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III. TRADE-RELATED ASPECTS OFINVESTMENT POLICIES
(1) Foreign Direct Investment: General Policy Direction1
1. Thailand encourages foreign direct investment (FDI), apolicy which issupervised bytheBoard
ofInvestment (BOI) under theOffice ofthePrime Minister. Theimplementation ofthepolicy involves
granting foreign firms (together withlocal firms) inindustrial andservice sectors bothnon-tax and
taxincentives, suchastaxholidays andwaivers ofduties onimported capital goods. Since April 1993,
theBOIhasshifted itsemphasis, including forFDI-related investment, from export promotion to
industrial decentralization.2Newmeasures havebeeninitiated toencourage companies toestablish
orrelocate inregional areas; themore remote theproject, thebetter theincentives given, including
bothtaxexemptions andimport dutyreductions (Table AIV.1).3
2. Thailaw,including taxlawsandmostregulations, makes nomajor distinction between domestic
investment andforeign investment except forprohibited sectors under theAlien Business Laworthe
National Executive Announcement No.281of1972(Table AIII.1). TheAlien Business Lawgoverns
allforeign natural andjuridical persons, i.e.those withover50percentforeign shareholding orthose
where atleastone-half oftheshareholders areforeigners. TheBOIhasanother setofjointventure
criteria, which aresetforthinBOIAnnouncement No.1/2536; onlyforeign investment seeking BOI
promotion issubject tothese criteria. Conditions fortheoperation ofjointventures wererevised in
1993 (Appendix III.1). Foreigners aregenerally notallowed toownlandinThailand, except inthe
caseofprojects promoted bytheBOI(Chapter IV(4)(i)). Forservices, theGovernment 'spreferred
mode ofoperation isjointventure firms withThaipartners orthrough management contracts.
3. Alimited number oftrade-related performance requirements areimposed oncertain investment
projects receiving investment incentives, regardless ofthesource ornationality oftheinvestment;
measures areonlyapplied toforeign investment seeking investment promotion incentives. Recognizing
Thailand 'sobligations tophase outperformance requirements inconsistent withtheUruguay Round
Agreement onTrade Related Investment Measures (TRIMs), 14previously required local content
requirements imposed bytheBOIwere abolished fornewinvestment projects granted investment
promotion approval after1April 1993; however, suchrequirements remain indairy products, motor
vehicleengines,dieselenginesforagriculture,multi-purposebenzeneenginesandmotorcycleassembly.4
Theremaining localcontent requirements imposed bytheBOIandtheMinistry ofIndustry aretobe
1This section draws mainly from Christensen, et.al.(1993), TheLessons ofEast Asia: Thailand- the
institutional andpolitical underpinnings ofgrowth, theWorld Bank; Bank ofThailand Quarterly Bulletin (1993),
"ManagingForeignCapitalinaRapidlyGrowingEconomy:Thailand'sRecentExperienceandIssues",pp.35-54;
Economist Intelligence Unit: Thailand (1993); Dowling (1994), "Outlook andProspects forDeveloping Asia",
TheAustralian Economic Review; Euromoney supplement (1994), "Thailand: Anewdawn forthecapital
markets"; andmaterials provided bytheGovernment ofThailand.
2SeeTable IV.11 forcurrent BOIpolicy objectives. AsofApril 1993, incentives aregranted forresearch
anddevelopment activities (Table AIV.l).
3Additional government initiatives have been introduced toopen previously restricted sectors togreater
competition, including newFDI, inorder toimprove efficiency. Examples include suchindustries assteeland
petrochemicals.
4TheMinistry ofIndustry alsoimposes local content requirements onpassenger cars, vansandother types
ofpassenger cars, small vans andtrucks, motorcycles anddairy products (Chapter IV(2)(xv)).WT/TPR/S/9 Trade Policy Review
Page 26
eliminated bytheendof1999 (Chapter IV(2)(xiv)). Inorder tocomply withtheobligations under
theAgreement onSubsidies andCountervailing Measures, theBOIwilleliminate itsexport-related
incentives bytheendof2002.
4. Since 1992, theBOIhasbegun tofacilitate overseas investment byThaifirms; theBOIalso
offers assistance toThaiinvestors seeking business partners abroad.5Missions havebeenorganized
forThaifirms toidentify investment opportunities inChina, Indochina andASEAN countries, among
others, andtofamiliarize themselves withlawsandregulations inthehostcountries. TheBOImaintains
information oninvesting inthese countries, andhelps Thaiinvestors toidentify potential partners and
write contracts.6
(2) Legal Framework ofForeign Direct Investment
5. Major legislation overseeing foreign direct investment inThailand includes theAlien Business
Lawof1972andtheInvestment Promotion Actof1993.7TheAlien Business Lawspecifies themain
areas forwhich Thailand imposes restrictions onforeign majority ownership (Table AIII.1). Under
theInvestment Promotion Act,theBOImaygrant taxprivileges aswellasnon-tax incentives.
