VZCZCXRO5637
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHBK #2969/01 3271031
ZNR UUUUU ZZH
O 231031Z NOV 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9045
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAWJL/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHCHI/AMCONSUL CHIANG MAI IMMEDIATE 7323

UNCLAS SECTION 01 OF 04 BANGKOK 002969 
 
STATE FOR EAP/MLS, EEB 
STATE PASS TO USTR FOR BWEISEL, BKLEIN, VBROWN 
COMMERCE FOR EAP/MAC/OKSA FOR JKELLY 
SINGAPORE FOR FINATT BLEIWEIS 
TREASURY FOR OASIA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: ECON ETRD KIPR PREL TH
SUBJECT: MODERNIZING THAI CUSTOMS ONE STEP AT A TIME 
 
REF: A. BANGKOK 2678 (Prime Minister Meets AmCham) 
¶B. BANGKOK 2387 (Proposed Excise Tax Changes) 
¶C. BANGKOK 2320 (Ambassador Meets Pradit) 
¶D. BANGKOK 2185 (Reforming Thai Customs) 
¶E. BANGKOK 1684 (Deputy PM Korbsak on Customs) 
¶F. BANGKOK 1574 (Finance Minister Discusses Customs) 
¶G. BANGKOK 1305 (Deputy PM Suthep on Customs) 
 
BANGKOK 00002969  001.2 OF 004 
 
 
¶1. (SBU) SUMMARY: The newly appointed Director General of the Thai 
Customs Department, Dr. Somchai Sujjapongse, explained to us on 
November 11 that the government would modernize and reform Customs 
in three phases. The first would be a limited package to modify the 
penalty structure and would also include intent as a factor for the 
courts to consider, so that those who make innocent mistakes are not 
lumped together with those who were trying to cheat the system. This 
first package would be ready for Cabinet's approval in the coming 
weeks. The second phase would look at more comprehensive reforms 
including a ceiling on what individual officers can receive under 
the reward-sharing system, as well as procedures to establish 
advance binding rulings on valuation and classification. The third 
phase, much more ambitious, would abolish the Customs officer 
rewards system altogether.He repeated the word "abolish" two 
separate times to make sure we understood. The new Director General 
also responded positively to visiting USTR officials' requests to 
consider strengthening Customs ability to interdict pirated goods 
transiting Thailand and to engage with USTR in a DVC to review 
international best practices. END SUMMARY. 
 
¶2. (SBU) COMMENT: The Royal Thai Government has announced its 
intention to transform the Customs Department from "a duty collector 
to a trade facilitator." Modernizing an institution that has long 
been regarded as little more than a money-making machine will be an 
enormous task, but the Prime Minister and Finance Minister committed 
to the Ambassador their intent to push forward the necessary 
reforms. The government only signaled its willingness to take on 
this issue in August, in response to U.S., Japanese, EU, Australian 
and --importantly -- Thai Board of Trade complaints, and we believe 
they are making progress, even if not on the original 60-day 
timeline (reftels). We are in regular touch with the other 
complainants to share information and consider joint efforts. 
 
¶3. (SBU) COMMENT CONT'D: As Finance Minister Korn's pick for the DG 
job, Somchai has said publicly that he did not pay for the position 
and thus is not bound to supplement his salary while in it. 
Nevertheless, whether the young DG will be able to make these 
reforms happen still remains an open question. Even if he is able to 
get them to the Cabinet within the next six months, as he indicated 
to us is his goal, pushing the reforms through Parliament will take 
longer and provide many more opportunities for opponents to knock 
things off track, especially within Customs itself where many 
porcelain rice bowls are at risk of being broken. Somchai, a civil 
servant, has probably staked his career on this reform effort. If he 
is successful, he has a good chance of moving up to Permanent 
Secretary, the most senior civil service position in the Finance 
Ministry. If the government does not last long enough to see the 
reform effort through and new political masters are not so 
committed, he will be left out on a thin limb. END COMMENT. 
 
Somchai Takes the Reins at Customs 
---------------------------------- 
 
¶4. (SBU) EconCouns and CommCouns led an Embassy team including 
visitors from the Office of the U.S. Trade Representative in a 
meeting with Dr. Somchai Sujjaponge, the newly appointed Director 
General of the Customs Department, on November 11. Dr. Somchai 
replaced Wisudhi Srisuphan, who retired on September 30 at the 
mandatory retirement age of 60. In an unusual personnel shift, 
Somchai, then the Director General of the Finance Ministry's brain 
trust, the Fiscal Policy Office, was selected by Minister Korn 
Chatikavanij to take on the reform project at the Customs 
Department. 
 
