(Translation) Chotika Chummee and Srinarin Phaophongpaiboon
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(Translation) SPECIAL ECONOMIC ZONE…THAILAND’S ROADMAP AND GOLDEN OPPORTUNITY TO KEEP AN EYE ON? Chotika Chummee and Srinarin Phaophongpaiboon EIC has considered districts of Mae Sod, Aranyaprathet and Sadao as 3 pilot areas with high potentials to be developed as special economic zones (SEZ) as they are more prepared in terms of infrastructure than other areas and having had the production bases in trading and industrial sectors. Textile, food processing and other labour-intensive businesses shall benefit from the transfer of production bases to the special economic zones; meanwhile, service businesses and urban growth supporting businesses such as warehouses, distribution centers, logistics services, wholesale and retail of consumer products and public health services shall benefit from urban growth and investment promotion in SEZ. In July of this year, the Government has passed its resolution to approve the establishment of special economic zones (SEZ) initially in 5 border areas including (1) Mae Sod District of Tak Province; (2) Aranyaprathet District of Sa Kaew Province; (3) Trat Province; (4) Mukdahan Province; and (5) Sadao District of Songkhla Province (Sadao and Padangbezar Checkpoints) (Figure 1) with the primary goals of attracting FDI, creating jobs, extending modernity to local areas to reduce inequality, organizing border areas and increasing the country’s competitiveness to be prepared for the upcoming AEC in 2015; and solving problems of smuggling of agricultural products and illegal foreign labour into inner areas within the Country; whereas all of the 5 target areas (with the total area of approx. 1.83 million rai) are regarded as having potentials and preparedness in terms of infrastructure and labour and having advantages of geographical locations and rather outstanding production bases and having no severe calamities or problems of international security. Provided that businesses investing in SEZ shall be given with new privileges from BOI, including corporate income tax exempt for 8 years and 50% tax reduction for another 5 years (Figure 2). According to BOI policies of investment promotion, though BOI shall mainly support businesses using high technologies, researches and innovation and creation of added value rather than labour-intensive businesses; however, in this case, labour-intensive businesses situated in SEZ shall receive supports as prescribed by the Committee on the Special Economic Development Zone Policy (CSEDZP), including businesses which have the production base in each area such as textile industry, processed agricultural products, furniture, tourism or other border trade related industries such as warehouses, logistics, industrial estates, etc. Provided that CSEDZP has not yet announced types of businesses that shall receive the support in each area of SEZ; but, on 15th December 2014, it announced the privileges from BOI, including corporate income tax exempt for 8 years and 50% tax reduction for another 5 years, reduction of transport costs and electricity charges and water fees for 2 times, deduction of facility installation expenses by another 25% of the construction costs, exempt of import duty for machinery and raw materials used in re-export production, indulgence on the use of unskilled foreign workers and other non-tax related privileges such as land tenure of foreign investors and employment of foreign experts. -2- Moreover, general businesses which are not included in the List of CSEDZP but situated in SEZ shall receive additional privileges such as exempt of corporate income tax for another 3 years but not exceeding 8 years; in case, such businesses have already received the privilege of exempt of corporate income tax exempt for 8 years, they shall receive 50% reduction of corporate income tax for another 5 years and other privileges as mentioned earlier; provided that it is expected that the types of businesses that shall receive the support in each area of SEZ shall be announced in January 2015, which shall create more clarity to investors. EIC evaluated that 3 of 5 pilot areas with high potentials to be developed as special economic zones (SEZ) as targeted, including Mae Sod District, Aranyaprathet District and Sadao District were more prepared in terms of infrastructure than other areas and already had the production bases in trading and industrial sectors; and in 2013, such 3 pilot areas had their total value of border trade of almost 600,000 million Baht per year or equal to approx. 