VZCZCXRO6416
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0261/01 0120830
ZNR UUUUU ZZH
P 120830Z JAN 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4026
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 3479
RUEHBY/AMEMBASSY CANBERRA PRIORITY 6532
RUEHKO/AMEMBASSY TOKYO PRIORITY 8708
RUEHWL/AMEMBASSY WELLINGTON PRIORITY 1638
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2909
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 BANGKOK 000261 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
COMMERCE FOR EAP/MAC/OKSA 
TREASURY FOR OASIS 
STATE PASS TO USTR FOR WEISEL 
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 PREL TH
SUBJECT: DEPUTY PM EXPLAINS FOREIGN BUSINESS ACT AMENDMENTS 
 
REF: A. BANGKOK 152 
 
     ¶B. 06 BANGKOK 7650 
     ¶C. 06 BANGKOK 7435 
     ¶D. 06 BANGKOK 6363 
 
BANGKOK 00000261  001.2 OF 003 
 
 
¶1.  (SBU)  Summary:  The Thai Cabinet has approved important 
changes to the Foreign Business Act (FBA). The motivation for 
the changes is clear: the current government has a political 
imperative to find legal fault with the deposed PM Thaksin's 
ShinCorp transaction.  The problem is that the ShinCorp deal 
apparently is broadly consistent with Thai law and practice 
at the time of the transaction, and is similar to thousands 
of other corporate structures of long standing in Thailand. 
The new law represents the government's best effort to 
establish a legal basis to go after ShinCorp while minimizing 
the collateral damage. 
 
¶2.  (SBU) In a January 9 meeting with Bangkok based foreign 
business reps and diplomats, Thai Deputy Prime Minister and 
Finance Minister MR Pridiyathorn Devakula largely failed to 
allay foreign investor concerns over the proposed changes. 
The DPM argued that a relatively small number (1,327) of 
foreign invested firms would be affected, and that these 
affected firms would be given time to reduce their equity to 
a minority holding.  He insisted that these firms are illegal 
under the current law, so the new changes are a liberal 
concession that allows time for the firms to adopt a legal 
structure.  Both the EU and Japan hinted at a WTO GATS 
challenge to the new law.  Pridiyathorn stated his 
willingness to consider changes in the draft law over the 
next month.  The DPM's claim that the affected firms are 
currently illegal is not accepted by many, so his upbeat 
characterization of the new law mostly fell on deaf ears.  We 
think the RTG will try to head off a WTO challenge by making 
concessions on the sectoral scope of the new law.  Because 
most U.S. services investment in Thailand falls under the 
U.S.-Thailand Treaty of Amity and Economic Relations and thus 
is exempt from most FBA restrictions, the impact of the new 
law on U.S. investors is likely to be confined to a few 
firms.  End Summary. 
 
¶3.  (SBU)  Thai Deputy Prime Minister and Finance Minister MR 
Pridiyathorn Devakula met on January 10 with Bangkok based 
representatives of the Joint Foreign Chambers of Commerce in 
Thailand (JFCCT) to explain recent changes to Thailand's 
Foreign Business Act (reftel).  Many Bangkok based diplomats 
attended as well, including AmEmbassy Bangkok economic 
counselor. 
 
Deputy PM: "Only 1327 Companies Affected" 
------------------------------------------ 
 
¶4.  (SBU) Pridiyathorn said that he had called the meeting in 
reaction to statements made by the chairman of the JFCCT, 
Peter van Haren, that were highly critical of the RTG's 
proposed changes.  Haren stated that the changes would force 
many foreign invested businesses to disinvest, creating a 
highly negative investment climate in Thailand.  In response, 
Pridiyathorn said that the vast majority of foreign 
businesses, including all manufacturing and export 
industries, would be unaffected by the changes.  The RTG's 
analysis, he said, indicated that 1,327 companies currently 
operating in Thailand would be affected in that they appear 
to be using an illegal (under current Thai law) nominee 
structure to satisfy Thai ownership requirements.  (NOTE: 
While no one knows for certain the exact number of foreign 
invested firms currently operating in Thailand, it surely 
numbers in the tens of thousands, so if the RTG is correct it 
suggests that somewhat less than 10 percent of the foreign 
invested services companies might be affected. By definition, 
nominees are used to disguise actual underlying foreign 
ownership. How the DPM managed to arrive at such a precise 
number of companies that would be affected was not explained. 
End note.) 
 
¶5.  (SBU)  Explaining the rationale for the changes, the DPM 
said that the controversy over the sale of ShinCorp had led 
 
BANGKOK 00000261  002.2 OF 003 
 
 
to the investigation of an additional 16 firms, due to the 
machinations of former PM Thaksin,  which created widespread 
investor anxiety. In a conversation with the Ambassador, PM 
Surayud confirmed that this was the motivation for changing 
the FBA and that the cabinet, after careful consideration of 
both the economic and political angles, concluded to go 
forward with this in the most transparent way available by 
not singling out one transaction but clarifying the entire 
law.  This necessitated an urgent clarification of the law. 
According to Pridiyathorn, "We are late in consulting the 
private sector, I know.  But we need to move quickly, because 
if the law isn't changed before the police investigation of 
ShinCorp is finalized, there is the chance that these 1,327 
firms will become ensnared in the same police decision, which 
could require them to immediately sell down their interest to 
a minority holding.  This would be a nightmare, but with the 
new law you can sleep easily because you have time (1-2 
years) to make this adjustment." 
 
¶6.  (SBU)  The Thai Cabinet approved the new FBA law January 
¶9.  The DPM said that the proposed law will now go to the 
Council of State for legal vetting, and will then be sent to 
the National Legislative Assembly for approval.  Pridiyathorn 
thinks this process will take about a month.  He stressed 
that he is willing to consider changes in the draft law 
during that period. 
 
