Characteristics of the Country

 Economic Performance 2006
Thailand’s economy has recorded fairly strong rates of GDP growth in recent years. The economy
recovered from the recessions in 1997 and 1998, when GDP contracted by 1.4% and 10.5% respectively, with growth averaging 4.5% per year in 1999-2000. However, growth slowed in 2001 in response to weak global demand for exports, before picking up again to 5.3% in 2002 and 7% in 2003.

The pace of growth slowed slightly in 2004, to 6.2%, partly reflecting the devastating impact of the outbreak of avian influenza (or bird flu) on the agricultural sector, and dropped to 4.5% in 2005, owing primarily to a contraction in agriculture. GDP in Q4 2006 expanded at a lower rate of 4.2% as compared to 4.7% in 3Q06 reflecting further slowdowns in investment and consumption by both public and private sectors. GDP growth for the year 2006, however, went up to 5.0%.
Inflationary pressure subsided as Q4 saw an inflation rate of 3.3 percent, down from 3.6 percent in Q3.
Lower oil prices, baht appreciation, and softened domestic demand helped contain inflation. The headline inflation rate averaged at 4.7 percent for the year, comparable to 4.5 percent in 2005. Unemployment rate was 1.51 percent, while current account was in surplus of 3.2 billion USD.

Interest rates remained constant in Q4 following a continued increase since 2005. Deposits expanded at a slower pace. Meanwhile credit expansion to most sectors decelerated and thereby liquidity remained high. Thai baht appreciated against the USD throughout most of Q4, driven by large current account surplus together with capital inflows into securities and bond markets. The 30 percent reserve requirement imposed on short-terms capital inflows led baht to depreciate only in a brief period.

Private consumption and investment in the fourth quarter grew by 2.5 and 2.3 percent respectively, continuing the downtrend from the first three quarters. In the first three quarters, private consumption expanded by 3.9, 3.3 and 2.8 percent respectively. Private investment grew by 5.3, 6.4 and 3.8 percent in those three respective quarters. Government expenditure in real term declined by 4.2 percent, while public investment rose by 2.5 percent. Exports showed strong growth and still served as a key driving force, while imports decelerated sharply. Export value was 33,981 million US dollar, expanded by 19.7 percent.

This was as a result of the upturn of electronics cycle and new product and technology
development especially electrical appliances that induce higher exports of electrical appliances
in the latter half of the year following the market demand. Import value was 31,258
million US dollar, increased by 7.2 percent slowing down from 12.2 percent in the third quarter.

In the fourth quarter, the agricultural sector grew only by 0.9 percent due mainly to flood impacts in
several areas exacerbating crops and other vegetable and fruits. Meanwhile, chicken production
slowed down as a result of the bird flu since July. Nonagricultural
sector expanded by 4.6 percent, about the same rate as in the third quarter. Manufacturing and almost all services sectors grew at constant rate. Construction sector, however, decelerated in response to rising interest rate in earlier period which soften demand for residential. In addition, financial sector also slowed down as a result of moderate credit expansion and smaller gap between lending and deposit rates.

The 2007 economy is forecast to grow 4.0-5.0 percent The economic constraints in 2007 will be primarily the limited potential for export growth while the recovery of investment will not be full-fledged.
Supportive factors for growth in 2007 include declining interest rates, lower oil prices and inflation which shall stimulate private consumption and investment. In addition, a larger planned government budget and SOEs’ investment plan than in 2006 is expected to provide cushion for the economy should the targeted disbursement be materialized. However, exports and tourism are likely to expand at a slower pace than in 2006. Economic stability in 2007 will remain strong. Inflation rate of 2.5-3.0 percent, a surplus current account of approximately 1.0-1.5 percent of GDP, and low unemployment rate of 1.5-2.0 percent, are expected.