¶5. (SBU) Dr. Somchai, an Ohio State graduate, was quick to tell us 
about his American connections. Not only did he receive his PhD in 
Finance from Ohio State University, Somchai also participated in the 
State Department's International Visitor Program in 1999. Somchai 
told us he was "very privileged" to participate in an individual 
program on banking and finance issues and still strongly believes in 
the importance of the IVP program to strengthening relations between 
the United States and Thailand. 
 
BANGKOK 00002969  002.2 OF 004 
 
 
 
One Step at a Time 
------------------ 
 
¶6. (SBU) As part of our continuing efforts to raise the concerns of 
American businesses with the Abhisit Administration, we called on 
Somchai to inquire as to where the customs reforms currently stand. 
We reiterated to him the U.S.'s longstanding concerns about customs 
procedures in Thailand, whether the lack of transparency 
(uncertainty about the duty rates that will be imposed and the 
valuation method that will be used), arbitrary valuation methods, or 
the onerous penalty regime. EconCouns detailed our amplified 
engagement with the government on these issues in recent months -- 
including meetings the Ambassador had with the Prime Minister, the 
Deputy Prime Minister, the Finance Minister, and the Deputy Finance 
Minister (reftels). 
 
¶7. (SBU) Since the Ambassador last met with Deputy Finance Minister 
Pradit on September 8 (ref C), the Customs Department has continued 
to mull over a set of reforms to address some of the most egregious 
and longstanding complaints. Pradit had promised to propose these 
reforms within sixty days of his August 19 announcement -- a 
deadline that has now passed. In response to our inquiry, Somchai 
explained that rather than attempt to reform the Customs Department 
in one fell swoop, the government has decided to carry out the 
reforms in three separate phases. 
 
Phase One: "The Most Demanding Issues" 
-------------------------------------- 
 
¶8. (SBU) Director General Somchai and Deputy Finance Minister Pradit 
have finalized an initial set of amendments to the existing Customs 
law to propose to Cabinet in order to fast track some of "the most 
demanding issues," Somchai told us. In this first phase of reform, 
the amendments would focus on providing flexibility to judges when 
issuing penalties in customs appeal cases. One amendment will change 
the appeal penalty to "up to four times" the duty-paid value from 
the existing mandatory four times the value. If the company accepts 
the initial fine and does not appeal to the Court system, the 
penalty will continue to be two times the duty (not the value). 
Somchai also explained that these amendments will revise the 
imprisonment provision from "not exceeding ten years" to "from six 
months to ten years." 
 
¶9. (SBU) Somchai proposed a new section on "tax avoidance" that 
distinguishes between fraudulent, criminal intent and inadvertent 
errors. The existing system penalizes importers "regardless of 
intent," but he explained that the amendments would add new language 
to allow Customs officials and the courts (if under appeal) to 
review whether the importer made an error or if the importer's 
intent was to cheat on taxes owed. 
 
Phase 2: More Comprehensive Reforms 
----------------------------------- 
 
¶10. (SBU) A committee within the Customs Department is currently 
reviewing the full Customs Act and proposing more comprehensive 
reforms to the overall system. This committee is largely composed of 
Customs Department lawyers, but representatives from several Thai 
business associations are also participating in this process. 
Somchai promised that the work of this committee, what he called 
phase two, would be complete within the next six months. 
 
¶11. (SBU) Somchai stated that this second phase would include 
reforms to the Customs rewards-sharing system and the establishment 
of advance binding rulings for valuation and classification 
decisions. The government will place a cap of 4 million baht 
(approximately USD 122,000) on the amount of the reward that can be 
shared with Customs officials. Under the existing system, Customs 
officials share up to 55 percent of the penalty amount, which is 
then divided between the officers in the unit involved in assessment 
of the penalty along with the rest of the chain of command, up to 
and including the Director General. This practice would continue 
under the revised system but the total reward would be capped at 4 
million baht. If the total penalty amount exceeds 4 million baht, 
the remainder would be placed into a "central fund" that can be used 
for capacity building at Customs, the procurement of needed 
equipment, or other areas that Customs identifies. 
 
