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Cablegate: Thailand: 2010 Investment Climate Statement

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TAGS: ECON EFIN EINV ELAB ETRD KIPR OPIC KTDB USTR TH
SUBJECT: THAILAND: 2010 INVESTMENT CLIMATE STATEMENT

REF: 09 STATE 124006

1. (U) Per reftel request, below is Post's draft of the 2010
Investment Climate Statement (ICS) for Thailand. We also e-mailed a
Microsoft Word version to EB/IFD/OIA (David J. Ahn and Thomas J.
Walsh), per reftel instructions.

2. (U) Begin text:

Chapter 6: Investment Climate
-----------------------------

- Openness to Foreign Investment
- Conversion and Transfer Policies
- Expropriation and Compensation
- Dispute Settlement
- Performance Requirements and Incentives
- Right to Private Ownership and Establishment
- Protection of Property Rights
- Transparency of Regulatory System
- Efficient Capital Markets and Portfolio Investment
- Corporate Social Responsibility
- Political Violence
- Corruption
- Bilateral Investment Agreements
- OPIC and Other Investment Insurance Programs
- Labor
- Foreign Trade Zones/Free Ports
- Foreign Direct Investment Statistics

Openness to Foreign Investment
------------------------------

Despite several major investment disputes in 2009, Thailand
continues to maintain an open, market-oriented economy and
encourages foreign direct investment as a means of promoting
economic development, employment, and technology transfer. In recent
decades, Thailand has been a major destination for foreign direct
investment, and hundreds of U.S. companies have invested here
successfully. Thailand continues to welcome investment from all
countries and seeks to avoid dependence on any one country as a
source of investment.

In 2009, most investors remained cautiously hopeful that the
political situation would become less tumultuous and allow the
government to pursue more business-friendly policies. Unfortunately,
the November 2008 closure of Bangkok's airports, widely watched
political protests in April, and the onset of the global economic
crisis made it difficult for Prime Minister Abhisit to restore the
business and investor confidence in Thailand's economy after several
years of political turmoil. By the end of the year, the dominant
issues with regard to Thailand's investment climate revolved around
the court-ordered shutdown of 65 construction projects at Map Ta
Phut, one of Thailand's most important industrial estates, over
allegations that the government failed to follow the 2007
Constitution's requirements for environmental and health impact
assessments when approving the new industrial projects. However,
implementing legislation for these constitutional provisions had
never been finalized -- a significant legal quandary that the
government hopes to resolve in 2010. The affected companies,
including many major foreign investors, remain concerned about how
and when the dispute will be resolved.

After posting 4.8 percent growth (year-on-year) in the first nine
months of 2008, the Thai economy dropped 4.2 percent in the last
quarter -- the first contraction of the economy since the 1997-98
Asian Financial Crisis. The global financial crisis of 2008 and the
continued political tension in Thailand led to a 2.6 percent drop in
GDP in 2008, much lower than the 5 percent average growth of recent
years. This slippage continued in 2009, with the economy contracting
by 5 percent (year-on-year) through September. The hardest hit
sectors were exports and private investment, both of which represent
around 80 percent of GDP. As the global markets recover from the
recessions, the Thai government revised its projections for 2009 to
negative 3 percent, with a turnaround in the last quarter of 2009.
The government estimates GDP growth of 3 to 4 percent in 2010.

In the wake of the 1997-98 Asian Financial Crisis, Thailand embarked
on an International Monetary Fund (IMF)-sponsored economic reform
program designed in part to foster a more competitive and
transparent climate for foreign investors. Legislation establishing
a new bankruptcy court, reforming bankruptcy and foreclosure
procedures, and allowing creditors to pursue payment from loan

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guarantors was enacted in 1999. Other 1999 reforms include
amendments to the Land Code, Condominium Act, and the Property
Leasing Act, all of which liberalized restrictions on property
ownership by non-Thais. The Foreign Business Act (FBA) of 1999
governs most investment activity by non-Thai nationals and opened
limited additional business sectors to foreign investment.
Nevertheless, foreign investment in most service sectors is limited
to 49 percent ownership.

Many U.S. businesses, however, enjoy investment benefits through the
U.S.-Thailand Treaty of Amity and Economic Relations (AER),
originally signed in 1833. The 1966 iteration of the Treaty allows
U.S. citizens and businesses incorporated in the U.S., or in
Thailand that are majority-owned by U.S. citizens, to engage in
business on the same basis as Thai companies, exempting them from
most of the restrictions on foreign investment imposed by the
Foreign Business Act. Under the Treaty, Thailand restricts American
investment only in the fields of communications, transport,
fiduciary functions, banking involving depository functions, the
exploitation of land or other natural resources, and domestic trade
in agricultural products. Prospective U.S. investors who would like
to benefit from the Treaty must first verify their nationality by
obtaining a certified letter from the U.S. Embassy in Bangkok. The
investor must then present the letter to the Ministry of Commerce,
along with an application form for a business operation certificate.
This process typically takes less than one month. Notwithstanding
their Treaty rights, many Americans choose to form joint ventures
with Thai partners, allowing the Thai side to hold the majority
stake because of the advantages that come from familiarity with the
Thai economy and local regulations.

Americans planning to invest in Thailand are advised to obtain
qualified legal advice. Such advice is particularly important given
the fact that Thai business regulations are governed predominantly
by criminal law, not civil law. While foreigners rarely are jailed
for improper business activities, violation of Thai business
regulations can carry heavy criminal penalties.

Thailand has removed tax disincentives on buying domestic financial
institutions. The Financial Institutions Act passed at the end of
2007 gave power to the Bank of Thailand (the country's central bank)
to raise the foreign ownership limit in a local bank from 25 percent
to 49 percent on a case-by-case basis. The Act also allows the
Minister of Finance to authorize foreign ownership above 49 percent.
In January 2009, the Ministry of Finance allowed Malaysian's CIMB
Group to hold majority shares (around 93 percent) in BankThai Bank,
the country's ninth largest commercial bank.

Under the Bank of Thailand's new five-year Financial Sector Master
Plan Phase II (FSMP II), which was approved by the Cabinet in early
November 2009, foreign banks, which were restricted to a single
branch, will be allowed to open two more additional branches from
2010. The FSMP II will also allow existing foreign full branches to
upgrade to subsidiaries and open a maximum of 20 branches and 20
off-premise ATMs. Details of the FSMP II are available in English at
http://www.bot.or.th/.

The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act
requires that an insurance company must have Thai shareholders who
possess more than 75 percent of total number of 'voting' share sold.
Foreign ownership is therefore capped to 25 percent of voting share
sold. The 2008 laws provide a five-year compliance period until
February 2013. If companies do not comply by 2013, they will be
unable to open new branches and can be fined up to 200,000 Thai baht
(approximately US$6,000) plus daily fines of up to 10,000 Thai baht
(approximately US$300). However, the new laws also allow the
government insurance regulator (the Office of Insurance Commission)
to authorize foreign ownership up to 49 percent on a case-by-case
basis. The Minister of Finance, with a recommendation from the
Office of Insurance Commission, could grant approval to allow
foreign ownership limit to exceed 49 percent.

