VZCZCXRO5754
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #4343/01 2010351
ZNR UUUUU ZZH
R 200351Z JUL 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 0297
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHCHI/AMCONSUL CHIANG MAI 2172
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 03 BANGKOK 004343 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS AND EB 
COMMERCE FOR 4430/EAP/MAC/OKSA 
TREASURY FOR OASIA 
STATE PASS TO USTR FOR WEISEL 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV TH
SUBJECT: PRICE CONTROLS IN THAILAND 
 
 
BANGKOK 00004343  001.2 OF 003 
 
 
1.(SBU) Summary. With inflation (CPI) running at about 6 percent and 
interest rates, energy prices, commodity prices and labor costs all 
near multi-year highs, the margins of many companies operating in 
Thailand are being squeezed. This situation is exacerbated for some 
firms due to the RTG's ability to control prices for a broad range 
of goods. The general effort to keep prices for most basic consumer 
goods (rice, soap, milk) down can be seen as a part of the Thaksin 
regime's overall populist approach combined with a slowly weakening 
economic situation due in large part to ongoing political 
uncertainty. Although even the Department of Internal Trade 
acknowledges that proper Competition Law should render price 
controls unnecessary, the political benefits the current law brings 
make its termination unlikely anytime soon. End Summary. 
 
The Committee Can Set Prices 
---------------------------- 
 
2.(U) Under the 1999 "Act Relating to Price of Merchandise and 
Service, B.E. 2542," a government committee headed by the Minister 
of Commerce has the authority to "Prescribe the purchase price or 
distribution price of merchandise or service...", Prescribe maximum 
profit per unit..." and set the terms and conditions - including 
maximum permissible volumes - of any good or service in the Kingdom. 
The law was amended in 1999 with the advent of a Competition Law and 
was meant to be phased out. However, with several critical aspects 
of Competition Law still undefined (such as the measure for market 
dominance), and the political utility of the 1999 Act, the old law 
continues in place with no expiration under current consideration by 
the RTG. 
 
3.(U) In practice, the Department of Internal Trade within 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. The Committee is comprised of the 
Minister and Permanent Secretary of Commerce, the Secretary General 
of the Board of Investment and between four and eight "qualified 
persons" appointed by the Council of Ministers of whom not less than 
half are "not to be political civil servants, persons who are in 
political posts, Directors or persons responsible for the 
administration of political parties." 
 
The Price Control List 
---------------------- 
 
4.(U) As of May 10, there are 35 items formally listed as under 
price control: 
 
 Liquefied petroleum gas 
 Paddy/uncooked rice 
 Compact diskette/recording device 
 Compact diskette copy machine 
 Student uniform 
 Milk powder/fresh milk 
 Sugar 
 Edible or inedible oil from vegetable and animal 
 Fuel 
 Fertilizer 
 Pesticide 
 Pharmaceuticals 
 Motorcycle/passenger car/truck 
 Animal feed 
 Steel 
 Jewelry 
 IP rights management service 
 IPR permission for trade 
 Corrugated paper 
 Typing and written paper 
 Kraft paper 
 Imitation condensed cream, condensed milk, skimmed milk 
 Shampoo 
 Liquid detergent 
 Cement 
 Powdered detergent 
 Dishwasher detergent 
 Sanitary napkin 
 Plastic pellet 
 Motorcycle/bicycle tire 
 Fiber paper 
 Soap 
 Electricity wire 
 Pig and pork 
 Processed (canned) food 
 
 
BANGKOK 00004343  002.2 OF 003 
 
 
5.(SBU) While these are the products with explicit price controls, 
effectively any producer of consumer products is prohibited from 
raising prices without first notifying the Committee of their 
intention to do so. While explicit permission is not required in 
these cases - manufacturers are merely asked to "cooperate" with the 
Department of Internal Trade -  producers tend not go forward with 
price increases without at least a verbal approval because of 
concern that they might later be instructed to roll the prices back 
or see their product added to the control list. We understand that 
soft drink makers sought for five years to increase their prices by 
1Baht (2.6 cents) but were only granted specific authorization to do 
so in May. 
 
