JTBF Mission to Thailand 2010 (2/01-2/04)

Visit to Japanese Chamber of Commerce, Bangkok (JCCB)

reported by Kazuhiko Watanabe (Chief of GMS & EPA Committee, JTBF)

After exchanging greetings and succeeding Mr. Jitsukata's brief introduction of JCC as well as the current Thailand, we received explanation of activity summary of 2009 as follows, in line with a distributed document titled "JCC Activities".

• Economy Status
  • According to business trend survey of Japanese companies, all of them were negative until the first half of 2009. Export decreased due to drop of worldwide demand. Tight adjustment of inventories led to low utilization rate of auto manufacturers' capacity, namely 50% at the worst. In the second half, however, electronics sectors turned to recovery as they were driven by early recovery of China. At this moment, business trend is positive in almost all business sectors except civil engineering and construction businesses. Tourism industry also deteriorated. Oriental Hotel, for example, recorded the worst occupancy rate of 10%. Annual growth rate was -2.7% in 2009. Bank of Thailand predicts 3.3 to 5.3%, around 4%, growth rate for 2010. Recovery trend will continue through this year. Negative factor is the political instability being caused by struggle between pro-Thaksin and anti-Thaksin groups. Strong Thai Baht is a negative factor for export businesses. Textile industry has already lost competitiveness.
  • Car production dropped 400,000 in 2009. It is expected to recover to 1.2 to 1.4 millions this year. 1.3 millions will be the most probable number. In a few years, the production capacity will reach to 2 millions, eco cars occupying the majority,
  • In 2009, the number of member companies of JCC slightly increased in spite of an economic slump.
• EPA
  • Thailand contracts FTA with many countries. AFTA (Asean Free Trade Area) became active. There will be no advancement between ASEAN and EU because of Myammer problem. JCC held the sub-committee (business environment) meeting in September in order to deliver JCC's view of problems associated with Thailand-Japan FTA.
  • JCC is actively involved in GMS, which is aggressively driven by Asian Development Bank. While East-West Economic Corridor is not completed yet because Myammer is not active, utilization of the corridor is limited. North-South Corridor is utilized by China mainly but utilization is limited also. Most promising is Southern Corridor which connects Bangkok, Phnom Penh and Ho Chi Minh. Rail road is extended close to Vientiane already. JCC's committee members periodically visited the area, Laos in July and Southern Corridor in November 2009.
  • JCC also puts focus on association with ASEAN. Regarding this subject, Japan has not been aggressive due to lack of concerted activities among government, bureaucrats and private businesses. Then, we invited ambassadors (assigned to ASEAN countries) to JCC Joint Association ASEAN and had an opportunity of cross-talk with Dr. Surin Pitsuwan, Secretary General of ASEAN. 4300 companies join JCC Joint Association ASEAN, of which 1300 are from Thailand
• Raising Request/Proposal
  Proposal was made to Thai government in regard to improvement of current systems and/or customs which are inferior to the world standard, and enhancement of industry infrastructure (hardware and software) as well. Following are typical ones.
  • Operational improvement of customs bureau
    There have been many cases that Japanese companies were claimed of max 10 years back tax, of which amount was large. Some company was claimed 400% of the invoice value. Abolishment of incentive system by use of collected back taxes, lowering of penalty amount, prior clarification of tax application, etc. were requested.
  • Establishment of regional headquarter
    While an increasing number of Japanese companies want to place an ASEAN HQ in Thailand, Thai laws and systems are not attractive compared to other countries. Establishment of regional headquarters has a positive influence to Thailand in view of transfer-in of human resources and skills. Then, we are summarizing requirement such as simplified payment system within the group companies, withdrawal of upper limit of overseas investment, abolishment of regulation of foreign cash transfer, lowering of corporate tax, etc. Bank of Thailand also supports overseas investment as a part of currency policy. It will eventually benefit establishment of the regional headquarter.
  • SME support
    In Thailand, the financial system and credit-guarantee system do not work effectively to support SME in case of a sudden deterioration of economy. Then, SME tends to fall into cash-flow problem. JCC submitted a request of cash-flow improvement for SME via 2 paths, one to Japanese government through Ambassador to Thailand, Mr. Komachi, another to Minister of Finance, Mr.Korn.
  • Map Ta Phut
    Several JCC member companies were also affected by the problem. On October 9. JCC submitted a comment, by name of president, that the problem has a serious impact to investment activities of foreign countries including Japan. In constitutional revision of 2007, HIA (Health Impact Assessment) was specified and added to EIA (Environmental Impact Assessment), which induced the problem. 76 projects are suspended. Majority are related with Thai companies such as Siam Cement and PTT, but 8 Japanese companies are also included. Surprising enough, 12 are said to be environment improvement projects. As the problem has political and legal aspects, solution scenario is not visible. So far, nothing to convince investors. On February 8, JETRO arranged a seminar inviting specialists from Kyoto University. Prime Minister Abhisit attended the seminar. According to Bangkok Post, he commented that Thailand would learn from Japan and solve the problem in a quick manner.
  • Other request items
    Improvement of tax system operation, smooth application of TISI (Thai Industrial Standards Institute), relaxation of Foreign Business Act, improvement of Retail & Wholesale Act, improvement of Commodity Tax related Act, infrastructure improvement of GMS, conclusion of FTA, promotion of mega projects, human resource development, and so forth.
• New influenza
  New influenza committee was established in JCC and coordinated member companies' countermeasures. Last summer, several classes were closed in the Japanese school due to New influenza.
• Japanese and Japan study
  With budget of 1.5 million baht from "21st Century Education Foundation", JCC encourage Japanese and Japan study, taking place in Chiangmai and northern Thailand. There are 9 universities or colleges, located in 6 provinces of northern Thailand, being engaged in Japanese and Japan study and education. The 9 universities or colleges will organize a consortium, to which JCC's support fund will be allocated.
• Survey trip to Bangladesh
  In January 2010, Board members made a survey trip to Bangladesh and had an opportunity to hear from Grameen Bank Governor Yunus, who was awarded Nobel Peace Prize. Also visited the shopping center which was said to be the largest in South Asia. It was neat and orderly more than expected. Air pollution of Dacca was worse than Bangkok

Questions and answers

Motomura: According to Secretary General of BOI, farmers' income has increased. They are inclined to buy cars. What is JCC's view?

Jitsukata: Price of agricultural products has increased. Supply shortage of sugar in India has caused price increase of sugar. According to Siam-Kubota, sales of tractors has increased 15-20% in 2009. Food industry has gained an important position in the world market. Middle-eastern countries desire agricultural production in Thailand for own food supply. In regard to land-utilization, however, Cambodia is open but Thailand has restrictions for foreigners.

Watanabe: In regard to GMS, I am afraid China has the initiative and Japanese supports do not work well.

Jitsukata: Competition with China is severe indeed. China's influence to Laos and Myanmar is strong. While China aims at resources, Japan aims at work forces. "Government driven" on China side versus "driven by private companies" on Japan side. Then, China is positioned stronger than Japan generally speaking. On the other hand, some countries such as Laos are cautious about China's influence. While they express appreciation to China's support, expect supports from Japan even more.

Morita: How about TNI?

Jitsukata: JCC has reduced the total amount of scholarship to half and has set a limit to the support years (next 2 years). Internship is well accepted. Applicants are around 400 this year and all of them will be accepted. But, not for sure when applicants increase to 800 in the future. TNI committee of JCC is holding the meeting periodically. About 100 students receive scholarship and they are excellent. We expect all graduates are excellent.