valuation dispute
for several years regarding the addition of bonuses and marketing
expenses to the declared customs values of the company's imports.
The Ambassador explained to Pradit that if Customs rules against
Amway in this particular case, the company could be ordered to pay
an exorbitant amount (approximately $200 million including
penalties) or face a penalty payment of close to two billion dollars
and even jail time for the company executives in Thailand. Pradit
said he was familiar with the case but needed more time to closely
study how to resolve the matter. The Ambassador emphasized that
Amway is the largest US exporter to Thailand and the disposition of
this case, particularly if the outcome is non-transparent, will
attract significant negative attention.

11. (SBU) Philip Morris: The Ambassador outlined his concerns about
the handling of an ongoing customs dispute with Philip Morris. In
2006, the Customs Department refused to accept Philip Morris's
declared prices on its tobacco imports and began applying its own
reference invoice prices to the company's products. After numerous
meetings where Philip Morris demonstrated its declared import prices
were compliant with WTO valuation principles, the Thai Customs
Valuation Division ruled in a written notification in March 2008
that the company's original invoice pricing methodology was correct.
Despite this ruling (which under the current legal regime is
non-binding), the Customs Suppression Division charged Philip Morris
with "undervaluation" and "tax evasion" in the amount of $500
million. The Philippines, where Philip Morris was producing these
products, then filed a case against Thailand at the WTO in June
2009, arguing that the actions taken by Customs Suppression Division
violated WTO valuation principles. Unfortunately, the Department of
Special Investigations, under the Ministry of Justice, unexpectedly
filed criminal charges against Philip Morris and its top executives
in August 2008, escalating the situation even further. The
Ambassador added that of even greater concern was that someone in
the government leaked details of the case to the press, in what
appeared to be a smear tactic against the company's reputation in
Thailand. The Ambassador asked that the government at least suspend
further actions until the WTO has ruled on the case.

12. (SBU) FedEx: The Ambassador explained how the Customs Department
is holding FedEx liable for shipments that were improperly declared
by three Thai exporters. Because there is no express clearance
system, FedEx batches 30 airway bills together and is shown as the
Exporter of Record. In this particular case, in which improperly
declared diamonds had been sent through FedEx, Customs settled with
one of the exporters but was unable to settle with the other two,
whom FedEx helped to identify and locate. While Thai Customs can
hold the exporter, carrier, and/or the shipping company liable under
a strict interpretation of customs laws, the Ambassador stressed
that FedEx should only be liable if the company is suspected of
intentional fraud. FedEx has been asked to pay a penalty of $345,000
to settle the case. Pradit assured the Ambassador that he personally
would look into the matter and report back very soon.

13. (SBU) G-TECH: The Ambassador also asked for Pradit's assessment
of the government's plans to implement the digital lottery. The
American firm G-TECH was awarded the contract to establish the
lottery in 2005 during the Thaksin Administration, but the project
has since been held up with numerous changes in government
leadership. Earlier this year, Pradit, who also oversees the
Government Lottery Office, expressed his support for the project to
move forward, following a decision from the Council of State
approving the legality of the plan. Pradit told the Ambassador that
a government-funded poll to determine public opinion on the project
showed favorable results, with more than 50 percent supporting the
plans. Pradit said he had briefed the Prime Minister and hopes to

BANGKOK 00002320 004.2 OF 005


resolve the issue very soon. The Ambassador asked that Pradit
continue to keep us informed on any developments or decisions,
particularly since the American company G-TECH is anxiously waiting
to complete the project. Since 2005, G-TECH has expended nearly $60
million on the infrastructure build-out of the digital lottery.

Related Concern: Amendments to Excise Laws
------------------------------------------

14. (SBU) The Ambasasdor briefed Pradit on new business concerns
about Thailand's excise tax laws. While customs reforms may be
underway, many companies are alarmed about potential changes to the
excise tax regime that could counter the positive efforts made by
Customs and even negate some of the benefits of Thailand's trade
agreements with a number of countries.

15. (SBU) U.S. business representatives have expressed concerns
about two provisions in these proposed amendments to the excise
laws. (NOTE: We will report septel on the details of these
proposals. END NOTE.) The Ambassador explained that one of the
amendments would give the Director General of the Excise Department
the discretionary authority to determine its own import value for a
product, rather than relying on the Customs-determined value. Since
both Excise and Customs are under the auspices of the Ministry of
Finance, introducing two standards for the valuation of the same
imported product would be both unnecessary and confusing.

16. (SBU) Another amendment would change the method used to
calculate the base value of imported excisable goods from countries
that have free trade agreements with Thailand. The Excise Department
could use the higher Most Favored Nation (MFN) duty rate when
calculating the excise tax base rather than using the preferential
trade agreement duty rate that an importer actually pays, resulting
in a significantly higher excise tax burden on the companies. Pradit
noted he was not familiar with the issue but assured the Ambassador
someone from his staff would look into the matter in more detail.

