WT/TPR/S/63 Trade Policy Review
Page 78
IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. This Chapter focuses on those areas of the Thai economy in which recent government
involvement has been strongest, either through liberalization and market-based reform or through
continued trade barriers.
2. The agri-food sector continues to present a contrasting policy between a "Cairns Group"
approach to agricultural trade for most farm products and relatively high levels of tariff protection in
favour of selected food manufacturing enterprises.  Since the previous Trade Policy Review, Thailand
has reduced tariffs on inputs needed by the domestic processing industry, while border duties were
increased on several agri-food products manufactured locally.  Meanwhile, the existing tariff quota
system does not appear to be operative in restricting imports.
3. The energy sectors – gas, electricity and petroleum products – are all being overhauled to
introduce competition, and in line with the authorities' liberal approach to foreign direct investment
with no major restrictions to foreign participation.
4. Despite the depreciation of the baht and its effect on import prices, adjustment in the
traditional manufacturing sectors has been difficult.  While the overall tariff average has declines,(including the 10% surcharge imposed in 1997), tariffs have been substantially increased on a number
of domestic products which are manufactured.  This Chapter traces developments in textiles and
motor vehicles where (as in many other countries) trade barriers remain substantial.  Oversupply in
steel production has led the authorities to reconsider the granting of investment incentives to "priority"
sectors.
5. In banking, the Thai Government has pursued wide-ranging reforms and allowed increased
foreign presence.  Telecommunications services are still in the process of deregulation announced inthe last Review;  a thriving private sector has nevertheless developed, notably in cellular telephone
services, despite the legislative delays.  New legislation has been introduced both in air and maritime
transport improving foreign market access and national treatment.  These service areas, together,
represent over one third of Thailand's GDP.  This Report provides an overview of conditions
governing trade in business services, which are currently under review following the recent economicturmoil.
(2) A
GRICULTURE , FISHERIES AND AGRI-FOOD PRODUCTION
(i) Overview
6. The share of agriculture and agri-food production in Thailand's GDP has declined over the
last decade, from 20% to about 11%;  the sector accounts for 46% of total employment, down from62% in 1989.  The share of agriculture in export earnings has also declined, from about one third at
the beginning of the decade to 22% presently.  Substantial structural changes have therefore taken
place in the agriculture sector, including increase s in labour productivity although, judging from the
sector's shares in GDP and total employment, product ivity has fallen further behind the rest of the
economy.  The share of agriculture in overall imports remains low, at about 6%, reflecting thecountry's abundant food supply as well as a number of technical and tariff barriers to food imports.
7. Since 1997, the agriculture sector has been less affected by the economic contraction, than
other sectors of the Thai economy possibly thanks to the depreciation of the baht, which stimulated
exports, although it also vastly increased the cost of imported inputs such as fertilizers, pesticides,Thailand WT/TPR/S/63
Page 79
pharmaceutical products, and fuel oil.  Agri-food production experienced a 1% decline in GDP in
1998, compared to a drop of 10% for the rest of the economy.
8. As a member of the Cairns Group (which consists of Argentina, Australia, Brazil, Canada,
Chile, Colombia, Fiji, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, Thailand,
South Africa, and Uruguay), Thailand continues to work to achieve a global system of agricultural
trade free of distortions and consistent with market principles.  No significant export subsidies havebeen notified under the WTO Agreement on Agriculture, although it would appear that a number of
preferential investment and export financing schemes (some notified under the WTO Agreement on
Subsidies and Countervailing Measures) are of particular benefit to certain commodity exporters.
Thailand's expenditure on domestic subsidies likely to affect trade, is shown in Chart IV.1.  Levels of
support were slightly below US$600 million in 1998.
06,00012,00018,00024,000
1995 1996 1997 19980200400600800Baht million
Source:       Uru guay Round Schedules; and data provided b y the Thai authorities.AMS CommitmentsActual support
in domestic currencyChart IV. 1
Aggregate measurement of support and actual support levels, 1995-1998
US$ million
Actual support
in U.S. dollars
(ii) Developments in import policy
9. As explained in Chapter III(2), over 85% of the applied tariffs that exceed Thailand's WTO
tariff commitments are included in the WTO definition of agriculture or in fishing (Table IV.1).  The
authorities have stated that when these tariffs exceed WTO bound tariffs, the bound rates apply to
products originating in territories of WTO Members, provided the importers claim MFN status andproduce a certificate of origin from the authorities of the exporting country.  The authorities disagree
with the view that this may const itute a trade barrier, notably in the absence of non-preferential rules
of origin (Chapter III(2)).  Further, if this practice is effectively carried out at the border, it results in
substantially different treatment between WTO and non-WTO Members for those agri-food (and
other) products concerned.WT/TPR/S/63 Trade Policy Review
Page 80
Table IV.1
Applied tariff rates on agri-food products exceeding WTO bound rates, 1999
HS No. lines
Chapter Description exceeding
bindingsExample DescriptionAppliedaBounda
(% total) (%) (%)
01 Live animals. 42.9 0104.1090 Live sheep and goats 40.0 35.0
02 Meat and edible meat offal. 100.0 0207.3600 Other frozen ducks 60.0 47.5
03 Fish & crustaceans, mollusc & other. 100.0 0302.2900 Tuna fish 60.0 5.0
04 Dairy products;  birds eggs;  natural
honey;  edible products nes.38.5 0405.1000 Butter 60.0b45.0b
05 Products of animal origin, nes or
included.63.2 0511.9920 Fish bladder 60.0 45.0
06 Live trees & other plants;  bulbs,
roots;  cut flowers, etc.100.0 0601.1000 Bulbs 60.0 45.0
07 Edible vegetables and certain roots
and tubers.75.8 0710.1000 Frozen potatoes 60.0 45.0
08 Edible fruit and nuts;  peel of citrus
fruit or melons.71.2 0810.9000 Durians 60.0b47.5b
09 Coffee, tea, mate and spices. 48.8 0905.0000 Vanilla beans 30.0b28.5b
11 Products of milling industry;  malt;
starches;  inulin;  wheat gluten.91.2 1102.1000 Rye flour 40.0b35.0b
12 Oil seed, oleaginous fruits;
miscellaneous grains, seeds, fruit, etc.66.7 1204.0000 Linseed 35.0 32.5
13 Lac; gums, resins & other vegetable
saps & extracts.25.0 1302.1100 Opium 30.0 28.5
14 Vegetable plaiting materials;
vegetable products nes.70.0 1401.9000 Other veg. mat. for
plaiting35.0b32.5b
15 Animal/veg fats & oils & their
cleavage products, etc.36.5 1514.1000 Rape, colza or mustard
oil crude30.0b28.5b
16 Preparations of meat, fish or
crustaceans, molluscs, etc.37.0 1604.1100 Salmon 30.0b20.0b
17 Sugars and sugar confectionery. 8.7 1703.1010 Other cane molasses 65.0 47.5
18 Cocoa and cocoa preparations. 18.2 1802.0000 Cocoa shells 30.0 28.5
22 Beverages, spirits and vinegar. 8.7 2204.1000 Sparkling wine 60.0b57.0b
23 Residues & waste from the food
industry.80.8 2302.1000 Maize bran 10.0 9.5
a Average of lines for which applied tariff rates exceed bound rates.
b Ad valorem  component of non- ad valorem  rates is used as proxy.
Source: WTO Secretariat estimates, based on data provide by the Thai authorities.
10. At 32%, the average applied MFN tariff of agriculture (WTO definition, i.e. including
processed food products) exceeds the overall average for total Thai imports of merchandise and has
barely changed since 1995.  Three quarters of tariffs exceeding 50% are in agriculture.  Further, a
range of agricultural products remains subject to non-automatic import licensing, including fish meal,gunny bags, jute and kenaf;  according to the authorities this is in order to protect local producers and
to enable them to sell their products at reasonable prices.
11. Another major feature of Thailand's trade policy in agriculture is that the system of tariff
quotas established by the Government under the WTO Agreement on Agriculture does not appear to
constitute a significant barrier to trade.  The 23 tariff quotas can be divided into two groups.  The first
group comprises a number of traditional export commodities (e.g. rice, coconuts) where comparative
advantage should preclude the need for import protection.  A second group consists of importsThailand WT/TPR/S/63
Page 81
competing with domestic production, but required in large quantities by the processing industry (e.g.
oilseeds, maize).  As a result, when domestic production is not sufficient to meet demand, volumes of
these imports may not only exceed the tariff quota vo lume specified in the Agreement, but also enter
at duty-free or applied duties lower than either the in-quota or out-of-quota bound rates (Table IV.2).
However, when domestic production is deemed to cover the requirements of the downstream industry,
the out-of-quota rates of duty apply.
Table IV.2
Tariff quota commitments, actual imports under tariff quotas and bound tariffs, 1995-2004(Tonnes, per cent)
Tariff quota 1997 (tonnes) In-quota tariff 1999 (%)Out of quota bound rate
(%)
Description (HS Code)
CommitmentActual
importsApplied Bound 1999 Final (2004)
Minimum access commitments
Longans, dried (0813.40) 6 0 30 30 56 53
Copra (1203.00.0005) 797 0 20 20 38 36
Current access commitments
Milk and cream, not concentrated, nor
containing added sugar (including flavoured
milk) (0401, 2202.90)2,286 0 20 20 43.5 41
Milk and cream, concentrated or containing
added sugar, not exceeding 1.5% fat content
(0402.10.0007)47,222 55,838 5 52 2 8 2 1 6
Potatoes, fresh or chilled (0701) 91 4,690 0 0 132 125
Onions and shallots, fresh, chilled, dried,
etc. (0703.10.005, 0712.20.0104;
0712.20.0200, 0712.90.0304)352 344 27 27 150 142
Garlic, fresh or chilled, whether or not in
powder (0703.20.0007;  0712.90.0115;0712.90.0128)63 0 27 27 60 57
Coconut, fresh or dried
(0801.1.0106;  0801.1.0207)2,338 73 20 20 57 54
Coffee (0901) 5.1 4.0 30 30 95 90
Tea (0902) 602 90 30 30 95 90
Pepper, dried (0904.11.0003) 43 0 27 27 54 51
Maize, for seed and other (1005.9) 52,675 194,116 0 20 77a73
Rice (including paddy, broken) (1006) 240,506 177 30 30 55 52
Soya beans (1201.00.1000, 1201.00.9001) 10,518 869,397 0 5 84.5 80
Onion seeds (1209.91.0106) 3 6 0 0 230 218
Soya bean oil and its fraction
(1507.10.0001, 1507.90.0006)2,197 0 20 20 154 146
Palm oil and its fractions
(1511, 1513.21.0004, 1513.29.0007)4,680 17,412 20 20 151 143
Coconut oil and its fractions
(1513.11.0008, 1513.19.0005)386 0 20 20 55 52
Cane or beet sugar and chemically pure
sucrose in solid form (1701)13,251 4 65 65 99 94
Instant coffee (2101.10) 129 65 40 40 52 49
Soya bean cake (2304.00.0008) 222,020 1,054,925 5 20 119 119
Unmanufactured tobacco (2401) 6,127 8,340 30 30 76 72
Raw silk (5002.00.0003) 465 0 30 30 241.5 226
a Plus a surcharge of B 180/tonne.
Source: Data provided by the Thai authorities.WT/TPR/S/63 Trade Policy Review
Page 82
12. The Public Warehouse Organization remains responsible for the importation of certain
quantities under tariff quota, including potatoes, copra, coconut oil, palm oil and garlic.1  The right of
the PWO to import these agricultural products is limited to the specific quantity covered by the tariff
quota in each category.  The PWO's import role does not cover any agricultural products which fall
outside the tariff quota scheme.  According to the authorities, Thailand has no plan to enlarge or
broaden the product coverage under the PWO in the future.  Products currently traded by the PWOinclude corn, garlic and palm oil.  Although any private operator may import garlic, subject to a duty
of over 60%, the PWO is the only entity allowed access to in-quota imports of garlic at the duty rate
of 27% which gives the PWO a competitive advantage (Table IV.2).
(iii) Export policy measures
13. Thailand has experienced rapid growth in a variety of non-traditional exports such as shrimp,
processed fish, canned pineapple, and natural orchids, often helped by incentives both for investment
and exports.  However, some of the dynamic sectors, such as certain fruit and vegetables, have not
been specifically promoted by the Government.  The system of investment incentives is still in place
(Chapter III(4)), involving, for example, a dedu ction from corporate income tax for agri-food (and
other eligible) industries that increase export income over the previous year.
2  Thailand has
accordingly availed itself of the transitional arrangement for export subsidies under the Agreement on
Subsidies and Countervailing Measures.  These schemes are not, however, specific to the agri-food
sector.
14. The authorities have noted that domestic support is not designed to support export sales.
Therefore, no budgetary outlays or quantity reduction commitments concerning export subsidies have
been scheduled under the WTO Agreement on Agriculture.  However, some exempt export subsidies
used in accordance with the provisions of Article 9:1(d) and (e) of the Agreement were applied tocertain products (e.g. rice) in 1995 and 1996, but not in 1997.
15. Under the Packing Credit Facility (Chapter III(3 )), loans are provided to commodity and other
exporters at below-market rates.  These preferential export financing schemes are not notifiable under
the WTO Agreement on Agriculture, although a la rge share of EXIM Bank's export financing
expenditure may go to support sales of rice and other agri-food products.
16. At present, no agricultural product is subject to export duties except raw hides and skins, and
some forms of unprocessed wood (Table III.8).  Previously, export duties on rice had been an
important source of government revenue;  they are currently suspended.
(iv) Trade in selected crops and products
(a) Rice
17. Over half of total agricultural production in Thailand involves rice, much of it for subsistence.
Thailand is also the world's leading rice exporter, accounting for approximately one fifth of world
export volumes, down from over one third in 1990 (Table IV.3).  This decline reflects a shift towards
higher value added exports, as well as growing competition from Viet Nam.  Major export markets
include the United States;  Iran;  China;  Hong Kong, China;  Malaysia;  and Singapore.  Exportrevenues reached US$2 billion in 1998 and amount ed to approximately 8% of total exports.
                                                     
