Regional Actors

The Philippines’ Relationship With ASEAN

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Op/Ed by Bob Shead

ASEAN, (the Association of South East Asian Nations), was founded in 1967 “to strengthen further the existing bonds of regional solidarity and cooperation.”  The Philippines was one of the founding member countries when ASEAN was set up in Jakarta, while the ASEAN Economic Community (AEC), which was implemented in December 2015, has a primary purpose to create one of the largest single market economies in the world, facilitating the free movement of goods, services, and professionals between the 10 member states.  As a result, the Philippines relationship and interaction with ASEAN and its members is of key importance to the bloc.

Professional Service_CB icons_2015 RELATED: Pre-Investment and Market Entry Advisory from Dezan Shira & Associates

ASEAN Philippines Links

ASEAN is one of the cornerstones of the Philippines’ foreign and trade policies.  This is manifested in the Philippines policy to promote a more peaceful, stable, and free South East Asia, through the pursuit of different initiatives, in the policy making, economic, trading and functional cooperation activities.  To illustrate, the Philippines actively participates in the shaping of ASEAN’s regional agenda that will ensure the bloc’s relevance and importance in the international arena.  More importantly, the Philippines has constantly affirmed that ASEAN centrality should be promoted at all times, both in the group’s internal and external dealings, and that ASEAN continues to remain as the driver of regionalism, and act as an interlocutor between competing regional powers.  The underlying agenda of this is the Philippines’ strong support to strengthen a regional order that promotes good behavior, international trade and which adheres to internationally accepted norms and rules for the benefit of the region.  This is in line with the development of the AESAN Economic Community (AEC).  

ASEAN is not a supranational organization but rather a regional association.  The member states remain as the reference point of a regional organization that aspires to be both a political and economic community.   ASEAN, as a bloc, does not have a common foreign policy but strives to achieve a common position in issues that affect the region. 

The policy direction taken by the respective member-states is shaped by and grounded on their national interests and agenda.  This has led to friction between countries in ASEAN.   Due to different political, economic, and sociocultural systems of the ten members, there are instances when the member-states take on varying and conflicting positions on issues.  Given this context, the Philippines has to maintain a delicate and diplomatic posture in its relations with other member states, in order to push forward its interest, in particular in sensitive issues like protection and promotion of human rights, democracy, economic and trading issues, territorial and maritime issues, plus other complicated relationship problems.  

There are instances where there is no alignment of interests and agenda, leading to the Philippines, along with other ASEAN member states, tend to take the lowest common denominator, in order to have consensus on issues so as to arrive at an agreement.   Additionally, the Philippines recognizes that there exist differences in the perception and threat analysis that confront the member states.   This was last exemplified in the 2012 ASEAN Foreign Ministers Meeting debacle, where there was a failure to issue a Joint Communique. 

Alongside the multilateral framework in the conduct of Philippine-ASEAN relations, there is also a strengthening of the bilateral and trading ties with fellow member states that happens in parallel.  There is a convergence of national interest, specifically in the traditional security issues, which could be brought about by perceived common threat in the regional environment.  For example, the Philippines and Vietnam have elevated their bilateral ties to that of a strategic partnership.  In a statement released by the Philippine Department of Foreign Affairs following the conclusion of the first meeting of Philippines-Vietnam Joint Commission on Concluding a Strategic Partnership, the two sides “on the basis of amity, mutual respect and cooperation, the bilateral relations are growing in various aspects, including in political, trade and investment, fisheries, marine and oceanic affairs, defense and security cooperation, among others.”   The improvement in the relations between the Philippines and Vietnam is worth noting, given the minimal interaction in the past.   This was originally due to the fact that both countries were members of ASEAN, with the same problems.  Consequently, trading relations between the two countries have also improved.

ASEAN-EU links

The ASEAN Economic Ministers (AEM) and the EU Trade Commissioner met on 10 March 2017 in Manila, for the 15th AEM-EU Trade Commissioner Consultations.  These Consultations were co-chaired by H.E. Ramon Lopez, Secretary of Trade and Industry, of the Philippines, and H.E. Cecilia Malmström, EU Trade Commissioner.  The AEM and the EU Trade Commissioner noted the strong trade and investment in 2016, and the EU remained the largest external source of Foreign Direct Investment (FDI) flows into ASEAN in 2015 with € 23.3 billion.