New Director General at Customs
-------------------------------

17. (SBU) Immediately prior to the meeting with Pradit, the Cabinet
approved a new slate of officials to lead the various Finance
Ministry agencies, including the Customs and Excise Departments.
Pradit told the Ambassador that current Director General Wisudhi
Srisuphan, who will reach mandatory retirement at the end of
September, will be replaced by Ohio State graduate Dr. Somchai
Sujjapongse, currently the head of the Finance Ministry's brain
trust, the Fiscal Policy Office. Somchai, who is known as a close
advisor to Finance Minister Korn, will take the reins at the Customs
Department on October 1.

18. (U) Other appointments include Areepong Bhoocha-Oom, the current
Director General of the State Enterprise Policy Office, as head of
the Excise Department; Satit Rungkasiri, a Deputy Permanent
Secretary, as Areepong's replacement as the Director General of the
Fiscal Policy Office; and Pongpanu Svetarundra, the current Director
General of the Public Debt Management Office, as the Comptroller
General.

Megaports and 100 Percent Cargo Scanning
----------------------------------------

19. (SBU) The Ambassador thanked Pradit for his continued support
and cooperation on the Megaports Initiative at the Laem Chabang
Port. The Ambassador explained that the Customs Department's
cooperation on Megaports gives us an opportunity to demonstrate our
shared commitment to port security while enhancing Laem Chabang
Port's reputation as one of the region's leading seaports. The
Ambassador clarified that we want the Customs Department to take
full-ownership of the project in the near future, but assured Pradit
that the United States would continue to provide long-term support.
A U.S. Department of Energy official recently arrived in Bangkok to

BANGKOK 00002320 005.2 OF 005


provide this assistance. (NOTE: The Megaports Initiative was
established by the Department of Energy's National Nuclear Security
Administration, and the implementing partner in Thailand is the
Customs Department. The project provided $3 million in passive
radiation scanning equipment to the Laem Chabang Port and a
guaranteed five years of service and support for the equipment.
Total USG investment is approximately $20 million, including the
equipment, repairs, training, and personnel costs. END NOTE.)

20. (SBU) Pradit inquired about U.S. plans to implement the 100
percent cargo scanning requirement on all ships bound for U.S. ports
and specifically asked whether the Laem Chabang Port would be
considered a qualified port under these new scanning requirements.
The Ambassador noted that the specific details regarding the
implementation of the 100 percent cargo scanning requirements are
under discussion in Washington, but we would provide more details to
his office when available. The Ambassador added that many USG
officials, including those from the Department of Homeland Security
and the Department of Energy, will attend a Ministry of Foreign
Affairs seminar on the 100 Percent Cargo Scanning Requirements, to
be held September 21-23 in Bangkok.

Bio Notes: Pradit Phataraprasit
-------------------------------

21. (SBU) Pradit Phataraprasit, a well-spoken politician from the
Ruam Jai Thai Chart Pattana Party, became Deputy Finance Minister
under then Prime Minister Samak in 2007. He stayed on in this same
position through Prime Minister Somchai's term in office, and then
Abhisit re-appointed him as part of the sitting coalition government
in December 2008. There are two Deputy Ministers at the Ministry of
Finance; these positions have typically gone to coalition partners
to secure the party's support for the Prime Minister since the
positions oversee the lucrative revenue collecting agencies of the
Ministry. Pradit supervises both the Customs and Revenue
Departments, while Pruektichai Damrongrat from Puea Paendin oversees
the Excise Department.

22. (SBU) Born December 25, 1955, to a wealthy tycoon family in the
Phichit Province, Pradit became a businessman at a young age and
managed several of his family's multi-million dollar corporations,
including the Phataraprasit Group, a large conglomerate with
interests in the hotel, real estate, and banking sectors. Pradit
entered politics in 1995 to represent his hometown in Parliament. He
has been re-elected to office each time since. Pradit was considered
a rising star within the Democrat Party, as was Abhisit Vejjajiva,
but Pradit left the party along with current Deputy Prime Minister
Sanan Kachornprasat, after an internal conflict with Abhisit and the
party's leadership. Democrat Party insiders allege that Pradit
walked out the door with party funds, leading to bad blood that
persists to this day and hampers close cooperation with Finance
Minister Korn. Pradit then joined the Ruam Jai Thai movement, which
later merged with Chart Pattana. He became the Secretary General and
the party's financier.

23. (U) Pradit completed his undergraduate studies in business and
economics in 1979 at Franklin Pierce University in New Hampshire. He
received a Master's in Political Science from Thammasat University
in 2004. He is married to Aphamas Phatarapradsit and has four
children, including one who is currently an undergraduate at his
father's alma mater, Franklin Pierce.

JOHN

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