1 For details regarding the structure and functioning of this organization see GATT (1991) and
WTO (1995).
2 The corporate tax deduction is equal to 5% of the increased export revenue.Thailand WT/TPR/S/63
Page 83
Table IV.3
Rice exports, 1990-97
1990 1991 1992 1993 1994 1995 1996 1997
Quantity ('000 tonnes)
Thailand 4,017 4,333 5,151 4,989 4,859 6,198 5,454 3,240
Viet Nam 1,624 1,033 1,946 1,722 1,983 1,988 3,003 3,000
United States 2,474 2,243 2,164 2,680 2,822 3,084 2,640 2,296
Total 11,783 12,336 15,187 15,842 16,998 21,638 18,857 17,028
Share of world export volume (per cent)
Thailand 34.1 35.1 33.9 31.5 28.6 28.6 28.9 19.0
Viet Nam 13.8 8.4 12.8 10.9 11.7 9.2 15.9 17.6
United States 21.0 18.2 14.3 16.9 16.6 14.3 14.0 13.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
World rice price (US$/tonne) 287 314 287 268 358 322 338 302
Source: FAOSTAT Statistics database from the internet;  and UNCTAD,  Monthly Commodity Price Bulletin.
18. The Government maintains several support instruments for rice, reflecting its overwhelming
importance in Thai agriculture.  The authorities noted that these programmes are designed to address
the large income differential between agriculture and industry, which reflects the agricultural sector's
relatively low labour productivity – at present, the ratio of per capita income between farm andnon-farm sectors in Thailand is 1 to 13 compared with 1 to 8 ten years ago – but claim that they do
not have an impact on trade.  The programmes are devised and implemented through various
institutions and committees such as the Rice Policy Committee, the Marketing Organization for
Farmers (e.g. supplies of fertilizer), the Bank of  Agriculture and Agricultural Cooperatives (BAAC),
the Bank of Thailand, the Ministry of Agriculture, and the Ministry of Commerce.
19. Thailand has several types of domestic support programme in its Product-Specific AMS;
expenditure on rice alone totalled B 12 billion in 1997, the last year for which a notification has been
provided to the WTO Secretariat.  This amount represents over two thirds of all support to agriculture
and food production that year.  Under the Market price support and intervention programmes, the Rice
Policy Committee determines a minimum purchase price for rice and the Government may purchaserice at 95% of that price.
3
20. The Bank of Agriculture and Ag ricultural Cooperatives, a state-owned bank, runs a paddy
pledging programme.  Under this scheme farmers can pledge up to 90% of their crop to the Bank in
exchange for low interest loans;  these amounted to nearly B 14 billion in 1998.  The objective is to
allow farmers to hold back sales of paddy rice at the beginning of the harvest season when prices arelow.
21. Separately, the Bank of Thailand rediscounts promissory notes issued by rice traders and
millers against the value of their stocks of paddy.  The amount of subsidy is the difference between
the market interest rate and the rate actually offered by the BOT to rediscount the notes.  The purchase
of promissory notes amounted to appr oximately B 12 billion in 1997 and 1998.
22. Despite Thailand's external competitiveness, the authorities have restricted imports of rice by
means of a tariff quota (Table IV.2), of 240,506 tonnes in 1997.  Imports that year were recorded at
                                                     
3 For example, the mortgage price for jasmin paddy was B 6,495 per tonne in 1997/98.WT/TPR/S/63 Trade Policy Review
Page 84
177 tonnes;  according to the authorities, this reflects the high quality-price ratio of Thai rice, as well
as an applied tariff of 30%.
(b) Maize
23. In 1998, maize exports were about 122,700 tonnes, bringing export revenues of
B 622 million.  Domestic consumption of maize is mostly as feeding stock for Thai broilers.  Imports
of maize, nearly 200,000 tonnes in 1997, vastly exceeded the tariff quota, and entered duty free(i.e. suggesting that the tariff quota system could be abolished).  However, in 1999, imports were
restricted to WTO commitments as domestic production increased.  In particular, the in-quota tariff
was raised from zero to its bound level of 20%.  Also in June 1999, the Public Warehouse
Organization reported that it had exported 31,000 tonnes of corn "on a commercial basis".
4
(c) Rubber
24. Rubber products are among Thailand's largest agri-based export commodities, with revenues
in excess of US$1 billion annually, placing Thailand as the world's largest exporter.  Large decreases
in revenues have occurred since 1995, however, reflecting sharp falls in world prices.  A state-owned
organization, the Rubber Organization, is involved in rubber planting, processing, and exporting;
however, it accounts for less than 3% of total exports.  Among the recent trade policy developments,Thailand has pulled out of the International Natural Rubber Agreement, one of the last international
price support agreements outside the oil sector.  The International Rubber Organization (INRO)
maintains buffer stocks, buying rubber when prices fall and selling it when prices rise.  Its activities
depend on funding by its members, which include the six leading natural rubber producers as well as
the biggest consuming countries such as the United States, Japan and China.  Thailand provides about
40% of INRO's contributions from rubber producers.
25. According to unconfirmed press reports, the Thai  Government is planning to create its own
intervention mechanism, which could in turn lead to a rise in Thai rubber production.
5  According to
this source, the Government also intends to ask for the return of its deposits with INRO, which total
about US$64 million.  The money would be redirected towards intervention in the Thai domestic
market as part of a plan to restructure the rubber industry.  This intervention mechanism could double
Thailand's B 59 billion rubber export revenue (US$1.59 billion in 1998) over the next four years.  Theauthorities have indicated that the objective of the intervention scheme was rather to "improve
smallholders farmgate prices to a comprehensive fairer level as guided by international prices".
26. Most of Thailand's rubber is produced by small-scale farmers.  The Rubber Organization
directly buys dried rubber at B 14-15 per a kg. and sells directly on export markets.  According to
press reports, it holds about 97,000 tonnes and is understood to be negotiating sales with China andJapan for about two thirds of that volume, which could spur a 4% increase in production by Thai
farmers in 1998.  It could also lead to Thailand building up even larger stocks of natural rubber.
6  The
authorities were not in a position to confirm or comment on this information.
(d) Oilseeds, fats, and oils and their products
27. Virtually half of oilseed imports consist of soya bean cake.  In the past, the Government
provided incentives to domestic soya bean pr oduction through price support and local-content
requirements, but these were eliminated in the early 1990s.  Currently, the tariff quota on soya beans
                                                     
4 WTO document G/AG/R/19, 25 August 1999.
5 Financial Times,  10 February 1999.
6 Financial Times , 10 February 1999.Thailand WT/TPR/S/63
Page 85
is vastly overfilled but according to the authoritie s, imports enter duty free irrespective of the in-quota
and out-of-quota bound rates (Table IV.2).
28. Soya bean cake is an important input for the animal feed industry.  Domestic production does
not meet demand, however, and in 1997, imports reached five times the tariff quota volume specified
for soya bean cake, at an applied tariff of 5% fo r all shipments (Table IV.2).  In contrast, no imports
took place in 1997 under the tariff quota for soya bean oil, another domestically manufacturedproduct.  This, according to the authorities, reflects its low domestic price;  however, a 20% tariff
applies to in-quota imports.
29. As noted above, palm oil is imported by the Public Warehouse Organization at a duty
(in-quota) of 20%;  additional quantities would be  subject to a duty of 150%.  Palm oil is currently
excluded from AFTA commitments under the Temporary Exclusion List, until 1 January 2000, atwhich time, unlimited quantities of imports could in principle enter Thailand from ASEAN Members
at a 20% tariff.  This is expected to put severe competitive pressure on the estimated 17,000 operators
in the industry.
7
30. Under the Animal Feed Quality Control Act, the quality of raw materials used in making feed,
such as soyameal, peanut meal, fish meal, rice bran and ground maize is controlled.  Production,import or distribution of animal feed require perm its from the Animal Feed Quality Control Division
of the Livestock Department.
31. Exports of oilseeds and their products are marginal.
(e) Sugar
32. Thailand is a major exporter both of raw and white sugar, with exports reaching US$1 billion
in 1996, before falling back to US$760 million in 1998.  Export volumes increased by 74% in 1995
following an increase in planted areas as well as good rainfall, and the country currently accounts fornearly 8% of world exports in volume terms.
33. Direct and indirect support to the sugar industry has been provided for over two decades,
mainly in the form of price intervention.  The establishment and expansion of sugar mills are
controlled by the Ministry of Industry, whereas the Ministry of Commerce sets the domestic price of
sugar and, in doing so, determines the price received by sugar planters and millers.  According to this
arrangement, 70% of the net revenue from sugar and molasses is paid to farmers and 30% to the mills.
The Cane and Sugar Board, which comprises farmers, millers, and government officials, monitors the
cane and sugar industry.  The maximum level of cane output is also set by the Government.
34. The Government also influences the market through a Sugar Distribution and Production
Control Centre, which is under the supervision of the Sugar Board.  Three types of sugar productionquotas have been set:  quota A sugar is for domestic consumption, which depends mainly on the
national consumption growth rate;  quota B sugar is for export by Thai Cane and Sugar Corporation
Limited (TCSC), a company owned by farmers, millers, and the Government;  and quota C sugar is
for export by millers.  During the past five years, quota B sugar production has been set at 800,000
tonnes;  the export price of quota B sugar is used as a reference price to calculate the cane price underthe revenue sharing system.  Certain WTO Members have noted that the Thai state-trading notification
does not include the Cane a nd Sugar Corporation Limited.
                                                     
7 Bangkok Post,  21 September 1999.WT/TPR/S/63 Trade Policy Review
Page 86
35. The price intervention can result in a considerable difference between the world price and the
domestic price.  For at least five years during the 1980s, domestic consumers paid more than double
the world price.8  According to the authorities, however, consumers recently have paid less than the
world price.  Also, in the view of the authorities, the system does not influence export prices because
Thailand is a price-taker on world markets.
36. Among the other measures affecting trade in sugar, an automatic export licensing scheme is in
place.  Imports of sugar were subject to a tariff quota of 13,323 tonnes in 1998, with a
near-prohibitive applied in-quota tariff of 65%.  Imports in 1995 and 1996 were nil.  According to the
authorities, imports would be small even with a lower duty because of relative prices.
(f) Fruit
37. Thailand is an important exporter of a wide variety of fruit, and fruit products.  About one
tenth of the approximately seven million tonnes of Thailand's fruit output is exported.  The main
market is Hong Kong, China  The major fruit exports are durian, pineapple, and longan.  Export
earnings from processed pineapples canned or in juice form reached almost US$200 million in 1998.
Exports of some processed fruit have been encouraged through the incentives provided to
export-oriented projects.  Thailand applies high tariffs on fruit:  the average applied tariff on fresh ordried fruit was 49% in 1999, unchanged since 1989.  The average for prepared or preserved fruit was
about 30%.  Tariff escalation is not a problem as long as production is destined for export, because of
the system of tariff exemptions on inputs (Chapter III(2)).
(g) Tobacco products
38. Until the liberalization of Thailand's cigarette regime in 1990, following a GATT Panel
ruling, tobacco was imported into Thailand mainly in unprocessed form.  A tariff quota, together with
high bound tariffs, is now in place on tobacco to protect domestic production, but imports exceededthe quota in 1997.  The applied tariff on these raw tobacco imports is 30%, unchanged since 1995
(Table IV.2).  There is no restriction on private companies' right to import or export cigarettes, aside
from an applied tariff on cigarettes and other processed tobacco items, which has been increased from
30% (or B 30 per kg. whichever is higher) in 1995 to 60% (or B 80 per kg.).
39. The Thailand Tobacco Monopoly is empowered by the Ministry of Finance as the legal
monopoly for cigarette production in Thailand;  the purpose of this monopoly is reportedly to reduce
the negative consequences of cigarette consumption by controlling the domestic supply of products.
TTM is the sole importer of tobacco for domestic production of cigarettes.
40. Exports of tobacco continue to be exclusively channelled through the Thai Tobacco
Monopoly.
(v) Trade in fish, meat and dairy products
(a) Fish and shellfish
41. Thailand is among the top fish producing nations in the world.  Over 90% of Thailand's
imports of fish, shellfish and products are unprocessed, for use in the domestic processing industry.
The main suppliers of fish to Thailand are Japan, the United States, Chinese Taipei and Singapore.Thailand's main export markets for fish products are Japan, the United States, the United Kingdom
and Italy.  Exports of black tiger prawn, which grew from 897 tonnes in 1986 to about 90,000 tonnes
                                                     
8 See GATT (1991).Thailand WT/TPR/S/63
Page 87
in 1990, reached 120,000 tonnes in 1998.  These exports are subject to licensing for reasons of health
and safety.  In addition to health and safety measures, the Department of Fisheries controls trade in
fishery products for environmental purposes, in accordance with the Convention on International
Trade in Endangered Species of Wild Life Fauna and Flora (CITES).9
Measures applied to fresh and frozen fish and shrimps
42. On the import side, all fish and shellfish items had an applied tariff of 60% in early 1999.
The collected rate of duty was probably much lower on account of tariff concessions provided to
imports used in the export-processing industry.  Nevertheless, tariffs on fish imports were
substantially reduced in August 1999 in order to avoid negative tariff escalation (see below).
43. Recent environmental problems may limit the furt her growth of shrimp exports.  As a result
of the damaging effect of shrimp farms on water and soil, in mid-1998 the Government banned inlandshrimp farming in the rice growing plains of cen tral Thailand.  Shrimp farms in other areas may
continue to operate as long as they recycle their waste, so as not to pollute irrigation canals.
Approximately 13% of the farmed areas are affected by the ban.  According to the Thai Frozen Foods
Association, output in 1999 could be one fifth lower than in 1998 as a result of the measure.
Fish products44. Thailand is a large exporter of prepared or preserved tuna, skipjack and atlantic bonito,
relying heavily on imports of frozen products.  In addition, a large shrimp processing industry,
developed under Board of Investment promotional privileges, is currently experiencing problems of
over-capacity, which could be aggravated by the recent ban on shrimp farming.  According to the
authorities, the oversupply results from market factors, such as the graduation from GSP schemes in
Thailand's major export markets.
45. Fish products, have an average applied tariff of approximately 30%, down from 45% in 1995.
A quantitative import restriction is in place on fishmeal, together with an import surcharge.
(b) Meat products
46. In general, tariffs on imports of fresh, chilled or frozen meat, at 60%, may discourage foreign
competitors.  However, bound tariffs on meat products are substantially lower than applied rates;  the
bound rate rather than the applied rate is relevant to imports from WTO Members.  Thus for example,frozen duck imports should be taxed at the bound rate of 17.5% upon entry rather than the applied rate
of 60%.  Tariffs have been substantially reduced on meat preparations (HS 1602) since 1995.
10
47. Thailand is one of the few WTO Members that does not have major non-tariff restrictions on
meat imports.  In particular, no tariff quotas are in place on any meat product.  A large export-oriented
frozen chicken industry relies on imports of fowl for breeding purposes, of feedstuff and of drugs.  In
1998, exports of poultry cuts and otherwise prepared poultry reached US$750 million.
(c) Dairy products
48. Dairy products and in particular skimmed milk powder, are a major import item;  imports
amounted to nearly 56,000 tonnes in 1997, considerably exceeding the tariff quota volume.  A tariff of
5% is levied on imports, but quantities exceeding the quota could face a 231% tariff, if the system
                                                     
