|English | Thai|
ELECTION ISSUE 2
NOV 2007 - FEB 2008
Former Member of Parliament Former Vice Chairman, Commerce Committee Former Chairman, Standing Committee on FTAs
IS THAILAND LEGALLY FRIENDLY OR JUST FRIENDLY?
by Kiat Sittheeamorn
People say if you have one person in a community you have a philosopher but if you have two people you have an argument. If you have three people, you have politics. So, you need a legal system.
I have lived and worked in a county not so far from Thailand where my customer told me “.... I wrote this contract and it’s not for you to tell me what I want to mean and if you want to continue to argue with me, I will ask you to leave the country....”
So, I have lived in some of these very challenging environments but the point of the matter is “to understand legal structure well, it is important to understand the social and political culture of the country as well”.
Ladies and gentlemen,
I would like to touch upon how foreigners perceive Thailand today. Thailand is perceived as one of the friendliest places in South East Asia to visit and is known for its rich culture, amazing history and hospitable people. This country is labeled “the land of a thousand smiles”. And for those who work here, no doubt, have experienced some challenges and frustrations, to say the least!
For many, Thailand is ahead of many developing countries but for some, we still have a lot to desire for. We, like many other developing countries, have our share of legal challenges and law enforcement difficulties. Now let’s ask why a legally friendly country matter?
Globalization is truly a phenomenon that is unavoidable. It causes rapid changes and poses tremendous competitive pressures to all firms in all countries around the world. However, business can only prosper in a predictable environment that is free and fair. Even as we speak, trade transactions do take place in every part of the world and investments are being made in every region.
At the company’s level, everyone is searching for a leading edge and trying to stay ahead of its competitors. At the country’s level, every government is pushing for more trade and competing for more investment.
Multilateral framework as well as over 300 regional and bilateral agreements help boost trade among countries by several folds in the past decades through reduction of tariffs and non-tariff barriers. Subsequently, foreign direct investments follow where it makes business sense. Therefore, there is a constant pressure for any government to create an environment that is attractive for foreign investment.
Many of you may not know that last year world foreign direct investment was as high as six hundred and fifty billion US dollars—being three hundred and eighty billion in developed economies and one hundred and fifty billion in Asia. China is the largest receipient of foreign direct investment in Asia Pacific. Its foreign direct investment, including Hong Kong(as now Hong Kong is a province of China, so we have to count it in) reached ninety-four billion US dollars while Thailand is the same as Indonesia i.e. only recorded just slightly over a billion.
Last year, there was such a big difference. Our friend in Malaysia received 4.6 billion US dollars in foreign direct investment. Singapore had a record high of sixteen billion US dollars.
In Thailand, Japanese investment is still the highest. Due to AFTA, AIA and AICO, investment from ASEAN members now ranks second.
Investors from the EU and US seem to lose their momentum in recent years since the economic crisis of 1997. Nevertheless, investment from China and Taiwan has increased significantly in the last couple of years. The numbers speak for themselves as to where Thailand is today in terms of its attractiveness for foreign direct investment.
Ladies and gentlemen,
Let’s now try and observe as to what constitutes as a legally friendly environment? When I prepared myself to come here, I looked for some guidance or some standard available in the world. I came across the index of the World Economic Forum which I would like to share with you.
The Public Institution Index components rank first in its importance. First, is the judiciary in your country independent from political influences and / or members of governments, or citizens of firms? Second, are financial assets and wealth clearly delineated and well protected by law? Third, is your country neutral among bidders when dealing with public contracts? Fourth, does organized crime imposes significant costs on business?
In general, if you ask yourself these questions, I think, it is very relevant and you will find out how legally friendly the country is. But to me, I can only think of a few words that describe effective legal system and law enforcement. The first one is “transparency” when it comes to process of drafting and amendments of laws. Second is “accountability” when it comes to law enforcement authorities. Third is “consistency” when it comes to application and interpretation of laws. Fourth is “public disclosure” when it comes to public rights to know and freedom of the press. And finally, I think of effective dispute settlement mechanism when it comes to rights to a fair hearing and rights to appeal.
Now if we have a legally friendly environment, I think, business should benefit from that environment. But how do we benefit from it? We always remind ourselves in business that there is only one word that we cherish and that is “predictability”. And, for me, it should also mean minimized contractual costs and equal opportunity for all without leaning on bribe. In addition to the list of World Economic Forum, there is a “Corruption Index” which is very interesting and can be looked up on the web-site and it is a good framework to evaluate various countries. When we have a legally friendly environment, we should expect a free and fair competition for all.
Now let’s take a look at where we are in Thailand’s legal system? I have spent the last ten years working on various laws with the Board of Trade of Thailand and tried to mediate with the Foreign Chambers of Commerce in this country—now 26 of them. Let me recap on what’s happening in Thailand’s legal system.
Many out-dated Laws were amended and many new ones enacted during the interim government led by Prime Minister Anand Panyarachun. During 9 months in 1991, the government passed 127 new laws and that was very quick—the quickest in Thai history. They meet with the international standard requirements including the crucial tax-reform to VAT system, among others.
Following the economic crisis in 1997, the government headed by PM Chuan Leekpai amended and enacted several new laws based on agreements with IMF and GATS. Although committed by previous government, we had to fulfill these commitments. However, during that time it was done in close consultation with the Thai and foreign business community in the country.
I would just like to highlight a few laws that are important, especially for those who live and work here.
