VZCZCXRO0852
PP RUEHCN RUEHDT RUEHHM
DE RUEHCHI #0086/01 1561115
ZNR UUUUU ZZH
P 041115Z JUN 08
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0774
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/USDOC WASHDC PRIORITY 0005
RUEHCHI/AMCONSUL CHIANQMAI 0836

UNCLAS SECTION 01 OF 03 CHIANG MAI 000086 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD PGOV TH BM
SUBJECT: PIRATED GOODS DOMINATE NORTHERN THAI MARKETS 
 
CHIANG MAI 00000086  001.2 OF 003 
 
 
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Summary 
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¶1. With sales of licensed intellectual property dropping 50 
percent so far this year, pirated goods are deepening their 
stronghold in the Chiang Mai and upper northern Thai markets. 
Risks remain low for merchants to engage in the piracy business; 
thus, the legal market for DVDs, CDs, and software is 
disappearing as legitimate merchants struggle to remain 
competitive.  Production bases in Burma, legal complexities in 
Thailand, and growing but price-conscious demand limit the 
success of Thai law enforcement's good efforts to eradicate 
pirated products from the market.  Legal reform within Thailand 
could allow for more efficient seizures of pirated goods and 
arrests of producers, raising the risks and costs of engaging in 
this illegal business.  End Summary. 
 
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Profits Outweigh Risks for Pirates 
---------------------------------- 
 
¶2. Selling pirated goods remains a profitable business for 
northern Thai merchants.  Despite efforts among local law 
enforcement officials to supplant the pirated goods market in 
northern Thailand, sales continue to rise.  In 2007, the total 
value of seized pirated products in Chiang Mai, Chiang Rai, 
Lamphun, and Lampang provinces - known collectively as Police 
Region 5 - was 112,900 USD.  The Chief of the Crime and 
Investigation Center reported that the value of pirated products 
seized in Chiang Mai Province alone from January through March 
2008 was over 45,000 USD (based on the value of the pirated 
rather than the legal product), already a third of the value 
seized in 2007 across the entirety of region 5. 
 
¶3. While the potential for revenues grows with greater demand in 
the north, the risks of engaging in the pirated goods market 
remain low.  Fines for convicted pirates range from 3,200 USD to 
12,900 USD or six months to four years imprisonment.  These 
penalties are risks seemingly worth taking, given that legal 
requirements for declaring a merchant guilty of piracy are so 
complex that such convictions are rare (see para 9).  In 
addition, with the vast majority of piracy cases being solved 
with compensation payments outside of the Thai legal system, 
pirates can simply factor such payments into their cost 
structure, allowing them to revive and maintain their illegal 
businesses. 
 
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The Disappearing Legal IP Market 
-------------------------------- 
 
¶4. Despite the Chiang Mai economy growing more sophisticated, 
access to legal and licensed intellectual property remains 
disturbingly low in local markets.  In a series of interviews 
with local DVD, CD, and software merchants, we discovered that 
purchasing legal IP products in Chiang Mai is nearly impossible. 
 A merchant from one of Chiang Mai's largest CD retailers said 
that "few legal shops remain in Chiang Mai."  The merchant said 
many entrepreneurs will begin with a legitimate business; 
however, almost all will shift to selling pirated goods in order 
to remain competitive.  According to one legal CD and DVD shop 
owner, sales volumes for his legal products dropped 50 percent 
in the first quarter of 2008.  He attributes this to the 
ever-growing number of illegal shops and increasing demand for 
CDs and DVDs locally. 
 
¶5. Our investigation revealed that the supply market for pirated 
products is widespread and complex.  In the traditional pirated 
goods markets, such as Chiang Mai's Night Bazaar, street 
merchants serve as middlemen between the customers and the 
suppliers, who remain hidden in nearby buildings.  Displaying 
only a catalog of DVDs and CDs to choose from, police cannot 
seize the pirated goods unless they locate the hidden supplier. 
Moreover, legal barriers such as difficulties in acquiring 
arrest warrants and court orders for seizures make merchants 
nearly invincible to law enforcement at their street-side stalls. 
 
