Traditionally
an agrarian nation, Thailand today boasts a complex, multifaceted economy embracing industries
that employ the latest and most sophisticated technology. Several important
factors have contributed to the country's enviable growth. Its principal
comparative advantage has been the abundance and diversity of its natural
resources. Growth and diversification into new industrial areas have largely
been initiated by the dynamic private sector. Innovative private enterprise
broadened the nation's agrarian base by exploiting the value-added potential of
basic staple crops and at the same time expanded into new product areas in
response to world demand. With the government providing infrastructure support
and exerting relatively limited control over private industry, a
free-enterprise system has emerged that has allowed rapid development to take
place. The part of Thailand's economy that was not ready for 'prime time' was its financial
sector where the levels of professionalism and transparency required in
institutions fully exposed to free international capital flows were absent.
That problem became obvious during the Asian financial crisis of 1997-8; in
fact, the crisis began in Thailand.
Months of speculative pressure on Thailand's baht currency led the government to float it
in July 1997, marking the beginning of an Asian financial crisis. After years
of economic growth, the Thai economy contracted 1.4 percent in 1997 and shrank
10.4 percent in 1998. In the years before the crisis, Thailand ran persistent current
account deficits, but with the depreciation of the baht and flight of
short-term capital from the financial sector, domestic demand collapsed,
imports decreased by 33 percent, and Thailand went rapidly from spending more than its income
to spending less than it was earning. This painful adjustment led to a trade
surplus of $US12 billion in 1998. Long term foreign investment, the long-time
catalyst of Thailand's economic growth, also
slowed sharply.
The government has closely adhered to the $US17.2 billion economic recovery
program organized by the IMF. Such cooperation afforded Thailand stability in the value
of its currency in the second half of 1998 and helped replenish foreign reserves.
The objectives of the IMF program were met, with an ongoing reform strategy in
place to address weaknesses in the institutional framework, particularly to
facilitate corporate debt and bank restructuring. Recovery has been impressive,
with exports growing rapidly, the balance of payments position remaining strong
and inflation coming down to very low levels. Fiscal stimulus is continuing
with an extension of social service programs. Reform efforts have been
underpinned by a new constitution, which aims to improve transparency,
emphasize decentralization, promote foreign investment and address corruption
issues.
A significant problem continuing to plague Thailand's economy is the large volume of non-performing
loans (NPLs) that have still not been cleared out of the banking system. Thailand has taken measures
against NPLs, among the largest in southeast Asia, including a formal debt
reorganization process designed to avoid liquidation, rewriting of the
bankruptcy laws, facilitating of creditors' abilities to seize debtors' assets,
and a new national bankruptcy court. The Thai Asset Management Corporation was
formed in 2001 to acquire non-performing loans and is expected to eventually
acquire about half of the total NPLs, some US$30 billion. During 2001, in a
ruling that marked a significant victory in the fight against NPLs, courts
declared Thai Petrochemical Industries, Thailand's biggest nonpaying debtor, insolvent, saying
it would be taken over by a court-appointed administrator to work out its
debts. Measures taken to alleviate the burden of NPLs include a formal debt
reorganization process designed to avoid liquidation, rewriting of bankruptcy
laws, easing of creditors' abilities to seize debtors' assets and a new
national bankruptcy court.
Significant progress has been made over the past few years in stabilizing the
economy and fostering an economic recovery. External vulnerability has been
substantially reduced as a result of the repayment of short-term external debt,
and official reserves have been rebuilt and stabilized at more than US$30
billion. Private banks have raised nearly $US10 billion in new capital.
However, the economic recovery remains fragile because of the weakness of the
continuing NPL problem in the banking sector and, with exports equivalent to
nearly 60 percent of GDP, Thailand remains very vulnerable to slowing external demand.
GDP
growth fell to just 1.8 percent in 2001 compared to 4.6 percent in 2000 and and
4.2 percent in 1999. The inflation rate decreased rapidly after the shock of
the baht depreciation in 1998. Headline inflation was just 1.6 percent in both
2001 and 2000 and is running at less than one percent in early 2002. The
unemployment rate, while more variable month-to-month than in most developed
countries, has remained in the low three percent range since 1998. Fiscal
policy has remained stimulative with the government deficit averaging more than
2.5 percent of GDP since 1998. During 2001, monetary policy took some sharp
turns. In the first half of the year, the Bank of Thailand raised interest
rates to curb capital flight while most central banks around the world were
aggressively cutting rates. At the end of the year, with the baht stabilized,
inflation falling below one percent and the economy operating well below
potential, the BOT cut rates.
