VZCZCXRO4816
PP RUEHDT RUEHHM
DE RUEHCHI #0123/01 1870949
ZNR UUUUU ZZH
P 060949Z JUL 07
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0515
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBK/AMEMBASSY BANGKOK PRIORITY 0745
RUEHCHI/AMCONSUL CHIANG MAI 0564

UNCLAS SECTION 01 OF 02 CHIANG MAI 000123 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EINV TH
SUBJECT: INDUSTRIAL ZONE TRANSFORMS LITTLE LAMPHUN 
 
 
CHIANG MAI 00000123  001.2 OF 002 
 
 
¶1. Summary:  While agriculture and tourism dominate the economy 
of northern Thailand, an industrial zone in Lamphun has brought 
in foreign investment and new employment opportunities to the 
region.  Growth in turn has brought sprawl, hazardous waste, 
labor concerns and social disruption to the sleepy town and 
surrounding province 30 km south of Chiang Mai.  End summary 
 
¶2. With a population of only 400,000, Lamphun is one of the 
least populated provinces in Thailand.   A 1983 policy decision 
by the central government to decentralize industry created the 
Northern Region Industrial Estate (NRIE) on the rural outskirts 
of the provincial capital, transforming the area around the 
ancient town. 
 
¶3. Thanks to this industrial estate, now 20 years old, the 
province tops the northern region in foreign investment and per 
capita income (USD 3,454 in 2005).  Exports grew rapidly in the 
past decade, increasing by 200 percent to USD 1.952 billion in 
2006 vs USD 645 million in 1996. 
 
--- Women at Work --- 
 
¶4. The estate has attracted a labor force of mostly young women 
from the north and northeast who assemble electronics, cut 
diamonds, and produce agricultural and other products including 
jewelry and accessories, optical lens, cosmetic and painting 
brushes, cigarette lighters, wire netting, aircraft interior 
parts and upholstery.  From 14,000 employees in 1990, the NRIE 
has reached capacity with 76 plants employing 50,000 workers. 
Additional companies, such as PepsiCo/FritoLay, operate near but 
not in the industrial estate. 
 
¶5. The NRIE, the first industrial estate in the northern region, 
was originally planned for agricultural processing, including a 
rice mill, noodle factory, and animal feed mills. When these 
didn't pan out, Japanese investors in the electronic assembly 
industry were attracted by the relatively low humidity of the 
region, a pool of young female laborers, lower-than-Bangkok wage 
scales, the proximity of Chiang Mai, and tax incentives. 
 
¶6. Most of the work is labor intensive, with little technology 
transfer involved.  Consulate visitors to Hana Microelectronics 
observed young women assembling small parts, many manufactured 
elsewhere, whose end application is still a few steps away.   As 
at a number of other NRIE facilities, these parts are sent on to 
China for final finishing in products such as mobile phones and 
notebook computers. 
 
¶7. With many of the components coming from other countries, 
Lamphun is only one stop along the international virtual 
assembly line.  The value of goods exported from NRIE in 2006, 
USD 1.952 billion, exceeded the value of imports by USD 408 
million.  While officials acknowledge that these figures show 
only modest export benefit, they argue that the employment 
opportunities and spill-over effect on the service sector make 
significant contributions to the region's economy. 
 
--- Investment Incentives ---- 
 
¶8. The Board of Investment (BOI) made the NRIE attractive by 
offering maximum incentives, equal to those in the 
least-developed and three southern-most provinces.    Basic 
incentives in "Zone 3", the RTG's target area of industrial 
decentralization, include the duty free import of machinery, 
corporate income tax exemption for eight years, and exemption 
from import duty on raw material used for export goods.   In the 
NRIE, as in the least-developed provinces in Zone 3, additional 
incentives for investors go beyond the original eight-year 
period to include a 50 percent reduction of corporate income tax 
for an additional 5 years and double deduction from tax on 
transportation, electricity and water costs for an added 10 
years.   Chiang Mai BOI staff noted that the original Japanese 
investors in the industrial estate were also attracted by the 
geography and living conditions of Chiang Mai valley, which they 
found reminiscent of Japan. 
 
¶9. Currently, 22 electronic assembly plants operate in the 
NRIE's duty-free or export processing zones.   Women make up 70 
percent of the total workforce.  Japanese investment constitutes 
65 percent of the total (USD 1.3 billion) followed by Americans 
at 21 percent (USD 410 million).  Other investors are Thai, 
Korean, Swiss, Dutch, Taiwanese, French, Belgian and Indian. 
American investors include Innovex, Hana Microelectronics, 
Pioneer Hi-Bred, and FM Brush. 
 