9 This applies for example to marine mammals, alligators, and sea turtles.
10 The reduction is from 45% or B 37.5/kg., whichever is higher to 30% or B 25/kg.WT/TPR/S/63 Trade Policy Review
Page 88
were applied.  Currently, all imports (in- and out-of-quota) enter at in-quota tariff rates.  The tariff
quota system on skimmed milk powder is approved on an annual basis, subject to a quarterly review.
Some WTO Members have complained that official approval tends to be given long after the start of
the new quarter, causing disruption in the system.
49. A second tariff quota has been opened for non-concentrated milk and cream.  The fact that
there were no such imports in 1997 suggests that the 20% applied (in-quota) tariff rate is prohibitive.According to the authorities no imports entered the country because it is more profitable to import
milk in concentrated form.
50. Domestic-content requirements imposed on importers of dairy products are expected to be
abolished by the end of 1999.  Under the system, im porters of skimmed milk powder must buy twenty
times the weight of imported powder in local raw milk.  In the case of prepared milk, the local-contentrequirement is 2 to 1.  In addition, producers of powdered milk had to buy at least 50 tonnes of local
raw milk per day in the first year of operation;  producers of prepared milk have to use raw milk with
recombined milk in a ratio of 1 to 1;  and both types of producer increase their purchases of raw milk
by at least 20% per year.
51. The Dairy Farming Promotion Organization maintains a minimum price policy to attract
regular supply of milk.  However, competition by private enterprises to buy raw milk is keen and the
minimum price has not been necessary.  The Organization does not engage in direct marketing of milk
products.  Instead, it relies on private companies for such sales, which account for about one third of
the domestic market for dairy products.  The Dairy Farming Promotion Organization is not involved
in imports or exports.
(vi) Beverages and spirits
52. Imports of alcoholic beverages are in the order of US$200 million, and decreased sharply in
1998 as a result of the crisis.  About three fifths of imports of beverages and spirits are whiskies.
Exports are small.  Applied tariffs for most alcoholic beverages and spirits are alternate tariffs of 60%
or a specific amount per litre, whichever is higher.  No tariff reductions have taken place since 1995.
53. The Liquor Act, B.E. 2493, authorized the Li quor Distillery Organization (LDO) as the sole
producer and distributor of 95% ethyl alcohol.
11  According to the authorities, the purpose of the
arrangement is to control the supply of ethyl alcohol in order to keep down the number of alcoholic
beverage producers.  It is also aimed at preventing illegal trade.  Sales in 1995, the last year for which
data are available, reached about B 260 million (less than US$10 million).  Presently, there is no
import or export of ethyl alcohol  by LDO, and therefore no exte rnal trade in this product.
54. In 1998, the Government announced that the concessions granted to one private company for
the operation of all 12 distilleries would be terminated at the end of 1999.  The Government plans to
sell all of the distilleries.  Plans to auction the rights to use the various brand names sold domestically
were not confirmed by the authorities.  If this were the case, however, foreign investors would then be
authorized to bid both for distilling licences and for rights to use brand names.  The loss in
government revenue associated with the private monopoly situation over the past ten years has beenestimated at US$1.7 billion.
12
                                                     
11 WTO document G/STR/Q1/THA/1, 5 July 1996.
12 Financial Times,  15 September 1998.Thailand WT/TPR/S/63
Page 89
(3) POLICY DEVELOPMENTS IN THE ENERGY SECTORS
55. Thailand is a large importer of crude petroleum (US$4.7 billion in 1997).  A long-term policy
favouring the development of the petrochemical industry has, together with reduced aggregate
demand, turned the country into a net exporter of refined petroleum.  Since 1995, Thailand has
continued to liberalize the energy market, and undertaken in various international fora to promote fair
competition under a transparent regulatory framework by the year 2000.13  The latest sectoral plan
was published by the National Energy Policy Office (NEPO) on 29 March 1999, setting out objectives
and a timetable for a new regulatory framework for private sector operators, as well as for
corporatization and eventual privatization of selected state-owned enterprises.  The energy sector thus
probably constitutes one of the more promising areas for foreign direct investment in the country.  In
the WTO, Thailand has not bound tariffs on most petroleum products, and has not included anyenergy-related sectors in its GATS Schedule of Commitments.
56. In 1999, Thailand depended on imports for 6% of its domestic consumption of energy.
Domestic production of natural gas increased from about 186,500 barrels per day of crude-equivalent
in 1994 to the current level of 320,600 barrels per day.  Domestic crude oil production was about
31,600 barrels per day in 1999;  imports of crude oil in 1998 exceeded 679,000 barrels per day.Estimated total proven crude reserves are about 145 million barrels, and proven gas reserves
14,826 billion cubic feet.
57. The financial crisis of 1997 strongly affected energy companies, which tended to be heavily
indebted in foreign currency.  For example, PTT Exploration and Production (PTTEP), the listed
upstream unit of the Petroleum Authority of Thai land (PTT) experienced a loss of B 3.3 billion in
1997.  A profit of B 2.3 billion was announced in 1998, however;  the recovery was explained by a
foreign exchange gain from the strengthening of the baht in 1998.
(i) The Petroleum Authority of Thailand (PTT)
58. PTT is currently involved in exploration and production of gas and oil, refining, and
petrochemicals.  In particular, PTT owns the majority of shares in PTTEP, which is involved in
exploration and production of oil and gas through joint ventures with private oil companies.  Since
1998, and the sale by PTT of a significant stake in PTTEP, state ownership in the latter has beenreduced from 71% to 61%.  Some 92% of the offering, was purchased by foreign investors.  Current
plans are to reduce PTT's shareholding to 51%.  PTT also owns equity interests in four refineries (but
controls none) and has stakes in the two main pipelines.  A Cabinet resolution of January 1996
approved a privatization strategy that would first corporatize PTT as a single company, and
subsequently list the company on the stock market.  However, the PTT's initial public offering hasbeen delayed as the implementing legislation was still under consideration by the Cabinet in
mid-1999.  According to the authorities, PTT is nevertheless fully corporatized and ready for
privatization.
14
Regulatory framework for exploration and production
59. No change has taken place in the regulatory framework for exploration and production, which
is based on the Petroleum Act and the Petroleum Income Tax Act as amended in 1989
(the "Thailand III" regulatory scheme).  As noted in the previous Review, the Petroleum Act was
amended in 1989 to give greater incentives by varying royalty rates across different types of activities,
and concessions are negotiated on a case-by-case basis.  The rate of royalty follows a sliding scale
                                                     
13 APEC (1998).
14 The relevant legislation is the State Enterprise Fund Act.WT/TPR/S/63 Trade Policy Review
Page 90
ranging from 5 to 15%, and the compulsory exploration period is six years.  The duration of the
concession licence is 20 years, and the total exploration area of any single concessionaire may not
exceed five blocks of 4,000 square kilometres.
60. Petroleum exploration and production rights in Thailand are granted by the Department of
Mineral Resources through a concession system;  28 concessions had been awarded as of
March 1999, of which PTTEP holds eight.  Other concessionaires are mostly foreign-owned privateoil companies.  Concessionaires are allowed to sell or otherwise dispose of the petroleum produced in
so far as they meet their royalty and taxes obligations.
(ii) Petroleum refining and products
61. Petroleum refineries and petroleum products constituted about 9.3% of total Thai
manufacturing output in 1996, up from 4.4% in 1993, reflecting the substantial increase in capacityover the period.  This was mirrored by a significant decline in imports of petroleum products, from
10.4 million litres in 1995 to 1.4 million litres in 1998.  The value of imports decreased accordingly,
from US$1.76 billion to US$919 million (Chart IV.2).  Meanwhile, exports have increased
considerably.
05001,0001,5002,0002,500
1990 1991 1992 1993 1994 1995 1996 1997US$ millionChart IV.2
Trade in refined petroleum products, 1990-97    
Refined petroleun defined as ISIC No. 353.
UNSD, Comtrade database.Note:
Source :Imports (c.i.f.) Exports (f.o.b.)
62. The conditions for the establishment of oil refineries have been liberalized under reinforced
environmental and safety standards.  The commercial requirements specified by the National Energy
Committee for the establishment of oil refineries are the payment of a 2% royalty on the value of
production, plus the payment to the Government of a "special charge" of B 350 million in order to beThailand WT/TPR/S/63
Page 91
granted privileges by the Board of Investment.  Alternatively, the investor may opt not to pay the
special charges, and thereby renounce the BOI privileges.15
63. There are currently six main refineries, with a total refining capacity of 850,000 barrels
per day.  Reflecting the past policy of owning shares in each refinery, shareholdings of the PTT, or the
Government, remain substantial.  The largest refinery, the Thai Oil Company, is 49% owned by the
PTT, which also owns 80% of the Bangchak refinery, while the Ministry of Finance holds 12.5% ofEsso Thailand.  Some 32% of the shares in Bangchak were to be sold in 1999:  16% to the public and
16% reserved for strategic domestic and foreign partners.
64. Fourteen of the 28 oil traders registered with the Department of Commercial Registration
operate service stations.  The PTT holds the largest market share for sales of petroleum products, at
about 36%, including sales of fuel oil to the Electr icity Generating Authority of Thailand (see below).
According to the authorities, retail prices for ga soline, kerosene, diesel and fuel oil closely follow
world prices.  Two government entities, the PTT and the Bangchak Petroleum Company are charged
with monitoring price changes by their respective service stations.  NEPO also tracks industry price
movements.  Price controls imposed by the Government's Commodity Price Fixing and
Anti-monopoly Committee are still in effect for cooking gas.
65. Applied tariff rates on benzine have decreased from B 0.065 per litre in 1995 to
B 0.01 per litre in 1999.  Aside from certain oils (HS 2710.009 and others), which are subject to a
duty of at least 20%, all refined petroleum products are subject to tariffs of 5% or less.  Only four of
the 46 lines contained in HS Chapter 27 have been bound in Thailand's WTO Schedule of tariff
concessions.
66. In addition, excise taxes and municipal taxes on petroleum and petroleum products together
range from 1% to 36%.  In the August 1999 package of measures to stimulate the economy andencourage private investment, excise taxes on fuel oil were reduced from 17.5% to 5%.
16
67. Imports of kerosene are subject to import licensing.
68. Only liquid petroleum gas (LPG or cooking ga s) remains under government price controls,
which were due to be lifted in 1996 following marketing system reforms and improvements in safety
standards.  In 1998, however, Thailand's APEC Action Plan stated that Thailand would "improve laws
and regulations related to safety and technical standards for LPG trade;  gradually liberalize the LPG
market for instance by lifting the import control and by partially deregulating LPG prices;  eliminate
consumer subsidies on LPG;  and completely deregulate LPG prices by the year 1999".17  According
to the authorities, these measure have been implemented with the exception of the last (full
deregulation).  In August 1999, the Government reduced the retail price of LPG by 11% as part of thesecond stage of the plan to remove price controls, and in order to increase consumer purchasing
power.
(iii) Pipeline transport services
69. Currently, two multi-product pipelines are in operation for the transport of petroleum
products.  These are both joint ventures, with state-ownership ranging from 25 to 31%.
                                                     
15 Within the petroleum sector, only oil refining is currently eligible for BOI promotion, and incentives
are limited to an exemption from import duties on machinery.  Facilities must be located within zone 2 orzone 3, and conform to the terms and conditions set by the National Energy Policy Council.
16 Ministry of Finance [Online].  Available at:  http://www.mof.go.th/march30/pre_english.htm.
17 APEC (1998).WT/TPR/S/63 Trade Policy Review
Page 92
70. In 1981, the first natural gas pipeline connected offshore gas fields to power plants outside
Bangkok.  Under announced privatization plans, by mid-2000 the PTT Gas pipeline operation
department is to be spun off into a separate "corporatized" pipeline company.  The new company
would be subject to common third party access (TPA ) to ensure competition between pipeline users.
(iv) The natural gas market
71. The PTT has a de facto monopoly over transmission and processing of natural gas as it is the
sole distributor.  Prices are regulated by the Government.  Currently, there is no retail gas market;
some 80% of total gas consumption is used in power generation (see below), and the remainder is
used to produce LPG and petrochemical feedstock, as well as industrial fuel.
72. As can be seen from Chart IV.3, there is competition at the production stage.  In addition, in
February 1999 the National Energy Policy Council announced the elimination of PTT's monopoly ongas transportation and end-user sales.  This should promote competition in the market and reduce
input costs for electricity generating stations (see below).  As a result, natural gas producers such as
UNOCAL and TOTAL would no longer be obliged to sell their gas to PTT.  Instead producers and
other intermediaries would have access to PTT's pipeline network by paying a user fee.
18
Implementing regulations, including those on third party access, were expected in late 1999.
Chart IV.3
Structure of the gas supply industry, 1999
PTTEP
Source :    Government of Thailand.TOTAL
PTT distribution Co.Others UNOCAL
Private power 
producers
IPP/SPPEnd users
Industrial 
sectorEGATPTT
Supply & marketing
Transmission pipelines
Gas separation plants
                                                     