While Thailand suffered a sharp
reduction in growth during 2001 as exports fell, its export mix is sufficiently
broad that it did not suffer the same extent of damage as some other Southeast
Asian countries (e.g. Taiwan and Singapore) whose exports are much more concentrated in the IT sector.
World Bank Group Data:
|
|
1997 |
2000 |
2001 |
|
165.1 billion |
121.9 billion |
120.9 billion |
|
|
2,780.0 |
2,010.0 |
1,970.0 |
|
|
151.1 billion |
122.3 billion |
114.8 billion |
|
|
-1.4 |
4.7 |
1.8 |
|
|
4.0 |
1.2 |
2.1 |
|
|
11.2 |
10.5 |
10.2 |
|
|
38.6 |
40.0 |
40.0 |
|
|
50.2 |
49.5 |
49.8 |
|
|
47.8 |
67.0 |
68.9 |
|
|
46.4 |
58.9 |
63.6 |
|
|
33.3 |
22.6 |
23.9 |
|
|
18.4 |
15.9 |
.. |
|
|
-2.1 |
-3.1 |
.. |
During the
1990s when Thailand's economy was growing at more than six
percent per year and foreign capital was rushing into the country to take
advantage of the 'Asian miracle', it ran large deficits in merchandise goods
trade. It also persistently paid out more in net factor income to foreigners
than it earned on its overseas investments. Thailand's
world class tourist facilities and sights helped generate surpluses in services
and the export of Thai workers to other Southeast Asian nations contributed to
surpluses in net international transfers and remittances, but these service and
transfers surpluses were small in relation to the trade deficit. The result was
substantial current account surpluses that were financed by capital inflows
from overseas.
But, with the loss of confidence in the baht in 1997 and the subsequent capital
flight, the country could no longer finance its current account deficit and was
only able to purchase goods and services from foreigners to the extent it could
pay for them from the value of what it produced—that is, its income. The
collapse in the value of the baht against other major currencies did make Thai
exports and services very attractive and reigned in spending on imports and
that, along with a sharp reduction in GDP, resulted in a huge swing in the
current account from a deficit of more than US$14 billion in 1996 to a current
account surplus of more than US$14 billion in 1998 (14 percent of GDP). While
the current account surplus has declined to just US$6.2 billion in 2001 (5.4
percent of GDP), foreign investment sentiment has not returned to the glory
days of the Asian miracle, and Thailand appears to be constrained to earn by
generating export surpluses the foreign goods and services it requires.
Of course, the swing in the current account balance caused by the Asian
financial crisis had its counterpart in the financial account of Thailand's balance of payments. From a net inflow of capital from
abroad of more than US$19 billion in 1996, the financial account reversed to
the extent that during 1998-2000, the outflow of capital from Thailand represented some US$8-10 billion per year. Significantly,
this huge reversal has occurred during a time when foreign direct investment in
Thailand has actually expanded considerably—Thai
assets and production costs are a lot more attractive at the post-crisis value
of the baht. The major factor in the financial outflow from Thailand has been the repayment of debt. Portfolio investment has
represented a small net outflow, too, but it has been dwarfed by loan
repayments and movements in bank account holdings by citizens and corporations.
With IMF assistance, Thailand has stabilized its economy, its currency
and its balance of payments. At the end of 2001, Thailand
held US$33 billion in foreign exchange reserves, a comfortable level given its
strong export surplus.
