http://www.sgalegal.com
Copyright SGA 2002

House Rejects Geographical Indications Bill

In March 2003, the House of Representatives rejected the latest version of the Geographical Indications Act (GI Act) based on the failure of the Act to protect animal and plant varieties native to Thailand.

Geographical indications are those that identify the place of origin of a product where a specific quality, reputation or other characteristic of a product can be attributed to the geographical origin. The EU has already enforced a GI bill to protect products with unique geographical connections such as French Champagne and Scotch Whiskey.

The existing bill was drafted by the Commerce Ministry Intellectual Department to meet Thailand's obligation under the WTO's trade related aspects of intellectual rights (TRIPS).

The House rejected the existing bill stating that it did not include plant and animal strains and food and agricultural products on its list, thus allowing competitors to make use of Thai products.

Agricultural groups have protested over the GI act and cited US lobbying efforts intent on excluding Thailand agricultural products from the protected products list. Fruit and rice strains such as Jasmine rice, (along with non-agricultural products such as Thai traditional massage and medical treatments) were excluded from the proposed Act. An American firm has already reportedly used the name "Jasmine" in their rice.

WTO Ruling Affects BOI

In early March 2003, Deputy Prime Minister Dr. Somkid Jatusripitak issued a statement clarifying the effects of a recent World Trade Organization (WTO) ruling that may affect Board of Investment (BOI) benefits.

The WTO ruling was that corporate tax exemptions for export businesses violated WTO rules. Pursuant to the WTO's agreement on Subsidies and Counterfeiting measures, Thailand had been ordered to cease benefits by the end of 2002. Thailand had requested a ten year exemption, but this was turned down by the WTO which will now only allow a one year extension.

The Deputy Prime Minister stated that projects that are not involved in export and projects that were approved by the BOI subsequent to August 1, 2000 would not be affected by the WTO ruling. The only BOI projects affected by the WTO ruling would therefore be those who received tax privileges and whose 10 year export condition has not yet expired. Further the WTO has allowed the BOI a one year period to implement new restrictions and there is an additional 2 year grace period.

Exports currently comprise about 55% of gross domestic product, which is much higher than it has been in the past. The BOI has been actively involved in the establishment and promotion of export industries and the BOI tax holidays and waivers have been a key force in this development.

According to the BOI, 532 projects will be affected. Extensions on privileges after the close of 2003 (during the two year grace period) will be considered on a yearly basis.

The BOI is currently considering options to compensate investors and prevent the relocation of industries to competitor countries.

In Other BOI News:

BOI Filmmaker Incentives

Reports in January 2003 indicated that Board of Investment officials were considering offering greater incentives to foreign film-makers establishing projects within Thailand, Among the benefits being considered are: Foreign actors may be taxed a flat rate of 10% rather than the existing progressive taxation of a maximum of 37%. Another consideration is an exemption to the BOI's zoning requirements which favors businesses in outer-lying regions rather than Bangkok. This is due to the fact that Bangkok locations are more favorable for filmmakers.

BOI Promotion for Electronic Industry

Last December, the BOI introduced a new promotional package for the Electronics Industry that applied to businesses having sales of at least 2.5 billion per year. Benefits including tax and import duty exemptions would be similar to those offered other businesses. Requirements for eligibility include technology transfer programs for Thai entrepreneurs. Further, qualifying projects would not be restricted to current investment zones.

Fraudulent Borrowing Act

On 8 December 2002, the Act regarding Fraudulent Borrowing was signed into law. The Act replaces a previously issued Royal Proclamation. The Act states that whoever advertises to the public that they will pay a rate of interest higher than the maximum rate allowed to financial institutions on money loaned to them, when he or she knows that such money will be used to make payments to (other) Lenders and realizes that it would not be possible to operate a legitimate business under the offered rate of interest, said person shall be guilty of an offense of fraudulent borrowing.

Additionally, any person who does not hold a valid license to operate a business involving payment by means of foreign currency and who makes an announcement or advertisement to the public that offers either (1) buying or selling of foreign currencies, or (2) speculating profits regarding the rate of exchange of different currencies, shall also be guilty of Fraudulent Borrowing.

The person reporting the offense shall be entitled to a reward if an arrest has been made. The reward shall be computed at 25% of the fines imposed on the offender.

VAT Update

According to a recent ruling of the Revenue Department, (Por 116/2545), global internet services provided to Thai companies are liable for value added tax (VAT) in Thailand. The Thai company must remit 7% VAT to the Revenue Department even though the global internet services may be provided by a company outside of Thailand. Provided that the services are "used in Thailand" some services that may be included are: (1) the use of ISP's that provide internet access to Thailand (2) sales of space on a server located outside of Thailand, (3) storage of data services.

The departmental instruction is retroactive to 7 February 2001. Companies that have not paid the VAT on these services are likely to be charged penalties and surcharges. Since the directive is not considered a new law, but rather an interpretation of any existing law, retroactive application is permitted.

Regional Operating Center Defined

In December 2002, the scope of activities of "Regional Operating Headquarters" has been replaced with a new definition. Under the new notice of the Board of Investment the following activities would be within the scope of activities of a Regional Operating Headquarters, regardless of whether the office is located in Thailand or abroad: (1) General administration business planning, business coordination, (2) Procurement of raw materials and parts, (3) Research and development of products, (4) Technical support, (5) Marketing and sales promotion, (6) Regional management and training, (7) Financial advice, (8) Analysis and research on economic and investment, (9) Provision of control on credits, (10) Rendering of other supporting services as deemed suitable by the office in each individual case.

