Flexibility for foreign investors

Nation (16 November 2007)

The Commerce Ministry plans to set more flexible conditions to enable foreign investors to operate their businesses easily under the amended Foreign Business Act (FBA).

Business Development Depart-ment director-general Kanissorn Navanugraha said the FBA drafting subcommittee was considering better conditions to facilitate foreign investment by creating a clearer scope of business types listed in Annex 3, the list of protected businesses under the proposed amendments.

This is aimed at increasing foreign investors' confidence.

"The department will provide specific conditions of business types that were listed in Annex 3, so that foreign investors will know whether or not they can operate each type of business," said Kanissorn.

Currently, any foreign investor who wants to operate a business listed in Annex 3 is required to ask for the subcommittee's approval on a case-by-case basis. If the new law comes into effect, foreign investors would no longer be required to ask for the subcommittee's permission. The application and approval process would be predictable and clearer.

The Foreign Business Act covers three lists of protected business sectors deemed critical to national security and subject to degrees of protection. The most protected category is Annex 1, followed by Annex 2.

Foreign investors nonetheless have been keen to participate in the service businesses in Annex 3, but that annex does not allow foreigners to hold more than 50 per cent of shares unless they receive permission from the FBA subcommittee. This has made the approval and application process unpredictable and inconsistent.

Activities in Annex 3 include rice milling, fisheries, forestry, accountancy services, service businesses, legal services, agriculture, engineering, leasing, advertising agencies and retail and wholesale.

To offset the tighter definition of "control management" in the amended FBA, the ministry will adjust the list and requirements under this annex to keep the momentum of foreign investment in Thailand.

The National Legislative Assembly (NLA) earlier won in its bid to tighten the scope of foreign-business operation by expanding the definition of "control management" from simply the voting rights to the foreign shareholders' role in making the company's key decisions.

The final version of the definition has not been made public. The NLA's commissioner is considering the foreign-business bill. It is waiting to be resubmitted for the NLA's reading within two months, before the end of the NLA's term next January.

Kanissorn said since the bill would stipulate a tighter definition of control management, the ministry would relax conditions in all three annexes.

The options include extending the period for companies to adjust their shareholding structure, in order to comply with the new law, from two or three years to five years for businesses under Annexes 1 and 2.

The government is also considering providing a grandfather clause, allowing businesses in Annex 2 to continue without any adjustment.

Meanwhile, Deputy Prime Minister and Industry Minister Kosit Panpiemras said during a visit to Japan yesterday he was aware of lingering concerns about the exchange rate and initiatives undertaken to reform the Foreign Business Act.

"Regarding the Foreign Business Act, my view is the next elected government should be involved, since the time left for this government is limited. In any event, the vast majority of investments in manufacturing would not be affected, since they come under the investment-promotion law," he told a Japanese audience.

"While these issues are undoubtedly important, and there is a fiduciary responsibility that their ramifications be fully explored, I believe we can all agree that the success of the Thai-Japanese relationship transcends short-term currency fluctuations or legal reforms."