Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

478. Memorandum of a Conversation, Department of State, Washington, May 21, 1958¹

Washington, May 21, 1958

SUBJECT

• Private Investment in Thailand

PARTICIPANTS

• Ambassador Thanat Khoman, Embassy of Thailand
• General Chittimavisthrira, Deputy Minister of Economic Affairs
• Mr. Prayoon, Director General, Department of Domestic Trade, Ministry of Economic Affairs
• Mr. Gardner Palmer, Deputy Assistant Secretary of Economic Affairs
• Mr. Floyd Whittington, Deputy Director, Southeast Asian Affairs
• ED—Mr. Schmukler, International Economist
• ICA—Mr. Stoneman, Thai Desk Officer
• SEA/E—Mr. Wile, International Economist

As agreed between Mr. Dillon and Field Marshal Sarit at their May 19 meeting,² Ambassador Thanat Khoman, accompanied by General Chittimavisthrira and Mr. Prayoon, appeared at Mr. Palmer’s office at 3 p.m., to discuss foreign private investment in Thailand and Field Marshal Sarit’s memorandum on Development Projects in Thailand presented to Assistant Secretary Robertson on May 12.³ Ambassador Thanat suggested that the meeting start with a discussion on foreign private investment. He stated that the Thai Government welcomes investment, especially from the United States, and the Thai Government has made a number of declarations regarding this. Ambassador Thanat amplified upon this indicating that the Thai Government does not wish to engage in businesses where private investment should operate, but had to invest and operate businesses where private capital was not available. The Thai Government policy is, however, to withdraw when private enterprise shows that it is able to take over. Ambassador Thanat revealed that this policy was declared over two months ago and that to implement this policy the Industrial Promotion Act was under current revision at the request of Field Marshal Sarit.

Mr. Palmer noted with satisfaction Field Marshal Sarit’s awareness of the problems of private investment in Thailand, particularly the deficiencies of the Industrial Promotion Act. He suggested that private enterprise be encouraged in those businesses where there is a profit motive and that the Thai Government might concentrate on providing the infra-structure. He noted the substantial growth of the gross national product which would come about with the encouragement of private investment in Thailand. He pointed out that the Thai were fortunate in having a large supply of trained civil servants and abundant natural resources which, together with the growing physical and power facilities, made Thailand an attractive area to private investors. At this point he handed Ambassador Thanat an informal talking paper, prepared by SEA and ICA, which listed the obstacles we saw to private investment in Thailand.⁴ Mr. Palmer asked Mr. Whittington to read the paper aloud for the benefit of General Chitti and Mr. Prayoon to help them understand the document.

Ambassador Thanat referred to the inclusion of the “participation of government officials in business” as a deterrent to private investment, pointing out in confidence that the Thai feel this is the only way they can participate in business in view of the domination of the mercantile trade by the Chinese in Thailand. Mr. Palmer agreed to the deletion. Ambassador Thanat also referred to the inclusion of “competition of government-owned plants” as a deterrent to private investment, stating that Thai Government-owned factories cannot be considered in the same sense as in the United States and that they offer no real competition to foreign private enterprise. Mr. Palmer explained that this item was included as a deterrent in its general context; that the mere fact that government is in a business, regardless of the size of the plant, acts as a barrier to private investment entering the same or a similar operation. Mr. Palmer said that it would be desirable for the Thai Government to clarify the extent to which it intends to operate factories and if possible to delimit its sphere of activities. This would enable investors to know with some confidence what they could expect to invest in without fear of competition from the Thai Government. General Chitti reiterated that the Thai Government would continue to operate factories only until private enterprise was able to take over these enterprises and would then withdraw. Mr. Palmer stressed the soundness of this policy and Mr. Whittington stressed the desirability of Thai Government factories pricing the output at market prices and without subsidies. Mr. Stoneman suggested the possibility of the Thai Government offering to sell one or more of its plants as a dramatic gesture to demonstrate its intention to withdraw from the field. Also, he noted the desirable impact such a gesture would have on the private investment community in Thailand. General Chitti reiterated that it was the Thai Government policy to withdraw from the ownership and management of factories at the earliest appropriate time.

Ambassador Thanat provided background information on Foremost Dairy Company indicating that it imported equipment into Thailand before the Industrial Promotion Act came into force and therefore was liable for those import duties in existence before the Industrial Promotion Act exemptions became effective. Legal difficulties ensued as a result of the Foremost claim for exemption under the Industrial Promotion Act. With a view to arriving at a settlement of this “thorny” issue, the Thai Government is making arrangements for a special exception to refund taxes paid by Foremost under laws in existence before the Industrial Promotion Act. Ambassador Thanat stated that this particular case was a legacy from the former Thai Government. General Chitti observed that there were more cases than Foremost Dairy Company affected by the implementation of the Industrial Promotion Act.

Ambassador Thanat suggested the possibility of the creation of joint enterprises in which the government and foreign private enterprise would enter on a 50–50 basis. He was informed that this could be a possible alternative to 100 per cent Thai Government ownership of factories.

At the conclusion of the reading of the talking paper, Mr. Palmer called attention to its informal, non-technical nature and invited additional comment from the Thai. Ambassador Thanat remarked that it was generally a good paper, but suggested certain changes which were agreed to. He expressed a desire for a representative selection of investment laws of other countries or of the various American States. It was agreed to obtain copies of representative investment laws for Mr. Prayoon.

With regard to the statement in the talking paper about difficulties encountered by United States oil companies, Mr. Palmer requested verification from the Thai as to the correctness of the statement. General Chitti replied that, prior to the recent tax imbroglio, retail sales of gasoline in Thailand were made in accordance with an agreement reached in 1957 between the Thai Government and the oil companies. The abortive tax increase of several months ago resulted in a two or three day sale of gasoline by the Thai Government to taxi drivers at prices below those of foreign oil companies. He stated that currently the Thai Government was not underpricing private oil companies in the sale of gasoline. Ambassador Thanat, because of the controversial nature of this problem, suggested its deletion from the talking paper. Mr. Palmer suggested that the language be revised to show merely that there were difficulties encountered by the United States oil companies, which suggestion was agreed to by the Thai.

Ambassador Thanat asked whether any reforms made by the Thai Government with a view to improving the investment climate would bring results. Mr. Palmer pointed out the capriciousness of foreign investment, that there could not be a categorical answer to the Ambassador’s question. He did state, however, that with an improved investment climate Thailand would be one of the most attractive countries in Southeast Asia, and for that matter the Far East, for new foreign private investment. Ambassador Thanat expressed the desire that increased publicity be accorded measures taken by the Thai Government to improve the private investment climate so as to maximize the possibilities of attracting private investment from the United States. Mr. Palmer replied that every possible assistance would be accorded the Thai Government in this connection pointing out to the Ambassador, however, that favorable publicity would only come when positive steps were taken in Thailand to improve the investment climate.

1. Source: Department of State, Central Files, 811.05192/5–2158. Confidential. Drafted by Frank S. Wile on May 23.
2. A memorandum of conversation on this meeting is Ibid., 892.00/5–2358; the substance of the discussion is summarized infra.
3. Filed with the briefing materials for the Sarit talks; Ibid., 792.5–MSP/5–1358.
4. A copy of the paper is Ibid., 792.5–MSP/5–1358.