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Time to open Thai service sector to foreign investment

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It has been reported that the Business Development Department (BDD) is planning yet another push to amend the Foreign Business Act (FBA), which is mainly aimed at tightening it up.

I agree with the BDD’s stated desire to clarify the definition of “foreign” in the law, to include voting and management control and thus make the widespread use of nominees to get around the law more difficult. But I have one reservation: the quid pro quo for tightening up the definition of “foreign” should be the opening up of the services sector to foreign investment, with limited exceptions. These exceptions should include industries where foreign ownership is already regulated by other laws, for example banking, insurance and telecoms. Industries legitimately deemed strategic – like media and the operation of ports and airports – should remain restricted as per the current law, either being completely off-limits or requiring Cabinet permission for foreign investment.  
General service industries have been protected since the first alien business law of 1972, on the grounds that Thais are not yet ready to compete in these fields. If they are still not ready to compete after 42 years, it seems quite unlikely that another 50 or 100 years of protection would make much difference. So now is the right moment to call time on these industries and let foreign investors come in. Although many Thai companies in the service sector are, in fact, already world class, foreign investors can still help raise standards and improve quality and pricing of products offered to Thai consumers.       
Furthermore, there should be no encumbrances to foreign investors forming a company, if the list of objectives in its memorandum and articles of association is limited to general service sectors opened to foreign investment through amendments in the FBA. They should be able to form the company and start doing business right away without the onerous procedure of applying for an alien business licence, as required by the existing law.
Thailand has been losing market share of foreign direct investment (FDI) within Asean for at least two decades. This has serious economic implications, since FDI is the window through which a significant proportion of innovations and productivity gains flow. Opening up service industries that don’t need protection for security reasons to FDI, in line with other Asean economies, and easing encumbrances would undoubtedly boost FDI. Meanwhile, closing loopholes on nominees would help ensure that industries that need protection from foreign investment on security grounds actually get it.
George Morgan

Published : March 22, 2018