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05BANGKOK3521 THAILAND: NATIONAL COUNTER CORRUPTION COMMISSIONERS RESIGN AFTER CONVICTIONS FOR UNAUTHORIZED PAY RAISES

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BANGKOK 003521

 

SIPDIS

 

SENSITIVE

 

DEPARTMENT FOR EAP/BCLTV. HQ USPACOM FOR FPA HUSO

 

E.O. 12958: N/A

TAGS: PGOV TH NCCC

SUBJECT: THAILAND: NATIONAL COUNTER CORRUPTION

COMMISSIONERS RESIGN AFTER CONVICTIONS FOR UNAUTHORIZED PAY

RAISES

 

 

¶1. (SBU) Summary: On May 30, eight commissioners of the

National Counter Corruption Commission (NCCC) resigned under

a cloud. A ninth commissioner had resigned earlier, shortly

after the Supreme Court of Justice’s Criminal Division for

Persons Holding Political Positions ruled (6 to 3) on May 26

that the NCCC had wrongfully and dishonestly abused their

office by intentionally skirting the law and awarding

themselves a pay raise. The Court sentenced all nine NCCC

commissioners to 2-years imprisonment but suspended the jail

terms in recognition of previous long-standing service to the

country. Incredibly, most of the commissioners apparently

thought they could stay in office, but parliamentary and

public outcry — and pressure from Prime Minister Thaksin —

forced them out. This case focuses attention on and raises

questions about other constitutionally-mandated “watchdog”

bodies which have also given themselves raises. End Summary.

 

PARLIAMENTARIANS ISSUE PETITION AGAINST NCCC

 

¶2. (U) On May 26, the 9-member Supreme Court of Justice’s

Criminal Division for Persons Holding Political Positions

ruled by a vote of 6 to 3 that all 9 members of the National

Counter Corruption Commission (NCCC) had wrongfully,

dishonestly and intentionally awarded itself pay raises. The

case had been simmering since September 2004 when Senator Dr.

Chirmsak Pinthong discovered during a budgetary debate that

NCCC had issued a “regulation” in July 2004 giving all

commissioners a pay raise, including an additional monthly

allowance of Baht 45,500 for the Chairman and Baht 42,500 for

the others. These new allowances raised the total monthly

salary and allowances to Baht 154,000 for the Chairman and

Baht 147,000 for the other commissioners, levels above those

received by the Prime Minister (Baht 115,920) and all other

ministers, senators and congresspersons. As a consequence of

this discovery, 203 Parliamentarians (108 senators and 95

members of Parliament, including one MP from the Thai Rak

Thai Party) led by Senator Pratin Santiprabhob, Chairman of

Senate Extraordinary Committee Investigating Corruption, sent

a petition through the President of the Senate on October 6,

2004 to the appropriate court to initiate proceedings against

the NCCC.

 

CONVICTION AND SUSPENSION OF SENTENCE

 

¶3. (U) The Supreme Court reviewed the case and focused

principally on the charges as contained in the petition, i.e.

malfeasance charges and alleged abuse by the NCCC of its

authority in awarding itself the pay raises. After

investigations, and testimony by the commissioners, the

Court found that the NCCC had given itself new benefits even

though it understood it had no legal authority to do so. The

Court noted that Article 253 of the Constitution provides

that “salaries, emoluments and other benefits of judges shall

be provided by law,” not by the method of “regulation” used.

Article 253 specifically stipulates that its provisions apply

to NCCC commissioners. The Court therefore convicted all

NCCC members and sentenced them to 2-years imprisonment. The

Court suspended the jail sentences for two years in

recognition of the commissioners’ pervious positive records.

 

 

NCCC COMMISSIONERS LINGER DESPITE VERDICT

 

¶4. (U) This landmark verdict initially threw the NCCC into

a state of confusion because it did not specifically remove

all nine-members of NCCC from office. One commissioner

resigned on May 27, but the others clung to office, with

their supporters citing a Constitutional Court precedent from

1999 involving Newin Chidchorb, who then (as he is now) was

Deputy Minister of Agriculture and Cooperatives. In 1999,

the Provincial Court of Buri Ram had convicted Newin on a

defamation charge, given him a sentence of six months’

imprisonment, but suspended it for one year. The

Constitutional Court had then judged the suspended term to be

merely nominal, which allowed Newin to remain in office.

Some NCCC Commissioners and their supporters initially argued

that the Newin judgment was applicable in their case and that

they could continue in office, despite conviction, in

accordance with the Articles 260 and 298 of the Constitution.

The problem of the NCCC commissioners was further compounded

by Article 300 (para 3) of the Constitution which specified

that once a case is referred to the Supreme Court of

Justice’s Criminal Division for Persons Holding Political

Positions for trial and adjudication (which Newin’s had not

been), the accused shall not perform their duties until this

Supreme Court dismissed the case. In the NCCC matter, the

Supreme Court had handed down a verdict. Armed only with

these thin technical arguments, NCCC members seemed ready to

try to remain in office after conviction and when the law

prohibited them from performing their duties.

 

ALL RESIGN AFTER PUBLIC OPINION TURNS

 

¶5. (SBU) The convicted NCCC commissioners weathered a few

day of fierce public debate — probably the most intense

debate on contradictions in the 1997 Constitution since it

was adopted — before stepping down on May 30. Although the

opposition Democrats (DP) led the calls for resignation, PM

Thaksin weighed in heavily for resignation as well despite

the fact that all the commissioners were selected during his

first administration and were generally regarded as choices

he had favored. The NCCC resignations open the way for

selection of new commissioners, but the process is likely to

be difficult. Article 297 of the Constitution requires

selection of new nominees to be made by representatives of

five political parties with members in the Parliament. After

the overwhelming TRT victory in last February’s elections,

only four political parties have members in Parliament,

including Mahachon which only elected two MPs. To proceed

with selection of new commissioners, the Constitution will

have to be amended beforehand.

 

¶6. (SBU) Comment: This involvement of the NCCC in

controversy is a blow to the prestige and credibility of

other constitutionally-mandated independent “watchdog”

bodies. It is open knowledge that the Election Commission of

Thailand, the Constitutional Court and the Office of the

Ombudsman have all awarded themselves income increases using

similar methods to those of the NCCC. All seem vulnerable to

formal charges. Though for some observers, the dispute over

the raises was complex and fell into a gray area in which the

constitutional bodies might have been understood to be

empowered to direct their budgets, the court decision and the

public outcry were very black and white and condemning. End

Comment.

ARVIZU

Written by thaicables

August 28, 2011 at 6:15 am

05BANGKOK2835 THAILAND: GLOBAL FORUM ON FIGHTING CORRUPTION

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BANGKOK 002835

 

SIPDIS

 

DEPARTMENT FOR INL/C

 

E.O. 12958: N/A

TAGS: ASEC CPAS KCRM KFRD TH

SUBJECT: THAILAND: GLOBAL FORUM ON FIGHTING CORRUPTION

 

REF: STATE 63279

 

¶1. Poloff discussed reftel with Brazilian Embassy Minister

Counselor Fernando Jose de Carvalho Lopes. Lopes said that

he had already been in contact with the Thai MFA regarding

the June conference in Brasilia and that his Ambassador

preferred that we demarche the MFA separately. Lopes said

the Thai had told him they would organize a delegation from

Bangkok, but at this time it is unlikely that they will send

a Minister-level official to head the delegation.

 

¶2. Subsequently, Poloff delivered reftel demarche points to

Wasin Dhamavasi from the Latin America Division of MFA.

Wasin confirmed that the RTG planned to send a delegation to

the forum, but were still working on their delegation list.

Wasin promised to pass on the names of the official

delegation as soon as they were decided.

BOYCE

Written by thaicables

August 28, 2011 at 6:03 am

05BANGKOK1427 Thailand: Customs Valuation Issues

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BANGKOK 001427

 

SIPDIS

 

SENSITIVE

 

DEPT FOR EB AND EAP/BCLTV

 

COMMERCE FOR ITA:JKELLY

 

STATE PLEASE PASS TO USTR

 

E.O. 12958: N/A

TAGS: ETRD ECON TH GATT WTRO

SUBJECT: Thailand: Customs Valuation Issues

 

REF: A) KELLY/VAUGHN EMAIL 2/1/05 B) KELLY/VAUGHN EMAIL

 

1/22/05

 

— (U) THE FOLLOWING MESSAGE IS SENSITIVE BUT UNCLASSIFIED

PLEASE PROTECT ACCORDINGLY —

 

¶1. (SBU) Summary: On February 18, Embassy representatives

met with the Customs Department’s Mr. Watana U-Thasoonthorn,

Director, Customs Procedures and Valuation Directorate.

Noting that some customs officers continue to assign

arbitrary values to data on carrier media (CD) imports,

Watana agreed to resend instructions to the port customs

bureaus that when no declared value for the data is listed,

only the carrier media should be assessed customs duties. He

explained there are no plans to adopt a GATT (General

Agreement on Trade and Tariffs) decision that only carrier

media should be assessed customs duties, but explained Royal

Thai Government (RTG) practice is to continue to assess only

the carrier media when no value for the data is listed.

Econoff raised concerns that Thailand’s practice of using the

retail price of an automobile in the country of manufacture

for valuation purposes is inconsistent with its WTO

commitments. Watana countered that while this is true for

customs valuation, it is permissible for determining a “test

value.” We welcome further information from Washington to

arm us for continued dialogue with Customs on its auto

valuation practices. End Summary.

 

¶2. (SBU) Econoff raised the issue of software valuation

related in Ref A, noting that while Thai Customs has advised

that its officers at the port of entry are prohibited from

assessing tax and duties on software based on an arbitrary

value (such as USD 20 per CD), reports are that this

continues to happen. Director Watana explained that officers

have been told to assess the carrier media (the physical CD)

and the software or data on the CD separately, according to

the values reflected on the invoice provided by the importer.

He explained that the problem arises when the importer

provides a value for the disc, but not for the software on

the disc; Watana explained that in such a case the official

is supposed to assess the carrier media alone. He said these

instructions had been sent in a memo to the Customs Bureaus

at the ports a year ago. Noting the continued difficulties

importers experience, Watana promised to resend the memo to

Customs port authorities.

 

¶3. (SBU) Addressing the longer-term issue of adopting the

1984 GATT (General Agreement on Trade and Tariffs) decision

4.1 on carrier media (which states that customs duties should

be applied only to the value of the carrier media rather than

the value of the “data or instructions” contained thereon),

Watana clarified the Royal Thai Government (RTG) position.

He said that the RTG had no plans to adopt decision 4.1 at

this time, noting that there was no consensus among countries

and that no other ASEAN country had formally adopted the GATT

decision. However, he noted that while RTG policy was to

continue to apply separate customs duties on the carrier

media and the information it contained, that since there is

currently no rational method to determine the value of the

data when no value is reflected on the invoice, RTG practice

in those instances is to assess duties only on the carrier

media in keeping with decision 4.1.

 

¶4. (SBU) Econoff then broached the issue of Thailand’s new

guidelines in determining valuation for automobile imports

when the customs officer has doubts about the declared price

on the invoice. According to the new guidelines, the

declared value is compared with the value of identical goods

previously accepted by Customs (reference pricing). When the

declared value is the same or higher than the previously

accepted customs value within a 30-day period, the declared

value is used as a customs value. Where value of identical

or similar goods previously accepted by customs is not

available or the declared value is lower than the previously

accepted customs value within the 30-day period, the declared

value will be compared with the test value.

 

¶5. (SBU) Watana explained that the test value is determined

by a formula that utilizes the retail price in the

manufacturing country. Econoff raised congressional concerns

(ref B) that Article 7.2 (c) of the WTO Agreement on Customs

Valuation expressly forbids reference for valuation purposes

to the price in the country of exportation or manufacture.

While Watana agreed that is the case for the customs

valuation, he asserted that determining the “test value” by

referencing the retail price in the manufacturing country is

NOT prohibited by article 7.2.

 

¶6. (SBU) Comment: While the RTG continues to use GATT

decision 4.1 on carrier media in practice, there are no plans

to implement the legislative changes needed to formally adopt

4.1 as the government does not want to tie its hands should

other countries determine a rational method to assess data

contained on carrier media. Customs continues to assert that

its auto valuation methodology is consistent with its WTO

commitments. We welcome further evidence from Washington

agencies to arm us in our discussions with Thai Customs on

this issue. End Comment.

