THAILAND - Asean

98 Investment treaty policy in ThailandSummaryThailand’s investment treatiesThailand’s approach to investment treaties has evolved considerably over timeTreaty use: ISDS claims under Thailand’s investment treatiesReconsidering Thailand’s investment treaty policyOther possible aspects of investment treaty reformReferencesAnnex 8.A. Thailand’s international investment agreementsNotes9 Promoting and enabling responsible business conductSummaryScope and importance of responsible business conductFrom risk to resilience: RBC and COVID-19Thailand is a regional leader on RBCTranslating policy commitments into implementationReferencesNotes10 Promoting investment for green growthSummaryGreen growth and investment in Thailand: challenges and opportunitiesThailand’s priorities and international commitments to green growthPolicy approaches to promote investment in green growthFinancing for green growthReferencesNotes11 Promoting Thai outward investmentsSummaryInvestment from Thailand is rapidly expandingOFDI involves benefits for economic and sustainable developmentStructural shifts create opportunities for OFDIRising costs at home push Thai firms to internationalisePolicies to pave the way for outward FDIReferencesAnnex 11.A. List of Thailand’s double tax 291294295296302306307FIGURESFigure 1.1. Thailand’s strong economic growth has been enabled by exports and FDIFigure 1.2. Thailand’s development trajectory: 1960-todayFigure 1.3. Relatively low productivity growth since mid-1990sFigure 1.4. Foreign activity is concentrated in BMA, EEC and the CentreFigure 1.5. R&D activities are picking up in ThailandFigure 1.6. OECD FDI Regulatory Restrictiveness Index: a historical perspective, 1985-2018Figure 2.1. Thailand’s economic growth has been enabled by exports and FDIFigure 2.2. Thailand’s development trajectory: 1960-todayOECD INVESTMENT POLICY REVIEWS: THAILAND OECD 20212324262829355456

10 Figure 3.1. Relatively low productivity growth since mid-1990s70Figure 3.2. Some productivity improvements in Thailand 4.0 target sectors72Figure 3.3. Trends in revealed comparative advantages identify food processing as the most dynamic sector inThailand74Figure 3.4. Thailand prioritises the development of activities without a comparative advantage today75Figure 3.5. Competitiveness in high priority activities is lagging but improving76Figure 3.6. Value added creation and employment is concentrated in wider Bangkok77Figure 3.7. Productivity differences across and within regions79Figure 3.8. Firms engaging in activities of strategic priority expand and improve performance, mainly in widerBangkok and EEC80Figure 3.9. Services could still be further developed in Thailand81Figure 3.10. Services competitiveness is concentrated in tourism82Figure 3.11. Thailand is narrowing the productivity gap in some modern services83Figure 3.12. Decreasing inventory holding costs in Thailand83Figure 3.13. Thailand is emerging as an innovation hub84Figure 3.14. R&D activities are picking up in Thailand85Figure 3.15 An increasing but still small share of manufacturing firms engage in R&D86Figure 3.16. Trends in quality of basic education in Thailand87Figure 3.17. Qualification mismatch in Thai labour market88Figure 3.18. Decreasing labour shortages and increasing in-house training89Figure 4.1. FDI stocks have increased steadily since 1980, but recently FDI flows have fallen95Figure 4.2. Thailand is an important FDI destination in ASEAN96Figure 4.3. Japan, the United States and Singapore are the main investors in Thailand97Figure 4.4. Value of completed M&A deals, 2018-202098Figure 4.5. Value of announced greenfield investments by sector, 2018-202098Figure 4.6. Greenfield FDI goes primarily to manufacturing, while M&A deals are prevalent in services99Figure 4.7. Foreign activity is concentrated in BMA, EEC and the Centre100Figure 4.8. FDI growth was modest in approximated target sectors101Figure 4.9. Foreign ownership has a significant and positive effect on firm performance103Figure 4.10. Foreign firms are more productive than domestic firms in most sectors104Figure 4.11. FDI is concentrated in sectors that are more productive105Figure 4.12. Foreign firms spend more on R&D in higher value added sectors and in services106Figure 4.13. FDI is prevalent in sectors that spend more on R&D106Figure 4.14. FDI is concentrated in less productive and less R&D-intensive sectors in other countries in theregion107Figure 4.15. Foreign manufacturers have a skill premium and operate in more skill-intensive sectors108Figure 4.16. Across most regions, over 40% of foreign companies report investing on staff training108Figure 4.17. The share of partnerships between domestic and foreign firms is higher in Thailand than inMalaysia and Singapore109Figure 4.18. Business linkages with foreign firms have a positive effect on Thai firms’ productivity110Figure 4.19. Foreign firms have a wage premium in all sectors111Figure 4.20. In most regional peers foreign firms enjoy a wage premium111Figure 4.21. Foreign firms employ larger shares of women in high-tech sectors and in services112Figure 4.22. In Thailand, FDI is concentrated in less emitting sectors113Figure 4.23. In most ASEAN countries FDI is prevalent in more energy-efficient sectors113Figure 4.24. Foreign investors are more energy efficient in high-tech sectors and services114Figure 5.1. The BOI has a higher number of mandates than OECD agencies125Figure 5.2. Estimated use of resources across the investment functions of the BOI, selected ASEAN countriesand the average OECD IPA128Figure 5.3. Board members in BOI and selected other IPAs130Figure 5.4. Structure of the tax incentives scheme in Thailand since 2015133Figure 5.5. The distribution of foreign equity among promoted and non-promoted firms134Figure 5.6. Number of promoted activities, by sector and incentives’ generosity135Figure 5.7. Applications to the BOI before and after 2015, by sector137Figure 5.8. Applications submitted to the BOI between 2015 and 2019, by incentive group137Figure 5.9. The size of promoted and non-promoted industrial establishments in 2016145Figure 5.10. Effect of investment promotion on labour productivity in Thailand146Figure 5.11. Tax subsidy rates on R&D expenditures in Thailand and other countries148Figure 5.12. The relationship between firms’ total expenditure and spending on R&D in 2016150Figure 5.13. The relationship between firms’ total expenditure and cost of training in 2016153OECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

