Foreign Business Act, B.E. 2542
The Foreign Business Act was a law enacted by the Chuan Leekpai-controlled National Legislative Assembly of Thailand in 1999 that limited foreign ownership of certain Thai industries. Its predecessor was the Alien Business Act of 1972, enacted by a military junta. Industries which must be majority-owned by Thais included the newspaper business, radio stations, television stations, rice farming, animal husbandry, fishing, land trading, mining, wholesaling and retailing, restaurants, and all service businesses. The law criminalized nominees, any Thai who held shares on behalf of a foreigner. Nominees could be fined 100,000 to 1 million baht and face up to 3 years in prison. However, the law did not prohibit foreigners from being the majority in the board of directors and also did not prohibit having different classes of shares with differing voting rights. This loophole allowed thousands of foreign-controlled businesses to operate in Thailand.
The new draft Foreign Business Act
The first draft was issued by the Thai Ministry of Commerce in December 2006. A second draft was done in March and the third and final draft was approved by the cabinet in April 2007. The main points of contention are :
- 1. The draft proposes to extend the definition of alien (foreign individuals or companies) as being that any company where foreigners hold half or a majority of the voting rights would be classified as alien and thereby restricted from participation in businesses regulated under the Foreign Business Act.
- 2. limited grandfathering is included. All foreign owned companies as under the new definition and that have been operating for a year have to apply to the Ministry of Commerce for a certificate with a year. Once the certificate has been issued they have to adjust their shareholding or voting profile to conform to the new definition of the act within 3 years. This would exclude most service businesses.
- 3. 100% foreign ownership was allowed for retail and wholesale businesses under the Foreign Business Act with the condition that 100 million Baht capital was fully paid or 20 million Baht per shop. That has now been abolished under the new Foreign Business Act.
Objections of the foreign business community
The foreign business community have objected to the draft on the following bases.
- 1. Thailand as a WTO member had equal national treatment of businesses of all WTO member countries, provided foreign equity investment was limited to 49%. The draft Foreign Business Act eliminates those rights.
- 2. Foreign companies in Thailand had for years structured their companies into different classes of shares with differential voting rights. These had been accepted by the Ministry of Commerce for years. The new Foreign Business Act will make those structures illegal.
- 3. All other countries such as Malaysia, Vietnam, China and India are opening their markets to foreign investment yet the draft Foreign Business Act by narrowing the definition of alien closes the Thai market and makes Thailand look as if it has a protectionist strategy.
References
- Original document of the Act ( Department of Business Development, Ministry of Commerce, Thailand)
- British Chamber of Commerce Thailand,(Draft FBA and Objections) [1]
- Bangkok Post, Who can own what?, 23 November 2006
- Bangkok Post, M.R. Pridiyathorn critiques proposed changes to foreign investment policy, 23 August 2007