18 Financial Times,  10 February 1999.Thailand WT/TPR/S/63
Page 93
73. The main activities of PTT Gas would be the purchase of natural gas from producers, and
sales to end-users, while the new firm would operate pipeline systems and transport natural gas.  In
the long run, the PTT Gas monopoly power could in principle be challenged by foreign natural gas
companies.  However, this would require the establishment of NEPO or another body as the
independent regulator for the gas industry, as well  as changes in the legal framework to allow the
possibility for third party access and retail competition.
(v) Electricity
(a) Generation
74. Since March 1996, the Government has pursued reforms to promote private sector
participation in the electricity generating sector.  By March 1999, 51 power purchase agreements had
been signed with small power producers (SPPs) , primarily based on renewable energy inputs for a
total capacity of 2,500 MW.  In addition, agreements have been signed with seven independent power
producers (IPPs) for capacity of nearly 6,000 MW.  These private sector investments are expected to
reduce public investment and public debt while increasing efficiency.  Their profitability will depend
on further government reform as these suppliers are, under current regulations, obliged to sell most of
their production to the Electricity Generating Authority of Thailand (EGAT) at government set prices.
75. In 1998, EGAT also had a 41% share in Electricity Generating Company (EGCO), a formerly
state-owned power producer.  In late 1998, a 15% stak e was sold to a Hong Kong company, subject to
the conditions that EGCO remain a Thai company, th e managing director be a Thai national, and that
the maximum holding of the strategic investor not exceed 25%.  In February 1999, EGCO reported a
net profit of B 6.1 billion (US$162 million) for 1998, compared to a net loss of B 5.5 billion the
previous year.  Apparently the swing was largely due to a foreign exchange gain, related to the
company's large debt in foreign currency.
(b) Distribution
76. Distribution and sales of electricity are currently under state monopoly, with no possibility for
third party access in the transmission and distribution systems, and no retail competition (Chart IV.4).
Under current government plans, EGAT is to be  corporatized by 2001.  The second step, during
2001-2003, would gradually introduce third party access allowing producers to sell directly to users,thereby wheeling EGAT, MEA or PEA services.
19  A competitive wholesale power pool and the
introduction of retail competition are envisaged in a third step in 2003.
77. Retail prices are set in accordance with an automatic adjustment mechanism, based on the
taxation of fuel oil, world oil prices, exchange rates, and other factors.  Retail electricity prices were
reduced in 1999 in order to reduce production costs and stimulate the economy.
                                                     
19 Wheeling is the authorized use of transmission facilities by two entities whose facilities are not
interconnected in order to sell, purchase or exchange electricity.WT/TPR/S/63 Trade Policy Review
Page 94
Chart IV.4
Electricity supply industry, 1999
Sourc e:    Government of Thailand.SPPsGeneration
Power purchaser, 
system operation, and transmission
Distribution/
retail supplyEGAT IPPs
PEA MEADirect 
customers
End 
usersEnd 
usersEGAT       /g119/g32/g32 Power purchase
       /g119/g32/g32 System operation
       /g119/g32/g32 Transmission
       /g119/g32/g32 Bulk power supply
(4) POLICY DEVELOPMENTS IN SELECTED MANUFACTURING SECTORS
78. Aside from the food and petroleum industries, the Thai industry is centred around machinery
(particularly electronics) and transport equipment on one hand, and textiles and clothing on the other.
These also constitute the areas of strongest government intervention.  After experiencing over two
decades of double digit growth, Thailand's manufacturing sector was severely affected by the 1997financial crisis, to a large extent because of the corporate sector's heavy reliance on short-term
financing in foreign currencies.  As discussed in Chapter I, (and section (5) below), the fixed
exchange rate regime coupled with tax incentives  to borrow and lend in foreign currency encouraged
the accumulation of excessive amounts of this type of debt.  Following the massive depreciation of the
baht, it was no longer possible for several large corporations to meet their debt service obligations,and, as a result, there were many loan recalls.  In response to the crisis, the authorities announced a
blanket guarantee of all deposits and liabilities of the banking sector in order to stem the panic.
79. In spite of the severe economic downturn, the Government has refrained from introducing
new instruments of import protection, relying instead on selected tariff increases to assist industry.
Thus, while average industrial tariffs declined from 23% to 18% between 1995 and 1999 in mostproduct groups (Table IV.4), certain products recorded substantial tariff increases in 1997 and 1998,Thailand WT/TPR/S/63
Page 95
most notably passenger vehicles and clothing.20  In contrast, in August 1999 the authorities reduced
both tariffs and internal taxes (excise and VAT) to encourage investment and stimulate the economy.
The largest of these tariff reductions took place in the chemicals and machinery sectors, while tariff
protection remains more or less unchanged in the food and beverage sectors.  Effective protection
may have increased in the clothing sector as larger tariff cuts took place on textile inputs.
Table IV.4
Selected indicators for the manufacturing industry, 1995-99
(US$ and per cent)
Value
added
(US$
billion)Value
added (%
gross
output)Exports
(US$
million)Imports
(US$
million)Tariff rate
(%)Percentage
change July-
Sept ISIC CodeMajor industrial
group
1996 1996 1997 1997 1995 July 1999 Sept 1999 1999
311/12 Food products 4.4 23.9 9,905.0 2,248.9 41.6 40.8 39.4 -3.4
313 Beverages 3.5 59.3 141.1 191.3 52.6 46.0 45.7 -0.7
314 Tobacco 1.2 78.4 7.3 29.5 51.4 60.0 60.0 0.0
321 Textiles 3.7 30.6 3,739.6 1,358.7 30.1 22.2 20.2 -9.0
322 Wearing apparel,
except footwear6.4 51.6 1,767.1 51.8 41.3 47.6 46.9 -1.5
323/24 Leather, leather
products &footwear1.7 38.0 1,270.8 333.5 28.0 20.1 19.4 -3.5
331 Wood and cork 0.4 36.4 371.5 485.3 17.9 18.1 16.1 -11.0
332 Furniture &
fixtures1.4 48.2 653.7 42.7 40.0 22.0 20.0 -9.1
341 Paper & paper
products1.0 33.9 383.7 799.2 18.4 16.8 15.2 -9.5
342 Printing,
publishing &allied industries0.8 34.9 51.7 133.3 20.0 18.7 17.1 -8.6
351/52 Chemical products 1.2 34.6 2,606.8 7,086.6 15.9 12.9 10.1 -21.7
353/54 Petroleum
products4.2 44.7 1,110.3 935.7 8.1 6.0 5.7 -5.0
355/56 Rubber & rubber
products1.4 33.7 1,521.1 1,026.4 33.7 27.8 25.3 -9.0
361/62/69 Non-metallic
mineral products3.0 43.1 823.0 467.8 24.4 19.0 17.2 -9.5
371/72 Basic metal
industries1.0 32.5 1,287.4 5,492.7 10.8 10.0 9.0 -10.0
381 Fabricated metal
products, exceptmachinery &equip.1.5 38.8 800.4 956.4 22.9 20.5 18.7 -8.8
382 Machinery 4.6 32.8 9,603.4 11,857.9 10.0 9.7 8.5 -12.4
383 Electrical
machinery4.3 41.0 10,713.8 13,006.7 16.5 14.7 13.0 -11.6
384 Transport
equipment4.7 36.2 1,762.1 4,800.7 26.3 26.3 25.6 -2.7
385/90 Miscellaneous
n.e.s.4.5 46.7 4,212.8 2,961.2 20.1 15.4 13.9 -9.7
3T o t a l
manufacturing54.9 38.7 52,732.9 54,266.2 22.8 19.2 17.5 -8.9
Source: UNSD, Comtrade database;  and WTO Secretariat estimates, based on data provided by the Thai authorities.
                                                     
20 Differences with averages presented in Chapter III reflect the use of the International Standard
Industrial Classification (ISIC) as a basis for this Chapter.  The average tariff in industry using the WTOdefinition (i.e. excluding food manufacturing, which is included in agriculture) has declined from 21% to 16%during the period under review.WT/TPR/S/63 Trade Policy Review
Page 96
(i) Trade in textiles and clothing
80. Thailand is the world's 10th largest exporter of clothing, which is its second main source of
export revenue after electronics.  Clothing exports of US$3.2 billion in 1998 constituted about 8% of
total manufactured exports;  exports of textiles were US$1.9 billion;  exports of clothing declined by
4% in dollar terms in 1998.
81. In 1997, Thailand imported textiles valued at US$1.9 billion;  clothing imports were around
US$70 million in 1998.  The main trade policy development in textiles and clothing is the large
number of tariff changes, resulting in substantial increases on most products (Table IV.5).  Between
1994 and 1996, tariffs on clothing were reduced from 100% to 45%;  in 1997 they were reduced again
to 30% and to 10% for some products.  However, in 1998, tariffs on most clothing items were raised
to 60%.
Table IV.5
Changes in applied tariffs on selected clothing productsa, 1995 and 1999
HS Code Description 1995 1999
61 Knitted clothing 45%b30%c
6201 Men's or boys' overcoats 45% 30%
6202 Women's or girls' overcoats 45% 30%
6203 Men's or boys' clothes except shirts 45% 60%
6204 Women's or girls' clothes except shirts and blouses 45% 60%
6205 Men's or boys' shirts 45% 60%
6206 Women's or girls' shirts and blouses 45% 60%
6207 Men's underwear, nightwear, etc 45% 60%
6208 Women's underwear, etc 45% 60%
6209 Baby clothes 45% 60%
6210 Garments 45% 60%
6211 Sports clothes 45% 60%
6212 Brassieres, etc 45% 60%
6213 Handkerchiefs 45% 60%
6214 Shawls 45% 60%
6215 Ties 45% 60%
6216 Gloves 45% 30%
6217 Other made-up clothing 45% 30%
a Ad valorem  components of alternate tariffs are presented in this table.
b Except HS610449 (100%), 610469 (100%), 611220 (100%) and 611790 (20%).c Except HS 61159309 (20%).
Source: Government of Thailand.
82. Several duties considerably exceeded WTO bindings in 1999.  According to the authorities, in
these cases the WTO bound tariffs apply to WTO Members, but not to other trading partners.  Import
licences are required for silk yarn to ensure confor mity with local-content requirements;  according to
the authorities, this requirement is currently unde r review.  Import licences are also required for
imports of gunny bags woven of jute and kenaf (Chapter III(2)).
83. Under the WTO Agreement on Textiles and Clothing (ATC), exports of textiles and clothing
are restricted by quotas into four major trading partners:  the United States brought into the ATC 49
restrictions from the former MFA regime; the European Union 20;  Canada 20;  and  Norway four.Thailand WT/TPR/S/63
Page 97
Some quotas or parts thereof have been removed in stage 2 of the ATC transition process, and all are
to be removed by January 2005 at the latest.21
84. As regards the utilization of the quotas, in 1998, of the 49 maintained by the United States, 33
were filled above 75% while 14 were less than 50% filled.  In the EU, five of the 20 quotas were filled
above 75% and ten were less than 50% filled.  In Canada, of the 18 quotas remaining in 1998, five
were filled more than 100% (reflecting the application of the ATC flexibility provisions), while ninewere filled below 50%.  The one remaining quota with Norway (fishing nets) was filled at 86%.
85. Thailand administers these quotas under three different methods:  the first is a basic quota
allocated to exporters based on the shipment in the preceding year.  This is allocated once a year, after
verification of past performance.  According to the authorities, the quota is not auctioned because this
would, in effect, reserve the quotas for the larger companies.  A second, promotional quota, is definedas about 80% of the annual growth rate of the quota for each product category.  The Department of
Foreign Trade submits part of the promotional quota to the Department of Export Promotion (DEP) to
allocate to exporters who participate in its export pr omotion activities.  Part of the quota is allocated
to exporters who participate in Board of Investment schemes (Chapter III(4)) and locate in specified
areas.  The third quota is derived from:  (i) the balance of quota remaining after the basic quota andpromotional quota allocation;  (ii) the surrendered quota;  and (iii) flexibility.  This supplementary
quota is available to all exporters and is allocated on a first-come-first-served basis.
86. In 1997, the United States invoked Article 6 (transitional safeguard measures) in respect of
certain yarn exports from Thailand;  a restraint was agreed for the period October 1997 to
September 2001.
22  In addition, Colombia restricted imports of plain polyester filaments
(HS 54.02.43) from Thailand in October 1998, for a period of one year.  The Textile Monitoring Body
has recommended that the latter import restriction be rescinded.23  The Colombian Government has
informed the TMB that the restrictions would be maintained.
87. The authorities have notified two stages of product integration under the ATC.  In April 1995,
Thailand notified details of products to be integrat ed into GATT for the first stage of the transitional
process in the ATC, amounting to 16% of the 1990 volume of textiles and clothing imports.  These
products consisted of 14 categories of tops and yarns, three of fabrics, nine of made-up textileproducts, and four items of clothing, all at the HS ten-digit level.  In February 1997, Thailand notified
its second stage integration programme, which was implemented in January 1998.  In this process,
17% of the total volume of 1990 imports was integrated, including six categories of tops and yarns, 15
fabric categories, 18 made-up textile products, and one clothing item, all at the HS-10 digit level.  As
a result of this integration process, these products became fully subject to GATT rules, and the ATCsafeguard can no longer be used.
24
(ii) Steel products
88. Since its establishment in the 1970s, the steel industry had benefited considerably from the
investment incentives granted to steel mills by th e Board of Investment (BOI).  In 1998, steel bar
                                                     
