Dej-Udom & Associates Business and Legal Update – March 2014

The Dej-Udom & Associates monthly business and legal update for Thailand and the ASEAN region for March 2014

COUNTDOWN 2015 – ASEAN Economic Community ||

ASEAN Development Bank Report  – 
The Asian Development Bank released The ASEAN Economic Community: A Work in Progress, an analysis of the barriers and impediments in realizing AEC integration by 2015. The authors praise the near dissolution of tariffs in the six biggest ASEAN countries as a success in ASEAN economic integration and claim that 70% of all intra-ASEAN trade is now tariff-free. They also warn of remaining challenges including the removal of non-tariff barriers and border barriers, the adoption of harmonized standards, and narrowing the development divide. The report is free and available at http://www.adb.org/publications/asean-economic-community-work-progress

ASEAN FDI Gains
According banking experts, five ASEAN countries attracted more foreign direct investment (FDI) than China did in 2013. Indonesia, Malaysia, Philippines, Singapore and Thailand received $128.4 billion in (FDI) in 2013 and China’s FDI fell to $117.6 billion. Malaysia’s FDI strengthened by 19%, Indonesia’s by 17%, and Philippines’ by 188% before Typhoon Haiyan and ended with 24% growth overall.

FTA Talks to Resume
ASEAN Secretary-General Le Luong Minh announced that ASEAN will resume free-trade talks with the European Union after the ASEAN Economic Community integration in 2015. Minh said that as the EU is not a direct competitor, a free-trade agreement (FTA) would promote trade and economic growth while increasing development and cooperation between the entire ASEAN region and the EU.

Integration Beyond 2015
At the 25th senior officials meeting in Yangon, ASEAN permanent secretaries agreed to continue promoting closer economic ties in all areas after the 2015 integration under the ASEAN Miracle and AEC plus 2015 plan.

Indonesia News
Haze Worse in 2014
Less than a year after the world outcry over the haze from Indonesia’s peat and forest fires that enveloped Singapore and Malaysia, the fires have returned and are predicted to be even worse this year. Indonesia’s National Disaster Mitigation Agency warns that due to drought conditions, the fires are starting much earlier in 2014 and will affect the region longer. It has been reported that the Indonesian Parliament may ratify the ASEAN Agreement on Trans-Boundary Haze Pollution after the general election in April, but that outcome is unlikely to resolve the current haze problem.

Vietnam Update
GDP Growth
In their quarterly publication Economic Insight: South East Asia, the Institute of Chartered Accountants in England and Wales forecast that Vietnam’s GDP would grow 5.4% this year and increase to 5.7% in 2015 and 2016. They credit this to export growth, more government spending, Vietnam becoming more open to foreign investment, and a recovering banking sector with fewer non-performing loans.

Malaysia News
Auto Sector Liberalization
Malaysia liberalized its local automotive sector under the recently announced National Automotive Policy (NAP) 2014. Many protectionist measures were removed, and foreign car makers can now produce vehicles with 1.8-litre engines and below and can manufacture energy-efficient vehicles (EEVs) without having a local partner. Experts say the only drawbacks are customized incentives and fuel standard commitments.

Myanmar Watch
Stock Exchange Will Open on Schedule
At a recent seminar, the Deputy Minister for Finance declared that the Yangon Stock Exchange will open on schedule at the end of 2015 despite challenges emerging from the preparation stage.

THAILAND UPDATE

Banking and Finance
Credit Rating Issues
Moody’s Investment Service notes that Thailand’s credit fundamentals remain sound despite the ongoing political turmoil. However, experts point out that should the political trouble continue into the second half of 2104, negative ratings could occur.

Mortgage Based Securities
The government’s Secondary Mortgage Corporation (SMC) plans to offer 4 billion baht in mortgage backed securities to retail investors. SMC intends to purchase housing loans from other financial institutions in order to develop securitization products.

Securities and Exchange
Foreign Investment Returns
This month, the Stock Exchange of Thailand (SET) experienced a return of foreign investors after listed Thai companies showed strong first-quarter results. The political situation at the beginning of the year prompted many foreign investors to pull out of the Thai market.

Japan and SEC to Cooperate
An agreement has been reached between the Thai Securities and Exchange Commission (SEC) and Japan’s Financial Services Agency
(FSA) to cooperate on and promote business opportunities. The FSA oversees Japanese banking, securities and foreign exchange.

Board of Investment
Large Decline in Applications
The Board of Investment (BOI) is presently not able to approve major projects because the tenure of the members expired last October and new appointments can only be made when Thailand has a new government. For the first two months of 2014, investment applications were down by almost 60%. At the present time, projects worth 500 billion baht are awaiting approval from the BOI’s main board. If the delay in BOI approvals of major projects continues, it will have a negative effect on Thai banks that make loans to investment projects. There could be a flat growth in loans for the first quarter due to the low demand for long-term credit.

Transportation
Infrastructure Project Rejected
The Constitutional Court has ruled that the government’s major infrastructure projects bill is unconstitutional. The ruling was based on the premise that the loan for the project is regarded as a state fund which must be obtained through the normal budgetary process. A proposed 2-trillion baht loan was planned to cover a number of projects including a high-speed rail system and improvement of the nation’s double track railway system. Property developers who speculated on land near high-speed train lines will be negatively impacted.

Intellectual Property
Corporate Raids
The Thai Police’s Economic Crime Division has raided ten companies in the manufacturing and construction industries in search of unlicensed software. The raids uncovered unlicensed business software, server software, and language translation software.

Trade
EU Trade Talks Delay
Free Trade Agreement (FTA) discussions between Thailand and the European Union (EU) are on hold due to Thailand’s lack of government. Europeans point out that Thailand is falling behind Singapore, Malaysia and Vietnam in trade advantages due to delays in negotiations.

Business
Japanese SME Investment
Japanese trade experts have announced that due to their depreciating economy, Japanese small and medium size enterprises (SMEs) are seeking investment opportunities in the ASEAN region. Japanese SMEs continue to view Thailand as a potential business hub and an ideal location to invest.

Concerns about Pending Drought
The water levels in the nation’s largest reservoirs are well below the 10-year average which is causing serious problems for farmers in the north. There are concerns that disputes over water usage will arise.

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