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Copyright SGA 2002

New Arbitration Act in Effect

The Arbitration Act of 2002 was signed into law on 23, April, 2002 replacing the Arbitration Act of 1987.

The comprehensive act provides for the mandatory arbitration of disputes which are governed by "arbitration contracts", defined as contracts in writing where parties have agreed to settle all or certain disputes pursuant to arbitration. The Act provides for specific provisions for the selection, appointment, and disqualification of arbitrators. The Act grants immunity from civil liability to arbitrators and provides for arbitral panels to use the Civil Procedural Rules in regard to evidence. Section 41 of the Act provides for judicial enforcement of arbitral awards, "regardless of the country in which it was made".

Another major change in the new Act is the extension of the statute of limitations from one year to three years for new cases or cases where "proceedings" have not yet been concluded.

However, for an award granted in a foreign country, the Act requires that there be a convention treaty between Thailand and that country for the award to be enforceable. Further, there are a number of exceptions noted for denial of enforcement, one of which is when enforcement of the award "would be against the peace and order or the good morals of the public".

New Ministerial Regulations on Minimum Capital for Foreign Registered Businesses

According to new ministerial regulations passed in October, 2002, foreign registered firms wishing to own and operate businesses within Thailand are subject to new minimum capital requirements. The new regulations raise the amount of minimum capital required, set timelines for bringing the capital into Thailand, and specify the time required to provide evidence that the capital has been brought into the Kingdom.

Article 2 of the regulations raises the level of minimum capital required by foreigner registered firms commencing business in Thailand. According to the regulations, foreign registered business requiring a license must use a minimum capital not less than 25% of the annual average of the three-year estimated operating expenses for each alien business or 3 million baht, whichever is greater. Previously, the requirement was 2 or 3 million baht, depending on the nature of the business. Nonetheless, foreign owned businesses not requiring a license must continue to produce a minimum of 2 million baht.

The biggest impact of the changes would seem to be on those businesses that engage in multiple business activities. According to the regulations, these businesses would be required to produce 3 million baht per each restricted activity, drastically increasing the costs of starting up a such businesses.

Another significant change in the law concerns the time required to produce and account for their minimum capital. Article 3 calls for specific timelines for bringing the capital into the country. Businesses not registered within Thailand, such as representative offices, are required to bring in the capital within the first 3 years of operations.

Businesses not registered in Thailand that have been in operation less than three years that do not require a license must produce the entire capital within six months of beginning business operations; those that require a license have six months from the date of permission to begin operations. In addition, article 4 requires the evidence that the capital has been produced to be reported to the Commercial Business Development Department within 15 days of the date of bringing the capital into Thailand.

Monopoly Definition Refined

In November of 2002, the Trade Competition Board abandoned their blanket definition of monopoly control in order to evaluate businesses on a sector by sector basis. The previous definition considered a company in an unfairly dominant position when it had more than one third market share and one billion baht in annual sales.

A committee was expected to meet before the end of 2002 in order to create new definitions of market dominance for the individual sectors. As over 100 Thai businesses currently exceed one third market share, the new standard may be reset at 50%, the level reportedly specified by similar Japanese and European legislation.

Opponents of the new definitions are concerned about influence by interested parties in the definition making process; a position validated by the lobbying done by major businesses prior to the ruling which initiated the changes.

Thailand Agrees to Join International Copyright and Patent Convention

In December 2002, the International Property Department recommended that Thailand become a party to the Bern Convention of 1886. Membership in the treaty would grant Thai innovators national treatment with regard to copyright protection within the other member nations. Membership in the convention is intended to benefit Thai developers who would no longer be required to apply for protection in each member country separately. Ultimately, this would have the effect of lowering costs and increasing protection for Thai copyright and patent holders. Cabinet approval will be required for the Intellectual Property Department's application to the Berne Convention.

Social Security Contributions Must Increase in January 2003

In order to extend the life of the social security fund, both employers and employees will be required to increase the levels of their contributions. According to experts, increasing the rate of contributions from 2 to 3 % of basic monthly pay should allow the fund to provide benefits for the next 15 years. The rate hike follows passage of a new regulation that will lead to increased membership in the system. Previously, mandatory contribution was reserved for companies with more than 10 employees. The new rules require businesses with one or more employee to create a social security fund. As a result, government contributions, currently fixed at 1%, will also need to be increased in order to match the increase in social security membership.

Thailand Continues Battle with US Rice Grower over Jasmati Brand Rice

Is American Jasmati rice confusingly similar in name with jasmine rice grown only in the northern areas of Thailand? While the United States Federal Trade Commission (FTC) said "no" this past November, Thai growers still believe it is so. The United States imports about 20,000 tons of Thai jasmine rice and Thai growers believe that the name Jasmati will mislead consumers into thinking the product is the same as the Thai grown jasmine rice. The FTC based its decision on the argument that jasmine rice is not unique to Thailand. If they wish to continue their claim, the Thai Intellectual Property Department may attempt to show that Jasmati has caused a decrease in US imports of Thai jasmine rice. Another less likely alternative is to have jasmine rice added to the Geographic Indications Bill which provides protection to the reputation of a product from a particular geographic area, such as has been done for Champagne.