|
Balance of Payments |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
1997 |
2000 |
2001 |
|
79.6 |
107.2 |
.. |
|
|
159.7 |
211.4 |
.. |
|
|
31.0 |
.. |
.. |
|
|
98.0 |
.. |
.. |
|
|
Foreign direct investment, net inflows in reporting country (current US$) |
3.9 billion |
3.4 billion |
.. |
|
.. |
76.6 billion |
.. |
|
|
15.5 |
16.3 |
.. |
|
|
37.8 billion |
14.9 billion |
.. |
|
|
10.5 |
10.6 |
.. |
|
Exports: |
$65.3 billion (f.o.b.) |
|
Exports - commodities: |
Computers, transistors, seafood, clothing, rice |
|
Exports - partners: |
US 23%, Japan 14%, Singapore 8%, China 6%, Hong Kong 5%, Malaysia 4% (2000) |
|
Imports: |
$62.3 billion (f.o.b.) |
|
Imports - commodities: |
Capital goods, intermediate goods and raw materials, consumer goods, fuels |
|
Imports - partners: |
Japan 24%, US 11%, Singapore 10%, Malaysia 6%, China 4%, Taiwan 4% (2000) |
5. Stock Market Performance:
The
Stock Exchange of Thailand officially began trading in 1975 (then it was known
as the Securities Exchange of Thailand). By the end of the 1990's, the Exchange
had 392 listed companies. Foreign investment ceilings are determined by the
individual companies, but typically range between 10 percent and 49 percent.
Investors are allowed free repatriation of income and capital.
In 1992, the Securities and Exchange Act was enacted, which established the
Securities and Exchange Commission of Thailand (SEC). The principal purpose of this
legislation was to require that the SEC approve most offerings of equity and
debt securities by Thai companies. As part of that process, the SEC must
receive and approve copies of the proposed prospectus to be used in such
transactions. The Securities and Exchange Act includes civil and criminal
penalties which are enforced, in cooperation with the Office of Attorney
General, by public prosecutors in the courts.
The
Royal Thai government has long maintained an open, market-oriented economy and
encouraged foreign direct investment as a means of promoting economic
development, employment, and technology transfer. Thailand welcomes investment
from all countries and seeks to avoid dependence on any one country.
Over the past three years, the Thai government in concert with the IMF has embarked
on an economic reform program intended, in part, to foster a more competitive
and transparent climate for foreign investors and creditors in an effort
stimulate investment flows. A primary focus of this program has been the
financial sector, which was crippled by a huge amount of bad debt resulting
from the Asian economic crisis. Legislation establishing a new bankruptcy
court, reforming bankruptcy and foreclosure procedures, and allowing creditors
to pursue payment from loan guarantors has been enacted. Other reforms put in
place recently include amendments to the Land Code, the Condominium Act and the
Property Leasing Act, which will liberalize, to some extent, restrictions on
property ownership by non-Thais.
A reform of more direct interest to non-financial investors is the new Alien
Business Act, which became law in early 2000 and replaces the old Alien
Business Law of 1972 (National Executive Council Announcement No. 281). The new
law governs most investment activity by non-U.S. nationals, opens additional
sectors to foreign investment, and increases maximum ownership stakes permitted
in some sectors above the current 49 percent limitation. As of June 2000 the
ministerial regulations that will guide implementation of the act are still
under review.
Many aspects of the reform measures enacted in the aftermath of the crisis were
controversial and strongly resisted by the political opposition and other
powerful elements of Thai society. The fact that the government was able to
persevere with its reform agenda in the face of strong domestic opposition is
indicative of its commitment to economic reform and an open investment climate.
1. Currency Conversion and Transfer Policies
Exchange controls are governed by the Exchange Control Act of 1942 administered
by the Bank of Thailand (central bank). Inward remittances are free of
controls. The proceeds of exports with a value of more than 0.5 million baht
must be remitted as soon as received and within 120 days of export, and
deposited within seven days of receipt.
Presently, commercial banks are authorized to undertake most routine foreign
remittance transactions without prior approval of the Bank of Thailand. Thai
nationals are subject to quantitative limits on the amount of foreign currency
that can be remitted abroad without specific permission of the Bank of
Thailand. The limits vary depending upon the purpose of the transaction and
range from $10 million per annum for business investment or loans to
subsidiaries to $100,000 for remittances to family members.
All remittances exceeding $5,000 for any purpose other than export must be
reported to the Bank of Thailand.
2. Expropriation and Compensation
Private property can be expropriated for public purposes in accordance with
Thai law, which provides for due process and compensation. In practice, this
process is seldom used, and has been principally confined to real estate owned
by Thai nationals needed for public works projects.