11Figure 5.14. Promoted firms disproportionally contribute to value-added in the EEC154Figure 6.1. The importance of FDI in global value chains166Figure 6.2. Services value added share of exports and of manufacturing exports166Figure 6.3. OECD FDI Regulatory Restrictiveness Index, 2019168Figure 6.4. OECD FDI Regulatory Restrictiveness Index: an historical perspective, 1985-2019169Figure 6.5. OECD FDI Regulatory Restrictiveness Index, by sector: Thailand vs. ASEAN vs. OECD, 2019170Figure 6.6. OECD Services Trade Restrictiveness Index, by sector and policy area, 2019171Figure 6.7. OECD FDI Regulatory Restrictiveness Index, by type of restriction, 2019172Figure 6.8. Thailand’s minimum capital requirement policy in international comparison174Figure 6.9. OECD FDI Regulatory Restrictiveness Index, by sector, 2019: simulating BOI and IEATexemptions177Figure 6.10. Simulated effects of FDI liberalisation: reducing Thailand’s restrictions to the 50th and 25thpercentile levels of OECD FDI Regulatory Restrictiveness Index181Figure 7.1. Overview of government departments involved in land administration in Thailand201Figure 7.2. Stakeholder engagement in public policy can be improved206Figure 7.3. Thailand’s capacity to implement reforms lags behind most comparator countries207Figure 8.1. Approximate evolution of Thailand’s inward and outward FDI stock coverage from investmenttreaties in force215Figure 8.2. Evolution of Thailand’s investment treaty relations216Figure 8.3. Overview of Thailand’s overlapping investment treaty relationships225Figure 10.1. High municipal waste levels compared to many of its peers269Figure 10.2. Rising CO2 emissions from the use of fossil fuels269Figure 10.3. Applications for investment incentives submitted to BOI for energy-related investments-greenactivities, energy sector, 2016 to 2018276Figure 10.4. Applications for investment incentives submitted to BOI for green and non-green activities, plasticmanufacturing, 2016 to 2018276Figure 10.5. Renewable energy generation in Thailand, installed capacity (MW), 2000 to 2018277Figure 10.6. Lead debt providers for wind and solar projects, 2008-2017280Figure 10.7. Climate-related development finance to Thailand, 2012 to 2017, by instrument and sector281Figure 11.1. Growing outward investments in Thailand and ASEAN288Figure 11.2. Thai greenfield investments are concentrated in ASEAN289Figure 11.3. Almost two thirds of Thai M&As in AMS occur in Singapore290Figure 11.4. Thai greenfield investments are concentrated in infrastructure projects, while the majority of M&Adeals are in manufacturing, mining and finance290Figure 11.5. Foreign firms dominate in high-tech industries291Figure 11.6. A third of Thai companies report plans to invest abroad within 3 years292Figure 11.7. Outward FDI supports product and market diversification293Figure 11.8. Thai firms invest abroad to access markets and improve efficiency294Figure 11.9. Thai firms rely more on internal information channels or host market to inform themselves aboutinvestment opportunities abroad301TABLESTable 1.1. The weight of promoted industrial establishments in the Thai economy31Table 4.1. Foreign firms perform better than Thai firms103Table 5.1. IPAs’ most common core investment functions and related BOI department127Table 5.2 The weight of promoted industrial establishments in the Thai economy144Table 5.3 Description of cost-based R&D tax incentive schemes in Thailand147Table 5.4 Spending on R&D by promoted and non-promoted industrial establishments149Table 5.5 Spending on skills by promoted and non-promoted industrial establishments152Table 5.6 The contribution of promoted businesses to economic activity in Industrial Estates154Table 6.1. FDI Restrictions under sector-specific or horizontal legislation172Table 6.2. Number of Foreign Business Licences and Certificates issued under the FBA 1999 (30 March 2000– 30 November 2019)178Table 6.3. Proportion of BOI-promoted projects with foreign participation and FBA exemptions through thepromotion channel178Table 7.1. Comparison of domestic legal frameworks in ASEAN countries for key investment194Table 10.1. Climate change mitigation targets in selected ASEAN countries272OECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

