VZCZCXRO0150
PP RUEHCN RUEHDT RUEHHM
DE RUEHCHI #0074/01 1550752
ZNR UUUUU ZZH
P 040752Z JUN 09
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 1055
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/USDOC WASHDC 0017
RUEHCHI/AMCONSUL CHIANG MAI 1137

UNCLAS SECTION 01 OF 02 CHIANG MAI 000074 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV BTIO EIND ECON TH
SUBJECT: WHILE THAILAND BEGS FOR FDI, NORTHERN INVESTORS VOICE 
COMPLAINTS 
 
REF: A. 08 CHIANG MAI 160 (LAMPHUN INDUSTRIAL ESTATE) 
     ¶B. 08 CHIANG MAI 128 (SPACE FOR INVESTMENT) 
 
CHIANG MAI 00000074  001.2 OF 002 
 
 
------------------- 
 
Summary and Comment 
 
------------------- 
 
 
 
¶1. Amid a downward trend of foreign direct investment (FDI) in 
Thailand and the northern region in particular, the Board of 
Investment (BOI) expressed Thailand's thirst for a new wave of 
foreign capital by highlighting a range of incentives for new 
investment to an audience of foreign business owners in Chiang 
Mai on May 27.  These foreign investors, who already operate in 
the northern region, reacted assertively to the BOI's 
presentation, calling for Thailand to relax labor laws and 
improve BOI services for current foreign investors before 
putting its effort on attracting new ones. 
 
 
 
¶2. Comment:  A revision of BOI policy -- from encouraging 
investment in certain lesser developed regions of Thailand to 
encouraging any investment anywhere in the country -- highlights 
Thailand's desire for more FDI as a possible aid to economic 
recovery.  With current investors being so unhappy with the 
legal and cultural barriers of operating here, the RTG will have 
to do much more than provide tax breaks to attract new foreign 
capital.  After all, Thailand's current investors may be its 
best bet for new foreign capital.  End Summary and Comment. 
 
 
 
---------------------------------------- 
 
Amid Falling FDI, BOI Expands Incentives 
 
---------------------------------------- 
 
 
 
¶3. The disappointing downward trend of foreign investment in 
Thailand and in the northern region in particular were the 
opening comments of Board of Investment (BOI) Secretary General 
Atchaka Brimble during a May 27 open forum she hosted with 
foreign investors in northern Thailand.  The SecGen reported 
that in the first quarter of 2009, the number of new foreign 
investment projects country-wide dropped 29% from the same 
quarter last year, and the value of new investments dropped 10%. 
 In the north, the news was gloomier with the number of projects 
dropping 42% and the value of FDI dropping 50% in the first 
quarter. 
 
 
 
¶4. The SecGen tried to balance the bad news with the good.  She 
reminded foreign investors about generous BOI incentives for 
certain types of new investment (for which the BOI certification 
application is due before the end of this year).  Benefits from 
new investments filed by the end of 2009 include eight years of 
corporate tax exemption, and exemption of import duties for 
machinery.  The SecGen also highlighted that these incentives, 
which have historically been reserved for new foreign investment 
in lesser developed regions of the country, now apply to 
investment anywhere outside of Bangkok, a policy the BOI calls 
"one country, one zone."  (Comment:  The BOI's shift away from 
trying to manipulate where investors choose to operate 
highlights the RTG's desire for more FDI country-wide as an aid 
to economic recovery.)  The BOI is also targeting investment in 
certain sectors that it would like to see Thailand develop as 
competitive advantages, including energy-saving technologies, 
eco-friendly products, high-tech agricultural business, 
logistics, and tourism. 
 
 
 
-------------------------------------------- 
 
Investors Complain of "Crippling" Labor Laws 
 
-------------------------------------------- 
 
 
 
¶5.  After a generally cheery presentation by the SecGen, the 
dialogue turned sour as investors bombarded her with complaints. 
 A U.S. firm and a Singaporean firm told her that strict Thai 
labor laws were "crippling" their firms' ability to pull 
themselves out of the current economic crisis.  A representative 
 
CHIANG MAI 00000074  002.2 OF 002 
 
 
of the U.S. firm Innovex, which produces small electronics parts 
at the Lamphun Northern Regional Industrial Estate (ref A), 
recounted that incentives for Thai laborers to work harder over 
years of employment decreases because of the nature of Thai 
labor laws, which require that severance pay for laid off 
workers be proportional to the length of time employed by the 
firm.  Thus, according to Innovex, higher-ranking Thai staff 
become non-performing employees who are extremely costly to 
dismiss.  The Innovex representative pleaded with the SecGen to 
address this issue with the RTG and said that "the costs of 
these strict labor laws are so high that they are offsetting the 
benefits of operating in northern Thailand."  The Singaporean 
firm echoed Innovex's comments, and the SecGen responded that 
she would be meeting with the Labor Minister on June 16 and 
plans to raise the issue at that time. 
 
 
 
----------------------------------------- 
 
A Welcoming Invitation, but A Lousy Host? 
 
----------------------------------------- 
 
 
 
¶6. Aside from costly labor laws, which the SecGen agreed are 
among the most costly obstacles that foreign firms face in 
Thailand, foreign investors raised a range of other complaints 
that they say make operating in Thailand challenging or costly. 
Most of the complaints were problems caused by poor BOI 
services, particularly in the north.  A Pepsi-FritoLay 
representative complained that BOI staff would not approve the 
duty-free importation of certain used machinery because the 
machines were available on the Thai market, a BOI regulation. 
His argument was that the machines should be duty-free since 
they are not produced here and Thai sellers import the machines 
used from Japan.  The SecGen agreed and invited the company to 
contact the local BOI office. 
 
 
 
¶7. A European firm complained about a lack of understanding 
among the Thai courts, lawyers, and the BOI about Thailand's 
regulations on majority Thai ownership of shares.  Thai 
regulations allow for foreigners to own majority shares in 
several industries; however, firms complained that lawyers and 
judges generally believe that any firm operating in Thailand 
must be owned (with a majority of shares) by a Thai citizen. 
The BOI SecGen admitted that this was a misunderstanding. 
 
 
 
¶8. Several U.S. and European firms raised complaints about poor 
communication between the BOI and registered foreign investors. 
One firm representative complained that the forum was the first 
time he had heard of many of the BOI's new incentive programs; 
and, with only half of the year remaining, the firm has very 
little time to apply to take advantage of them.  Others 
complained of poor English skills among BOI staff and the lack 
of English-language BOI resources and correspondence.  A 
Singaporean firm called for the RTG to do more to develop 
technical skills in the northern region, a complaint U.S. firms 
have raised previously with us (ref B).  Several expatriate 
investors complained of excessively strict Thai visa policies, 
particularly for investors' family members.  One investor 
commented broadly to the BOI SecGen, "We want to invest in 
Thailand, but you are making it difficult for us.  Help us to 
invest here; make it easy for us to invest here." 
 
 
 
¶9. This cable was coordinated with Embassy Bangkok. 
MORROW