The cabinet yesterday approved in principle amendments to the 1999 Foreign Business Act that limit foreign investors to holding no more than 50% of the shares or voting rights in Thai companies. Economic ministers insisted the changes would help improve the investment climate as they would boost compliance with the law.
But deputy Democrat leader Kiat Sittheeamorn charged that it was a ''dangerous move'' that would undermine confidence in the country.
Businesses which violate the rules on voting rights will be required to inform the Commerce Ministry within one year. Those in violation of the foreign ownership limit will have to reduce their holdings to 49% within two years.The new law will apply to businesses on Lists 1 and 2, but exempt most businesses on List 3. The cabinet will forward the draft amendment to the Council of State for its constitutionality to be checked.
Deputy Prime Minister and Finance Minister M R Pridiyathorn Devakula said the amendment would ease uncertainties over the country's regulatory framework, after an investigation which began last year into nominee issues with Kularb Kaew Co, a shareholder of Shin Corp.
''If we leave the matter as it is, businesses will remain uncertain of their compliance with the law. New investment is unlikely to happen,'' he said.
The current law allows some foreign businesses to dominate ownership of Thai firms through majority voting rights, the finance minister said.
But Mr Kiat said there were ''other things'' the government should have done. ''So far it has chosen to implement measures that undermine confidence in the country's economy. First, capital controls. Now, the foreign business law,'' he said.
He called on the government, in particular the Commerce Ministry, to clarify why it needed to impose the rule.
The regulation was likely to draw protests from investors who would find more favourable terms in other Asian countries like Vietnam and China, Mr Kiat said.
''This is a dangerous move for the country. It is unlikely to benefit the nation.''
M R Pridiyathorn believed the impact on the investment climate would be slight as businesses under all three lists of the current law total 10,00-20,000 companies, compared with the total of 500,000 foreign-owned businesses in the country.
''In considering the amendment, we have taken into account the impact on the investment climate. The country has allowed improper procedures to prevail for a long time. We want to nurture the investment climate. This amendment will help clear the air,'' M R Pridiyathorn said.
He noted the government had exempted List 3, which mainly comprises companies in the service sector, because local operators on the list appeared to have adapted to active foreign participation.
Commerce Minister Krirk-krai Jirapaet said the move was part of the government's efforts to close the loopholes abused in the past. Foreign companies had used these loopholes to operate in businesses restricted to Thais, he said. The amendment was likely to make investors feel more optimistic about investing in Thailand.
''I do not think that foreign investors should take this as a negative move. On the contrary, it should help increase confidence as there have been abuses in the past,'' Mr Krirk-krai said. ''The investment environment should improve and so should corporate governance, and the new laws will make things more progressive,'' he added. Separating some industries from List 3 to come under their own laws, such as banking and insurance, would be beneficial to the country in the long run, the minister said.
Kanissorn Navanugraha, director-general of the Business Development Department, said his department would start to make random checks on companies listed on the Stock Exchange of Thailand, especially those that fall under Lists 1 and 2 to see if they are in breach of the law or not. However, this will be done after the voluntary 90-day registration has expired. He said there are 40,000 foreign investors listed on the SET among the 500 odd firms on the local bourse.