 

Boyce

Written by thaicables

August 26, 2011 at 5:38 am

05BANGKOK1345 Thai Customs Notifies Ports: Zero Percent Duty on Diebold’s ATM Machines

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 BANGKOK 001345

 

SIPDIS

 

SENSITIVE

 

COMMERCE FOR ITA: KBOYD, JBENDER AND JKELLY

 

STATE PLEASE PASS TO USTR FOR BWEISEL;EBRYAN;DKATZ

 

DEPT FOR EB AND EAP/BCLTV

 

E.O. 12958: N/A

TAGS: ETRD ECON TH

SUBJECT: Thai Customs Notifies Ports: Zero Percent Duty on

Diebold’s ATM Machines

 

REF: (A) 04 SECSTATE 162348 (B) 04 BANGKOK 5885 C) 04 BANGKOK

 

6447

 

— SENSITIVE BUT UNCLASSIFIED PLEASE PROTECT ACCORDINGLY —

 

¶1. (SBU) Summary: Thailand’s Customs Department informed

Econoff on February 18 that its November 1 ruling, that ATMs

that dispense cash as a core function are entitled to a zero

percent import tariff under the Information Technology

Agreement (ITA), had been distributed to Thailand’s ports in

January. The ruling benefits Diebold, which can expect a

refund within 2-3 months, but is a blow to IBM (which had

d

appealed the earlier Customs ruling) as its cash deposit

machines will be subject to a fifteen percent tariff. This

case highlights Thailand’s often protracted and opaque legal

mechanisms, and the need for effective dispute resolution

procedures in our prospective Free Trade Agreement. End

Summary.

 

¶2. (U) On February 18, Embassy representatives met with the

Customs Department’s Mr. Watana U-Thasoonthorn, Director,

Customs Procedures and Valuation Directorate. Econoff

thanked Mr. Watana for his work in resolving the Diebold

automatic teller machine (ATM) case and asked for an update.

(NOTE: In October 2003, Customs had assessed a fifteen

percent duty on Diebold’s imported ATMs rather than the zero

percent duty they had previously enjoyed as products under

the WTO’s Information Technology Agreement (ITA), deciding

that the machines were not ATMs if they did not carry out all

four functions of an ATM as outlined in the ITA’s Harmonized

System Explanatory Notes. Diebold was then required to post

a 15 percent deposit or bond to allow importation, preceding

formally contesting the finding. Diebold sought advocacy

through the USG, while IBM, whose ATM imports were also

affected, appealed the Customs ruling through Royal Thai

Government (RTG) channels. After learning of the case in

July and delivering points in Ref A to Customs in August,

Customs Deputy Director General Manat made emboffs a firm

commitment that Customs would reverse its earlier decision

and “fix this problem.” (Ref B). In September DDG Manat

provided emboffs with the Ministry of Finance’s (MOF) Fiscal

Policy Office opinion that ATMs without all four functions

are entitled to a tariff exemption under the ITA (Ref C),

saying it paved the way for a swift and favorable ruling by

the Customs Committee on IBM’s appeal. However, those

expectations were revealed to be premature, as wrangling

continued within Customs with the influential official who

had made the original determination. Customs then solicited

opinions from Customs officials of other countries, including

the US, on their practices regarding ATMs.)

 

¶3. (SBU) Director Watana noted that on November 1, 2004 the

Customs Committee ruled that a machine need not carry out all

four functions to be considered an ATM under the ITA, but

that it must dispense money as a core function to benefit

from tariff exemption under the ITA. (NOTE: This ruling

mirrors rulings of U.S. Customs and tariff treatment of ATMs

imported into the U.S.) The ruling benefits Diebold (which

Watana said should receive a refund of the duties paid within

2-3 months) but not IBM, which imports deposit only machines

that are now subject to a 15 percent tariff. Watana further

explained that the Customs Committee ruling had been

circulated in January to both the MOF’s Revenue Department

and Customs officials at the ports, removing the appellant’s

name (IBM) from those copies in view of privacy issues. At

Econoff’s request, Watana provided a Thai language copy of

the November 1 ruling circulated to the ports. Post’s

informal translation of the ruling, and the cover letters to

the Revenue Department and Port Customs Bureaus, appears at

the end of this message.

 

¶4. (SBU) Comment: This outcome is great news for Diebold and

its American workforce. In reviewing the long and winding

road that we have traveled to reach this resolution, we draw

several lessons: first, for U.S. firms encountering customs

problems, there is great efficacy in getting the Embassy

involved early in the process. Second, a thorough

understanding of U.S. tariff treatment is highly desirable,

since Thai authorities pay close attention to — and not

infrequently emulate — U.S. practices. Finally, the lack of

transparent procedures reminds us anew of the need for

effective dispute resolution mechanisms in our prospective

FTA. End Comment.

 

¶7. (SBU) [Begin Text.] Memorandum

 

From:Standard Procedure and Customs Valuation

Directorate (SPCVD)

Ref:Gor Kor 0519 (Kor)/0056

Date:Jan 14, 2005

Subject:Notification of the Appeal Ruling

 

To:Deputy Director-General Responsible for Tariff

Collection

 

1)Background:

In accordance with the Valuation Appeal Committee’s ruling

during the 4th/2004 meeting dated November 1, 2004 regarding

the Automatic Depositor Machine (ADM) and Automatic Teller

Machine Cash Dispenser (CD) products, the appeal ruling no.

Gor Or 5/2004/Por 4 (3.2) has been issued.

 

2)Facts

Currently, importations of said products through various

Customs ports still face many difficulties in Customs

assessment procedures. In order to facilitate this process,

Customs deems it necessary to notify Customs officials of the

appeal ruling on ADM and CD products for appropriate action.

 

3)SPCVD’s Opinion

The SPCVD has agreed that the appeal ruling should be

circulated to the followings Customs agencies dealing with

the importations:

Bangkok Customs Bureau,

Bangkok International Airport Customs Bureau,

reau,

Bangkok Port Customs Bureau,

and Laem Chabang Port Customs Bureau.

 

For your approval,

 

 

Mr. Watana U-Thasoontorn

(signed)

Senior Expert

SPCVD

 

Copy

 

From:SPCVD

Ref:Gor Kor 0519 (Gor) 0057-0060

Date:January 14, 2005

Subject:Notification of the Appeal Ruling

To:-Bangkok Customs Bureau

-Bangkok International Airport Customs Bureau

-Bangkok Port Customs Bureau

-Laem Chabang Port Customs Bureau

 

 

Please be notified of the appeal ruling of ADM and CD

products, as per the attached ruling. The Deputy Director-

General responsible for tariff collection approved on January

18, 2005 to circulate this appeal ruling to Customs officials

for action.

 

Please be informed accordingly.

 

 

 

Mr. Watana U-Thasoontorn

(signed)

Senor Expert

SPCVD

 

 

The Appeal Ruling

 

1) The Company [name excised] had appealed to the

Committee on Valuation Appeal as per the attached documents

about 16 imported shipments.

 

Products: Automatic Depositor Machine (ADM) and

s: Automatic Depositor Machine (ADM) and

Automatic Teller Machine Cash Dispenser (CD)

 

Meeting date:4th /2004, dated November 1, 2004

 

Issue:Shall the products be qualified for duty-free

treatment under the WTO-ITA?

 

Fact

The Company [name excised] as the Appellant has declared its

16 shipments of imported Cash Deposit Machines and Cash

Dispenser Machines to be classified in sub-heading 8472.90

for tariff exemption, as stated in the Finance Ministerial

Notification for tariff exemption and reduction (Tor Sor 3)

dated December 28, 2001.

 

Customs officials had decided that ATMs with tariff exemption

under the Ministerial Notification (Tor Sor 3) dated December

28, 2001 must have all 4 functions, namely: deposit,

withdrawal, transfer, and checking balances; a machine

missing any one of these functions would not be entitled to

tariff exemption.

 

2)The Appeal Committee rules as follows,

 

ATMs classified under sub-heading 8472.90 of Finance

Ministerial Notification dated December 28, 2004 regarding

ing

tariff exemption and reduction (Tor Sor 3), which is in

compliance with the Information Technology Agreement (ITA),

explains that the ATM machine must have Cash Dispensing as

the main function, and such machine may or may not include

the other functions.

 

Rationale

Originally, the imported ATMs with 4 functions, namely

deposit, withdrawal, transfer, and checking balances, which

was classified in sub-heading 8472.90 and listed under the

Information Technology Agreement (ITA) products with tariff

exemption under the Finance Ministerial Notification No. Sor

Gor 21/1999 (Tor Sor 1) dated December 29, 1999, enforced on

January 1, 2000, and the Finance Ministerial Notification

(Tor Sor 3) dated December 28, 2001, enforced on January 1,

2002, has been classified in:

 

Sub-heading 8472.90 only the Automatic Teller Machines

(ATMs) are treated as tariff exempt.

 

Later on, the similar imported machines classified in sub-

heading 8472.90 did not have all 4 functions, as the

separation of the withdrawal and deposit functions provides

faster service to users. Therefore, the tariff assessments

were questioned as to whether a machine without all 4

functions should be classified as an ATM under the Finance

Ministerial Notification dated December 28, 2001 regarding

tariff exemption and reduction (Tor Sor 3), or not.

 

In reviewing the explanatory notes of the Harmonization

System 2002 or EN/HS 2002, which defines Automatic teller

machines as “machines with which customers deposit, draw and

transfer money and see the balances of their accounts without

direct contact with bank personnel,” the problem has emerged

as to whether the ATMs must have all 4 functions or not.

 

In the Appeal Committee’s review, considering information

gathered from such sources as its own technical research, the

explanation of ITA members namely: USA, Canada, Japan,

Malaysia and Indonesia, and also from the explanation of the

WCO (World Customs Organization), has found that ATMs do not

need to have all 4 functions. But, the machine must have the

withdrawal function (cash dispensing) as a core function,

while the other functions, such as deposit, transfer and

checking balances need not be included in that machine.

Therefore, the Appeal Committee has determined accordingly.

 

3)The Appeal Committee and the Appellant will each receive

a copy of the appeal ruling. The Appellant has the right to

appeal the ruling to the court within 30 days from the date

of receiving the appeal ruling.

 

[End Text.]

 

Boyce

Written by thaicables

August 26, 2011 at 5:35 am

10PHNOMPENH29 2010 INVESTMENT CLIMATE STATEMENT – CAMBODIA

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“244036”,”1/19/2010 0:41″,”10PHNOMPENH29″,

“Embassy Phnom Penh”,”UNCLASSIFIED”,

“09STATE124006|10SINGAPORE1|10SINGAPORE199”,

“VZCZCXRO8739

PP RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHPF #0029/01 0190041

ZNR UUUUU ZZH

P 190041Z JAN 10

FM AMEMBASSY PHNOM PENH

TO RUEHC/SECSTATE WASHDC PRIORITY 1556

INFO RUCNASE/ASEAN MEMBER COLLECTIVE

RUEHBK/AMEMBASSY BANGKOK 2827

RUEHHI/AMEMBASSY HANOI 4118

RUEHHM/AMCONSUL HO CHI MINH 0163

RUCPDOC/USDOC WASHDC

RUCPCIM/CIMS NTDB WASHDC

RUEATRS/DEPT OF TREASURY WASHINGTON DC 0822

RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC”,”UNCLAS SECTION 01 OF 17 PHNOM PENH 000029

 

STATE FOR EAP/MLS, EB/IFD/OIA, EB/TPP/ABT, EEB/TPP/MTA, EEB/TPP/BTA

STATE PASS TO USTR/KLEIN AND WEISEL

STATE PASS TO USTDA/ROSSITER

BANGKOK FOR USAID/CARDUNER, FCS/GRIFFIN

HANOI FOR FAS/BAILEY

HO CHI MINH CITY FOR FAS/ REIDEL

 

SIPDIS

 

E.O. 12958:N/A

TAGS: ECON, EFIN, EINV, ELAB, ETRD, KIPR, OPIC, KTDB, USTR, CB

SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT – CAMBODIA

 

REF: 09 STATE 124006

 

PHNOM PENH 00000029 001.12 OF 017

 

1. Cambodia, a developing country, began the transformation from a

command economy to the free market in the late 1980s. It is now

integrating into the regional and world trading framework. In 1999,

Cambodia joined the Association of Southeast Asian Nations (ASEAN)

and in September 2004, became a member of the World Trade

Organization (WTO). On December 15, 2008 the entry into force of

the ASEAN Charter brought Cambodia and other member states into a

new regional legal framework. Cambodia has shown interest in

participating in other international trading arrangements, including

the Asia-Pacific Economic Cooperation forum (APEC).

