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OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #0151/01 0211010
ZNR UUUUU ZZH
O 211010Z JAN 09
FM AMEMBASSY BANGKOK
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INFO RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
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UNCLAS SECTION 01 OF 17 BANGKOK 000151 
 
STATE FOR EEB/IFD/OIA, EAP/MLS 
STATE PASS TO USTR FOR WEISEL AND BISBEE 
TREASURY FOR OASIA 
COMMERCE FOR EAP/MAC/OKSA 
 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON EFIN EINV ELAB ETRD KIPR OPIC KTDB USTR TH
SUBJECT: THAILAND: 2009 INVESTMENT CLIMATE STATEMENT 
 
REF: 08 STATE 123907 
 
¶1. (U) Per reftel request, below is Post's draft of the 2009 
Investment Climate Statement (ICS) for Thailand. We also e-mailed a 
Microsoft Word version to EB/IFD/OIA (J. Nathaniel Hatcher and 
Gregory Hicks), per reftel instructions. 
 
¶2. (U) Begin text of the 2009 Investment Climate Statement for 
Thailand: 
 
Chapter 6: Investment Climate 
----------------------------- 
 
- Openness to Foreign Investment 
- Conversion and Transfer Policies 
- Expropriation and Compensation 
- Dispute Settlement 
- Performance Requirements and Incentives 
- Right to Private Ownership and Establishment 
- Protection of Property Rights 
- Transparency of Regulatory System 
- Efficient Capital Markets and Portfolio Investment 
- Political Violence 
- Corruption 
- Bilateral Investment Agreements 
- OPIC and Other Investment Insurance Programs 
- Labor 
- Foreign-Trade Zones/Free Ports 
- Foreign Direct Investment Statistics 
- Web Resources 
 
Openness to Foreign Investment 
------------------------------ 
 
Thailand maintains an open, market-oriented economy and encourages 
foreign direct investment as a means of promoting economic 
development, employment, and technology transfer. In recent decades, 
Thailand has been a major destination for foreign direct investment, 
and hundreds of U.S. companies have operated here successfully. 
Thailand continues to welcome investment from all countries and 
seeks to avoid dependence on any one country as a source of 
investment. 
 
In February 2008, the inauguration of an administration formed by a 
parliamentary coalition led by the People's Power Party (PPP) marked 
the return of a democratically-elected government to Thailand, 
almost 17 months after the 2006 coup d'etat. For much of 2008, the 
People's Alliance for Democracy, a political group, engaged in 
street protests that placed significant pressure on the PPP-led 
government; these protests included the occupation of Government 
House for more than three months, and the occupation of Bangkok's 
airports for more than one week near the end of the year. 
Additionally, Constitutional Court rulings forced Prime Minister 
Samak Sundaravej out of office in September and then, on December 2, 
dissolved the PPP and forced Prime Minister Somchai Wongsawat out of 
office. A subsequent realignment in the parliament resulted in the 
election of Abhisit Vejjajiva, leader of the Democrat Party, as 
Prime Minister. As of January 2009, most investors were cautiously 
hopeful that the political situation would become less tumultuous 
and allow the government to pursue business-friendly policies. One 
of newly-elected Prime Minister Abhisit's most difficult but 
immediate tasks will be restoring the business and investor 
confidence in Thailand's economy after months of political turmoil, 
including the stand-offs at Bangkok's airports. 
 
Despite the political unrest in 2008, the Thai economy outperformed 
its 2007 growth levels, registering 5.1 percent year-on-year growth 
for the third quarter and 4.3 percent year-on-year growth for the 
first nine months of 2008. This growth was largely attributed to 
strong exports of goods and services that grew at an 8.5 percent 
annual rate in real terms. Domestic demand and private investment, 
in contrast, grew by only 2.6 and 2.7 percent respectively. Exports 
are not expected to grow at the same pace for the last quarter of 
2008 or during much of 2009 due to the forced shutdown of the two 
Thailand's international airports and the predicted slower global 
economic growth. The government has revised its economic growth 
projection to between zero and 2.0 percent for 2009. With a new 
government in place, government spending is expected to provide some 
fiscal stimulus during 2009 and the government's investment in key 
mega-projects could be an engine for economic growth. The goal is to 
boost consumer spending and domestic business confidence given that 
economic recession in major developed world markets will likely 
prevent exports, which represent 60 to 70 percent of GDP, from 
growing much. 
 
BANGKOK 00000151  002 OF 017 
 
 
 
In the wake of the 1997-98 Asian Financial Crisis, Thailand embarked 
on an International Monetary Fund (IMF)-sponsored economic reform 
program designed in part to foster a more competitive and 
transparent climate for foreign investors. Legislation establishing 
a new bankruptcy court, reforming bankruptcy and foreclosure 
procedures, and allowing creditors to pursue payment from loan 
guarantors was enacted in 1999. Other 1999 reforms include 
amendments to the Land Code, Condominium Act, and the Property 
Leasing Act, all of which liberalized restrictions on property 
ownership by non-Thais. The Foreign Business Act (FBA) of 1999 
governs most investment activity by non-Thai nationals and opened 
limited additional business sectors to foreign investment. 
Nevertheless, foreign investment in most service sectors is limited 
to 49 percent ownership. 
 
Many U.S. businesses, however, enjoy investment benefits through the 
U.S.-Thailand Treaty of Amity and Economic Relations (AER), 
originally signed in 1833. The 1966 iteration of the Treaty allows 
U.S. citizens and businesses incorporated in the U.S., or in 
Thailand that are majority-owned by U.S. citizens, to engage in 
business on the same basis as Thai companies, exempting them from 
most of the restrictions on foreign investment imposed by the 
Foreign Business Act. Under the Treaty, Thailand restricts American 
investment only in the fields of communications, transport, 
fiduciary functions, banking involving depository functions, the 
exploitation of land or other natural resources, and domestic trade 
in agricultural products. Notwithstanding their treaty rights, many 
Americans choose to form joint ventures with Thai partners, allowing 
the Thai side to hold the majority stake because of the advantages 
that come from familiarity with the Thai economy and local 
regulations. 
 
Thailand began a series of trade negotiations during the government 
of Prime Minister Thaksin Shinawatra in an effort to gain a 
comparative advantage for Thai products in key markets and regions. 
In addition to trade deals with Japan, Australia and New Zealand, 
and "early harvest" agreements with India and China, Thailand 
continues to participate in regional trade liberalization 
discussions with ASEAN-India, ASEAN-Japan, ASEAN-Australia-New 
Zealand, ASEAN-Korea, EFTA (European Free Trade Association) and 
BIMSTEC (Bay of Bengal Initiative for Multisectoral Technical and 
Economic Cooperation). The U.S. Government began FTA negotiations 
with the Thai government in June 2004, and conducted seven rounds of 
discussions through 2006. The negotiations were suspended following 
a military-led coup against the Thaksin government in September 
¶2006. The United States will continue to monitor and evaluate 
developments in Thailand and will determine appropriate next steps. 
 
Registration, Work Permits: Any entity wishing to do business in 
Thailand must register with the Department of Business Development 
at the Ministry of Commerce. Firms engaging in production activities 
need to register with the Ministries of Industry and Labor and 
Social Welfare. U.S. citizens can enter Thailand without a visa for 
visits of up to thirty days. In order to apply for a work permit, a 
foreigner must enter Thailand on a non-immigrant visa (issued at 
Thai embassies and consulates) for a stay of three months or, for 
foreigners with well-defined work or business plans, for a stay of 
one year. 
 
Issuance of the three-month visa usually is completed within two or 
three days; the one-year visa requires approval from the Immigration 
Bureau of the Royal Thai Police in Bangkok. Upon obtaining a work 
permit, a holder of a three-month visa may apply for a one-year 
visa, which generally can be extended every year. Foreigners holding 
nonimmigrant visas who have lived in Thailand for at least three 
consecutive years may apply for permanent residence in Thailand if 
they meet strict criteria regarding investment or professional 
skills. 
 