12 Table 10.2. Multilateral environmental agreements (MEAs) ratified by ThailandTable 10.3. Investment incentives offered for green sectors in Thailand274275Annex Table 5.A.1. Top 20 promoted activitiesAnnex Table 5.B.1. Applications eligible for investment promotion: January 2015 - December 2019Annex Table 8.A.1. Bilateral investment treaties in forceAnnex Table 8.A.2. Bilateral investment treaties signed but not in forceAnnex Table 8.A.3. Bilateral trade and investment agreements in forceAnnex Table 8.A.4. Plurilateral agreements containing investment protections, investment liberalisationprovisions and/or ISDS157158234235235235Follow OECD Publications on:http://twitter.com/OECD //www.oecd.org/oecddirect/OECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

13Acronyms and abbreviationsAANZFTAASEAN-Australia-New Zealand Free Trade AgreementACIAASEAN Comprehensive Investment AgreementAECASEAN Economic CommunityAEDPAlternative Energy Development PlanAPECAsia-Pacific Economic CommunityAMSASEAN Member StateASEANAssociation of Southeast Asian NationsARCAnnouncement of the Revolutionary CouncilBAUBusiness As UsualBITBilateral Investment TreatyBMABangkok Metropolitan AreaBCGBio Circular GreenBOIBoard of InvestmentBUILDIndustrial Linkages Development DivisionCAGRCompound Annual Growth RateCBDConvention on Biological DiversityCDMClean Development MechanismCITCorporate Income TaxCLMVCambodia, Lao PDR, Myanmar, and Viet NamCO2Carbon DioxideCOPTICSCentre of Operational Policing for Thailand Against Intellectual Property Violations andCrimes on the Internet SuppressionCOVID-19Novel coronavirus; official name SARS-CoV-2CPTPPComprehensive and Progressive Agreement for Trans-Pacific PartnershipDIPDepartment of Intellectual PropertyDITPDepartment of International Trade PromotionEECEastern Economic CorridorEECiEastern Economic Corridor Innovation HubEIAEnvironmental Impact AssessmentsEHIAEnvironment and Health Impact AssessmentsOECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

14 EPOEuropean Patent OfficeEUEuropean UnionESGEnvironmental, Social, GovernanceEQMPEnvironment Quality Management PlansEXIM ThailandExport Import Bank of ThailandFBAForeign Business ActFDIForeign Direct InvestmentFTAFree Trade AgreementGDPGross Domestic ProductGPFGovernment Pension FundGVCGlobal Value ChainICTInformation and Communication TechnologyIIAInternational Investment AgreementILOInternational Labour OrganisationIMFInternational Monetary FundIPIntellectual PropertyIPAInvestment Promotion AgencyIPDBoard of Investment’s Investment Promotion DivisionISDSInvestor State Dispute SettlementISICInternational Standard Industrial ClassificationJICAJapanese International Cooperation AgencyJSCCIBJoint Steering Committee on Commerce, Industry, and BankingLACLatin America and CaribbeanMENAMiddle East and North AfricaM&AMerger and AcquisitionMHESIMinistry of Higher Education, Science, Research and InnovationMNEMultinational EnterpriseNAPNational Action Plan on Business and Human RightsNEQANatural Environment Quality ActNDCNationally Determined ContributionNESDCNational Economic and Social Development CouncilNHRCTNational Human Rights Commission of ThailandNSTDANational Science and Technology Development AgencyOECDOrganisation for Economic Co-operation and DevelopmentOFDIOutward Foreign Direct InvestmentOSMEPOffice of Small and Medium Enterprises PromotionOSOSOn Start One Stop Investment CentreOVECVocational Education CommissionOECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