3. Dispute Settlement
Thailand has a civil and
commercial code and a newly amended bankruptcy law. Monetary judgments are made
in baht; foreign currencies in judgments are calculated at the market exchange
rate. Decisions of foreign courts are not accepted or enforceable in Thai
courts. Disputes such as the enforcement of property or contract rights have
generally been resolved through the Thai courts. Thailand has an independent judiciary that
generally is effective in enforcing property and contractual rights, but in
practice the legal process is slow and litigants or third parties sometimes may
affect judgments through extra-legal means. In addition, companies may
establish their own arbitration agreements. At present, Thailand is not a member of the International Center for the Settlement of
Investment Disputes. However, Thailand is a member of the New York Convention, and enacted its own
rules on conciliation and arbitration in the Arbitration Act of 1987. The
Arbitration Office of the Thai Ministry of Justice administers these
procedures.
The Bankruptcy Act was amended in April of 1998 to provide protection to
debtors and to give debtors and creditors the option of negotiating a
reorganization plan through the courts instead of forcing liquidation. It
allowed creditors to extend additional loans to insolvent firms without losing
the right to claim compensation during a future restructuring or liquidation
process (but only if the new loan is intended to keep the firm operating). The
Bankruptcy Act was further amended in 1999 to address some remaining problems
and to facilitate the financial restructuring process. New higher minimum
levels for individual and corporate bankruptcies were established, and the
previous 10-year period of bankruptcy status was reduced to three years. The
1999 amendments came into effect in April 1999.
Amendments to the Civil Procedure Code on Execution of Judgments entered into
force in May 1999 and limit appeal options available to debtors in an effort to
speed-up the foreclosure process. Under the old law, debtors were free to
appeal each action taken with respect to the execution of a bankruptcy
judgment. Such appeals, often frivolous in nature, were one of the tactics
debtors used to delay the foreclosure process.
The Bankruptcy Court Act established a specialized court only for bankruptcy
cases.
Lawmakers hope that a specialized court will develop expertise in corporate
restructuring that will speed up the process and help financial weak companies
survive. The court began operation in June 1999, and early experience with the
court has been positive.
4. Performance Requirements and Incentives
The Board of Investment (BOI), established by the Investment Promotion Act of
1977, is Thailand's central investment
promotion authority. The BOI lists five priority sectors (detailed below) that
are eligible for investment incentives. Incentives have been suspended in many
sectors in which the BOI believes there is no longer need to encourage further
investment, such as packing canned tuna for export. Generally, the most
generous incentives are offered for those activities that bring new technology
to Thailand and locate investment
in less-developed provinces. BOI incentives are of two basic types:
• tax-based (including tax holidays and tariff exemptions),
• and non-tax privileges (guarantees, special permissions, services, etc.).
The BOI's overall investment policy, as revised on May 31, 2000, and effective
beginning Aug. 1, 2000, is as follows:
• In order to maximize the benefits of investment to the country and in line
with policies supporting good governance, the BOI has moved to improve the
efficiency of promotion incentives by introducing a performance-based system
that will require promoted investors to submit evidence of compliance with the
conditions of their approval in order to claim the benefits of their
incentives.
• To increase the global competitiveness of Thai exports, projects investing 10
million baht (approx. $256,400) or more will be required to obtain
international standards certification, such as ISO9000.
• In order to ensure that Thai investment policy is in line with all
international obligations, the BOI has lifted all local content and export
requirements.
• To encourage the distribution of opportunities and prosperity to the
least-developed provinces, the BOI policy of decentralization will continue.
Projects locating in least-developed provinces will receive maximum incentives.
• To support the development of small- and medium-sized enterprises, the
minimum investment amount (for BOI promotion) shall remain at one million baht
(approximately $25,600), excluding the cost of land and working capital.
To promote investment in key sectors, five priority activities have been
identified:
• Agriculture and agricultural products;
• Environmental protection and /or restoration;
• Direct involvement in technological and human resource development;
• Basic transportation, infrastructure and services; and
• Targeted industries.