A new Alien Occupation Act, replacing the 1978 Act, continues to 
list occupations reserved exclusively for Thai nationals, including 
professional services such as accounting, architecture, law, 
engineering, the manufacture of traditional Thai handicrafts, and 
manual labor. However, the law does not apply to diplomatic 
missions, consular missions, representatives of member countries and 
officials of the United Nations and specialized institutions, 
personal servants traveling with and working for the above persons, 
and persons who have been exempted for a special mission by the 
Royal Thai Government. The Act also states that all non-Thai persons 
working in Thailand, with limited exceptions, or an employer of a 
non-Thai worker, must possess a work permit issued at the discretion 
of the Ministry of Labor. Some foreigners already working in 
Thailand are exempted through a "grandfather" clause. Factors that 
 
BANGKOK 00000151  003 OF 017 
 
 
influence the granting of work permits include the degree of 
specialization required by the position; the size of the firm in 
terms of number of employees and registered capitalization; and the 
ratio of Thai nationals to foreigners employed by the firm. 
Foreigners working for the Thai government or working on projects 
promoted by the Board of Investment (BOI) usually have little 
difficulty obtaining work permits and typically receive working 
permits within seven days of application and duration of the work 
permit is generally tied to the length of stay permitted by the 
visa. Government policy creates a preference for Thai nationals in 
the hiring of government consultants, although the government 
continues to hire foreign consultants. Work permits in other areas 
are sometimes difficult to obtain, despite the fact that senior 
manager and technical personnel are in short supply. 
 
Currently, Thai laws allow the import of migrant workers from Burma, 
Laos and Cambodia on manual labor in certain industries such as 
textiles. Under the Alien Occupation Act, employers of unskilled 
workers are required to deduct a certain amount (to be specified by 
a Ministerial regulation issued by the Ministry of Labor) from 
salaries of their foreign workers and submit to a newly established 
'Deportation Fund' which will be managed by a committee. The amount 
will be made in a single payment and can vary depending on the 
associated cost of deporting such foreign workers back to their 
native country if necessary. If the amount is not fully collected 
from the foreign workers, employers are ultimately responsible for 
the payments. Foreign workers will be given receipts and will be 
reimbursed within 30 days after they have returned to their home 
country at their own expense. However, foreign workers must make a 
reimbursement claim with receipts within two years after their 
departure from any immigration check-point. Interest (7.5 percent 
per annum) will be paid only if the refund process exceeds 30 days 
after a claim. 
 
Land Ownership: In general, non-Thai businesses and citizens are not 
permitted to own land in Thailand unless the land is on 
government-approved industrial estates. Under the 1999 amendment to 
the Land Code Act, foreigners who invest a minimum of 40 million 
baht (approximately US$1.2 million) are permitted to buy up to 1,600 
square meters of land for residential use with the permission of the 
Ministry of Interior. The investment period requirement should be 
maintained for not less than three years. If the required land is 
not used as a residence within two years from the date of 
acquisition and registration, the Ministry shall have the power to 
dispose of the land. Petroleum concessionaires may own land 
necessary for their activities. Rather than purchasing, many foreign 
businesses instead sign long-term leases, then construct buildings 
on the leased land. Under the 1999 Condominium Act, non-Thais were 
allowed to own up to 100 percent of a condominium building if they 
purchased the unit between April 28, 1999 and April 28, 2004. Under 
the new Condominium Act B.E. 2551 (2007), foreign ownership in a 
condominium building, when added together, must not exceed 49 
percent of the total space of all units in such building, excepting 
those purchased between 1999 and 2004. Foreign owners exceeding the 
legal limit must divest their property within one year. 
 
Americans planning to invest in Thailand are advised to obtain 
qualified legal advice. Such advice is particularly important given 
the fact that Thai business regulations are governed predominantly 
by criminal law, not civil law. While foreigners rarely are jailed 
for improper business activities, violation of Thai business 
regulations can carry heavy criminal penalties, and criminal 
liability can be assessed under numerous laws. 
 
Privatization: With the aim of encouraging capital inflows and 
relieving resource constraints in many key sectors of the economy, 
the previous Thaksin government led by Thaksin eagerly embarked on a 
privatization program for state-owned economic enterprises and state 
monopolies. The interim government that followed the September 2006 
coup considered privatization too controversial and put it on hold. 
State-owned enterprises operate primarily in the utility, energy, 
telecommunications, banking, tobacco, and transportation sectors. In 
2007, Thailand's 58 state-owned enterprises had total revenues of 
around 3.05 trillion Baht (approximately US$90 billion), employed 
approximately 270,000 people (0.7 percent of the Thai labor force), 
and accounted for approximately 35.9 percent of Gross Domestic 
Product (GDP). With or without privatization, the government is 
trying to downsize overstaffed state-enterprises. 
 
The 1999 State Enterprise Corporatization Act provides the framework 
for the conversion of state enterprises into stock companies, and 
corporatization is viewed as an intermediate step toward eventual 
privatization. In June 2007, the outgoing Prime Minister Surayud 
initialed a proposed new Privatization Bill aimed at replacing the 
 
BANGKOK 00000151  004 OF 017 
 
 
1999 Corporation Act, which would have increased transparency in the 
privatization process but limited the sectors in which state 
enterprises could be privatized. The National Legislative Assembly 
(NLA) did not have time to consider the bill before its session 
ended in late December 2007, and the past two administrations under 
Prime Ministers Samak Sundaravej and Somchai Wongsawat did not 
consider any previous pending bills from the NLA 
 
In 2001, the Thai government partially privatized the Petroleum 
Authority of Thailand (PTT) and Internet Thailand (note: 
"corporatization" describes the process by which an SOE adjusts its 
internal structure to resemble a publicly-traded enterprise; 
"privatization" means that a majority of the SOE's shares is sold to 
the public, and "partial privatization" refers to a situation in 
which less than half a company's shares are sold to the public.) 
 
In 2002, the Thai government corporatized BankThai Bank and Krung 
Thai Card, a subsidiary company of Krung Thai Bank, the Airport 
Authority of Thailand (renamed to Airports of Thailand), and the 
Telecommunication Authority of Thailand. In 2003, the Thai 
government corporatized the Communication Authority of Thailand, and 
partially privatized Krung Thai Bank. In March 2004, the Thai 
government conducted a successful initial public offering of 30 
percent of the shares in Airports of Thailand, and a second public 
offering of Bangchak Petroleum Public Company and Thai Airways 
International. 
 
In early 2004, labor protests prompted the government to postpone 
the planned corporatization of the Electricity Generating Authority 
of Thailand (EGAT). The Stock Exchange of Thailand's (SET) 
relatively weak performance in the first half of 2004 further 
dampened the pace of privatization. In June 2005, the Thai 
government corporatized the EGAT. However, EGAT's planned listing 
was delayed following an order by the Supreme Administrative Court 
that suspended its stock offering until the court finished its 
consideration of a petition filed by civil groups which oppose the 
privatization. The Court later found that full privatization could 
not proceed. Anti-privatization protesters filed a lawsuit 
challenging the legality of PTT's 2001 partial privatization. The 
Court ruled in December 2007 that the privatization was conducted 
legally but that PTT must transfer its natural gas pipeline business 
back to the government. 
 
Draft legislation for a State Investment Corporation (SIC) is 
designed to set up a supervisory entity for state enterprise 
privatization. The SIC will be 100 percent owned by the Ministry of 
Finance, and would regulate state enterprises that have been 
converted into private companies under the 1999 State Enterprise 
Corporatization Act. Despite previous rejection, the Ministry of 
Finance is planning to resubmit it to the new government for 
consideration. 
 
Other than PTT, AOT and MCOT, few significant privatizations have 
occurred. Thailand has removed tax disincentives on buying domestic 
financial institutions. The Financial Institutions Act passed at the 
end of 2007 raised the foreign ownership limit of 25 percent to 49 
percent. Foreign banks in the form of full branches are still 
limited to operation of a single branch. 
 
