WORLD TRADE
ORGANIZATIONG/SCM/N/38/THA
23 April 1999
(99-1662)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
New and Full Notifications Pursuant to Article XVI:1 of
the GATT 1994 and Article 25 of the SCM Agreement
THAILAND
The following communication, dated 13 April 1999, has been received from the Permanent
Mission of Thailand.
______________
1. Industrial Credit Refinancing Scheme
1.1 General Industries
(a) Nature and extent of the programme
(i) Background and authority
Under the Royal Decree Regulating the Affairs of the Bank of Thailand B.E. 2485,
Section 12(4), the Bank of Thailand is authorized to provide financial assistance to priority sectors
and projects through refinancing schemes.
(ii) Incidence
Each manufacturer is allotted a credit line for issuing promissory notes ("P/N").  The Bank of
Thailand ("BOT") may purchase from commercial banks, the Industrial Finance Corporation of
Thailand ("IFCT"), finance companies or finance and securities companies P/Ns drawn by those
manufacturers to fund their working capital.  The amount of refinancing is 50 per cent of the P/N'sface value with a maturity period of 120 days.  The rate charged by the BOT to commercial banks, the
IFCT, finance companies or finance and securities companies is set at 5 per cent p.a.  In turn, financial
institutions can charge issuers not more than 10 per cent p.a. of the notes' face value.
(iii) Amount of payment (total)
The following table presents the amount of BOT's purchase of P/N:G/SCM/N/38/THA
Page 2
Year BOT's purchase of P/N
(million baht)
1992 934
1993 724
1994 1,043
1995 870
1996 805
1997 911
(b) Effect of the programme
The objective of the scheme is to provide financial support to industries essential to rural
development, particularly those which are labour intensive or which have a high utilization of localagricultural products as inputs.
1.2 Small-scale industry
(a) Nature and extent of the programme(i) Background and authority
Under the Royal Decree Regulating the Affairs of the Bank of Thailand B.E. 2485,
Section 12(4), the Bank of Thailand is authorized to provide financial assistance to priority sectors
and projects through refinancing schemes.
(ii) Incidence
Small-scale industries with net fixed assets of not more than B 50 million are eligible for this
scheme.  The Bank of Thailand ("BOT") may purchase from commercial banks, finance companies,
finance and security companies, the Industrial Finance Corporation of Thailand ("IFCT") or the SmallIndustry Finance Corporation ("SI FC") promissory notes ("P/N") drawn by manufacturers for use as
working capital.  The amount of refinancing is 50 per cent of the P/N's face value but not more than
B 12.5 million with a maturity period of 120 days.  The BOT charges financial institutions 3 per cent
p.a. for the refinanced amount, while permitting them to charge their customers not more than 10 per
cent p.a. for the full amount of the P/N.
(iii) Amount of payment (total)
Below is the total amount of refinancing by BOT:
Year BOT's purchase of P/N
(million baht)
1992 230
1993 348
1994 368
1995 359
1996 427
1997 541G/SCM/N/38/THA
Page 3
(b) Effect of the programme
This scheme is aimed at promoting small-scale industries located in the provinces and
encouraging distribution of income and wealth to the rural areas.
2. Livestock Raising A nd Aqua-Culture Credit
(a) Nature and extent of the programme
(i) Background and authority
Under the Royal Decree Regulating the Affairs of the Bank of Thailand, B.E. 2485,
Section 12(4), the Bank of Thailand is authorized to provide financial assistance to priority sectors
and projects through refinancing schemes.
(ii) Incidence
The Bank of Thailand ("BOT") may purchase fr om commercial banks, the IFCT, Bank for
Agriculture and Agricultural Cooperatives ("BAAC"), SIFC, finance companies or finance and
securities companies promissory notes ("P/Ns") dr awn by farm owners to finance their operating
costs.  The amount of refinancing is 50 per cent of the face value of the P/N.  Although maturity of
P/N depends on the type and product of the farm, it may not extend over five years.  The BOT chargescommercial banks, IFCT, BAAC, SI FC, finance companies or finance and securities companies 5 per
cent p.a. for the refinanced amount while permitting them to charge their customers not more than
10 per cent p.a. for the full amount of P/N.
(iii) Amount of payment (total)
The total amount of BOT's purchase of P/N:
Year BOT's purchase of P/N
(million baht)
1992 1,297
1993 1,134
1994 1,047
1995 943
1996 1,044
1997 1,342
It is Thailand's understanding that a subsidy provided to agricultural producers is subject to
commitment as specified in the Agreement on Agriculture.
(b) Effect of the programme
This scheme is aimed at providing low-cost funds for commercial livestock raising and aqua-
culture.G/SCM/N/38/THA
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3. Rural Development Credit Refinancing Scheme
(a) Nature and extent of the programme
(i) Background and authority
Under the Royal Decree Regulating the Affairs of the Bank of Thailand, B.E. 2485,
Section 12(4), the Bank of Thailand is authorized to provide financial assistance to priority sectors
and projects through refinancing schemes.
