Foreign direct investment, market forces & allocation of legal responsibility

Road Carnage
Thailand bleeds money and its citizens/visitors at an average rate of one dead person every 22 minutes due to its possession of one of the most dangerous and fatal road systems comprising horrific accidents through negligence, speeding, intoxicated driving, carelessness and non-compliance with basic rules such as adhering to red-lights, pedestrian crossing, lane discipline and slowing down in residential zones. This reportedly costs the economy a whopping 500 billion Thai baht per year. Why does this matter to me, an investor may ask?

Potential Risk Allocation in Investment
With a widely dispersed base of knowledge in hand, a commercial investment can allocate risk more efficiently, or at least on a decision theory ‘invest with knowledge, not under ignorance’ basis:

• A domestic partner may be responsible for procuring licenses, assisting in application for investment incentives, but also with monitoring rights for the foreign investor and reporting obligations from the domestic partner on legal compliance, including anti-corruption measures.
• A domestic trading or contracting counterparty may be required to assist with import licensing and operational procedures and take the risk on additional expenses and resource. This would unfortunately mean the Thai domestic parties suffer more from the weaknesses in their system than the foreign investor.
• A domestic counterparty should be obligated to take out insurance to address some of the risks related to doing business in Thailand, including road accidents, health and safety issues and other clear and obvious systemic risks. This means the risk premium is passed through the transaction to one of the parties.
• Disputes should, subject to case-by-case analysis of suitability, be better served through international arbitration than outright litigation in an unfamiliar domestic legal system. Thailand has recently developed its arbitration systems to better dispose of international arbitration proceedings which is designed to build investor confidence that issues may be resolved in a setting perceived as a balanced international system of judicial decision-making in the context of business, requiring knowledge of a particular industry or service.

Overall, knowledge of Thailand’s global and macro-position can equate to better information, a fairer balance of power in negotiations, and a better informed risk allocation process based on the realities of doing business. This can also assist with navigating a developing system, and with taking fair advantage of the economic and legal incentives available to those companies that care to conduct diligent research into the opportunities Thailand has to offer.

By Desmond Hughes, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.