6. Withlimitedexceptions,foreignersmayparticipateinanytypeofbusinessinThailand;however,
equity participation maynotingeneral exceed 49percentofregistered capital. Annexes totheAlien
Business Lawclassify business activities intothree categories: under Annex Aforeigners cannot own
more than49percentofthespecified activities; under Annex Bmajority owned foreign enterprises
arenotallowed toinvest intheactivities listed, unless theBOIgrants promotional privileges; and
Annex Clistsactivities opentomajority foreign ownership byforeigners ifsuchactivities cannot be
adequately carried outbyamajority Thai-owned company (Table AIII.1).8Under BOIAnnouncement
No.1/2536, however, foreign nationals mayholdamajority oralloftheshares inanenterprise, subject
toconditions relating toexport performance, inthecaseofmanufacturing, ortothecapitalization of
theenterprise inthecaseofinvestments inresource-based activities andservices (Appendix III.1).
Inaddition, foreign shareholding restrictions maybewaived inthecaseofinvestment inpriority areas,
suchasthe14designated support industries (Chapter IV(4)(i)).
7. Foreign nationals intending toengage inanybusiness specified under Annex Cmust apply
forapermit from theDepartment ofCommercial Registration intheMinistry ofCommerce. The
Department willnotify theapplicant oftheresult within seven daysofreceipt oftheapplication. If
apermit isgranted, theDepartment mayprescribe specific conditions. Inthecaseofforeign nationals
5SeeOECD(1993),ForeignDirectInvestmentRelationsbetweentheOECDandtheDynamicAsianEconomies,
p.186.
6Foreign direct investment byresidents inamounts notexceeding US$10 million does notrequire prior
authorization.
7These arecomplemented bytheAlien Working Actof1978, theImmigration Actof1979, Regulations
Governing Applications forEstablishment ofRepresentative Offices ofForeign Juristic Persons Representing
International Trading Businesses (1986), andRegulations Governing Applications forEstablishment ofRegional
Offices ofTransnational Corporations (1992).
8Among theregulatory changes, asofNovember 1993, Thailand allows 100percentforeign ownership
ofautomobile assembly plants (Chapter IV(4)(xiii)). Details regarding jointventure criteria arespecified in
Appendix III.1.Thailand WT/TPR/S/9
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granted promotional incentives under theInvestment Promotion Acttoengage inabusiness specified
inAnnex C,notification should bemade totheDepartment within thirty daysfromthedateofreceiving
thepromotion certificate; afterreceiving acknowledgement, theforeign investor mayengage inthe
business concerned.9
8. Asnoted above, government incentives areprovided topromoted industries (Table AIV.9).
Except forownership limits, criteria usedingranting incentives areequally applied tobothlocaland
foreign companies. Toreceive investment incentives, aproject mustbegranted 'promoted 'status by
theBOI; onceachieved, projects areentitled totheinvestment incentives specified inthepromotion
certificates. Incentives granted mayinclude taxandnon-tax benefits, notably guarantees against:
nationalization, competition fromnewStateenterprises, Statemonopolization ofthesaleofproducts
produced bypromoted projects, pricecontrols, andthetax-exempt importation bygovernment orState
enterprises oftheproducts produced bythepromoted projects. Incertain cases, onlynon-tax incentives
aregranted. Promoted projects alsoreceive permission toemploy skilled foreign workers andown
land.
9. TheCommercial Banking Actlimits foreign equity inaThaicommercial bankto25percent
ofpaid-up registered capital. With thelaunching oftheFinancial System Master Plan(1995-2000),
foreign banks willincreasingly bepermitted toopenadditional branches by1996inlinewiththepolicy
topromote growth andprosperity inruralareas(Chapter V(5)(ii)). These liberalization measures have
beenincluded within Thailand 'sGATS commitments. Alimitof49percentisimposed onforeign
equity participation forotherfinancial services, inlinewithNational Executive Announcement No.281,
withtheexceptions ofinsurance companies, finance companies andcredit fonciers, where participation
islimited to25percentofpaid-up registered capital.