 

2. As part of its WTO commitments to strengthen the investment

climate for both foreign and domestic businesses, Cambodia committed

to enact 47 laws or regulations to address areas where existing law

did not meet WTO requirements. Cambodia has been behind schedule in

fulfilling its WTO commitments to pass necessary business

legislation concerning the general business environment, trade in

goods, trade in services, and the protection of intellectual

property rights. However, the country has made progress recently,

passing several significant laws in 2008, including a Law on Plant

Breeder Rights and Law on Civil Aviation, and in 2009, the

government promulgated a Law on Tourism, a Law on Insolvency, and a

sub-decree establishing a national commercial arbitration body. The

government has either completed drafts of most of the remaining

required laws or is waiting for their approval by the legislature.

 

3. Since the re-establishment of a constitutional monarchy in 1993,

the economy has grown steadily. From 2004 to 2008, the economy grew

at an average of approximately 10 percent per year, driven largely

by an expansion in the garment, construction, agriculture, and

tourism sectors. In 2005, exploitable oil and natural gas deposits

were found beneath Cambodia\’s territorial waters, representing a new

revenue stream for the government if commercial extraction begins.

Mining also is attracting significant investor interest,

particularly in the northern parts of the country. However, the

global economic crisis has adversely affected the economy\’s key

pillars and economic growth was expected to contract in 2009.

 

4. Inflation decreased from its sharp rise in 2008, which peaked at

25.7 percent in May 2008 driven largely by the global surge in oil

and food prices. Because the economy is heavily dollarized, a

depreciation of the Cambodian riel and the U.S. dollar against

trading partner currencies contributed to imported inflation, while

rising domestic demand contributed to domestically generated

pressures. However, these pressures lessened in 2009 and Cambodia

recorded an average inflation rate of an estimated 4.5 percent and a

7.5 percent year-on-year inflation rate.

 

5. Foreign Direct Investment (FDI) approved by the Council for the

Development of Cambodia (CDC), Cambodia\’s investment approval body,

has dramatically increased in recent years, with approved proposals

peaking at nearly USD 11 billion in 2008, compared with USD 201

million in 2004. However, figures for the first 10 months of 2009

reveal that investment has slowed significantly to only USD 1.6

billion, an 82 percent decrease compared to total investments in

2008. The CDC does not have a functional mechanism to monitor

implementation of projects, so it is not clear how many proposed

projects are fully implemented. Corruption has been singled out as

one of the most serious deterrents to private investment.

 

6. Since early 1999, the Cambodian government has intensified its

economic reform program, a process the international financial

institutions and donors encourage, participate in, and monitor

closely. In recent years the government has publicly committed

itself on numerous occasions to fighting corruption, pursuing good

governance, and increasing transparency and predictability. This

strategy is set out in phase II of the government\’s latest public

reform effort called the \”Rectangular Strategy for Growth,

Employment, Equity, and Efficiency.\”

 

7. The government has initiated specific measures to promote

business, especially small and medium-sized businesses, by reducing

costs and the time required for business registration and by

establishing a number of committees for business promotion and trade

facilitation.

 

PHNOM PENH 00000029 002.8 OF 017

 

Openness to Foreign Investment

——————————

 

8. Cambodia officially welcomes foreign direct investment.

Cambodia\’s 1994 Law on Investment established an open and liberal

foreign investment regime. All sectors of the economy are open to

foreign investment and 100 percent foreign ownership is permitted in

most sectors. Article 44 of the Constitution provides that only

Cambodian citizens and legal entities have the right to own land.

However, a new law allowing foreign ownership of properties located

above the ground floor is expected to be passed in 2010. Aside from

this, there is little or no discrimination against foreign investors

either at the time of initial investment or after investment.

However, some foreign businesses have reported that they are at a

disadvantage vis-a-vis Cambodian or other foreign rivals, who engage

in acts of corruption or tax evasion, or take advantage of

Cambodia\’s poor enforcement of legal regulations.

 

9. In addition, there are a few sectors open to foreign investors

which are subject to conditions, local equity participation, or

prior authorization from relevant authorities. These sectors

include manufacture of cigarettes, movie production, rice milling,

exploitation of gemstones, publishing and printing, radio and

television, manufacturing wood and stone carvings, and silk weaving.

The government has issued a sub-decree restricting foreign

ownership of hospitals and clinics and forbidding the employment of

non-Cambodian doctors in any specialty in which the Ministry of

Health considers there to be an adequate number of Cambodian

practitioners.

 

10. Under a sub-decree dated September 2005, Cambodia prohibits

certain investment activities, including investment in production or

processing of psychotropic and narcotic substances, poisonous

chemicals, agricultural pesticides and insecticides, and other goods

that use chemical substances prohibited by international regulations

or the World Health Organization that affect public health and the

environment. Production of electric power by using waste imported

from foreign countries is prohibited, as is forestry exploitation.

 

11. The privatization of state enterprises and transactions

involving state property has not always been carried out in a

transparent manner. In several instances, the public learned that

enterprises were for sale or swap only after the government

announced a sale or deal to a particular buyer.

 

12. Investor rights (investment guarantees) provided for in the Law

on Investment include:

— Foreign investors shall not be treated in a discriminatory

manner by reason of being a foreign entity, except in respect to

land ownership as provided for in the Constitution of the Kingdom of

Cambodia.

— The Royal Government of Cambodia shall not undertake a

nationalization policy that adversely affects the private property

of investors.

— The Royal Government of Cambodia shall not fix the price of

products or fees for services.

— The Royal Government of Cambodia, in accordance with relevant

laws and regulations, shall permit investors to purchase foreign

currencies through the banking system and to remit abroad those

currencies as payments for imports, repayments on loans, payments of

royalties and management fees, profit remittances and repatriation

of capital.

 

13. The following is a summary of Cambodia\’s rankings in

international indexes and the Millennium Challenge Corporation score

card.

 

Measure Year Index/Ranking

TI Corruption Index 2009 2/158

Heritage Economic Freedom 2009 56.6/106

World Bank Doing Business 2010 145/145

MCC Govnt Effectiveness 2009 0.00/05 percent

MCC Rule of Law 2009 -0.20/33 percent

MCC Control Corruption 2009 -0.30/12

MCC Fiscal Policy 2009 -2.4/35 percent

MCC Trade Policy 2009 63.4/36 percent

MCC Regulatory Quality 2009 0.21/65 percent

 

PHNOM PENH 00000029 003.8 OF 017

 

MCC Business Start Up 2009 0.765/16 percent

MCC Land Rights Access 2009 0.769/88 percent

MCC Natural Resource Mgmt 2009 68.75/61 percent

 

Conversion and Transfer Policies

——————————–

 

14. There are no restrictions on the conversion of capital for

investors. The Foreign Exchange Law allows the National Bank of

Cambodia (the central bank) to implement exchange controls in the

event of a crisis; the law does not define what would constitute a

crisis. The U.S. Embassy is not aware of any cases in which

investors have encountered obstacles in converting local to foreign

currency or in sending capital out of the country.

 

15. The U.S. dollar is widely used and circulated in the economy.

The 2009 exchange rate was stable, although slightly depreciated

compared to 2008. As of December 2009, the exchange rate was USD 1

= 4,164 riel. The government is committed to maintaining exchange

rate stability.

 

Expropriation and Compensation

——————————

 

16. Article 44 of the Cambodian Constitution, which restricts land

ownership to Cambodian nationals, also states that \”the (state\’s)

right to confiscate properties from any person shall be exercised

only in the public interest as provided for under the law and shall

require fair and just compensation in advance.\” Article 58 states

that \”the control and use of state properties shall be determined by

law.\” The Law on Investment provides that \”the Royal Government of

Cambodia shall not undertake a nationalization policy which

adversely affects the private property of investors.\”

 

17. In late 2009, the National Assembly approved the Law on

Expropriation which sets broad guidelines on land-taking procedures

for public interest purposes and defines public interest activities

such as construction of infrastructure projects, development of

buildings for national protection and civil security, construction

of facilities for research and exploitation of natural resources,

and construction of oil pipeline and gas networks.

 

18. In spite of various legal protections, protection of immovable

property rights is complicated by the fact that most property

holders do not have legal documentation of their ownership rights.

Numerous cases have been reported of influential individuals or

groups acquiring property through means not entirely in keeping with

the Constitution or laws. This murky property holding environment

may adversely affect long-term leases and /or corporate social

responsibility goals unless proper due diligence is conducted. Cases

of inhabitants being forced to relocate continued to occur when

officials or businesspersons colluded with local authorities,

although the numbers reported dropped significantly from the

previous year. Human rights NGO ADHOC reported receiving 186 land

related cases during the year. During the same period, another NGO

received 115 land related cases in Phnom Penh and 14 provinces,

affecting a total of 8,806 families. Some of those expelled

successfully contested these actions in court, but the majority of

the cases in the courts were still being processed.

 

19. To date, there are no known investment disputes involving

government expropriation of property belonging to U.S. citizens. Up

to 17 Thai businesses sustained varying degrees of damage during

anti-Thai rioting in Phnom Penh on January 29, 2003. The Cambodian

government pledged to compensate Thai business owners, and all of

claims have been resolved.

 

Dispute Settlement

——————

 

20. Cambodia\’s legal system is a mosaic of pre-1975 statutes

modeled on French law, communist-era legislation dating from

1979-1991, statutes put in place by the UN Transitional Authority in

Cambodia (UNTAC) during the period 1991-93, and legislation passed

by the Royal Government of Cambodia since 1993.

 

21. Cambodian culture and its legal system have traditionally

favored negotiation and conciliation over adversarial conflict and

 

PHNOM PENH 00000029 004.10 OF 017

 

adjudication. Thus, compromise solutions are the norm, even in

cases where the law clearly favors one party in a dispute. In civil

cases, courts will often try conciliation before proceeding with a

trial.

 

22. Cambodia\’s court system is generally seen as non-transparent

and subject to outside influence. Judges, who have been trained

either for a short period in Cambodia or under other systems of law,

have little access to published Cambodian statutes. Judges can be

inexperienced and courts are often understaffed with little

experience, particularly in adjudicating commercial disputes. The

local and foreign business community reports frequent problems with

inconsistent judicial rulings as well as outright corruption, and

difficulty enforcing judgments. For these reasons, U.S. investors

are reluctant to resort to the courts to resolve commercial

disputes.

 

23. The Cambodian judiciary system is beginning to undergo reform.

To provide the necessary background knowledge, judges and court

staff from around the country are being trained by the Royal Academy

for Judges and Prosecutors, which was created in 2002. In an effort

to clean up the court system, the Prime Minister has announced ad

hoc anti-corruption measures, including the dismissal, replacement,

and transfer of judges and prosecutors. The Supreme Council of

Magistracy, comprised of a president (the King) and eight other

members, is responsible for the appointment and conduct of judges

and prosecutors.

 

24. To address the perception of many Cambodian and foreign

business representatives that the court system is unreliable and

susceptible to external political and commercial influence, the

Cambodian government is finalizing draft legislation to create a

Commercial Court. In July 2009, the government passed a sub-decree

creating a commercial arbitration body, the National Arbitration

Center in the Ministry of Commerce. When the National Arbitration

Center is operational, parties involved in a commercial dispute that

have a written arbitration agreement will be able to settle

commercial disputes by means of quasi-judicial methods without

involvement of the Cambodian courts. Parties will be able to select

arbitrators without direct government interference. The Law on

Commercial Arbitration also allows the Cambodia Chamber of Commerce

to establish its own arbitration center for disputes between members

or between members and third parties. The law also mandates

recognition of arbitral awards made outside of Cambodia.

Arbitration awards can be appealed to the Appellate and Supreme

Court of Cambodia based on limited grounds.

 

25. To handle specific disputes with regard to labor, the Ministry

of Labor and Vocational Training established an Arbitration Council

in May 2003. Basing its decision on the provisions of the Labor

Law, the Council has 30 arbitrators. The Council is an independent

body whose function is to resolve collective labor disputes that the

Ministry is unable to solve by conciliation. The Council\’s

decisions are non-binding but it has been very successful in

reducing the number of industrial actions in the garment sector.

The Council plays a vital role in contributing to the development of

healthy industrial relations in Cambodia. The Council\’s success in

the garment industry has prompted unions in other sectors, e.g., the

hospitality and tourism sectors, to seek the Council\’s arbitration

and mediation services.