In January 2004, the Cabinet approved the Bank of Thailand's 
Financial Sector Master Plan (FSMP) designed to increase competition 
by eliminating regulatory boundaries within the financial sector, 
and at the same time to consolidate and strengthen the sector after 
its initial recovery from the financial crisis of 1997. The Bank of 
Thailand is Thailand's central bank. The FSMP classifies financial 
institutions as either commercial banks able to provide all 
financial services except insurance, securities trading and 
brokerage; and retail banks, which will focus on small- and 
medium-sized enterprises (SMEs) and lower-income customers. 
According to the FSMP, retail banks "...may provide virtually all 
types of financial transactions with the same exceptions as 
commercial banks." The FSMP allows foreign banks to operate as full 
branches under the same conditions as Thai commercial banks, but 
without the option of opening branch offices, or subsidiaries, which 
would also operate as Thai commercial banks, and are allowed to open 
four branches (one per year) in addition to the head office. As a 
result of the FSMP, nine new banking licenses were granted by the 
Thai financial authorities in 2005. For the next phase, the Bank of 
Thailand will introduce the second Financial Sector Master Plan some 
time in 2009. The second FSMP, a three-year plan, would broaden the 
types of services financial institutions can provide and would open 
up the sector to more competition. The first FSMP is available in 
English at www.bot.or.th/bothomepage/BankAtWork/FinInsti tute/ 
FISystemDevPlan/ENGVer/pdffile/eng.pdf. 
 
BANGKOK 00000151  005 OF 017 
 
 
 
Conversion and Transfer Policies 
-------------------------------- 
 
Exchange controls are governed by the Exchange Control Act of B.E. 
2485 (1942), amended in 1984, and Ministerial Regulation Number 13 
of 154, and are administered by the Bank of Thailand. Inward 
remittances are free of controls. However, the Ministry of Finance 
has issued a Ministerial Regulation, effective on October 28, 2007, 
to require any person who brings foreign currencies in or out of the 
Kingdom exceeding US$20,000 or the equivalent must declare the 
amount at a Customs check point. 
 
Foreigners staying in Thailand for less than three months, foreign 
embassies, and international organizations are exempt from this 
requirement. In July 2007, the Ministry of Finance and the Bank of 
Thailand agreed to relax regulations on capital flows to balance 
capital movements and to increase flexibility for Thai businesses in 
managing their foreign currency holdings. The changes included 
abolishing the surrender requirement for all foreign currency 
receipts from abroad to be sold or deposited within 15 days; 
doubling the amount of foreign currency deposited with financial 
institutions in the country from US$0.5 million to US$1 million for 
individuals; doubling the foreign currency deposited from US$50 
million to US$100 million for juristic persons with future foreign 
exchange obligations,  and increasing to US$0.1 million for 
individuals and to US$0.3 million for juristic persons without 
obligation. Thai nationals are subject to quantitative limits on the 
amount of foreign currency that can be remitted abroad without 
specific permission of the Bank of Thailand. The limits vary 
depending upon the purpose of the transaction, and range from US$100 
million per annum for business investment or loans to subsidiaries, 
to US$1 million per annum for remittances to family members. The 
Bank of Thailand must approve the purchase of immovable assets or 
securities abroad. The new regulation, however, also increases the 
limit of overseas fund remittances in foreign currencies up to US$1 
million by Thai individual. In addition, the authorities also 
relaxed the repatriation requirement for exporters with foreign 
currency receipts by extending the period in which such receipts 
must be brought into the country from within 120 days, to within 360 
days and requiring that the foreign currencies be deposited or sold 
with financial institutions within another 360 days. 
 
Commercial banks are authorized to undertake most routine foreign 
remittance transactions without prior approval of the Bank of 
Thailand. Nonresidents can open and maintain foreign currency 
accounts with authorized banks in Thailand. Such accounts must use 
funds that originate abroad. If nonresidents have underlying 
liabilities or transactions in Thailand, they can open and maintain 
Thai Baht accounts under Nonresident Baht Accounts (NRBA) with 
authorized banks in the country; however, the combined outstanding 
of all NRBAs for each NR at the end of the day can not exceed 300 
million Baht (approximately US$8.8 million). Since February 2008, 
the Bank of Thailand has segregated the NRBA into two types: 
Nonresident Baht Account for Securities (NRBS) for investment in 
securities and other financial instruments, and Nonresident Baht 
Account (NRBA) for general purposes. The cap on NRBAs was introduced 
in October 2003 with the goal of limiting speculation on the Thai 
Baht. All remittances exceeding US$10,000 for any purpose other than 
export must be reported to the Bank of Thailand. 
 
In an effort to slow currency speculation, the Bank of Thailand in 
December 2006 introduced new measures requiring all financial 
institutions to hold in reserve for one year 30 percent of all 
capital inflows not related to trade in goods or services or 
repatriation of Thai residents' investment overseas. However, the 
measure was never fully implemented and in February 2008, the 
measure was completely lifted. 
 
Expropriation and Compensation 
------------------------------ 
 
Private property can be expropriated for public purposes in 
accordance with Thai law, which provides for due process and 
compensation. In practice, this process is seldom used, and has been 
principally confined to real estate owned by Thai nationals and 
needed for public works projects. U.S. firms have not reported any 
problems with property appropriation in Thailand. 
 
Dispute Settlement 
------------------ 
 
Thailand has a civil and commercial code, including a Bankruptcy 
Act. Monetary judgments are calculated at the market exchange rate. 
 
BANGKOK 00000151  006 OF 017 
 
 
Decisions of foreign courts are not accepted or enforceable in Thai 
courts. Disputes such as the enforcement of property or contract 
rights have generally been resolved through the Thai courts. 
Thailand has an independent judiciary that generally is effective in 
enforcing property and contractual rights. The legal process is slow 
in practice, however, and litigants or third parties sometimes 
affect judgments through extra-legal means. 
 
In addition, companies may establish their own arbitration 
agreements. Thailand signed the Convention on the Settlement of 
Investment Disputes Between States and Nationals of Other States in 
1985, but has not yet ratified the Convention. Thailand is a member 
of the New York Convention, however, and enacted its own rules on 
conciliation and arbitration in the Arbitration Act of 1987. The 
Arbitration Office of the Ministry of Justice administers these 
procedures. 
 
The Bankruptcy Act was amended in 1999 to provide Chapter 11-style 
protection to debtors, and to give debtors and creditors the option 
of negotiating a reorganization plan through the courts instead of 
forcing liquidation. The Act now allows creditors to extend 
additional loans to insolvent firms without losing the right to 
claim compensation during a future restructuring or liquidation 
process, but only if the new loan is intended to keep the firm in 
operation. Also in 1999, the Act was amended to facilitate the 
financial restructuring process. Higher minimum levels for 
individual and corporate bankruptcies were established, and the 
previous ten-year period of bankruptcy status was reduced to three 
years. 
 
In 2004, Parliament approved changes to the Bankruptcy Act including 
tightening the rules under which some debtors can emerge from 
bankruptcy status and streamlining the legal appeals process in 
bankruptcy and restructuring cases. In an effort to quicken the 
foreclosure process, amendments to the Civil Procedure Code on 
Execution of Judgments have limited appeal options available to 
debtors. Under the old regulations, debtors were free to appeal each 
action taken with respect to the execution of a bankruptcy judgment. 
Such appeals, often frivolous in nature, were one of the tactics 
debtors used to delay the foreclosure process. In June 2001, the 
Supreme Court set an important legal precedent by ruling in favor of 
implementing a creditor-backed corporate restructuring plan opposed 
by the former owner of the business in question. 
 
The Bankruptcy Court Act established a specialized court for 
bankruptcy cases. During the first seven months of 2008, the Court 
issued verdicts on 12,047 cases. Individual cases can take months or 
even years to work their way through the legal system, however, and 
many businesses have urged the government to speed up the bankruptcy 
procedure. 
 
The 2003 case of Thailand Petrochemical Industry (TPI), the 
country's largest corporate debtor, raised serious concerns about 
the transparent and fair application of the Bankruptcy Act. In a 
protracted battle between creditors and the company founder for 
control of TPI, the Central Bankruptcy Court removed a 
creditor-backed foreign firm as managing administrator of the TPI 
holding company and decreed that the Ministry of Finance would 
administer TPI. In 2006, debt-holders approved a new TPI 
restructuring agreement that reduced their equity in the company and 
gave management control of TPI to PTT, a large Thai oil and 
chemicals company. 
 