¶6. Aside from the traditional pirated goods markets, major 
retailers and seemingly legitimate businesses also sell pirated 
goods.  We discovered that the licensed software market is 
non-existent in Chiang Mai.  The major software and IT retailers 
of Chiang Mai - Sony Center, IT City, and iStudio - upload 
unlicensed software onto newly purchased computers to entice 
customers to buy the hardware.  The sales clerk of the recently 
opened iStudio, a licensed reseller of Macintosh products, 
admitted that his store sells new computers pre-loaded with 
unlicensed Microsoft and other software not produced by 
Macintosh.  All of these IT merchants said that their businesses 
cannot be competitive if they sold licensed or no pre-installed 
software.  In the DVD and CD markets, even major retailers such 
as Tesco Lotus sold products that seemed to be pirated based on 
 
CHIANG MAI 00000086  002.2 OF 003 
 
 
packaging and price (for example, DVDs costing $.60).  The sales 
clerk at Tesco Lotus said, however, that the goods are licensed 
but deeply reduced in price for clearance. 
 
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Attacking Supply 
---------------- 
 
¶7. The Special Force Subdivision of Police Region 5 is the 
primary local law enforcement body that seeks to reduce the 
supply of pirated goods in the market.  The main objective of 
this group of police officers is to locate and seize pirated 
goods; without judicial intervention, the group is relatively 
powerless to arrest merchants.  One of the Center's officers 
claimed that although piracy problems are widespread in Chiang 
Mai, "we can control it."  In addition to these local efforts, 
the RTG's National IPR Suppression Commission surveys the Chiang 
Mai market two to three times a week and has undertaken 152 
successful seizures so far this year. 
 
¶8. Despite these efforts to attack supply within Thailand, the 
source of the supply chain remains untouched with much of the 
production of illegal products centering in Burma.  Law 
enforcement officials told us that Burma is a manufacturing 
center for pirated products all the way down to the raw 
materials that produce the physical discs.  Most of these discs 
are transported from Burma into Thailand as blank discs at the 
border point of Mae Sai/Tachilek in Chiang Rai province. 
 
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Legal Complexities Limit Law Enforcement 
---------------------------------------- 
 
¶9. Besides the challenge that production in Burma presents, 
Thailand's domestic legal system severely limits the power of 
law enforcement officials to eradicate the pirated goods market. 
 Local police said that before an investigation and a raid can 
take place, the police need to secure a report from the IP 
owner, a court order to investigate the suspected retailer, and 
an arrest warrant.  The arrest warrant is the most difficult to 
acquire, as the courts tend to protect Thai business owners.  By 
the time the police locate a pirated goods supplier, request the 
court's permission, and await the long process for court orders 
and arrest warrants, the pirated goods supplier has relocated to 
another secret location.  In addition, because of the long and 
costly legal process, IP owners will most often reach a 
settlement with the pirated goods retailer outside of the legal 
system, leaving the merchant free to continue his business. 
 
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Growing Demand 
-------------- 
 
¶10. As a result of these complexities and the low level of risk 
to venders of pirated goods, demand for pirated goods continues 
to flourish.  While income, education, and quality of life 
increase over time in Chiang Mai, so does the demand for 
entertainment and software.  Youth is the base market for much 
of these goods; and with relatively low incomes, these consumers 
are highly price conscious.  A local university student pointed 
out that while a legal VCD costs the equivalent of seven to ten 
USD (and is difficult to find), a pirated version is only two to 
three USD, a 70 percent savings.  The ratio of legal and pirated 
CD prices is comparable, and the pirated products are of similar 
or superior quality when compared to the legitimate ones because 
of RTG censorship that might edit violence or sexual content or 
because of the lower quality of VCDs compared to DVDs. 
Meanwhile, the price of licensed software is so far beyond the 
unlicensed versions' prices that the market for legal software 
is nearly non-existent.  Local police said that while 
suppression of pirated goods helps, the significant price 
difference makes demand the driving force behind the dominance 
of pirated goods. 
 
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Comment 
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¶11. The resilience of the pirated goods market in Chiang Mai 
comes from production in Burma instead of Thailand, a long and 
costly legal system that limits suppression by law enforcement, 
and an economic environment that allows demand to flourish. 
Thailand seems to have made significant progress in preparing 
its law enforcement bodies to combat piracy, but these officers 
still lack the legal instruments to conduct their work 
efficiently and more frequently.  While IP owners will remain 
targets as the cause of the market's sustainability because 
legal goods are so highly priced, Thailand could still advance 
its IPR regime with legal reforms making engagement in the 
pirated goods market more costly for local merchants; namely, by 
making the process for arrest warrants and court orders for 
seizures more efficient for law enforcement officers. 
 
CHIANG MAI 00000086  003.2 OF 003 
 
 
 
¶12. This cable was coordinated with Embassies Bangkok and 
Rangoon. 
MORROW