Foreign Investment: Updates Framework for Investment Protection Agreements

Thailand has taken significant steps to modernize its framework for international investment protection, aiming to enhance clarity, transparency, and alignment with global standards. The Cabinet recently approved revisions to the criteria governing investment protection under the Agreement on the Promotion and Protection of Investments between Thailand and foreign countries. These changes replace the previous framework established in 2003 and reflect Thailand’s commitment to fostering a favorable environment for foreign direct investment (FDI) while safeguarding national interests.

Key Updates to Investment Protection Criteria:

The revised framework introduces several important changes to the criteria for investment protection, as outlined below:

1. Scope of Protected Investments
   • Previous Criteria: Protection was limited to foreign direct investments (FDI).
   • Revised Criteria: The scope remains unchanged, with protection still applying exclusively to FDI.

2. Types of Protected Investments
   • Previous Criteria:
     • Investments authorized by the Minister or Director-General under the Foreign Business Act B.E. 2542.
     • Investments are granted promotion certificates by the Board of Investment (BOI).
     • Investments under concession agreements with government agencies.
   • Revised Criteria:
     • Investments in business operations, activities, or other forms of investment (excluding shareholding) are permitted under Thai law for foreign nationals, in line with government policies and international investment protection agreements.
     • Investments under concession agreements with government agencies.
     • Shareholding investments in legal entities engaged in the above activities or other Thai entities provided the foreign investor holds at least 10% of the entity’s capital, supported by evidence.

3. Other Protected Direct Investments
   • Previous Criteria: Investments falling outside the three specified categories or made before the effective date of the Cabinet resolution required a Certificate of Approval for Protection (C.A.P.) from the C.A.P. Committee.
   • Revised Criteria: Investments not meeting the specified criteria will no longer be eligible for protection.

4. Protection Assessment Mechanism
   • Previous Criteria: The C.A.P. Committee reviewed and approved investment protection under the agreement.
   • Revised Criteria: No review mechanism exists. Investments failing to meet the criteria will not receive protection.

5. Scope of Application
   • Previous Criteria: Not explicitly defined.
   • Revised Criteria: The updated criteria will apply to all future agreements and 47 existing international investment agreements, including:
     • 36 Bilateral Investment Treaties (BITs): For example, the agreement between Thailand and the United Kingdom on investment promotion and protection.
     • 11 Free Trade and Regional Investment Agreements: Such as the Thailand-Australia Free Trade Agreement and the Regional Comprehensive Economic Partnership (RCEP).

Background and Rationale:

The revision of investment protection criteria follows extensive consultations between the Ministry of Foreign Affairs and relevant agencies. The goal is to align Thailand’s investment protection framework with current global practices and ensure it supports the country’s economic and social development. Notably, the updated criteria emphasize protecting only those investments that contribute significantly to Thailand’s overall benefit, in line with the nation’s investment protection policies.

Thailand has also actively promoted international cooperation on investment by sharing its draft Bilateral Investment Treaty Model 2020 (BIT Model) with 15 countries. To date, four countries—Brazil, Kenya, Saudi Arabia, and Ukraine—have expressed interest in negotiating investment protection agreements with Thailand.

Implications of the Revised Framework:

The updated criteria aim to:

• Enhance Clarity and Transparency: By clearly defining the types of investments eligible for protection, the framework reduces ambiguity for foreign investors.
• Streamline Processes: The removal of the C.A.P. Committee’s review mechanism simplifies the process for eligible investments.
• Promote Sustainable Investment Growth: By focusing on investments that align with Thailand’s development goals, the framework encourages long-term, mutually beneficial partnerships.

Conclusion:

Thailand’s revised investment protection framework represents a significant step forward in creating a modern, transparent, and investor-friendly environment. By updating its criteria and aligning them with international standards, Thailand aims to attract high-quality foreign investments that contribute to the country’s sustainable economic growth. These changes underscore Thailand’s commitment to balancing investor protection with national interests, ensuring a win-win scenario for all stakeholders.

Author: Panisa Suwanmatajarn, Managing Partner.

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