 

26. Cambodia became a party to the Convention for the Settlement of

Investment Disputes between States and Nationals of Other States in

2005. In 2009, the International Center for the Settlement of

Investment Disputes (ICSID) approved a U.S. investor\’s Request for

Arbitration in a case against the Kingdom of Cambodia.

 

Performance Requirements and Incentives

—————————————

 

27. The Council for the Development of Cambodia (CDC), Cambodia\’s

foreign investment approval body, administers a package of

investment incentives. The CDC was created as a one-stop shop to

facilitate foreign direct investment.

 

28. Seeking to increase government revenue, the international

financial institutions recommended that the Cambodian government

scale back its investment incentives. Consequently, the Cambodian

 

PHNOM PENH 00000029 005.8 OF 017

 

government amended the Law on Investment in 2003. The law creates

regimes for profit (20 percent), salary (5 to 20 percent),

withholding (4 to 15 percent), value-added (10 percent) and excise

taxes (rates vary). While some incentives have been eliminated, the

law provides a simplified, more transparent, and faster mechanism

for investment approval.

 

29. Under the amended Law on Investment, the profit tax exemption

is allocated automatically on the basis of activity and minimum

investment amounts as set out in the sub-decree. To maintain the

incentives under the law, qualified investment projects (QIP) are

required to obtain an annual Certificate of Compliance from the CDC

and file this with the annual tax return.

 

30. The amended Law on Investment includes the following

provisions, which include the exemption, in whole or in part, of

customs duties and taxes, for QIPs:

— An exemption from the tax on profit imposed under the Law on

Taxation for a set period. The tax exemption period is composed of

a trigger period + three years + n years (a number of years

determined according to the Financial Management Law and depending

on the economic sector). The maximum allowable trigger period is to

be the first year of profit or three years after the QIP earns its

first revenue, whichever is sooner.

— 100 percent exemption from import duties for construction

material, production equipment and production input materials for

export QIPs and supporting industry QIPs in accordance with the

provisions of the sub-decree on the Implementation of the Amendment

to the Law on Investment

— Transfer of incentives by merger or acquisition.

— Renewable land leases of up to 99 years on concession land for

agricultural purposes and land ownership permitted to joint ventures

with over 50 percent equity owned by Cambodians.

— No price controls on goods produced or services rendered by

investors.

— No discrimination between foreign and local investors.

— 100 percent exemption from export tax or duty, except for

activities specifically mentioned in the Law on Customs.

— Employment of foreign expatriates where no qualified Cambodians

are available. QIPs are entitled to obtain visas and work permits.

— A QIP that is located in a designated special economic zone

(SEZ) is entitled to the same incentives and privileges as other

QIPs as stipulated in the law.

 

31. The September 2005 sub-decree on the Implementation of the

Amendment to the Law on Investment also details investment

activities that are excluded from incentives, although investment is

permitted. They include the following sectors: retail, wholesale,

and duty-free stores; entertainment (including restaurants, bars,

nightclubs, massage parlors, and casinos); tourism service

providers; currency and financial services; press and media related

activities; professional services; and production and processing of

tobacco and wood products.

 

32. Incentives are also excluded in the production of certain

products with an investment of less than USD 500,000 such as food

and beverages; textiles, garments and footwear; and plastic, rubber,

and paper products. Investors are encouraged to refer to the

sub-decree for details of other investment activities that are

excluded from incentives.

 

33. Investment activities that are eligible for customs duty

exemption, but not eligible for the profit tax exemption, are

telecommunication basic services; exploration of gas and oil,

including supply bases for gas and oil activities; and mining.

 

34. Cambodia allows foreign lawyers to supply legal services with

regard to foreign law and international law, and allows them to

supply certain legal services with regard to Cambodian law in

\”commercial association\” with Cambodian law firms. Cambodia\’s WTO

General Agreement on Trade in Services (GATS) commitment defines

\”commercial association\” as any type of commercial arrangement,

without any requirement as to corporate form. Thus, there are no

equity limitations on the practice of foreign and international law

by foreign enterprises and there are no equity limitations on the

formation of \”commercial associations\” under which foreigners may

practice certain legal services with regard to Cambodian law.

 

PHNOM PENH 00000029 006.8 OF 017

 

35. Investors who wish to take advantage of investment incentives

must submit an application to the Cambodian Investment Board (CIB),

the division of the CDC charged with reviewing investment

applications. Investors not wishing to apply for investment

incentives, or who are ineligible, may establish their company

simply by registering corporate documents with the Department of

Legal Affairs of the Ministry of Commerce. Once an investor\’s

application is submitted, the CDC will issue to the applicant either

a Conditional Registration Certificate or a Letter of Non-Compliance

within three workdays. The Conditional Registration Certificate

will set out the terms, such as approvals, authorization,

clearances, permits or registrations required. If the CDC fails to

issue the Conditional Registration Certificate or Letter of

Non-Compliance within three workdays, then the Conditional

Registration Certificate will be considered approved.

 

36. The CDC has the responsibility to obtain all of the licenses

from relevant government agencies on behalf of investor applicants.

The relevant government agencies must issue the required documents

no later than 28 workdays from the date of the Conditional

Registration Certificate. At the end of the 28 days, the CDC will

issue a Final Registration Certificate.

 

37. The Sub-decree on the Implementation of the Amendment of the

Law on Investment adopted on September 27, 2005 does not require

investors to place a deposit guaranteeing their investment except in

cases in which the deposit is required in a concession contract or

real estate development project. Investors who wish to apply are

required to pay an application fee of seven million riel (approx.

USD 1,750) representing the administration fees for securing the

approvals, authorizations, licenses, or registrations from all

relevant ministries and entities including stamp duty.

 

38. Under a 2008 sub-decree, the CDC is required to submit to the

Council of Ministers for approval investment proposals with an

investment capital of USD 50 million or more; involve politically

sensitive issues; involve the exploration and the exploitation of

mineral or natural resources; may have a negative impact on the

environment; have long-term strategy; or, involve infrastructure

concessions.

 

Right to Private Ownership and Establishment

——————————————–

 

39. There are no limits on the rights of foreign and domestic

entities to establish and own business enterprises or to compete

with public enterprises. However, the Constitution provides that

only Cambodian citizens or legal entities have the right to own

land. A legal entity is considered to be Cambodian when at least 51

percent of its shares are owned by Cambodian citizen(s) or by

Cambodian legal entities. A new law allowing foreign ownership of

properties, such as apartments and condominiums is expected to be

passed in 2010. The current draft stipulates that only properties

located above the ground floor can be foreign-owned, and foreigners

would not be able to own property within 30 kilometers of a national

border.

 

40. Under the 2001 Land Law, foreign investors may secure control

over land through concessions, long-term leases, or renewable

short-term leases. If investors intend to take a long-term lease

interest in land or ownership interest through a 51 percent

Cambodian company, it is essential that caution be exercised to

ensure that clear and unencumbered ownership of the land is

verified.

 

41. The Land Law establishes a comprehensive legal framework for

long-term leasing. The leaseholder has a contractual interest in

the land, which means the lease can be sold or transferred through

succession and can be pledged as security in order to raise

financing. It is also important to make sure that the land

ownership is clearly and legally established before entering into

any leasing agreement.

 

42. Qualified investors approved by the Council for the Development

of Cambodia have the right to own buildings built on leased

property. However the law is unclear as to whether buildings from

qualified projects can be transferred between foreign investors or

whether foreign investors can own buildings built through projects

 

PHNOM PENH 00000029 007.8 OF 017

 

not approved by the CDC.

 

Protection of Property Rights

—————————–

 

43. Cambodia has adopted legislation concerning the protection of

property rights, including the Land Law and the Law on Copyrights

and Law on Patent and Industrial Design. Cambodia is a member of

the World Intellectual Property Organization (WIPO) and the Paris

Convention for the Protection of Industrial Property.

 

44. Chattel and real property: The 2001 Land Law provides a

framework for real property security and a system for recording

titles and ownership. Land titles issued prior to the end of the

Khmer Rouge regime in 1979 are not recognized due to the severe

dislocations that occurred during the Khmer Rouge period. The

government is making efforts to accelerate the issuance of land

titles, but in practice, the titling system is cumbersome,

expensive, and subject to corruption. The majority of property

owners lack documentation proving ownership. Even where title

records exist, recognition of legal title to land has been a problem

in some court cases where judges have sought additional proof of

ownership. Although foreigners are constitutionally forbidden to

own land, the 2001 law allows long or short-term leases to

foreigners.

 

45. Intellectual property rights (IPR): Cambodia\’s IPR regime is

in compliance with its WTO member commitments; however,

comprehensive enforcement remains problematic. The 1996

U.S.-Cambodia Trade Agreement contained a broad range of IPR

protections, but given Cambodia\’s very limited experience with IPR,

the WTO agreement granted phase-in periods for the Cambodian

government to fully implement IPR protections. On November 9, 2005,

the WTO granted a deadline extension until 2013 for Cambodia and

other least developed countries to enforce copyright laws and begin

accepting patents.

 

46. In a significant step toward consolidating IPR policy-making,

enforcement and technical assistance, the Council of Ministers

created the National Committee for Intellectual Property Management

on September 18, 2008 with its secretariat within the Ministry of

Commerce. This committee is responsible for developing national

policy on intellectual property, strengthening interagency

cooperation, preparing and disseminating new laws and regulations,

and acting as a clearinghouse for technical assistance relating to

the intellectual property sector. This new interagency IPR

committee chaired by the Minister of Commerce includes a broad range

of IPR actors including representatives from the Council of

Ministers and the Ministries of Industry Mines and Energy; Culture

and Fine Arts; Interior; Economy and Finance; Posts and

Telecommunications; Health; Agriculture, Forestry and Fisheries;

Environment; Justice; Education; and Tourism.

 

47. Trademarks: The Cambodian National Assembly approved the Law

Concerning Marks, Trade Names and Acts of Unfair Competition to

comply with Cambodia\’s WTO obligations under the Agreement on

Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Signed in February 2002, the law outlines specific penalties for

trademark violations, including jail sentences and fines for

counterfeiting registered marks. It also contains detailed

procedures for registering trademarks, invalidation and removal,

licensing of marks, and infringement and remedies.

 

48. Since 1991, the Ministry of Commerce has maintained an

effective trademark registration system, registering more than

35,500 trademarks (nearly 6,599 for U.S. companies) under the terms

of a 1991 sub-decree, and has proven cooperative in preventing

unauthorized individuals from registering U.S. trademarks in

Cambodia.

 

49. Despite lacking clear legal authority to conduct enforcement

activities, the Ministry of Commerce has taken effective action

against trademark infringement in several cases since 1998. The

Ministry has ordered local firms to stop using well-known U.S.

marks, including Pizza Hut, McDonalds, Nike, Scotties, Marlboro,

Seven Eleven, and Pringles. In 2009, the Ministry of Commerce

resolved 12 cases of trademark infringements.

 

PHNOM PENH 00000029 008.8 OF 017

 

50. Copyrights: Copyrights are governed by the Law on Copyrights

and Related Rights, which was enacted in January 2003.

Responsibility for copyrights is split between the Ministry of

Culture and Fine Arts, which handles phonograms, CDs, DVDs, and

other recordings, and the Ministry of Information, which deals with

printed materials. Pirated CDs, videos, textbooks, and other

copyrighted materials are widely available in Cambodian markets and

used throughout the country. Before the adoption of the law, there

were no provisions for enforcement of copyrights.

 

51. To protect and manage their economic rights, authors and

related rights holders are allowed by law to establish a collective

management organization (CMO). The creation of the CMO requires

authorization from either the Ministry of Culture and Fine Arts or

the Ministry of Information, depending on the nature of their work.

The Ministry of Culture and Fine Arts is developing a sub-decree on

collective management. In mid-2007, the Ministry of Culture and

Fine Arts created a Copyright Department which is gradually building

capacity.

 

52. Patents and industrial designs: Cambodia has a very small

industrial base, and infringement on patents and industrial designs

is not yet commercially significant. With assistance from WIPO, the

Ministry of Industry, Mines, and Energy (MIME) prepared a

comprehensive law on the protection of patents and industrial

designs which went into force in January 2003. The law provides for

the filing, registration, and protection of patents, utility model

certificates and industrial designs. The MIME issued a declaration

in June 2006 on granting patents and registering industrial

designs.