10. Thailand hasrecently initiated revisions ofitsrestrictions onforeign ownership, andadraft
revision oftheAlien Business Lawpromises toformally openadditional sectors toforeign investment
within twoyears. Therevised lawwould establish twospecial business categories: Annex 1,listing
sectors notopentoforeign majority ownership; andAnnex 2,listing sectors thatwillbeopened to
foreigners within twoyears ofthelawtaking effect. Allsectors notinAnnex 1or2would beopen
toforeign investors, unless restricted byother laws. Annex 1sectors closed toforeigners include
agriculture, newspaper ownership, businesses related toThaiculture andsuchactivities astailoring
andlaundering. Annex 2listsinclude services andother businesses ofstrong interest toforeign
companies: tourism, hotel ownership, accounting, law, architecture, retailing andwholesaling,
pharmaceutical andbeverage manufacturing, andrestaurant ownership.10
11. Under theThai-U.S. Treaty ofAmity andEconomic Relations signed in1966, U.S.companies
inThailand aregranted equal treatment withThaicompanies. Thispermits 100percentU.S.-owned
companies tooperate insectors where other foreign companies aregenerally allowed amaximum
ownership levelof49percent. Thetreaty doesnotapply tocertain sectors suchastelecommunications,
bankingandfiduciaryfunctions.Accordingtotheauthorities,theproposedrevisionoftheAlienBusiness
Lawwould simplify procedures andgroupings ofsectors intheAnnexes; therevision isnotexpected
toaffect theacquired rights ofU.S.companies under theThai-U.S. Treaty.
9Theregulations concerned aretheRegulations Governing Applications forEstablishment ofRepresentative
OfficesofForeignJuristicPersonsRepresentingInternationalTradingBusinesses(1986)andRegulationsGoverning
Applications forEstablishment ofRegional Offices ofTransnational Corporations (1992).
10Asian Wall Street Journal (1995), 3April, pages 1and4.WT/TPR/S/9 Trade Policy Review
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(3) Trends ininward andoutward foreign direct investment (FDI)11
12. Netforeign direct investment inflows, according totheauthorities, peaked in1990 at
Baht64.7billion, withFDIasashare ofprivate business investment reaching 8.7percent(Chart III.1).
Inbothabsolute aswellasrelative terms, thelevelofnetFDIinflows subsequently declined; by1993,
FDIinflows hadfallen toBaht41.9billion. Asashare ofprivate business investment ithadfallen
to4.3percent(Chart III.1). NetFDIinflows declined further in1994, toabout Baht15billion and
1.4percentofprivate business investment, duelargely tothereclassification ofreporting statistics
inconnectionwiththeoperationsoftheBangkokInternationalBankingFacility(BIBF)(ChapterV(5)(ii)).
Duetothereorientation ofThailand 'sinvestment promotion policy, theshare offoreign investment
projects applying forpromotional privileges intheBangkok metropolitan area(Zone 1)decreased
remarkably, from 43.2percentin1992 toonly5.8percentin1994; investment inZone 2which
isadjacent toZone 1increased from 10.6percentin1992 to18.4percentin1994; investment in
remote areas (Zone 3)increased from 46.2percentin1992 to75.5percentin1994 (Chart III.2).
13. Inthelate1980s Japan wasamajor source ofincreased FDIintoThailand, accounting for
more than40percentoftotalinflows. Main investment fields forJapanese FDIincluded automobile
parts, electronics, andmetal industries.12Facing yenappreciation andhighdomestic wage levels,
Japanese firms relocated theirmanufacturing facilities tolower-cost locations suchasChina tomaintain
international competitiveness. Since 1992, however, theshare ofFDIfrom Japan hasdeclined to
lessthan6percent(Table III.1), mostlikely duetotheemergence ofother countries more attractive
toforeign investors andthenear-saturation ofJapanese FDIintoThailand. Other important sources
ofinvestment inThailand aretheUnited States, Singapore andHong Kong. During the1990s, the
shareofFDIfromHongKongandSingaporehasincreasedsignificantly.Singapore'ssharehasincreased
especially quickly, toalmost halfoftotalFDIinflows.
Table III.1
Foreign direct investment flows intoThailand, bycountry, 1988-94
(Baht billion)
1988 1990 1992 1993 1994
Japan 15.7 29.7 10.9 12.1 8.8
United States 3.3 6.5 13.0 9.4 8.6
Hong Kong 3.9 9.4 35.2 38.8 41.0
Chinese Taipei 3.1 7.6 2.8 2.5 3.2
Switzerland 0.6 0.9 0.9 0.4 0.7
Australia 0.0 0.1 1.5 0.4 0.4
Korea, Republic of 0.3 0.5 0.3 0.4 0.3
Singapore 2.6 11.7 51.9 79.9 79.3
United Kingdom 0.9 2.0 3.7 4.2 1.5
Germany 0.6 1.2 0.7 1.0 1.0
France 0.3 0.7 1.9 2.3 1.1
Netherlands 0.3 1.1 0.9 1.9 1.4
Others 1.1 5.9 3.2 8.4 2.2
Total 32.7 77.3 126.9 161.7 149.5
Note: Excludes commercial banks andBangkok International Banking Facility (BIBF).
Source: TheGovernment ofThailand.
11Forinformation onforeign direct investment inThailand before 1991, seeGATT (1991) andPhasukavanich
(1993), "The Rôle oftheThai Government inEncouraging Foreign Direct Investment", inForeign Direct
Investment Relations between theOECD andtheDynamic Asian Economies, OECD.