21 In the first stage of the integration process, beginning 1 January 1995, Canada included cotton work
gloves, resulting in the quotas on this product being dropped in Thailand and five other WTO Members.  In thesecond integration stage, beginning 1 January 1998, tailored collar shirts were included, although the quotas on
this category had not been applied since 1 July 1997.  Products subject to quotas in twelve product categories for
Thailand were included in the second stage integration of the United States.
22 WTO document G/TMB/R/42, 5 June 1998.
23 WTO documents G/TMB/R/49, 21 December 1998, and G/TMB/R/51, 11 February 1999.
24 If a safeguard action was considered necessary, GATT Article XIX would apply.WT/TPR/S/63 Trade Policy Review
Page 98
production (1.5 million tonnes) stood at 20% of capacity;  firms have encountered the serious
cashflow problems common to the entire industrial sector.
02,0004,0006,0008,00010,00012,00014,00016,000
1985 86 87 88 89 90 91 92 93 94 95 96 97 1998'000 tonnes       Chart IV.5
Production, consumption and trade in steel products, 1985-98
Government of Thailand. Source :Production Consumption Imports Exports
89. The halving of domestic consumption between 1996 and 1998 (Chart IV.5) prompted the
industry and the authorities to search for new outlets for domestic output.  In particular, the Office of
Industrial Economics at the Ministry of Industry has recommended an increase in the budgetary
allocation for public construction as well as increased recourse to barter as a way to promote exports.
The Office also encourages firms to satisfy international standards such as ISO 9000 and ISO 14000to increase their external competitiveness, and has recommended improvement of export procedures.
Meanwhile, new projects for the manufacture of steel bars are still eligible for investment incentives.
90. Thailand's exports of ball bearings of up to 30 mm outside diameter are subject both to an
undertaking and a countervailing duty imposed by the European Union.  Thai exports of steel are also
restricted by anti-dumping duties in Australia, Canada, and the United States.
91. Tariffs in 1999 are relatively low for basic metal industries, at 9% on average, down from of
11% in 1995.
(iii) Motor vehicles
92. The promotion of the motor vehicle industry dates back to 1961 when the Thai Motor
Industry was established as one of Thailand's first industries.  The industry has since developed underthe protection of high tariffs and strict local-content requirements.  Manufacturers were expectingThailand WT/TPR/S/63
Page 99
sales of 160,000 vehicles in 1999 compared with 100,000 in 1998, but still well below the 1996 peak
of 600,000 units.25
93. Exports of motor vehicles (ISIC 3843) increased from US$91 million in 1990 to
US$411 million in 1996, and doubled in 1997 to reach US$836 million as new production plants
started operations.  Nevertheless, the country remains a net motor vehicle importer, although imports
decreased from US$5.2 billion in 1996 to US$2.7 billion in 1997, as a consequence of the recessionand a substantial increase in MFN tariffs.  The latter have increased from 42% to 80%.  Tariffs on
imports from ASEAN members are 20%.
94. Quantitative import restrictions in the form of non-automatic licensing remain in place on
certain buses, diesel engines, used vehicles, and used parts.
95. Currently, passenger vehicle assembly plants must use specified local parts in specified
proportions in order to be eligible for Board of Investment rights and privileges.  For passenger cars,
not less than 54% of local parts is required;  a compulsory parts list amounting to 60-70% local
content applies for small trucks;  trucks and buses must incorporate seven specified locally produced
parts and reach at least 40-50% domestic content;  and motorcycles must incorporate a local engine.
The benefits include import duty and excise duty  exemptions for assembly plants meeting the
local-content requirements.  Excise duties on sales of motor vehicles range from 37.5% to 50%
(Table III.9);  they are levied on the duty-paid value of imports (before VAT) and on most but not on
all domestically produced vehicles (Chapter III(4)).
96. If the local content is met, differential tariffs apply depending on whether the vehicle is
imported completely knocked down (CKD) or comp letely built-up (CBU).  In 1999, the CBU tariff
was 80%, up from 42% in 1997;  the CKD tariff was 22% (including a 10% surcharge which was
abolished in August 1999), unchanged since 1997.  The tariff line for CKD and CBU vehicles is thesame.  The auto components producers are the main beneficiaries of this system of protection, which
is reportedly under review to ensure confor mity with the WTO Agreement on Trade-Related
Investment Measures.
97. Motor vehicle production is eligible for a number of investment incentives such as a corporate
income tax holiday of up to eight years as well as a reduction on import duties on machinery forplants that locate in the most remote areas (zone 3).
98. Technical regulations are set by the Ministry of Industry.  Some 72 companies in the
sector have received ISO 9000 certification;  of these, seven have been certified by the
Thailand Industrial Standard Institute, the others were certified abroad.
26
(5) DEVELOPMENTS IN FINANCIAL SERVICES TRADE
(i) Origin and extent of the financial crisis
99. The financial crisis that hit the Thai economy in 1997 is to a considerable extent related to
policies concerning trade in financial services and therefore of particular relevance to the WTO.  The
sluggishness in the property sector brought on by the 1996 economic downturn led to significant
deterioration in the quality of banks' collateral, whic h in turn led to the continuous rise in the level of
non-performing loans (NPLs) in the financial system.  This, combined with the reduced capacity to
service debt following the dramatic depreciation of the baht in mid-1997, brought on the most severe
                                                     
25 Financial Times , 3 August 1999.
26 Thai Industrial Standards Institute [Online].  Available at:  http://www.tisi.go.th/I9000/9000.html.WT/TPR/S/63 Trade Policy Review
Page 100
economic crisis in Thailand's recent history.  In May 1997, a speculative attack on Thailand's pegged
exchange rate and consequent capital outflow drained most of the country's international reserves as
the authorities attempted to maintain the peg in order to avoid a currency run.  In July 1997, the
exchange rate system was changed to a "managed float".  In June and August 1997, one half of
Thailand's financial institutions were suspended due to their heavy reliance on borrowing from the
Financial Institutions Development Fund (FIDF), high non-performing loans, and negative net worth.In addition, several commercial banks were purchased by the State.  At the end of 1998, these
non-performing loans (using the three month interest overdue definition) amounted to 45.9% of the
assets of the financial system.
27  The collapse of financing for companies has in turn, had strong
implications for the rest of the economy.
100. In introducing measures to overcome the crisis, the Thai Government has maintained the
policy of opening up its financial services sector to foreign investment.  This is in contrast to the
policies of some countries in which tighter restrictions on foreign investment have been implemented.
Following the initial commitments made in 1993 under the General Agreement on Trade in Services
(GATS), Thailand has made new commitments with respect to insurance, banking and other financial
services, first in its Schedule annexed to the Second Protocol to the GATS (the so-called InterimAgreement) on Financial Services agreed in July 1995, and then, as a result of the WTO financial
services negotiations concluded in December 1997, in its Schedule annexed to the Fifth Protocol.  In
addition, the MFN exemption stating that "Differential treatment would be accorded to financial
service suppliers of other members on a reciprocal basis" was eliminated as a result of the
negotiations concluded in December 1997.  These commitments should strengthen the Thai financial
services industry by attracting new foreign capital and expertise, and by increasing competition.
28
101. Nevertheless, one remaining area of concern in mid-1999 was the provisions that remain in
Thailand's statutes allowing offshore banking to operate as a conduit for domestic indebtedness, and
whose nature may have magnified the crisis.  It w ould be premature to draw any strong conclusions
on the appropriate sequencing of liberalization measures from Thailand's experience at this still
relatively early stage.  Nonetheless, it has been said that had Thailand adopted a policy of favouring
long-term investment both by domestic and foreign investors, instead of providing tax incentives toborrow short-term from abroad through the Internat ional Banking Facilities (IBFs), (see below), the
outcome might well have been different.
29  The main factors contributing to the recent problems were
inadequate risk management and disclosure criteria for financial institutions, as well as the
dollar-pegged exchange rate and the interest-rate differential, which in themselves created huge
incentives for massive short-term borrowing from abroad and speculative transactions.  The particulardesign of IBFs also contributed to the expansion of the real estate bubble.
                                                     
27 Address by M. R. Chatu Mongol Sonakul, Governor of the Bank of Thailand, at the Economic and
Investment Seminar, Tokyo, 15 March 1999.  The share depends on the definition chosen for NPLs.  Somebanks define NPLs as classified assets (a good loan to a bad customer, i.e. who has not paid interest on otherloans for three months, is considered classified but still performing).  Bangkok Bank, one of the largest banks, in
February 1999 reported that classified assets accounted for 48% of total lending ( Financial Times,
15 February 1999).
28 It may be important to note that liberalization of financial services trade by way of providing market
access and national treatment to foreign financial institutions , particularly in the form of commercial presence, is
quite distinct from the liberalization of capital flows or of the capital account.  Under the General Agreement onTrade in Services (GATS), liberal commitments to a llow commercial presence (branches, subsidiaries and
representative offices) of foreign banks and other financial institutions require liberalization only of inflows of
related capital.  They do not require liberalization of capital outflows other than repatriation of interest and
dividends etc.;  nor for that matter do they necessarily entail liberalization of the capital account.
29 Joseph Stiglitz, Senior Vice President and Chief Economist of the World Bank, suggested that the
IBF should be eliminated (Norton, 1998).Thailand WT/TPR/S/63
Page 101
(ii) Insurance services
102. According to the authorities, the financial status of insurance companies and brokers has
remained robust despite the financial crisis, possibl y owing to tight investment restrictions and the
low level of external debt.  Recent trends in the insurance sector have nevertheless mirrored the
general state of the economy.  Life insurance business (direct) premiums fell by 4% in 1998 to
B 56 billion, compared with an average annual expansion of nearly 19% over 1991-97;  non-life
business declined by nearly 12% in 1998, to B 51 billion, following a near-20% annual expansion
during the previous seven years.  The value of premiums in the main sectors of non-life insurance is
presented in Chart IV.6.
103. There were a total of 100 insurance companies in Thailand in mid-1999:  20 life companies,
five composite companies, six health insurance companies, one reinsurance and 68 non-lifecompanies.  Five of these are "grandfathered" foreign companies carrying out insurance business
through their foreign branches, one of which is carrying out composite insurance business and the
remaining four transacting non-life insurance business.
30  Domestic companies have 1,707 branches
all over the country.  Most companies' distribution of insurance services is through intermediaries,
dominated by approximately 150,000 life insurance agents and slightly over 4,000 non-life insurancebrokers.
Per cent
Total:  Baht 50.93 billion
 US$1.23 billionMarine and goods
4.7
Automobile
59.4Other and health
18.2Chart IV.6
Non-life direct premia, 1998
Note:
Source :  Average exchange rate, 1998:  US$1 = Baht 41.4.
Data provided by the Government of Thailand.Fire
17 7
                                                     
30 All composite companies undertaking both life and non-life insurance are required to split into two
separate companies for life and non-life businesses by April 2000.WT/TPR/S/63 Trade Policy Review
Page 102
104. The first step in Thailand's plan for a three-stage liberalization of the insurance industry began
in 1997;  it allowed up to 25% foreign equity part icipation in domestic insurance companies and the
approval of 25 new insurance licences, 12 life and 13 non-life.  This was the first time in 15 years that
new firms were permitted to enter the market.  Some of the new companies were joint ventures
involving foreign equity participation.  According to the authorities, the amendment of the existing
life and non-life insurance legislation is under way for the second step, to allow foreign equityparticipation up to 49% of registered share capi tal.  The third stage will allow foreign equity
participation to exceed 49% after the amended laws have been in effect for five years.
105. The insurance industry is in some respects highly regulated under the supervision of the
Department of Insurance at the Ministry of Commerce.
31  The Insurance Commission in the Ministry
of Commerce, inter alia:  regulates the setting of premiums for the fire and motor insurance
businesses;  and decides on the appointment and remuneration of intermediaries and investments;32
and governs the wording of policy proposals and contract terms and conditions.  The InsuranceCommissioner may also appoint individuals to the board of directors of any insurance company if
there is evidence that the operation of the company ma y cause damage to the insured or to the public.
The authorities have indicated that the Government's long-term objective is to achieve self-regulationin the insurance sector.  Two private sector associations, the Thai Life Assurance Association and the
General Insurance Association have been requested to submit proposals on how this could be
achieved.
33
106. Several measures have been implemented recently to strengthen insurance companies.  Since
1998, life insurance businesses have been required to maintain capital funds of not less than 4% of life
policy reserves (up from 2%) or not less than B 500 million.  An initial B 300 million must be attained
within three years and B 500 million within five years.  For non-life insurance business, thecompanies must maintain capital funds of not less than 20% of net premiums in the preceding year but
not less than B 300 million;  similarly, an initial B 200 million must be attained within three years and
B 300 million within five years.
(a) Life insurance services
107. Presently, 25 life insurance companies operate branches throughout the country.
34  O f  t h e
different types of life insurance policies, endowment policies (a contract in which a lump sum is
payable either on death during the term, or at the end of the term) are the most popular.  Generally
ranging from a period of 10 to 20 years, endowment policies account for about 60% of all policies
sold.  Under the Life Insurance Act, life insura nce companies can avail themselves of promissory
notes, lease assets, sell land or buildings, manage provident funds, and invest in foreign stocks anddebentures.  In September 1995, the Ministry of Finance announced guidelines on provident fund
management.  In June 1996, three life insurance companies received licences to manage provident
funds.  In March 1997, 12 new life insurance licences were approved by the Cabinet.
108. Foreign insurance companies play a very large role in the Thai insurance market.  At the end
of March 1999, foreign life insurance accounted for 47% of total direct premia in the life insurancesector.  This reflects the liberal market access conditions for cross-border supply and consumption
abroad of life insurance services;  both of these modes of supply are bound in the GATS.  The
outcome is that foreign companies are free to se ll life insurance policies to Thai residents.
                                                     