Performance Requirements and Incentives 
--------------------------------------- 
 
Thailand has committed to implement all WTO agreements, including 
Trade-Related Investment Measures (TRIMS). In its latest Trade 
Policy Review in November 2007, the WTO noted, "Thailand has 
maintained its support and commitment to the liberalization of the 
multilateral trading system, especially for agriculture. It also 
remains committed to "open regionalism" and considers regional trade 
liberalization an effective catalyst for freer trade and 
complementary to multilateralism." The report continued that WTO 
negotiations would improve market access and the predictability and 
stability of trade and investment. The report notes that a key 
challenge for Thailand's future economic performance is the 
government's ability to restore private investor confidence and to 
proceed with pending structural reforms, including stalled 
privatizations that would help improve the country's 
competitiveness. The report also underlines the need for Thailand to 
expand its tariff bindings and to simplify its relatively complex 
tariff regime. The services sector, which makes up a large part of 
the Thai economy, has benefited so far from liberalization but would 
 
BANGKOK 00000151  007 OF 017 
 
 
grow further if multilateral commitments under the GATS were 
expanded, according to the review. 
 
The Board of Investment (BOI), established by the Investment 
Promotion Act of 1977, is Thailand's central investment promotion 
authority. The BOI lists five priority sectors (detailed below), 
covering hundreds of types of businesses eligible for investment 
incentives. Generally, the most generous incentives are offered to 
those economic activities that bring new technology to Thailand and 
locate investment in less-developed provinces. BOI incentives are of 
two basic types: tax-based (including tax holidays and tariff 
exemptions) and non-tax privileges (guarantees, special permissions, 
services, etc.). 
 
The BOI's investment policy is as follows: 
 
- In order to maximize the benefits of investment to the country, 
and in line with policies supporting good governance, the BOI uses a 
performance-based system that requires promoted investors to submit 
evidence of compliance with the conditions of their approval in 
order to claim incentive benefits. 
 
- To increase the global competitiveness of Thai exports, projects 
with an investment 10 million baht (approximately US$300,000) or 
more, excluding the cost of land and working capital, are required 
to obtain international standards certification, such as 
International Standards Organization (ISO) 9000. 
 
- In order to ensure that Thai investment policy is in line with all 
international obligations, the BOI has lifted all local content and 
export requirements. 
 
- The BOI pursues a decentralization policy to encourage the 
distribution of opportunities and prosperity to the least-developed 
provinces. Projects locating in the least-developed provinces will 
receive maximum incentives. These provinces consist primarily of 
provinces in which average per capita income has been below 85 
percent of the national average during the past three years, 
including Sisaket, Nong Bua Lamphu, Surin, Yasothon, Maha Sarakham, 
Nakhon Phanom, Roi-Et, Kalasin, Sakon Nakhon, Buri Ram, Amnat 
Charoen, Phraea, Phayao, Nan, Satun, Pattani, Yala, and Narathiwat. 
 
- To support the development of small- and medium-sized enterprises 
(SMEs), the minimum investment amount shall remain at one million 
baht (approximately $30,000), excluding the cost of land and working 
capital. 
 
- To promote investment in key sectors, five priority areas have 
been identified: 
- Agriculture and agricultural products; 
- Environmental protection and/or restoration; 
- Direct involvement in technological and human resource 
development; 
- Public utilities, infrastructure, and services and; 
- Targeted industries, including agro-industry, automotive, 
information technology/electronics, high value-added services, 
semi-conductors, manufacture of machinery and equipment, software 
parks, and high-quality upstream steel. 
 
Besides the five priority activities, the BOI has identified other 
activities which are also eligible for promotion as follows: 
 
- Mining, ceramics and basic metals; 
- Light industry; 
- Metal products; 
- Chemicals, paper and plastic; 
- Services and public utilities 
 
Specific BOI incentives include: 
 
- Tax incentives: exemptions/reductions of import duties on imported 
machinery; reductions of import duties on imported raw materials and 
components; exemptions from corporate income taxes for three to 
eight years; and, deductions from net income of infrastructure 
costs. 
 
- Permissions: to bring in foreign nationals to undertake investment 
feasibility studies; to bring in foreign technicians and experts to 
work under promoted projects; to own land for carrying out promoted 
activities. 
 
- Guarantees: against nationalization; against competition by new 
state enterprises; against state monopolization of the sale of 
products similar to those produced by promoted firms; against price 
 
BANGKOK 00000151  008 OF 017 
 
 
controls; against tax-exempt import by government agencies or state 
enterprises of competitive products; and, of permission to export. 
 
Tax incentives are the BOI benefits that offer the greatest 
advantage over non-promoted industries, though their relative value 
has declined in recent years with the general reduction of import 
duties and elimination of the former business tax system. The Value 
Added Tax (VAT) Law, which eliminated the business tax exemption, 
has no provision for the BOI to offer VAT exemptions or reductions. 
Investors must submit an application form along with supporting 
documentation to be considered for incentives. In most cases, the 
BOI decides within sixty days whether or not a project is eligible 
for investment privileges. BOI policy is to complete action on 
applications for projects valued in excess of 750 million baht 
(approximately US$22 million) within 90 days. 
 
The following revisions to the BOI investment promotion scheme 
became effective on August 1, 2000: 
 
- For projects in the manufacturing sector, majority or total 
foreign ownership is permitted in any zone. However, for projects in 
agriculture, animal husbandry, fishery, mineral exploration and 
mining and service businesses under Schedule One of the Foreign 
Business Act (FBA) B.E. 2542, Thai nationals must hold shares 
totaling not less than 51 percent of the registered capital. 
 
- The maximum allowable debt-to-equity ratio was lowered from 4:1 to 
3:1 for a newly established project, but expansion projects will be 
considered on a case-by-case basis. 
 
- Except for the electronic and agriculture industries, projects 
investing less than 500 million baht (about US$15 million), 
regardless of overall investment size, must produce added value 
equal to at least 20 percent of sales revenue. 
 
- For projects of more than 500 million baht (about US$15 million), 
excluding land and working capital. A feasibility study must be 
presented at the time of application. 
 
- State-enterprise projects are not eligible for BOI promotion, but 
concession projects (either Build Transfer Operate or Build Operate 
Transfer) by the private sector are eligible with some restrictions. 
For privatization of state enterprises, only expansions after the 
privatization are eligible for BOI promotions. 
 
- The BOI will continue to promote relocation of projects to Zone 2 
and Zone 3 (special groups of 12 and 58 provinces, respectively). 
However, in order to be eligible for new incentives, projects must 
relocate to an industrial estate or a promoted industrial zone. The 
income tax holiday is now five years for qualifying investments but 
the project with capital investment of 10 million baht (about 
US$300,000) or more could be eligible for income tax holiday of 
eight years if it is relocated to certain provinces in zone 3 
 
- The 58 provinces of Zone 3 will be divided into two areas, based 
on each province's state of development. New projects in Zone 3 will 
no longer be eligible for a 75 percent reduction of import duty on 
raw materials used for domestic sales but will be eligible for 
exemption of import duty on machinery. 
 
In 2001, the Thai government amended its investment promotion 
conditions for regional operating headquarters (ROHs). Business 
projects with registered capital of at least 10 million baht 
(approximately US$300,000), and in which overseas revenue accounts 
for at least half of annual income, are now eligible to receive BOI 
incentives, such as permission to own land, eased provisions for 
hiring expatriate staff, and additional tax breaks (such as a 
preferential corporate income tax rate of 10 percent versus 30 
percent and a flat 15 percent personal income tax rate for foreign 
employees for four years). In July 2008, the BOI waived import 
tariffs on machines for research and development for ROHs in order 
to attract more investment. There are currently 65 BOI-promoted ROH 
projects, most of which are in the manufacturing and service 
sectors, including U.S. companies such as Exxon Mobil Co., Ltd., 
Chevron Asia South Co., Ltd., General Motors Southeast Asia 
Operations Co., Ltd., and Ford Services (Thailand) Co., Ltd. 
 
In addition, the BOI has extended tax incentives in the automotive 
machinery sector so that all automobile assemblers are eligible for 
import duty exemptions on machinery, regardless of the BOI 
geographic investment zone in which they operate. Total initial 
investment costs for eligible projects must be at least 10 billion 
baht (approximately US$300 million). 
 
 
BANGKOK 00000151  009 OF 017 
 
 
In September 2002, the BOI promoted cluster development by relaxing 
zoning regulations. Projects formerly required to locate in Zones 2 
or 3 are now free to expand wherever they wish. On environmental 
protection grounds, however, tanneries, bleaching and dying plants, 
cyanide-based heat treatment facilities, and facilities for the 
recycling/re-use of unwanted materials are ineligible for this 
zoning relaxation. 
 