In 1993, the BOI initiated a major shift in emphasis from export orientation to
industrial decentralization as a major policy goal. Intended to spur
development rural areas where the population is employed primarily in the
labor-intensive agricultural sector, this focus on decentralization continues
under the new policy. A chief objective is to reduce congestion in the already
overcrowded capital and to strengthen and diversify the economic base in the
provinces. Board of Investment incentives include:
• Tax Incentives: exemptions/reductions of import duties on imported machinery;
reductions of import duties on imported raw materials and components;
exemptions from corporate income taxes for three to eight years; and,
deductions from net income of infrastructure costs.
• Permissions: to bring in foreign nationals to undertake investment
feasibility studies; to bring in foreign technicians and experts to work under
promoted projects; to own land for carrying out promoted activities.
• Guarantees: against nationalization; against competition by new state
enterprises; against state monopolization of the sale of products similar to
those produced by promoted firms; against price controls; against tax exempt
import by government agencies or state enterprises of competitive products;
and, of permission to export.
Investors must submit application forms along with supporting documentation to
be considered for incentives. In most cases, the BOI decides within sixty days
whether or not a project is eligible for investment privileges. BOI policy is
to complete action on applications for projects valued in excess of 200 million
baht (roughly $5.2 million) within ninety days.
As noted above, the BOI recently announced revisions to its investment
promotion scheme that will come into effect on Aug. 1, 2000. (Applications for
promotion submitted before that date are eligible for existing incentives.)
Elements of the new promotion policy include the following:
• For projects in the manufacturing sector, majority or total foreign ownership
is permitted in any zone.
• The maximum allowable debt-to-equity ratio will be reduced from 4:1 to 3:1.
• Except for the electronic and agriculture industries, projects investing less
than 500 million baht (approx. $12.8 million) must produce added value equal to
at least 30 percent of sales revenue.
• For projects of more than 500 million (approx. $12.8 million), a feasibility
study must be presented at the time of application.
• The BOI will continue to promote relocation of projects to Zone 2 and Zone 3.
However, in order to be eligible for new incentives, projects must relocate to
an industrial estate.
• Due to increased levels of development, the provinces of Phuket and Rayong
have been moved into Investment Promotion Zone 2, which offers a three-year
income tax holiday for promoted projects, unless projects are located in an
industrial estate, in which case they receive a five-year income tax holiday.
• Projects submitted prior to December 30, 2004, that locate in Zone 2 industrial estates
approved by the BOI prior to the date of this announcement can enjoy a
seven-year income tax holiday. After that date the income tax holiday will be
five years in line with the new policy announcement.
• The 58 provinces of Zone 3 will be divided into two areas, based on each
province's stage of development. New projects in Zone 3 will no longer be
eligible for a 75 percent reduction of import duty on raw materials used for
domestic sales.
5. Private Ownership Rights
Private entities may establish and own business enterprises. The principal
forms of business organization under Thai law are sole proprietorships,
partnerships, limited companies, and public limited companies. In addition,
branches of foreign corporations are recognized, and a
"representative" or "liaison" office of a foreign company
may receive special recognition.
Irrespective of the form of the business entity, most businesses must apply for
business registration. Establishment of a business in certain sectors by a
foreign entity may be restricted by the Alien Business Law, or may not benefit
from the Treaty of Amity.
A Thai private limited company is similar to a corporation in the United States, and may be wholly
owned by a foreigner unless the corporation is involved in a business activity
reserved for Thai nationals. A public limited company is allowed to offer its
shares to the public. Eight laws pertaining to individual industries limit
foreign ownership of companies listed on the Stock Exchange of Thailand.
6. Protection of Property Rights
Rights in property are guaranteed by the constitution against condemnation or
nationalization without a fair compensation. Secured interest in property are
recognized and enforced. Thailand has a civil law system under which all laws are embodied in
statutes or codes promulgated by the government. This is in contrast to the
common law system in many Western countries, where decisions by the courts,
that interpret statutes, serve as governing legal precedent.
There is an independent judiciary that provides a forum for fair settlement of
disputes. A great deal of status is attached to being a judge, and the
examinations to enter the judiciary are very difficult. The judiciary jealously
guards its independence.
Agencies of the government, as parties to commercial contracts, may be sued in
the courts, and cannot raise a defense of sovereign immunity. However, state
property is not subject to execution.
There are four basic codes:
• Civil and Commercial Code,
• Criminal Code,
• Civil Procedure Code,
• Criminal Procedure Code.
