Chief says strategic focus is paying off

Colum Murphy

Investment applications by foreign investors totalled 122 billion baht in the first five months of this year, up 55% on the same period last year.

Somphong Wanapha, the secretary-general of the Board of Investment (BoI), said the figures showed investment in Thailand was still in very good shape, and reflected the success of the BoI's strategic focus on the agriculture, automotive, IT, fashion and high value-added service industries.

But Mr Somphong acknowledged the incentive packages for foreign investors would need to be modified to comply with full implementation of the World Trade Organisation (WTO) regulations.

In the past, the BoI incentive package to foreign investors included tax breaks to projects that exported 80% of their output. In the future, Thailand would no longer be able to do so since under WTO rules this is considered an export subsidy.

Mr Somphong said that following a successful appeal to the WTO, Thailand had been permitted to continue its incentives until the end of 2005.

The extension allows the BoI to fulfill its obligations to 101 of the 178 projects that were promised tax breaks when they signed up to invest in Thailand.

But a solution still has to be found for the remaining projects which were supposed to benefit from the eight-year tax breaks until the end of 2011.

``Only about 70 projects fall into this grey area,'' said Mr Somphong.

``[And] we still have almost three years to study every individual case.''

One solution is simply to eliminate the export conditions, which would take heat from the WTO off Thailand. But this approach brings a different set of challenges.

``The board is quite concerned about the impact this might have on local companies,'' said Atchaka Brimble, assistant secretary-general. ``Some projects do not have an impact on the local market, but some that produce low value-added goods could.

``If value-added is higher than 20% then it will be easier to eliminate the export condition,'' she said, adding that cases below the 20% threshold would have to be assessed on an individual basis.

Mr Somphong said the country's greatest appeal lay in its political, social and economic stability.

But he added: ``Thailand is not perfect. We have some outdated laws and practices that are not conducive to business,'' pointing to the legal framework as one area that needed work to attain international standards.

And while he was reluctant to finger any particular Asian country as its number-one challenger in the foreign direct investment stakes, Mr Somphong made special reference to China and Malaysia, saying that even though there were some areas of direct competition, room for partnership also existed.

Thailand ranked 33 in the World Economic Forum's 2001-02 survey of global competitiveness, lagging behind Malaysia (ranked 30), but ahead of China (39).