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Published on August 9, 2007

The controversial proposed amendment to the Foreign Business Act was abruptly withdrawn from the interim Parlia-ment yesterday, raising uncertainty over whether the bill - dreaded by Thailand's key investment partners - will pass within the term of the military junta.

Commerce Minister Krirk-krai Jirapaet asked the National Legislative Assembly to withdraw the bill in the last minutes of a heated NLA session, after his ministry lost in its attempt to push through its version, which was considered more lenient than that of an NLA committee.

Krirk-krai was surprised and disappointed as hardline NLA members aggressively pushed for a tougher law. He decided to ask the NLA to withdraw the bill for further revision after a slight majority voted in favour of a proposal made by a group of NLA members to extend the power to control management via shareholding and voting rights, as a means of imposing more stringent measures in relation to the crucial nominee issue.

Seventy-six members voted for this version, while 64 members agreed with the government draft - authored by the Com-merce Ministry - to maintain the original definition to control only share and voting rights.

Krirk-krai admitted that the chance of passing the law, which oversees foreign investment and business, within the term of Prime Minister Surayud Chula-nont's administration was now uncertain.

"Now I can't tell if this government will be able to pass this law within its term," Krirk-krai said after the end of the session. He added that the Commerce Ministry would go through the bill article by article with the ad-hoc committee of the NLA be-fore resubmitting it for approval. He did not, however, give a time line for doing so.

The minister also refused to comment on the impact on foreign investment.

Nonetheless, the issues to be sorted out will be the definition of foreign companies, the question of management control, and the list of protected professions and investment sectors.

After losing the vote, Krirk-krai asked NLA members to decide whether the bill should be withdrawn from consideration so that its content could be revised. The absolute majority of 138 NLA members voted to withdraw the bill, while three members and the chairman abstained from voting.

Even with the government's softer version, the proposed amendment has become a major point of contention, largely criticised by foreign investors familiar with lax regulations while doing business here.

An NLA member described the situation yesterday as "things getting out of control" after 76 members voted to extend the management control clause, which would prevent foreign investors from using nominees in order to dominate the management of Thai firms.

"The government was too complacent. Its whips underestimated the situation," an NLA source said. "Then, everyone votes to withdraw the bill because all hell broke loose."

The Surayud government had intended to amend the Foreign Business Act within its term to block the loopholes on the question of the nominee issue. Calls for amendment to the outdated Act were in response to last year's Temasek Holdings takeover of Shin Corp, which brought about a number of legal issues regarding nominees.

However, the unexpected vote has apparently put the process back to square one, as the ministry will have to revise the draft again.

Yesterday morning, Krirk-krai and Commerce Ministry officials appeared confident that the majority of NLA members would vote in favour of the government's version of the bill. Commerce permanent secretary Karun Kittisataporn said before the NLA session: "We should be able to complete the legal process in the next few months." He described the government's version as a balanced effort to control and open business opportunities for foreigners.

Krirk-krai said the government's version of the draft amendment was sufficiently protective, compared to the proposal to expand management control, which is too stringent and too difficult to examine.

"Thailand has to allow foreign investors to independently control company management as the country wants foreigners' know-how to help develop business. An expansion of management control, as some members of the NLA had proposed, would create difficulty for Thais in developing business efficiency," he said.

Somchai Sakulsurarat, an NLA member who advocated the stringent version of the bill, said: "The draft of the law could not prevent foreigners from engaging in protected business sectors, because foreigners can use other means to control companies other than voting rights."

Kamnoon Sithisamarn, another NLA member who preferred the more stringent version, said that if the government failed to amend the definition of foreign businesses according to the recommendation from his group, the law would fail to prevent foreigners from controlling local businesses.

Other NLA members who spoke in favour of the protective version of the law include Pan Perngsucharit, Bodin Aswananich, Pattara Khampitak and Viriya Namsiripongpan.

The NLA members said it was the most difficult law to decide upon because it would have a lasting impact on Thailand.

The version approved by the majority of the NLA stipulates that the law would extend the requirements on management control to shareholding and management voting rights. That is, a company registered in Thailand with foreign shareholders would have to limit the shares or voting rights of foreigners to below 50 per cent.

Viriya Namsiripongpan, a member of the NLA committee, said the tighter limitations on foreign ownership, share and voting rights and management control would ensure the country's sovereignty. He indicated that foreign investors would face difficulty circumventing the act after the extension of management controls.

Petchanet Pratruangkrai

The Nation