Thailand’s Military Government Once Again Trying to Prevent Foreign Control of Joint Ventures

 

BANGKOK – Foreign businesses in Thailand are raising the alarm over new proposals to prevent overseas control of joint venture firms operating in Southeast Asia’s second-largest economy, creating a fresh policy headache for the country’s military leaders.

Thailand’s Commerce Ministry is examining plans to prevent foreign directors from controlling joint venture firms that are majority-owned by Thai shareholders. At the moment, Thailand’s Foreign Business Act allows this to happen. The arrangement has helped buoy investments in the country for decades. In some instances, government officials have said some Thai shareholders act as nominees for foreign investors who ultimately control the business.

But in 2007, a military-appointed government attempted to outlaw the practice. And with the army effectively controlling the country again after seizing power in a coup d’état, officials are looking again at restricting foreign control of what are technically majority Thai-owned firms.

The move has come as a shock to many in the foreign business community. The American Chamber of Commerce in Thailand on Monday warned in a statement that any protectionist amendments to the current investment laws “will only further damage foreign investor confidence, likely lead to a significant reduction in foreign investment, and harm Thailand’s regional competitiveness.”

The proposals could potentially force some local joint ventures to be reclassified as foreign-owned, which could restrict their ability to do business in some sectors where foreign control is capped, or require them to cede management control.

The economy is already struggling to recover after months of political protests culminated in the May coup. Martial law is still in effect, deterring some tourists, while sluggish demand for Thai exports has prompted policy makers to downgrade growth targets. The Finance Ministry recently cut its economic growth forecast for 2014 to 1.4% from 2%.

The Joint Foreign Chambers of Commerce in Thailand last week complained that Thai officials haven’t explained the exact changes the government is contemplating. The deputy chief of mission at the Japanese Embassy in Bangkok, Mitsugu Saito, said in remarks published in the Bangkok Post newspaper that some Japanese investors—a backbone of the local economy—may choose to withdraw from Thailand entirely.

Japans Mr.Mitsugu Saito, said an amendment restricting foreign control over joint-venture companies like the one proposed in 2007 would have a serious impact on existing and future investment.

At least half of all Japanese companies operating in Thailand would be forced to surrender operational control or relocate if proposed changes to the Foreign Business Act go ahead, a senior diplomat has warned.

He said it was his personal opinion, rather than the government’s position, that while the amendment might not cause many companies to leave on a short-term basis, it would discourage Japanese companies from investing further in Thailand.

Decades ago, Thailand was an attractive place for Japanese investment in Southeast Asia, but now countries like Vietnam, Indonesia, the Philippines or Myanmar are emerging as competitors, he said.

Government officials didn’t return calls seeking comment on the proposed changes to the Foreign Business Act. Hearings on the amendments are scheduled for Tuesday and Friday this week.

By James Hookway, Nopparat Chaichalearmmongkol