In adopting these codes early in this century, Thailand selected features of
the two western legal systems (common law and civil law), and adapted to
circumstances in Thailand provisions drawn from England, Germany, Switzerland,
France, Japan, Italy, India and other foreign systems. Decisions and rulings of
the judiciary and civil service can have considerable force as precedents.
There are three levels to the judicial system in Thailand: the Court of First Instance, which
handles most matters at inception, the Court of Appeals and the Supreme Court.
There are specialized courts such as the Labor Court, Family Court, Tax Court and the recently
established Intellectual Property and International Trade Court and Bankruptcy Court.
7. Transparency of Regulatory System
Thailand recently enacted a new
Trade Competition Act intended to strengthen the government's ability to
regulate price fixing and market monopolies. The new law establishes a Trade
Competition Commission with the authority to place limitations on market share
and revenues of firms with substantial control of individual market sectors, to
block mergers and other forms of business combinations and to levy fines for
price fixing and other proscribed activities. The government continues to have
the authority to control the price of specific products under the recently revised
Goods and Services Price Act of 1999. In practice, very few commodities are
subject to formal price controls. However, the government does use its control
of major suppliers of products and services such as Thai Airways and PTT (Oil
and gas) to influence prices in the market.
Thailand has extensive
legislation aimed at the protection of the environment including the National
Environmental Quality Act, the Hazardous Substances Act and the Factories Act.
Food purity and drug efficacy are controlled and regulated by a Food and Drug
administration. Likewise, labor and employment standards are set and regulated
by the Ministry of Labor.
Despite the good intentions of most regulatory regimes, consistent and
predictable enforcement of government regulations remains an obstacle to
investment in Thailand. Gratuity payment to civil servants responsible for regulatory
oversight and enforcement unfortunately remains a common practice. Through such
payments, regulations can often be by-passed or ignored and approval processes
expedited. Firms that refuse to make such payments can be placed at a
competitive disadvantaged when compared to other firms in the same field.
However, most observers believe that the overall trend in this respect is
positive.
8. Political Violence
In recent years Thailand has developed a much more stable and transparent political
system, although in the past there were frequent changes in government, often
by military intervention. The last coup was in 1991, followed in 1992 by
political unrest and a confrontation in the streets of Bangkok in which over 50
civilian demonstrators were killed. The "May 1992 events" were a real
shock to the Thai political system and stimulated a remarkable democratic
recovery. Since 1992, the military has not interfered in the operation of the
civilian government, and this appears likely to remain the case for the
foreseeable future. There have been three successful elections (1992, 1995 and
1996) and a change of government in 1997 since then. A non-partisan assembly
rewrote the nation's constitution, which was put into force in October 1997.
One of the main reforms of the new constitution is expected to be less vote
buying by candidates for the national parliament. General elections under the
new constitution have yet to take place but are due by January 2001.
9. Corruption and Crime
Thailand has laws to combat
corruption. The independent National Counter Corruption Commission coordinates
official efforts against corruption. American executives with long experience
in Thailand advise new-to-market
companies that it is far easier to avoid getting started with corrupt
transactions than to stop such practices once a company has been identified as
willing to operate in this fashion.
Despite some recent improvements, both foreign and Thai companies continue to
complain about irregularities in the Thai Customs Service. Recent Thai
administrations have stated publicly their intention to improve transparency in
the evaluation of bids and the awarding of contracts. Increasing media scrutiny
of public figures has raised political pressure to curtail favoritism and
corruption. Nonetheless, the press features frequent allegations of
irregularities in public contracts, most notably over the use of public lands,
as well as charges of favoritism, e.g., revising requirements so that a
preferred company wins over its competitors.
In its 1999 ranking of corrupt practices, Transparency International placed
Thailand at 68, near Bulgaria, Egypt, Ghana, Romania, Guatemala and Nicaragua,
out of a total of 99 countries ranked in its corruption perception index (the
higher the number, the worse the corruption). According to some studies, a
cultural propensity to forgive bribes as a normal part of doing business and to
equate cash payments with finders' fees or consultants' charges, coupled with
the low salaries of civil servants, encourages officials to accept illegal
inducements.
