VZCZCXRO5706
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2008/01 0950919
ZNR UUUUU ZZH
R 050919Z APR 07
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC 6075
INFO RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 BANGKOK 002008 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON TH
SUBJECT: RETAILING IN THAILAND:  WAITING FOR THE SHOE TO 
DROP 
 
 
¶1. SUMMARY:  Thailand's latest effort to enact a Retail Law 
has been rejected by the Cabinet, sending the draft back for 
rewriting.  Prominent in the debate over the retail law is 
the growing influence of large retailers in the Thai market 
and their impact on small retailers.  With many calling for 
protection for traditional Thai retailers against what is 
considered foreign competition, the shape of the next draft 
law is hard to predict.  End summary. 
 
¶2.  On March 27 a draft Retail and Wholesale Business Act was 
rejected by the RTG Cabinet and returned to the Ministry of 
Commerce for revision.  According to press reports, Ministers 
objected that the draft law did not make zoning regulations 
for retail business expansion clear enough, and concentrated 
too much power in the new Retail and Wholesale Supervision 
Committee, which could become subject to political 
interference, and threatened to discourage investment. 
 
¶3.  Within the Thai retail market large retailers hold an 
increasingly prominent position.  Major player include 
Tesco/Lotus, Carrefour, Makro, and Big-C.  These four chains 
have 158 superstores in Thailand between them, and another 
238 smaller stores.  Outlets for these large retailers are 
scattered like popcorn throughout the Bangkok metropolitan 
area and are also widely represented in other urban areas 
around Thailand.  The large selection offered by these stores 
and their low prices - resulting from large-scale purchasing, 
sometimes buying directly from producers, bypassing 
wholesalers - are increasingly putting pressure on Thailand's 
traditional small, mom-and-pop retailers.  Some analysts feel 
that one of the principle objectives of the new Retail Law is 
to protect small retailers. 
 
¶4.  As a vehicle to protect small retailers the draft Retail 
Law would have introduced significant uncertainty for large 
retailers.  The draft itself made no explicit reference to 
large or small retailers, and did not provide any definition 
for these categories.  Under the draft law, opening a new 
retail outlet would have required approval from the central 
Retail and Wholesale Supervision Committee.  Provincial 
committees would have the ability to make recommendations, 
but only the central committee would have the authority to 
grant permissions for all of Thailand.  Significantly, the 
draft law did not clearly specify what criteria would be 
applied to determine the suitability of an application.  The 
zoning regulations would themselves fall to the committee to 
determine. 
 
¶5.  Significantly, all the major retailers are foreign owned 
(although Thailand's Central Group holds 37% of Big-C).  It 
is therefore perhaps not surprising that the debate has taken 
on nationalistic overtones.  The rejection of the draft 
retail law was denounced by the president of the 
Confederation of Thais Opposing Foreign Retailers as a 
victory for foreign retailers. 
 
¶6.  Under present law, retail companies having a total 
minimum capital of 100 million baht ($2.9m) or greater, or 
having a minimum capital for each shop of 20 million baht 
($575k) or greater can be more than 50% owned by foreign 
owners.  The draft amendments to the Foreign Business Act 
would eliminate the exemption on size, making all retailing 
subject to limitations on foreign ownership without obtaining 
permission from the RTG. 
 
¶7.  The decision to reject the draft retail law did find 
support from the Thai Retailers Association.  The group's 
president expressed concern over the authority of the central 
regulator and noted that while the act enabled the government 
to limit the expansion of large stores, it did not provide 
any mechanism for directly strengthening traditional or 
family owned shops. 
 
¶8.  Dr. Charles Cheung, Chairman of the Competition Committee 
for the Board of Trade, has argued that small retailers 
cannot compete against the large-scale retailers, who hold 
all of the competitive advantages.  Only by introducing some 
form of intervention can the small retailers be protected. 
Notably, Dr. Cheung also argues that the definition of large 
retailers should include formula chain stores, with 10 or 
more branches.  Indeed, in Thailand the most powerful 
retailer may very well be 7-Eleven, with around 3,500 
branches in every corner of the country (and owned by Thai 
conglomerate CP Group). 
 
¶9.  With the draft retail law returned to the Ministry of 
Commerce for rewriting, a new drafting committee is expected 
to be named.  Some observers expect that the proposed 19 
member committee will include more members favorable to small 
retailers. 
 
¶10. Comment.  Investors in Thai retail have dodged one bullet 
 
BANGKOK 00002008  002 OF 002 
 
 
with the rejection of the draft retail law.  The law's 
powerful central supervision committee, with the authority to 
approve or reject proposed expansion, would have introduced 
an unwelcome uncertainty into any corporate business plan for 
Thailand.  Nevertheless, even if the subjectivity of the 
process is lessened, it is not certain that a new version of 
the law will prove any more favorable to large retailers.  As 
Dr. Cheung notes, in Thailand sometimes politics comes first, 
and at the present time there are strong currents pushing to 
limit the further growth of large retailers.  For the moment 
much is in doubt; both the retail law and the amendments to 
the foreign business act are undergoing revision and it is 
not clear how the sector will be affected by the final 
results.  Although no U.S. companies are currently active in 
Thailand's retail sector, if the final Retail Act and/or 
Foreign Business Act are passed as currently expected, it 
will be difficult for new foreign players to enter the Thai 
retail market. 
ARVIZU