Thai law experts and a prominent foreign investor agree that the amendment of the Foreign Business Act is necessary to clarify the foreign-ownership issue. However, they urge the government to restructure the protected sector under Annex 3 and communicate better with the public, to avoid confusion.

The panellists at a seminar on the Act organised at The Nation yesterday said that although the amended law was barely changed from the 1999 version, the amendments had caused panic among foreigners, who fear this is a signal that the government will become more inward-looking.

Sigve Brekke, CEO of the second-largest cellular operator, Total Access Communication (DTAC), said the draft of the new Act had turned out to be "softer" than he earlier expected.

Brekke did not agree with the notion that the amendment was a "step backwards" as some critics have maintained. Rather, he gave credit to the Commerce Ministry for its attempt to clear up confusion related to voting rights, foreign shareholding and nominees.

Nonetheless, he said the government should continue taking extra steps by opening up such sectors as telecommunications, where competition would benefit consumers.

During yesterday's seminar on the new Act, Brekke said Thailand was in fact more liberal than many countries. The Kingdom's decision to maintain protection in some sectors, such as broadcasting and property, was understandable, because it was meant to protect natural resources.

As for DTAC, Brekke said Telenor might not have to sell out shares to comply with the new rules. Telenor can depend on other mechanisms to make the shareholding structure in United Communication Industry (Ucom) and DTAC comply with the new law if need be.

Brekke warned that in terms of amending the Foreign Business Act, the government should not "kill the whole economy in order to punish one case".

Skol Harnsuthivarin, secretary to the Commerce Ministry, said the law was being amended to clarify the nominee issue, especially the question of preferred shares.

Kittipong Urapeepattanapong, an international partner of Baker and McKenzie, said he agreed with the government's decision to amend the law to clarify the nominee issue. Some Thai preferred shareholders intentionally abstain from their voting rights because they just expect dividends. Such investors are not necessarily nominees for foreign companies.

The Foreign Business Act consists of three annexes of business sectors, according to the degree of protection.

Kittipong agreed with the government's decision to protect Annexes 1 and 2, but in his view the government should open up Annex 3, which consists of sectors subject to liberalisation but with conditions.

The law does not impose more restrictions on additional business sectors. However, foreigners are concerned about the law because of bad communication.

"The government should send a clear signal that it will continue a liberal policy, because foreign investors are worried the government will amend the law again in the future," he said.

Tithiphan Chuerboonchai, dean of Chulalongkorn University's Faculty of Law, said the amendment, driven largely by the controversial Shin Corp takeover by Temasek Holdings, showed that the government would no longer look at the "ownership test" in defining whether a company was a foreign-owned, but also the "control test". The revised law will scrutinise the voting rights of the shareholders.

He said the government should open up business sectors for consumers' benefits. In fact, Thai operators are competitive, but the business sector is burdened by inefficient cost management. For instance, Thai businessmen in the construction sector are as competitive as the South Koreans but are burdened by financial costs in the form of high interest rates, because of restrictions in the financial sector.

Tithiphan also described a provision in the draft law that enables foreigners to revise their shares to less than 50 per cent in two years, in accordance with Paragraph 2 of Article 9. This article stipulates that violators will receive an amnesty. "The amnesty is equal to 'economic rent'," he said.

Pornprom Kanchanachari, a partner with the Legal Advisory Council, said no matter what the law said, many approval decisions depended on personal judgement. Eventually, approval depends on an approval body - a central committee under the Ministry of Commerce's Department of Business Development. Often, the frequent turnover of committee members - about 20, each taking a two-year term - hinders the case-by-case approval process.

Zeroing in on the List 3 controversy, Pornprom further attacked the department's bureaucracy and the proliferation of assorted application forms, some of which are impractical, if not impossible, to fill in. "Who would be able to estimate petty expenses three years in advance? Some foreign clients haven't even moved into their premises yet," said the legal adviser.

Most importantly, some of these forms require foreign investors to disclose sensitive data essential to the operation of their businesses. Pornprom cited technical information as an example. Who would reveal whatever technical edge they had over their competitors?

The requirements of such documents and the tedious, subjective process will damage whatever confidence current investors and prospective investors have in the Thai economy.

One solution Pornprom suggested was to study what the Philippines has been doing: drafting a list of specific businesses subject to future liberalisation and renewing it every five years, allowing foreign businesses time to adapt.

Brekke said the government should also take some "steps forward" by opening up sectors in which competition would benefit consumers.

For instance, Brekke said the Thai telecom sector was now a global business. Handsets and technology are mostly imported. Many years ago, mobile-phone user numbers in Thailand represented only 10 per cent of the population; now they represent about 60 per cent, thanks to competition that has brought prices down and improved service.

Norwegian telecom giant Telenor acquired shares in Ucom and Ucom's flagship, DTAC, through its Telenor Asia subsidiary in 2000 before expanding its presence in both firms last October.

Currently, Thai Telco owns 42.4 per cent of Ucom, while Telenor Asia owns 47 per cent. Ucom owns 43.1 per cent of DTAC, while Telenor Asia owns 32.6 per cent. Telenor Asia owns 49 per cent of Thai Telco.

He added that even if the telecom sector became fully liberalised in terms of foreign ownership, the industry still had other relevant laws, such as the anti-dominance law, to protect the market and consumers.

The Foreign Business Act and the telecom law each caps foreign shareholding in local firms at 49 per cent.

The telecom operators are in Annex 3 of the amendment of the Act, indicating that their foreign shareholding is capped at 49 per cent but with no limits on foreign voting rights.

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