The Bangkok Post reported on 21 May 2018 that the foreign business community is (again) pressing for reform of the Foreign Business Operations Act (FBA). We are seeing that again now.
Reform is absolutely necessary, but the foreign business community needs to look carefully at reform proposals, because many past proposals, if they had been enacted, would have made the FBA more restrictive. The foreign business community should also focus on the harm the FBA causes to Thai consumers and the oddities and uncertainties it creates in the Thai regulatory terrain. The FBA is not a simple law.
Making the FBA less restrictive will benefit Thai people. The true beneficiaries of a more open investment environment in Thailand are the Thai people themselves. The FBA restricts the Thai investment environment. Foreign direct investment has contributed substantially to Thailand’s tax base, improved Thailand’s infrastructure, given Thai consumers more choices and created well paying jobs for a large number of Thais. In brief, it has improved the quality of life for ordinary Thais.
The FBA creates regulatory uncertainty that serves no legitimate purpose. For example, the received wisdom is that manufacturing falls outside of the FBA, but a foreign majority owned company that is primarily engaged in business activities that are not subject to the FBA, such as manufacturing, can inadvertently violate the FBA by doing something as innocuous as granting a guaranty to its parent company or engaging in OEM manufacturing. The FBA is a trap for the unwary. And the regulatory complexity and uncertainty created by the FBA deters investment in Thailand.
The definition of a “nominee” is ambiguous. There is no clear and agreed definition or guidance on what constitutes an illegal nominee. This not only creates regulatory uncertainty, but decreases transparency at a time when the Thai government is clearly pressing hard to reduce corruption.
This problem cannot be addressed by re-defining foreigners, or “aliens” to use the nomenclature of the FBA, as has been proposed before. For example, if the FBA’s defined term “alien” is redefined to include control – so that businesses that are not currently subject to the FBA become subject to the FBA – that changed definition could result in a compulsory divestiture or expropriation of a company. If this is done without compensation, it not only seriously undermines the confidence of prospective and existing business owners, but also raises a morass of complex domestic and international legal issues involving the “taking” of a business.
The best approach is to reduce the scope of activities covered by the FBA. Indeed, when the FBA was enacted, it was agreed that the scope of the FBA would gradually be reduced. Unfortunately, the process of reducing the scope of the FBA has lagged far behind the needs of the Thai economy.