 

53. Encrypted satellite signals, semiconductor layout designs, and

trade secrets: The Ministry of Commerce is preparing a draft law

for trade secrets while the Ministry of Industry, Mines, and Energy

is drafting a law on integrated circuit protection. Cambodia has

not yet made significant progress toward enacting required

legislation on encrypted satellite signals, although it obtained a

model law on encrypted satellite signals and semiconductor layout

designs from WIPO in March 1999.

 

54. IPR enforcement: With the exception of the trademark

enforcement, the Cambodian government has taken few significant

actions to enforce its IPR obligations. However, in January 2008,

at the annual conference of the Ministry of Culture and Fine Arts,

the government suggested it would increase prosecutions for

copyright violations on domestically produced products before

expanding prosecutions for foreign products. Cambodian copyright

law allows IPR owners to file a complaint with the authorities to

take action. Law enforcement action taken at the request of owners

is directed against the piracy of domestically produced music or

video products, but not against piracy of foreign optical media.

The owners requesting crackdowns must pay support costs to the

authorities for conducting the operation. Crackdowns on such IPR

violations are not conducted on a consistent basis.

 

55. Infringement of IPR is pervasive, ranging from software,

compact discs, and music, to photocopied books and the sale of

counterfeit products, including cigarettes, alcohol, and

pharmaceuticals. In 2008, the Business Software Alliance estimated

a 95 percent software piracy rate in Cambodia which cost the

industry USD 47 million in 2007. Although Cambodia is not a major

center for the production and export of pirated CDs, videos, and

other copyrighted materials, local businesses report Cambodia is

becoming an increasingly popular source of pirated material due to

weak enforcement. The Ministry of Commerce has plans to put in

place measures to stop IPR-violating products at borders, as

post-inspection mechanisms are unlikely to be effective. During the

TIFA discussions in November 2007, Cambodia requested technical

assistance for a draft sub-decree on Border Measures detailing

procedures at the borders allowing IPR owners to file an application

with customs to suspend clearance of suspected counterfeit goods.

 

Transparency of the Regulatory System

————————————-

 

56. There is no pattern of discrimination against foreign investors

in Cambodia through a regulatory regime. Numerous issues of

transparency in the regulatory regime arise, however, from the lack

 

PHNOM PENH 00000029 009.8 OF 017

 

of legislation and the weakness of key institutions. Investors

often complain that the decisions of Cambodian regulatory agencies

are inconsistent, irrational, or corrupt.

 

57. The Cambodian government is still in the process of drafting

laws and regulations that establish the framework for the market

economy. In addition to existing laws and regulations, in 2009, the

government adopted the Law on Tourism, the Insolvency Law, and a

sub-decree establishing a national commercial arbitration body. A

commercial contract law and other important business-related laws

such as commercial court, e-commerce, telecommunications, and

personal property leasing laws are in draft.

 

58. Cambodia currently has no anti-monopoly or anti-trust statutes.

On a practical level, Cambodia has indicated a desire to discourage

monopolistic trading arrangements in most sectors.

 

59. Cambodia is currently working on the establishment of standards

and other technical measures based on international practice,

guidelines, and recommendations. Under the Law on Standards in

Cambodia, passed in 2007, the Institute of Standards in Cambodia

(ISC) was created within the Ministry of Industry, Mines, and Energy

(MIME) as a central authority to develop and certify national

standards for products, commodities, materials, services, and

practices and operations. The ISC serves as the secretariat of the

National Standards Council which consists of representatives from

various government ministries, state-controlled academic/research

institutions, the private sector, and a consumer representative

created to advise as well as approve standards.

 

60. The ISC has been assigned as the focal point for technical

barriers to trade (TBT) and as the agency responsible for

notifications and publications required by the WTO TBT Agreement.

The Ministry of Health is charged with prescribing standards,

quality control, distribution and labeling requirement for

medicines, but this responsibility may be brought under the ISC in

the future.

 

61. Quality control of foodstuffs, plant and animal products is

currently under the General Directorate of CamControl of the

Ministry of Commerce. Cambodia is a member of the Codex

Alimentarius Commission. Currently CamControl is the national

contact point for Codex Alimentarius. Its primary responsibility is

the enforcement of quality and safety of products and services

relating to sanitary and phytosanitary (SPS) measures. Cambodia was

provided a transition period until January 2007 to implement its WTO

TBT Agreement commitments and until January 2008 to implement its

SPS Agreement commitments, but has not yet fully implemented these

commitments. The RGC plans to adopt a subdecree on Automatic

Adoption of Codex Norms by the end of 2010.

 

62. The Cambodian Constitution and the 1997 Labor Code provide for

compliance with internationally recognized core labor standards.

The law authorizes the Ministry of Labor and Vocational Training to

set health, safety and other conditions for the workplace. (The

\”Labor\” Section of this report discusses the labor situation in more

detail.)

 

63. The National Bank of Cambodia supervises Cambodia\’s banks and

financial institutions while the Ministry of Economy and Finance

regulates the insurance industry. The insurance market in Cambodia

is relatively new, but has recently begun to gain credibility and

expand its scope. Currently, there are a few major insurance

companies operating here such as Asia Insurance, the state-owned

insurance company Caminco, Forte Insurance, Campubank Lonpac

Insurance, and Infinity Insurance. Cambodia Reinsurance Company

(Cambodia Re) is the only reinsurance company in Cambodia

established by the government to carry out reinsurance business

operations for all classes of risk, including general insurance and

life insurance.

 

64. To help Cambodian businesses stay competitive in the world

market, the government introduced specific measures to facilitate

business, in particular exports, by attempting to reduce informal

costs and streamline bureaucratic hurdles. Measures included: (1)

introduction of a joint inspection by CamControl and the Customs and

Excise Department and issuance of a common inspection report valid

for both agencies and the \”Federal Office\” in order to reduce the

 

PHNOM PENH 00000029 010.8 OF 017

 

amount of time spent applying for export goods inspection; (2) based

on this common report, MIME and the Ministry of Commerce will issue

the Certificate of Processing (CP) and the Certificate of Origin

(CO), respectively; (3) reduction of the costs of registration from

USD 615 to USD 177 and of the time limit for Cambodian government

issuance of registration from 30 days to ten and a half working

days; and (4) reduction of time required to acquire documents

related to the CO and exports and for goods inspection.

 

65. Cambodia has renewed its commitment to creating a favorable

environment for investment and trade and has further committed to

reducing unofficial fees and costs related to imports and exports.

 

Efficient Capital Markets and Portfolio Investment

——————————————— —–

 

66. Cambodia is moving to address the need for capital markets. In

November 2006, the National Assembly passed legislation to permit

the government to issue bonds and use the capital to make up budget

deficits. However no bonds have been issued since 2007 and Prime

Minister Hun Sen said in 2008 that the government does not plan to

issue bonds in the near future. In 2007, the government also passed

the Law on the Issuance and Trading of Non-government Securities,

and, in partnership with the Korean Stock Exchange, plans to

establish a stock market by the end of 2010.

 

67. At the end of November 2009, the Securities and Exchange

Commission of Cambodia (SECC) released a draft administrative order

on equity securities issuance, which is expected to be adopted in

2010. According to the regulation, the issuance of equity

securities in the Cambodia stock market can be private placement or

public offering. Private placement refers to a personal offer that

is made to no more than 30 investors and with an issue size not

exceeding 20 percent of shareholder\’s equity when shareholder\’s

equity is less than USD 4.8 million or with an issue size not

exceeding 15 percent of shareholder\’s equity when shareholder\’s

equity is more than USD 4.8 million during a 12-month period. In

addition, the allotment of equity securities of public offerings are

divided, with a reserve of 20 percent of total public offering for

investors who are Cambodian citizens, and 80 percent of the

remaining public offering amount open to investors who are both

Cambodian and non-Cambodian citizens.

 

68. The Cambodian government does not use regulation of capital

markets to restrict foreign investment. Domestic financing is

difficult to obtain at competitive interest rates. A new law

addressing secured transactions, which includes a system for

registering such secured interests, was promulgated in May 2007.

Most loans are secured by real property mortgages or deposits of

cash or other liquid assets, as provided for in the existing

contract law and land law.

 

69. The total assets of Cambodia\’s banking system as of September

2009 were approximately USD 4.9 billion, an increase of nearly 22

percent from 2008. Loans account for about 49 percent of the

banking system\’s assets. The National Bank of Cambodia (NBC)

reported that the non-performing loans (NPLs) ratio of banks has

increased from 3.7 percent in December 2008 to 5.2 percent in May

2009 and that the rate could reach as high as 10 percent by the end

of the year. Credit disbursement has also slowed, from a growth

rate of 50 percent in 2008 to just 1 percent through the middle of

2009. As of September 2009, credit granted by the commercial banks

amounted to USD 2.4 billion. Loans made to services and the

wholesale and retail sectors accounted for over 40 percent of total

loans. The banking sector has shown significant improvement, but

requires continued progress to gain international confidence.

 

70. Under the amended Law on Banking and Financial Institutions,

all of Cambodia\’s commercial banks had to reapply for licenses from

the NBC and meet new, stricter capital and prudential requirements

by the end of 2001. As a result, there was a significant shakeout

and consolidation within the banking sector with the closure and

liquidation of 12 banks. In September 2008, the National Bank of

Cambodia moved to slow the rapid growth in the number of commercial

banks, which increased by more than 20 percent in the first nine

months of 2008, giving commercial banks without an investment grade

shareholder until the end of 2010 to triple minimum capital from USD

13 million to USD 37 million. In January 2008, Cambodia\’s banks

 

PHNOM PENH 00000029 011.6 OF 017

 

were given their first-ever risk assessment from Standard & Poor\’s

of a \’B+/B\’ rating with stable outlook. Their placement was

alongside that of banks in Venezuela, Bolivia, Ukraine, and Jamaica.

Banks have been free to set their own interest rates since 1995 and

average annual interest rate spread has declined from 15.3 percent

in 2004 to 9.6 percent in May 2009 which reflects an increase in the

interest rate for deposits and a decline in the interest rate for

credit.

 

Competition from State Owned Enterprises

—————————————-

 

71. Private enterprises are allowed to compete with public

enterprises under the same terms and conditions and in general are

not entitled to special trading rights or privileges. However,

certain laws and regulations reserve special rights for the state to

monopolize various services including the Electricity Law which

provides special privilege for the Electricity of Cambodia (EDC) to

provide power transmission to the distribution companies and bulk

power consumers.

 

72. Cambodia has several state-owned enterprises and two

joint-venture enterprises with a majority state holding. These

include rubber plantations and an agricultural inputs company,

infrastructure operating companies, the Phnom Penh Water Supply, the

EDC, the Rural Development Bank, and two joint-venture companies –

telecommunication operator Camintel and Cambodia Pharmaceutical

Enterprise. Currently, the country does not have a sovereign wealth

fund.

 

73. All SOEs are under the supervision of certain line Ministries

or government institutions and are overseen by boards of directors

drawn from among senior government officials. The Law on Audit

established the National Audit Authority and empowers the Auditor

General to conduct audits of state-owned enterprises. The audit

conducted by the Auditor General\’s Office primarily focuses on

compliance with rules governing SOE financial management. Limited

information is publicly available on the financial position and

performance of state-owned enterprises.

 

74. Cambodia has yet to pass the Law on Competition as part of its

WTO accession obligations. Under the draft law, a National

Committee on Competition will be established. However, the 1993

Constitution of Cambodia provides for the state to take necessary

intervention measures to protect the competitive process of the

marketplace as well as to protect consumer welfare.

 

Corporate Social Responsibility (CSR)

————————————-

 

75. CSR is a new concept to Cambodia and is not widely understood

among local producers or consumers. However, certain labor and

social standards have been established in key industries,

particularly in the garment sector. Under the terms of the 1999

U.S.-Cambodia Trade Agreement, the U.S. Government committed to

increase the size of Cambodia\’s garment export quota if the country

could demonstrate improvements in labor standards. This was the

first bilateral trade agreement to positively link market access

with progress in compliance with labor obligations. Currently labor

standard monitoring in the garment sector is being conducted by the

International Labour Office (ILO) in coordination with the

government. The ILO project succeeded in improving compliance with

labor standards, virtually eliminating the worst labor abuses such

as forced labor and child labor within the garment sector. Socially

responsible businesses continue to source garments from Cambodia due

to its well-deserved reputation for high labor standards.

 

76. Currently, the ILO\’s Better Work and Better Factories Cambodia

program is developing a training package on planning and

implementing the transition of the inspections regime towards

substantial compliance with international labor standard such as the

OECD Guidelines for Multinational Enterprises. In addition, several

multinational enterprises conduct CSR programs in Cambodia which are

viewed favorably by the local community.