10. Labor
The Thai government projects a labor force in 2000 of 33.06 million workers out
of a population of 62.7 million. This figure includes all Thais 13 years of age
and older who are actively seeking work. Unemployment showed little improvement
over the last year. A government Labor Force Survey completed in February 2000
estimated unemployment at 4.3 percent, compared to 4.2 in 1999, but
unemployment was probably overestimated because the survey was conducted during
a lull in the agricultural season.
Despite rapid growth in the industrial and service sectors, this Labor Force
Survey estimates that 39.8 percent of those employed are still engaged in
agriculture. However, the shift of workers from the agricultural sector is
continuing, especially in the Northeast where agricultural productivity and
investment is lower. As a consequence, recent years have seen a constant flow
of rural, generally unskilled Thais seeking work in Bangkok and the more
industrialized regions, both seasonally and on a permanent basis. This ready
availability of migrant labor has contributed to Thailand's rapid industrial growth, particularly
in the light manufacturing and construction sectors.
The economic downturn stemmed shortages in the labor market of workers with at
least a secondary education. As Thailand's economy recovers, however, it is likely that
highly skilled and experienced engineers, technicians and managers will again
be in short supply. In the past, many multinational firms brought in expatriate
professionals because qualified local personnel simply were not available, even
at high salaries. Finding, training, and retaining qualified employees to work
in the manufacturing facilities being developed in industrial estates, such as
those along the Eastern Seaboard, will continue to be a challenging government
priority in the near term.
Thailand's education system is
still geared toward the needs of a largely agrarian, traditional economy and
society and lags behind the country's contemporary skills requirements. The
government has made great progress over the last two decades in providing basic
education. Thailand's gross primary school
enrollment in 1999 was 97.5 percent, and the adult literacy rate in 1999 was 94
percent, one of the best in the region. However, compulsory education,
according to Primary Education Act, is required only through grade six. A new
National Education Act (effective August 1999) ensured the right of all Thai
citizens to receive free basic public education for not less than 12 years and
raised the compulsory education level to nine years. The government is now
drafting amendments to the Primary Education Act so that these requirements
will be codified in the National Education Law. In 1999, Thailand had around 300,000
students enrolled in public and private colleges and universities. Over 15,000
Thai students are currently studying in the United States.
All employers must define the terms of employment for their staff, and
employers with ten or more employees are required to specify working
regulations. A new labor law enacted in late 1998 brought labor practices more
in line with ILO standards. The law cut the work week to a maximum of 48 hours
including overtime for all types of work, with overtime payable at one and
one-half times the hourly rate. Hazardous work may not exceed seven hours per
day or 40 hours per week. All employees are entitled to a vacation of six
workdays a year, in addition to thirteen holidays traditionally observed in Thailand. Under the labor law
the employment of children under the age of 15 is prohibited, and there are
restrictions on the employment of children and youths through the age of
eighteen.
Thailand's "social safety
net" is considered inadequate by Western standards. The social security
system consists of two systems. The Workmen's Compensation Act of 1994 requires
employers with ten or more employees to contribute yearly 0.2-1.0 percent of
the employee's earnings to the Workmen's Compensation Fund. The Fund provides
benefits to employees who are injured, sick, disabled or die from work related
injury. The Social Security Act has been in effect since 1990. This Act covers
enterprises with ten or more employees. Contributions to the Social Security
Fund from the government, the employer, and the employee are mandated. The
Social Security Fund provides compensation to insured workers under six
categories: injury or sickness, child delivery, crippling injury, death, child
welfare, and old age. In the first four categories, each party contributes 1.5
percent of the wages of the insured. For child welfare and old age cases three
percent is contributed. Currently, the Social Security Fund does not cover
unemployment compensation. Application of unemployment coverage depends on the
state of economy of the country.
The labor relations climate in Thailand is generally peaceful with strikes relatively infrequent.
Less than two percent of the total labor force is unionized; about 10 percent
of the industrial work force is organized. The year 2000 marked the successful
restoration of the union rights of state enterprise workers which had been
abolished after a military coup in 1991. The State Enterprise Labor Relations
Act (SELRA) was reaffirmed by the Thai Parliament and became law on April 8, 2000. State enterprise labor
unions are now going through a process of re-certification and electing new
union leaders. The passage of SELRA may conclude review of a 1992 petition
filed by the AFL-CIO, which has put Thailand's GSP privileges under yearly review for denial
of union rights.