Business Registration: Any entity wishing to do business in Thailand
must register with the Department of Business Development at the
Ministry of Commerce. Firms engaging in production activities need
to register with the Ministries of Industry and Labor and Social
Welfare. If the entity falls under the definition of non-Thai
national as defined by the Foreign Business Act, they have to obtain
a 'foreign business license' (or a certificate for US investors as
mentioned above), which must be approved by the Council of Ministers
(Cabinet) or Director-General of Department of Business Development
at the Ministry of Commerce depending on types of restricted
businesses.

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Work Permits: U.S. citizens can enter Thailand without a visa for
visits of up to thirty days. In order to apply for a work permit, a
foreigner must enter Thailand on a non-immigrant visa (issued at
Thai embassies and consulates) for a stay of three months or, for
foreigners with well-defined work or business plans, for a stay of
one year. Issuance of the three-month visa usually is completed
within two or three days; the one-year visa requires approval from
the Immigration Bureau of the Royal Thai Police in Bangkok. Upon
obtaining a work permit, a holder of a three-month visa may apply
for a one-year visa, which generally can be extended every year.
Foreigners holding nonimmigrant visas who have lived in Thailand for
at least three consecutive years may apply for permanent residence
in Thailand if they meet strict criteria regarding investment or
professional skills.

Many occupations are reserved exclusively for Thai nationals,
including professional services such as accounting, architecture,
law, and engineering. The 2008 Alien Occupation Act, which lists
these prohibited occupations, also states that all non-Thai persons
working in Thailand must possess a work permit issued by the
Ministry of Labor. Some foreigners already working in Thailand are
exempted through a "grandfather" clause. Factors that influence the
granting of work permits include the degree of specialization
required by the position; the size of the firm in terms of number of
employees and registered capitalization; and the ratio of Thai
nationals to foreigners employed by the firm. Foreigners working for
the Thai government or working on projects promoted by the Board of
Investment (BOI) usually have little difficulty obtaining work
permits and typically receive their permits within seven days of
application. The duration of the work permit is generally tied to
the length of stay permitted by the person's visa. Government policy
creates a preference for Thai nationals in the hiring of government
consultants, although the government continues to hire foreign
consultants. Work permits in other areas are sometimes difficult to
obtain, despite the fact that senior manager and technical personnel
are in short supply.

Foreigners who want to do volunteer work are also required to obtain
work permits according to the law. Foreigners found to be working
(including volunteers) without work permits could be imprisoned up
to five years and/or fined between 2,000 and 100,000 Thai baht
(approximately US$60 to US$3,000). However, the law does not apply
to individuals in officially recognized delegations (e.g. diplomatic
or consular); persons performing duties or missions in accordance
with an agreement between the Royal Thai Government and foreign
governments or international agencies; person performing duties or
missions to the benefit of education, culture, arts, sports or other
activities stipulated by Thai laws; or persons otherwise authorized
by the Council of Ministers.

The law allows migrant workers from Burma, Laos and Cambodia to work
as manual labor in certain industries such as textiles. Under the
Alien Occupation Act, employers of unskilled workers are required to
deduct a certain amount (to be specified by a Ministerial regulation
issued by the Ministry of Labor) from salaries of their foreign
workers and submit to a newly established 'Deportation Fund' which
will be managed by a committee. The amount is made in a single
payment and can vary depending on the associated cost of deporting
such foreign workers back to their native country if necessary. If
the amount is not fully collected from the foreign workers,
employers are ultimately responsible for the payments. Foreign
workers will be given receipts and will be reimbursed within 30 days
after they have returned to their home country at their own expense.
However, foreign workers must make a reimbursement claim with
receipts within two years after their departure from any immigration
check-point. Interest (7.5 percent per annum) will be paid only if
the refund process exceeds 30 days after a claim.

Land Ownership: In general, non-Thai businesses and citizens are not
permitted to own land in Thailand unless the land is on
government-approved industrial estates. Under the 1999 amendment to
the Land Code Act, foreigners who invest a minimum of 40 million
Baht (approximately US$1.2 million) are permitted to buy up to 1,600
square meters of land for residential use with the permission of the
Ministry of Interior. If the required land is not used as a
residence within two years from the date of acquisition and
registration, the Ministry has the power to dispose of the land.
Petroleum concessionaires may own land necessary for their
activities. Rather than purchasing, many foreign businesses instead
sign long-term leases, and then construct buildings on the leased
land. Under the 1999 Condominium Act, non-Thais were allowed to own
up to 100 percent of a condominium building if they purchased the

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unit between April 28, 1999 and April 28, 2004. Under the newer
Condominium Act of 2007, foreign ownership in a condominium
building, when added together, must not exceed 49 percent of the
total space of all units in the building, except for those purchased
between 1999 and 2004.

Privatization: With the aim of encouraging capital inflows and
relieving resource constraints in many key sectors of the economy,
the previous government of Thaksin Shinawatra eagerly embarked on a
privatization program for state-owned economic enterprises and state
monopolies. The interim government that followed the September 2006
coup considered privatization too controversial and put these plans
on hold. Other than the Petroleum Authority of Thailand (PTT), the
Airport Authority of Thailand (later renamed Airports of Thailand
(AOT)) and the Mass Communication Organization of Thailand (MCOT),
few significant privatizations have occurred. The 1999 State
Enterprise Corporatization Act provides the framework for the
conversion of state enterprises into stock companies, and
corporatization is viewed as an intermediate step toward eventual
privatization. (Note: "corporatization" describes the process by
which an SOE adjusts its internal structure to resemble a
publicly-traded enterprise; "privatization" means that a majority of
the SOE's shares is sold to the public, and "partial privatization"
refers to a situation in which less than half a company's shares are
sold to the public.) The current State Enterprise Policy Office
under the Ministry of Finance does not have a power to regulate all
SOEs, but the Ministry of Finance is in the process of drafting a
comprehensive bill to set up a new regulatory and policy body to
supervise all SOEs including those with partial privatization.

The following is a summary of Thailand's rankings in several
international indexes, as well as the Millennium Challenge
Corporation's score card.

Measure Year Index/Ranking
TI Corruption Index 2009 3.4/84
Heritage Economic Freedom 2009 63/67
World Bank Doing Business 2010 12
MCC Govnt Effectiveness 2009 0.54/87 percent
MCC Rule of Law 2009 0.41/63 percent
MCC Control of Corruption 2009 0.01/53 percent
MCC Fiscal Policy 2009 0.4/64 percent
MCC Trade Policy 2009 75.6/50 percent
MCC Regulatory Quality 2009 0.27/77 percent
MCC Business Startup 2009 0.971/69 percent
MCC Land Rights Access 2009 0.796/74 percent
MCC Natural Resource Mgmt 2009 97.79/93 percent

Conversion and Transfer Policies
--------------------------------

Exchange controls are governed by the Exchange Control Act of 1942,
amended in 1984, and Ministerial Regulation Number 13 of 154, and
are administered by the Bank of Thailand. Inward remittances are
free of controls. However, the Ministry of Finance issued a
Ministerial Regulation, effective from October 28, 2007, to require
any person who brings foreign currencies in or out of Thailand
exceeding US$20,000 or the equivalent must declare the amount at a
Customs check point. Foreigners staying in Thailand for less than
three months, foreign embassies, and international organizations are
exempt from this requirement.