Infrastructure and transport
Thailand road network covers more than 80,000 km, while the railway network has the total length of 5,000 km. Many projects for improving the infrastructures have been launched; hundreds of them are in the progress of realization in Bangkok in order to solve the problem of chaotic traffic in the capital. The notable project is the sky train (with two lines for total 23.5 km.) inaugurated in December 1999, and the first line of 20 km. of the metropolitan.

The airports: there are 109 airports in Thailand. The international airports are stationed in Bangkok,
Chiang Mai, Phuket, Khon Khaen and Hat Yai. The new international airport “Suvarnbhumi” is in the process of construction in Samutprakarn, 30 km east of Bangkok. The new airport is supposed to help Thailand become the aviation hub in south East Asia.
The ports: there are 8 international ports. The most important one is in Bangkok which centralizes the most part of commercial navigation. Other important commercial stations are those of Map Ta phut and Laem Chabang (on eastern coast) and those of Songkhla and Phuket (in the South of the Country).

Principle export products (Statistics of 2005)
Exports that increased significantly in 2005 included canned fish, processed food, fresh canned and
processed fruits and vegetables, frozen shrimp, processed chicken, vehicles and parts, computers
and parts, polymers and plastic products, construction materials (steel and cement), gems and jewelry, rubber products, printed matter and paper, cosmetics and pharmaceuticals.
Other products that had increased in exports included natural rubber, tapioca starch, electrical appliances, textiles, luggage, leather goods, furniture, and home decorative items.

Products that decreased in exports included rice, sugar (volume down 33.7 percent / value down
12.2 percent due to lower domestic production), tapioca products (volume down 39.6 percent / value down 14.8 percent due to lower exports to Europe, because of lower domestic production and competition from European grains and American corn), fresh chilled and frozen chicken parts
(volume down 82.9 percent / value down 70.0 percent due to fallout fro the bird flu outbreak).
An upward trend in prices moderated the fall in value.

Major Export Markets
Exports to new markets increased 24.1 percent and to traditional market 9.3 percent, boosting the share of new market exports to 40.6 percent of total exports, demonstrating the effectiveness of cooperation between the government and private sectors as well as the impact of FTAs with new and traditional markets as follows:
Exports to FTA markets: India (up 67.7 percent), Australia (up 28.9 percent) and China (up 29.1 percent)
Exports to other new markets: Latin America (up 37.7 percent), Indochina and Myanmar (up 26.0 percent),
the Middle East (up 25.7 percent), Hong Kong (up 24.7 percent), Eastern Europe (up 23.5 percent),
South Korea (up 21.6 percent) and Africa (up 14.7 percent)
Exports to traditional markets increased 9.3 percent: Japan (up 12.3 percent)
ASEAN (5 countries: up 10.9 percent), the US (up 10.0 percent), and the EU (15 countries: up 3.5 percent)

 
Exchange with Italy
Thai products exported to Italy (2006)

Italian products imported to Thailand 2006

Foreign investment
Principle sectors of foreign investment toward the country
services and infrastructures (32%), chemical and plastic products (27%), metal treatment (14%), agricultural
products (13%), electronic and electric articles (8%)

Principle sectors of Italian investment toward the country
metal products and machine tools (79.64%), agricultural products (19.10%) and services (1.26%)

Principle sectors of the country investment in other countries
industrial products (76.5%), agricultural products (11%), agro-industrial products (7.4%),
mineral products and natural energy (2.9%)

Principle sectors of the country investment in Italy
general employment machines (16.7%), preserved fish and fish products (9.4%) agricultural products (7.2%)
motor vehicles (6.4%) jewelry and goldsmith articles (4.8%)
 
Normative and legislative aspects
Regulations of exchange
Custom clearance and documents of importation: the procedure for custom clearance of goods is similar; both those arrives by land and by air and marine transportation. To begin the custom clearance procedure, the importer has to complete a module of importation and hand it in with a copy of bill of lading, pro-forma invoice, shipment bill, declaration of importation, and also certificate of origin, in case it is required, to the Customs Office.