(ii) Incidence
The Bank of Thailand ("BOT") may purchase prom issory notes from commercial banks, the
IFCT, SIFC, finance companies and finance and security companies in the amount of 50 per cent of
the P/N's face value drawn by project operators or project participants (farmers or workers).  The loan
must be blended with financial institutions' credit in supporting each rural project.  The maximum
period for project support is five years.  Generally, the BOT charges financial institutions not morethan 3 per cent p.a. while permitting them to charge project operators or project participants not more
than 10 per cent p.a. for the full amount of P/N.
(iii) Amount of payment (total)
The amounts of credit provided by the BOT are as follows:
Year BOT's purchase of P/N
(million baht)
1992 30
1993 151
1994 103
1995 20
1996 0
1997 0
It is Thailand's understanding that a subsidy provided to agricultural producers is subject to
commitment as specified in the Agreement on Agriculture.
(b) Effect of the programme
The objective of the programme is to support short and long-term investment in the
agricultural and industrial sectors so as to upgrade technical skills and standard of living in the rural
areas.G/SCM/N/38/THA
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4. Incentives to Promoted Industries under the Board of Investment's ("BOI") Privileges
on Zone 3 Programmes
(a) Nature and extent of the programme
(i) Background and authority
Under the Royal Decree Regulating the Affairs of the Bank of Thailand, B.E. 2485,
Section 12(4), the Bank of Thailand is authorized to provide financial assistance to priority sectors
and projects through refinancing schemes.
(ii) Incidence
The establishments eligible for assistance under this scheme must be new investment projects
or zone relocation, each with capital funds not more than B 200 million (excluding land cost and
working capital).  Additionally, they must have been granted investment promotional benefits or the
BOI's privileges and are located outside Bangkok and 14 nearby provinces.
The Bank of Thailand ("BOT") may purchase from commercial banks, finance companies,
finance and security companies, the SIFC or IF CT, P/Ns drawn by entrepreneurs for funding the
acquisition of fixed assets (excluding land cost) and working capital.  The amount of refinancing is set
at 40 per cent of the P/N's face value.  The term of notes must not exceed 120 days for borrowing tobe used as working capital, and five years for investment in fixed assets.  The BOT charges financial
institutions 3 per cent p.a. while permitting them  to charge note issuers not more than MOR/MLR
minus 2 per cent p.a. for the full amount of P/N.
(iii) Amount of payment (total)
The total amount of refinancing by BOT is as follows:
Year BOT's purchase of P/N
(million baht)
1994 11.2
1995 640
1996 1,412
1997 2,704
5. Investment Promotion Incentives
(i) Background and authority
The Board of Investment provides both local a nd foreign companies with fiscal incentives in
an attempt to promote the establishment of industries in Thailand to accelerate the country's
industrialization process and regional development.  During recent years, investment incentives are
geared towards decentralization as one of the Thai Government's policy themes is regional
development.  Investment incentives are offered to attract more investment to regional areas which
face disadvantages in various aspects and to address the on-going imbalances between urban and ruralareas.  The legislation that governs the provision of incentives by the Board of Investment is the
Investment Promotion Act (1977) amended in 1991.G/SCM/N/38/THA
Page 6
(ii) Incidence
Major fiscal incentives granted include corporate income tax exemption and reduction;  and
exemption and reduction of import duties on machinery and raw materials.  A wide range of activities
covering manufacturing and services are eligible for promotion.  Generally, the magnitude ofincentives provided varies according to project locations.  The entire country is divided into three
zones.  Zone 1 which covers Bangkok and six neighbouring provinces is granted the least incentives
whereas Zone 3, the most remote area, is granted the maximum incentives.  At present, locations are
the most important criterion in determining invest ment incentives that each project receives.  The
Board of Investment may require certain activities to be located in Zone 2 or 3 only in order to be
eligible for promotion.  Under certain circumstan ces, export requirements may also be imposed to
help improve the country's balance of payment.
(iii) Amount of subsidy
There is no specific budget earmarked for investment incentives.  The extent of incentives
depends on the number of projects promoted by the Board of Investment.  Thus, the governmentrevenue foregone in this regard fluctuates from year to year.  No statistic on corporate income tax
exemption and reduction are available.  Only figures on exemption of import duties on machinery and
raw materials are available.
Import Duty Exemption and Reduction
Granted to BOI-Promoted Projects
(1 January-31 December 1997)
Million baht
Machinery
*  Exemption
*  Reduction
*  Total9,229.1
122.5
9,351.6
Raw material and essential materials
*  Exemption1
*  Reduction
*  Total43,062.3
447.9
43,510.2
TOTAL 52,861.8
Source: Customs Department, Ministry of Finance, Thai Government
1 This exemption is related to input used in the manufacture of exports which should not bear
duties in any case.
(iv) Estimated amount per unit
The estimated amount of subsidy per unit cannot be determined.G/SCM/N/38/THA
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6. Non-Actionable Subsidies
Since the policy revision in April 1993, the Board of Investment also offers incentives for
factory relocation and special incentives for research and development activities.  Incentives offered
under these two schemes are not specific to certain industries or enterprises.