The BOI has also made "call center" facilities eligible for tax 
incentives. To be eligible, however, the project must be majority 
Thai-owned. 
 
Thailand's membership in the WTO has led to a relative decline in 
the importance of tax-based investment incentives. In general, 
therefore, the BOI is placing increasing emphasis on business 
facilitation and investment services. 
 
In June 2004, the BOI introduced special investment privileges to 
promote investment in four northeastern provinces, namely 
Chiayaphum, Nong Khai, Ubon Ratchathani, and Udon Thani, due to 
their low per capita Gross Provincial Product (GPP). With this 
designation, all operations located in these four provinces will 
receive special privileges (see below), regardless of their location 
within or outside of industrial estates. These incentives include: 
 
- A 50 percent reduction in corporate income tax for an additional 
five years beyond the initial 8-year exemption; 
 
- Double income tax deduction of costs for transportation and 
utilities for a period of 10 years; 
 
- Deduction of 25 percent of the project's infrastructure 
construction costs from net profit (for tax purpose) for a period of 
10 years. 
 
Additionally, the BOI will provide a one-stop service center for 
investors in these provinces in order to work and coordinate with 
related government agencies on their behalf. 
 
In early December 2005, the BOI approved new incentives in the form 
of tax advantages that should help boost the competitiveness of 
companies investing in Thailand's electrical and electronics 
industries. In order to qualify for new incentive packages, 
electrical and electronics companies have to be long-term investors 
with total investment of at least 15 billion Baht (approximately 
US$450 million) among other requirements. Those incentives include 
8-year corporate income tax exemption periods for projects in zone 
¶3. However, priority activities such as production of wafers and 
solar cells, will receive 8-year corporate income tax holidays 
regardless of project location. Furthermore, the BOI has granted 
duty exemptions for all electrical and electronics projects - not 
just those designed as long-term projects - permitting duty-free 
imports of upgraded or replacement machinery for the life of project 
operations. As long as they maintain BOI promotion status, projects 
can import machinery duty free on an on-going basis. In addition, 
the BOI has also expanded zone-based fiscal incentives for zone 1 
and zone 2 (Bangkok and surrounding provinces) for all electrical 
and electronics projects. For example, projects in Bangkok located 
outside industrial estates were previously ineligible for corporate 
income tax holidays. Under new incentives, they will be eligible for 
5-year exemptions. 
 
In late 2006, Kosit Panpiamrat, then Deputy Prime Minister and 
Minister of Industry, announced that the BOI should adopt a strategy 
focusing on strengthening the future industrial sector. The policy 
consists of the development of engineering and supporting industries 
complying with the development of knowledge and intellectual 
capital, promotion of linkages between foreign investment and 
domestic industries, and support of Thai-owned investment in 
traditional service industries. 
 
In mid-2007, to promote energy conservation, the BOI introduced a 
special package for the manufacture of "eco-cars." BOI conditions 
require that the vehicles meet international standards and other 
specifications such as production of 100,000 units per year from the 
fifth year of operation, five liters per 100 kilometers of engine 
fuel consumption, and a minimum pollution standard of EURO 4 or 
higher. Minimum investment is required to be at least five billion 
baht (or approximately US$150 million). Regardless of plant 
locations, the privileges will include a corporate income tax waiver 
of eight years and duty-free importation of machinery. However, the 
application window closed on November 30, 2007, with seven auto 
makers making submissions. The BOI granted eco-car privileges to 
Honda Automobile (Thailand), Suzuki Automobile Thailand, Siam Nissan 
 
BANGKOK 00000151  010 OF 017 
 
 
Automotive, Mitsubishi Motors (Thailand), Toyota Motors (Thailand), 
and Tata Motors (Thailand). 
 
In an attempt to revive the economies of the three southernmost 
provinces (Pattani, Yala, and Narathiwat), the BOI launched a 
special package for investment projects in the area in mid-2007. The 
package includes maximum tax incentives and 100 percent tax 
deductions for capital investment for three years. Applications must 
be submitted to the BOI by the end of 2009. 
 
In November 2008, the BOI and the Thai government began offering 
maximum incentives in six priority industries to celebrate 
Thailand's Investment Year 2008-2009. The measures are aimed at 
boosting investment during the projected global economic slowdown in 
¶2009. Under the special offer with BOI, investors can submit 
investment applications in the following six target sectors located 
in any provinces except Bangkok by the end of 2009. The special 
incentive package includes eight-year exemption of corporate income 
tax, a 50 percent reduction of corporate income tax for five more 
years, double deduction of transportation and utilities costs, and a 
25 percent deduction from net profit for facility installation and 
construction costs on top of normal depreciation capital. The six 
target sectors are: 
 
- Energy saving and alternative energy related businesses such as 
fuel produced from agricultural products; 
 
- High technology businesses such as functional fiber, medical 
equipment and vehicle parts; 
 
- Environmental-friendly materials and products manufacturing; 
 
- Mega projects-related businesses; 
 
- Tourism and real estate-related businesses; and 
 
- High-tech agricultural material-based business such as sweetener, 
dextrin and modified starch manufacturing. 
 
Complete information on BOI policies, programs, incentives, and 
application procedures can be found on the BOI web site at 
www.boi.go.th. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
Private entities may establish and own business enterprises. The 
principal forms of business organization under Thai law are sole 
proprietorships, partnerships, limited companies, and public limited 
companies. In addition, branches of foreign corporations are 
recognized, and a "representative" or "liaison" office of a foreign 
company may receive special recognition. Regardless of the form of 
business organization, most businesses must apply for business 
registration. Establishment of a business in certain sectors by a 
foreign entity may be restricted by the Foreign Business Act, or for 
U.S. investors may benefit from the Treaty of Amity and Economic 
Relations (AER) as discussed above. 
 
A Thai public limited company is similar to a corporation in the 
United States, and may be wholly owned by a foreigner unless the 
corporation is involved in a business activity reserved for Thai 
nationals. A public limited company is allowed to offer its shares 
to the public. Eight laws pertaining to individual industries limit 
foreign ownership of companies listed on the Stock Exchange of 
Thailand. 
 
Protection of Property Rights 
----------------------------- 
 
Property rights are guaranteed by the Constitution against 
condemnation or nationalization without fair compensation. Secured 
interests in property are recognized and enforced. 
 
Thailand has a civil law system under which all laws are embodied in 
statutes or codes promulgated by the government. This practice is in 
contrast to the common law system in many Western countries, where 
court interpretations of statutes serve as governing legal 
precedent. 
 
There is an independent judiciary that provides a forum for 
settlement of disputes. Agencies of the government, as parties to 
commercial contracts, may be sued in the courts, and cannot raise a 
defense of sovereign immunity. However, state property is not 
subject to execution. 
 
BANGKOK 00000151  011 OF 017 
 
 
 
There are four basic codes: Civil and Commercial Code, Criminal 
Code, Civil Procedure Code, and Criminal Procedure Code. In adopting 
these codes early in the twentieth century, Thailand selected 
features of the two major Western legal systems (common law and 
civil law), and adapted to circumstances in Thailand provisions 
drawn from Britain, Germany, Switzerland, France, Japan, Italy, 
India, and other foreign systems. Decisions and rulings of the 
judiciary and civil service can have considerable force as 
precedents. 
 
There are three levels to the judicial system in Thailand: the Court 
of First Instance, which handles most matters at inception, the 
Court of Appeals, and the Supreme Court. There are specialized 
courts such as the Labor Court, Family Court, Tax Court, the Central 
Intellectual Property and International Trade Court, and the 
Bankruptcy Court. 
 
Intellectual Property Protection: 
 
Widespread counterfeiting and piracy continue to plague intellectual 
property rights owners in Thailand. Particular areas of concern 
include counterfeiting of pharmaceuticals, apparel, and accessories; 
and optical media piracy, signal theft, book piracy, camcording and 
end user software piracy. In a trend of particular concern, an 
increasing volume of pirated and counterfeited products manufactured 
in Thailand is exported. The lack of sustained and coordinated 
enforcement, and, in particular, the lack of prosecution, remains a 
substantial problem. In 2007, Thailand was elevated from the Special 
301 Watch List, where it had been since 1994, to the Priority Watch 
List, reflecting an overall deterioration in the protection and 
enforcement of IPR. Thailand remained on the Special 301 Priority 
Watch List in 2008. 
 
