Two key Foreign business laws left in limbo
source: The Nation DECEMBER 2007

Both foreign investors and small local retailers await a decision by the new government on the two much-debated draft business laws - the amended Foreign Business Act (FBA) and the Retail and Wholesale Business Bill.

The public will be watching how the next government will deal with these two important pieces of legislation.

Foreign Business Act

The post-coup interim government initiated an amendment to the FBA following the 2005 Kularb Kaew nominee case. The company was accused of being a nominee shareholder for former prime minister Thaksin Shinawatra.

The amendment has had serious ramifications for foreign investors, as the government seemed to prescribe more restrictive conditions for them. The 1992 FBA allows foreign investors to hold a maximum 49-per-cent stake.

In December last year, a Commerce Ministry committee, which was established to amend the FBA, proposed that any company in which foreign shareholders' voting rights reached 50 per cent could be treated as a case of nominee shareholder practice. This stringent restriction has had a negative impact on foreign investors, as they are afraid of losing operational control of their businesses. Even worse, in the first reading of the amendment, the National Legislative Assembly (NLA), by a majority vote, agreed to tighten the regulations by expanding "control" to include "control management".

The Commerce Ministry withdrew the draft from the NLA to amend some details, focusing on stringent definition of "foreign shareholder". This additional amendment has affected foreign investor confidence even more. Finally, the House committee considering the amendment draft has suggested more flexible restrictions, pointing to protected business lists. This means the government would allow foreign investors operating in annexes I, II, and III to further their operations without any change. They are only required to ask for permission from the ministry if they want to expand their business.

However, the amendment came unstuck after the NLA's term ended, paving the way for the general election. The responsibility of taking up any unfinished amendments and sending the right signal to foreign investors has fallen on the next government.

Thai Chamber of Commerce chairman Pramon Sutivong said the chamber fully supports the FBA's amendment, as it would facilitate foreign investment in the long run. "It should be made clear to foreign investors which businesses are open for them." Peter J van Haren, chairman of the International Chamber of Commerce, said the new government should further amend the Act only if it would send a positive signal to foreign investors.

"Foreign investors want certainty, stability, fairness, and transparency in all laws and polices. Any unclear signals from the government would further lower confidence after the setbacks during the discussion on the FBA amendment," he said.

Van Haren said it was time to amend the Act, as much had changed over the years.

The current law is based on the ability of Thai businesses to compete in many sectors. Many of these sectors are now much more developed. Therefore, it may no longer be necessary to have such tight restrictions. Van Haren suggested both foreign investors and the government should work together as partners.

He warned that if the new government insisted on tightening regulations, it could face a similar reaction to the previous government. "Foreign investors have lost confidence to further operate their business in the Kingdom." However, he remains optimistic that the new government will find a smooth way to conclude this issue.

Retail and Wholesale Business Bill

Several rounds of serious demonstrations by small local retailers against retail giants prompted the Commerce Ministry to support them by framing the Retail and Wholesale Business Bill, designed to control aggressive expansion by large modern operators.

However, the end of the NLA's term before passing the draft law has disappointed both small retailers and the ministry. The draft law, created to promote fair practice between large and small retailers, has remained in limbo since 2000. The law was never passed because the Thaksin government did not approve it. The interim government agreed with the darft in principle, while the ministry strongly lobbied to ensure the Retail and Wholesale Business Bill would get past the NLA. But it finally failed.
The newly elected government will face the dilemma of having to decide whether to push the legislation through or abandon it.

Under the current draft, the focus would be on regulating retail and wholesale businesses in the following categories: discount stores, hypermarkets, supermarkets and cash-and-carry stores. Any type of retail and wholesale business generating more than Bt2 billion in sales revenue and having floor space of more than 2,000 square metres would need to comply with the law. Exempted from the draft are department stores, category killers and speciality stores. Most people agree that Thailand needs a law to regulate the retail business. However, some disagree with the draft, arguing that it lacks clarity to regulate large players.

Darmp Sukontasap, senior vice president of Ek-chai Distribution, operator of Tesco Lotus, said there was no clear explanation on how the draft had been created and how the law would help small retailers.

"We are not opposed to the law in principle and we realise Thailand needs to have such legislation. However, the details must be clear and treat everyone equally," he said.
Panthep Suleesatira, president of the Small Retailers' Network Centre, said almost half of small traditional shops would be destroyed if the country had no regulations to govern the expansion of large retailers, particularly into suburban areas.

"The draft law is the only hope for small retailers to survive, and the new government needs to implement it before larger numbers of small retailers go out of business," he said.

Internal Trade Department director-general Yanyong Phuangrach said the Commerce Ministry would still request the new government and the new parliament to consider approving the bill. He also said any unclear regulations in the draft law could be amended.

At this stage, only the city planning and building codes and Trade Competition Act have been able to regulate retail businesses. However, these laws have no direct authority to control retail business expansion. Pramon said that despite failure in the current parliament, the retail business law must be pushed forward by the next government to solve any conflicts in the sector.

He said the chamber would try to lobby for its approval. The law should have been passed and implemented before the flood of multinational retail stores into the Kingdom, but it is still not too late for the new government to accelerate implementation of the law. Otherwise, small retail shops would soon disappear, leaving giant multinationals in control.

Small retailers say they have only a 35-per-cent share of the retail sector, compared with 65 per cent by the big players. The market share of small retailers will continue to drop unless there are restrictions on the expansion of giant retailers. According to a ministry survey, over the past five years the size of the modern retail-trade business rose by 119.6 per cent, from 1,821 outlets to more than 5,000 currently. The retail-market value rose by 60 per cent, from Bt208 billion in 2001 to Bt335.39 billion in 2004.

Tesco Lotus has the most branches, with 492 outlets. Also threatening the businesses of local retailers are 7-Eleven convenience stores, which has more than 3,000 outlets. Other large retailers include Big C with 59 outlets, Makro with 45 outlets, while Carrefour has 29

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