In July 2007, the Ministry of Finance and the Bank of Thailand
agreed to relax regulations on capital flows to balance capital
movements and to increase flexibility for Thai businesses in
managing their foreign currency holdings. The changes included
abolishing the surrender requirement for all foreign currency
receipts from abroad to be sold or deposited within 15 days;
doubling the amount of foreign currency deposited with financial
institutions in the country from US$0.5 million to US$1 million for
individuals and from US$50 million to US$100 million for juristic
persons with future foreign exchange obligations within the
following 12 months, and increasing to US$0.1 million for
individuals and to US$0.3 million for juristic persons without
obligation. The deposit ceiling applies only to foreign currencies
that are borrowed from financial institutions, but if foreign
currencies are earned (not borrowed), the deposit ceiling
restriction is not applied.

Thai nationals are subject to quantitative limits on the amount of
foreign currency that can be remitted abroad without specific
permission of the Bank of Thailand. The limits vary depending upon
the purpose of the transaction, and range from US$100 million per

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annum for business investment or loans to subsidiaries, to US$1
million per annum for remittances to family members. The Bank of
Thailand must approve the purchase of immovable assets or securities
abroad. The new regulation, however, also increases the limit of
overseas fund remittances in foreign currencies up to US$1 million
by Thai individual. In addition, the authorities also relaxed the
repatriation requirement for exporters with foreign currency
receipts by extending the period in which such receipts must be
brought into the country from within 120 days, to within 360 days
and requiring that the foreign currencies be deposited or sold with
financial institutions within another 360 days.

Commercial banks are authorized to undertake most routine foreign
remittance transactions without prior approval of the Bank of
Thailand. Nonresidents can open and maintain foreign currency
accounts without deposit and withdrawal ceilings with authorized
banks in Thailand. Such accounts must use funds that originate
abroad. If nonresidents have underlying liabilities or transactions
in Thailand, they can open and maintain Thai baht accounts under
Nonresident Baht Accounts (NRBA) with authorized banks in the
country; however, the combined outstanding of all NRBAs for each
nonresident at the end of the day cannot exceed 300 million Baht
(approximately US$9 million). Since February 2008, the Bank of
Thailand has segregated the NRBA into two types: Nonresident Baht
Account for Securities (NRBS) for investment in securities and other
financial instruments, and Nonresident Baht Account (NRBA) for
general purposes. Funds under the two types of NRBA could not be
transferred to each other. The cap on NRBAs was introduced in
October 2003 with the goal of limiting speculation on the Thai baht.
All remittances exceeding US$10,000 for any purpose other than
export must be reported to the Bank of Thailand.

Expropriation and Compensation
------------------------------

Private property can be expropriated for public purposes in
accordance with Thai law, which provides for due process and
compensation. In practice, this process is seldom used and has been
principally confined to real estate owned by Thai nationals and
needed for public works projects. U.S. firms have not reported any
problems with property appropriation in Thailand.

Dispute Settlement
------------------

Thailand has a civil code, commercial code, and a bankruptcy law.
Monetary judgments are calculated at the market exchange rate.
Decisions of foreign courts are not accepted or enforceable in Thai
courts. Disputes such as the enforcement of property or contract
rights have generally been resolved through the Thai courts.
Thailand has an independent judiciary that generally is effective in
enforcing property and contractual rights. The legal process is slow
in practice, however, and litigants or third parties sometimes
affect judgments through extra-legal means.

In addition, companies may establish their own arbitration
agreements. Thailand signed the Convention on the Settlement of
Investment Disputes Between States and Nationals of Other States in
1985, but has not yet ratified the Convention. Thailand is a member
of the New York Convention and enacted its own rules on conciliation
and arbitration in the Arbitration Act of 2002. The 2002 Arbitration
Act adopted the principles under the United Nations Commission on
International Trade Law (UNCITRAL). The Arbitration Office of the
Ministry of Justice administers these procedures.

The Bankruptcy Act was amended in 1999 to provide Chapter 11-style
protection to debtors, and to give debtors and creditors the option
of negotiating a reorganization plan through the courts instead of
forcing liquidation. The Act now allows creditors to extend
additional loans to insolvent firms without losing the right to
claim compensation during a future restructuring or liquidation
process, but only if the new loan is intended to keep the firm in
operation. Also in 1999, the Act was amended to facilitate the
financial restructuring process. Higher minimum levels for
individual and corporate bankruptcies were established, and the
previous ten-year period of bankruptcy status was reduced to three
years. The 1999 Bankruptcy Act also established a specialized court
for bankruptcy cases. The Bankruptcy Courts are divided into the
Central Bankruptcy Court which has jurisdiction throughout the
Bangkok Metropolitan areas and the Regional Bankruptcy Courts.

In 2004, Parliament approved changes to the Bankruptcy Act including
tightening the rules under which some debtors can emerge from

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bankruptcy status and streamlining the legal appeals process in
bankruptcy and restructuring cases. In an effort to quicken the
foreclosure process, amendments to the Civil Procedure Code on
Execution of Judgments have limited appeal options available to
debtors. Under the old regulations, debtors were free to appeal each
action taken with respect to the execution of a bankruptcy judgment.
Such appeals, often frivolous in nature, were one of the tactics
debtors used to delay the foreclosure process. In June 2001, the
Supreme Court set an important legal precedent by ruling in favor of
implementing a creditor-backed corporate restructuring plan opposed
by the former owner of the business in question. The Act was later
amended in 2005 by granting the Bankruptcy Court the power to
consider bankruptcy cases that involve criminal matters.

Individual cases can take months or even years to work their way
through the legal system, however, and many businesses have urged
the government to speed up the bankruptcy procedure. In 2006, new
procedural rules were established to accelerate the bankruptcy court
proceedings by encouraging the use of electronic equipment and
express mail in communications between courts. Under the new rules,
provincial courts have the authority to issue search warrants and
arrest warrants, and to imprison or release a defendant. Other
amendments to the Bankruptcy Act are currently under consideration.


In 2009, the Bankruptcy Court issued verdicts on 33,061 cases.

Performance Requirements and Incentives
---------------------------------------

Thailand committed to implement all WTO agreements, including
Trade-Related Investment Measures (TRIMS). In its latest Trade
Policy Review in November 2007, the WTO noted, "Thailand has
maintained its support and commitment to the liberalization of the
multilateral trading system, especially for agriculture. It also
remains committed to "open regionalism" and considers regional trade
liberalization an effective catalyst for freer trade and
complementary to multilateralism." The report continued that WTO
negotiations would improve market access and the predictability and
stability of trade and investment. The report notes that a key
challenge for Thailand's future economic performance is the
government's ability to restore private investor confidence and to
proceed with pending structural reforms, including stalled
privatizations that would help improve the country's
competitiveness. The report also underlines the need for Thailand to
expand its tariff bindings and to simplify its relatively complex
tariff regime. The services sector, which makes up a large part of
the Thai economy, has benefited so far from liberalization but would
grow further if multilateral commitments under the GATS were
expanded, according to the review.

The Board of Investment (BOI), established by the Investment
Promotion Act of 1977, is Thailand's central investment promotion
authority.
Complete information on BOI policies, programs, incentives, and
application procedures can be found on the BOI web site at
www.boi.go.th.

