BANGKOK — Foreign retailers operating in Thailand, including the U.K.’s Tesco and France’s Carrefour, have been trying to decipher what Thailand’s military government intends in two proposed laws that could force restructuring of their operations and a rethinking of market growth.
A draft retail law that has been written by the hand-picked government without consultations with business could limit expansion of hypermarkets under the guise of protecting Thailand’s mom-and-pop stores. A copy of the proposal has not been released by the government, but officials have said it would limit the size of new stores, force stores to close at midnight instead of operating 24 hours a day and could stem expansion by imposing environmental and zoning restrictions that weigh population density and the number of retailers in each province.
The proposed retail law also would establish a Central Commission on Retail Trade aimed at toughening rules governing expansion. In addition to securing local permission, retailers would have to get approval to build new stores from the 20-member national commission.
Since the military seized control of Thailand’s government in September, it has stressed that it intends to protect Thai businesses and interests, and its often contradictory pronouncements and impromptu changes in investment laws have unsettled foreign investors.
“That’s just the problem, we can’t make plans,” said Darmp Sukontasap, senior vice president of Ek-Chai Distribution System, the operator of Thailand’s Tesco-Lotus superstores.
The retailer agreed to a government-imposed, 90-day moratorium on expansion, but still plans to spend $170 million on expansion in 2007, he said. Sukontasap declined to say how many new stores were planned. Tesco-Lotus has 56 supercenters and almost 200 express outlets in Thailand.
Carrefour, which has 24 outlets in Thailand, is planning to spend $13 million over the next five years to open another 15 stores by 2011. The chain plans to begin its expansion in 2008. It also reportedly plans to restructure its organization to become a Thai company and so avoid any government interference.
The Thai Retailers Association has tried to negotiate changes in the retail proposal with government officials, said association president Thanapon Tangkanan. One of the biggest problems he sees is that there is no timetable on retail commission decisions, so they could be delayed indefinitely and consequently stall expansion plans. He also complained that the national committee would be too diverse and that some of its members, which would include government workers, would know nothing about retailing. In addition, the law does not specify how curtailing expansion of hypermarkets would help the small Thai independent shops, he said.
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“The biggest loser here would be the consumer,” Tangkanan said.
The second proposed change by the military government, which has been endorsed by the cabinet, would change foreign investment rules that have for years allowed multinational companies to control local subsidiaries in service sector businesses reserved for Thai companies. Under the proposal, foreigners could hold no more than 50 percent of the voting rights of a company. Retailers are exempt from the foreign ownership rule, but could be caught up in the change that could restrict expansion.
Also, the position of retailers is complicated by the fact that many are landowners that set up companies using Thai “nominees” to meet the 50 percent ownership rule. The proposed law does not specify who would be grandfathered under the old rule.
The proposed changes could hurt the Thai economy because they were made secretly by the government without advice of business, said Vigas Kawatra, an analyst at Kim Eng Securities.
“Companies make investments in countries based on the law of the land,” he said. “If the government is changing the law every week and introducing new measures without explanation, I don’t think investors will be in any rush to come in.”