Transparency of the Regulatory System
Since the May 2014 coup and installation of the military-led government and legislature, investors have noted a lack of transparency in the rule-making process across a broad range of sectors. Generally, the Council of Ministers, as an entity entrusted with executive power, has the authority to propose bills to the National Assembly for consideration and approval, then the bill will be signed by the King and published in the Government Gazette before being promulgated as an Act and having force of law.
There are many examples in the past three years of laws drafted in line ministries with little or no input from stakeholders, particularly international investors. In some cases, laws have been passed quickly through the “rubber stamp” legislature, or ministries have issued sudden notifications directed through the use of the Prime Minister’s authority under Article 44 of the interim constitution. Foreign investors have, on occasion, expressed frustration that draft regulations are not made public until they are finalized, and that comments they submit on draft regulations they do see are not taken into consideration. Non-governmental organizations are actively consulted by the government on policy related to pharmaceuticals, alcohol, infant formula, and meat imports, especially within the health sphere as well as intellectual property. In other areas, such as digital and cybersecurity laws, there have been instances in which public outcry over leaked government documents has led to withdrawal and review of proposed legislation.
U.S. businesses have repeatedly expressed concern about the lack of transparency of the Thai customs regime and the significant discretionary authority exercised by Customs Department officials. The U.S. government and private sector have expressed concern about the inconsistent application of Thailand’s transaction valuation methodology and repeated use of arbitrary values by the Customs Department. Thailand’s new Customs Act entered into force on November 13, 2017. The Act removes the Customs Department Director General’s authority and discretion to increase the Customs value of imports, and reduces the percentage of remuneration awarded to officials and non-officials from 55 percent to 40 percent of the sale price of seized goods (or of the fine amount). While a welcome development, reduction of this remuneration is insufficient to address the issue of personal incentives. Consistent and predictable enforcement of government regulations remains problematic for investment in Thailand.
Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice. Firms that refuse to make such payments can be placed at a competitive disadvantage when compared to other firms in the same field.
The Royal Thai Government Gazette (www.ratchakitcha.soc.go.th ) is Thailand’s public journal of the country’s centralized online location of actual laws and regulation notifications.
International Regulatory Considerations
While Thailand is a member of the WTO and notifies most draft technical regulations to the TBT Committee and the SPS Committee, the country does not always follow WTO or other international standard setting norms or guidance, preferring to set its own standards in many cases. In October 2015, the country ratified the WTO Trade Facilitation Agreement, which came into effect in February 2017.
Legal System and Judicial Independence
Thailand has a civil code, commercial code, and a bankruptcy law. Monetary judgments are calculated at the market exchange rate. Decisions of foreign courts are not accepted or enforceable in Thai courts. Disputes such as the enforcement of property or contract rights have generally been resolved in Thai courts. Thailand has an independent judiciary that is generally effective in enforcing property and contractual rights. The legal process is slow in practice, and litigants or third parties sometimes affect judgments through extra-legal means.
There are three levels to the judicial system in Thailand: the Court of First Instance, which handles most matters at inception, the Court of Appeals, and the Supreme Court. There are specialized courts such as the Labor Court, Family Court, Tax Court, the Central Intellectual Property and International Trade Court, and the Bankruptcy Court.
The Specialized Appeal Courts handles appeals from specialized courts. The Supreme Court has discretion whether to take a case that has been decided by the Specialized Appeal Court. If the Supreme Court decides not to take up a case, the Specialized Appeal Court decision stands.
Laws and Regulations on Foreign Direct Investment
The Foreign Business Act (FBA) governs most investment activity by non-Thai nationals. Foreign investment in most service sectors is limited to 49 percent ownership. Other key laws governing foreign investment are the Alien Employment Act (1978) and the Investment Promotion Act (1977). Many U.S. businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity and Economic Relations.
The 2007 Financial Institutions Business Act unified the legal framework and strengthened the Bank of Thailand’s (the country’s central bank) supervision and enforcement powers. The Act allows the Bank of Thailand to raise foreign ownership limits for existing local banks from 25 percent to 49 percent on a case-by-case basis. The Minister of Finance can authorize foreign ownership above 49 percent if recommended by the central bank. Details are available at: https://www.bot.or.th/English/AboutBOT/LawsAndRegulations/SiteAssets/ Law_E24_Institution_Sep2011.pdf .
Apart from acquiring shares of existing local banks, foreign banks can enter the Thai banking system by obtaining new licenses (from the central bank and the Ministry of Finance). The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act apply a 25 percent cap on foreign ownership of insurance companies and on foreign boards of directors. However, in January 2016 the Office of the Insurance Commission (OIC), the primary regulator, notified that any Thai insurance (both life and non-life) company wishing to have one or more foreigners holding more than 25 percent (but no more than 49 percent) of its total voting shares, or to have foreigners comprising more than a quarter (but less than half) of its total directors, may apply for OIC approval. Any foreign national wishing to hold more than 10 percent voting shares in an insurance company must seek OIC approval. With approval, a foreign national can acquire up to 49 percent of the voting shares.
Any foreign shareholder holding more than ten percent of the voting shares prior to the effective date of the notification is grandfathered in and may maintain their current shareholding, but must obtain OIC approval to increase shareholding. Finally, the Finance Minister, with OIC’s recommendation, has discretion to permit greater than 49 percent foreign ownership and/or a majority of foreign directors, when the operation of the insurance company may cause loss to insured parties or to the public.
For information on Thailand’s “One Start One Stop” investment center, please visit: http://osos.boi.go.th . Investors in Thailand can visit the physical office, located on the 18th floor of Chamchuri Square, on Rama 4/Phayathai Road in Bangkok.