After submitting the documents, the importer has to pay the duty, the VAT (value added tax) and excise tax. In case the total amount of customs or urgent clearance is not required, it is possible to leave the deposit. Goods which are not cleared through customs within 2 months from the date of arrival are subject to the confiscation, as well as they are goods declared “dangerous material” so that they cannot start the clearance procedure within the period scheduled by the Director of Customs.
Customs classification of goods: Goods are classified with the Harmonized System in compliance with international agreement.

Restriction of importation: Money, rubber, rubber works, tobacco and the end of tobacco works, living and dead animals, arms, ammunition and its parts and accessories, drugs and narcotics, beverages, alcohols, sugar and sugar products, scale. There is the obligation to obtain the permission and certificate (of origin, of quality, etc) in order to determine categories of goods.

Temporary importation: it is possible to get the advantages of temporary importation regime in case of the shows and fairs, seminars, conventions, vocational meetings and international conferences. The tax exemption of importation is granted to the following conditions:
Each goods temporary imported in occasion of seminars or conventions must be re-exported within 6 months from the date of importation .Goods in regime of temporary importation are those imported in view of fair events organized by the Thai Government or by institutions of foreign countries or by the private or foreign accredited organizations. Goods imported for the free distribution are duty-free, on condition that their quantity is appropriate and insignificant unit value, and have a logo or symbol which makes them link tightly to the manifestation.

Investment activities and productive settlement in the Country
Contractualistics
agency, representation, distribution, license, transfer of technology.

Corporate legislation
Representative office: a foreign entity can establish a representative office in Thailand which is not subject to tax withdrawal. The representative office has the function to carry out research, marketing and promotional activities, etc. The capital must be about 70,000 euro. The office can operate 5 years, prior to renewal. Branch: a company registered in foreign country is able to operate the branch of head office in country of origin. Each activity carried out by the head office in Thailand is subject to taxation, like the income produced by the branch. The branch must have the minimum capital of 70,000 euro which must be brought in the country. It can operate for the period of 5 years prior to renewal.

Joint venture: it can be described in accordance with the general criteria; a group of natural or legal persons who reunite in order to develop a communal activity. In Thailand, it is not recognized yet as the legal entity from the Civil and Commercial Code. However, it is subject to the corporation tax, in accordance with the Fiscal Code.

Law of the foreign investment
for commercial tertiary and operations in Thailand, a local partner (legal or natural person) who holds the majority of shares of investment is required. It is possible that the local partner holds the corporate control for productive plants but not re-enter in the sectors reserved to Thai people. In any case, the Thai partner does not need to be thoroughly involved in the activity management. The forms of possible investment are: single ownership, capital company (limited-liability company or limited company), joint venture, branch or representative office (the latter under revision). If a partnership or joint-stock company transfers the profit coming from a branch established in Thailand or from economic activities exercised in Thailand to overseas, the company is subject to the tax 10% of the remittance, besides the income tax of juristic person.

Licenses and Intellectual Property
The “Trade Mark Act” disciplines the matter regarding the registration and type of protection of trade mark, service brand, patent and collective trade mark, and protect the owners of trade mark by penalizing those who break the law on the rights of Intellectual Property. The discipline related to the licenses, models of utilities and designs is contained in “Patent Act” of 1979, amended from “Patent Act” (no.2) of 1992 and “Patent Act” (no.3) of 1999 respectively. The title of licenses, one model of utility or one design has the exclusively right to use, authorize, construct, distribute and import products and patented processes in Thailand. The “Copyright Act” brought Thailand to the international standard required from the TRIPS agreement.
 
Tax System
Personal income taxes: the shares of the income tax vary from 5% on the first 1.607 Euro to 37% beyond the 83,333 Euro of annual income. Corporate income taxes: taxation system on world-wide base. The share of tax is 30%. The companies: whose plans of investment have been approved from Board of Investment, benefit the exemption from the corporate income tax for 3 years (if located in zone 1), 5 years (if located in zone 2), and 8 years (if located in zone 3). The system is being completely reviewed and will be modified with the greater consideration the validity of the plan that localization. The commercial transactions are burdened from VAT (Value Added Tax) whose share was being reduced in March 1999 from 10% to 7% in order to stimulate the inner demand.
 