12Journal ofJapanese Trade andIndustry (1995), No.2,p.11.WT/TPR/S/9 Trade Policy Review
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14. Almost one-half ofinward FDIwent toindustry during thelate1980s, including electrical
appliances, metal-working, chemicals, andtextiles. During the1990s, however, FDIinflows intothe
finance sector increased strongly duetofinancial liberalization (Chapter V(5)(ii)). Thefinance sector
constituted about two-thirds oftotalFDIinflows in1993-94, compared toonlysome 14percentin
1988 (Table III.2).
Table III.2
Foreign direct investment flows intoThailand, bysector, 1988-94
(Baht billion)
1988 1990 1992 1993 1994
Finance 4.5 11.7 ... 109.6 ...
Trade 4.1 14.2 ... 8.9 ...
Construction 1.9 3.6 ... 6.0 ...
Oilexploration 0.4 0.9 ... 3.3 ...
Manufacturing 18.5 33.4 ... 24.8 ...
Textiles 1.4 1.8 ... 0.5 ...
Metal andnon-metal 2.5 3.0 ... 2.7 ...
Electrical appliances 6.4 11.6 ... 5.1 ...
Chemicals 1.4 4.6 ... 5.8 ...
Others 6.8 12.4 ... 10.7 ...
Services 1.1 2.1 ... 1.8 ...
Realestate 1.5 9.4 ... 6.3 ...
Others 0.7 2.0 ... 1.0 ...
Total 32.7 77.3 ... 161.7 ...
... Notavailable.
Note: Excludes commercial banks andBangkok International Banking Facility (BIBF).
Source: Government ofThailand (BOI).
15. Overall FDIoutflows haveincreased sharply since 1992reaching Baht134.6 billion by1994,
concentrated mostly inindustry andfinance. In1993and1994thefinance sector (excluding commercial
bankandBIBF outflows) accounted forabout 85-90 percentofthetotal(Table III.3).
Table III.3
Foreign direct investment flows from Thailand, bysector, 1988-94
(Baht billion)
1988 1990 1992 1993 1994
Finance 1.9 7.1 65.2 106.2 114.7
Trade 0.3 1.3 1.7 3.3 4.1
Construction 0.1 0.3 0.1 2.2 0.6
Manufacturing 2.4 2.4 2.9 4.4 9.1
Realestate 0.1 1.0 1.3 1.5 4.6
Others 0.0 0.5 1.8 2.3 1.5
Total 4.8 12.6 73.0 119.9 134.6
Note: Excludes commercial banks andBangkok International Banking Facility (BIBF).
Source: Government ofThailand (BOI).Thailand WT/TPR/S/9
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Annex III.1
Comparison ofjoint venture criteria
I. Criteria before 1993
1. Manufacturing sector
Formanufacturing projects, ifproduction ismainly forthedomestic market, Thainationals arerequired tohold
atleast 51percentoftotalregistered capital.
2. Primary andservice sectors
Forinvestment projects inagriculture, animal husbandry, fishery, mineral exploration andmining, orservices,
Thai shareholding must account foratleast 60percentoftotalregistered capital.
3. Trade performance
If50percentormore ofoutput isexported, foreign nationals mayholdamajority oftheshares. Ifthetotal
production isforexports, foreign nationals mayholdalltheshares.
II. Criteria applicable since april 1993 under BOIAnnouncement No.1/2536
1. Manufacturing sector
Formanufacturing projects, ifproduction ismainly forthedomestic market, Thainationals arerequired tohold
atleast 51percentoftotalregistered capital. However, inthecaseofprojects located inZone 3,maximum
foreign shareholding isconsidered onacase-by-case basis.
2. Primary andservice sectors
Forinvestment projects inagriculture, animal husbandry, fishery, mineral exploration andmining, orservices,
Thai shareholding must account foratleast 51percentoftotalregistered capital. However, incases where
investment capital (excluding thecostoflandandworking capital) isoverBaht1billion, foreign nationals may
initially holdamajority oralloftheshares, butThai nationals must acquire atleast 51percentoftheshares
within fiveyears ofoperational start-up.
3. Trade performance
Ifatleast50percentoftotalsalesarederived from exports, foreign nationals mayholdamajority oftheshares.
Ifatleast 80percentoftotalsales arederived from exports, foreign nationals mayholdalltheshares.
4. Other
During theSeventh Development Planperiod (1992-96), theBOIwillnotconsider theforeign ownership issue.
Instead, foreign ownership requirements were established bytheministries concerned forsuchprojects asthe
development oftransportation systems, public utilities, environmental conservation andrestoration. Jointventure
criteria arealsowaived inthecaseofprojects in14specified supporting industries (Table IV.12).
Source: Government ofThailand (Board ofInvestment).