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Copyright SGA 2002

New Trade Secrets Act in Effect

The Trade Secrets Act became law in July of this year. The Act is intended to protect businesses' "trade secrets", which the Act defines as "trade information not generally known or accessible to other concerned parties." The law further defines "trade information" as "formulas, patterns, compilations, programs, procedures, techniques, or processes made in the manner of statements, stories, facts, or any other methods." The new Act will protect trade information provided that this information is commercially useful due to its secrecy and that steps have been taken to ensure its confidentiality.

The Act states that trade secrets may be transferred through written agreements. It also defines the actions that would constitute infringement of the rights of another's trade secrets and those actions that would be considered fair use.

Actions in violation of the Act include disclosure or usage of trade secrets without permission, including breaches of contract and espionage. Those actions that may be exempt from the Act include independent discovery and actions necessary for protecting the health or safety of the public.

Additionally, the Act allows for bona-fide discoveries made through "reverse engineering", a process that involves the study and analysis of a competitor's product in order to determine how the product was produced. However, in order to use the "reverse engineering" exception the product analyzed must have been obtained through "honest means".

Enforcement of the Act would allow the owner of a trade secret to petition to the courts to issue an order stopping the infringement and request compensation from the party in violation of the Act. The Act also specifies criminal penalties, including fines and imprisonment for certain violations.

Businesses that provide services based on conceptual ideas are expected to benefit from the passage of the Act. For example, advertising agencies, who often present their work to prospective clients, previously had no protection for their ideas when showing them to product owners who were not under contract with them.

Regulations Outline Exemption of Tax on Goods Used as Raw Materials or Components in Manufacturing

Individuals who are industrial operators or importers, who are considered juristic persons under Thai law, and who have paid-up registered capital within the parameters set forth by the Director-General are eligible to apply for tax exemptions on goods to be used as raw materials or

components in the manufacturing process according to new regulations issued in August 2002.

Following submission of an application for exemption on goods to be used in the prescribed manner, the applicant must place a security against the tax, notify an Excise Officer prior to taking the goods into his possession, and receive appropriate stamps and documentation from the Excise Office.

The regulations provide specific guidelines for variances in the process of requesting approval, submitting and receiving documentation, and taking possession of the specified materials. The regulations require that the applicant for exemption maintain a daily journal and monthly statements detailing the particulars of the goods exempted. The regulations also require the responsible party to make a contract with the Tax Department to guarantee that the goods will be used in the manner stated. Failure to comply may result in fines. Special provisions were established for oil and oil products.

E-Commerce Entangled in Direct Sales and Marketing Business Law

In what may be an oversight regarding the language of the law, the Direct Sales Business Law will require e-commerce operators to register their businesses or face fines up to 100,000 baht and one year imprisonment.

It has been noted that the original intent of the law was to protect consumers from fraud rather than to penalize honest e-commerce website owners who may be unregistered. However, industry insiders have claimed that if applied to Thailand's 100,000+ websites, the law could set back the nations e-commerce development. For the time being no committee has been established to oversee registration; therefore, the Consumer Protection Board may have difficulty enforcing the law.

The law, effective August 29, 2002, would prevent retailers from surreptitiously overcharging consumers. While some aspects of the law would necessarily apply to e-commerce websites, amendments to the law are expected to specifically address how the law should apply to these businesses.

New Draft Act to Establish Rules for Retail

According to officials at the Ministry of Commerce, a new draft of the Retail Act was in the final stages of development as of mid-September. Following passage of the new Retail Act which is expected in early 2003, both foreign and local retail and wholesale businesses will need to get permission from a central committee prior to setting up their establishments.

The law has been proposed in the face of changes to the retail landscape, most notably from the introduction and proliferation of large multi-national mega-stores. Local retailers claim that foreign owned "super-stores" have exploited legal loop-holes in order to unfairly capture a majority of retail sales. The smaller retailers have pressured the government to place stricter controls on zoning and operating hours in particular. If passed, prospective retail operators in Bangkok may need a license from the newly formed committee and operators in outside provinces may need approval from provincial committees.

Other objectives of the Act include public safety, environmental protection, public welfare and the provision of public facilities.

Application of the United States Alien Tort Claims Act in Thailand and Burma

The United States Alien Tort Claims Act provides for plaintiffs to institute proceedings against US companies charged with violations of international law outside of the United States. The United States Court of Appeals has recently set a landmark precedent by allowing Unocal, a US corporation, to be sued in US Court for alleged complicity in human rights abuses by the Burmese governmental regime.

The plaintiffs are currently located in refugee areas within Thailand and their lawsuit has been carried out with the assistance of various NGO's. The case revolves around the construction of the Yadana natural gas pipeline in southern Burma. Allegations in the lawsuit include complicity in regards to forced labor, rape, and murder.

The US Appeals Court decision, which overturned a lower court decision, means that US companies can be held

accountable to international law in US Courts for aiding and/or abetting human rights violators.

