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06BANGKOK4343 PRICE CONTROLS IN THAILAND

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“71961”,”7/20/2006 3:51″,”06BANGKOK4343″,

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

“”,”VZCZCXRO5754

RR RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #4343/01 2010351

ZNR UUUUU ZZH

R 200351Z JUL 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 0297

INFO RUCNASE/ASEAN MEMBER COLLECTIVE

RUEHCHI/AMCONSUL CHIANG MAI 2172

RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

RUEATRS/DEPT OF TREASURY WASHINGTON DC”,

“UNCLAS SECTION 01 OF 03 BANGKOK 004343

 

SIPDIS

 

SENSITIVE

SIPDIS

 

DEPT FOR EAP/MLS AND EB

COMMERCE FOR 4430/EAP/MAC/OKSA

TREASURY FOR OASIA

STATE PASS TO USTR FOR WEISEL

 

E.O. 12958: N/A

TAGS: ECON, ETRD, PGOV, TH

SUBJECT: PRICE CONTROLS IN THAILAND

 

BANGKOK 00004343 001.2 OF 003

 

1.(SBU) Summary. With inflation (CPI) running at about 6 percent and

interest rates, energy prices, commodity prices and labor costs all

near multi-year highs, the margins of many companies operating in

Thailand are being squeezed. This situation is exacerbated for some

firms due to the RTG\’s ability to control prices for a broad range

of goods. The general effort to keep prices for most basic consumer

goods (rice, soap, milk) down can be seen as a part of the Thaksin

regime\’s overall populist approach combined with a slowly weakening

economic situation due in large part to ongoing political

uncertainty. Although even the Department of Internal Trade

acknowledges that proper Competition Law should render price

controls unnecessary, the political benefits the current law brings

make its termination unlikely anytime soon. End Summary.

 

The Committee Can Set Prices

—————————-

 

2.(U) Under the 1999 \”Act Relating to Price of Merchandise and

Service, B.E. 2542,\” a government committee headed by the Minister

of Commerce has the authority to \”Prescribe the purchase price or

distribution price of merchandise or service…\”, Prescribe maximum

profit per unit…\” and set the terms and conditions – including

maximum permissible volumes – of any good or service in the Kingdom.

The law was amended in 1999 with the advent of a Competition Law and

was meant to be phased out. However, with several critical aspects

of Competition Law still undefined (such as the measure for market

dominance), and the political utility of the 1999 Act, the old law

continues in place with no expiration under current consideration by

the RTG.

 

3.(U) In practice, the Department of Internal Trade within the

Ministry of Commerce administers this law and interacts with the

affected companies although only the \”Committee on Price of

Merchandise and Service\” make the final decision on what products to

add or remove from price controls. The Committee is comprised of the

Minister and Permanent Secretary of Commerce, the Secretary General

of the Board of Investment and between four and eight \”qualified

persons\” appointed by the Council of Ministers of whom not less than

half are \”not to be political civil servants, persons who are in

political posts, Directors or persons responsible for the

administration of political parties.\”

 

The Price Control List

———————-

 

4.(U) As of May 10, there are 35 items formally listed as under

price control:

 

Liquefied petroleum gas

Paddy/uncooked rice

Compact diskette/recording device

Compact diskette copy machine

Student uniform

Milk powder/fresh milk

Sugar

Edible or inedible oil from vegetable and animal

Fuel

Fertilizer

Pesticide

Pharmaceuticals

Motorcycle/passenger car/truck

Animal feed

Steel

Jewelry

IP rights management service

IPR permission for trade

Corrugated paper

Typing and written paper

Kraft paper

Imitation condensed cream, condensed milk, skimmed milk

Shampoo

Liquid detergent

Cement

Powdered detergent

Dishwasher detergent

Sanitary napkin

Plastic pellet

Motorcycle/bicycle tire

Fiber paper

Soap

Electricity wire

Pig and pork

Processed (canned) food

 

BANGKOK 00004343 002.2 OF 003

 

5.(SBU) While these are the products with explicit price controls,

effectively any producer of consumer products is prohibited from

raising prices without first notifying the Committee of their

intention to do so. While explicit permission is not required in

these cases – manufacturers are merely asked to \”cooperate\” with the

Department of Internal Trade – producers tend not go forward with

price increases without at least a verbal approval because of

concern that they might later be instructed to roll the prices back

or see their product added to the control list. We understand that

soft drink makers sought for five years to increase their prices by

1Baht (2.6 cents) but were only granted specific authorization to do

so in May.