Competition and Anti-Trust Laws
In July 2017, Thailand enacted an updated version of the Trade Competition Act, which covers all business activities except state-owned enterprises exempted by law or government policies related to national security, public benefit, common interest and public utility, as well as cooperatives, agricultural and cooperative groups, government agencies, and other enterprises exempted by the law.
The Office of Trade Competition Commission (OTCC) is an independent agency and the main enforcer of the Trade Competition Act. The OTCC, comprised of seven members nominated by a selection committee and endorsed by Cabinet approval, advises the government on the issuance of relevant regulations, ensures fair and free trade practices, investigates cases and complaints of unfair trade, and pursues criminal and disciplinary actions against those found guilty of unfair trade practices stipulated in the law. The law focuses on unlawful exercise of market dominance; mergers or collusions that could lead to monopoly, unfair competition and restricting competition; and unfair trade practices. Merger control thresholds and additional details will be provided in notifications and regulations to be issued later.
The Act broadens the definition of a business operator to include affiliates and group companies, and broadens the liability of directors and management to be subject to criminal and administrative sanction if their actions (or omissions) resulted in violation. The Act also provides more details of penalties for cases facing administrative court or criminal court actions. The amended Act has been noted as an improvement towards international standards.
The government has authority to control the price of specific products under the Price of Goods and Services Act. The MOC’s Department of Internal Trade administers the law and interacts with affected companies, though the Committee on Prices of Goods and Services makes the final decision on products to add or remove from price controls. As of January 2018, the MOC increased the number of controlled commodities and services to 53 from 42 in the previous year. Aside from these controlled commodities, raising the prices of consumer products is prohibited without first notifying the Committee. The government uses its controlling stakes in major suppliers of products and services such as Thai Airways and PTT Public Company Limited to influence prices in the market. Thailand has extensive environmental-protection legislation, including the National Environmental Quality Act, the Hazardous Substances Act, and the Factories Act. Food purity and drug efficacy are controlled and regulated by the Thai Food and Drug Administration (with authority similar to its U.S. counterpart). The Ministry of Labor sets and administers labor and employment standards.
Expropriation and Compensation
Private property can be expropriated for public purposes in accordance with Thai law, which provides for due process and compensation. This process is seldom used and has been principally confined to real estate owned by Thai nationals and needed for public works projects. In the past year, U.S. firms have not reported problems with property appropriation in Thailand.
ICSID Convention and New York Convention
Thailand is a signatory to the New York Convention, and enacted its own rules on conciliation and arbitration in the Arbitration Act of 2002. Thailand signed the Convention on the Settlement of Investment Disputes in 1985, but has not yet ratified the Convention.
Investor-State Dispute Settlement
There have been a couple of notable cases of investor-state disputes in the last fifteen years, but none involve U.S. companies. Currently, Thailand is engaged in a dispute with Australian firm Kingsgate Consolidated Limited after the RTG invoked a special power to shut down a gold mine in early 2017 due to reported environmental impacts and conflicts with locals. Kingsgate, a major shareholder of the operator of the disputed mine, claimed the RTG violated the Australia-Thailand FTA and commenced international arbitration proceedings against the country to recover losses incurred from the closure. The process is still continuing as of March 2018.
International Commercial Arbitration and Foreign Courts
Thailand’s national Arbitration Act of 2002, modeled in part after the UNCITRAL Model law, governs domestic and international arbitration proceedings and states that “in cases where an arbitral award was made in a foreign country, the award shall be enforced by the competent court only if it is subject to an international convention, treaty, or agreement to which Thailand is a party.” The Thai Arbitration Institute (TAI) of the Alternative Dispute Resolution Office, Office of the Judiciary, and the Office of the Arbitration Tribunal of the Board of Trade of Thailand provide arbitration services to proceedings held within Thailand. In 2017, new rules of TAI came into force with changes aimed to address weaknesses of conducting arbitration in Thailand, including the TAI’s power to appoint arbitrators when any of the parties in dispute fails to do so and the setting up of the procedural duration of 180 days and the final awarding period of within 30 days of the closure of pleadings. Currently, a draft amendment of the Arbitration Act to allow foreign arbitrators to take part in cases involving foreign parties is being reviewed by the Council of State, after it was approved by the Cabinet. If endorsed, it will go before the legislature for deliberation before being put into effect. In addition, the semi-public Thailand Arbitration Center offers mediation and arbitration for civil and commercial disputes. Under very limited circumstances, a court can set aside an arbitration award. Thailand does not have a Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with the United States.
Thailand’s bankruptcy law allows for corporate restructuring similar to U.S. Chapter 11, and does not criminalize bankruptcy. While bankruptcy is under consideration, creditors can request the following ex parte applications from the court: an examination by the receiver of all assets of the debtor and/or that the debtor attend questioning on the existence of assets; a requirement that the debtor provide satisfactory security to the court; and immediate seizure of the debtor’s assets and/or evidence in order to prevent the loss of destruction of such items.
The law stipulates that all applications for repayment must be made within one month after the Court publishes the appointment of an official receiver. If a creditor eligible for repayment does not apply within this period, he forfeits his right to receive payment or the Court may cancel the order to reorganize the business. If any person opposes a filing, the receiver shall investigate the matter and approve, partially approve, or dismiss the application. Any objections to the orders issued by the receiver may be filed with the Court within 14 days after learning of the issued order.
National Credit Bureau of Thailand (NCB), merger of Thai Credit Bureau and Central Credit Information Services, serves the financial services industry with information on consumers and businesses. In June 2017, the World Bank’s Doing Business Report placed Thailand 26th out of 190 countries on resolving insolvency. The report said that debtor may file for reorganization only when commencing insolvency proceedings. Under the insolvency framework in Thailand, a creditor is allowed to file for insolvency of the debtor.