New Credit Card Regulations
in Development

An increase in credit cards issued by institutions other than banks has spawned new consumer protection regulations and a proposed new credit card bill. Deregulation by the central bank has led to an increase in the number of credit cards being issued, particularly by non-bank issuers over the past year. Complaints from credit card holders about high interest rates and fees, as well as governmental concern about excessive consumer debt and credit card fraud, have led to a need for new ministerial regulations, officials claimed this past October. Among other things, new regulations may require applicants to meet minimum salary requirements.

Proposed Changes to Bankruptcy Law

In November 2002, a drafting committee proposed changes to the bankruptcy law which would extend the time for creditors to seize debtor assets from 3 years to up to 10 years following a court ruling.

Financial institutions have complained that certain debtors have transferred assets prior to filing bankruptcy and then reclaimed the assets after the bankruptcy proceedings concluded. If the amendment is approved, creditors could seize such assets for a period up to 10 years after a court judgement.

Another change, already approved by the drafting committee, allows for appeals on a bankruptcy case to go directly from the trial court to the Supreme Court. Such direct appeals are currently allowed in rehabilitation cases.

Other proposed changes include: (1) extending protection of the bankruptcy code to include partnerships (it now only applies to companies) (2) subjecting planning fees charged by planners and administrators to court imposed limits and reviews (remarkably, current plan administrator fees are negotiated privately by the creditors and the plan administrators) and (3) requiring 50% or more of the plan administrators to be Thai nationals.

BOI Relaxes Business Site Requirements

The Board of Investment issued a notice relaxing the geographical requirements for certain businesses eligible for promotion. Previously, said businesses were required to be located in zones 2 or 3, which are more outerlying regions of the country. As of October 2002, said businesses may also be located in more developed areas, such as Bangkok, and still be eligible for promotion. The businesses to benefit from this notice include: iron parts, production molds and devices, industrial machine making, metal cutting equipment, and vehicle part making, among others.

Tariffs on Imported Luxury Items to be Reduced

In an effort to promote Thailand as a destination for tourist shoppers and to prevent locals from shopping abroad, the Finance Ministry has proposed slashing tariffs on 20 categories of luxury goods. Imported watches, perfumes, clothing, and leather goods are some of the articles mentioned for duty reductions. It is hoped that reducing import taxes on such items would make Thailand a viable competitor with tourist shopper destinations Singapore and Hong Kong. Retailers argue that attracting high end shoppers and preventing locals from shopping in other markets would increase sales and thus offset any losses of tax revenue.

All Tax Services Online in January 2003

According to a Revenue Department spokesman, all tax services will be able to be performed online beginning in January 2003. The first service to go online was e-VAT payment. This was soon followed by other tax payment services, downloads of forms, and a downloadable tax calculation program. While the public has not yet begun to fully utilize the new technology, the Revenue Department is hoping to increase confidence in the system and thereby make it more popular with the public. The newest addition to online tax services is an automatic tax number generation program to issue tracking numbers to online submissions.

WTO Rules that Thai Tax Incentives are Actually Subsidies

A recent World Trade Organization (WTO) decision regarding export subsidies may adversely affect Thailand's ability to draw foreign investment. Waivers on custom duties for imported capital equipment and favorable tax holidays, privileges normally provided by the Board of Investment, are among those incentives the WTO has called for Thailand to rescind. The WTO has ruled that these tax breaks for export businesses qualify as subsidies, which the WTO is aiming to eliminate among its member countries. Many industries in Thailand that have been operating under generous tax holidays and favorably low corporate tax rates may be inclined to move their businesses elsewhere, particularly to China, a senior trade official argued. Although the Board of Investment is downplaying the ruling, the Thai government is lobbying for an extended period to implement the changes; the WTO has called for the changes to be instituted by 2004, while the Thai government hopes to phase them in over a decade.

New Protections Available for Unique Thai Products

While the Senate debated this past October whether to pass the Geographic Indications (GI) Bill, debate raged over what products ought to be considered for protection. The bill is intended to reserve certain names for goods from a specific geographic location that possess qualities which are inherent to the location of its origin.

The debate centers over the definition of the term "generic name", which refers to a product that comes from a particular place such as Champagne wine from France. According to an Intellectual Property Department spokesman, such specifics are inapplicable to certain Thai products such as Thai massage or jasmine rice. However, certain Thai products such as Bang Mod oranges and Nonthaburi Durians will be awarded GI certification. Additionally, the government is lobbying the World Trade Organization to give protection to Thai silk and Hom Mali rice similar to that granted to other products such as Scotch Whisky.

New Incentives for SME's

The Industrial Estate Authority of Thailand (IEAT) proclaimed its desire to promote relocation of SME's to industrial estate areas and to provide incentives to do so. The IEAT, which owns old factories and undeveloped land, has proposed selling the land and offering low-priced leases in order to support SME growth. The Government, which hopes to foster the relationship between IEAT and SME's, plans on amending rules to allow the IEAT to grant privileges in industrial clusters. It is hoped that these clusters, which would provide complete facilities and services in one location would draw foreign investors. A facility service center is being planned to increase the appeal to foreign firms. Industries targeted for such clustering include agro-industrial, automotive, fashion, information technology, and service ventures. Petro-chemical, steel, and chemical industries have already been allocated an area for development in Mab Ta Phut, Rayong. The leather industry will be assigned the Banpu Industrial Estate.