11. International Investment Agreements
Thailand also has bilateral
investment agreements with 25 countries, such as the U.S., Germany, the Netherlands, the United Kingdom and China, and ASEAN countries.
These agreements establish guidelines for expropriation compensation and the
repatriation of capital, but do not include national treatment provisions.
12. Foreign Trade
Zones
Thailand has 11 export
processing zones to which businesses may import raw materials and export
finished products free of duty. These 11 export processing zones are located
within industrial estates and many have customs facilities to speed processing.
In addition to these zones, factories may apply for permission to establish a
bonded warehouse within their premises to which raw materials, used exclusively
in the production of products for export, may be imported duty free.
The Industrial Estate Authority of Thailand (IEAT) established the first
industrial estates in Thailand, including the major industrial estates of Laem Chabang
Industrial Estate in Chonburi Province and Map Ta Phut Industrial Estate in Rayong Province. More recently, private
developers have become heavily involved in the business. According to BOI
statistics, there are presently 37 industrial estates in Thailand. The IEAT operates
seven estates, plus 15 more jointly with the private sector. The remainder are
operated by private sector developers. Most estates have received promotional
privileges from the Board of Investment.
13. Foreign Investment Statistics
Net foreign direct investment (FDI) including inflows for bank
re-capitalization totaled $3.6 billion in 1999, compared to $5.1 billion in
1998 and $3.7 billion in 1997. The year-on-year increase in 1998 in large
measure reflects significant inflows for bank re-capitalization as well as
debt-equity swaps and acquisition of new equity by Japanese and European firms
rather than investment in new productive capacity. There are no reliable local
statistics for cumulative investment by country of origin.
The unified
corporate tax rate for all firms is thirty percent of net profits. Previously,
firms not listed on the Stock Exchange of Thailand paid a 35 percent marginal
rate. The income tax withholding rate on both the payment of dividends and the
remittance of after tax profits is 10 percent. The tax rate on the payment
abroad of income for companies not officially established in Thailand is fifteen percent. The disposal of profits abroad is
defined to include the amount set aside for the payment or settling of a debt.
It includes applications to convert or transfer abroad foreign currencies
arising from the profits of the business. Thailand's
highest marginal tax rate on personal income is 37 percent.
BOI benefits that offer the greatest advantage over unpromoted industries are
the tax incentives, though their relative value has declined in recent years
with the general reduction of import duties and elimination of the former
business tax system. The Value Added Tax (VAT) Law, which eliminated an
antiquated business tax system, has no provision for the BOI to offer VAT
exemptions or reductions.
Thailand is a place that has
something for everyone. For those interested in foreign and ancient cultures, Thailand boasts of having more
visible historical evidence of past eras than any other Southeast Asian nation,
so take your pick of the ubiquitous historical ruins and temples to visit. For
those in search of tropical paradise, Thailand’s islands and beaches defy the definition of
heaven on earth. And for those who can’t live without urban delights, the huge
metropolis of Bangkok and other major provincial cities, like Chiang Mai and Phuket,
will thrill you with their chaotic energy and enchant you with their charms and
cultural treasures. Even the remotest of the remote town has its own unique
appeal that will captivate any visitor and leave a long lasting memorable
imprint.
Traveling in Thailand is so easy and
convenient, with efficient and wide choices of transportation mode, cheap
accommodation, and a delicious national cuisine that has its unique taste
according to each region. Thai people are renowned for their warm hospitality
and friendliness. All visitors, Thai or foreign, are all treated with courteous
manners and sincerity, as if they are part of the family. Thais are also
fun-loving, happy people who never seem to get bogged down by any obstacles
(excluding the uptight workaholics in Bangkok, who break out a smile now and then), as
evident by the joyful celebrations of year-round festivals. So come on over and
see what Thailand has to offer. The trip
to the magical kingdom is not that far away.
Sources: Country Watch, Central Intelligence Agency: http://www.cia.gov
International Monetary Fund: http://www.imf.org
World Bank: http://www.worldbank.org
Bank of Thailand: http://www.bot.or.th