 --- First Labor Union --- 
 
¶10. The NRIE spawned the first registered labor union in the 
region, formed in mid-2006 in the Israeli diamond cutting EFD 
Company with 500 of the 800 workers registered.  Earlier efforts 
to organize five years ago with the support of the American 
Center for International Labor Solidarity (ACILS) failed when 
 
CHIANG MAI 00000123  002.2 OF 002 
 
 
employers fired workers for attempts to organize. 
 
¶11. Chiang Mai University labor expert Dr. Vorawit Charoenlert 
reported that labor unionists from Bangkok and the Friends of 
Women Foundation worked secretly for three months with local 
workers to collect enough names for registration.  He sees this 
first union, Gemstones and Jewelry Labor Union, as a solid 
foundation for bargaining power in northern Thailand. 
Activities are now focused on empowering leaders and members, he 
said; the Friends of Women Foundation plans training on labor 
rights as well as social, political and economic topics. 
 
¶12. In general, occupational health care and working conditions, 
rather than wages or financial benefits, are the major labor 
problem in Lamphun, according to Dr. Vorawit.  Workers can earn 
up to Baht 10,000 a month with overtime, 50 percent more than 
wages outside the estate.    However, most of the work requires 
good eyesight, ruling out older employees.  Health conditions 
are anotQr concern.  In the early 1990s, twenty workers died 
mysteriously; while employers blamed AIDS, health officials and 
labor unionists suspected hazardous fumes from lead soldering 
combined with excessive overtime work. 
 
¶13. Lamphun Province's Deputy Welfare and Labor Protection 
Officer, Sujintana Sritaraso, described working conditions in 
the electronic assembling plants as stressful, noting that 
"these young workers need to focus on the production line, with 
minimal conversation."  Calculating that most workers will burn 
out after 5-6 years, she would like to see government training 
programs to prepare the workers for other occupations.  She does 
not share Dr. Vorawit's optimism about the future success of 
labor unions, arguing that northern people are "softer" than 
workers in Bangkok. 
 
--- Burden or boon?  --- 
 
¶14. The sprawl around the industrial estates is overwhelming the 
ability of local administrators to cope with problems of city 
planning, sewage, and solid waste management.  Waste water is 
polluting the canals and river; one source claims that 
underground water has been contaminated as well.  Many villagers 
are unhappy over the new town that has risen next to the 
industrial estate, with dormitories, karaoke, shop houses, and 
supermarkets.  Young workers spend their spare time in karaoke 
bars.  Local tax goes to road construction, buildings, waterway 
improvement while education is underfunded. 
 
¶15. With no incentives for laborers from other districts to 
change their household registration to Lamphun, central 
government subsidies of Baht 500 (USD 14) per person are 
allocated for only the registered population of 8,000.   Danai 
Sarapruek, deputy manager of the Tambon Administration 
Organization (TAO) where the NRIE is located, noted that his 
district accommodates 300 dormitories, 200 restaurants and 
karaoke bars, which generate 30 tons of trash a day, and that 
the TAO has to cover the cost of waste collection and 
infrastructure for roads, drainage systems, and waterway 
improvement.  Even though revenue from various taxes provides 
sufficient revenue to cover these expenses, Danai is unhappy 
that the TAO does not receive any subsidy from the central 
government for the more than 40,000 workers who are registered 
elsewhere. 
 
¶16. In the face of so much population growth, social change, and 
pollution concerns, no government entity is prepared to manage 
the impact.  The NRIE issues industrial operation and factory 
construction permits and is responsible for the control and 
treatment of all types of waste in the estate, but labor 
welfare, public health, and education issues are under the 
control of various central ministries and local governments, 
including the Ministries of Labor, Education, and Public Health, 
the TAO, the Provincial Public Health Office, and Lamphun 
Municipality. 
 
¶17. Comment:  The industrial estate has brought jobs and new 
income into the regional economy while also creating service 
businesses and public facilities to support the manufacturing 
companies in the estates.  However, the attendant problems are 
just now, after two decades, being recognized by the overlapping 
set of government offices with responsibility for the area. 
While the NRIE provides employment alternatives to migrating to 
Bangkok, it also transfers some of Bangkok's pollution and 
health issues to the province.  The decentralization policy that 
led to setting up the industrial estate did not extend to giving 
authority or budgets to local authorities to help them deal with 
the social and environmental results. 
CAMP