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Asia Insight

Thailand's businesses await Prayuth's red-tape 'guillotine'

Hundreds of outdated rules may be headed for chopping block

DOMINIC FAULDER, Nikkei Asian Review associate editor | Thailand

BANGKOK -- "Red tape in this country is cut lengthwise," said David Lyman, an American lawyer and former president of the American Chamber of Commerce in Thailand. "It goes on and on."

Lyman's jest has more than a kernel of truth.

In 2014, the People's Democratic Reform Committee chanted "reform before elections" as it used street protests to undermine the caretaker government of then Prime Minister Yingluck Shinawatra, paving the way for a coup by the army chief, Gen. Prayuth Chan-ocha. Prayuth's government established a National Reform Council followed by a National Reform Steering Assembly in 2015.

In April 2017, a new constitution was adopted and six months later a 20-year National Strategy put in place. The National Reform Committee was created alongside 11 subcommittees to recommend changes in key areas, and a Regulatory Guillotine Project was launched as a subcommittee of one of these.

Most of the chopping remains to be done.

The aggregate number of laws, ministerial regulations, royal decrees and legal announcements that have been published in the Royal Gazette -- the official final instrument of promulgation -- runs into many tens of thousands. "They look at laws in Thailand more like a kind of giant hopper," one veteran foreign reform advocate told Nikkei. "You keep throwing new laws on top of old ones and hope that somehow the new law will prevail and the old law will fall into disuse, even though it may technically still be relevant."

To change that, the guillotine project was launched under the chairmanship of Kobsak Pootrakool, a former Bangkok Bank executive vice president with a background at the Bank of Thailand and the Stock Exchange of Thailand. Kobsak's subcommittee was tasked with evaluating thousands of licenses and procedures that had piled up over decades, taking cues from similar successful projects in countries like South Korea.

The team "reviewed existing laws and regulations to see if they should be eliminated, amended, merged or left alone," said Deunden Nikomborirak of the Thailand Development Research Institute (TDRI), a respected think tank that helped engineer the country's economic rise in the 1980s and has played a pathfinding role in the guillotine program.

She described the post-evaluation recommendations as the "four Cs -- cut, change, combine or continue."

Thai Prime Minister Prayuth Chan-ocha has made a point of tackling red tape, but he seems to be looking to stabilize his 19-party coalition first.   © Reuters

A host of other organizations have been involved as well.

The Board of Investment and the Bank of Thailand, which in recent years underwent a successful guillotine program of its own, have made important contributions. Key private sector players are the Federation of Thai Industries, the Thai Chamber of Commerce and the Thai Bankers' Association. Foreign chambers of commerce and NGOs have also been active.

The reform effort "is not a creature of the foreign business community," a leading foreign advocate told Nikkei. "It is very much a creature of the Prayuth government, and the Prayuth government was introduced to it through the TDRI."

As of July, over a thousand issues had been processed by a 50-person guillotine unit, and a full set of recommendations compiled on the basis of the detailed evaluations.

By virtually all accounts, the foreign and Thai private sectors both regard visas, immigration reporting requirements and work permits as the most urgent regulations in need of reform.

In March, the Immigration Bureau spurred a firestorm of protest by suddenly implementing a dormant section of the 1979 Immigration Act, requiring landlords to file TM30 forms to report the presence of foreign tenants within 24 hours of their arrival. This has proved onerous for foreigners working or studying in the country, or living as retirees.

The guillotine initiative may be the answer, but the recommendations remain under wraps, leaving the country wondering what happens next.

The recommendations are thought to include over 100 -- possibly 200 -- full guillotine chops. These have all been handed up the reform committee chain for further consideration. The subcommittee that prepared them has been disbanded but still meets informally every two weeks, according to its deputy chairman, Kanate Wangpaichitr, a vice president of the Stock Exchange of Thailand who was seconded to the job.

The scope of the project is broad. It set out to eliminate obsolete or ineffective laws and licenses -- including most import and export licenses. It endorses liberalization of new technology such as 3D printing, which had been banned because of concerns that it could be used to make guns.

It also goes after license requirements that unfairly inhibit competition, for example brewing. Craft beers cannot legally be brewed in Thailand because of their small scale -- licensed brewing companies must be able to produce at least 10,000 kiloliters annually, and have more than 10 million baht ($327,000) in capital.

Additional targets include excessive use of committees in approval processes, discretionary loopholes and other vagaries that may facilitate abuse.

