The stock of U.S. foreign direct investment in Thailand was $3.8 billion in 1994, an increase of 27.7 percent over 1993. U.S. direct investment in Thailand is largely concentrated in the manufacturing, energy and banking sectors.

IMPORT POLICIES

Tariffs

In Thai Fiscal Year (TFY) 1995, October 1994 - September 1995, the average Thai tariff was 7.8 percent calculated as a ratio of import duties collected to total imports arriving in Thailand (including imports of goods on which tariffs were waived as part of Thai government investment incentives). This compares with a figure of 8.8 percent in TFY 1994. The change is largely explained by tariff reductions instituted as a result of Thailand's membership in the Asian Free Trade Area and, to a lesser extent, the WTO. The average trade-weighted tariff for dutiable items was 21.26 percent in 1995.

Tariffs accounted for 17.8 percent of total government revenues in TFY 1995, a decrease of 1.5 percent from 1994. Since 1990, the share of total government revenues contributed by import duties has declined; the most recent tariff reductions reduced revenues by approximately $700 million per year. Given continued decreases in the levels of duties, economic growth, and increased efficiency in collecting other taxes, the revenues from tariffs will continue to decline as a proportion of government revenues.

The Royal Thai Government (RTG) is reducing import duties and trade barriers as part of its obligations as a founding member of the World Trade Organization (WTO) and as a member of the Association of South East Asian Nations' (ASEAN) Free Trade Area (AFTA). At the end of 1994, the RTG commenced a major reform of tariff schedules that will be completely phased in by January 1, 1997. The total number of tariff- rate categories will be reduced from 39 to six: zero percent for certain goods such as medical equipment and fertilizer; one percent for raw materials, electronics components, and vehicles for international transport; fivepercent for primary and capital goods, such as machinery, tools, and computers; ten percent for intermediate goods; 20 percent for finished products; and 30 percent for goods needing special protection. Certain items, notably agricultural products, autos and auto parts, alcoholic beverages, and other sensitive products, will be excluded from this reform.

As part of this process, tariff rates on almost 4,000 items will be reduced in order to comply with Thailand's WTO obligations. Full tariff reductions will become effective January 1, 1997. When combined with tariff reductions enacted earlier in 1994, these cuts will decrease the average tariff on 20 categories of imports

(which, according to the Thai Finance Ministry, account for 91 percent of all dutiable items) from 30.24 percent in 1994 to 17.01 percent by 1997.

Under the tariff reform package, there will also be a special tariff rate of 30 percent maximum, down from 100 percent, for locally produced goods in need of "special protection," including fabrics, carpets, clothing, refrigerators and air conditioners. Auto imports will retain tariff rates of 42 and 68.5 percent, depending on horsepower; the rate on auto parts will be 60 percent. For the first time, tariffs on petroleum imports will be reduced. Duties that now stretch from 30 percent to 60 percent will be cut to between one percent and 45 percent; by 1997 these rates will fall still further to a maximum of 30 percent. The Thai Government also lowered barriers to imports of chemical, paper, and pesticide products, which should help U.S. exporters.

In some cases, import duties on unfinished materials are higher than for finished products, a policy that may disadvantage American business. For example, duties on parts used to manufacture automotive shafts and axles by a U.S. firm in Thailand are 35 per cent. Imports of the completed component as part of completely knocked down kits are taxed at a 20 percent rate. In some cases, these anomalies are due to past investment incentives; the RTG is reviewing the issue.

As part of the ASEAN Free Trade Area (AFTA) that began in January 1993, Thailand continues to reduce tariffs on a variety of products imported from other ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Vietnam). In December 1995, the ASEAN Summit meeting in Bangkok formally approved implementation of the AFTA by 2003, called for accelerated tariff reductions by 2000, and initiated discussions on services, intellectual property protection, and the removal of non-tariff barriers.

The RTG is also easing barriers to imports of farm products. In addition to lowering duties on many agricultural products and removing the ban on imports of others, Thailand will tie tariff rates on farm goods to quotas -- a step that will improve access to the Thai market for U.S. producers. Rice will be subject to "safeguards" on its importation and price levels, but these will be set to meet WTO standards. Significantly, Thai customs will no longer charge specific duties on most imported farm goods (wine and spirits are notableexceptions, see below) when the specific duty (e.g., 50 baht per kilo) exceeds the ad valorem rate (e.g., 60 percent). This should help certain U.S. products, such as fresh citrus, to compete in the Thai market. With Thailand's membership in the WTO, the surcharge on soybean meal was also converted to a more reasonable tariff quota -- a boon to U.S. exporters to Thailand.