1. Labor Protection Act of 1998. We tried to amend this law and now it is in line with ILO guideline.
2. Anti-Dumping and Countervailing Act of 1999.
3. Trade competition Act of 1999. Many of you may not even know that we have this Act as the present government has not been very serious in enforcing this law during the last four years.
4. Act on Price of Goods and Services of 1999.
5. Foreign Business Act of 1999 which I have spent 10 years working on amending it and later staying on as a committee member during the last 5 years.
Many of these Acts are very modern in structure and very much up to par with that of international standards and that is, each law is supervised by a Joint Public and Private committee. We have representatives from the private sector representing in most of these Boards under the law. There is a mandatory periodic review and simple adjustments process to adapt to changing environment without going back through parliamentary process and that is very, very, useful and well balanced.
Despite that, some of these important laws have unfortunately been poorly implemented in the past few years. I will speak about two of them in particular, one of which is Foreign Business Act that I was fully involved with from day one until the end of 2003. I would say that this law and its implementation are quite transparent. All applications must be decided on within 60 days. And you would not be able to imagine that the committee even met before the scheduled meeting date in order to meet the deadline and it’s very unlike the typical bureaucratic system. The Committee has been very effective and every application had been scrutinized very carefully. And I can assure you of the consistency of the decisions. We have always compared to previous cases, approved or disapproved and given good reasons for not approving one. There is also an appeal process for this law if you disagree with the decision of the Board and there have been cases where applicants won the appeals.
That one is a success story but there has also been a not so good story and that is “The Trade Competition Act”. I was also involved with this law as a member of the Committee during the first 3 active years. I was involved in ruling the case of tied-sales. If some of you recall the very famous case of Chang beer (the elephant beer) tied-sale with Mekong whiskey. It was a very interesting case indeed. However, despite all that, the law is yet to be completed. As of today, the definition of dominant power has not been defined although it should have been done by the government 5 years ago. This means that 3 articles out of 6 important ones under this law cannot be used. And, those benefited from it are the big businesses.
We also have the case of Anti-Dumping and Countervailing Law. This is also an unfortunate incident because we have used them to increase taxes and import duties on steel from overseas. As a result, the steel prices to consumers have gone higher and the steel manufacturers in this country (only 3) have a record high in their profits in 2005--an increase to 60% from 36% in previous year.
Thanks to many corporate scandals such as CTX, the explosive detection device at the new airport, Picnic Corp and also the case of ITV shares, the score of good governance of Thai SEC has decreased from 53% in 2004 to 50% this year in accordance with the research of CLSA Asian Pacific Markets and Asian Corporate Governance Association.
The report by Transparency International Corruption Perception Index 2005 seems to deprive foreign investors’ confidence. Thailand’s scored only 3.8 out of 10 compared to Malaysia which scored 5.1. We have slipped in our position, not for the better, I suppose.
Ladies and gentlemen,
Notwithstanding such an unpromising trend, everything is relative. It depends on who and what we are comparing with. Some legislation can be unfriendly by nature e.g. Anti-Dumping and Countervailing Law. This is the only law in the world today that allows the government to impose penalties on companies before being proven guilty. That’s why it is so popular among developed countries.
Thailand has been subject to 48 cases of Antidumping. We were slapped with Anti-dumping right after the economic crisis simply because the currency was devalued. The US applied Anti-dumping, not only to Thailand but also 6 countries at the same time. So basically all companies from 6 countries got together and tried to sell goods below cost! Does it make sense?
There is also the case of China. Everyone accepts or most countries accept China as market economy and that’s interesting, because everyone knows that SOEs have received subsidies and in many cases did not factor the real cost in final product prices.
Some countries, although recognized as the most liberal and democratic ones, still hang on to their very protective and unfriendly laws. For instance, the US continues to foster its Farm Act causing phenomenal trade distortion at the expense of much poorer countries. Just to give you an idea i.e. the figure studied by the WTO. The total agricultural subsidies by the US, EU and Japan, amounted to three hundred and sixty billion US dollars per year. What does this mean to food exporting countries? It means that their income has been reduced by 500 billion dollars per year as well.
EU still persists on Common Agriculture Policy (CAP) with significant domestic subsidies as well as Food Safety standards or EU White Paper on Food Safety containing many unfair requirements. There exists multilateral framework for food safety. They say all food standard requirements must be scientifically proven. But, in the EU requirements, there are many aspects that cannot be scientifically proven.
In France, I have worked there with a multinational firm for 12 years. In Europe, it is almost impossible to get your employees to work more than 35 hours a week. Is that amazing? I was a director of the International Chamber of Commerce and witnessed this unfriendly law.
One time when I worked with a French company and we had this employee who would every day just look out the window at the passing trains, not producing or completing the assigned tasks. However, the company was told by the Labor Union that the man cannot be fired as we gave him the wrong job to do in the first place.
Do you call that a legally friendly place?
There is one case that I tried to help unsuccessfully, a Thai company making real-estate investment in China. After the project was more than half-built, the Chinese Company basically just took all the money from the customers. So, the Thai party went to court for a few years and finally won the battle. Until this day, ten years later, this case has not been enforced.
As for Thailand, it depends upon one’s own relative view as to whether this country is legally friendly or just a country with friendly people. In my view and based on my hands on experience in more than 10 countries in Asia and Europe, I would say that we have come a long way with our legal infrastructure. Although we do have a lot more to do –not so much with enacting new laws but effectively enforcing those we already have—I believe we are ahead of many. Relatively, we are not in any way uncompetitive but I guess what we need is a government that strongly believes in using laws, based on their spirit and intent, for the benefit of the country and its people, and not just as an effective tools for a selfish few. •
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