The European Free Trade Association (EFTA) and the Kingdom of Thailand recently unveiled a new Free Trade Agreement (FTA), highlighting their strategic partnership. The FTA includes an Investment Chapter aimed at promoting foreign investments from Iceland, Liechtenstein, Norway, and Switzerland.
On 23 January 2025, the member states of EFTA, which include Iceland, Liechtenstein, Norway, and Switzerland, signed a new FTA with Thailand in Davos, Switzerland. Negotiations for the FTA began in 2005, and its entry into force is still pending. The comprehensive FTA covers trade in goods and services, intellectual property rights, competition, government procurement, and sustainable development. It facilitates trade by eliminating or reducing customs duties and includes provisions that offer benefits to small and medium-sized enterprises.
Additionally, the FTA includes the Chapter 6 Investment Chapter, designed to promote investment flows between the EFTA states and Thailand. This article provides insights into the Investment Chapter of the FTA and discusses its relationship with other investment-related agreements between the parties to the FTA.
Investment promotion in the FTA's Investment Chapter
The Investment Chapter of the FTA applies to legal entities or individuals from the EFTA states that have a commercial presence in Thailand (e.g. through company incorporation, acquisitions, branches, or representative offices, as specified in Art. 6.2), or vice versa.
Regarding substantive guarantees, Art. 6.3 of the FTA establishes a “national treatment (NT) rule” for investors concerning their commercial presence in non-service sectors. In international investment law, NT mandates that a host state must offer foreign investors treatment no less favourable than the treatment granted to its own domestic investors in similar circumstances. The non-discrimination guarantee of the FTA's NT provision applies to the establishment of a commercial presence by foreign investors. As a result, subject to certain reservations outlined in an annex to the FTA, investors from Iceland, Liechtenstein, Norway, and Switzerland can establish businesses in non-service sectors in Thailand under the same conditions as domestic competitors.
As another standard in international investment law, Art. 6.7 of the FTA includes an obligation for the parties regarding the “free transfer of funds”. Under this provision, Thailand agrees that it will not restrict payments or capital movements related to investment activities by investors from Iceland, Liechtenstein, Norway, and Switzerland. Such transfers may be made in any freely convertible currency at the market exchange rate, subject only to a narrow public policy reservation that allows the application of mandatory laws, including those related to criminal offenses, bankruptcy, or compliance with judgments.
Furthermore, Art. 6.14 of the FTA states that the parties will endeavour to facilitate mutual investments, including by creating an environment conducive to increased investment flows, simplifying procedures for applications and approvals, promoting the dissemination of investment information through national investment laws and policies, and establishing contact points, such as “one-stop investment centers”, to provide assistance and advisory services to foreign investors.
Finally, consistent with current investment treaty practices, the parties in the Investment Chapter reaffirm their commitment to protecting public health, safety, and the environment. They also agree not to waive or derogate from measures addressing health, safety, or environmental concerns to attract foreign investment (Art. 6.6).
Arbitration mechanism in the FTA
For disputes concerning the application of the FTA, including its Investment Chapter, Chapter 14 provides for resolution through state-to-state arbitration. Before initiating arbitration, the complaining party must attempt to resolve the dispute amicably through cooperation and consultations. If these efforts fail, arbitration may be initiated by requesting the establishment of an arbitral tribunal composed of three members, appointed in accordance with the 2012 Rules of the Permanent Court of Arbitration.
The arbitral tribunal must submit an initial report within 120 days of its establishment (or 60 days for urgent matters), followed by a final report within 30 days of receiving comments on the initial report. The final report is binding.
Relationship between the FTA's Investment Chapter and the Switzerland-Thailand Investment Treaty
The FTA's Investment Chapter is particularly relevant for investors from Iceland, Liechtenstein, and Norway, as these countries have not entered into international investment agreements (or investment treaties) with Thailand. Investment treaties are instruments of international law, typically concluded bilaterally between two states. They provide important protections under international investment law, which investors can directly enforce by initiating investor-state arbitration against the state where the foreign investment has been made. The substantive and procedural protections in investment treaties go beyond the rules set out in the FTA's Investment Chapter.
By contrast, Switzerland concluded an investment treaty with Thailand in 1997 (i.e. the Switzerland-Thailand Investment Treaty), which guarantees that Swiss investors in Thailand will be treated in accordance with protection standards of international investment law. Switzerland is among the countries with the most investment treaties in the world, having signed a total of 128 treaties, 111 of which are currently in force. Art. 6.1.2 of the FTA confirms that its Investment Chapter does not affect the interpretation or application of the Switzerland-Thailand Investment Treaty.
Comment
The conclusion of the FTA is a welcome development. Thailand is part of an emerging region, and EFTA includes key capital-exporting countries, where economic diversification is becoming increasingly important. In 2023, total trade between the parties reached USD 3.2 billion with USD 1.4 billion in exports from the EFTA states, of which Switzerland held the lion's share.
The FTA's Investment Chapter introduces a key investment promotion rule, allowing EFTA investors to establish businesses in Thailand under the same conditions as domestic investors. At the same time, the FTA preserves the Switzerland-Thailand Investment Treaty, thereby guaranteeing important protection rules for Swiss investors after an investment has been made.
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