ASEAN-US links

Recently the US Ambassador to the Philippines, Ambassador Sung Kim hosted a dinner reception at the US Embassy Residence to celebrate 40 years of US-ASEAN relations.  In his address, these were the main points covered:

It all began in 1977 when the US started engaging with the Association of Southeast Asian Nations as a “dialogue partner” to explore areas of cooperation in terms of trade and investment, technology transfer and other areas for mutual economic growth and development.  The partnership is also focused on supporting economic integration, promoting opportunities for women and addressing transnational issues and challenges. 

The US, in fact, was the first non-ASEAN nation to name an ambassador to the regional bloc in 2008, after which a dedicated mission to ASEAN was established in Jakarta, Indonesia.  In the last five years, some $4 billion has been spent by the US on various development projects aimed at benefiting the constituencies of ASEAN member-nations.

This year also happens to be the 50th year of ASEAN, with the Philippines holding the rotating chairmanship.  Certainly, a lot of interest and scrutiny is being placed on the relationship between the US and ASEAN considering recent developments such as the withdrawal of the US from the Trans-Pacific Partnership (TPP) trade deal.

Ambassador Kim also said that the US will continue to promote free trade and is looking at bilateral free trade agreements between member countries of ASEAN, including the Philippines.  

However, former Philippine Socio-Economic Planning Secretary Cielito Habito has suggested that a bilateral deal between the US and ASEAN as a “single party” may be preferable, since a number of the member nations do not have an FTA with the US.  Many are confident, however, that the relationship between ASEAN and the US will continue to flourish for continued peace and stability in the Asia-Pacific region.

Philippines and Indonesia relations – as the HQ for ASEAN

The Indonesia and Philippines relationship have been traditionally close for many years and this relationship has grown stronger during the history of ASEAN, and its established HQ in Jakarta. The two countries are very close allies, and both have supported each of their policies in the region such as democracy and the maritime law in the South China Sea.  Since diplomatic ties were officially established in 1949, Indonesia and Philippines enjoy a cordial bilateral relationship.  Both countries have established embassies in each capital, Indonesia has their embassy in Manila and consulate in Davao City, while Philippines has their embassy in Jakarta and consulate in Manado and Surabaya.  High rank stately visits have been conducted for years.

Additionally, both nations are the founders of ASEAN and the members of the Non-Aligned Movement and APEC.  Both countries are members of the East ASEAN Growth Triangle together with Brunei Darussalam and Malaysia in the BIMP-EAGA.  Both countries are mainly composed of islands.

Bilateral trade has trended positively in recent years.  According to the Indonesian Ministry of Trade, trade has increased from $1.12 billion in 2003 to $2.9 billion in 2009, and $3.89 billion in 2010.  Indonesia is currently the Philippines’ biggest supplier of coal, exporting about 70% of the Philippines’ coal imports.  Although as of June 2016, Indonesian coal exports to the Philippines are currently on a moratorium due to the growing concern of piracy in the Sulu Sea.

BIMP-EAGA

BIMP-EAGA (Brunei, Indonesia, Malaysia, and Philippines – East ASEAN Growth Area) was launched in 1994 as a co-operation initiative by Brunei Darussalam, Indonesia, Malaysia and the Philippines, all of which are member countries of the regional Association of Southeast Asian Nations (ASEAN).  The objective behind the creation of BIMP-EAGA is to accelerate economic development in the four countries’ “focus areas” which, although geographically distant from their national capitals, are in strategic proximity to each other, in one of the world’s most resource-rich regions.  The BIMP-EAGA initiative is market driven and operates through a decentralized organization structure involving the four governments and the private sector.

BIMP-EAGA co-operation aims to increase trade, tourism, and investments inside and outside the sub-region by:

Facilitating the free movement of people, goods, and services

Making the best use of common infrastructure and natural resources

Taking the fullest advantage of economic complementation  

BIMP-EAGA covers a land area of 1.6 million square kilometers and has a combined population of 57.5 million.

It comprises the following focus areas – the entire Sultanate of Brunei Darussalam,  the provinces of Kalimantan, Sulawesi, Maluku, West Papua and Papua in Indonesia; the states of Sabah and Sarawak, and the federal territory of Labuan in Malaysia; the island of Mindanao and the province of Palawan in the Philippines.

This sub-region has exceptional natural resources, encompassing two of the world’s largest rainforests (in Borneo and Papua), and biodiverse marine systems in the South China Sea, Celebes Sea, and, Sulu Sea.