Ministry of Commerce Requires Declarations of Paid Capital for New Companies

New regulations, issued in June of 2002 by the Ministry of Commerce, require declarations by company directors proving that company capital has actually been collected. In the past, a declaration concerning the amount of registered capital was required but no declaration that capital was actually collected was necessary. The Ministry based its new requirement on the Commercial and Civil Code-Section 1019, which states that documents filed with the Ministry of Commerce may require additional details in order to make the registration complete.

The Ministry now provides for three categories of documents that may be used to show that shares have actually been paid for:

     1. Certificates from a bank, such as a bank account ledger or a local bank letter.
     2. A receipt made by a company director to a shareholder for collected capital.
     3. A letter of confirmation that capital has been paid and where the capital is located pursuant to a government form.

Board of Investment (BOI) Roundup

BOI Defines "Investment Money"

In June of 2002, the BOI issued a Notice defining the computation of "Investment Money". Investment Money shall exclude "land and working capital" and will be used for computation of any income tax exemption that may be granted under the BOI regime. The Notice provides for specific categories of costs that may be counted towards the exemptions.

Investment Money will be classified under the four following categories: (1) Construction Costs (2) Machinery, installation, and test-run costs (3) Expenses before commencement of business (4) Value of other property, including office equipment, vehicle, concession fee, and similar costs.

New BOI Factory Zoning Rules Proposed

127 industries in seven sectors may be allowed more freedom for development once the Board of Investment eases existing zoning rules. Investors in these industries had complained that the existing restrictions made their projects less competitive and sometimes unviable.

The new rules, proposed in September 2002, would allow factories in the specified industries to locate anywhere in Thailand and still be eligible for existing incentives. However, Bangkok and Samut Prakan, already over-crowded with factories, would still be excluded under the relaxed rules.

The sectors affected are agriculture and related products; mining ceramics and base metals; metal products, machinery and transport equipment; electronic and electrical appliances; chemicals, paper and plastics; and services and public utilities.

Critics cite the original intent of the zoning laws, encouraging investors to locate in less economically developed provinces and the environmental impact of allowing increased development in areas with inadequate infrastructure, as faults of the new rules.

The new rules would allow factories to be built closer to raw materials or transportation centers. Environmentally harmful businesses would not be allowed the same latitude in an effort to minimize the projected environmental impact.

New Incentives for Start-up Businesses

The Board of Investment is proposing an incentive package to help foster economic development. Under a five-year plan, the BOI proposes a one-stop information center for businesses to receive training, information, and advice with legal matters. They also assert that venture capitalists should be encouraged to invest in new businesses and that corporate tax and import duties on machinery should be waived.

Additionally, the BOI is proposing a new timeframe that would encourage investors to begin factory construction and other projects more quickly. The proposed changes, applicable to projects costing less than 500 million baht, would require applicants to import machinery and open factories within 30 months of the date of BOI promotion.

BOI Extends Tax-Free Import Timeline

In early September 2002, businesses receiving promotional privileges from the Board of Investment were granted extensions for importing machinery tax-free. Businesses importing machinery will have an additional 6 months to import machinery and an additional 6 months for beginning operations. As of October 1, businesses will have 30 months from the date they were granted privileges to import machines and 36 months to start operations. Only large projects, valued at over 500 million baht, will be eligible for any further extensions.

Amendments to Bankruptcy Code Proposed

In an effort to assist businesses struggling with debt, amendments to the Bankruptcy Code were proposed in July 2002. The changes are aimed at helping debt-ridden firms avoid foreclosure actions by entering rehabilitation while they are still solvent but unable to pay debt due to limited liquidity. According to the proposed changes debtors may be able to enter the process even though their liabilities do not exceed their assets.

Other changes are assisting small creditors by categorizing them based on the seniority of their claims. Borrowers would benefit from ceilings on fees charged by creditor-appointed plan administrators. Ultimately, the amendments are expected to give borrowers greater flexibility in order to come out of bankruptcy more quickly. Other changes proposed include placing clear limits on the fees charged by plan administrators and greater expediency clearing individual's bankruptcy histories.

Shareholding Limits Excised from Broadcasting Business Bill

In July 2002, shareholding limits outlined in articles 20-23 of the Radio and Television Business Bill were removed from the legislation. The limits, intended to prevent businessmen from infringing on press freedom, have been deemed by the Council of State as unlikely to provide such safeguards.

A spokesman for the council suggested that a self-regulatory body be instituted and that regulations by the National Broadcasting agency that include harsh penalties for violations would be more effective deterrents. Industry officials and free speech activists are at odds over the viability of the methods to prevent individual groups or interests from controlling content on TV and radio stations.

Pollution Control Disclosure Requested

In mid-August 2002, a new rule was passed by the Pollution Control Department that will require factories to disclose their monthly expenses regarding their waste treatment facilities. The rule, supported by the 1992 Environmental Act, hopes to reduce the number of factories that do not operate their treatment facilities. However, some industry officials claim that disclosing their operating costs may affect their competitiveness.