6.1 Factory Relocation Incentives
Incentives for factory relocation are granted to existing projects which relocate from Zone 1
to Zone 2, or from Zone 1 or 2 to Zone 3.
Eligibility
- Factories facing environmental problems and required by the Ministry of Industry to
relocate
1. The factory must be relocated to an industrial estate or promoted industrial zone.2. The former factory must be closed down and all machinery must be moved to the new
facility.  The new factory must be ready for operation within two years of receiving the
promotion certificate.
- Other types of operation
1. The existing operation must employ not fewer than 50 people.2. Main production machinery must be moved to the new location, and the new factory must
start operating within two years of receiving the promotion certificate.
Incentives
For factories relocating to Zone 2
• Corporate income tax exemption for three years, extendible to seven years if projects are
relocated to industrial estates or promoted industrial zones.
For factories relocating to Zone 3
• Eight-year corporate income tax exemption
• 50 per cent reduction of corporate income tax for a period of five years after the
exemption period
• Double deduction from taxable income of water, electricity and transportation costs for a
period of ten years
• Deduction from net profit of 25 per cent of the costs of installation or construction of
infrastructure facilities
Note: Zone 1 comprised Bangkok, Samut Prak arn, Samut Sakorn, Nakorn Pathom, Nonta
Buri and Pathum Thani.  Zone 2 covered Samut Songkhram, Ratchburi, Suphan Buri, Ang Thong,
Ayutthaya, Saraburi, Nakhon Nayok, Chachoengsao and Chon Buri.  Zone 3 included the other
57 provinces, Map Ta Phut and Laem Chabang Industrial Estates.G/SCM/N/38/THA
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6.2 Promotional Privileges for Research and Development
With a view to upgrading the country's production capabilities, the Board of Investment
grants additional incentives to promoted projects which invest in research and development activities.Additional three years of corporate income tax exemption will be granted to promoted projects which
invest in research and development activities.  However, when combined with the existing corporate
income tax exemption, the total period cannot exceed eight years.
7. Packing Credit Facility
Packing credit facility is an export financing scheme provided by the Bank of Thailand with
co-financing from commercial banks.  Under this  facility, commercial banks obtain funds, provided
by the Bank of Thailand, through EXIM Bank, at the concessionary interest rate on condition that
commercial banks co-finance the other half in order to on-lend to exporters.  The facility is provided
for both pre-shipment and post-shipment financing.
1. Period covered by the notification
1 January-31 December 1997.
2. Policy objective and/or purpose of the programme
To encourage commercial banks to provide export financing for exporters.  The initial
purpose of the programme was to encourage the financing of commodity exports.  Up to now,
commodities remain the major beneficiaries of the programme.
3. Background and authority for the programme
The Bank of Thailand provided the funding.  EXIM Bank allocated funds to commercial
banks and supervised the utilization of the facility.
4. Form of provision
Loan.
5. To whom and how the programme is provided
EXIM Bank financed, from the Bank of Thailand's fund, one half of the total credit granted.
Commercial banks co-financed the other half and on-lent to exporters.
    50 Baht     100 Baht
   5% p.a.  no more than
    12% p.a.
adding another 50 Baht
(the cost of fund is higher than that of EXIM Bank)EXIM Bank Commercial Bank ExportersG/SCM/N/38/THA
Page 9
The mechanism is as follows:
          (2) (1)
  L/C, Contract, P/O
             (3)      (5)
    (2)              (4)      (6)
        (7) (8)     (11)
(9)    (10)
(1) Exporters apply for Packing Credit line at commercial banks.
(2) Exporters receive purchasing documents from overseas or have stock in possession or have
usance export bills.
(3) Exporters issue promissory notes to commercial banks.(4) Commercial banks grant the loan to exporters with interest rate of no more than 12 per cent
p.a.
(5) Commercial banks issue promissory notes to EXIM Bank with the amount of up to 50 per
cent of promissory notes issued by exporters (as stated in (8)).
(6) EXIM bank disburses the fund to commercial banks.(7) Exporters ship out their merchandise.
(8) Exporters bring export documents to commercial banks for negotiation.
(9) Commercial banks negotiate export bills, discharge the exporters' promissory notes and give
the remaining proceeds to exporters.
(10) Commercial banks pay back for settlement  of their corresponding promissory notes.
(11) EXIM Bank discharges commer cial banks' promissory notes.
6. Total amount of the programme
The Bank of Thailand extended a total line of B 33 billion for the packing credit facility, to
which commercial banks co-finance another half.
The interest rate that the Bank of Thailand charged EXIM Bank was 4 per cent while EXIM
Bank channelled funds to commercial banks at 5 per cent.  Commercial banks blended their fund and
on-lent to exporters at the interest rate not more than 12 per cent as of end 1997.
7. Statistical data of the programme
(Billion baht)
1995 1996 1997
Total packing credit financing 182.0 178.0 170.4
Total EXIM Bank's financing 91.0 89.0 85.2
Average credit outstanding 41.9 44.6 42.1
Financing to agricultural produce
(share to total)99.5
(54.7%)94.5
(53.0%)91.3
(53.5%)
__________Buyers
abroadThai exporters CommercialBanks EXIM BankStock