Global Trends by Martin Khor
Tuesday 20 February 2007
It wasn’t a nice Chinese New Year message that Thailand sent to Singapore: we want our telecoms company and its satellites back. Foreign ownership of key national assets is a sensitive matter, and developing countries have to beware of this issue in free trade agreements too.
It wasn’t such a nice Chinese New Year message that the Thai army commander and coup leader sent to Singapore last weekend.
General Sonthi Boonyaratkalin vowed to regain control of the telecommunications company, Shin Corp, which the former Prime Minister Thaksin Shinawatra’s family sold to Singaporean government holding company Temasek for US$3.8 billion.
Sonthi said he was looking at the country’s assets that had been bought by Singapore. “I want my assets back, especially the satellites. National assets, no matter where they are located, always belong to Thailand and the Thai people.”
He used patriotism as the theme to speak bluntly to a crowd of 2,000 officials and students. This “nationalism” theme is not confined to Sonthi or the army. Indeed, it was Thaksin’s sale to Singapore of Thailand’s biggest telecoms company that brought many thousands to the streets in protest and intensified the anti-Thaksin movement of recent years.
Foreign ownership of a country’s key assets has always been a very emotive issue, not only in Thailand by everywhere else. Whatever the rhetoric about the borderless world in which it does not matter who owns which country’s assets, in reality the foreign takeover of key national companies, banks and assets is usually perceived negatively by citizens.
During the financial crisis that started in 1997, the International Monetary Fund imposed a loan condition on Thailand that it allow foreigners to own up to 100 per cent of equity in various sectors.
Several Thai banks and other companies were taken over by foreigners. Local people fumed to see their national assets bought for a song. The then government was swept out of power by Thaksin on the wave of popular discontent.
At Davos, the Thai deputy premier Supachai Panichpakdi remarked that his party had been ousted because the Thai people had been angry about the foreign takeovers.
“Economists may think it does not matter if foreign investors take over, but to the people it matters and that’s why we lost,” said Supachai, who later became director-general of the World Trade Organisation (WTO).
Thaksin at first played the nationalistic theme as well, reversing many IMF policies after pre-paying the loans. But in later years he forgot that people care who owns the national assets, and the sale of his own telecoms company to Singapore was the biggest factor resulting in his unpopularity and eventual ouster.
Unlike Thailand or Indonesia, Malaysia did not want borrow from the IMF during the financial crisis, mainly because it did not want the IMF to meddle with the national policies regulating foreign ownership of corporate equity and economic assets.
As part of IMF conditions, Indonesia had to agree to allow full foreign ownership of its retail and wholesale distribution sectors, as well as its oil palm plantations.
Malaysia was one of the developing countries that successfully fought to exclude new agreements on investment and government procurement agreement in the WTO.
These issues were expelled from the WTO’s Doha talks after the disastrous Cancun Ministerial meeting of September 2003.
The developing countries insisted on retaining the sovereign right to regulate foreign investors and to give preference to nationals in government procurement.
Developed countries led by the United States, European Union and Japan wanted new WTO treaties granting foreigners the right to enter, set up shop and be treated at least as well as citizens. They tried to manipulate the Cancun meeting to achieve their aims but failed, due to the insistence of the developing countries of their right to “policy space.”
They developing countries argued that if they could no longer control the degree and type of foreign ownership to be allowed, then their countries could be taken over, just as in the colonial period. If the huge government procurement business were to be entirely opened to foreigners, then the government would no longer be able to assist locals, and it would lose a major tool of macro-economic and social policy making.
Now that the powerful countries are unable to use the IMF or the WTO to further their aims, they are embarking on bilateral free-trade agreements to achieve the same goals.
Developing countries may be lulled by the promise of more exports, but these FTAs are not so much about trade. They are more about setting up new binding rules that prevent governments from regulating the entry, operations and ownership of assets by foreign companies, banks, financial institutions, telecommunications companies, wholesale and retail firms.
The new rules will also hamper the ability of governments to assist their local companies or to give them preferences, on the ground that this “discriminates” against the foreign firms. This is absurd. It goes against natural instincts, like telling a parent it is illegal to give preference or assistance to his child as this discriminates against other children.
The present Thai regime is trying to un-do what Thaksin did in selling his company to Singapore. Thaksin himself reversed the IMF-induced policy of allowing 100 per cent foreign ownership of Thai banks and companies.
In the FTAs with the US or Europe, a developing country voluntarily binds itself to giving greater and greater rights to foreign firms, and less and less assistance to locals, and these are then irreversible.
If the Thais had signed bilateral FTAs with foreign countries, they would not be able to un-do previous measures that are later found to be mistakes.
Developing countries must thus be very careful before and when negotiating FTAs and make sure that they do not sign away their sovereign rights or policy space.