65% of the total value of border trade of Thailand; whereas, Mae Sod District was most prepared to be developed as SEZ to support labour-intensive industries, businesses of warehouses and distribution centers and logistics services because there have been feasibility study, area surveys and preparation in such matter for a long time; and such areas were also significant gateways of trade, investment and tourism to Rangoon City and were also be able to directly connect the production with Myawaddy Economic Zone situated only approx. 10 kilometers away. These factors helped promote the potentials of these pilot areas to be developed as dual special economic zones in the future to strengthen the trading and investment between Thailand and Myanmar. Mae Sod District had its preparedness in terms of foreign workers from Myanmar, which were mostly unskilled labour to be supplied to labour- intensive industries such as textile, apparels and leather products. Moreover, with geographical advantages as the East-West Economic Corridor (EWEC), these areas were considered by EIC as having the potentials of growth in the future and to be developed and used for establishment of warehouses, distribution centers and logistics service provision. Similarly, Aranyaprathet District had the potentials to be developed as the production bases of labour-intensive industries, areas for wholesale and retail businesses, including businesses of transport and international warehouses because it was the Southern Economic Corridor (SEC) which could be connected to Poipet O’Neang Special Economic Zone and Srisophon Industrial Estate of Cambodia and to the sea through Vietnam’s harbour and was considered as a significant supporting factor to businesses of transport and international warehouses. At the same time, Aranyaprathet District was well prepared in terms of labour from Cambodia to be supplied to industries of textile and apparels and agricultural product processing factories along the border and for raw materials from Cambodia, particularly cassava which can be processes, in Thailand, to cassava chips and tapioca starch for export. -3- Moreover, it was found that during the past 5 years, the value of border trade through Aranyaprathet Checkpoint in Aranyaprathet District which was a busy trade area, particularly at Rong Kluea Market, grew by 28% per year and with the value of almost 60,000 million Baht in the previous year alone. Meanwhile, Sadao District was another area ideal for establishment of processing factories of agricultural products, particularly Para rubber and seafood; and also had its potentials to be developed as trade area and main gateway for export of products to Malaysia, Singapore and Indonesia. Since Sadao District was situated close to Penang Port and Klang Port of Malaysia and also close to areas of heavy industry, Halal industry and Para rubber industry of Malaysia, enabling Thailand to conveniently export primary processed Para rubber to be supplied to downstream industries such as medical gloves, wheels or auto parts in Malaysia. More importantly, Sadao and Padang Besar Customs Houses were also checkpoints with the highest value of border trade of the Country. At present, the Thai authorities are preparing to extend the customs houses; and the proposal of the motorway project of the Expressway Authority of Thailand (Had Yai-Sadao Checkpoint Route) and the development of the double-track railway project (Had Yai-Padang Besar Route) was about to be approved to support the establishment of the special economic zone in 2015. At the same time, the private sector in the area has proposed the establishment of duty-free zones in the Special Economic Zone, emphasizing areas along borders at Sadao and Padang Besar Checkpoints, which shall consist of not only buildings for sale of products but also areas for commercial operation and restaurants to attract people from Thailand, Malaysia and Singapore to spend monies in the area. EIC agreed with the said concept because it would be very useful to the trends of trading, investment and tourism in order to support the formal declaration of AEC in 2015. Provided that when comparing the privileges on investment and preparedness of infrastructure with the special economic zones and industrial estates in neighbouring countries, it was that all of 3 pilot areas had their advantages to attract FDI. In 3 neighbouring countries which had joint borders with Thailand, it was found that only Cambodia that has given tax privileges to businesses investing in its country at the level equivalent to those given by Thailand to businesses situated in Thailand; whereas, the supported businesses in Cambodia shall receive the exempt of corporate income tax for 9 years, exempt of raw materials import duty, and the land tenure of foreign investors for 99 years, etc. Regarding this issue, Cambodia has become an area of direct competitor to Aranyaprathet District of Sa Kaew Province; however, when taking account of other infrastructures such as public utility systems (electricity,