BIMP-EAGA has a long history of participation in the global economy, stretching back to the silk route and spice trade between Europe, China and other parts of Asia.  EAGA supplies the export markets of ASEAN, North and South Asia, and the Middle East, following the expansion of its air, shipping, and land transport links, and the development of investment incentives.

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Conclusion

The Philippines remains a strong and founding member of the ASEAN grouping, however, the many differing political differences do create problems within the organization.  It would appear that trading relations will become the most important aspect of ASEAN and the Philippines relationship.

The group has spurred economic integration, signing six free-trade agreements with other regional economies.  Yet various experts say that ASEAN’s impact is limited by a lack of strategic vision, diverging national priorities, and weak leadership.  ASEAN’s biggest challenge is negotiating a unified approach to China, particularly in response to its widespread maritime claims in the South China Sea.  Another important aspect is the United States still sees ASEAN as vital to the success of its strategic rebalance and strategic relationship, both politically and economically with Asia.  Likewise, other trading groups and nations, the EU, Russia, Australia, Japan etc, also regard ASEAN as essential in maintaining the trading strength of the individual member states of ASEAN.

Foreign investors should especially be on the look out for infrastructure development projects further linking the Philippines to the rest of Asia, while the Philippines itself is positioning itself both as a BPO service center for ASEAN (and to some extent, China) and as a light manufacturing alternative to Chinese based production. 


About
 Us

Bob Shead is Asia Briefings Philippines Correspondent and is based in Manila. He has 25 years experience as a diplomat in Asia.

Asia Briefing is produced by Dezan Shira & Associates, a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing throughout Asia. For assistance with foreign investment matters in the Philippines, please email philippines@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

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Related-Reading-Asean Book Title

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.


an_introduction_to_doing_business_in_asean_2017_-_image
An Introduction to Doing Business in ASEAN 2017
An Introduction to Doing Business in ASEAN 2017 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment, and taxation. We also include the latest development news for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.



Human Resources in ASEANHuman Resources in ASEAN
In this issue of ASEAN Briefing, we discuss the prevailing structure of ASEAN’s labor markets and outline key considerations regarding wages and compliance at all levels of the value chain. We highlight comparative sentiment on labor markets within the region, showcase differences in cost and compliance between markets, and provide insight on the state of statutory social insurance obligations throughout the bloc. 

 

 

ASEAN Regulatory Brief: Singapore Cybercrime Laws, Malaysia Property Rules for Foreigners, and Myanmar Import Surplus Regulation

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Singapore: Government proposes new cybercrime laws

The Singapore government will include four major amendments to the Computer Misuse and Cybersecurity Act in view of growing cyber threats. Once the Bill is implemented, it will criminalize trading of personal information such as credit card details, medical information, and banking information, even if no hacking was involved to gain such information. Buying or selling of hacking tools and software with criminal intent will also be considered an offence. Overseas committed offences will also fall under the ambit of the amended Act. Any act that causes illness, injury or death, and disruptions to essential services, national security, and Singapore’s foreign relations will be considered an offence.

According to a new section in the bill, multiple unauthorized access to one computer for a period of 12 months or less will be treated as a single offence. Treating multiple unauthorized acts as a single offence will lead to a heavier penalty. The maximum penalty under the Computer Misuse and Cybersecurity Act varies from US$5,000 fine and two years’ imprisonment, to a US$100,000 fine and 20 years’ imprisonment depending on the crime. Last amended in 2013, the government plans to introduce a new Cybersecurity Act in the middle of 2017 after public consultations.

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An Introduction to Doing Business in ASEAN 2017

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By: Dezan Shira & Associates

An Introduction to Doing Business in ASEAN 2017, the latest publication from Dezan Shira & Associates, is out now and available for complimentary download through the Asia Briefing Publication Store.

What happens in and around ASEAN is one of the key factors increasingly impacting upon China and India trade flows, as well as the rest of Asia. While the ASEAN trade bloc has been in existence since 1967, it has really shown its importance in trade and commercial business flows since the rise of China over the past three decades, and through its response to China’s changing domestic demographics. Those changes – an aging and increasingly consumer demanding China – have been skillfully adapted by ASEAN to place the future of global manufacturing, and where it takes place, firmly within its own orbit.

