Taking a chance on ‘Teflon Thailand’

Thailand’s political history has been peppered with instability and unrest since the dissolution of its absolute monarchy in 1932. The current protests are the latest episode in a series of protests and political blockades that have gripped the nation since former prime minister Thaksin Shinawatra was ousted in a coup d’état in 2006.

So how has the current political turmoil raised the risk in the region and affected Thailand’s regional competitiveness and ability to function as an efficient and effective place to do business?

The current period of political protests, which began relatively peacefully in October 2013 in response to a proposed amnesty bill, has heightened Thailand’s need to address the nation’s protracted and cumbersome legislative and litigation processes in order to stimulate greater domestic and foreign investment.

In a study conducted by the Thailand Development Research Institute in 2012, it was found that in the previous five years a bill took an average of 782 days to be passed. This is unsurprising given that there is no time restraint imposed on the House of Representatives to examine any proposed bill, and while there is a time restraint imposed on the Senate, such time restraint may be extended. 

The same problem is faced with litigation and arbitration and Thailand – the processes are slow. Coupled with this, both processes are unpredictable and unusual compared with other jurisdictions and, as such, can present a frustrating experience for foreigners.

Looking firstly at the Thai litigation process, in stark contrast to other jurisdictions in which there is a clear impetus to deal with litigation efficiently and effectively. In the UK, the overriding objective of the Civil Procedure Rules is to ensure that cases are dealt with expeditiously and fairly, while the accepted status quo in Thailand is that cases may take years to resolve.

As Thailand follows a civil law system, this also presents difficulties for foreign individuals more accustomed to dealing with common law systems. In particular, the civil law process is arguably more unpredictable than the common law system for several reasons; firstly, judgments are not based on previous court decisions, rather on the determination of the appointed judges who have unbridled discretion; secondly, there is no discovery process, and as such parties may not be in possession of all information relevant to the dispute to aid transparency and expediency. To add a further layer of complexity, foreign clients also face language and cultural barriers when litigating in Thailand, thereby making the overall process more cumbersome.

Inefficient arbitration

Turning to the arbitration process in Thailand, while it has undoubtedly developed over the last 25 years, it still remains inefficient compared with other jurisdictions. For example, it takes an average of three to five years for arbitral awards to be delivered and enforced in Thailand, compared with an average of just one year in other jurisdictions. The reason for this is two-fold. Firstly, the fact that the arbitration process is not isolated from the civil court system and, as such, when the court is called to make any decision in an arbitration process delay is inevitable. Secondly, there is only a small pool of arbitrators and lawyers in Thailand with the requisite experience.

Unsurprisingly, there has been widespread criticism in reference to Thailand’s arbitration and litigation processes from international businesses and representative bodies alike. Jason Fry, previously the secretary general of the International Chamber of Commerce’s Court of Arbitration, has drawn attention to Thailand’s lengthy arbitration process and the need to reduce barriers to arbitration to encourage foreign direct investment. The American Chamber of Commerce in Thailand also publicly denounced the Cabinet decision in 2009 that all contracts between the public and private sectors, save for one limited exception, should not provide for disputes to be decided by arbitration.

Investors deterred

Without doubt, the current political uncertainty is in itself having an effect on Thailand’s economy, with growth slowing significantly in the final quarter of 2013 and the Bank of Thailand revising down its 2014 growth forecast alike. In addition, the political protests have also caused legal processes to be stymied, thereby increasing the risk that domestic and foreign investors alike will be deterred from conducting business in Thailand.

The ‘Bangkok Shutdown’, which saw Government House and other government ministries blockaded by protestors, led to the ability to conduct even routine legal filings and applications being severely compromised. Accordingly, several ministries including the Ministry of Commerce had to move their operations to temporary locations. It is therefore hardly surprising that investors are showing hesitance to invest in Thailand. Several multinational corporations have publicly warned that they will reconsider plans to invest in the country if the political unrest persists.

Some commentators see signs of deep damage that could pose long-term problems for a country once known as ‘Teflon Thailand’ due to its steadfast resilience to past unrest. Thailand is already wrestling with slowing growth and outflows of global capital from its fragile financial markets. Even prior to the current political unrest there was a need for the country to take action to stay competitive in the Asian market, given the increasing emergence of other countries such as Myanmar, Indonesia and the Philippines as attractive alternative places to invest. The current episode of unrest has served to place even greater pressure on Thailand to remain attractive to foreign investment.

Until the political storm passes, the long-term effects of the unrest on Thailand’s economy remain to be seen. However, what is clear is that with the formation of an integrated Asian Economic Community looming in 2015, Thailand shall be further scrutinised by investors unless it can stabilise, make its legislative and dispute resolution processes more efficient and, among other things, thereby prepare for regional integration.