 

Political Violence

——————

 

PHNOM PENH 00000029 012.8 OF 017

 

77. Cambodia is relatively peaceful compared to its pre-UNTAC

history. Election-related violence has decreased in each national

election held at five-year intervals since 1993. Cambodia\’s 2007

commune council elections followed by the July 2008 National

Assembly election had little of the pre-election violence or

intimidation that preceded the 2002 and 2003 elections. The 2007

and 2008 polls resulted in clear victories for the Cambodian

People\’s Party, with the Sam Rainsy Party emerging as the main

opposition party.

 

78. Cambodian political activities have turned violent in the past,

and the possibility for politically motivated violence remains.

During the anti-Thai riots in 2003, the Royal Embassy of Thailand

and Thai-owned commercial establishments were attacked. In November

2006, police arrested six people for allegedly plotting to conduct

bomb attacks in Phnom Penh during the Water Festival.

 

79. On July 29, 2007, three improvised explosive devices (IEDs)

were planted at the Vietnam-Cambodia Friendship Monument in Phnom

Penh. One of the IEDs partially exploded, but the others failed to

detonate and were recovered by Cambodian authorities. No one was

injured. On January 2, 2009, two undetonated IEDs were found near

the Ministry of National Defense and state-owned TV3. While there

is no indication these incidents were directed at U.S. or other

Western interests, the possibility remains that further attacks

could be carried out.

 

80. Following the July 2008 UNESCO World Heritage Site listing of

the Preah Vihear Temple, thousands of Thai and Cambodian soldiers

amassed in a few isolated areas along the Thai-Cambodian border,

particularly near the disputed Preah Vihear temple area. Since

then, soldiers have clashed near the temple resulting in deaths on

both sides, but the outbreaks of violence have been rare and lasted

only a few hours. Both the Thai and Cambodian governments have

committed to a peaceful resolution of the dispute.

 

Corruption

———-

 

81. Despite increasing investor interest, Cambodia continues to

rank poorly on global surveys of competitiveness and corruption.

According to the World Economic Forum\’s Global Competitiveness

Report 2009-2010, Cambodia\’s competitiveness ranking slipped by one

point to 110 of 133 countries surveyed, a reversal of the one point

climb to 109 in the 2008-2009 report (of 134 countries). The World

Bank also ranked Cambodia in the lower half of the list, 145 of 183,

on business climate. In 2009, Cambodia scored 2.0 on a scale of 0

(highly corrupt) to 10 (highly clean) in Transparency

International\’s Corruption Perceptions Index, ranking 158 out of 180

countries assessed, suggesting widespread and endemic forms of

corruption.

 

82. Business people, both local and foreign, have identified

corruption, particularly within the judiciary, as the single biggest

deterrent to investment in Cambodia. Corruption was cited by a

plurality of respondents to the World Economic Forum survey as the

most problematic factor for doing business in Cambodia. A 2007

USAID-funded survey of the Phnom Penh Chamber of Commerce also found

that corruption is considered to be the main obstacle for doing

business.

 

83. Public sector salaries range from USD 25-60 per month for

working level officials, and around USD 2000 per month for

high-ranking officials. Although there is an annual salary increase

of 10-15 percent, these wages are far below the level required to

maintain a suitable quality of life in Cambodia, and as a result,

public employees are susceptible to corruption and conflicts of

interest. Local and foreign businesses report that they must often

pay extra facilitation fees to expedite any business transaction.

Additionally, for those seeking to enter the Cambodian market, the

process for awarding government contracts is not transparent and is

subject to major irregularities.

 

84. Current Cambodian laws and regulations and their application

are insufficient to address the problem of corruption. Laws dating

from the UNTAC period (1991-93) against embezzlement, extortion, and

bribing public officials exist, but are enforced rarely, often for

political reasons.

 

PHNOM PENH 00000029 013.8 OF 017

 

85. Cambodia is not a signatory to the OECD Anti-Bribery

Convention, but has endorsed the ADB/OECD Anti-Corruption Action

Plan for Asia and the Pacific. In 2007, the government signed a

regional anti-corruption pact with eight other ASEAN countries, and

in September of the same year, also signed the UN Convention Against

Corruption. Cambodia is considering joining the Extractive

Industries Transparency Initiative governing the oil sector.

 

86. Cambodia is under increasing pressure from donors to address

the issue of good governance in general, and corruption in

particular. Cambodia began efforts to draft and enact

anti-corruption legislation in the 1990\’s. In a draft action plan

on good governance presented to donors in May 2000, Cambodia

promised to pass anti-corruption legislation by late 2001. Since

then, donors have become increasingly frustrated with the

government\’s failure to meet a series of benchmarks to enact new

anti-corruption legislation.

 

87. However, in October, the National Assembly passed a new Penal

Code, which the government has long stated was a prerequisite to the

heavily anticipated anti-corruption law. In December, the Cambodian

government finally approved the draft anti-corruption law which is

expected to be approved by the National Assembly in 2010. Under the

new law, all civil servants would be obliged to declare their

financial assets to the government every two years.

 

88. The Ministry of National Assembly-Senate Relations and

Inspection (MONASRI) has an anti-corruption mandate, but is largely

inactive. In 2007, however, MONASRI, with technical assistance from

USAID, created a draft Access to Information Policy. The draft has

yet to be forwarded to the Council of Ministers. The government

also created an anti-corruption commission within the cabinet in

late 1999, which has undertaken a few investigations, one of which

resulted in the dismissal of a mid-level official in late 2001.

Also in 2001, the government established a National Audit Authority,

which has been only marginally effective because of its lack of

transparency and independence.

 

89. Ignoring the existing anti-corruption commission, the

government established the Anti-Corruption Unit (ACU) in August

2006, a temporary body designed to address corruption until the

anti-corruption legislation is passed. The mission of the ACU is to

focus on preventing corruption, strengthening law enforcement, and

obtaining public support for combating corruption. However the ACU

is considered to be ineffective because of its lack of independence

and capacity.

 

90. In its most comprehensive reform strategy, the Rectangular

Strategy Phase II, adopted as the government platform in 2008 after

phase I in 2004, the Cambodian government once again renewed its

commitment to fight corruption and make good governance the

centerpiece of reform. The strategy acknowledges the importance of

taking action against corruption, but the challenge remains a

daunting and long-term one that will require political will at the

highest levels of the government.

 

Bilateral Investment Agreements

——————————-

 

91. Cambodia has signed bilateral investment agreements with

Australia, China, Croatia, Cuba, the Czech Republic, France,

Germany, Indonesia, Kuwait, Japan, Laos, Malaysia, the Netherlands,

North Korea, the Organization of the Petroleum Exporting Countries

(OPEC), Pakistan, the Philippines, Singapore, South Korea,

Switzerland, Thailand, and Vietnam. Future agreements with Algeria,

Bulgaria, Burma, Egypt, Hungary, Libya, Malta, Qatar, Russia, the

United Kingdom, and Ukraine are planned. The agreements provide

reciprocal national treatment to investors, excluding benefits

deriving from membership in future customs unions or free trade

areas and agreements relating to taxation. The agreements preclude

expropriations except those that are undertaken for a lawful or

public purpose, are non-discriminatory, and are accompanied by

prompt, adequate and effective compensation at the fair market value

of the property prior to expropriation. The agreements also

guarantee repatriation of investments and provide for settlement of

investment disputes via arbitration.

 

PHNOM PENH 00000029 014.12 OF 017

 

92. In addition, in July 2006, Cambodia signed a Trade and

Investment Framework Agreement (TIFA) with the United States, which

will promote greater trade and investment in both countries and

provide a forum to address bilateral trade and investment issues.

Two very successful meetings were held under the TIFA in 2007 in

which the U.S. and Cambodian governments discussed WTO accession

requirements, trade facilitation and economic development

initiatives, and progress on intellectual property rights. Since

then, several bilateral working level meetings have been held to

advance the TIFA agenda.

 

OPIC and Other Investment Insurance Programs

——————————————–

 

93. Cambodia is eligible for the Quick Cover Program under which

the Overseas Private Investment Corporation (OPIC) offers financing

and political risk insurance coverage for projects on an expedited

basis. With most investment contracts written in U.S. dollars,

there is little exchange risk. Even for riel-denominated

transactions, there is only one exchange rate, which is fairly

stable. Cambodia is a member of the Multilateral Investment

Guarantee Agency (MIGA) of the World Bank, which offers

political-risk insurance to foreign investors.

 

94. The Export-Import Bank of the United States (Ex-Im Bank)

provides financing for purchases of U.S. exports by private-sector

buyers in Cambodia on repayment terms of up to seven years. Ex-Im

Bank support typically will be limited to transactions with a

commercial bank functioning as an obligor or guarantor; however, it

will consider transactions without a bank undertaking on a

case-by-case basis.

 

Labor

—–

 

95. The country has an economically active population (defined as

being ten years of age and older) of some 8.8 million people out of

a population of 13.4 million. While government statistics are

somewhat higher, they do not fully capture the problems of

unemployment and underemployment in Cambodia.

 

96. The economy is not able to generate enough jobs in the formal

sector to handle the large number of entrants to the job market.

This dilemma is likely to become more pronounced over the next

decade. Cambodia suffers from a large demographic imbalance.

According to the 2008 General Population Census of Cambodia,

Cambodia\’s annual population growth rate is 1.54 percent. Persons

20 years of age or younger account for 48.1 percent of the total

population. As a result, over the next decade at least 275,000 new

job seekers will enter the labor market each year.

 

97. Approximately 65 – 70 percent of the labor force is engaged in

subsistence agriculture. At the end of 2009, about 278,000 people,

the majority of whom are women, were employed in the garment sector,

with 300,000 Cambodians employed in the tourism sector, and a

further 50,000 people in construction.

 

98. The 2009-2010 Global Competitiveness Report of the World

Economic Forum identified an inadequately educated workforce as one

of the most serious problems in doing business in Cambodia. Given

the severe disruption to the Cambodian education system and loss of

skilled Cambodians during the 1975-79 Khmer Rouge period, workers

with higher education or specialized skills are few and in high

demand. A Cambodia Socio-Economic Survey conducted in 2004 found

that about 12 percent of the labor force has completed at least an

elementary education. Only 1.2 percent of the labor force completed

post-secondary education.

 

99. Overall literacy, for those aged fifteen and over, is 75.1

percent with male literacy rates considerably higher than those for

females in both urban and rural areas. Many adults and children

enroll in supplementary educational programs, including English and

computer training. Employers report that Cambodian workers are

eager to learn and, when trained, are excellent, hardworking

employees.

 

100. Cambodia\’s 1997 labor code protects the right of association

and the rights to organize and bargain collectively. The code

 

PHNOM PENH 00000029 015.12 OF 017

 

prohibits forced or compulsory labor, establishes 15 as the minimum

allowable age for paid work, and 18 as the minimum age for anyone

engaged in work that is hazardous, unhealthy or unsafe. The statute

also guarantees an eight-hour workday and 48-hour work week, and

provides for time-and-a-half pay for overtime or work on the

employee\’s day off. The law gives the Ministry of Labor and

Vocational Training (MOLVT) a legal mandate to set minimum wages

after consultation with the tripartite Labor Advisory Committee. In

January 2007, the minimum wage for garment and footwear workers was

officially set at USD 50 per month. In April 2008, a USD 6 per

month cost of living allowance was instituted to offset high levels

of inflation. There is no minimum wage for any other industry. To

increase competitiveness of garment manufacturers, the labor code

was amended in 2007 to establish a night shift wage of 130 percent

of day time wages.

 

101. Acleda Bank, a local commercial bank, is currently managing

Cambodia\’s first National Social Security Fund (NSSF), which

protects workers against occupational risks and workplace accidents.

The fund was established by sub-decree in 2007 and requires

employers to contribute 0.8 percent of each employee\’s salary to the

NSSF. As December 29, 2009, approximately 350,000 workers, most

from the garment sector, contribute to the fund through their

employer. The Cambodian government has responded to the global

economic crisis by temporarily contributing 0.3 percent towards the

NSSF on behalf of employers for two years (2009-2010) which has

resulted in a reduction of employers\’ obligation from 0.8 percent to

0.5 percent of total wages. A second phase of the fund, to be

implemented in 2010, will focus on health care for employees,

followed by pensions in 2012.