Not all of the changes will materially affect access of farm products into this predominantly agricultural country. Duties on many high-value fresh and processed food products remain high, even though the rates will decline by 33 to 50 percent under the WTO. With most pre-WTO rates around 60 percent, this will leave most items in the 30 to 40 percent range by the year 2004 -- high compared with Malaysia, Singapore, and Indonesia. Thus, producers of meats, certain fresh and dried fruits, tree nuts, juices, and other packaged items may still find it difficult to penetrate the Thai market.

Thai policies continue to impose tough barriers on imports of certain other products. Duties on wine and spirits, which are the higher of ad valorem duties ranging from 54 to 68 percent or a specific duty ranging from 19.6 to 136 baht ($.78 to $5.44) per liter, remain high. Imported alcoholic beverages are also assessed separate excise duty at rates varying from 48 percent on beer to 20 percent on champagne, rum, and sake. Imports of motorcycles, in particular completely built up units (CBUs) and motorcycles with engines over 200cc, continue to be prohibited, though the RTG is considering liberalizing the latter prohibition. Separate excise duties are assessed on a number of other imported products such as tobacco products, automobiles, and some electrical and petroleum products. Many textile and apparel products remain subject to the higher of an ad valorem or specific duty.

Quantitative restrictions and import licensing

Until 1995, firms had to obtain licenses from the Ministry of Commerce in order to import items such as food products, raw materials, and industrial products. Agricultural items, such as soybean products, powdered milk, and coffee, were subject to strict import licensing requirements. In 1995, Thailand began the process of converting these restrictions (excluding industrial products) to tariff rate quotas and tariffs in accordance with its WTO obligations.

Although some import licensing requirements will continue to protect Thai industries for health, security, and other reasons, the Uruguay Round agreement requires the elimination of Thai requirements for a wide variety of goods.

Customs barriers

Arbitrary customs valuation procedures constitute another barrier to U.S. exports. The Thai Customs Department may use as a check price the highest previously invoiced price of a product imported from any given country and may disregard actual invoiced values in favor of the check price for assessment purposes. This practice has at times resulted in the over-valuation and unfair taxation of lower priced products. It may not take into account differences in quality and seasonal price fluctuations for agricultural products.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

The Thai Food and Drug Administration (FDA) requires standards, testing, labeling and certification permits for the import of all food and pharmaceutical products into Thailand. The FDA charges a fee of 15,000 baht (about $600) for a three-year permit to import food, and 12,000 baht (about $480) for a one-year permit to import drugs. Products imported in bulk require laboratory analysis at a cost of between 1,000 and 3,000 baht ($40 to $120) per type of item. Products imported in sealed containers (consumer ready packaged) require analysis costing 5,000 baht ($200) per type of item. In addition, "specific-controlled" food products -- some 39 processed and packaged food items -- must be further licensed by FDA at a cost of 5,000 baht ($200) before importation is allowed.

Importers indicate that the overall licensing process poses an import barrier on many food products because of its cost, duration, and requirement for proprietary information. Although the FDA has streamlined procedures, some cases may still take up to a year to complete. All processed food items must be accompanied by a detailed list of ingredients and a manufacturing process description. Imports have been constrained as a result of these requirements since some U.S. suppliers decline to provide the proprietary information required.

GOVERNMENT PROCUREMENT

On June 6, 1995, the Thai Cabinet approved a policy to require, on a case by case basis, countertrade on government procurement contracts valued at over 500 million baht ($20 million). A counter purchase of Thai commodities valued at 20 to 50 per cent of the principal contract may be required. As part of a countertrade deal, the RTG may also specify markets into which commodities may not be sold, expected to be markets where Thai commodities already enjoy significant access. The counter trade requirement may disadvantage U.S. suppliers and its case by case implementation may result in a lack of transparency.

EXPORT SUBSIDIES

Thailand maintains several programs that subsidize exports, including preferential financing for exporters. Thailand's export-import bank, established in September 1993, is responsible for some of these programs, particularly the packing credit program.

LACK OF INTELLECTUAL PROPERTY RIGHTS PROTECTION

One of the most prominent trade issues between the United States and Thailand has been the extent of Thailand's protection for U.S. copyright, patent and trademark holders. In April 1991, Thailand was designated a "priority foreign country" under the Special 301 provisions of the 1988 trade act, and since 1989 has been denied certain benefits under the U.S. GSP program.

