VZCZCXRO6354
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #7650/01 3630908
ZNR UUUUU ZZH
P 290908Z DEC 06
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 3705
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 3421
RUEHBY/AMEMBASSY CANBERRA PRIORITY 6486
RUEHKO/AMEMBASSY TOKYO PRIORITY 8676
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2885
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 BANGKOK 007650 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
STATE PASS TO USTR FOR WEISEL 
COMMERCE FOR EAP/MAC/OKSA 
TREASURY FOR OASIA 
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN 
STATE PASS TO FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV TH
SUBJECT: NEW INVESTMENT REGULATIONS PROPOSED 
 
REF: A. BANGKOK 7435 ("GRAVE CONCERNS" ABOUT FOREIGN 
 
        INVESTMENT) 
     ¶B. BANGKOK 6363 (THAILAND PURSUES CASE AGAINST 
        SINGAPORE INVESTOR) 
     ¶C. BANGKOK 2978 (THAILAND: INVESTEMNT SLOWDOWN) 
     ¶D. BANGKOK 788 (THE GREAT THAKSIN ASSET SALE) 
 
BANGKOK 00007650  001.2 OF 002 
 
 
¶1. (SBU) Summary. On December 28 a committee assigned by the 
Minister of Commerce to advise him about changes to the 
Foreign Business Act (FBA - the law which governs the ability 
of foreign firms to conduct business in Thailand's services 
and other sensitive sectors) submitted its report. Although 
the report has not been made public, Dr. Deunden 
Nikomborirak, Research Director at the Thailand Development 
and Research Institute and a member of the committee met with 
us and provided information about the committee's 
recommendations which include redefining ownership to include 
control and requiring companies to divest themselves of 
majority ownership if their current ownership structure is 
not sufficiently transparent. Very few US-owned firms are 
likely to be affected. End Summary. 
 
¶2. (SBU) Dr. Deunden explained that the committee charged 
with proposing changes to`the FBA wrestled with several 
competing goals: 
- End the utilization of nominee structures now used to get 
around FBA restrictions. 
- Not frighten off foreign investors. 
- Meet the political need of "proving" that the structure 
used by Temasek in purchasing former PM Thaksin's Shin Corp 
was illegal. 
 
¶3. (SBU) The committee proposed changing the definition of a 
"foreign" business entity from one in which a non-Thai owns 
51 percent of the equity to one that includes a requirement 
that the majority owner also have a majority of voting rights 
(i.e. control over the Thai company). Dr. Deunden noted that 
this would be a departure from Thailand's WTO GATS commitment 
which limited foreign participation in Thai services 
companies to ownership but makes no mention of control. The 
committee suggests that those sectors which have their own 
specific laws that include their own definition of  "foreign" 
not be covered under the FBA. This would include banking and 
finance, insurance, air transport and tourism. 
 
¶4. (SBU) The FBA contains three lists of activities 
prohibited to foreigners. List 1 is those sectors "not 
permitted to aliens for special reasons" which includes 
media, farming, ranching, forestry, fisheries and the 
purchase of land. List 2 comprises sectors relating to 
national security, national culture, natural resources and 
domestic transport. List 3 is businesses in "which Thai 
nationals are not yet ready to compete with foreigners" and 
specifically mentions 20 sectors including legal professions, 
construction, small retail, advertising, hotel and the 
catchall "other categories of service business."  The 
committee report offered two options to the minister; to keep 
lists 1 and 2 as they are and liberalize list three by 
opening all sectors not specifically identified; or keep all 
three lists as they stand. The committee could not reach 
agreement on either option even after it was further proposed 
that any sector opened to foreign ownership would be subject 
to a review within two years to consider whether "too much 
damage" had been caused to domestic participants as a result 
of the liberalization. 
 
¶5. (SBU) Finally, the committee recommended that foreign 
firms which have shareholding structures that clearly 
identify differing classes of stock, especially preferred 
shares and ordinary shares with differing voting rights, 
would be considered grandfathered. These firms would be 
required to identify themselves as foreign but would then 
automatically be issued with a foreign business license 
permitting them to continue to operate. The logic for 
permitting this type of structure to be grandfathered is that 
by identifying differing classes of stock the ownership 
arrangement was more transparent. 
 
 
BANGKOK 00007650  002.2 OF 002 
 
 
¶6. (SBU) However, for companies which structured themselves 
through a series of holding companies and/or had identical 
classes of stock with differing voting rights or which used 
other means to disguise the actual control of the Thai 
entity, they will be given a certain period of time (six 
months to one year recommended in the report) to restructure 
themselves as a bona fide Thai-majority owned and controlled 
company. Presumably they would not be permitted to simply 
convert to a preference share structure since the rationale 
for the differentiation was that Shin Corp's transaction was 
structured through a series of holding companies acting as 
nominees for Temasek. 
 
¶7. (SBU) Most US companies will be unaffected by these 
changes either because they are in manufacturing, are 
established under the bilateral Treaty of Amity which gives 
US investors national treatment in some services sectors, or 
because most US-associated law firms advised their clients to 
structure themselves using preference shares. We believe 
those most affected will be some of the big retail firms 
(Tesco, Carrefour, Makro), some distribution companies owned 
by Japanese electronics and auto firms, and telecom. But Dr. 
Deunden believes that even here, most companies will simply 
operate as before. She noted that these companies have been 
operating in Thailand without challenge for up to 30 years 
and that the Business Development Department of the Ministry 
of Commerce (responsible for applying the law) has only seven 
employees. She acknowledged, however, that these companies 
may not be willing to take the risk of operating illegally 
under the new regulations and could be subject to "being 
outed" by competitors. 
 
¶8. (SBU) Comment: Commerce Minister Krirk-Krai was Thailand's 
representative to the WTO, so he is well aware of the risks 
Thailand will run if the country is seen as further limiting 
foreign ability to invest in Thailand. On the other hand, he 
is politically compelled to ensure that the Temasek-Shin 
transaction is shown to be illegal. The forces of 
protectionism are clearly strong as demonstrated by the 
committee's inability to agree to any liberalization in 
return for further tightening of the definition of foreigner. 
 In any case, considerable foreign direct investment, which 
has been delayed pending a resolution to the FBA issue, will 
likely suffer further declines as at least some foreign firms 
will be forced to divest. 
BOYCE