In November 2009, BOI established the 'One Start One Stop Investment
Center' as a centralized location to assist investors with the
requirements of the various investment-related government agencies.
Staff at the Center provide guidance to investors on how to register
a company, obtain BOI's investment promotion privileges, obtain a
foreign business license, complete an environmental impact
assessment, request permission to use land for industrial
operations, obtain utilities, and other related investment issues.

BOI identifies priority sectors (detailed below), covering hundreds
of types of businesses eligible for investment incentives.
Generally, the most generous incentives are offered to those
projects that bring new technology to Thailand and those that invest
in less-developed provinces. There are two basic types of BOI
incentives: tax-based (including tax holidays and tariff exemptions)
and non-tax privileges (guarantees, special permissions, services,
etc.). The minimum investment amount is 1 million baht
(approximately $30,000), excluding the cost of land and working
capital. Projects with an investment of 10 million Thai baht
(approximately US$300,000) or more, excluding the cost of land and
working capital, are typically required to obtain international
standards certifications, such as International Standards
Organization (ISO) 9000. BOI requires investors to submit evidence
of compliance with the conditions of their approval in order to
claim incentive benefits. BOI previously lifted all local content

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and export requirements.

Specific BOI incentives include:

- Tax incentives: exemptions or reductions of import duties on
imported machinery; reductions of import duties on imported raw
materials and components; exemptions from corporate income taxes for
three to eight years; and, deductions from net income of
infrastructure costs.

- Permissions: to bring in foreign nationals to undertake investment
feasibility studies; to bring in foreign technicians and experts to
work under promoted projects; to own land for carrying out promoted
activities.

- Guarantees: against nationalization; against competition by new
state enterprises; against state monopolization of the sale of
products similar to those produced by promoted firms; against price
controls; against tax-exempt import by government agencies or state
enterprises of competitive products; and, of permission to export.

Tax incentives offer the greatest advantages, though their relative
value has declined in recent years with the general reduction of
import duties and elimination of the former business tax system. The
Value Added Tax (VAT) Law, which eliminated the business tax
exemption, has no provision for BOI to offer VAT exemptions or
reductions. Investors must submit an application form along with
supporting documentation to be considered for incentives. In most
cases, BOI decides within sixty days whether or not a project is
eligible for investment privileges. BOI typically completes its
review of applications for projects valued in excess of 750 million
baht (approximately US$22 million) within 90 days.

The maximum allowable debt-to-equity ratio is 3:1 for a newly
established project, but expansion projects are considered on a
case-by-case basis. With the exception of electronic and
agricultural investments, projects valued less than 500 million baht
(about US$15 million), regardless of overall investment size, must
produce added value equal to at least 20 percent of sales revenue.
For projects valued more than 500 million baht (about US$15
million), excluding land and working capital, a feasibility study
must be presented at the time of application. Adequate environmental
protection systems must be installed for projects with a potential
environmental threat.

BOI's priority areas for investment privileges include:
- agriculture and agricultural products;
- environmental protection and/or restoration;
- direct involvement in technological and human resource
development;
- public utilities, infrastructure, and services;
- Mining, ceramics and basic metals;
- Light industry;
- Metal products;
- Chemicals, paper and plastic;
- Services and public utilities.

Other targeted industries include agro-industry, automotive,
information technology/electronics, high value-added services,
semi-conductors, manufacture of machinery and equipment, software
parks, and high-quality upstream steel. In 2009, BOI expanded the
list of eligible businesses for promotion to include four additional
sectors:
- technology and healthcare, specifically the production of
nano-technology materials or products;
- manufacture of musical instruments;
- manufacture of 'completely built unit' (CBU) houses or 'completely
knock-down' (CKD) houses; and
- service-related industrial estates, as well as activities related
to tourism and tourism-related real estate.

State-enterprise projects are not eligible for BOI promotion, but
concession projects (either Build Transfer Operate or Build Operate
Transfer) by the private sector are eligible with some restrictions.
For privatization of state enterprises, only expansions after the
privatization are eligible for BOI promotions.

BOI actively encourages investment in the least-developed provinces
of Thailand, offering maximum incentive packages to projects that
locate in one of these provinces. BOI typically classifies these
provinces as those whose average per capita income has been below 85
percent of the national average during the previous three years.
These provinces have included: Sisaket, Nong Bua Lamphu, Surin,

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Yasothon, Maha Sarakham, Nakhon Phanom, Roi-Et, Kalasin, Sakon
Nakhon, Buri Ram, Amnat Charoen, Phraea, Phayao, Nan, Satun,
Pattani, Yala, and Narathiwat.

In June 2004, BOI introduced special investment privileges to
promote investment in four northeastern provinces, namely
Chiayaphum, Nong Khai, Ubon Ratchathani, and Udon Thani. With this
designation, all operations located in these four provinces will
receive special privileges, regardless of their location within or
outside of an industrial estate. These incentives include:
- A 50 percent reduction in corporate income tax for an additional
five years beyond the initial 8-year exemption;
- Double income tax deduction of costs for transportation and
utilities for a period of 10 years;
- Deduction of 25 percent of the project's infrastructure
construction costs from net profit (for tax purpose) for a period of
10 years.

In an attempt to revive the economies of the three southernmost
provinces (Pattani, Yala, and Narathiwat), BOI launched a special
package for investment projects in the area in mid-2007. The package
includes maximum tax incentives, including eight-year corporate
income tax holidays plus a 50 percent reduction on corporate income
tax for the following five years, an exemption of import duties on
machinery and raw materials, and deduction of infrastructure
construction and installation cost up to 25 percent of capital
investment. The applicable period for double deduction of public
utilities and transportation costs was extended to 15 years. In
2009, BOI broadened the investment promotion scope to allow all
types of eligible activities to apply for the promotion incentives
in Pattani, Yala, and Narathiwat. In addition, the deadline for
applications was extended from December 2009 to December 2012.

As part of its policy to encourage investment throughout the
country, BOI divides the country into three zones: Zone 1 (Bangkok
and 5 surrounding provinces), Zone 2 (a grouping of 12 other
provinces), and Zone 3 (the remaining 58 provinces). BOI promotes
the relocation of projects from Zone 1 to Zone 2 and Zone 3;
however, in order to be eligible for new incentives, these projects
must relocate to an industrial estate or a promoted industrial
zone.

A three-year income tax holiday applies to qualifying investments in
Zone 1 and Zone 2, but in Zone 2 if the project is located in
industrial estates or promoted industrials zones, the period for
income tax holiday increases to seven years. Projects with capital
investment of 10 million baht (about US$300,000) or more may be
eligible for an income tax holiday of eight years if it is relocated
to Zone 3. Projects must obtain ISO 9000 or similar international
standard certification within 2 years from their start-up date or
the income tax holiday period will be reduced by one year. To
improve the corporate governance, BOI sets a cap on a project's
corporate income tax holiday at 100 percent of invested capital. In
September 2002, BOI relaxed its zoning requirement to promote
expansions and cluster development. Projects formerly required to
locate in Zones 2 or 3 are now free to expand wherever they wish. On
environmental protection grounds, however, tanneries, bleaching and
dying plants, cyanide-based heat treatment facilities, and
facilities for the recycling/re-use of unwanted materials are
ineligible for this zoning relaxation.