31 International Association of Insurance Supervisors (1998).
32 International Association of Insurance Supervisors (1998).
33 The authorities have indicated that the Thai Life Insurance Association is currently responsible for
the assessment of new applications for life insurance companies.
34 The presentation of Thailand's life insurance sector is drawn from Bank of Thailand (1998a).Thailand WT/TPR/S/63
Page 103
Concerning limitations on national treatment for li fe insurance services, Thailand's life insurance
premiums are tax deductible up to B 10,000 only for holders of policies issued by locally licensed
companies, domestically or foreign owned.
109. With respect to commercial presence, Thailand's 1998 Financial Services Schedule stated that
"Foreign equity participation is limited to 25% of registered share capital.  New establishment is
subject to licence approved by the Minister with the consent of the Cabinet".35  Made in the
1995 financial services negotiations, this was a considerable improvement relative to the
1994 GATS Schedule in which commercial presence was limited to a 25% share acquisition of
existing establishments and was "unbound for new licences".  As noted above, some of the 12 life
insurance companies established in 1997 were partly foreign owned.  In addition, the authorities have
indicated that one foreign branch (not domestically registered) has a licence to operate in Thailand.
110. Certain insurance companies have foreign equity participation above 25% because the higher
levels were grandfathered in 1992; this participation may not be increased.  According to the
authorities, the amendment of insurance laws to increase foreign equity participation in domestic
companies above 25% was still in progress in mid-1999.
(b) Non-life insurance and auxiliary services
111. The recent liberalization of foreign direct investment (commercial presence) in non-life
insurance, subsequent to the WTO Financial Services negotiations, applies also to life insurance.
Foreign equity participation remains limited to 25% of registered share capital, but new establishment
is now bound, subject to obtention of a licence from the Minister of Commerce with the consent of the
Cabinet. Most but not all of the 13 non-life insurance companies established since 1997, are
domestically owned.  The Non-Life Insurance Act (1992) and the Protection for Motor Vehicle
Accident Victim Act 1992 govern the supply of and trade in non-life insurance services.36
112. One insurance company had foreign equity participation of 98% before the passage of the
Act.  That level was grandfathered in 1992, together with the right of the company to establish
branches.  As with life insurance, the authorities have indicated that maximum foreign shareholding in
Thai insurance companies will be allowed to increase to 49% under draft legislation currently before
Parliament.
113. The only government-controlled insurance company operating in Thailand at the time of the
last Review has, according to the authorities, been  privatized and registered on the Stock Exchange of
Thailand.
114. In the Thailand's Financial Services Schedule, the cross-border supply of non-life insurance
services remains unbound, except for international marine, aviation, and transit, together with allclasses of reinsurance.  Market-access conditions for intermediaries and suppliers of auxiliary services
have not changed:  a branch of a foreign insurance company may not conduct the business of
insurance brokerage and insurance agent;  and foreign commercial presence remains limited to 25%
of equity.
                                                     
35 WTO document GATS/SC/85/Suppl. 3, 26 February 1998.
36 A recent amendment to the Protection for Motor Vehicle Accident Victim Act established a
committee on the protection of accident victims that will oversee the standardization of medical expenses andpreliminary compensation.  Another new provision is the setting-up of a central company as an insurance pool.All insurance companies will be members of this pool.  The objective of this measure is to facilitate theobtention of (compulsory) motor vehicle insurance.WT/TPR/S/63 Trade Policy Review
Page 104
(iii) Banking and other financial services (excluding insurance)
115. Since the 1995 Review, Thailand's banking sector has been hit by a widespread crisis that has
undermined the financial system;  the number of financial companies fell from 91 at the end of 1996
to 36 at the end of August 1998, and is expected to decrease to 24 after the current programme of
consolidation is terminated;  the number of banks will decrease from 15 to 13 at the end of the
consolidation process.  Moreover, four of the remaining banks have received Governmentintervention in the form of large injections of public funds through debt-equity swaps.  These four
banks are currently being privatized without any restriction on foreign ownership.
(a) Assistance to the financial services industry and prudential reform
116. A degree of moral hazard may have resulted from the various forms of government assistance
traditionally extended to the domestic banking industry.  Firstly unlike insurance companies, bankshave to a large degree been sheltered from external competition.  Secondly, implicit government
guarantees to financial institutions "encouraged private lenders to disregard the creditworthiness of
borrowers, which led to over-lending".
37  Subsequently in 1996, the Bank of Thailand agreed to bail
out two major financial institutions, Finance One Company and Bangkok Bank of Commerce.  In late
1997, the Government, through the Financial Institutions Development Fund (FIDF), injected a largeamount of money into financial institutions to provide liquidity.
38  After the Government accepted the
International Monetary Fund's rescue package, the FIDF was entrusted to provide a (blanket)
guarantee of the deposits and liabilities of the remaining financial institutions in order to restore
confidence.
117. In the medium term, however, a self-financed, limited deposit insurance agency is to be
established.  Further, for those domestic financial institutions that remain, the Government's strategy
has been to progressively tighten their capital base through more realistic loan classification andprovisioning.
39  In particular, the definition of non-performing loans has been changed from
12 months to three months of unpaid interest.  The capital adequacy ratio has been increased from
7% to a minimum of 8.5%.  The new prudential requirements have posed an additional burden on
financial institutions in their attempts to find foreign or local partners, raise capital through public
offering, and thus achieve the Government's objective of private-sector-led recapitalization.  On14 August 1998, in response to these problems, the Government announced a package of capital
support measures to restructure the financial sector, including the provision of public funds to
recapitalize remaining financial institutions.
118. In order to facilitate the debt restructuring process, amendments have been made to the
country's legal framework, notably the Bankruptcy Act and the Foreclosure Act.  These amendmentsare designed to induce both creditors and debtors to accelerate the negotiation and resolution of
claims.  Generally, the ongoing process of corporate debt restructuring is an integral part of the
restructuring of non-performing loans in the financial sector.  At the end of May 1999, 645 cases of
corporate restructuring had been completed in the financial sector, covering an amount of
B 22 billion.  As noted in (Chapter III(4)) however, the total outstanding debt and overdue obligationsin the Thai economy was considerably higher, at some B 1,500 billion.
                                                     
37 Chirathivat (1999).
38 Nidhiprabha (1998), p. 309.  In order to fina nce this expenditure, B 400 billion of bonds had been
issued in January 1999 (in March 1999, one dollar was worth approximately 36 baht).
39 Kingdom of Thailand (1999).Thailand WT/TPR/S/63
Page 105
(b) Market structure and WTO commitments
119. Thailand has continued on the path of liberalization of its investment regime for financial
services suppliers, partly in response to the crisis.  GATS commitments have been expanded twice
since the last Review, once in the Schedule annexed to the Second Protocol, and subsequently in the
Fifth Protocol Schedule.
Cross-border supply and consumption abroad120. There have been no changes in Thailand's market-access commitments regarding cross-border
supply and consumption abroad of banking and other financial services (excluding insurance).  These
remain unbound with the exception of financial advisory services and financial data processing.
Commercial presence
121. No limitations are placed on representative offices of banks.
122. A total of 21 foreign banks operated fully licensed branches in Thailand in mid-1999, up from
14 in 1995;  in addition, 15 foreign bank branches operated as offshore "International Banking
Facilities" (IBFs) in Thailand.  Terms and conditions for these offshore bank licences are described
below.
123. Since 1997, the granting of licences to new foreign banks has been bound in the WTO,
subject to approval of both the Ministry of Finance and the Cabinet.  In 1997, seven representative
offices of foreign banks were granted BIBF licences, and seven existing IBFs were upgraded to full
branch status.
124. Foreign bank branches remain subject to certain operational restrictions:  they may in
principle operate up to three branches;  but in practice, none of the foreign banks have yet been
granted approval to open more than one branch.  According to the authorities, there has not been any
demand for licences to open additional branches, notably as four local banks have been put up for sale(see below).
125. Further, the rather limited number of foreign personnel allowed per foreign bank office is
governed by the following conditions:  (i) two persons for banks operating as representative office;
(ii) six persons for each fully licensed branch;  (iii) four persons for each BIBF branch;  (iv) two
persons for each PIBF branch;  and (v) eight persons for banks operating as a fully licensed and BIBFbranch.
40
126. Foreign banks are also restricted in their operation of automatic teller machines (ATMs),
which must be operated jointly with Thai banks under specific conditions.  An offsite stand-alone
ATM is considered an additional branch.
127. In addition to foreign bank branches and representative offices, since 1993 the authorities
have encouraged the establishment of an offshore banking sector, the International Banking Facility
(IBF), to channel foreign capital into Thailand, as well as to route overseas funds to third countries
(Box IV.1).  In mid-1999, there were 33 BIBFs and 12 PIBFs in operation, IBFs are eligible for a
number of tax privileges aimed at encouraging such operations (Box IV.1).
                                                     
40 Licences to operate an IBF in Bangkok are known as BIBF, those foreign banks operating provincial
international banking facilities are known as PIBF.WT/TPR/S/63 Trade Policy Review
Page 106
Box IV.1:  International Banking Facilities
Off-shore banking was launched in Thailand with the establishment of the Bangkok International Banking
Facilities (BIBFs) in March 1993, when 46  licences were  granted to 15 Thai banks, 11  foreign banks that
already had branches in Thailand, and 20 new banks from overseas.
The operations of the International Banking Facilities include:  taking deposits or borrowing in foreign
currencies from abroad;  lending in foreign currencies in Thailand (out-in lending) and abroad (out-out
lending), non-baht cross-currency foreign exchange transactions;  discounting bills or providing guarantees
against any debts denominated in foreign currencies to persons residing abroad;  undertaking financialtransactions that involve international trade in cases where buyers and sellers reside abroad;  seeking loans
from foreign sources;  and acting as fund managers in arranging loans.  In addition, IBFs can engage inother investment banking services such as provision of financial information;  undertaking investment
feasibility studies;  financial advisory services;  ad visory services for business acquisition and take-over or
mergers;  and arranging or underwriting debt instruments for selling abroad.
The authorities granted the following privileges to IBFs:  a reduction in the corporate income tax rate from
30% to 10%;  exemption from special business tax (including municipal tax), which is currently at 3.3% oftotal turnover;  and exemption from withholding tax on interest income from deposits or lending for out-outtransactions with non-Thai residents;  exemption from stamp duties;  and reduction of withholding tax from
15% to 10% on interest on foreign loans for countries that have a double-taxation agreement with Thailand.
Provincial International Banking Facilities (PIBFs) are granted the same tax concessions.
In January 1995, the authorities expanded the off-shore banking business further by granting 37 PIBFs
licences to 22 commercial banks in order to operate in areas outside Bangkok.  At the end of 1997, 30 PIBF
offices had begun operations.  These offices were located  in five provinces:  Chiang Mai in the Northern
region, Chonburi and Rayong in the Eastern region, Ayutthaya in the Central region, and Songkhla in the
Southern region.  The PIBF's funding must be from overseas as in the case of the BIBF.  However, whereas
a PIBF can extend credit both in baht and in foreign currencies, a BIBF can extend credit only in foreigncurrencies.
As of December 1997, there were 48 BIBFs in operation, comprising 12 Thai banks, 17 foreign bank
branches in Thailand, and 19 foreign banks.  BIBF credits to domestic businesses amounted to B 1,411.4
billion, accounting for 23.6% of total do mestic credits extended by the banking system.  In July 1999, there
were 46 BIBFs in operation, comprising 13 Thai Ba nks, 18 foreign bank branches and 15 foreign banks.
BIBF credits amounted to B 607 billion or 11.5% of total domestic credits.
Source:  Government of Thailand .
128. Locally incorporated banks enjoy a significant advantage in that they are not limited in the
number of branches.  As a result, they may be in a better position to offer retail banking services,
including deposit banking.  Following legislative amendments made in 1997, foreign investors may
now hold up to 100% of shares in commercial banks, finance, and "credit foncier" companies for a
period of ten years, and may thereby operate locally incorporated banks, according to the authorities
"in order to rectify the financial condition of those in stitutions".  Thereafter, foreign investors will not
be obliged to divest, but may not purchase additional shares until the proportion of total foreign
shareholding falls to within 49%.  In Thailand's financial services Schedule annexed to the Fifth
Protocol, the absolute amount of foreign investors' equity holdings is grandfathered after the ten-year
period.  Foreign banks that purchase a majority share in a local bank will be allowed to continue
operating that bank under the rules pertaining to locally incorporated banks.
129. More specifically, the amendments maintain the requirement that maximum foreign equity
participation remain limited to 25% of paid-up registered capital;  that the combined shareholding of
an individual and related persons does not exceed 5% of a bank's paid-up registered capital;  and thatThailand WT/TPR/S/63
Page 107
at least three fourths of the directors are of Thai nationality.41  But the amendments also state that
these regulations on foreign shareholder limitations and on the appointment of foreign directors may
now be relaxed by the Minister of Finance if "the relaxation is deemed necessary to improve the
condition or business of the commercial bank".42  These measures were taken in the midst of the crisis
to strengthen the remaining financial institutions.  According to the authorities, the amount of invested
capital is the major criterion in this decision to relax shareholder limits, and priority is given to sellingfailed banks.  Meanwhile, market access remains limited to share acquisition of existing
establishments.
130. A similar decree has been issued concerning finance companies and credit foncier
companies.
43  The purpose of the Emergency Decree is to remove obstacles and expedite the merger
and acquisition of financial institutions that have been approved by the Minister of Finance.  Thedecree states that in the case of urgent need, a merger that has been approved can be made through a
proposal of the Board of Directors of that particul ar finance company.  The creditors or any other
party, shall not have the right to file for bankruptcy during the process of merger or transfer of
businesses.  Under current law, the filing of a bankruptcy case generally results in an immediate
freeze on all assets, and no merger or transfer is subsequently allowed (see below).  The Decree alsostates that in granting approval for the merger or the transfer of businesses, should there be a need for
financial assistance from the Financial Institutions Development Fund, "the government shall
compensate the Fund as deemed appropriate".
(6) TRADE IN TELECOMMUNICATION SERVICES AND EQUIPMENT
(i) Current market access conditions in telecommunication services
131. The 1995 Trade Policy Review of Thailand contained a presentation of the legal conditions
attached to trade and investment in telecommunication services;  these conditions have not changedsubstantially since then.  The Telephone Organization of Thailand (TOT) continues, by law, to be
Thailand's only supplier of domestic telephone services, and to provide services to neighbouring
countries.  Its monopoly counterpart in most international services, telegraph, telex, and
packet-switching services is the Communications Authority of Thailand (CAT).  The two monopolies
are, therefore, in competition for some services.
132. Under a series of concession contracts with the public companies and agencies (see below),
private companies have progressively entered a variety of markets, creating some degree of
competition for certain telecommunications services.  However, the authorities are aware that these
markets are unlikely to be truly competitive in the absence of cost-based pricing, transparent and fair
interconnection arrangements, and independent regulation.
44
133. Services currently supplied in part by private operators include cellular phones
(four operators), domestic Very Small Aperture  Terminal – VSAT (five operators), and paging
(six operators).  A total of 15 operators have received concessions.  The authorities have indicated that
the concessions provide for revenue-sharing arrangements negotiated on a case-by-case basis with
concessionaires.  Under current government plans, these concessions are to be converted into joint
                                                     