 

Listing Criteria

—————-

 

6.(SBU) The Director of the Internal Trade Department told us that

there are six criteria considered by the Committee when determining

whether price should be controlled. These are 1) whether there is

sufficient competition in the market for the product, 2) whether the

consumer good is \”necessary for living\”, 3) whether there is a

record of \”bad behavior\” by a specific company or industry category,

4) whether a product is \”significant to the economy\” e.g. cement,

steel, 5) whether a product is significant for agriculture e.g.

fertilizer and pesticide, and 6) to conform with government policy.

 

7.(SBU) The prices are controlled at the wholesale level except for

sugar where the controls are exercised directly at retail. In

addition, the terms and conditions under which manufacturers and

service providers offer control-listed product can not be altered

without Committee authorization. Companies have tried to get around

the controls by changing the portion or sizing of their products or

introducing \”new/improved\” aspects to command a higher price. The

Department of Internal Trade has caught on to this and threatened

punitive actions against those seeking to circumvent price controls

in this manner. The law states that violators are subject to a

maximum penalty of five years imprisonment and a Bt100,000 (US$2600)

fine.

 

Good Politics Vs. Good Economics

——————————–

 

8.(SBU) Several companies with whom we have spoken have complained

about the \”populist\” nature of the law\’s application and one

surmised that more products seem to be added to the control list in

the run-up to elections. Another firm said that they were

considering expanding another of their Southeast Asian plants

instead of their Thai operations because of the margin squeeze they

are experiencing in Thailand. However, one major food processor said

that although his margins might be under pressure in some product

categories, he could sometimes make up the lost profits by expanding

margins in other, less sensitive, categories. A Thai cement

company, while complaining about the price controls, noted that Thai

cement prices are still higher than what they earn on their exports

because of high Thai tariffs on imported product. Note: We are not

aware of any companies that have divested their Thai interests due

to the enforcement of the 1999 Act. As is so typical here, there is

usually a \”Thai way\” to work things out. End Note.

 

A Small Victory for Producers

—————————–

 

9.(SBU) In a sign that inflationary and other cost pressures are

finally proving too much, on July 14 the Commerce Ministry announced

that it will consider allowing two or three consumer products per

month to increase their prices. The Ministry reports that 60

companies in 23 product categories have sought permission to

increase prices. News reports have failed to note that companies

have always been able to request price relief but must supply data

regarding their costs of raw materials, production, packaging,

general operations, efficiency and margins. A response is promised

by the Department of Internal Trade within thirty days of receiving

all the data the Department determines it requires. The Ministry

recently advised that alkaline batteries will be the first product

to receive approval for a price rise under the new policy because

they first sought permission three years ago, not detailing the

specific price pressures which presumably brought about the

Committee decision.

 

10.(SBU) Comment: One third of the 300 items in the CPI basket of

goods is on a Department of Internal Trade \”price watch list\” in

addition to a host of services. The opportunity for playing

political favorites using the extremely expansive terms of the

 

BANGKOK 00004343 003.2 OF 003

 

Pricing Law has not gone unexploited. There is a reason that pork

prices are controlled but that chicken (the major producer of which

is politically close to the government) and beef (a program with

considerable royal support) are not. An example of the potential

price distortions from the law are seen in consumers converting

their vehicles to run on (controlled) LPG fuel rather than more

logical alternatives.

 

11.(SBU) Further evidence of the largely political purposes of price

controls was found when we asked the Department of Internal Trade if

there was a study of the influence their efforts had on inflation.

No study has been done and the officials could only guess about how

their work affects macroeconomic conditions. For the first half of

2006 the Producer Price Index for Mining and Fuel products is up

25.3 percent, for Agricultural goods 21.7 percent but for

Manufactured food and beverage products the increase was only 4.3

percent. We believe the Bank of Thailand\’s July 19 decision to not

raise its benchmark interest rate and the Committee\’s decision to be

more lenient on increases for listed products are indicative of the

RTG\’s growing concern with the economy\’s slowing trend and need to

provide some relief to the business sector.

ARVIZU

Written by thaicables

July 12, 2011 at 5:07 am

Posted in Economy, Unclassified

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