Investor Information: THAILAND

 

 

Economy

 

    1. Economic Background

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.

 

    1. Economic Performance

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

GNI, Atlas method (current US$)

165.1 billion

121.9 billion

120.9 billion

GNI per capita, Atlas method (current US$)

2,780.0

2,010.0

1,970.0

GDP (current $)

151.1 billion

122.3 billion

114.8 billion

GDP growth (annual %)

-1.4

4.7

1.8

Inflation, GDP deflator (annual %)

4.0

1.2

2.1

Agriculture, value added (% of GDP)

11.2

10.5

10.2

Industry, value added (% of GDP)

38.6

40.0

40.0

Services, etc., value added (% of GDP)

50.2

49.5

49.8

Exports of goods and services (% of GDP)

47.8

67.0

68.9

Imports of goods and services (% of GDP)

46.4

58.9

63.6

Gross capital formation (% of GDP)

33.3

22.6

23.9

Current revenue, excluding grants (% of GDP)

18.4

15.9

..

Overall budget balance, including grants (% of GDP)

-2.1

-3.1

..

 

 

    1. Balance of Payments:

 

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
(Billions of $US)

 

1996

1997

1998

1999

2000

2001

Current Account Balance

-14.691 

-3.022 

14.243 

12.429 

9.314 

6.227 E

Goods and Services

-12.066 

-0.020 

17.395 

15.066 

10.109 

6.987 E

Net Investment Income

-3.385 

-3.481 

-3.567 

-2.991 

-1.381 

-1.361 E

Net Current Transfers

0.760 

0.479 

0.415 

0.354 

0.586 

0.601 E

Capital and Financial Account

19.486 

-12.056 

-14.110 

-11.073 

-10.434 

-3.908 E

Net Errors and Omissions

-2.627 

-3.173 

-2.828 

0.033 

-0.685 

0.155 E

Overall Balance

2.168 

-18.251 

-2.695 

1.389 

-1.805 

2.474 E

Official Reserves Stock

37.731 

26.180 

28.825 

34.063 

32.016 

32.355

Current Account (Percent of GDP)

-8.1% 

-2.0% 

12.5% 

10.1% 

7.7% 

5.5% E

 

 

    1. Import Export Markets:

                                                                                          

 

1997

2000

2001

Trade in goods as a share of GDP (%)

79.6

107.2

..

Trade in goods as a share of goods GDP (%)

159.7

211.4

..

High-technology exports (% of manufactured exports)

31.0

..

..

Net barter terms of trade (1995=100)

98.0

..

..

Foreign direct investment, net inflows in reporting country (current US$)

3.9 billion

3.4 billion

..

Present value of debt (current US$)

..

76.6 billion

..

Total debt service (% of exports of goods and services)

15.5

16.3

..

Short-term debt outstanding (current US$)

37.8 billion

14.9 billion

..

Aid per capita (current US$)

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.

 

Foreign Investment

 

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.

 

Taxing Structure and Incentives

 

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.

 

 

Tourist Information

 

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