Thailand's legal regime is in general compliance with the WTO 
Agreement on Trade Related Aspects of Intellectual Property (TRIPs), 
but questions remain about Thailand's implementation of obligations 
to protect pharmaceutical and agricultural test data from unfair 
commercial use, treatment of conflicting trademarks and geographical 
indications, broadcasting, and digital copyright issues. Thailand is 
a signatory to the Berne Convention, but not the World Intellectual 
Property Organization Copyright Treaty (WCT) or Performances and 
Phonograms Treaty (WPPT). In January 2008, the National Legislative 
Assembly approved Thailand's inclusion in the Patent Cooperation 
Treaty and the Paris Convention. Procedures to formally accede are 
still underway. 
 
Transparency of Regulatory System 
--------------------------------- 
 
In 1999, Thailand enacted a new Trade Competition Act intended to 
strengthen the government's ability to regulate price fixing and 
market monopolies. The law established a Trade Competition 
Commission with the authority to place limitations on market share 
and revenues of firms with substantial control of individual market 
sectors, to block mergers, and other forms of business combinations, 
and to levy fines for price-fixing and other proscribed activities. 
Since the law's implementation, several foreign motorcycle 
distributors were found guilty of violating the Act by forcing sales 
agencies to sell only their brands. The government continues to have 
the authority to control the price of specific products under the 
Act Relating to Price of Merchandise and Service B.E, 2542 (1999), 
which was meant to be phased out with the advent of a Competition 
Act. The Department of Internal Trade under the Ministry of Commerce 
administers this law and interacts with the affected companies 
although only the "Committee on Price of Merchandise and Service" 
make the final decision on what products to add or remove from price 
controls. As of January 2009, out of 36 controlled commodities, only 
sugar is subject to a price ceiling. Besides the 36 controlled 
commodities, practically any producer of consumer products is 
prohibited from raising prices without first notifying the Committee 
of its intention to do so. The government also uses its controlling 
stakes in major suppliers of products and services such as Thai 
Airways and PTT to influence prices in the market. 
 
Thailand has extensive legislation aimed at the protection of the 
environment, including the National Environmental Quality Act, the 
Hazardous Substances Act, and the Factories Act. Food purity and 
drug efficacy are controlled and regulated by a Food and Drug 
Administration with authority similar to its U.S. counterpart. 
Likewise, labor and employment standards are set and administered by 
the Ministry of Labor. 
 
Despite the good intentions of most regulatory regimes, consistent 
 
BANGKOK 00000151  012 OF 017 
 
 
and predictable enforcement of government regulations remain 
problematic for investment in Thailand. Gratuity payment to civil 
servants responsible for regulatory oversight and enforcement 
remains a common practice. Through such payment, transactions can be 
expedited. Firms that refuse to make such payments can be placed at 
a competitive disadvantage when compared to other firms in the same 
field. However, most observers believe that the overall trend toward 
transparency in regulatory enforcement is positive, especially for 
foreign-owned businesses. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
The Thai government maintains a regulatory framework that broadly 
encourages investment and largely avoids market-distorting support 
for specific sectors. Government policies generally do not restrict 
the free flow of financial resources to support product and factor 
markets, and credit is generally allocated on market terms rather 
than by "directed lending." Legal, regulatory, and accounting 
systems are largely transparent, despite significant problems in 
some areas. The Thai government has devoted considerable effort to 
bringing these systems into line with international norms, and 
important progress has been made. However, much remains to be done 
to implement legal and regulatory changes, and human resource 
constraints will limit overall progress in some areas, particularly 
auditing, for the foreseeable future. 
 
In 2002, Thailand established National Corporate Governance 
Committee (NCGC), chaired by the Prime Minister or Deputy Prime 
Minister, which was assigned to implement international-standard 
corporate governance policies. In conjunction with Thai Rating and 
Information Services Co., Ltd. (TRIS), the Stock Exchange of 
Thailand (SET) and the Thai Securities and Exchange Commission (SEC) 
began rating companies on their corporate governance practices. The 
NCGC claimed that Thai corporate governance policies cover most key 
points addressed by the Sarbanes-Oxley Act in the U.S. 
 
Foreign investors are not restricted from borrowing on the local 
market, but there are a number of regulations that affect foreign 
portfolio investment. Thailand maintains regulatory maximum foreign 
ownership limits, and shares of listed companies are traded on both 
a domestic and alien (or foreign) board to enable authorities to 
track foreign ownership. Limits on foreign ownership of Thai 
companies are perhaps most prominent in the financial sector. Under 
the new Financial Institutions Business Act (implemented in August 
2008), foreign share holders may retain a 49 percent stake in 
financial institutions, up from 25 percent under the previous acts. 
Foreign ownership between 25 percent and 49 percent requires prior 
approval from the Bank of Thailand. The new law also allows the Bank 
of Thailand to authorize foreign ownership above the 49 percent 
limit if deemed necessary to support the stability of the overall 
financial system in an economic crisis. This type of emergency 
action also requires the support and approval of the Minister of 
Finance. In theory, the private sector has access to a wide variety 
of credit instruments, ranging from fixed term lending to overdraft 
protection to bills of exchange and bonds. In fact, however, private 
debt markets are not well-developed, and most corporate financing, 
whether for short-term working capital needs, trade financing, or 
project financing, is commercial bank and financial institution 
borrowing. The Ministry of Finance is working on developing 
Thailand's debt markets. 
 
Following the 1997 financial crisis, banks generally overhauled 
their lending systems and have since taken a more conservative 
approach. Thai borrowers were also reluctant to take on more debt 
due both to overcapacity and a desire to maintain clean balance 
sheets. In recent years, external factors such as problems in the 
U.S. sub-prime market raised the volatility of international 
investment flows and the global financial system, adding risks to 
Thailand's overall macroeconomic and financial stability. Due to 
perceived increased risk and ongoing concerns about their credit 
quality since the global economic downturn, financial institutions 
have tightened their credit standards for loans and credit lines to 
enterprises, as well as to households. After peaking at 47 percent 
of total lending in May 1999 from the financial crisis, 
non-performing loans slowly declined to stand at 3.29 percent of 
total loans in September 2008. 
 
The Thai Asset Management Corporation (TAMC) is a major component of 
the government's financial reform plan with broad legal powers to 
expedite debt restructuring and press creditors and debtors to the 
negotiating table. Assets are transferred at collateral value, 
excluding personal guarantee, with payment coming in the form of 
ten-year non-negotiable bonds issued by the TAMC and guaranteed by 
 
BANGKOK 00000151  013 OF 017 
 
 
the Financial Institution Development Fund (FIDF). Interest paid by 
the bonds is tied to average deposit rates quoted by Thailand's five 
largest banks. 
 
In addition to legal limits on foreign ownership in certain sectors, 
Thai firms employ defenses against foreign investment primarily 
through cross- and stable-shareholding arrangements. Such defenses 
against hostile takeovers are typically applied against all 
potential investors, rather than against foreign potential investors 
alone. Companies are permitted to specify limits on foreign 
ownership more strict than those established by the government. In 
general, limits on foreign ownership and participation in the Thai 
economy have eased since the Asian Financial Crisis. 
 
Political Violence 
------------------ 
 
On September 19, 2006, the military overthrew the administration of 
Thaksin Shinawatra in Thailand's first coup since 1991. The 
bloodless coup took place in a period of political uncertainty while 
the PM and most of his cabinet were abroad. Opposition to the coup 
was mostly limited and non-violent, though on New Year's Eve 2006 a 
series of eight bombs exploded in different areas of downtown 
Bangkok, killing three people and wounding thirty-eight. Interim 
Prime Minister Surayud initially blamed the explosions on elements 
loyal to Thaksin, but to date no formal charges have been brought 
against any individual or group and there are numerous theories as 
to the actual perpetrators and their motives. 
 
In August, 2007, the National Legislative Assembly approved a new 
constitution, replacing the 1997 constitution. On December 23, 2007, 
peaceful national elections were held to restore a 
democratically-elected government. Throughout the second half of 
2008, a political protest group called the People's Alliance for 
Democracy (PAD) held large demonstrations against the government. In 
late August 2008, PAD protestors occupied Government House, where 
the Prime Minister's Office is located; they held the compound for 
months. PAD protestors also occupied Bangkok's civilian airports on 
November 25, impeding the facilities' functioning and departing only 
on December 3, after the collapse of the government headed by 
then-PM Somchai Wongsawat. 
 
