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FBA must move with the times
Bangkok Post – 19 March 2007
As the country continues to suffer from a lack of confidence among investors, domestic or foreign, the move by some members of the legislative assembly to form their own version of the controversial Foreign Business Act (FBA) is a welcome note and hope is that sane minds will prevail when the draft is presented for approval.
The government of Prime Minister Surayud Chulanont battered investor sentiment with Commerce Ministry amendments to the FBA approved in January. This new draft law, which is not only friendlier to foreign investors but also more in line with global trends, would be one way of redeeming the lost confidence.
The government plans to take 30 days to decide if it will use the new draft of the FBA prepared by a group of National Legislative Assembly (NLA) members, although alternatively the assembly could be asked to consider the new version together with the earlier FBA draft.
The new draft, which has been signed by more than 50 NLA members and which was drafted by former banker Somchai Sakulsurarat, broadly mirrors the government's version, but differs in how the issue of voting rights held by foreign shareholders is managed. Under the government version, the definition of a company as foreign is if foreigners hold more than half of the shares or control over half the voting rights. Companies in violation of the voting rights have one year to report their structure to the Commerce Ministry.
Under this version, existing firms operating under List 3 of the FBA, covering mainly service firms, would be "grandfathered", while firms operating under Lists 1 and 2, which include mass media, domestic transport and land trading firms, would have two years to restructure to meet the voting rights limit.
But under the NLA's version, the voting rights condition would remain a part of the definition of foreign companies, but the grandfather clause, restructuring period and reporting requirements would be removed.
Instead, a new committee would be established to review cases in which foreigners held a majority of voting rights, with firms operating on a "good faith" basis waived from the FBA. The committee would also examine the sources of capital of Thai investors to ensure that they were not acting as nominees.
Although the newer version of the law may sound like music to most investors' ears, there are bigger problems awaiting the new laws.
Among the biggest is the Minister of Commerce Krirk-krai Jirapaet, who is supposedly against the version recommended by the NLA. "There is no bigger stumbling block to the new version than him," said someone familiar with the situation.
Mr Krirk-krai's position is worrying. The Commerce Ministry's draft has been rejected by investors. It's partly to blame for a continued decline in domestic confidence, which is evident by the five-year low in the consumer confidence index last month. The insistence of continuing with the more idealistic rather than practical plan recommended by the NLA would only be a negative for the country going forward.
As regional economies, even those with communist ideologies, are now adapting to accommodate open market economic policies, Thailand needs to pay attention. China, which for decades has been fighting an internal battle over whether or not to amend some old laws, finally moved to amend its property and corporate tax laws last week, which was unimaginable a few years ago.
Vietnam on the other hand made similar changes and is attracting foreign investors. Against this background, Thailand it seems will be seen as the black sheep.
The decision concerning which version of FBA amendment will be adopted becomes more important especially with falling confidence and rising corruption at home. The latest survey by the Hong Kong-based Political and Economic Risk Consultancy ranked Thailand second only to the Philippines as the dirtiest countries in the region. Singapore was the cleanest.
It is therefore vital, despite this government being an interim one with only a few months left, to take action that will push the country along a new path. It is crucial that the government uses this rare opportunity to carve out a path for the future growth of the country. Taking its cue from the NLA's version of the FBA could be the first step in the long path ahead.
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