15PDPPower Development PlanPFIPolicy Framework for InvestmentPRIPrinciples for Responsible InvestmentRBCResponsible Business ConductRCARevealed Comparative AdvantageR&DResearch and DevelopmentRCEPRegional Economic Comprehensive PartnershipSDGSustainable Development GoalsSEAStrategic Environmental AssessmentSECSecurities and Exchange CommissionSETStock Exchange of ThailandSEZSpecial Economic ZoneSOEState-owned EnterpriseSMESmall and Medium EnterpriseSTEMScience, Technology, Engineering and MathematicsSTCStrategic Talent CentreNXPOOffice of National Higher Education, Science, Research and Innovation Policy CouncilTAIThai Arbitration InstituteTBAThai Bankers AssociationTGOThailand Greenhouse Gas Management OrganisationTHACThailand Arbitration CentreTHBThai BahtTRIPSTrade-Related Aspects of Intellectual Property RightsT-VETThailand Voluntary Emission Trading SchemeUNUnited NationsUSDUnited States DollarUSPTOUnited States Patent and Trademark OfficeUNFCCCUnited Nations Framework Convention on Climate ChangeWEFWorld Economic ForumWIPOWorld Intellectual Property OrganisationWWFWorld Wildlife FundWTOWorld Trade OrganisationOECD INVESTMENT POLICY REVIEWS: THAILAND OECD 2021

17Executive SummaryThailand has had an impressive economic development trajectory over the past decades. Foreign directinvestment (FDI) and integration in global value chains (GVCs) have been important enablers of thissuccess. Inward FDI’s share in GDP has increased to above 50% today. The emerging global economiccrisis related to the COVID-19 pandemic is expected to bring this long period of growth to a sudden halt.According to the OECD, the economy is predicted to contract by approximately 7% in 2020, where exportsand FDI are likely to slow even more. Thailand’s past experience of severe floods in 2011, which alsoresulted in a sudden – but only temporary – interruption of GVC networks, provides some hope thatThailand’s GVC integration is quite resilient.Progress in the area of inclusive and sustainable development is ongoing, with poverty rates dropping toless than 10%, but challenges remain. Although access to basic education at primary and secondary levelsis universal, there is a need to address the quality of education being provided. In particular, higher andvocational education needs to equip the workforce with skills required by the industry and the emergingneeds of the services economy. Pressures remain in some areas of responsible business conduct (RBC),but are now being addressed with determination. Rapid economic growth in Thailand has also led tosignificant use of natural resources, resulting in rising environmental challenges.Thailand aspires to graduate from an upper middle-income to a high-income country by 2037, along withinclusive and sustainable development, as outlined in the 20-year national strategy. With its recentlyintroduced Thailand 4.0 vision and the Bio-Circular-Green (BCG) economy model, the government wouldlike to achieve its objectives through economic upgrading toward a value-based and green economy.Investment promotion and facilitation policy under the Board of Investment (BOI) has an impressive recordin stimulating foreign and domestic investments. The 2015-21 investment promotion strategy includesnovelties, such as a shift toward more targeted and merit-based incentives for R&D and skills developmentand a reduction of activities eligible for promotion. The incentive scheme could however be furtherstreamlined, simplified and made increasingly merit-based so that all firms, including SMEs, can competeon a more equal basis. Besides investment promotion, the BOI engages in non-tax concessions such asproviding eased restrictions on foreign shareholdings and expatriate workers. This could affect its efficacyand credibility as the BOI has to represent investors’ interests in policymaking while regulating them at thesame time. Streamlining the wider institutional framework for the entry of foreign investors and workerscould be a longer term reform priority, potentially liberating the BOI from regulatory mandates.With the creation of the Foreign Business Act (FBA) in 1999, Thailand was early in opening up to foreigninvestment in manufacturing, but has not liberalised further since then. Thailand’s primary and servicessectors remain particularly restrictive to foreign investment, according to the OECD FDI RegulatoryRestrictiveness Index. The development of competitive services has great potential to promote inclusivegrowth and productivity including in manufacturing; liberalising services should therefore be envisaged.Meanwhile, som

the OECD are very pleased to have joined forces in producing this . OECD Investment Policy Review of Thailand, as part of the OECD-Thailand Country Programme. This report is one of the deliverables of this Country Programme. We thank all government agencies in Thailand and the OECD Secretariat who have contributed to this Review.