Since 1993, protection of intellectual property rights in Thailand has improved. First, the RTG has stepped up efforts to suppress piracy and educate the public on the importance of IPR protection. Second, in addition to enhancing protection for certain pharmaceutical products, the RTG passed a revised copyright law in 1994 that addressed many U.S. concerns. From 1993 to 1995, the Thai police made 5,756 arrests and seized 2.6 million pirated items under its copyright, trademark, patent, and censorship laws. In recognition of this progress, the Administration revoked Thailand's status as a "priority foreign country" in September 1993, and then moved it from the "priority watch list" to the "watch list" in November 1994. In 1995, after the new copyright law became effective, the Administration also fully restored benefits to Thailand for 11 of the 16 GSP items that were previously suspended.

Problems remain, however, with aspects of the copyright and patent laws and the enforcement of existing legislation. The police do not readily initiate action against pirates, even though they are fully empowered under the law to arrest violators. To date, no one has served time in prison for pirating protected goods, and fines are often too low to deter offenders. After a major campaign to sweep pirates from Bangkok's streets in 1993-1994, the number of arrests and seizures fell sharply in 1995. The RTG is sponsoring legislation to create an intellectual property court that should address some of these issues.

Patents

Following a complaint by the Pharmaceutical Manufacturers Association, the Administration determined in March 1992 that Thailand's acts, policies and practices relating to patent protection were unreasonable and restricted U.S. commerce. In September 1992, Thai legislation extended protection to pharmaceuticals and agricultural machinery and increased the patent protection term to 20 years. However, the law did not provide protection for products patented in other countries that had not yet been marketed in Thailand ("pipeline protection"), and it contained extremely broad authority to issue compulsory licenses in cases where patented goods are not yet produced in Thailand. The legislation also created a pharmaceutical patent review board with unique and extraordinary powers to require sensitive cost and pricing information. These provisions are a significant disincentive to obtain product patent protection for pharmaceuticals in Thailand and seriously reduce the benefits of the patent protection provided in the 1992 law.

In 1993, the RTG established administrative measures to provide a degree of market exclusivity for pharmaceutical products not eligible for protection under the 1992 law, narrow the scope of compulsory licensing provisions, and restrict the authority of the pharmaceutical patent board. These measures, however, are not fully consistent with the growing international consensus on protecting pharmaceutical products. For example, the market exclusivity period is only five to six years. Thailand is still in the process of developing a new patent law that is meant to comply with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs); parliament will consider such legislation in 1996. The Pharmaceutical Research and Manufacturers of America estimates that in 1994 its members lost $70 million in sales due to deficiencies in patent protection in Thailand.

Copyright

Thailand passed a new copyright law in December 1994 that strengthened legal copyright protection and increased the penalties for copyright infringement. The new law became effective March 21, 1995, bringing the Thai copyright regime into closer conformity with the international standards under the TRIPs agreement and the Berne Convention (Paris Act). With active support from U.S. industry associations, the Thai Police conducted numerous raids on pirates, and the RTG initiated a public awareness campaign to change the attitudes that encourage and support piracy. The incidence of pirated audio tapes and compact discs in the Thai market has fallen dramatically, and sales of legitimate videocassettes and software are growing.

Nonetheless, the vagueness of certain provisions, particularly regarding decompilation and government use of software, remain of concern. The law does not clearly spell out what constitutes infringement for software, and statements by RTG officials have appeared to condone use of software that was pirated before the copyright law came into effect. Judicial proceedings are slow and fines actually imposed are also light, although the new copyright law has increased both fines and lengths of sentences. To date, no one has served a prison sentence for copyright infringement. Moreover, arrests and seizures of pirated goods under the copyright and censorship laws have declined significantly over the last two years. The result was a gradual resurgence of piracy in certain areas, such as videocassettes and book publishing, in 1995. The Business Software Alliance believes that piracy cost its members $120 million in lost sales in 1994, while the Motion Picture Association estimates damages to U.S. film makers at $29 million in 1995.

Trademarks

Amendments to the trademark law in 1992 provide higher penalties for infringement and extend protection to services, certification, and collective marks. While these amendments seem to have created a viable legal framework and led to some improvement in enforcement, trademark infringement remains a serious problem. U.S. companies with an established presence in Thailand and a record of sustained cooperation with Thai law enforcement officials have had some success in defending trademarks, but the process remains time-consuming and expensive. Problems are particularly acute with respect to enforcement in the criminal court system.

