Special Report

Who Needs Foreign Investment?

Not Thailand, evidently, as its military government moves to seize the intellectual property of foreign companies.

By and 3.23.07

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Shortly after Thailand's new government seized power in the fall of 2006, the country's military leaders awarded themselves pay increases of over $9 million per year. At the same time, the government increased its military budget by more than one third, or $1.1 billion, while cutting its public health budget by $12 million. Translation: More money for the military government, less money to be spent on the health of its citizens.

In addition, the country's military government recently enacted compulsory licensing of three patented HIV and cardiovascular drugs. A compulsory license is when a government forces a company to provide its patented products to its citizens without selling the license; in other words, patent theft.

The first drug to be forced into licensing was the HIV/AIDS drug Kaletra, produced by Abbott Laboratories. The second, Plavix, is a very popular drug used to treat heart disease and manufactured by Bristol Myers Squibb and Sanofi Aventis. The Thai government granted itself the right to produce Kaletra for five years and Plavix indefinitely. In November 2006, the Thai government issued a compulsory license for an antiretroviral treatment for HIV without even warning the manufacturer.

The Thai government defends this compulsory license through the TRIPs (Trade-Related Aspects of Intellectual Property Rights) provision within the World Trade Organization. The TRIPs agreement allows for member states to impose compulsory licenses only "in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use." The article also requires payment of "adequate remuneration...taking into account the value of the authorization."

In the Thai case, not only was the government's compulsory license issued outside the terms of TRIPs and the WTO framework, but it also did not have an adequate dialogue or negotiation with the companies prior to issuing such licenses. In addition, its statisticians and analysts have also argued that AIDS and heart disease in Thailand do not fit the criteria of "national emergency."

United States Trade Representative (USTR) Special Report 301, the textbook resource for rating country's anti-piracy efforts, put Thailand on its Watch List on 2006. The report, which has quickly become a global standard for rating an individual country's effort to protect intellectual property, is also becoming a barometer for gauging bilateral trade relations. An excerpt from the report reads:

The U.S. Government remains concerned about the proliferation of optical disc pirate production at plants in Thailand, especially in light of comparatively weak optical disc legislation that Thailand passed in 2005. Piracy is also widespread in the areas of photocopying of books, cable signals, entertainment and business software, and music on the Internet. The production, distribution, sale, and export or transshipment of pirated and counterfeit products continues to be a serious concern. The United States also is concerned about the weak protection against unfair commercial use of undisclosed test and other data submitted by pharmaceutical and agricultural chemical companies seeking marketing approval for their products, as well as delays in pharmaceutical patent approvals by the Thai Department of Intellectual Property.


Just a week ago, the United States indicated that it could put Thailand on a priority "Watch List," naming Thailand as one of the top IP pirates in the world. It is generally understood that this action would hurt Thailand's exports to the United States.

Does the Thai government believe that the international community will not recognize its lapse in judgment?

Trends in Foreign Direct Investment (FDI), one of the most important measures of the level of investment in a country, have been dismal in Thailand for the past three years, especially when compared to neighboring countries. In 2005 and 2006, FDI in Thailand declined 64.6% and 24.5%, respectively. Considering the significant decline in FDI in 2005, the drop in 2006 is rather discouraging, and likely reflects a lack of investor confidence in Thailand following the military coup.

China and Vietnam, on the other hand, have fared much better than Thailand, with FDI growing 102% and 96% in those countries, respectively in 2006. Although FDI declined in China in 2004 and 2005, the substantial growth in 2006 in those countries reflects a general shift in global FDI towards Asia -- and a meaningful shift away from Thailand regionally.

The most recent move by the Thai government to hijack the Intellectual Property of companies that spend millions of dollars in their country is a slap in the face. This is because investing in a foreign country is not a simple process. In addition to the regular aspects of business investment, including red tape and bureaucracy, most countries "appreciate" philanthropic and community work, as well.

Here are a few examples of pharmaceutical companies joining with local communities and government in Thailand:

* Merck, through a program, provided 40 million baht (approximately $1 million) to implement the Enhancing Care Initiative in conjunction with Chiang Mai University. The initiative worked to improve HIV/AIDS health care services, among other things.

* Glaxo SmithKline's Nursing Excellence Program has provided over 400 nursing scholarships with a value of 37 million baht (approximately $1 million) to 30 nursing colleges nationwide.

* Pfizer Inc. and Population and Community Development Association (PDA) formed a partnership, jointly called the HIV/AIDS Prevention and Assistance Program. The program provides micro credit loans to people living with HIV/AIDS in Thailand, allowing them more financial independence. The project has been recognized as "best practice" by the UNAIDS.

These are just a small fraction of the major efforts companies have undertaken to reach out beyond traditional business practices in order to improve the quality of life for Thai citizens. In fact, these practices are traditional for corporate investments abroad. And this is where Thailand is making a big mistake.

We believe the Thai government could suffer tremendous repercussions as a result of its latest actions. Foreign Direct Investment is already waning, and could possibly decline again in 2007. China has quickly become one of the darlings of the investment and business community, most recently permitting its citizens the same private property rights as the government. Vietnam's stock market has boomed, up 145% in 2006, and some experts predict FDI to reach nearly $20 billion in 2007, which would be another 100% increase. Although both countries admittedly have drawbacks, they are opening their gates to private investment at a rapid pace.

As Asia continues to be a growth market, investors will shift their capital to those countries that they believe have the potential to generate the highest returns with the least amount of risk. Thailand has now become more risky in comparison to its neighbors. Once again, the market will dictate the best solution to the problem. Unfortunately for Thai citizens, that could mean less private investment, less growth, and less opportunity.

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