 

102. Enforcement of many aspects of the labor code is poor, albeit

improving. Labor disputes can be problematic and may involve

workers simply demanding conditions to which they are legally

entitled. In labor disputes in which workers complain of poor or

unhealthy conditions, MOLVT and the Ministry of Commerce have

ordered the employer to take corrective measures. The U.S.

Government, the ILO, and others are working closely with Cambodia to

improve enforcement of the labor code and workers\’ rights in

general. The U.S.-Cambodia Bilateral Textile Agreement linked

Cambodian compliance with internationally recognized core labor

standards with the level of textile quota the U.S. granted to

Cambodia. While the quota regime ended on January 1, 2005, a

\”Better Factories\” program continues to build on the labor standards

established.

 

Foreign Trade Zones

——————-

 

103. To facilitate the country\’s development, the Cambodian

government has shown great interest in increasing exports via

geographically defined special economic zones (SEZs), with the goal

of attracting much-needed foreign direct investment.

 

104. The government is preparing a Law on Special Economic Zones

which will define SEZs and establish the rules under which they will

operate. The law may be submitted for approval of the Council of

Ministers in 2010.

 

105. In late December 2005, the Council of Ministers passed a

sub-decree on Establishment and Management of Special Economic Zones

to speed up the creation of the zones. The sub-decree details

procedures, conditions and incentives for the investors in the

zone.

 

106. Since issuing the sub-decree, the Cambodia Special Economic

Zones Board (CSEZB) has approved 21 SEZs as of December 2009, of

which 4 are in operation, located near the borders of Thailand and

Vietnam, and in Phnom Penh, Kampot, and Sihanoukville.

 

Foreign Investment Statistics

—————————–

 

107. Foreign Direct Investment (FDI) proposals approved by the

Council for the Development of Cambodia (CDC) have dramatically

increased in recent years, with approved FDI reaching USD 10.9

billion in 2008, compared with USD 201 million in 2004. However, FDI

inflows declined dramatically to only USD 1.6 billion as of October

 

PHNOM PENH 00000029 016.10 OF 017

 

2009 due to the impact of the global economic crisis. FDI registered

capital however, has been modest since 1995, with an average inflow

of USD 304 million in the period 1995-2008. The FDI registered

capital figures probably understate actual investment, since they

report only registered capital and not fixed assets. CDC statistics

for fixed assets, however, are based on projections, and the CDC has

no effective monitoring mechanism to determine the veracity of the

numbers. The FDI registered capital flow into Cambodia is uneven

and gradually declined from USD 135 million in 1999 to USD 30

million in 2003, but rose to USD 105 million in 2009.

 

108. Total FDI registered capital flows into Cambodia for the years

1998-2009 are presented in the table below, in USD million.

(Source: CDC) (Note: statistics from the National Bank of Cambodia

differ significantly from CDC\’s figures.)

 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

320 135 74 81 50 30 45 383 209 473 260 105

 

109. Figures from the CDC for registered capital of approved

projects, including domestic investment, and broken down by country

of origin and economic sector, are provided below. The FDI

registered capital figures below may overstate investment because

they include projects that have not yet been, or may never be, fully

implemented and retention of dormant or defunct projects from

earlier years makes the investment figures appear higher.

 

110. Total cumulative registered investment projects approved, by

country of origin, August 1994 to October 2009 (source: CDC)

 

Country USD millions Pct.

Malaysia 1,736 32.17

Cambodia 1,526 28.28

China 603 11.17

Taiwan 405 7.50

Thailand 221 4.09

Singapore 199 3.68

South Korea 170 3.15

U.K. 132 2.44

USA 71 1.31

Vietnam 69 1.27

Indonesia 55 1.01

Australia 55 1.01

France 42 0.77

Japan 24 0.44

Other 88 1.63

Total 5,396 100

 

111. Total cumulative registered investment capital by sector, from

January 1998 to October 2009 (source CDC)

 

Sector USUSD millions Number of Projects

Industry 1,538.7 748

– Food Processing 93.5 13

– Garments 469.4 421

– Petroleum 212.2 9

– Wood Processing 100.3 17

– Footwear 33.8 27

Agriculture 209.6 90

Services 342.8 81

– Construction 64.6 15

– Telecommunications 94.5 16

Tourism 446.4 98

Total 2537.5

 

112. New investment projects in USD million, by country of origin,

2004-2009(source: CDC)

 

Country 2004 2005 2006 2007 2008 2009

Malaysia 7.81 0.6 2.5 19.8 1 na

Cambodia 15 78.5 116.8 264.3 99.8 17.6

U.S. 2.1 2.2 4.3 6.5 12.3 1

Taiwan 4.6 4.1 16.4 14 9.5 5

Singapore 1.6 5.3 3.8 1 12 5.5

China 24 38 28.3 40.4 37.9 34.5

South Korea 4.1 16 4.5 22 19.5 5.2

Hong Kong na 0.3 1.5 0.6 na 1

France 0.6 0.4 na 0.3 2.3 1.6

 

PHNOM PENH 00000029 017.10 OF 017

 

Thailand 2 15 10 13.8 30.6 15.5

U.K. 1.5 1 1 1.5 1 2

Canada 1.7 0.6 1.5 na 4.8 1

Indonesia na na na na na 1

Australia na 7 na 3.5 1 na

Japan 0.7 na 1 7.5 4.6 1

Other na na 8.1 78.5 4.1 11

Total 65.71 169 199.7 473.7 240.4 102.9

 

113. New investment projects in USD million, by sector, 2004-2009

(source: CDC)

 

Sector 2004 2005 2006 2007 2008 2009

Industry 53.5 325 173.4 269.9 90 56.7

– Food Processing 1 na 22 24 4 2

– Garments 19 54 41.9 45.1 49 20

– Petroleum 1 200 na na na 9.2

– Wood Processing 1 na na 2 na 2

– Mining na 30 1 149 4 7

Agriculture 2 4 2 50.1 26 32.5

Services 5 32 16.3 127.2 43 4

– Construct 3 31 6 5 1 na

– Telecom na na na 42.2 2 2

– Infrastructure na na na 65 na 1

Tourism 5.5 18 18 33.5 101 12

Total 66 379 209.7 480.7 260 105.2

 

114. The CDC has registered approximately USD 71 million in U.S.

investment since August 1994. Caltex has a chain of service

stations and a petroleum holding facility in Sihanoukville; Crown

Beverage Cans Cambodia Limited, a part of Crown Holdings Inc.,

produces aluminum cans; and Chevron is actively exploring offshore

petroleum deposits. W2E Siang Phong Co., Ltd., a joint venture

between U.S.- Dutch investors, invested in biogas power generation.

There are also U.S. investors in a number of Cambodia\’s garment

factories.

 

115. In 2008, several Cambodia-focused private equity funds emerged

seeking to raise between USD 100 and USD 500 million each for

investments in infrastructure, agriculture, tourism, and real estate

development, among other sectors. However it appears the global

economic slowdown is limiting fund-raising abilities, and widespread

investments by these funds have not yet materialized.

 

116. Major non-U.S. foreign investors include Asia Pacific

Breweries (Singapore), Asia Insurance (Hong Kong), ANZ Bank

(Australia), BHP Billiton (Australia), Oxiana (Australia), Infinity

Financial Solutions (Malaysia), Total (France), Cambodia Airport

Management Services (CAMS) (France), Samart Mobil Phone (Malaysia),

Shinawatra Mobile Phone (Singapore), Thakral Cambodia Industries

(Singapore), Petronas Cambodia (Malaysia), Charoeun Pokphand

(Thailand), Siam Cement (Thailand), and Cambrew (Malaysia).

 

117. Since 2007, several well-known U.S. companies opened or

upgraded their presence in Cambodia. General Electric and DuPont

have established representative offices. Otis Elevators, a division

of United Technologies, also upgraded to a branch office, and

Microsoft initiated a presence through its Market Development

Program.

 

118. Some major local companies and their sectors are: Sokimex

(petroleum, tourism, garment), Royal Group of Companies (mobile

phone, telecommunication, banking, insurance), AZ Distribution

(construction, telecommunication), Mong Rethy Groups (construction,

agro-industry, rubber and oil palm plantation), KT Pacific Group

(airport project, construction, tobacco, food and electronics

distribution), Hero King (cigarettes, casinos and power), Anco

Brothers (cigarettes, casinos and power), Canadia Bank (banking and

real estate), Acleda Bank (microfinance), and Men Sarun Import and

Export (agro-industry, rice and rubber export).

 

119. In 2009 Acleda Bank opened its first bank branch outside of

Cambodia in Laos, and has announced plans for further expansion into

Vietnam and China. Statistics on Cambodian investment overseas are

not available, but such investments are likely minimal.

 

RODLEY

Written by thaicables

July 22, 2011 at 9:38 am

06BANGKOK5497 COMMERCE UPDATES ON INVESTIGATION INTO NOMINEES

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1. On September 7, Embassy Economic and Commercial Counselors met

with Mr. Yanyong Phuangrach, the Commerce Ministry\’s Deputy

Permanent Secretary for Internal Trade, to be briefed on that

Ministry\’s ongoing investigation into the sale of telecom operator

ShinCorp to Singapore\’s Temasek (reftel). Central to this

investigation is the question of whether the structure of the

transaction, specifically whether the putatively Thai holding

companies which are used to make the transaction compliant with Thai

law are in fact Thai and not simply stand-ins, or \”nominees\”, for

the Singaporeans.

 

2. Yanyong disclosed that he had intervened in the investigation

just prior to the release of a Commerce report which concluded that

a key nominee (Kularb Kaew) in the transaction was indeed

Singaporean, not Thai. He said, \”I took charge of this because if

we just turned the report over to the police, it would have caused

big problems with other foreign investments in Thailand. The main

problem is that the investigation seeks to determine if Kularb Kaew

is a nominee without first defining what a nominee is. We first

need a clear definition of nominee in the law.\”

 

3. Yanyong said that he and his staff are working on such a

definition: \”We know public expectations are high on this and

everyone wants to see results as soon as possible, but we need

adequate time. We also need to take into account this law\’s

relationship with other Thai laws on land ownership and investment

and to see clearly the impact of any change.\” Yanyong refused to be

drawn out on when he expected to finish his investigation into the

ShinCorp deal\’s nominee structure, but we were left with the

impression that Yanyong\’s project to define the term \”nominee\” will

take at least several months.

 

4. Yanyong added that his ministry wanted to hear the views of

foreign investors and their governments: \”We want to know what you

want to see.\” We replied that, in our view, no one was well served

by the current policy of nominee structures: the current policy

lacks transparency for foreign investors, leaving many in a legally

grey area; it has also been patently ineffective in preventing

foreign participation in supposedly Thai-only investment areas. It

might be possible, we said, to take the lemons from the Shin

investigation and make lemonade by leveraging the current

controversy into support for liberalized, transparent foreign

investment rules, with a much smaller number of Thai-only areas

where genuine national security or other vital issues exist. At

Yanyong\’s urging, we agreed to advise the American Chamber of

Commerce in Thailand to weigh in directly with Commerce on the

changes U.S. investors would like to see in Thai investment rules.

 

Joint Chambers enter the fray

—————————–

 

5. The Joint Foreign Chambers of Commerce (JFCC) independently

sought clarification of the new provisions for foreign business

registrants. In a bid to blunt the practice of using nominees, the

Ministry of Commerce requires applications for business licenses

with more than 40 percent foreign share to disclose certain

information related to the source of funds used to capitalize the

company. Ministry of Commerce officials assured JFCC chair Peter

van Haren that the new provisions would target only new business

applicants, not companies that are restructuring or renewing their

license, and that the scrutiny of funds would not be retroactive.

 

6. The Ministry of Commerce further clarified that they would

scrutinize the validity and source of funds of Thai shareholders

only, and not foreign shares. This is in fact the crux of the

investigation into Shin Corporation. Investment analysts pointed

out to us that the issue is not whether Temasek exceeded maximum

ownership limits in its purchase of Shin, but rather whether the

Thai partners in the deal violated provisions restricting Thai

nationals from holding shares for foreign entities in order to

circumvent those limits.

