VZCZCXRO8228
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0280/01 0160450
ZNR UUUUU ZZH
P 160450Z JAN 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4065
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUEHBY/AMEMBASSY CANBERRA PRIORITY 6538
RUEHUL/AMEMBASSY SEOUL PRIORITY 2545
RUEHKO/AMEMBASSY TOKYO PRIORITY 8711
RUEHCHI/AMCONSUL CHIANG MAI PRIORITY 2924
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 02 BANGKOK 000280 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS AND EB 
COMMERCE FOR EAP/MAC/OKSA 
TREAURY FOR OASIA 
STATE PASS TO USTR FOR WEISEL AND POSNER 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON TH
SUBJECT: FOREIGN BUSINESS ACT AND THAILAND'S GATS 
COMMITMENTS 
 
REF: A. BANGKOK 261 
 
     ¶B. BANGKOK 152 
 
BANGKOK 00000280  001.2 OF 002 
 
 
1.(U) This is an action request. See para. 5. 
 
¶2. (U) On January 15, a diplomatic note headed "Preliminary 
Explanation on the Proposed Amendment to the Foreign Business 
Act B.E. 2542" was received from the Ministry of Foreign 
Affairs: 
 
Begin text of diplomatic note. 
 
The Ministry of Commerce of Thailand has been receiving 
complaints, as well as requests, to investigate the various 
cases of alleged violation of the Foreign Business Act B.E. 
2542 ("the Act") that foreign persons hold shares in excess 
of legally permitted percentage and/or abuse voting rights by 
disguising themselves as 'Thai'  business. This allegation 
has led to formal investigations and commencement of legal 
proceedings by relevant authorities. 
 
Amendment of the Act was therefore unavoidable in order to 
enable stricter compliance and to provide more effective 
enforcement of this law, as well as to prevent circumvention 
of its application and to provide clarification as to 
elements constituting a 'foreign' business. 
 
To this end, on 9 January 2007, the Cabinet approved, in 
principle, the proposed amendment of the Act. The proposed 
amendment is now under consideration by the Council of State. 
 
The proposed amendment comprises the following three 
components: 
- Imposition of heavier fines on the conclusion that there is 
a circumvention of the application of the current Article 36, 
regarding the act of being 'nominee'; 
-Prohibition, for the purpose of considering that a business 
is 'Thai' , of the use of preferential voting rights for and 
by foreign shareholders to allow voting rights to reflect 
true equity participation permitted under the Act; 
-Provision of flexibilities by having grandfathering 
provision and allowing a short period of one to two years for 
adjustment by companies so as to fully comply with the new 
Act as amended and to avoid business interruption. 
 
The new Act is expected to strengthen our supervising 
capacity and address previous loopholes, without being an 
unnecessary obstacle in attracting FDI. 
 
Furthermore, the new Act will not in any way affect foreign 
business in the manufacturing industries, export businesses, 
as well as all BOI-promoted businesses and those set up 
pursuant to Thailand's international obligations/commitments. 
 
End text of diplomatic note. 
 
¶3. (SBU) An American lawyer with long experience dealing with 
the FBA made three initial observations regarding the points 
in the dip note. First, that changing the definition of 
'alien' to include voting rights and not just shareholding is 
a key change in the law - not simply closing a "loophole" - 
and a tightening of limitations on inward investment. Second, 
the statement that the amendments will "not in any way affect 
foreign business in the manufacturing industries..." is 
incorrect. This is because many such companies have 
operations engaged in service, distribution or other critical 
activities ancillary to their prime activity. Also, many such 
companies have subsidiaries that own the land on which the 
manufacturing plant is built. The subsidiary real estate 
holding company would be captured under the amendments. 
Finally, he noted that the definition of 'nominee', arguably 
the key issue in this matter, is not addressed. 
 
¶4. (SBU) In a meeting called by the EU mission and attended 
by diplomats and chamber of commerce representatives 
including the US, Australia, Japan, Germany, Norway, South 
Korea, UK and Singapore, the EU Minister-Counselor for Trade 
circulated the following draft letter for consideration with 
 
BANGKOK 00000280  002.2 OF 002 
 
 
the intention of it being signed by the various ambassadors 
for delivery to Deputy Prime Minister Pridiyathorn: 
 
Begin text of draft letter: 
 
We would like to draw your attention to a matter of great 
concern to the foreign business community related to the 
"proposed Draft Amendment tot eh Foreign Business Act B.E. 
2542", which was approved by the Thai cabinet on 9 January 
2007, and to information given to us on its content. We may 
wish to review to other aspects of the proposed legislation 
at a later stage, once more complete information is made 
available to us. 
 
However, at this stage, we wish to draw your immediate 
attention to a major element, namely the introduction of a 
new restriction limiting foreign control of companies 
(majority of voting rights). Besides its potential negative 
impact on foreign investment, such a change would go beyond 
the existing commitments undertaken by Thailand in its 
schedule of Specific Commitments in the field of Trade in 
Services under the GATS. 
 
Indeed, according to this schedule of Specific Commitments, 
Thailand has undertaken national treatment commitments for a 
number of sectors, subject to one limitation only, which 
reads as follows: "No limitations as long as foreign equity 
participation does not exceed 49 percent." 
 
It results that a company should be granted national 
treatment provided it meets the foreign equity criteria. 
Thus, the introduction of a new limitation based on the 
control of the company would go beyond Thailand's current 
commitments. 
 
Therefore, we would like to urge you to renounce the use of 
the control and voting rights of a company as a criteria to 
define it as a foreign company subject to the limitations 
under the FBA. Such a step would contribute to restoring the 
confidence of the foreign business community in Thailand as 
an open economy welcoming foreign investment respectful of 
its international trade commitments. 
 
End text of draft letter. 
 
¶5. (SBU) Action Request. We seek guidance as to the relevance 
of the GATS to Thailand's proposed amendments and, more 
specifically, whether the proposed amendments would be 
considered by the USG as a change in Thailand's commitments 
under the GATS.  If these are considered material changes, we 
would appreciate Washington's views on what steps Thailand 
must take to notify and implement such changes under the 
applicable WTO procedures. 
BOYCE