Motorcycle Industry Scrutinized by Trade Competition Law

In November of 2002, the Trade Competition Board decided to abandon the approach to defining "market dominance" that treated all industries identically. Under the previous definition dominant position was defined by holding more than a one third market share and one billion baht in annual sales. Pursuant to the Trade Competitions Board's new directive, dominant position is determined on an industry basis. Additionally, under the new approach, the dominant position criteria is applied to either a single company or those companies operating in collective form.

Wholesaling and retailing businesses are also defined differently. A single operator in the wholesaling or retailing industries will be considered "market dominant" if it has a market share of greater than 27 billion baht of sales and a market share of 20% or greater.

The two industries to be first reviewed by the Trade Competition Board are the motorcycle industry and the wholesale/retail industry. Pending cabinet approval the following definition would apply: A single operator would be treated as dominant if it holds a market share of greater than 33.33% and sales exceeding five billion baht per year. The definition would also apply to combined shareholdings if greater than 66.66% provided that each enterprise has greater than 10% share of the market.

Violators of the trade competition act are subject to criminal as well as civil penalties.

Clarification on Consumer Credit Law

In mid-March of 2003, the controversy surrounding the consumer credit law was partly resolved. Controversy has surrounded the enactment of the new credit data law.

Financial institutions or credit bureau executives who violated the disclosure laws face fines up to 500,000 baht and imprisonment of five to ten years. The two areas that have created controversy are (1) the requirement that banks notify borrowers within 30 days if information is submitted to the credit bureau and (2) financial institutions would have to submit borrowers an update on their payment information once a year.

Credit agencies and banks were uncertain whether the notification requirement applied retroactively and temporarily ceased operations until clarification was provided.

Cabinet Approves Excise Tax

Under a new tax framework approved in January 2003, massage parlors, nighclubs, karaoke lounges, movie theatres, telecommunications companies and race tracks among other businesses shall be liable to pay excise tax. The law was intended to allow the imposition of taxes on services. Three main sectors are affected: entertainment venues, gambling venues and businesses affecting the environment. A 50% maximum tax rate would be applied to telecom services under state concessions or licenses.

Gem Scam Fund

In mid-March 2003, the Commerce Ministry ordered some 2,000 gem and jewelry shops to set up a fund to compensate buyers who have been overcharged when making purchases in Thailand. In addition to existing penalties, shops will risk a loss of their license and penalties including fines of up to 140,000 baht and up to seven years in jail. Under the new measure, members of the Thai Gem and Jewelry Association will be required to set up a fund to compensate customers who have overcharged, Non-member shops must set up a bank guarantee with the Department.

Restructuring of Cooperatives

In late April, the director general of the Co-operatives Promotion Department announced that the Kingdom's 5,900 co-operatives shall be restructured under stricter regulations in an attempt to curb abuse. The director general has cited problems with the co-operative system stemming from poor management and accounting systems. The new legislation is intended to tighten requirements on co-operative boards in order to rectify management problems. The theory behind cooperatives is that the members work together for their joint benefit but there have been abuses wherein individuals have exploited government promotion benefits offered cooperatives.

Security Checks for SEC

New Rules were announced in March 2003 by the Stock Exchange of Thailand in order to curb security issues and "staff poaching". A "history check" involving liabilities owed to their employers will be checked prior to issuing new identification cards to traders. "Staff Poaching" wherein one brokerage house buys out key personnel or even whole departments of competing firms in order to gain their client base is also being targeted. Currently market regulations impose a strict minimum commission of .25% on transactions and marketing officers compensations packages as well.

New International School Regulations

New Regulations may impose limits on the minimum amount of land required for international schools as well as raising the minimum required credentials of teachers according to reports in January. The regulations are expected to take effect later this year. The minimum land requirements for international primary and secondary schools will be raised to five rai from the existing 2 rai. Other new requirements are that international land established on leased land must have leases of at least 15 years (ten years for kindergartens) and the reservation of one third of the schools lands for "green zones" and another one third for recreational zones. One period a week must be devoted to Thai language and culture classes for foreign students. Head masters must hold at least a bachelor's degree in education management or the equivalent. Teachers shall hold at least a bachelor's degree with at least 15 teaching credits, a teaching license or at least three years teaching experience.

Human Trafficking Act

A preliminary draft of the Human Trafficking Act was reviewed in public hearing on 23 April 2003, The Act is intended to amend the earlier 1997 Act. The Act was drafted by a committee comprised of experts on children and woman's rights. The present committee criticized the earlier Act for focusing solely on trafficking for sexual purposes while ignoring trafficking for other purposes. The Act would attempt to correct inequities that were failed to be addressed by the earlier Act such as victims of human trafficking being charged with criminal offenses themselves such as illegal entry and or fake passports. Other changes to the Act include increased penalty and the banning of publication of names and pictures of the victims.

Witness Protection Bill

An amended version of the Witness Protection Bill was passed by the House of representatives and is pending approval be the Senate as of late April 2003.

Under the bill, witnesses in serious cases, such as money laundering, drugs, child prostitution, corruption and organized crime may be eligible for special protection entitlements, including: (1) Special protection for witnesses and family members, (2) Relocation and stipends for up to one year, (3) Witness information will be protected by the Justice Ministry, (4) compensation witnesses and families in cases if death, injury, loss of freedom and loss of rights, (5) witnesses have right to appeal package provided for their protection, and (6) penalties for persons disclosing confidential witness protection information. The program would operate under the Ministry of Justice.