Listing Criteria 
---------------- 
 
6.(SBU) The Director of the Internal Trade Department told us that 
there are six criteria considered by the Committee when determining 
whether price should be controlled. These are 1) whether there is 
sufficient competition in the market for the product, 2) whether the 
consumer good is "necessary for living", 3) whether there is a 
record of "bad behavior" by a specific company or industry category, 
4) whether a product is "significant to the economy" e.g. cement, 
steel, 5) whether a product is significant for agriculture e.g. 
fertilizer and pesticide, and 6) to conform with government policy. 
 
 
7.(SBU) The prices are controlled at the wholesale level except for 
sugar where the controls are exercised directly at retail. In 
addition, the terms and conditions under which manufacturers and 
service providers offer control-listed product can not be altered 
without Committee authorization. Companies have tried to get around 
the controls by changing the portion or sizing of their products or 
introducing "new/improved" aspects to command a higher price. The 
Department of Internal Trade has caught on to this and threatened 
punitive actions against those seeking to circumvent price controls 
in this manner. The law states that violators are subject to a 
maximum penalty of five years imprisonment and a Bt100,000 (US$2600) 
fine. 
 
Good Politics Vs. Good Economics 
-------------------------------- 
 
8.(SBU) Several companies with whom we have spoken have complained 
about the "populist" nature of the law's application and one 
surmised that more products seem to be added to the control list in 
the run-up to elections.  Another firm said that they were 
considering expanding another of their Southeast Asian plants 
instead of their Thai operations because of the margin squeeze they 
are experiencing in Thailand. However, one major food processor said 
that although his margins might be under pressure in some product 
categories, he could sometimes make up the lost profits by expanding 
margins in other, less sensitive, categories.  A Thai cement 
company, while complaining about the price controls, noted that Thai 
cement prices are still higher than what they earn on their exports 
because of high Thai tariffs on imported product. Note: We are not 
aware of any companies that have divested their Thai interests due 
to the enforcement of the 1999 Act. As is so typical here, there is 
usually a "Thai way" to work things out. End Note. 
 
A Small Victory for Producers 
----------------------------- 
 
9.(SBU) In a sign that inflationary and other cost pressures are 
finally proving too much, on July 14 the Commerce Ministry announced 
that it will consider allowing two or three consumer products per 
month to increase their prices. The Ministry reports that 60 
companies in 23 product categories have sought permission to 
increase prices. News reports have failed to note that companies 
have always been able to request price relief but must supply data 
regarding their costs of raw materials, production, packaging, 
general operations, efficiency and margins. A response is promised 
by the Department of Internal Trade within thirty days of receiving 
all the data the Department determines it requires. The Ministry 
recently advised that alkaline batteries will be the first product 
to receive approval for a price rise under the new policy because 
they first sought permission three years ago, not detailing the 
specific price pressures which presumably brought about the 
Committee decision. 
 
10.(SBU) Comment:  One third of the 300 items in the CPI basket of 
goods is on a Department of Internal Trade "price watch list" in 
addition to a host of services. The opportunity for playing 
political favorites using the extremely expansive terms of the 
 
BANGKOK 00004343  003.2 OF 003 
 
 
Pricing Law has not gone unexploited. There is a reason that pork 
prices are controlled but that chicken (the major producer of which 
is politically close to the government) and beef (a program with 
considerable royal support) are not. An example of the potential 
price distortions from the law are seen in consumers converting 
their vehicles to run on (controlled) LPG fuel rather than more 
logical alternatives. 
 
11.(SBU) Further evidence of the largely political purposes of price 
controls was found when we asked the Department of Internal Trade if 
there was a study of the influence their efforts had on inflation. 
No study has been done and the officials could only guess about how 
their work affects macroeconomic conditions. For the first half of 
2006 the Producer Price Index for Mining and Fuel products is up 
25.3 percent, for Agricultural goods 21.7 percent but for 
Manufactured food and beverage products the increase was only 4.3 
percent. We believe the Bank of Thailand's July 19 decision to not 
raise its benchmark interest rate and the Committee's decision to be 
more lenient on increases for listed products are indicative of the 
RTG's growing concern with the economy's slowing trend and need to 
provide some relief to the business sector. 
ARVIZU