Simply put, free trade agreements that came into effect with China and India in 2010 changed the face of Asian trade and production, and are continuing to do so. For example, bilateral trade figures between China and ASEAN’s Big Five of Indonesia, Malaysia, Philippines, Singapore, and Thailand have multiplied by factors of 500 percent since the agreement was signed. With the smaller ASEAN nations of Cambodia, Laos, Myanmar and Vietnam coming into line with their own compliance of ASEAN customs duty reductions at the end of 2015, the entire bloc offers close to zero import-export tariffs for much of emerging Asia, including the giant markets of China and India, possessing some 500 million middle class consumers between them. ASEAN therefore represents a massive trade bloc possessing free trade agreements of global strategic importance. The question of accessing ASEAN for the benefit of North American, European and other global purchasing and manufacturing executives is a key function of this report.

An Introduction to Doing Business in ASEAN introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment and taxation. We also include the latest development news in our “Important Updates” section for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each. Additional research and commentary on ASEAN’s relationships with China, India and Australia is also provided.

Includes:

  • An introduction to ASEAN 
  • Country profiles
  • Case studies: ASEAN as a platform for Asian growth

Our practice, Dezan Shira & Associates, has taken giant steps into the ASEAN market through the establishment of offices throughout the region, in addition to the creation of a unique alliance of firms. That, coupled with our existing long experience of handling foreign investment into China and India, puts us in a unique position of truly understanding how Asia works and how to maximize its free trade benefits.


About
 Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asean@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

 ‍

Related-Reading-Asean Book Title

dsa brochureDezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.


an_introduction_to_doing_business_in_asean_2017_-_image
An Introduction to Doing Business in ASEAN 2017
An Introduction to Doing Business in ASEAN 2017 introduces the fundamentals of investing in the 10-nation ASEAN bloc, concentrating on economics, trade, corporate establishment, and taxation. We also include the latest development news for each country, with the intent to provide an executive assessment of the varying component parts of ASEAN, assessing each member state and providing the most up-to-date economic and demographic data on each.



Human Resources in ASEANHuman Resources in ASEAN
In this issue of ASEAN Briefing, we discuss the prevailing structure of ASEAN’s labor markets and outline key considerations regarding wages and compliance at all levels of the value chain. We highlight comparative sentiment on labor markets within the region, showcase differences in cost and compliance between markets, and provide insight on the state of statutory social insurance obligations throughout the bloc. 

ASEAN Market Watch: Malaysia Export Growth, Indonesia-Saudi Arabia Relations, and Philippines AML Compliance

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Malaysia: Exports in January register strong growth

Malaysia’s exports in January accelerated from the previous month due to high shipments and strong demand from China. Exports rose 13.6 percent with a value of US$15.76 million from a year earlier, according to the Department of Statistics. Analysts say that global trade is also strengthening, with demand for manufactured products from China, Singapore, Indonesia, Thailand, and South Korea. Electrical and electronic goods, which account for more than one third of Malaysia’s exports, increased 11.4 percent from a year earlier, while palm oil and palm based products climbed 23 percent.

Exports to China, Malaysia’s largest trading partner, increased to 31.6 percent year-on-year in January, followed by 18.8 percent to Singapore. Analysts believe that demand for electronics will lessen in the second half of the year, slowing the country’s growth. However, the country’s central, Bank Negara Malaysia, stated that it expects stronger exports and steady domestic demand to keep up with economic growth.

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Cambodia’s FDI Outlook for 2017: Understanding the Challenges and Opportunities Ahead

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By: Dezan Shira & Associates 
Editor: Harry Handley

Cambodia has achieved GDP growth averaging seven percent per year over the past decade. Despite this growth, it remains one of the poorest nations in ASEAN. However, the Cambodian government has been working closely with a number of bilateral and multilateral donors, including the Asian Development Bank (ADB) and the IMF, to improve conditions in the country. One key element of this is the business environment.

As ASEAN’s third smallest economy, Cambodia is often far from the first economy that springs to mind when thinking about foreign investment into Asia. Challenging conditions, including a weak rule of law and underdeveloped infrastructure, contribute to a global ranking of 131st in terms of ease of doing business in the World Bank’s Doing Business Guide.  Despite this poor ranking, 69 percent of respondents in the American Chamber of Commerce’s ASEAN Outlook Survey 2017 believe that the Cambodian business environment is improving.

In order to thrive in this challenging environment, the current conditions, as well as future opportunities and threats in the market, must be understood.

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Thailand’s New Personal Income Tax Structure Comes Into Effect

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By Dezan Shira & Associates
Editor: Alexander Chipman Koty

Thailand’s updated personal income tax (PIT) structure officially came into effect on January 1, 2017, with the aim to ease tax burdens and boost disposable income. The revision, Revenue Code Amendment Act (No 44) BE 2560, was gazetted on January 27, officially instituting the changes. The new rates apply for all income collected as of January 1 for filing in 2018. The revised income tax scheme was initially approved by the Thai Royal Cabinet on April 19, 2016.

