editor’s note: This blog has always been about sharing everything we know about Thailand – the bars, the nightlife and making our own way in business here. Well folks – to do just about anything as a foreigner in Thailand you better have a lawyer. Visa, work permits, marriage stuff and of course business endeavors. We have tried to cover business stuff as we go and I even tried to keep a section on it.
Recently we met an American lawyer in the Big Mango and we discussed some sort of regular column for the blog. I think it will be cool. This will be his first post and we are already discussing some ideas for other posts. We may do some sort of ask the lawyer column and highlight some real case work. I would like to welcome Ben to the blog! Thanks.
Ben is the Managing Director of Integrity Legal (Thailand) Co., Ltd.
Much confusion surrounds the US-Thai Treaty of Amity and Economic Relations, or simply the Treaty of Amity as most expats refer to it in Thailand. The confusion surrounding the treaty stems from its precarious status with regard to the WTO treaty signed by Thailand nearly fifteen years ago and the, currently mothballed, Free Trade Agreement between the United States and Thailand. Many people wonder if the Treaty is still in force and if it is, then how much protection does it really offer?
A QUICK EXPLANATION OF THE TREATY AND ITS HISTORY
The Treaty of Amity was signed in 1966 and replaced an older treaty and was basically an updated version. There were several important rights conferred in the treaty, not the least of these was the right of Americans to own all the shares of stock in a Thai Limited Company and for that company to receive â€’National Treatment.” What this means is that in the eyes of the law the Treaty of Amity Company with an American majority owner is treated the same as if the majority owner were Thai. Therefore, a company registered under the Treaty of Amity is not treated as a â€’foreign” company, but a Thai company.
For many American expats, the treaty has been a godsend over the years because it has allowed them to own their businesses outright and not need to deal with the vagaries of the Foreign Business Act (the most recent incarnation is the Foreign Business Act of 1999). The Foreign Business Act states that all, or virtually all, foreign owned companies need to obtain a foreign business license in order to operate. Obtaining a foreign business license is no easy feat depending upon which type of business classification the company in question falls into.
To make a long story short: The Treaty of Amity allowed Americans to own the majority of a Thai business without needing to get a Foreign Business License. There are still a few areas not covered by the Treaty of Amity, most notable is the fact that even an Amity Treaty Company cannot own land.
THE TREATY OF AMITY IS GREAT: WHERE’S THE CONFUSION?
The confusion regarding the Treaty of Amity deals with the WTO (World Trade Organization) and the treaty Thailand signed with them nearly 15 years ago. Under the WTO rules, no nation can give any one nation preferential rights over any other.
This means that Thailand is in violation of its WTO obligations by allowing ONLY Americans the right to own a company outright with national treatment. If Thailand extended the privilege to citizens of the other member nations of the WTO, then the problem would end there because Thailand would be in compliance with the WTO. Since Thailand does not seem likely to do this they are in violation of the WTO because unequal privileges are extended to the US.
Thailand was given an exemption period in 1995 to get their laws in order. This exemption lasted for ten years and expired in 2005. Since then, Thailand has technically been in violation of the WTO. However, the Treaty of Amity is still in effect. How can this be?
According to Article 14 of the US Thai Treaty of Amity and Economic Relations:
§3 The present Treaty shall remain in force for ten years and shall continue in force thereafter until terminated as provided herein.
§4 Either Party may, by giving one year’s written notice to the other Party, terminate the present Treaty at the end of the initial ten-year period or at any time thereafter.
Seems simple, the treaty doesn’t end until one of the parties says its going to end and even then, those concerned shall have a year to comply with the new rules, whatever they may be.
This doesn’t really answer the question as to where this fits in with the WTO. It seems that by signing the WTO Thailand did not abrogate any existing treaties, hence the need for the exemption period for Thailand to get its valid laws in compliance with the new system. Therefore, the laws on the books at that time and still in effect (such as the Treaty of Amity) are not affected by the WTO until the government of Thailand amends its laws accordingly. This is just one man’s opinion, but it seems to be corroborated by the fact that I helped a client process an Amity Treaty protection request for his company less than one month ago. The request was granted by the Thai Foreign Business Office and the Treaty of Amity Certificate duly conferred upon his company.
The WTO has yet to bring up this issue with Thailand, at least publicly. I have heard that part of the reason for this silence is the fact that the WTO is waiting for a more stable government to be elected before they broach the subject, but this is mere conjecture.
WHAT HAPPENS TO THE TREATY OF AMITY WHEN THE WTO CALLS FOR THAILAND TO COME INTO COMPLIANCE?
ALL HELL BREAKS LOOSE!!!! JUST KIDDING!
I think that when the WTO calls for Thai compliance with its treaty then Thailand will do one of three things: â€’grandfather” everyone in already registered under the Treaty of Amity, completely throw out the Treaty of Amity and tell everyone to get into compliance within a year, or sign a new free trade agreement with the US that calls for a combination of these two options.
The idea that Thailand will just throw out the Treaty of Amity and tell everyone protected by it to just deal with it seems unlikely, although this is Thailand and anything can happen.
According to the White House website:
â€’The AER [Treaty of Amity] covers over 1,000 U.S. businesses in Thailand. Total U.S. investment in Thailand is about $20 billion.” http://www.whitehouse.gov/news/releases/2003/10/20031020-27.html
It seems unlikely that Thailand will throw away that kind of money and goodwill capriciously.
Also according to the US State Department at http://www.state.gov/e/eeb/ifd/2006/62040.htm, â€’Both the U.S. and Thailand anticipate that the rights granted investors under the AER will be replicated in the bilateral FTA currently under negotiation.” Although the negotiations for the US-Thai FTA have been postponed, until who knows when, it seems unlikely that the Thai-US Treaty of Amity will be thrown out before a new agreement is adopted in its place.
The current Thai-Australian Free Trade Agreement allows Australian Nationals the right to own up to 60% percent of certain companies. Although the list of companies in which this type of ownership is allowed is less extensive than under the US Thai Treaty of Amity, it still leave us with some idea of the worst case scenario for a possible US-Thai FTA.
WILL COMPANIES CURRENTLY PROTECTED BY THE TREATY OF AMITY BE â€’GRANDFATHERED” IN?
The Treaty of Amity itself says nothing about this scenario, only calling for the one year exemption period. It seems likely that Amity Treaty Companies will be â€’grandfathered” in. Previous foreign business acts have a â€’grandfather” clause allowing those engaging in what would become restricted businesses to continue to engage in such business. It seems logical that this kind of scheme would be used to phase out the Treaty if such an option was desired by the Thai government. Again, this is Thailand and nothing is a certainty, but looking at the past and the laws and politics at play it seems unlikely that the Treaty of Amity will be completely abrogated to the total detriment of those protected by it.
The worst case scenario under the Treaty of Amity: You get to own your business outright for a year. Since the Treaty has yet to expire: if you had a company registered the day before the treaty was terminated, then you would still have a year to come into compliance.
For more information on many aspects of American/Thai law see: http://www.integrity-legal.com
Thanks for reading,
Benjamin W. Hart, Esq.
US Licensed Attorney
Integrity Legal (Thailand) Co., Ltd.