Majority or total foreign ownership is permitted for BOI-approved
investment projects in the manufacturing sector; however, for
projects in agriculture, animal husbandry, fishery, mineral
exploration and mining, and service businesses under Schedule One of
the Foreign Business Act of 1999, Thai nationals must hold shares
totaling not less than 51 percent of the registered capital.

Investment conditions and incentive packages differ for regional
operating headquarters (ROHs), which are defined by BOI as companies
or partnerships that provide managerial, technical, or supporting
services to an associated enterprise or domestic or foreign
branches. ROH business projects with registered capital of at least
10 million baht (approximately US$300,000), and in which overseas
revenue accounts for at least half of annual income, are eligible to
receive BOI incentives, such as permission to own land, eased
provisions for hiring expatriate staff, and additional tax breaks
(such as a preferential corporate income tax rate of 10 percent
versus 30 percent and a flat 15 percent personal income tax rate for
foreign employees for four years). In July 2008, BOI waived import
tariffs on machines for research and development for ROHs in order
to attract more investments. In September 2009, BOI set up a working
committee to revise the ROH regulations and improve corporate income

BANGKOK 00000206 009 OF 016


tax incentives related to ROH activities, but the results have not
been announced. There are currently 81 BOI-promoted ROH projects,
most of which are in the manufacturing and service sectors,
including U.S. companies such as Exxon Mobil Co., Ltd., Chevron Asia
South Co., Ltd., General Motors Southeast Asia Operations Co., Ltd.,
and Ford Services (Thailand) Co., Ltd.

In 2005, BOI introduced tax incentives to help boost investments in
Thailand's electrical and electronics industries. In order to
qualify for these incentives, companies must be long-term investors
with total investment of at least 15 billion Baht (approximately
US$450 million). The incentives include 8-year corporate income tax
exemption periods for projects in Zone 3. However, priority
activities such as production of solar wafers and solar cells, will
receive 8-year corporate income tax holidays regardless of project
location. BOI also granted duty exemptions for all electrical and
electronics projects, including shorter-term projects, permitting
duty-free imports of upgraded or replacement machinery for the life
of the project. In addition, BOI also expanded zone-based fiscal
incentives for Zone 1 and Zone 2 (Bangkok and surrounding provinces)
for electrical and electronics projects. For example, projects in
Bangkok located outside of industrial estates were previously
ineligible for corporate income tax holidays; however, these
projects now are eligible for 5-year exemptions.

BOI has also extended tax incentives to the automotive machinery
sector so that automobile assemblers are eligible for import duty
exemptions on machinery, regardless of the BOI geographic investment
zone in which they operate. Total initial investment costs for
eligible projects must be at least 10 billion Thai baht
(approximately US$300 million). BOI also made "call center"
facilities eligible for tax incentives; however, to be eligible, the
project must be majority Thai-owned.

Right to Private Ownership and Establishment
--------------------------------------------

Private entities may establish and own business enterprises. The
principal forms of business organization under Thai law are sole
proprietorships, partnerships, limited companies, and public limited
companies. In addition, branches of foreign corporations are
recognized, and a "representative" or "liaison" office of a foreign
company may receive special recognition. Regardless of the form of
business organization, most businesses must apply for business
registration. Establishment of a business in certain sectors by a
foreign entity may be restricted by the Foreign Business Act, or for
U.S. investors may benefit from the Treaty of Amity and Economic
Relations (AER) as discussed above.

A Thai public limited company is similar to a corporation in the
United States, and may be wholly owned by a foreigner unless the
corporation is involved in a business activity reserved for Thai
nationals. A public limited company is allowed to offer its shares
to the public. Eight laws pertaining to individual industries limit
foreign ownership of companies listed on the Stock Exchange of
Thailand.

Protection of Property Rights
-----------------------------

Property rights are guaranteed by the Constitution against
condemnation or nationalization without fair compensation. Secured
interests in property are recognized and enforced. Thailand has a
civil law system under which all laws are embodied in statutes or
codes promulgated by the government. This practice is in contrast to
the common law system in many Western countries, where court
interpretations of statutes serve as governing legal precedent.
There is an independent judiciary that provides a forum for
settlement of disputes. Agencies of the government, as parties to
commercial contracts, may be sued in the courts, and cannot raise a
defense of sovereign immunity. However, state property is not
subject to execution. There are four basic codes: Civil and
Commercial Code, Criminal Code, Civil Procedure Code, and Criminal
Procedure Code. In adopting these codes early in the twentieth
century, Thailand selected features of the two major Western legal
systems (common law and civil law), and adapted to circumstances in
Thailand provisions drawn from Britain, Germany, Switzerland,
France, Japan, Italy, India, and other foreign systems. Decisions
and rulings of the judiciary and civil service can have considerable
force as precedents.

There are three levels to the judicial system in Thailand: the Court
of First Instance, which handles most matters at inception, the

BANGKOK 00000206 010 OF 016


Court of Appeals, and the Supreme Court. There are specialized
courts such as the Labor Court, Family Court, Tax Court, the Central
Intellectual Property and International Trade Court, and the
Bankruptcy Court.

Widespread counterfeiting and piracy continue to plague intellectual
property rights owners in Thailand. Particular areas of concern
include counterfeiting of pharmaceuticals, cosmetics, apparel, and
accessories. Piracy rates are high for motion pictures, music,
business and entertainment software. The lack of sustained and
coordinated enforcement, and, in particular, the failure to
prosecute and penalize high-level offenders, remains a substantial
problem. The vast majority of criminal IP cases in Thailand are
brought against retailers caught with relatively little infringing
product. In addition to problems with counterfeiting and piracy,
rights holders cite concerns about long delays in the patent process
due to the large backlog of unexamined patent applications. Due to
these concerns, Thailand has been on the Special 301 Priority Watch
List since 2007.

Thailand amended its legal regime to comply with the WTO Agreement
on Trade Related Aspects of Intellectual Property (TRIPs) in the mid
1990s, but questions remain about Thailand's implementation of
obligations to protect pharmaceutical and agricultural test data
from unfair commercial use, treatment of conflicting trademarks and
geographical indications. Since that time, Thailand has not kept
pace with international IP legal developments, in areas such as
broadcasting and digital copyright. Thailand is signatory to
long-standing IP agreements such as the Berne and Paris Conventions,
but not the World Intellectual Property Organization Copyright
Treaty (WCT) or Performances and Phonograms Treaty (WPPT). Thailand
acceded to the Patent Cooperation Treaty in 2009.

Transparency of the Regulatory System
-------------------------------------

In 1999, Thailand enacted the Trade Competition Act together with
the Price of Merchandises and Services Act, replacing the 1979
Price-Fixing and Anti-Monopoly Law. The laws were intended to
strengthen the government's ability to regulate market monopolies
and price fixing. The Trade Competition Act applies to all business
activities with the exception of state-owned enterprises,
cooperatives, agricultural and cooperative groups, government
agencies, and certain enterprises exempted by the law. The law
established a Trade Competition Commission with the authority to
place limitations on market share and revenues of firms with
substantial control of individual market sectors, to block mergers,
and other forms of business combinations, and to levy fines for
price-fixing and other proscribed activities. Since the law's
implementation, several foreign motorcycle distributors were found
guilty of violating the law by forcing sales agencies to sell only
their brands.