During late 2008, there were occasional firearms discharges and 
explosions in the vicinity of the Government House compound and the 
airports, when they were under PAD occupation. The explosions seemed 
intended to injure PAD sympathizers. Several people died as a 
result, and dozens were injured. An October 2007 PAD protest at the 
parliament led to a clash between PAD and the police, with at least 
two PAD sympathizers killed and over 100 PAD protestors and police 
injured. Protestors sympathetic to Thaksin, and opposed to PAD, have 
also held large rallies in Bangkok. These gatherings have been 
largely peaceful, although PAD and pro-Thaksin demonstrators have 
confronted each other violently on occasion. The protests largely 
died down by the end of December 2008, as a new government led Prime 
Minister Abhisit Vejajjiva settled into office. 
 
An important political problem for the Thai government is the 
ongoing political violence in Thailand's southern-most provinces 
(Yala, Narathiwat, and Pattani). Efforts to quell the 
ethno-nationalist insurgency, which has led to over 3,000 deaths 
since 2004, have not yet had much effect. 
 
Corruption 
---------- 
 
Thailand has laws to combat corruption. The independent National 
Counter-Corruption Commission (NCCC) coordinates official efforts 
against corruption. In December 2003, Thailand is a signatory to the 
U.N. Convention against Corruption but has delayed ratification 
pending a review of legal issues. 
 
American executives with long experience in Thailand advise 
new-to-market companies that it is far easier to avoid getting 
started with corrupt transactions than to stop such practices once a 
company has been identified as willing to operate in this fashion. 
American firms that comply with the strict guidelines of the Foreign 
Corrupt Practices Act are able to compete successfully in Thailand. 
 
Despite recent improvements, both foreign and Thai companies 
continue to complain about irregularities in the Thai Customs 
Department. Recent Thai administrations have stated publicly their 
intention to improve transparency in the evaluation of bids and the 
awarding of contracts. Increasing media scrutiny of public figures 
has raised political pressure to curtail favoritism and corruption. 
 
BANGKOK 00000151  014 OF 017 
 
 
However, convictions against public officials on corruption-related 
charges are rare, and the legal system offers inadequate deterrence 
against corruption. Nonetheless, the press features frequent 
allegations of irregularities in public contracts, most notably over 
the use of public lands, procurement favoritism (e.g., revising 
requirements so that a preferred company wins over its competitors), 
and police complicity in a variety of illegal activities. 
 
According to some studies of Thailand, a cultural propensity to 
forgive bribes as a normal part of doing business and to equate cash 
payments with finders' fees or consultants' charges, coupled with 
the low salaries of civil servants, encourages officials to accept 
illegal inducements. The leaders of the 2006 coup announced that the 
key impetus to their action was the "widespread corruption" of 
Thaksin and his government. An "Asset Examination Committee" was 
created to examine suspect transactions of the previous regime, and 
formal charges were levied against several members of Thaksin's 
family in 2007. 
 
Bilateral Investment Agreements 
------------------------------- 
 
The 1966 iteration of the U.S.-Thai Treaty of Amity and Economic 
Relations (AER), discussed above, allows U.S. citizens and 
businesses incorporated in the U.S., or in Thailand that are 
majority-owned by U.S. citizens, to engage in business on the same 
basis as Thai nationals. Under the AER, Thailand is permitted to 
apply restrictions to American investment only in the fields of 
communications, transport, banking, the exploitation of land or 
other natural resources, and domestic trade in agricultural 
products. 
 
In October 2002, the U.S. and Thailand signed a bilateral Trade and 
Investment Framework Agreement (TIFA). The TIFA establishes a Trade 
and Investment Council (TIC), which serves as a forum for discussion 
of bilateral trade and investment issues such as intellectual 
property rights, customs, investment, biotechnology, and other areas 
of mutual concerns. 
Thailand also has bilateral investment agreements (called agreement 
on the promotion and protection of investment) with 42 countries, 
including Germany, the Netherlands, the United Kingdom, China, and 
members of the Association of Southeast Asian Nations (ASEAN). These 
agreements establish guidelines for expropriation compensation and 
the repatriation of capital, but do not include national treatment 
provisions. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
The Overseas Private Investment Corporation (OPIC) is open for 
business in Thailand, and can provide political risk insurance for 
inconvertibility and transfer, expropriation, and political violence 
for U.S. investments including equity, loans and loan guarantees, 
technical assistance, leases, and consigned inventory or equipment. 
OPIC Insurance is currently insuring three U.S. 
corporations/organizations involved in telecommunications, 
humanitarian services, and economic development in Thailand. Most 
recently, OPIC provided insurance to the Asia Foundation. OPIC 
direct loans and loan guarantees are also available for business 
investments in Thailand, and cover sectors as diverse as tourism, 
transportation, manufacturing, franchising, power, and others. 
Historically, OPIC has committed over US$32.5 million in financing 
to investments in Thailand. In addition, OPIC supports seven equity 
funds that are eligible to invest in projects in Thailand. 
 
OPIC established a special line of credit of up to US$175.75 million 
to mobilize U.S. private sector investment in the reconstruction of 
nations devastated by the December 2004 tsunami. The credit line was 
part of an OPIC Tsunami Reconstruction Finance Initiative intended 
to help speed the rehabilitation of housing and infrastructure in 
affected countries, including Thailand. Thailand became a member of 
the Multilateral Investment Guarantee Agency (MIGA) in October 
¶2000. 
 
OPIC-financed loans of up to US$200 million per project are also 
available for business investments in Thailand, and cover sectors as 
diverse as tourism, transportation, manufacturing, franchising, 
power, and others. In addition, OPIC supports six new private equity 
funds that are eligible to invest in clean and renewable energy 
projects in emerging markets worldwide, including Thailand. Through 
OPIC, investors have access to political risk insurance, debt 
financing, and equity. 
 
Labor 
 
BANGKOK 00000151  015 OF 017 
 
 
----- 
 
According to the National Statistics Office, as of October 2008, 
Thailand has a labor force of 38.34 million workers out of a total 
population of 66.51 million. This figure includes Thai nationals 
fifteen years of age or older. 
 
The official unemployment rate averaged 1.38 percent during 2008, 
but does not include an estimated one to two million seasonally 
unemployed agricultural workers. As a result of the global economic 
downturn, the manufacturing sector has begun to show signs of 
increased unemployment since May 2008. The agricultural and service 
sectors have been able to absorb the unemployed works from the 
manufacturing sector, keeping the overall rate very low. 
Unemployment is currently close to the level that prevailed before 
the 1997-98 financial crisis. 
 
The Thai government's decision not to forcibly repatriate large 
numbers of foreign workers in the agriculture, fisheries, 
construction, and other semi-skilled sectors may also have affected 
employment levels. Since 2004, the Thai government has allowed 
illegal migrant workers from the neighboring countries of Laos, 
Cambodia, and Burma, to register with the government to legally stay 
and work in Thailand. As of November 2008, there were 560,000 
migrants registered with the Thai government; however, private and 
government sources estimate that the number of illegal migrants 
currently living and working in Thailand could be as high as 1.5 
million. 
 
Despite past rapid growth in the industrial and service sectors, 37 
percent of the Thai labor force is still employed in the 
agricultural sector. However, the shift of workers from agriculture 
is continuing, especially in the Northeast, where agricultural 
productivity and investment are lower. As a consequence, recent 
years have seen a constant flow of rural, generally unskilled Thais 
seeking work in Bangkok and the more industrialized regions, both 
seasonally and on a permanent basis. This ready availability of 
migrant labor contributed to the rapid growth of Thailand's 
industrial and construction sectors. 
 
In the past, many multinational firms brought in expatriate 
professionals because qualified local personnel simply were not 
available, even at high salaries. Finding, training, and retaining 
qualified employees to work in the manufacturing facilities being 
developed in industrial estates, such as those along the Eastern 
Seaboard, will continue to be a challenging government priority. 
 