Not Your Father's Grandfathering 
--------------------------------- 
 
¶7.  (SBU)  JFCCT Chairman Van Haren argued that the 
retroactive nature of the law is unfair to many well 
established firms in Thailand, and constitutes a form of 
forced divestiture.  Pridiyathorn responded by stating that 
under the current FBA, the 1,327 firms using the nominee 
structure are illegal, so the new law is actually more 
liberal in that it provides a grace period for these firms to 
legalize their structures.  He stressed that the law does not 
seek to change the structure of firms' management control or 
voting rights -- "these will be grandfathered."  The only 
thing that will not be grandfathered is a nominee structure 
firm.  He said that there are no large firms among the 
affected 1,327, and no well known brands. 
 
¶8.  (SBU)  In response to the assertion by Van Haren that 
business confidence in Thailand had been adversely impacted 
by the FBA changes, Pridiyathorn readily conceded this.  But, 
he argued, the problem is a lack of understanding among 
investors of the limited scope of the impact of the changes. 
He said, "Our PR team are novices, which is hurting business 
confidence.  We need to get out the message that these 
changes are really meant to save you from a nightmare.  We've 
been lax in enforcing the law up to now, and these changes 
are intended to buy you time."  He defended Thailand's right 
to make these changes, stating "we are a sovereign country, 
we have a right to do this." 
 
¶9.  (SBU)  The DPM insisted that Thailand has no intention of 
becoming more protectionist.  He pledged to review the list 
of foreign-excluded services sectors on an annual basis, with 
a view to trimming the list.  When asked why Thailand did not 
trim the list immediately, Pridiyathorn replied that while he 
personally favors such a move, the current legislative 
assembly would never approve the law if it included such 
liberalization. (Note. His pledge to review the changes on an 
annual basis is problematic since this government has pledged 
to turn power over to an elected government later this year. 
End note.) 
 
The WTO Angle 
-------------------- 
 
¶10.  (SBU)  Representatives from both the EU Mission and the 
Japanese Embassy pointedly asked the DPM about the WTO 
legality of the proposed changes.  The EU representative 
argued that by introducing a new, third criteria for 
ownership -- majority of voting rights -- the new law is more 
 
BANGKOK 00000261  003.2 OF 003 
 
 
restrictive and thus constitutes a prima facie impairment of 
the EU's rights under the GATS.  In reply, Pridiyathorn said 
the RTG had checked with the relevant experts and was 
confident that the changes were WTO-consistent.  In response 
to a question from the Swiss representative on what would 
happen if the police investigation against ShinCorp concluded 
that the transaction was in fact legal, Pridiyathorn replied, 
"We know what is going to happen." 
 
Comment 
------------ 
 
¶11.  (SBU) The current government has a political imperative 
to find legal fault with the ShinCorp transaction.  The 
problem is that the ShinCorp deal apparently is broadly 
consistent with Thai law and practice at the time of the 
transaction, and is similar to thousands of other corporate 
structures in Thailand.  The new law represents the 
government's best efforts to establish a legal basis for 
going after ShinCorp while minimizing the collateral damage. 
To ensure that Shin Corp is ensnared, the draft FBA 
amendments include a clause exempting firms now under 
investigation or in court proceedings for current FBA 
violations from the grandfather provisions of the amendments. 
 
¶12.  (SBU) The scope of the RTG's proposed changes are 
narrower than some feared, so the worst case scenario has 
been avoided.  But the still considerable economic impact of 
the changes has contributed to the deepening gloom among 
investors here already reeling from a military coup, the 
RTG's recent capital control measures, and the New Year 
bombings in Bangkok.  Pridiyathorn's game attempt to win over 
the foreign business community largely failed, mainly because 
his argument started with the flat assertion that, under 
existing law, many foreign invested forms are illegally 
structured.  Since this is precisely the point of 
disagreement (the supposedly illegal nominee structure has 
been around for thirty years, and has been upheld in at least 
one court decision), he failed to persuade his audience.  A 
glaring weakness of the PM's argument is why, if under the 
current law the foreign firms are clearly illegal, it is 
necessary to have a heavily revamped, "clarified" new law. 
 
¶13.  (SBU)  We think Pridiyathorn is serious about being 
receptive to suggested changes.  For one thing, in spite of 
the DPM's insistence that the changes are fully 
WTO-consistent, we suspect that the RTG's WTO experts have 
provided him with very different counsel.  The RTG, we think, 
will prove amenable to selectively exempting from the new law 
services sectors that are part of Thailand's GATS 
concessions, as a way of heading off a formal challenge 
within the WTO. 
 
¶14.  (SBU) There remain uncertainties over the new law and 
its effect. Analysts all over Bangkok are poring over the 
two-page summary of amendments (no additional details 
available) and trying to discern what it means for which 
companies. The lack of any additional definition of "nominee" 
makes things only more confusing. Since companies with 
nominee structures would have only 90 days to declare 
themselves to the Thai government or face large penalties 
accruing from the date of the law's enactment, a precise 
definition of nominee is vital as a first step. 
 
¶15. (SBU)  It is safe to say that compared to the EU or 
Japan, the proposed changes are likely to have much less 
effect on U.S. investors because a lot, albeit not all, U.S. 
services investments are covered by the U.S.-Thailand Treaty 
of Amity and Economic Relations (AER), not the FBA. 
Unfortunately, those sectors that are not covered under the 
FBA fall under FBA lists one and two, inland transportation 
and land trading - categories that have no grandfathering 
provision under the proposed amendments.  We are working with 
the AmCham to obtain a more comprehensive understanding of 
the new law's effect on US investment in Thailand's services 
sectors. 
BOYCE