41 Emergency Decree Amending the Commercial Banking Act (B.E. 2505), notified in WTO document
S/C/N/72, 29 September 1998.
42 WTO document GATS/SC/85/Suppl. 3, 26 February 1998.
43 Emergency Decree Amending the Act on the Undertaking of Finance Business, Securities Business
and Credit Foncier Business (B.E. 2522), notified in WTO document S/C/N/73, 29 September 1998.
44 Royal Thai Government (1998).WT/TPR/S/63 Trade Policy Review
Page 108
ventures (see below).  In addition, there are 15 Internet service providers operating under joint
ventures, and two joint ventures operating domestic high-speed leased circuit services.
134. The CAT and the TOT both have the authority to  establish prices, including tariffs, access
charges, and accounting rates.  The authorities have noted that for basic telecommunication services,
the prices charged by CAT and TOT must be approved by the Cabinet.  It would appear that private
operators must submit their prices to their licensors for approval.
135. Foreign telecommunications suppliers are not currently allowed to establish companies in
Thailand.  Nonetheless, according to information supplied in the context of this Report, they may own
up to 40% of the equity of registered Thai companies supplying those basic telecommunications
services for which concessions have been granted.  Hence, current regulations would appear to be
more liberal than those reflected in Thailand's WTO commitments (see below).
136. Several concessionaires, including some of the largest, have been badly hit by the recent
financial crisis, which has resulted in large foreign exchange losses and collapsing share prices.  In
March 1999, the authorities reported significant progress in restructuring debt in the
telecommunications sector.  In particular, United Communications has announced restructuring of its
own debt of approximately US$600 million, following the successful restructuring of its subsidiaryTotal Access Communications.
(ii) International commitments
(a) Commitments on basic telecommunications services
137. Reflecting the existing state monopoly, no commitments were made in Thailand's 1994 GATS
Schedule for such activities as voice telephone services, telex and telegraph services, and facsimile
services.  Thailand participated in the 1997 WTO negotiations on basic telecommunications services,
and in its Schedule on Basic Telecommunications, of  April 1997, bound both cross-border supply and
consumption abroad of basic telecommunication services, subject to licensing and other
requirements.45  In particular, services suppliers must be registered locally and foreign equity and
shareholder participation may not exceed 20%.  Thailand also undertook to introduce, by 2006,
commitments regarding commercial presence in public  local, long-distance, and international voice
telephone services (as well as telex, telegraph, and fax), on the basis of proposed newcommunications legislation.  Although these commitments are vague, they reflect the Government's
stated commitment to complete liberalization of the telecommunications sector by that date.
138. Thailand also made liberalization commitments under the ASEAN Framework Agreement on
Services;  the December 1998 ASEAN Schedule covers domestic VSAT services (not covered under
the WTO Schedule), with the requirement that cross-border suppliers use the publictelecommunications network.  VSAT operators are subject, in addition, to a 40% maximum level of
foreign equity and shareholder participation.
(b) Commitments regarding value-added telecommunications services
139. In 1994, Thailand's GATS Schedule covered database access and on-line information
processing services, and five other services.
46  Different limitations have been scheduled for these
various value-added services;  in general, cross-border supply was bound within the limits of the
public monopoly described above, and subject to radio frequency availability.  Restrictions on foreign
                                                     
45 WTO document GATS/SC/85/Suppl. 2, 11 April 1997.
46 These are sales and consulting services, videotex, teleconference, and domestic leased circuits.Thailand WT/TPR/S/63
Page 109
equity participation ranged from 40% to 49%, depending on the activity.  No commitments were
made regarding the supply of a number of services, including electronic mail, voice mail, electronic
data interchange or enhanced facsimile.  No particular additional commitment was made as a result of
the 1997 WTO negotiations regarding value-added telecom services.  As for other services sectors,
movement of natural persons is unbound except for managers, executives or specialists, for a period
of one year, which may be extended twice.  In this regard, Thailand's market has been described bysome trading partners as one of the most restrictive in Asia.
47
(c) Commitments with the IMF
140. The telecommunications sector is part of the ongoing programme of reform agreed with the
International Monetary Fund.  Under this programme, the Government undertook to privatize CAT
and TOT by mid-1999.  At the time of finalizing this report implementing legislation for theprivatization of these two bodies was under consideration by the Office of the Council of State.
(iii) Progress of the Thai Telecoms Master Plan
141. Privatization of the TOT and the CAT was already a major feature of the Government's 1993
Telecommunications Development Master Plan, described in the 1995 Trade Policy Review, together
with the revision of existing legislation on a gradual basis.  The Master Plan has in fact been amendedseveral times.  The latest amendment, described below, was approved in November 1997;  it conforms
with the 1997 Constitution (Chapter II), which stipulates that an independent regulator must manage
and allocate radio frequencies.  A new Telecommunications Act, designed to replace existing
legislation on the management and allocation of radio frequencies, was still pending legislative
approval in mid-1999.
142. The main thrust of the November 1997 version of the Government's Telecom Master Plan
remains the abolition of the state monopoly on telecommunication services.  Accordingly, TOT andCAT are to become telecommunications operators and be transformed into public companies, with the
private sector being allowed to offer telecommunication services directly.  In the Plan, telecoms
services are classified into the following four categories:  (i) basic services;  (ii) value-added services;
(iii) information technology;  and (iv) multimedia.  The plan provides both for facilities-based
operators and non-network resellers.  The existing and proposed market structures are summarized inChart IV.7.
143. The implementation of this plan will require new laws to establish a national
telecommunication body to regulate and supervise telecommunications services.  While responsibility
for management and allocation of radio frequencies currently remains with the Post and Telegraph
Department (PTD), under the draft Telecommunications Act, the National CommunicationsCommission (NCC) would be established as the independent regulator in the telecommunications
sector and assume those responsibilities.  Other responsibilities would include the setting of technical
standards, national numbering plan, tariffs, and consumer protection.
144. The next step in the Telecom Master Plan involves the "corporatization" and subsequent
privatization of the Telephone Organization of Thailand (TOT) and the Communications Authority ofThailand (CAT).  In the first phase, the Ministry of Finance and the Ministry of Transport and
Communications plan to establish a state holding company to own the TOT and CAT.  The TOT and
CAT would then be corporatized into three lim ited companies:  TOT Co., Limited, CAT Telecom Co.
Limited, and Postal Co. Limited, all three 100% owned by the holding company.
                                                     
47 USITC (1997).WT/TPR/S/63 Trade Policy Review
Page 110
145. In the second phase, the shares of TOT Co. Limited and CAT Telecom Co. Limited would be
distributed as follows:  less than 50% to the holdin g company;  25% to a strategic partner;  a private
placement of 22% (not more than 5% to each investor);   and not less than 3% to existing staff.  In the
third phase, the holding company would reduced its shares in both the TOT and the CAT to less than
one third, the rest being offered to the public.  It has been suggested, however, that rapid
corporatization and privatization of these companies "may not be entirely consistent with an effectivemove toward open competition and a sust ainable longer-term industry structure".
48  In particular, key
issues such as the conversion of current concessionary arrangements (see below), interconnection
arrangements and universal service obligations should be resolved before privatization commences.
Chart IV. 7
Existing and proposed market structure of the telecommunications sector, 1999
End usersExisting
Policy
Source :    Government of Thailand.Regulators
Facility owners
Resellers
Retail marketTelecommunications Act T&T Acts TOT Act CAT Act RC ActsProposed
Cabinet MOTC Others
TOT CAT
TOT CAT
ConcessionairesCabinet MOTC Others
Independent regulator
TOT CAT
Facilities 
based operatorsNon-network
resellers and 
aggregatorsNew facilites-based 
entrants
146. To reduce government budgetary expenditures, in the past, the TOT made substantial use of
private financing (including foreign financing) through build-transfer-operate schemes (BTO), for
example in the installation of telephone lines.  The Telecom Master Plan aims to convert existing
15 to 30-year BTO concessions for telecommunication services into build-own-operate (BOO)
licences.  In practice, however, numerous issues need to be addressed before the concessionconversion can proceed, including the future of licensing and interconnection fees currently paid to
the State, conditions of competition with newcomers, and the method actually used to calculate the
Net Present Value of the concession.
49  In turn, the current revenue-sharing system has hampered
                                                     
48 Royal Thai Government (1998).
49 The Nation,  4 June 1999.Thailand WT/TPR/S/63
Page 111
some concessionaires' attempts to restructure their debt as creditors remain on the sidelines as long as
the licensing conditions are not clarified.
(iv) Telecommunications equipment
147. Thailand participated in the WTO negotiatio ns on the Information Technology Agreement
(Chapter III.2) and, in that context, bound tariffs on telecommunications equipment (Table IV.6).
Applied tariffs have remained unchanged.
Table IV.6
Thailand's WTO-ITA tariff concessions on selected telecommunications equipment and applied tariffs
HS Code Description1995
Applied
rate1999
Applied
rate1999
Bound
rateDate for bound
duty-free entry
851711 Telephone, cordless 20 20 22.7 2005
2005
851719 Other telephones 20 20 .. ..
- H588 ex 851710 .. .. 22.7 2005
- H588 ex 852530 .. .. 3.3 2005
- H588 ex 852810 .. .. 38.7 2005
- H588 ex 252820 .. .. 33.3 2005
851721 Facsimile machines 5 5 22.7 2005
851722 Teleprinters 5 5 8.5 2000
851730 Switching apparatus 5 5 22.7 2005
851750 Other apparatus for line systems (H588 ex 851740,
851781, 851882)5-10 5 22.7 2005
851780 Other apparatus (H588 ex 851781, 851782) .. .. 8.5 2000
- for use as testing equipment for engineers 10 10 .. ..
- other 5 5 .. ..
851790 Parts .. .. 22.7 2005
- for use with telephones 20 20 .. ..
- other 5 5 .. ..
.. Not available.
Source: WTO document WLI/101, 16 November 1998;  and Government of Thailand .
148. Telecommunication equipment is on the list of industries eligible for Board of Investment
incentives described in Chapter III(4).  In order to encourage import substitution, no import dutyexemptions are granted on imports of electric switches, telephone cables, and telephone receivers as
these products are available locally.
149. Local suppliers of telecommunications equipment have a 10% margin of preference in
government procurement contracts unless internat ional competitive bidding (ICB) is required.
150. The manufacture and importation of radiocommunication equipment and components is
generally subject to licensing by the Post and Telegraph Department.  For some products, a type
approval certificate must be issued, and the produ ct must be labelled with a PTD identification
number.  In general, these technical regulations do not appear to constitute a barrier to imports.
(7) TRADE IN BUSINESS SERVICES
151. Thailand included a large number of business services in its GATS Schedule of Specific
Commitments, even though the domestic regulatory framework did not allow for much foreign access.WT/TPR/S/63 Trade Policy Review
Page 112
As a result, the GATS commitments are limited, but provide a transparent assessment of the current
setting.  Through ASEAN, Thailand has actively participated in the WTO Working Party on
Professional Services.50
(i) Accountancy services
152. Thailand was one of the first countries to provide answers to the WTO questionnaire on the
accountancy sector.51  Accounting standards are set by the Institute of Certified Accountants and
Auditors of Thailand (ICAAT).  Through ICAAT, Thailand is a member of the International
Federation of Accountants, the International Accoun ting Standards Committee, and the Confederation
of Asian and Pacific Accountants.52 A licence is required to provide statutory auditing.  Foreign
individuals cannot be licensed as certified public accountants (CPAs).  There is no licensing
requirement for firms.  Some have suggested that these restrictions may have lowered the level ofprofessional expertise in the accountancy sector, and indirectly contributed to the financial crisis of
1997 (Chapter III(4)).
53  However, the authorities consider rather that professional expertise depends
mainly on education and practice.
153. Thailand has included accounting, auditing and bookkeeping services in its GATS Schedule
of Specific Commitments.  Cross-border supply and movement of natural persons have been leftunbound; foreign commercial presence has been bound subject to a maximum foreign equity
participation of 49%.
54  According to the authorities, the world's five largest accountancy firms are
very active in Thailand through joint ventures.  Consumption abroad of accountancy services has been
bound, although this is of little commercial relevance given that companies and accountants have to
be licensed domestically to carry out audits.
154. Auditing services have been included in Thailand's list of Article II MFN exemptions to
reflect the possibility for bilateral agreement based on reciprocity:  so far, no such agreement has beensigned with any country.
(ii) Legal services
155. Thailand has included all legal services (CPC No. 861) in its GATS Schedule.  Commitments
mirror those made for accounting services.  In contrast with accountancy services, however, in
practice legal advice can be sought internationally through consumption abroad, and in practice, fewrestrictions limit the purchase of such services other than the requirements of local jurisdictions.
Foreigners are not allowed to practice law in courts.  However, with a work permit, they may act as
legal advisers or work as solicitors for companies.  According to industry opinion, the number of
                                                     