The new structure revises the income tax bands subject to 30 percent and 35 percent tax, and increases deductibles, and doubles allowances. The lower income tax bands and their respective rates remain unchanged. The revision also raises the minimum thresholds for mandatory tax filing.

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ASEAN Regulatory Brief: Philippines Banking Regulation, Cambodia SME Tax Incentive, and Indonesia Fintech Sector

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Philippines: Regulation holds banks responsible for late tax payments

The Department of Finance (DOF) on February 15 announced a new rule under the Bureau of Revenue (BIR) which will penalize banks and not taxpayers for late or unremitted tax payments made through credit, debit or prepaid cards. The regulations amends the Revenue Regulation (RR) No. 3-2016 which made taxpayers liable if their authorized agent bank (AAB) failed to pay the BIR their tax payment on time.

The regulation is mainly to benefit self-employed and small business owners who line up for several hours at BIR to pay taxes. As per the new rules, taxes paid by cards will be deemed already paid on the date and time shown on the confirmation receipt issued by AAB. The AAB will then be liable for any delays in depositing to the BIR. The DOF is also pursuing other tax reforms such as lowering personal income tax while raising excise tax and reducing value added tax (VAT)

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Malaysia’s FDI Outlook for 2017: Trends and Opportunities

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By Harry Handley

Malaysia, ASEAN’s third largest economy (after Indonesia and Thailand), is well on track to achieve its goal of becoming a high income economy by 2020. Despite modest GDP growth of 4.1 percent in 2016 (below the ASEAN average of 4.5 percent), Malaysia is one of the top performing economies in the region in terms of efficiency and business regulations. This competitive edge has been maintained by continuous reform efforts by the government.

Firms setting up companies in Malaysia are likely to experience higher business costs than in a number of other ASEAN states, caused by the country’s minimum wage, its newly implemented Goods and Services Tax (GST) and paid vacation allowances. However, an advanced infrastructure, highly educated and growing workforce and strong regulatory environment allow Malaysia to service high value add industries effectively and continue to entice overseas investors.

For incumbent firms and potential entrants alike, understanding Malaysia’s current investment trends as well as the factors which will shape its future are of utmost importance. 

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ASEAN Market Watch: Malaysia Manufacturing, Philippines Economic Freedoms, and Singapore SME Digitization

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Malaysia: “Most attractive manufacturing market” status retained

Malaysia retains the top position as the most attractive manufacturing market of choice for future relocations according to the new Cushman & Wakefield “Manufacturing Risk Index 2017” report. The “Manufacturing Risk Index” is an annual survey of the manufacturing sector, which considers investment policies, costs, and risks including political, economic, technological, and environmental risks for their assessment. Malaysia’s ranking is attributed to its infrastructure quality, trade, and logistics performance. 

The report also highlights Asia Pacific’s varying degrees of innovation such as automation and smart manufacturing which offers diversity for manufacturers. Almost half of the top 15 positions in the index are occupied by Asia Pacific countries. ASEAN countries such as Singapore, Thailand, Philippines, and Indonesia are ranked 12th, 14th, 19th, and 20th respectively. Based on the overall assessment, cost remains the most significant criteria for relocation currently, with further changes anticipated as the manufacturing industry moves to Industry 4.0, which incorporates automation and data exchange in manufacturing technologies.

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Thailand in 2017: a Changing Investment Landscape

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By Harry Handley

Bangkok2016 was a challenging year for Thailand, both economically and socially. The death of the much-loved King, His Majesty Bhumibol Adulyadej, clouded a year also blighted by political instability, water shortages, and bearish domestic business sentiment. Although official figures have yet to be released, Thailand’s GDP growth for 2016 is expected to be 3.2 percent, the third lowest in the ASEAN bloc (after Brunei and Singapore).

Despite low business confidence from locals, foreign businesses continue to be attracted by Thailand’s strategic position between China and India, access to the ASEAN free trade area, and the incentives offered by the Board of Investment (BOI). 2017 has been touted by some as a pivotal year for the Thai economy and ‘the year of concrete national reform’, with a major election on the horizon, either at the end of 2017 or the beginning of 2018 dependent of the progress of the royal succession. As such, it is important to review the state of the market at present and identify the key factors that may affect foreign businesses, both incumbents and potential entrants, in Thailand in 2017.

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