¶12. (SBU) In a later meeting, Somchai also proposed including a 
 
BANGKOK 00002969  003.2 OF 004 
 
 
180-day limit on the Customs appeals process. Customs decisions are 
currently appealed within Customs' own institutional structures to 
an appeals committee, chaired by the Customs Director General 
himself. A company is unable to appeal a decision to an independent 
court until the internal Customs appeals process is finalized. Given 
the hefty penalties that can be applied during an appeal (four times 
the invoice value), companies have typically chosen to settle their 
cases directly with Customs, rather than embark on an uncertain 
appeal. Somchai, recognizing that this is of major concern to the 
business community, proposed limiting the internal appeals process 
to 180 days, after which the company could choose to pursue a court 
case even if the Customs officials had not finished the internal 
appeal. 
 
Phase 3: Abolishing the Rewards System? 
--------------------------------------- 
 
¶13. (SBU) Somchai clearly stated that he hoped to "abolish the 
rewards-sharing system" entirely. A revision to do just that would 
undoubtedly face significant opposition within the Customs 
Department, as the rewards have been enjoyed by customs officials 
for many years, but Somchai reiterated to us his intent to do so. 
 
¶14. (SBU) When we inquired about the timeline for the reforms, 
Somchai said he hoped the first and second phases would be completed 
within six months, but the third phase would be handled "in the 
future." (COMMENT: The proposal to abolish the rewards-sharing 
system is a major development. In previous conversations on this 
issue, government officials said the rewards system was simply "too 
sensitive" to discuss or even consider reforming. Somchai's plan to 
cap the officers' rewards, as well as his intent to abolish the 
system entirely in the future, reflects Prime Minister Abhisit's and 
Finance Minister Korn's desire to truly modernize the system, 
despite the entrenched interests within the Customs Department. END 
COMMENT.) 
 
Status of Specific Cases 
------------------------ 
 
¶15. (SBU) We also raised specific ongoing customs disputes of 
several American companies with the Director General, reiterating 
our concern about the treatment these companies continue to receive 
from the Customs Department (reftel C). The Ambassador previously 
sought the Finance Minsiter's and Deputy Finance Minister's 
assistance to settle these disputes, but most remained unresolved. 
Somchai responded that Deputy Finance Minister Pradit had called him 
prior to our meeting to stress that the Customs Department must 
handle these cases transparently and fairly -- and resolve them as 
soon as possible. Somchai added that the Amway case had been 
particularly difficult but said that he will "try his best to 
resolve the case quickly." With regards to the return of cash 
guarantees to the alcohol beverage industry, Deputy Director General 
Chaweewan Kongcharoenkitkul expressed her hope that the USD 800,000 
currently being held could be returned to the companies by the end 
of the year. She indicated that her division was awaiting further 
documents from industry, but she agreed to follow up with us. 
 
Strong Intellectual Property Enforcement 
---------------------------------------- 
 
¶16. (SBU) Rachel Bae, Director for Intellectual Property and 
Innovation at USTR, commended the Customs Department as one of the 
strongest intellectual property enforcement agencies in the Thai 
government. However, since the government was in the process of 
amending the Customs Act, she encouraged Somchai to consider 
including a provision to give ex officio authority to Customs 
officials to interdict shipments transiting Thailand's ports. Ms. 
Bae explained that the USG remains concerned about infringing 
exports from other countries that could be transshipped through 
Thailand. An amendment that empowers Customs officers to inspect and 
seize these infringing goods would improve overall Customs 
enforcement of intellectual property rights. Somchai said he would 
review the matter carefully and report back at a later date. 
 
USTR Proposes Digital Video Conference 
-------------------------------------- 
 
¶17. (SBU) Brian Klein, Director for Southeast Asia at USTR, noted 
that the USG stands ready to assist as Thailand reviews its customs 
law. He explained that USTR had previously proposed a digital video 
 
BANGKOK 00002969  004.2 OF 004 
 
 
conference to discuss the details of the proposed amendments, as 
well as to exchange customs best practices. The DVC would ideally 
include multiple agencies on both sides, including Customs, 
Commerce, and Foreign Affairs. The Director General said he would be 
glad to participate and immediately designated one of his staff 
members to help coordinate the details with USTR. 
 
JOHN