News for Operator
Currency
Exchange Rate: 1 Euro = 49.97 Baht
Banking system
It is articulated in 13 national commercial banks, 13 Thai branches of foreign banks and 42 representative offices of foreign banks beyond to various state bank institute, specialized in long term financings. The beginning of the year 2004, IFCT was founded with other 3 bank institutes; DBS Bank of Singapore, DBS Thai Danu Bank and Thai Military Bank. After the unity of 4 bank institutes, consequently, it was the birth of the biggest fifth banking group in Thailand, with one equal market share to 11%.

The other public bank institutes for long term financing are: the bank of agricolture and Agricoltural
Cooperatives which provides easy-terms financingfor agriculturists for buying agricultural machinery,
fertilizers, chemical products; the Government Housing Bank which grants financial support for house
purchase; the Export and Import Bank finances the commercial activities with foreign country;
the Small Industries Finance Corporation supply financial support to companies with the registered capital inferior to than 261,900 Euro and it has obtained in August 1999 the government funds for a recapitalization;

the Government Saving Bank manages the deposits of small savers; the SME development Bank provides financial support to small-medium business enterprise.
Debtors Rates
Thai Banks 6.28 – 17.41%; Foreign Banks 8.16 – 18%
Creditor Rates
Thai Banks 0.5 – 1.25% (deposit account), 1.25 – 1.5% (fixed account) Foreign Bank
0.00 – 1.25% (deposit account), 0.25 – 1.5% (fixed account).
SIMEST Financial facilitates and services

• Studies of pre-feasibilities, feasibilities and technical attendance D.M. 136/00

• Foreign Investments Law 100/90
• Credits to the legislative exportation decree Law 227/77
• Commercial penetration Law 394/81
• International Competitive Law 304/90
• Services technique-business scouting
• Insurance of the political risks SIMEST-MIGA Agreement

Industrial Park and Free Trade Zone
The boom of the foreign investment in Thailand has determined the birth of Industrial denominated Area IEs (Industrial Estates); these areas generally include industrial zone (GIZ) and export-processing zone (EPZ). The enterprises dislocated in the EPZ can benefit the tax exemptions granted from the B.O.I and vary in relation with geographical area in which the investment is effected. For this propose Thailand was divided into 3 zone; zone 1 (Bangkok, Nakhon Pathom, Nonthaburi, Patumthani, Samutsakhon and Samutprakarn) is possible to obtain tax exemption of modest entity, meanwhile zone 2 (Rayong, Phuket, Samutsongkhram, Ratchaburi, Kanchanaburi, Suphanburi, Angthong, Ayuttaya, Saraburi, Nakhon Nayok, Chachoengsao, Chonburi) and zone 3 (includes every provinces to minor industrial development especially North, South and East of the country) is granted the greater facilitates.

Agreement with Italy
Agreement on double imposition
For the effect of Italian - Thai agreement about dividends, royalties and interests corresponded to the
residents in Italy, one apply the tax deduction of 10%, 15% (5% concerned about features of literary, artistic and scientific works copyrights) and 10% respectively. On February 1983, Italy-Thailand signed bilateral agreement about the technique and economical co-operation.
 
Cost of Productive Factors
Labor Cost (in Euro)
Categories
Unskilled worker 4.68-5.20/day
Skilled worker 10.41-15.62/day
Head team 312.5-625/month
Engineer and Managerial staffs 520.83-1,041.66/month
Labor Organization: the first labor associations were founded in 1975, after the approval of
“Labor Relations Act”. However the recent Labor Relations Act of 1991 has newly posted the 2 fundamental limited rights of workers: prohibition to the counterfeit and prohibition to the public employees to be associated in labor organization. The law is now on the revision phrase.
 
Electricity (in Euro per KW/h)