The government continues to have the authority to control the price
of specific products under the Price of Merchandises and Services
Act. The Department of Internal Trade under the Ministry of Commerce
administers this law and interacts with the affected companies
although only the "Committee on Price of Merchandise and Service"
make the final decision on what products to add or remove from price
controls. As of December 2009, out of 39 controlled commodities and
services, only sugar is subject to a price ceiling. Besides the 39
controlled commodities, practically any producer of consumer
products is prohibited from raising prices without first notifying
the Committee of its intention to do so. The government also uses
its controlling stakes in major suppliers of products and services
such as Thai Airways and PTT to influence prices in the market.

Thailand has extensive legislation aimed at the protection of the
environment, including the National Environmental Quality Act, the
Hazardous Substances Act, and the Factories Act. Food purity and
drug efficacy are controlled and regulated by a Food and Drug
Administration with authority similar to its U.S. counterpart.
Likewise, labor and employment standards are set and administered by
the Ministry of Labor.

Despite the good intentions of most regulatory regimes, consistent
and predictable enforcement of government regulations remain
problematic for investment in Thailand. Gratuity payment to civil
servants responsible for regulatory oversight and enforcement
remains a common practice. Through such payment, transactions can be
expedited. Firms that refuse to make such payments can be placed at
a competitive disadvantage when compared to other firms in the same
field. However, most observers believe that the overall trend toward

BANGKOK 00000206 011 OF 016


transparency in regulatory enforcement is positive, especially for
foreign-owned businesses.

Efficient Capital Markets and Portfolio Investment
--------------------------------------------- -----

The Thai government maintains a regulatory framework that broadly
encourages investment and largely avoids market-distorting support
for specific sectors. Government policies generally do not restrict
the free flow of financial resources to support product and factor
markets, and credit is generally allocated on market terms rather
than by "directed lending." Legal, regulatory, and accounting
systems are largely transparent, despite significant problems in
some areas. The Thai government has devoted considerable effort to
bringing these systems into line with international norms, and
important progress has been made. However, much remains to be done
to implement the legal and regulatory changes, and human resource
constraints will limit overall progress in some areas, particularly
auditing, for the foreseeable future.

In 2002, Thailand established the National Corporate Governance
Committee (NCGC), chaired by the Prime Minister, to implement
international-standard corporate governance policies. In conjunction
with Thai Rating and Information Services Co., Ltd. (TRIS), the
Stock Exchange of Thailand (SET) and the Thai Securities and
Exchange Commission (SEC) began rating companies on their corporate
governance practices. The NCGC claimed that Thai corporate
governance policies cover most key points addressed by the
Sarbanes-Oxley Act in the U.S.

Foreign investors are not restricted from borrowing on the local
market, but there are a number of regulations that affect foreign
portfolio investment. Thailand maintains regulatory maximum foreign
ownership limits, and shares of listed companies are traded on both
a domestic and alien (or foreign) board to enable authorities to
track foreign ownership. Limits on foreign ownership of Thai
companies are perhaps most prominent in the financial sector. Under
the new Financial Institutions Business Act (implemented in August
2008), foreign share holders may retain a 49 percent stake in
financial institutions, up from 25 percent under the previous acts.
Foreign ownership between 25 percent and 49 percent requires prior
approval from the Bank of Thailand. The new law also allows the
Ministry of Finance to authorize foreign ownership above the 49
percent limit with the recommendation from the Bank of Thailand if
deemed necessary to support the stability of the overall financial
system in an economic crisis. This type of emergency action also
requires the support and approval of the Minister of Finance. In
theory, the private sector has access to a wide variety of credit
instruments, ranging from fixed term lending to overdraft protection
to bills of exchange and bonds. However, private debt markets are
not well-developed, and most corporate financing, whether for
short-term working capital needs, trade financing, or project
financing, is commercial bank or financial institution borrowing.
The Ministry of Finance is working on developing Thailand's debt
markets.

Following the 1997 financial crisis, banks generally overhauled
their lending systems and have since taken a more conservative
approach. Thai borrowers were also reluctant to take on more debt
due both to overcapacity and a desire to maintain clean balance
sheets. In recent years, external factors such as problems in the
U.S. sub-prime market raised the volatility of international
investment flows and the global financial system, adding risks to
Thailand's overall macroeconomic and financial stability. Due to
perceived increased risk and ongoing concerns about their credit
quality since the global economic downturn, financial institutions
have tightened their credit standards for loans and credit lines to
enterprises, as well as to households despite minimum exposure to
sub-prime market debt papers. After peaking at 47 percent of total
lending in May 1999 from the financial crisis, net non-performing
loans slowly declined to stand at 2.94 percent of total loans in
September 2009. Total assets of the country's largest six banks
stood at 7 trillion Thai baht (approximately US$211 billion) or 77
percent of GDP as of September 2009.

The Thai Asset Management Corporation (TAMC), which was established
in 2001, is a major component of the government's financial reform
plan with broad legal powers to expedite debt restructuring and
press creditors and debtors to the negotiating table. Assets are
transferred at collateral value, excluding personal guarantee, with
payment coming in the form of ten-year non-negotiable bonds issued
by TAMC and guaranteed by the Financial Institution Development Fund
(FIDF), a financial arm of the Bank of Thailand. Interest paid by

BANGKOK 00000206 012 OF 016


the bonds is tied to average deposit rates quoted by Thailand's five
largest banks. According to the decree that created TAMC, the
corporation will be resolved in June 2011. All remaining assets will
be sold to the former institutional transferors (commercial banks,
finance companies, private asset management companies) at an agreed
price. If the former institutional transferors are not willing to
repurchase such assets, TAMC will sell the assets to the other two
smaller state asset management companies, Sukhumvit Asset Management
and Bangkok Commercial Asset Management.

In addition to legal limits on foreign ownership in certain sectors,
Thai firms employ defenses against foreign investment primarily
through cross- and stable-shareholding arrangements. Such defenses
against hostile takeovers are typically applied against all
potential investors, rather than against foreign potential investors
alone. Companies are permitted to specify limits on foreign
ownership more strict than those established by the government. In
general, limits on foreign ownership and participation in the Thai
economy have eased since the Asian Financial Crisis.

Competition from State-Owned Enterprises
----------------------------------------

State-owned enterprises operate primarily in the utility, energy,
telecommunications, banking, tobacco, and transportation sectors. At
the end of 2008, Thailand's 58 state-owned enterprises had revenues
of around 4.8 trillion Thai baht (approximately US$145 billion),
employed approximately 290,000 people (0.8 percent of the Thai labor
force), and accounted for approximately 53 percent of Gross Domestic
Product (GDP).

Private enterprises are generally not allowed to compete with
state-own enterprises (SOEs) under the same terms and conditions
with respect to access to markets, credit, and other business
operations such as licenses and supplies, except in the banking
sector. The government announced its intention to allow more private
companies to compete with SOEs, in particular in the
telecommunications, energy, and transport sectors. The government
regularly allocates three to four percent of its annual budget
expenditures to fund the SOEs. The government can temporarily
provide short-term credit facilities, loan guarantees, or capital
injections for troubled SOEs. This assistance usually focuses on
those SOEs that have not been corporatized or are operating in loss.


