1. 1 ALLEVIATING THE REGULATORY BURDEN: THAILAND CASE STUDY at Regional Conference on Investment Climate and Competitiveness in East Asia- from Diagnostics to Action November 20-23, 2005 Kuala Lumpur, Malaysia By Dr. Phanit Laosirirat Executive Director Thailand Productivity Institute

2. 2 Thailand PICS The report is based on data from the Productivity and Investment Climate Survey (PICS), a large survey of 1500 establishments in Manufacturing and 100 in ICT, and around 14,000 workers, conducted under the supervision of the Foundation for Thailand Productivity Institute (FTPI) with the help of the World Bank. The National Economic and Social Development Board (NESDB) is the funding agency.

3. 3 The regulatory burden is an environment that appears as a severe constraint to firm growth and operations. Regulatory burden is identified by almost 60 percent of firms as a major obstacle to doing business. The specific issues that constitute the regulatory burden concern are “tax regulations and/or high taxes”, “bureaucratic burden”, “labor regulations”, “import regulations”, “foreign exchange regulations”, and “ownership regulations.” Regulatory Burden

4. 4 Regulatory Burden Appears Among Top 10 Concerns Results From Closed Question Tax administration, tax rates, and customs and trade regulations are the top ten obstacles to doing business in Thailand.

5. 5 Firms’ Concerns about Business Climate – Results from Open-Ended Question

6. 6 Comparison of Business Climate Constraints in Thailand, Malaysia and Indonesia

7. 7 Impact Of Investment Climate Constraints On More Productive Firms Medium and large firms are more likely to consider regulatory burden a severe constraint to operations.

8. 8 Firms Using More Computer-controlled Machinery Are More Likely To Consider Regulatory Burden A Major Obstacle To Doing Business

9. 9 From an international perspective, Thai firms face a relatively light bureaucratic burden in terms of time spent dealing with regulations and number of days to clear customs for exports.

10. 10 ThailandSmallMediumLargeExporter Non- Exporter Domestic Firms Foreign- owned Firms Response from Closed Questions Tax rates24.423.125.424.325.223.524.4 Tax Administration22.321.325.424.325.223.524.4 Customs and Trade Regulations19.812.7*18.825.5*25.1*13.9*18.125* Labor Regulations11.410.711.411.912.210.512.09.6 Business Licensing and Operating Permits7.46.17.97.77.57.27.37.6 Response from Open Questions Tax Regulations and/or High Taxes27.728.829.725.127.428.026.631.1 Bureaucratic Burden22.718.4*22.126.225.719.5*20.928.2* Foreign Currency Regulations9.85.2*11.011.714.5*4.6*8.214.8* Labor Regulations9.56.98.312.311.86.9*9.110.5 Import Regulations7.05.26.29.09.6*4.1*4.5*14.5* Number of Plants1,3853475165227296561,041344 Regulatory Burden Constraints to Operation by Type of Firm Percentage of Firms evaluating constraint as “major” or “very severe” Most Productive Firms (Medium and large, Exporting, Foreign Invested, High-Tech) are the most affected by regulatory burden, the most important investment climate constraint.

11. 11 Regulatory Burden by Size of Firms

12. 12 Regulatory Burden by Export and Non-export Firms

13. 13 Regulatory Burden by Domestic and Foreign Firms

14. 14 Number of Days to Obtain Licenses/Permits/Approvals/Certificates to Start a Business The issue is less with the time it takes to obtain authorizations, but more with the unpredictability.

15. 15 Property Registration and Contract Enforcement Thailand also performs well regarding the time taken for property registration but poorly on contract enforcement.

16. 16 Regulation of Labor Markets and Regulation of Entry Labor regulations in Thailand are more restrictive than in key comparator countries such as China and Malaysia.

17. 17 Labor Regulations as an Obstacle to Thai Firm Operations and Growth Hiring procedures for local workers appears to be a major obstacle in terms of labor regulations for firms in Thailand.

18. 18 Unnecessary Burdensome of Regulation Unnecessarily burdensome regulation and regulatory processes can distort decisions relating to production and marketing, including those made through trade and investment in goods and services, thus limiting the ability of companies to participate effectively in competition. At the national level, this promotes the emergence of informal market mechanisms corrupted practices and could slow economic growth. At the international level, excessive regulations could handicap an economy when reaping the benefits of globalisation and international competition.

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21. 21 Governance Indexes for Thailand: 1996, 1998, 2000, 2002 and 2004

22. 22 Regulatory Environment in Thailand Too detailed a law can leave regulations too rigid, while too lax a law may open the system to the peril of abuse of power and may lead to inconsistency, unpredictability and an unclear decision-making process. Here are some of the characteristics of regulatory environment in Thailand. Too much discretion that leads to unpredictable interpretation of regulations, especially in regulations covering competition. Inconsistent application of law—some sectors get preferences. Too little transparency in terms of public hearings, appeals provision, and notification and publication requirements. Lack of qualified personnel and professionalism in enforcing the law especially in the area of the new economy.

23. 23 Firms point to labor regulations, import regulations, and the unpredictability of entry regulations as areas needing government’s close attention. The government must establish the confidence among economic actors in the regulatory system that depends on the predictability and accountability, which can be greatly enhanced through mechanisms of transparency and public consultation. Even though some real progress has been made in the liberalization of certain sectors. However, this has not fulfilled the government promises in terms of management effectiveness and competition. Regulations are not the problem but the way we manage those regulations is more important. Some Policy Implications

24. 24 National Economic and Social Development Board The World Bank Thailand Productivity Institute