To deal with concerns about enforcement, the RTG has proposed the creation of an independent intellectual property and international trade court that would be staffed with judges trained in IPR matters. Just as important, the court legislation should expedite procedures and facilitate civil penalties against offenders, both lowering the burden of proof for convictions and raising civil penalties that copyright holders can use to wage the battle against piracy. Parliament is expected to pass the legislation.

SERVICES BARRIERS

Professional services

Under current Thai regulation, only persons of Thai nationality may be licensed in many professional services, including accounting, architecture, engineering, construction management, brokerage services and legal services. However, the RTG is currently planning revisions to these regulations, and Thai services access commitments under the extended Uruguay round should also bring some positive changes.

Financial services

Insurance: Under laws enacted in 1992, foreign direct insurers are not allowed to establish branches in Thailand without special permission. In December 1995, the Thai Ministry of Commerce published the procedures for applying for a license to establish a branch of a foreign insurance company. Under the law, all foreign shareholders combined are limited to a maximum 25 percent shareholding in each Thai insurance company. The law grandfathered existing foreign participation exceeding 25 percent (including a long established U.S. company) in previously licensed Thai insurance companies. However, the RTG has not finally ruled on the applicability of this provision to the affected U.S. firm three years later. Moreover, the law provided that such foreign participation cannot be increased. Thai government policy is to place all government insurance with government-controlled companies.

Banking: For some time, foreign banks had been prohibited from entering Thailand through a moratorium on new offshore licensing. The RTG has announced that seven foreign banks will be granted branch licenses by 1997. Licenses may be awarded as early as April 1996. Generally, Thai authorities have limited foreign banks to a very small share of the total Thai banking market, largely by restricting foreign bank entry, branching, and acquisition of Thai banks.

Foreign bank branches are also legally precluded from establishing new sub-branches in Thailand. There are plans to allow foreign banks operating Bangkok International Banking Facility (BIBF) offshore banking units offices to upgrade those offices outside the Bangkok area to branches. Foreign banks are not allowed to operate automated teller machine networks, as ATMs are considered to be branches. Recently changed regulations now permit foreign banks to participate in the local ATM network with domestic banks. However, foreign banks have been unable to conclude an agreement with domestic banks for access to the system.

The Thai cabinet approved the creation of the BIBF in September 1992. Under the BIBF framework, designed to develop offshore banking units, the Bank of Thailand issued new restricted licenses to foreign and domestic banks. Seven American banks received such licenses. Under the new licenses, these offshore units have been able to make loans to Thailand and to third countries using funds from abroad, but they have not been permitted to take domestic deposits or to fund domestic lending from domestic sources. Forty-four banks now participate in the BIBF.

In early January 1994, Thai Finance officials announced a decision to allow foreign banks participating in the BIBF to establish branches (Provincial International Banking Facilities -- PIBFs) in provinces outside of the Bangkok metropolitan area. Thai officials describe this as the latest step in the long-term liberalization of the banking system.

INVESTMENT BARRIERS

The announcement of National Executive Council No. 281, commonly known as the Alien Business Law, limits foreign equity in many Thai firms to less than fifty percent. The RTG is drafting a new Alien Business Law that reportedly will be more liberal. Some other laws are more restrictive and will not be affected by a liberalized law. Laws covering banking and insurance, for example, limit foreign equity to 25 per cent. The RTG maintains local content requirements in the automotive industry as well.

There are many exceptions to foreign equity limits available as investment incentives from the Board of Investment. Many foreign firms in promoted industries, especially those in export industries, may be 100 percent foreign-owned. In addition, the Treaty of Amity and Economic Relations between Thailand and the United States provides for 100 percent U.S. ownership of companies in most industries. Businesses in the fields of communications, transport, fiduciary functions, natural resources, or trade in agricultural products are excluded from treaty coverage.

ANTI-COMPETITIVE PRACTICES

Several government firms are shielded from foreign and domestic competition, especially in the communications industry. The Communications Authority of Thailand imposes stringent equity and revenue sharing requirements on International Value Added Network Service (IVANs) providers. The RTG is seeking to prevent new technologies, such as call back services, from competing with the Telephone Organization of Thailand, the government-owned telephone service monopoly.