50 Professional services are defined according to the Sectoral Classification List adopted by the Group
of Negotiations on Services (GATT document MTN.GNS/W/120, 10 July 1991).
51 WTO document S/WPPS/W/7/Add.1, 28 June 1996.
52 At the WTO Ministerial meeting in Singapore in December 1996, Members encouraged the
successful completion of internationa l standards in the accountancy sector by the International Accounting
Standards Committee (IASC), the International Federation of Accountants (IFA), and the InternationalOrganization of Securities Commissions.  Both IASC and IFA have maintained active dialogue with the WTO
regarding benchmark accountancy standards.
53 World Bank (1998).
54 In addition, the number of foreign partners or shareholders may not exceed one half of the total
number of partners or shareholders, and a Thai national must be the managing partner or manager of the limitedpartnership.Thailand WT/TPR/S/63
Page 113
persons admitted to Thailand for the purpose of practising law is limited, which in turn may hamper
the supply of legal services by foreigners.55
(iii) Architectural and engineering services
156. Thailand has included all architectural (CPC No. 8671), engineering (CPC No. 8672), urban
planning and landscape architectural services (CPC  No. 8674) in its GATS Schedule.  Cross-border
supply and movement of natural persons have been left unbound; foreign commercial presence hasbeen bound subject to a maximum foreign equity participation of 49%.  Consumption abroad has been
bound, but this may be of little commercial significance.
(iv) Other professional services
157. Thailand has not included a number of professional services in its GATS Schedule, in
particular:  taxation services (CPC 863), integrated engineering services for turnkey projects, as well
as geological and other scientific services and technical consulting services, and testing and analysis
services (CPC No. 8673, 8675 and 8676).  Medical and dental services (CPC 9312), veterinary
services (CPC 932) and services provided by mi dwives, nurses, physiotherapists, and para-medical
personnel (CPC 93191) also remain unscheduled.
(v) Computer and related services, rental and leasing
158. Computer and related services are all included in Thailand's GATS Schedule, with the
exception of programming services.56  The same market-access conditions apply as for accounting
services:  cross-border supply is unbound;  consumption abroad is bound;  commercial presence is
subject to the 49% equity participation limit;  and movement of natural persons is bound subject to
horizontal measures.  Rental and leasing services without operators of machinery and equipment
(other than relating to transpor t equipment) (CPC 83106-83109) has also been included, with the same
market-access limits as for computer services.
(vi) Other business services
159. Thailand has scheduled several services under the GATS, with the same market-access
conditions as those in place for computer services.57  Included are: advertising services (CPC 871),
market research and public opinion and polling services (CPC 864), general (but not other)
management consulting services (CPC 86501), certain technical testing and analysis services(CPC 86761 and 86769), services incidental to agricu lture, hunting and  forestry (CPC 881), services
incidental to fishing (CPC 882), services incident al to mining (CPC No 883+5115), maintenance and
repair services of office machinery and equipm ent including computers (CPC 84500), packaging
services (CPC 876), printing, publishing (CPC 88442), and translation and interpretation services
(CPC 87905).
                                                     
55 USITC (1997).
56 CPC groups and subclasses 84240, 84250 and 849 are not scheduled.
57 Services not included are:  specialized management consulting services and related services
(CPC 865, 866), research and development services (CPC 85), real estate services (CPC 86), services incidental
to manufacturing 884+885 (except for 88442), services in cidental to energy distribution (CPC 887), placement
and supply services of personnel (CPC 872), investigation and security (CPC 873), maintenance and repair ofequipment excluding transport equipment (CPC 8861-8866), building-cleaning services (CPC No. 874),photographic services (CPC 875), and other business services (CPC 8790).WT/TPR/S/63 Trade Policy Review
Page 114
(8) DEVELOPMENTS IN TRANSPORT POLICY
160. There have been important developments towa rds greater international competition in the
transport sector, particularly in air transport services  and to a lesser extent in maritime transport.  No
developments have taken place in these areas regarding WTO commitments, which were described in
the previous Review of Thailand in 1995.58
(i) Air transport services
161. International air traffic to and from Thailand reached 18.2 million passengers in 1998, up
from 14.8 million in 1994.  Freight volume decreased by 6% in 1998 to 683,481 tonnes, reflecting the
impact of the financial crisis on the industrial sector.  Thai air carriers account, respectively, for 45%
and 47% of international passenger and cargo transport.
(a) Privatization policy
162. There are currently five state-owned enterprise s involved in the air transport industry, the
largest being Thai Airways International (TG), the Airports Authority of Thailand (AAT) and the new
Bangkok International Airport (NBIA), which is expected to be completed in 2005.59  Private sector
involvement has been extensive, but without a common framework for infrastructure development,
concessions and licensing.  This has led to inefficient use both of public and private capital as well asconflicting arrangements for private sector participation.
60  Aware that improvements to transport
infrastructure are vital to the country's developm ent, the authorities have initiated a number of
privatization plans.
163. In mid-1999, offers were being received by the Government for the sale of 23% of the
Government's shares in TG, whose total assets reach almost B 150 billion (approximately
US$4.3 billion).  As a result, the Government's ownership will decrease to 70%.  In addition, the
Air Navigation Act is being amended to allow foreign ownership of domestic airlines to increase fromthe current limit of 30% to 49% of registered capital This amendment is expected to pass Parliament
in the year 2000.  Privatization plans also include the sale of approximately 30% of the Government's
shares in AAT Co. a wholly owned subsidiary of AAT, whose total assets are approximately
B 24 billion.
(b) Regulations and limits to foreign suppliers
164. Operating licences for scheduled and non-scheduled domestic air transport services are not
granted to foreign companies.  Local operators may be up to 30% foreign owned;  as noted above, this
share is expected to be increased to 49%.  The number of domestic airlines has increased from two to
                                                     
58 Thailand has taken an MFN exemption under the GATS for VAT collection on the sale and
marketing of maritime transport services, and cargo-sharing and other provisions of bilateral agreements with
China, the United States and Viet Nam.  Under sector -specific commitments, Thailand did not bind regulations
concerning commercial presence and the presence of natural persons for passenger transportation, freighttransportation, and most other maritime transport service sectors.  In addition, no commitments were offered for
cabotage transport, the rental of vessels with crew, or the maintenance and repair of vessels.  Thailand'sexemptions to MFN treatment for the sector include VA T collection on a reciprocal basis for the sale and
marketing of air transport services;  in addition, trade in aircraft repair and maintenance services is limited to
countries providing rights on a reciprocal basis.  At the sector-specific level, no commitments were offered for
passenger transportation, freight transportation or the rent al of vessels with crew.  Not included in Thailand's
GATS Schedule, as noted above, were such transport services as internal waterways, space, and pipelines.
59 The other two are the Civil Aviation Training Center and the Aeronautical Radio of Thailand.
60 Royal Thai Government (1998).Thailand WT/TPR/S/63
Page 115
four since 1995.  Angel Airline, the second designat ed airline, is privately owned and operates both on
domestic and international routes.
165. International scheduled air transport services continue to be run under bilateral air services
agreements.  For non-scheduled flights, foreign airlines may supply services subject to normal
regulatory requirements.
166. Foreign operators may carry out the ground-handling services of their small aircraft.  For
aircraft with a minimum take-off-weight over 5,700kg., servicing is reserved for local suppliers.  In
addition, the International Aircraft Technical Pool may supply such services for its members.
167. The authorities have indicated that the computer reservation system (CRS) is due to be
opened to competition at the same time as the basic telecommunications industry, in 1999.  This
would allow foreign services suppliers to install and operate these services in Thailand.  Meanwhile,foreign airlines may operate the system for their own use only.
168. Cross-border supply and consumption abroad of the sale and marketing of air transport
services is not currently allowed, although the authorities have stated that the sector would soon be
opened to foreign competition.  Thailand currently allows foreign commercial presence exclusively
through foreign airlines or through one general sales agent office.  Under the current revenue code,VAT may be either zero or 7% (on the value of the ticket) depending on the tax treatment of Thai
firms in the country of origin of the foreign servi ce supplier.  According to the authorities, the zero
rate was soon to be applied to all airlines.  Slots at airports are determined by the Airport Slots
Allocating Committee, where countries are represented by their national airlines;  Thailand is
represented by Thai Airways International.
(ii) Maritime transport
169. The supply of maritime transport is generally free of any restrictions based on country of
origin.  Thai flag vessels carry about 10% of total trade.  Inward cargo tonnage decreased in 1997 and
1998, probably reflecting the fall in aggregate demand, while outward cargo continued to increase as
export volumes increased (Table IV.7).
Table IV.7
Cargo tonnage of vessels, 1994-98(Million tonnes and per cent)
Inward Outward
Year Cargo tonnage Change (%) Cargo tonnage Change (%)
1994 60.6 18.9 35.8 5.7
1995 60.7 0.3 34.4 -4.0
1996 74.6 22.8 42.5 23.7
1997 69.7 -6.5 49.2 15.7
1998 56.1 -19.6 58.3 18.5
Source: Transport Statistics 1998, Office of the Permanent Secretary.
170. There are no restrictions on access to cargoes to or from Thailand, except that the
Government may require that goods purchased by a government agency or enterprises are carried by
Thai flag vessels.  Cabotage is reserved for Thai flag vessels (i.e. 70% owned by Thai nationals).
Some assistance is provided by the EXIM Bank to local merchant shipping business (Chapter III(3)).WT/TPR/S/63 Trade Policy Review
Page 116
171. In 1997, the Thai Vessels Act was amended to allow foreigners to hold a de facto majority in
a company owning vessels under the Thai flag.  In 1998, the Revenue Code was amended to abolish
the different rates of VAT on the value of transpor t services applied to foreign companies according
to reciprocity agreements.  All companies provid ing maritime transport to and from Thailand are now
entitled to the zero VAT rate.
172. Until recently, there was no regulatory measure to prevent anti-competitive practices by
conferences or other shipping lines.  At this stage, it is still unclear whether the enactment of the
Trade Competition Act B.E. 2542 has resulted in any change in regulatory measures to prevent
anti-competitive practices by liner conferences.  An ad hoc Working Group has been set up to study
the matter and to make recommendations on the appropriate measures to be taken by the Government
or relevant agencies or bodies.Thailand WT/TPR/S/63
Page 117
REFERENCES
Adams, P. D. (1998), Long-run Effects of APEC Trade Liberalization:  An Applied General
Equilibrium Analysis,  Blackwell Publishers Limited, 1998.
APEC (1998), Thailand's Individual Action Plan,  30 October, Kuala Lumpur, Malaysia.
Bank of Thailand (1998a), Financial Institutions and Markets in Thailand , Economics Research
Department, November.
Bank of Thailand (1998b), Quarterly Bulletin , various issues.
Chirathivat, S. (1999), "Strengthening Domestic Financial Markets and Corporate Governance:
Thailand's Experience", Paper prepared for the In ternational Conference on "Responding to Financial
Crises:  Challenges for Domestic Policy and International Cooperation", jointly organized by theTaiwan Institute of Economic Research, the Council for Economic Planning and Development and the
International Cooperation and Development Fund, Taipei, Taiwan, 22-23 March 1999.
Customs Department of Thailand (1998), "Customs Modernization Reform" [Online].  Available at:
http://www.customs.go.th.
Dollar, David and Mary Hallward-Driemeier (1998), "Crisis, Adjustment and reform;  Results from
the Thailand Industrial Survey", Paper presented at the May 20-22 Competitiveness Conference,
Bangkok, Thailand.
European Commission, Market Access Database. [Online.]  Available at:  http://mkaccdb.eu.int and
USTR (1999).  National Trade Estimate Report on Foreign Trade Barriers.  [Online.]  Available at:http:/www.ustr.gov/reports/nte/1999/thailand.pdf.
GATT (1991), Trade Policy Review – Thailand,  Geneva.
International Association of Insurance Supervisors (1998), "Thailand's Insurance Supervisory
Framework Towards Liberalization", Speech at th e Fifth Annual Conference, (Cancun, Mexico) by
Potjanee Thanavaranit, Deputy Director General, Department of Insurance, Ministry of Commerce,
Thailand, 30 September 1998.
Kingdom of Thailand (1999), "Thailand's Economic Reform", Progress Report , Ministry of Finance,
Fiscal Policy Office, January.
Ministry of Finance (1999).  "Economic Stimulus  Package of the Thai Government" [Online].
Available at:  http://www.mof.go.th/march30/pre_english.htm.
Nidhiprabha, B. (1998), "Economic Crises and the Debt-Deflation Episode in Thailand",
ASEAN Economic Bulletin,  Vol. 15, No. 3.
Norton, J. S. (1998), "Are Latin America and East Asia an Ocean Apart?  The Connecting Currents of
Asian Financial Crises", Reform of the Financial Systems, Working Documents I, III, High Level
Meeting on the Reform of the Financial Systems in Latin America and the Caribbean,
Madrid, 27-29 May 1998, International Cooperation Agency of Spain and Latin American Economic
System.WT/TPR/S/63 Trade Policy Review
Page 118
Rahman, Z. (1998), "The Role of Accounting Disclosure in the East Asian Financial Crisis:  Lessons
Learned", prepared for UNCTAD, 8 October 1998.
Royal Thai Government (1998), Master Plan for State Enterprise Sector Reform , 1 September 2541.
Trairatvorakul, P. (1998), "The Importance of Co rporate Governance Reforms in the Recovery from
Financial Crisis:  Viewpoints from Thailand", paper presented at the conference on "Managing Asia's
Financial Sector Recovery:  the Role of Competition Policy and Corporate Governance",
9-10 November 1998, Singapore.
UNCTAD (1999), Investment Report, Geneva.
USITC (1997), "General Agreement on Trade in Services:  Examination of the Schedule of
Commitments Submitted by Asia/Pacific Trading Partners",  Publication 3053, Washington, D.C.
USTR (1999), National Trade Estimate Report on Foreign Trade Barriers [Online].  Available at:
http:/www.ustr.gov/reports/nte/1999/thailand.pdf.
World Bank (1998), Policy Research Paper  No. 2003, Washington, D.C.
WTO (1995), Trade Policy Review – Thailand,  Geneva.
WTO (1998), Trade Policy Review – Indonesia, Geneva.