Thailand's educational system is still geared to the needs of a 
largely agrarian, traditional economy and society and lags behind 
the country's contemporary skills requirements. The government has 
made great progress over the last two decades in providing basic 
education. Thailand's gross primary school enrollment in 2008 was 
100.35 percent (Note: The official primary enrollment age is 6-11; 
in practice, however, children outside that age group may also 
enroll in school, pushing the percentage over 100). The learning 
rate (the ratio of the population over 15 years of age which has 
completed primary education to the total population of 15 years of 
age and over) was measured by the Thai government as 60.2 percent. 
Of a total of 38.34 million employed persons in 2008, 31.1 percent 
had education of less than elementary level, 21.9 percent had 
elementary, 15.1 percent had lower secondary, 13.0 percent had upper 
secondary, and 15.3 percent had university degrees. 
 
An integral part of Thailand's educational reform program, the 
country's first National Educational Act was promulgated in 1999. 
The Act stipulates the right of all Thai citizens to receive free 
basic education public education for at least twelve years and 
raised the level of compulsory education from six to nine years. 
Pursuant to the 1999 Act, the free basic education and compulsory 
education provisions took effect in August 2002. Children are 
required to enroll in a basic education institution from the age of 
seven, and must remain in the educational system through the age of 
sixteen. In January 2009, the government announced a plan to pay for 
uniforms, fees, school supplies and other expenses that had kept the 
children from poor families from attending school despite the fact 
that there were no tuition charges. 
 
All employees must define the terms of employment for their staff, 
and employers with ten or more employees are required to specify 
working regulations. The Labor Protection Act, enacted in 1998, 
brought labor practices more in line with International Labor 
Organization (ILO) standards. The law cut the workweek to a maximum 
of forty-eight hours, including overtime for all types of work, with 
overtime payable at one and one-half times the hourly rate. 
 
BANGKOK 00000151  016 OF 017 
 
 
 
Hazardous work may not exceed seven hours per day or forty hours per 
week. All employees are entitled to a vacation of six workdays per 
year, in addition to thirteen holidays traditionally observed in 
Thailand. Under the labor law, the employment of children under the 
age of fifteen is prohibited, and there are restrictions on the 
employment of children and youths between the ages of fifteen and 
eighteen. 
 
The Thai government amended the Labor Protection Act in 2008 to help 
promote standards for contract labor. The Act now requires an 
employer to provide benefits and welfare without discrimination to 
the contract laborers. The Act also extended protection for 
employees against sexual abuse and harassment in the workplace. 
 
Thailand's social safety net is considered inadequate by 
industrialized-country standards. The social security scheme 
consists of two systems. The Workmen's Compensation Act of 1994 
requires employers with one or more employees to contribute 0.2-1.0 
percent (depending on the assessed risk of the workplace) of the 
employees' annual earnings to the Workmen's Compensation Fund. The 
Fund provides benefits to employees who are injured, sick, disabled, 
or die from work-related injury. Pay-outs range from a minimum of 
2,000 to a maximum of 9,000 baht per month. The second major system, 
the Social Security Act, has been in effect since 1990. This Act 
also covers enterprises with one or more employees. Contributions to 
the Social Security Fund from the government, the employer, and the 
employee are mandated. The Social Security Fund provides 
compensation to insured workers under six categories: injury or 
sickness, disability, maternity, death, child welfare, and pensions. 
In the first four categories, each party contributes 1.5 percent of 
the wages to the insured. For child welfare and old age cases, three 
percent is contributed. Effective January 1, 2004, the Social 
Security Fund covers unemployment compensation. If an employee is 
laid off, he is entitled to receive 50 percent of his wages for 180 
days. In practice, disbursal of unemployment benefits is dependent 
on the state of the economy and the government's financial 
resources. 
 
The labor relations climate is generally peaceful, and formal 
strikes are infrequent. There were two worker strikes recorded in 
2007 and three employer lockouts. Less than two percent of the total 
labor force is unionized; unionization rates are high only in state 
enterprises. As of December 2007, there are 43 state-owned 
enterprise unions with 170,630 members, and 1,243 private labor 
unions with 331,250 members. 
 
Foreign-Trade Zones/Free Ports 
------------------------------ 
 
The Industrial Estate Authority of Thailand (IEAT), a 
state-enterprise under the Ministry of Industry, established the 
first industrial estates in Thailand, including Laem Chabang 
Industrial Estate in Chonburi Province and Map Ta Phut Industrial 
Estate in Rayong Province. More recently, private developers have 
become heavily involved in the development of these estates. The 
IEAT currently operates twelve estates, plus 26 more in conjunction 
with the private sector in 14 provinces nationwide. Private sector 
developers operate over 50 industrial estates, most of which have 
received promotion privileges from the Board of Investment. 
 
In addition, the IEAT established ten special IEAT Free Zones 
(renamed from export processing zones or free trade zones), reserved 
for the location of industries manufacturing for export only, to 
which businesses may import raw materials and export finished 
products free of duty (including value added tax). These zones are 
located within industrial estates, and many have customs facilities 
to speed processing. The free trade zones are located in Chonburi 
(two), Lampun, Pichit, Songkhla, Samut Prakarn, Bangkok (at Lad 
Krabang), Ayuddhya (two), and Chachoengsao. In addition to these 
zones, factories may apply for permission to establish a bonded 
warehouse within their premises to which raw materials, used 
exclusively in the production of products for export, may be 
imported duty free. 
 
Foreign Direct Investment Statistics 
------------------------------------ 
 
Foreign direct investment (FDI) (net inflows from non-banking sector 
only), totaled US$8.3 billion in 2008 (Jan-Oct), compared with 
US$10.2 billion in 2007 (full year), and US$10.5 billion in 2006. 
Major FDI recipients included real estate financial institutions 
(US$1.7 billion), real estate (US$1.1 billion), machinery & 
transport equipment (US$1.1 billion), services (US$719 million), and 
 
BANGKOK 00000151  017 OF 017 
 
 
mining and quarrying (US$545 million) sectors. 
 
Japan was the biggest source of FDI in 2008 (Jan-Oct), at US$2.15 
billion, closely followed by Singapore at US$2.04 billion.  U.S. FDI 
for the same period was US$983 million, and the United Kingdom FDI 
was US$329 million. There are no reliable statistics available for 
cumulative investment by country of origin. 
 
The Embassy estimates the total present value of U.S. investment in 
Thailand to be in excess of US$23 billion. According to the Board of 
Investment (BOI), in 2008 (Jan-Nov), 26 U.S. investment projects 
approved by the BOI totaled 7.3 billion baht (US$221.5 million), 
including the following (note that a U.S. investment is classified 
as any investment with at least ten percent U.S. capital, and 
companies below are based on January to June 2008 data only; 
projects listed below could be either an expansion project or a 
newly established factory): 
 
- LSI (Thai) Ltd. with 7.2 billion baht (US$218 million) investment. 
Integrated circuit with 700 million piece capacity; 100 percent 
Colgate-Palmolive (Thailand) Ltd. with 739.6 million baht (US$23.0 
million) investment in soap production with 75 percent targeted for 
export; 
 
- General Motors (Thailand) Co., Ltd. with 7.1 billion baht (US$214 
million) investment. 48,000 vehicle units, 50 percent 
Colgate-Palmolive (Thailand) Ltd. with 419 million baht (US$13.0 
million) investment for body care products with 81 percent for 
export; 
 
- Xaloy Asia (Thailand) Ltd. with 130 million baht (US$4.0 million) 
investment for production of parts for plastic injection machine 
with 100 percent for export; 
 
- Rubberon Technology Corporation Ltd. with 54 million baht (US$1.7 
million) investment for synthetic rubber products with 90 percent 
for export; 
 
- Honeywell Electronic Materials (Thailand) Ltd. with 52.9 million 
baht (US$1.6 million) investment for production of thermal interface 
material for semiconductor with 100 percent for export. 
 
Web Resources 
------------- 
 
- Financial Sector Master Plan (FSMP): 
http://www.bot.or.th/bothomepage/BankAtWork/ 
FinInstitute/FISystemDevPlan/ENGVer/pdffile/e ng.pdf 
 
- BOI web site at http://www.boi.go.th/ 
 
- IEAT web site at http://ieat.go.th/ 
 
To the best of our knowledge, the information contained in this 
report is accurate as of the date published. However, the Department 
of State does not take responsibility for actions readers may take 
based on the information contained herein. Readers should always 
conduct their own due diligence before entering into business 
ventures or other commercial arrangements. The Department of 
Commerce can assist companies in these endeavors. 
 
JOHN