 

7. Comment: The interests of U.S. investors diverge from those of

other foreign investors, and the American Chamber of Commerce is

distancing itself somewhat from statements made by the JFCC. Most

U.S. companies invested under Treaty of Amity rules or Board of

Investment promotions that offer national treatment and majority

foreign ownership, and rarely made use of nominees. Scrutiny into

current and planned investments is of much less concern to most U.S.

investors, with the possible exception of companies who may have

used nominee structures to (perhaps illegally) purchase land. Since

we encourage adherence to Thai law, we do not plan to protest

examination into possibly illegal land purchases or other dodgy

 

BANGKOK 00005497 002 OF 002

 

ownership structures. However, we will continue to encourage a

reassessment of foreign ownership limits and the sectors to which

they should be applied. If a reassessment with the right terms of

reference does occur, some good may yet result from the otherwise

sad ShinCorp affair. End Comment.

BOYCE

Written by thaicables

July 13, 2011 at 5:40 am

06BANGKOK5424 FOREIGN INVESTORS LEERY AS SHIN INVESTIGATION WIDENS

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“77100”,”9/5/2006 6:25″,”06BANGKOK5424″,

“Embassy Bangkok”,”UNCLASSIFIED”,””,

“VZCZCXRO0663

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RUCNASE/ASEAN MEMBER COLLECTIVE

RUCPDOC/USDOC WASHDC

RUEATRS/DEPT OF TREASURY WASHINGTON DC”,”UNCLAS SECTION 01 OF 03 BANGKOK 005424

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TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN

E.O. 12958:N/A

TAGS: ECON, ETRD, EFIN, TH

SUBJECT: FOREIGN INVESTORS LEERY AS SHIN INVESTIGATION WIDENS

REFTEL: BANGKOK 538, BANGKOK 1549

1. Summary: The Ministry of Commerce is wrapping up an

investigation into possible illegal foreign ownership structures

arranged for the sale by Prime Minister Thaksin of

telecommunications giant Shin Corporation, an investigation which at

least in theory could have far-reaching effects on foreign

investment in Thailand. The use of holding companies and nominee

firms to skirt foreign ownership restrictions is common practice,

though of questionable legality, and both new and established

investors may also come under scrutiny. Most U.S. investors are not

affected as their investments were arranged under the U.S.-Thailand

Treaty of Amity or under investment promotion privileges by the

Board of Investment, both of which allow for majority foreign

ownership. Although foreign investors risk being dragged into the

fray, U.S. investors here discount that risk, reasoning that the

Shin deal is indeed a very special case, and that both the

government and its opponents have made it clear that they recognize

the value of foreign investment and are substantially more

interested in legalizing and making transparent foreign ownership

rather than further restricting it. The issues raised by the Shin

sale have led to a renewed interest here in modernizing foreign

investment rules, a development we may be able to leverage in our

FTA talks. While our concerns have been allayed somewhat by the

calm reaction from many investors, we still plan to seek

clarification on investment rules from the Ministry of Commerce.

End Summary.

Shin under the microscope again

——————————-

2. In a controversial January 2006 deal, Singaporean investment

firm Temasek Holdings purchased a 49 percent share of Shin

Corporation from caretaker Prime Minister Thaksin Shinawatra (see

reftels). The sale of Shin sparked an outcry among PM Thaksin\’s

critics as details of the USD 1.9 billion deal emerged, including

that Thaksin structured the sale in such a way that he was not

required to pay tax.

3. Opposition Democrat Party members requested the Ministry of

Commerce to investigate the ownership structure of the Shin deal,

alleging that the Thai majority shareholders of Shin were in fact

stand-ins for Temasek, or \”nominees\”, a possible violation of

Thailand\’s Foreign Business Act (FBA) which restricts foreign

business ownership in service sectors to 49 percent. On paper the

deal seemed to comply with the law. Typical of nominee structures

here, the Shin transaction was effected via a bewildering series of

shell companies: Temasek\’s purchase of Shin involved several

holding companies created specifically for this transaction, with

Temasek maintaining a minority position in many of them. The

majority holder of Shin is Cedar Holdings, a Thai-owned firm thanks

to its ownership by yet another holding company, Kularb Kaew, which

lists a number of Thai businessmen as controlling partners.

Technically this makes Shin Corp. Thai-owned; however, Kularb Kaew\’s

Thai partners reportedly have limited voting rights and dividends

from Shin and may not be full partners in the venture.

4. In a widely reported but unreleased preliminary decision, the

Ministry\’s Department of Business Development found that Kularb Kaew

was indeed a nominee, holding shares for Temasek to help it avoid

foreign ownership limits. Article 36 of the FBA prohibits Thai

nationals from acting as a nominee, though crucially the Act fails

to define precisely what constitutes a nominee firm. Under the Act,

if Kularb Kaew is found to be a nominee its Thai owners are subject

to fines and a maximum of three years imprisonment, and the company

can be dissolved.

Umm, wasn\’t that Pandora\’s Box?

——————————-

5. Scrutiny into Temasek\’s use of nominees in the purchase of Shin

has unnerved other investors in Thailand, worried that their own

opaque arrangements could be called into question. Although Thai

law has clearly restricted majority foreign ownership since 1972,

the ample presence of foreign businesses suggests otherwise. In

practice, foreign investors have long used nominee companies to

skirt these limitations. The use of nominee companies for this

purpose has been obvious to everyone, including successive Thai

governments, which have tolerated — and, it is argued, implicitly

endorsed — the practice. This solution is \”very Thai:\” the

political attractiveness of a law that severely limits foreign

participation in a large part of the economy is maintained, while at

the same time the practical need for foreign capital and expertise

is accommodated. Business analysts estimate that thousands of

foreign businesses potentially would be affected by a stringent

BANGKOK 00005424 002 OF 003

application of the regulations. A recent study by economic think

tank Thailand Development Research Institute concluded that nominees

held 24.1 percent of shares in all listed companies on the SET,

about one trillion baht (USD 26 billion) in share value.

6. Ownership restrictions have led investors to create patchworks

of ownership vehicles to comply with the letter, if not the spirit,

of the law. A typical business arrangement involves a Thai firm

holding a majority share in the operating company with a foreign

investor holding a minority share. However, the Thai firm is

typically owned in part by the foreign investor, giving the foreign

investor a majority economic interest, but still providing the

appearance of Thai majority ownership. Nominees often control 51

percent of a company on paper, but in practice the shares they hold

have limited voting rights and no entitlement to dividends. In some

cases the foreign investor lends money to the Thai firm to purchase

the majority share, and then holds the shares as collateral for the

loan, effectively controlling all shares. For many smaller deals,

the law firm that structures the deal acts as nominee; small law

firms can be majority partners in literally hundreds of businesses.

7. In the past, the Ministry of Commerce interpreted ownership

nationality by actual shareholdings, and did not consider the level

of economic interest or control. In a number of challenges to

nominee structures over the years, the RTG consistently amended

foreign ownership regulations to define a company\’s nationality by

shareholdings rather than control.

8. To crack down on the use of nominees the Ministry is

implementing new regulations. Effective August 15, the Ministry

requires registrants of new partnerships and limited companies that

include foreign shareholdings of more than 40 percent to submit six

months of bank statements as evidence that the Thai partners have

sufficient capital to undertake the investment. The Ministry also

has authority to examine existing businesses to verify that their

ownership complies with the law, but limited manpower in the

Ministry virtually guarantees that investigations will not be

widespread. In a related move, the Ministry of Interior notified

all provincial governors on May 15 that land purchases involving

foreigners be examined for illegal use of nominees. The SET has

also announced that it plans to require public disclosure of the

identity of shareholders who have at least a five percent stake in a

listed company.

9. The new Commerce regulations have yet to prevent new investors

from using nominees. Local lawyers noted that the regulations

applied to companies with more than 40 percent foreign ownership;

one law firm submitted two new business registrations last week with

39 percent foreign ownership that were approved without further

scrutiny. In addition, Commerce intends to examine initial business

registrations closely, but is not clear on how it will handle

recapitalizations. In theory a foreign investor could initially set

up a structure with genuine Thai investment, then recapitalize with

foreign money giving him majority control without raising any

eyebrows at Commerce.

U.S. Saved by the Treaty

————————

10. Nearly all U.S. investors have managed to legally acquire

majority control by setting up their investments under the

U.S.-Thailand Treaty of Amity and Economic Relations (AER) or by

using investment promotion privileges granted by the Board of

Investment (BOI). The AER offers national treatment for U.S.

investors, allowing majority ownership in all but six protected

sectors, including inland communications, inland transportation,

fiduciary and depositary operations, domestic agricultural trade,

and land and resource exploitation. Land ownership is also

restricted, with some exceptions for industrial estates,

BOI-promoted investment, and petroleum concessionaires.

11. While a theoretical case can be made that U.S. investment in

Thailand could be harmed by the fall-out from the Shin deal, U.S.

investors here seem unconvinced that, in practice, there is any

problem. In response to our inquiries, local lawyers and the

American Chamber of Commerce have been unable to name a single U.S.

company that in their view could be affected by more stringent

application of foreign ownership limits (though we continue to

canvass the U.S. business community). Amcham speculates that

smaller companies that wished to own land (which under Thai law is

illegal) may have entered into a nominee ownership structure and

could be subject to review. Even in these few cases, however,

precedent suggests that these companies would be given without

penalty an opportunity to change their structures to bring them into

compliance with Thai law.

BANGKOK 00005424 003 OF 003

Commerce pulls back the reins

—————————–

12. Soon after the Ministry of Commerce reportedly made a

preliminary ruling that Temasek had indeed used nominees to purchase

Shin, officials announced that a new committee would be formed to

consider the broader implications of the investigation. The

committee includes members from the Securities and Exchange

Commission, Finance Ministry, Bank of Thailand and the Council of

State. The committee\’s main task will be to more precisely define

\”nominee\”, a task that Deputy Minister Preecha Laohapongchana said

could take two to three months.

Democrats kick the political football

————————————-

13. The opposition Democrat party has made hay on both Temasek\’s

alleged use of nominees and the Ministry of Commerce\’s suppression

of the investigation\’s findings, calling for a prompt disclosure of

the Ministry\’s report. At the same time, party leaders say they

recognize the value of foreign investment and have called for

liberalization of foreign ownership limits, thus obviating the need

for complex, non-transparent nominee structures.

14. In a meeting with Embassy officers, MP Kiet Sittheeamorn said

the Democrat Party was pursuing the Shin case because it was a

\”particularly egregious\” example of the use of nominees, so blatant

that it could not be overlooked. He implied that the party had no

interest in initiating investigations into other businesses and

criticized Thai Government officials for resorting to what he

regards as scare tactics in suggesting that other foreign

investments may be in jeopardy.

The way out

———–

15. Business observers say Commerce will likely drag out the Shin

investigation as long as practicable while searching for an

acceptable conclusion to the case. One possible scenario suggested

to us by a major property developer is that Commerce will simply

declare that the Shin deal was not in compliance originally, but

post-deal shifts in ownership have met legal requirements. This

short-term non-compliance would be subject to a modest fine. In the

meantime, Commerce would amend the FBA to clarify the definitions of

nominee and foreign ownership in such a way as to reassure investors

while still protecting sensitive sectors.

16. The upside of the Shin investigation is that it has sparked a

salutary debate on foreign investment in Thailand. Driving through

Bangkok, the most casual observer will see ample evidence that

foreign investment in \”Thai-only\” sectors is rampant. Overly broad

restrictions have spawned a web of complicated ownership structures

across many sectors and have not provided the control over key

sectors that the law intended. Many here are calling for a

realistic reappraisal of Thai investment law, with changes including

dismantlement of blanket restrictions on foreign ownership. In

place of current restrictions, analysts recommend a more confined

list of protected sectors together with a structure to more closely

analyze investments in these specific sectors.

17. Comment: Temasek\’s non-transparent but not uncommon ownership

arrangement for its takeover of Shin Corporation has provided yet

another opportunity for PM Thaksin\’s opponents to criticize his

personal and public policies. Although foreign investors risk being

dragged into the fray, U.S. investors here discount that risk,

reasoning that the Shin deal is indeed a very special case, and that

both the government and its opponents have made it clear that they

recognize the value of foreign investment and are substantially more

interested in legalizing and making transparent foreign ownership

rather than further restricting it. We believe the renewed interest

here in services liberalization may facilitate progress in this area

in the context of our FTA talks.

18. The level of concern varies among individual investors, with

many respected observers holding sharply diverging opinions on how

the Shin investigation will affect the overall investment climate.

We are reassured that many U.S. investors feel their businesses will

be unaffected, but nevertheless plan to seek clarification from the

Ministry of Commerce on how foreign ownership regulations will be

interpreted or amended. We also will continue to canvass the U.S.

business community on this issue and report their concerns.

BOYCE

Written by thaicables

July 13, 2011 at 5:35 am