Corporate board seats are typically allocated to senior government
officials or other politically-affiliated individuals. All SOEs are
required by law to submit annual financial reports to the Office of
the Auditor General. Publicly-listed state-owned enterprises, such
as Thai Airways, are required to publish their financial reports. As
for procurements, state-owned enterprises, like government agencies,
reserve the right to accept or reject any or all bids at any time
and may also modify the technical requirements during the bidding
process, if, according to regulations, corruption is suspected. The
latter provision allows considerable leeway to state-owned
enterprises in managing procurements, while denying bidders recourse
to challenge procedures. Allegations frequently surface that
changes are made in procurements.

Thailand currently does not have a sovereign wealth fund.

Corporate Social Responsibility (CSR)
-------------------------------------

There is wide recognition and awareness of the value of corporate
social responsibility (CSR) initiatives among Thai producers and
consumers, but many companies still lack a full understanding of the
generally accepted CSR principles such as the OECD Guidelines for
Multinational Enterprises. CSR is most often identified as
individual philanthropic projects or community service of companies,
rather than as an overall corporate strategy aimed to improve the
community in which the companies operate. Companies that pursue CSR
are viewed favorably by the public.

Many business associations, including the American Chamber of
Commerce, are actively supporting the development of CSR programs in
Thailand. Since 2007, the American Chamber of Commerce Corporate
Social Responsibility Excellence Awards have encouraged the
expansion of CSR programs by identifying best practices of companies
in Thailand.

Political Violence
------------------

BANGKOK 00000206 013 OF 016

Throughout the second half of 2008, a political protest group called
the People's Alliance for Democracy (PAD) held large demonstrations
against the government. In late August 2008, PAD protestors occupied
Government House, where the Prime Minister's Office is located; they
held the compound for months. PAD protestors also occupied Bangkok's
civilian airports on November 25, 2008, impeding the facilities'
functioning and departing only on December 3, 2008, following the
collapse of the government headed by then-Prime Minister Somchai
Wongsawat. During late 2008, there were occasional firearms
discharges and explosions in the vicinity of the Government House
compound and the airports, when they were under PAD occupation. The
explosions seemed intended to injure PAD sympathizers. Several
people died as a result, and dozens were injured.

Protestors sympathetic to former Prime Minister Thaksin Shinawatra,
and opposed to PAD and the current government, have also held large
rallies in Bangkok. This group of Thaksin supporters is known as
the United Front for Democracy Against Dictatorship, aka the
"red-shirts," and they commenced demonstrations against Prime
Minister Abhisit in early 2009, culminating in the disruption of a
major regional Asian summit in Pattaya and riots in the streets of
Bangkok in April of 2009. Subsequent red shirt protests in 2009
unfolded peacefully, though concerns about the group's plans for
large scale demonstrations in 2010 remain.

An important political problem for the Thai government is the
ongoing political violence in Thailand's southern-most provinces
(Yala, Narathiwat, and Pattani). Efforts to quell the
ethno-nationalist insurgency, which has led to over 3,000 deaths
since 2004, have not yet had much effect.

Tensions with Cambodia persist. Cambodia and Thailand dispute
sections of their historic boundary; Cambodia has accused Thailand
of encroaching into Cambodian territory and obstructing access to
Preah Vihear temple ruins awarded to Cambodia by ICJ decision in
1962. Cambodia's decision to appoint former Prime Minister -- and
fugitive -- Thaksin as a financial adviser to Cambodia has
accentuated these tensions.

Corruption
----------

Thailand has laws to combat corruption. The independent National
Counter-Corruption Commission (NCCC) coordinates official efforts
against corruption. In December 2003, Thailand became a signatory to
the U.N. Convention against Corruption but delayed ratification
pending a review of legal issues. In April 2005, Thailand endorsed
the ADB-OECD Anticorruption Action Plan for Asia and the Pacific,
and assigned Ministry of Justice to implement the Action Plan.

American executives with long experience in Thailand advise
new-to-market companies that it is far easier to avoid getting
started with corrupt transactions than to stop such practices once a
company has been identified as willing to operate in this fashion.
American firms that comply with the strict guidelines of the Foreign
Corrupt Practices Act are able to compete successfully in Thailand.

Recent Thai administrations have stated publicly their intention to
improve transparency in the evaluation of bids and the awarding of
contracts. Despite recent improvements, both foreign and Thai
companies continue to complain about irregularities in the Thai
Customs Department. Increasing media scrutiny of public figures has
raised political pressure to curtail favoritism and corruption.
However, convictions against public officials on corruption-related
charges are rare, and the legal system offers inadequate deterrence
against corruption.

The press features frequent allegations of irregularities in public
contracts, most notably over the use of public lands, procurement
favoritism (e.g., revising requirements so that a preferred company
wins over its competitors), and police complicity in a variety of
illegal activities. In January 2010, the Thai press widely reported
news of the indictment in the U.S. of a former Thai Tourism minister
accused of taking bribes from a Hollywood couple seeking to do
business in Bangkok. In December 2009, the Minister of Public Health
and Deputy Minister of Public Health resigned over allegations of
corruption in a medical supplies procurement deal. According to some
studies of Thailand, a cultural propensity to forgive bribes as a
normal part of doing business and to equate cash payments with
finders' fees or consultants' charges, coupled with the low salaries
of civil servants, encourages officials to accept illegal
inducements.

BANGKOK 00000206 014 OF 016

Bilateral Investment Agreements
-------------------------------

The 1966 iteration of the U.S.-Thai Treaty of Amity and Economic
Relations (AER), discussed above, allows U.S. citizens and
businesses incorporated in the U.S., or in Thailand that are
majority-owned by U.S. citizens, to engage in business on the same
basis as Thai nationals. Under the AER, Thailand is permitted to
apply restrictions to American investment only in the fields of
communications, transport, banking, the exploitation of land or
other natural resources, and domestic trade in agricultural
products.

In October 2002, the U.S. and Thailand signed a bilateral Trade and
Investment Framework Agreement (TIFA). The TIFA establishes a Trade
and Investment Council (TIC), which serves as a forum for discussion
of bilateral trade and investment issues such as intellectual
property rights, customs, investment, biotechnology, and other areas
of mutual concerns.
Thailand also has bilateral investment agreements with 42 countries,
including Germany, the Netherlands, the United Kingdom, China, and
members of the Association of Southeast Asian Nations (ASEAN). These
agreements establish guidelines for expropriation compensation and
the repatriation of capital, but do not include national treatment
provisions.

OPIC and Other Investment Insurance Programs
--------------------------------------------

The Overseas Private Investment Corporation (OPIC) can provide
political risk insurance for inconvertibility and transfer,
expropriation, and political violence for U.S. investments including
equity, loans and loan guarantees, technical assistance, leases, and
consigned inventory or equipment. OPIC Insurance is currently
insuring three U.S. corporations/organizations involved in
telecommunications, humanitarian services, and economic development
in Thailand. Most recently, OPIC provided insurance to the Asia
Foundation. OPIC direct loans and loan guarantees are also available
for business investments in Thailand, and cover sectors as diverse
as tourism, transportation, manufacturing, franchising, power, and
others. Historically, OPIC has committed over US$32.5 million in
financing to investments in Thailand. In addition, OPIC supports
seven equity funds that are eligible to invest in projects in
Thailand.

