All’s well that ends well?

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In mid-November, UK Ambassador Mark Kent used his blog page on the FCO website1 to criticise proposed changes to Thailand’s Foreign Business Act (FBA). It was the first time I’d realised that ambassadors had blogs and, while I suppose that they have as much right to post blogs as anyone else, it strikes me as inappropriate. (Although the number of things that strike me as inappropriate increase exponentially with each year that passes!)

The current FBA is designed to restrict foreign investment in Thailand, including the limitation of foreign ownership of Thai-based companies to 49%, unless they are granted privileges under legislation such as a Treaty of Amity2 or by the Board of Investment (BoI).

GATSO-jamming equipment (Photograph © Andrew Dunn, 26 June 2005 - http://commons.wikimedia. org/wiki/File:Gatso_Camera.jpg)GATSO-jamming equipment (Photograph © Andrew Dunn, 26 June 2005 –
http://commons.wikimedia. org/wiki/File:Gatso_Camera.jpg)

However, the spirit of this ownership limitation has for a while been abused by some foreign investors through the issuance of preferential shares – effectively giving them control of the company, without owning the majority stake-holding. Mark Kent was writing in response to the reported government proposals that would apparently prevent the issuance of such shares.

The Ambassador sees this as the Thai authorities potentially taking “a step backwards at the prospect of the next stage of economic development.”3

Firstly, let me say that I understand his concerns and agree with his assertion that “Technology, knowledge, innovation” are “the very ingredients that Thailand seeks to move up the value chain.” I also acknowledge that these three factors are “the things that international companies offer through foreign direct investment,”4 as he puts it.

However, there are several reasons why the piece made me feel uncomfortable.

To start with, although the blog post was doubtlessly well-intentioned, I don’t think the UK Ambassador is the right person to speak about such matters. Of course, part of his role is to defend UK business interests; yet to me it sounds condescending for the representative of the UK in Thailand to suggest how local business laws should be implemented – particularly given Britain’s colonial past in Southeast Asia. It is also questionable as to whether a blog is the correct channel to express such reservations – it sounds to me like he’s shouting from the rooftops, without any power to do anything about it.

Secondly, we’re not talking about proposals to implement a new ‘anti-foreigner’ law, as the blog post insinuated. The ambassador was actually trying to defend the existence of a loophole, allowing foreigners to work against the spirit of the existing law. Imagine the reaction in Britain if the Thai Ambassador in London were to write a blog with links to GATSO-jamming equipment providers, to make sure that drivers could speed on the roads without getting caught.

I’ve always advised my non-Thai corporate clients against the preferential share route because of the very fact that it goes against the spirit of the law. In my view, such practice is a risky business, as there will undoubtedly come a day – which has been threatened many times since the FBA’s implementation in 1999 – when the loophole is closed, meaning firms having to rework their corporate structure post-haste. In any case it’s also largely unnecessary nowadays, as the BoI has been so successful in promoting foreign ownership of businesses in Thailand – an area where MBMG has enabled clients to set up a wide range of 100% foreign-owned businesses in the technology, professional and service sectors, as well as manufacturing – initially the BoI’s main focus.

Also, being an Oxford law graduate, I’m sure Mark Kent is aware of the clean hands maxim in English law – i.e., that you cannot claim an injustice in a law, if you are not acting within the spirit of the same law yourself.5 Thus, if a foreign company which is exploiting the loophole feels it is being untreated unfairly under the FBA, it is unlikely that a complaint will be seen in a positive light. For that reason, I feel that issuing preferential shares of a Thai company to foreigners is not advisable – least of all from an ambassador.

The ambassador’s view also appears to come from the premise that all free trade is good. The 1930s indeed teach us that protectionism leads to economic disaster. It is also clear, however, that in a totally free market the smaller businesses get gobbled up by the big multinationals. Also, if multinationals are permitted to set up manufacturing plants without restriction, as soon as wages increase above a certain point, the multinationals will move somewhere cheaper. Thus for local businesses to thrive in any country – not just Thailand – it’s important to set down effective rules.

That said, at early December’s JFCCT luncheon, Prime Minister Prayuth Chan-o-cha made it clear that his government, having examined the matter and seeing no benefit in any changes, will leave the FBA intact as is without changes. He said that he considered this the end of the matter and sought to highlight Thailand’s enviable advantages as a destination for foreign capital, foreign know-how and foreign visitors, emphasizing how safe all three are in the Kingdom.

Prime Minister Prayuth reinforced this point by stating that one of the primary aims of his government is the total eradication of all corruption in Thailand. He stressed that external, transparent agencies will be used in the infrastructure expansion plans to be enacted next year and promised the eradication of corruption will reduce investment and project costs by 30% which will boost Thai competitiveness and make the country even more attractive as an investment destination.

He also restated his government’s determination to improve environmental standards, to make the country safer in that regard too, wedded to a more sustainable growth model.

Maybe it all seemed too good to be true for the JFCCT, who then pressed the Prime Minister on his commitment to liberalization of services (whatever that means). Deputy Prime Minister M.R. Pridiyathorn Devakula responded to the question by clarifying that the Prime Minister had just categorically stated that the FBA wouldn’t be touched. M.R. Pridiyathorn then added that the BoI now enables service businesses in all major business sectors except telecoms and banking; although in his view, examples like Telenor show that foreign telecoms operators are in practice free to do business in Thailand. He added that Bank of Thailand Governor, Dr. Prasarn Trairatvorakul, is currently overseeing a project that will lead to a more open Thai financial sector within a couple of years.

I think the really concerning thing about Mark Kent’s well-intentioned blog post is the potential damage it can cause. In the last few months Thailand has held talks on at least one occasion with China, with a view to forming closer business co-operation.6 Given the historical links many important Thai business families have with China, connections could conceivably be used to blur the distinction between local and foreign investors or create different classes of foreign investor.

Does the UK, or any other, government wish to be seen to be taking sides in this economic and political tussle? I imagine not.

Footnotes:

1 http://blogs.fco.gov.uk/markkent/2014/11/14/thailands-choice/

2 For example the Thai-US Treaty of Amity 1966, which allows US citizens/
US-incorporated businesses the to maintain majority or whole ownership

3 http://blogs.fco.gov.uk/markkent/2014/11/14/thailands-choice/

4 ibid

5 He who comes to equity must come with clean hands: Overton
v Banister 1844, 3 Hare 503, 67 E.R. 479

6 http://www.chinadaily.com.cn/business/2014-10/17/content_18759344.htm