One possibility suggested for actually bringing down the guillotine and effecting the four Cs was to use Article 44 (or Section 44) from the interim post-coup constitution. This gave Prayuth exceptional unilateral authority to make and enforce decisions. Had the prime minister used this "magic wand," Article 44's popularity might have skyrocketed and delivered him a significant political windfall.

That window has passed, though, since Article 44 expired automatically when an elected government finally entered office in July.

Deunden conceded that in some ways the autocratic route would have been easier. "But then there's a debate about whether Section 44 should have been in place because it's not democratic," she told Nikkei. "These are contentious issues."

Kanate believes that if the guillotine project had been initiated earlier in Prayuth's first five years in power, there would have been a better chance of successfully invoking Article 44. He now believes implementation by other means will come in batches, starting with the least controversial and easiest procedures to eliminate -- those that are no longer used.

Many think one reason for the slow follow-through is the need for Prayuth to stabilize his comparatively weak 19-party coalition -- a higher priority than improving business conditions. It did not go unnoticed at a recent Bangkok Post forum with seven ministers from the new cabinet that neither foreign investment nor ease of doing business were mentioned.

"It was ready to go," a foreign reform advocate told Nikkei. "The problem was the change of government and approving bodies. We are still waiting to have the new approving bodies in place, and the current model is to pick these slowly."

The government may be taking comfort from Thailand's respectable ranking in the World Bank's annual Doing Business report. It sits at 27 in ease of doing business among the 190 countries surveyed for 2019. That places it third in ASEAN behind Singapore (2) and Malaysia (15) but well ahead of Vietnam (69), Indonesia (73) and the Philippines (124). Thailand dropped briefly to 49 in 2016 and 46 in 2017, when the World Bank adjusted some of the criteria -- which, significantly, do not include ease of obtaining work permits and visas.

"A lot of the real irritants in Thailand are not captured" by the ranking, said a foreign critic. "It is an index that is quite easy to manipulate, particularly when the World Bank is both coach and judge. They were very much focused on getting a better result rather than making changes."

Thailand needs to push meaningful regulatory reforms through if it is serious about developing the Eastern Economic Corridor, achieving its aspirational Thailand 4.0 status, and reaching a higher income level in the next 20 years. Meanwhile neighboring countries, particularly Vietnam and potentially Myanmar, are beginning to nibble at its comparative advantages, including an enormous head start in infrastructure.

Despite its relatively tiny footprint, Singapore consistently outdoes Thailand as a business center and is forever tweaking its offerings to attract multinationals' regional headquarters. "It's more than just rules and regulations," Pavida Pananond, associate professor at Thammasat University's Department of International Business. "It is the whole ecosystem, and the fact that Singapore is also a financial center."

Pavida faults the "silo mentality" that remains pervasive in Thailand's public sector, with ministries and departments guarding their turf -- even to the detriment of the national interest.

Others are more optimistic. "Thailand has a critical mass now of government departments that do things in a smart way, and that just needs to be extended out," a resident Australian businessman told Nikkei.

Mass-produced Chang beer: Thailand's web of regulations makes it illegal to brew craft beer on a small scale. (Photo by Keiichiro Asahara)

Digitization has already brought considerable benefits. Tax can be paid online, and utility bills at convenience stores. ID cards, driving licenses and passports are turned around on the spot, and much more quickly than in many more advanced economies.

The regulatory environment, meanwhile, is much improved for company directors.

For decades, the American lawyer Lyman toured the lecture circuit to raise awareness of the "vicarious criminal liability" that hung over Thailand's boardrooms. Five years ago, the Supreme Court finally ruled that 102 laws were unconstitutional in terms of liability provisions for directors that presumed guilt. "You were deemed to be guilty if somebody did something like fail to file a report on time, and it was criminal," Lyman told Nikkei.

Whatever happens next with the guillotine initiative, observers note other positive legislative developments in the pipeline. The Regulatory Impact Assessment Act was gazetted in May and comes into effect in November, and provides helpful regulatory tests for legislators. Thailand also belongs to the Asia-Pacific Economic Cooperation forum, which promotes greater harmonization with its guidelines for good regulatory practices.

"Hopefully there will be a better standard of quality lawmaking, and we won't have this style of laws with overreach or that are intentionally vague -- which support selective interpretations and all the nasty things that go with that," a foreign proponent of regulatory reform told Nikkei. He was optimistic that the guillotine project will move ahead once the new government has a firmer footing, predicting, "This government will take it on board properly and see it through."

"This project is not for any political party," Kanate said. "Whoever comes to run this country will realize how important the guillotine project is. This will be the flagship of the new government."

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