OPIC established a special line of credit of up to US$175.75 million
to mobilize U.S. private sector investment in the reconstruction of
nations devastated by the December 2004 tsunami. The credit line was
part of an OPIC Tsunami Reconstruction Finance Initiative intended
to help speed the rehabilitation of housing and infrastructure in
affected countries, including Thailand. Thailand became a member of
the Multilateral Investment Guarantee Agency (MIGA) in October
2000.

OPIC-financed loans of up to US$200 million per project are also
available for business investments in Thailand, and cover sectors as
diverse as tourism, transportation, manufacturing, franchising,
power, and others. In addition, OPIC supports six new private equity
funds that are eligible to invest in clean and renewable energy
projects in emerging markets worldwide, including Thailand. Through
OPIC, investors have access to political risk insurance, debt
financing, and equity.

Labor
-----

According to the National Statistics Office, as of October 2009,
Thailand has a labor force of 37.66 million workers out of a total
population of 67 million. This figure includes Thai nationals
fifteen years of age or older. The official unemployment rate
averaged 1.61 percent during 2009, but the rate is calculated with
a very generous definition of employment and does not include an
estimated one to two million seasonally unemployed agricultural
workers. As a result of the global economic downturn, the
manufacturing sector began to show signs of increased unemployment
since the last quarter of 2008, but the situation improved in the
latter half of 2009. The agricultural and service sectors have been
able to absorb the unemployed works from the manufacturing sector,
keeping the overall rate very low.

The Thai government's decision not to forcibly repatriate large
numbers of foreign migrant workers in the agriculture, fisheries,

BANGKOK 00000206 015 OF 016


construction, household service, and other semi-skilled sectors may
also have affected employment levels. Since 2004, the Thai
government has allowed illegal migrant workers from the neighboring
countries of Laos, Cambodia, and Burma, to register with the
government to legally stay and work in Thailand. As of December
2009, there were more than a million migrants registered with the
Thai government; however, private and government sources estimate
that the number of illegal migrants currently living and working in
Thailand could be as high as 1.5 to 3 million.

Despite past rapid growth in the industrial and service sectors, 37
percent of the Thai labor force is still employed in the
agricultural sector. However, the shift of workers from agriculture
is continuing, especially in the Northeast, where agricultural
productivity and investment are lower. As a consequence, recent
years have seen a constant flow of rural, generally unskilled Thais
seeking work in Bangkok and the more industrialized regions, both
seasonally and on a permanent basis. This ready availability of
migrant labor contributed to the rapid growth of Thailand's
industrial and construction sectors.

In the past, many multinational firms brought in expatriate
professionals because qualified local personnel simply were not
available, even at high salaries. Finding, training, and retaining
qualified employees to work in the manufacturing facilities being
developed in industrial estates, such as those along the Eastern
Seaboard, will continue to be a challenging government priority.

The labor relations climate is generally peaceful, and formal
strikes are infrequent. There were two worker strikes recorded in
2008 and four employer lockouts. Less than two percent of the total
labor force is unionized; unionization rates are high only in state
enterprises. As of December 2008, there are 44 state-owned
enterprise unions with 175,000 members, and 1,229 private labor
unions with 341,520 members.

The Labor Protection Act, enacted in 1998, brought labor practices
more in line with International Labor Organization (ILO) standards.
The law cut the workweek to a maximum of forty-eight hours,
including overtime for all types of work, with overtime payable at
one and one-half times the hourly rate. Hazardous work may not
exceed seven hours per day or forty hours per week. All employees
are entitled to a vacation of six workdays per year, in addition to
thirteen holidays traditionally observed in Thailand. Under the
labor law, the employment of children under the age of fifteen is
prohibited, and there are restrictions on the employment of children
and youths between the ages of fifteen and eighteen.

The Thai government amended the Labor Protection Act in 2008 to help
promote standards for contract labor. The Act now requires an
employer to provide benefits and welfare without discrimination to
the contract laborers. The Act also extended protection for
employees against sexual abuse and harassment in the workplace.

Foreign Trade Zones/Free Ports
------------------------------

The Industrial Estate Authority of Thailand (IEAT), a
state-enterprise under the Ministry of Industry, established the
first industrial estates in Thailand, including Laem Chabang
Industrial Estate in Chonburi Province and Map Ta Phut Industrial
Estate in Rayong Province. More recently, private developers have
become heavily involved in the development of these estates. The
IEAT currently operates 11 estates, plus 30 more in conjunction with
the private sector in 14 provinces nationwide. Private sector
developers operate over 50 industrial estates, most of which have
received promotion privileges from the Board of Investment.

In addition, the IEAT established thirteen special IEAT Free Zones
(renamed from export processing zones or free trade zones), reserved
for the location of industries manufacturing for export only, to
which businesses may import raw materials and export finished
products free of duty (including value added tax). These zones are
located within industrial estates, and many have customs facilities
to speed processing. The free trade zones are located in Chonburi,
Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at Lad Krabang),
Ayuddhya, and Chachoengsao. In addition to these zones, factories
may apply for permission to establish a bonded warehouse within
their premises to which raw materials, used exclusively in the
production of products for export, may be imported duty free.

Foreign Direct Investment Statistics
------------------------------------

BANGKOK 00000206 016 OF 016

Foreign direct investment (FDI) (net inflows from non-banking sector
only), totaled US$4.4 billion in 2009 (Jan-Oct), compared with
US$7.6 billion in 2008 (full year), and US$10.2 billion in 2007
(full year). The sectors that received large amounts of FDI included
machinery and transport equipment (US$1.2 billion), electrical
appliances (US$1.0 billion), real estate (US$658 million), metal and
non-metallic (US$355 million), and food and sugar (US$208 million)
sectors.

Japan was the largest source of FDI in 2009 (Jan-Oct) at US$1.86
billion, followed by Hong Kong at US$436 million and Singapore at
US$172 million. U.S. FDI was ranked fourth at US$124 million. The
sharp decline of FDI in 2009 could be largely explained by the
global economic recession and domestic political tension. There are
no reliable statistics available for cumulative investment by
country of origin.

The Embassy estimates the total present value of U.S. investment in
Thailand to be in excess of US$23 billion. From January to November
2009, BOI approved 36 investment projects by U.S. firms, totaling
approximately US$770 million, including one major automotive
investment with an estimated value of US$606 million. Other major
U.S investments included the following (note that a U.S. investment
is classified as any investment with at least ten percent U.S.
capital, and the companies listed below are based on January to June
2009 data only; projects could be either an expansion or a newly
established project):

- Pepsi-Cola (Thai) Trading Company Limited with 104.3 million baht
(US$3.2 million) investment;

- Siam Steel Mill Services Ltd. with 93.8 million baht (US$2.8
million) investment in disposal services of industrial waste;

- Solarlens Company Ltd. with 90.2 million baht (US$2.7 million)
investment in coated lens manufacturing.

© Scoop Media

 
 
 
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