May 8 (Bloomberg) -- Tesco Plc, Carrefour SA and other retail chains operating in Thailand face restrictions in expanding further in Southeast Asia's second-biggest economy after Cabinet approved temporary retail limits today.

Thailand's Cabinet agreed to adopt a ``stopgap'' proposal by the Commerce Ministry to temporarily limit retail chain expansion pending final approval on a new law that's being re-drafted.

The government will ``use existing laws such as city planning laws and building construction controls to limit the construction of new retail stores by those retailers,'' spokesman Yongyuth Mayalarp told reporters after Cabinet met in Bangkok today. ``The bill has not yet become law.''

Small retailers in the nation of 65 million people have been protesting against the expansion of Tesco, Carrefour and Thailand's Big C Supercenter Pcl and Siam Makro Pcl into regional provinces after growth slowed in the capital Bangkok and neighboring areas.

``The law is needed to control aggressive foreign-owned retailers in small provinces, where community, culture and way of life has been ruined,'' said Panthep Suleesatira, who owns a video rental shop in Ang Thong province, about 105 kilometers (65 miles) north of the capital. ``Fresh markets where local people met up as a way of life for centuries have disappeared in several districts because people opt to go to large stores.''

Panthep, 55, is president of a group of Thai businesses opposed to foreign retailers.

The ``Retail and Wholesale Business Act'' is being softened from the original draft proposed last year.

Rules Pending

The pending act will require large retail chains receive approval from new ``wholesale and retail business supervision committees'' to be established in each province before they build a store.

The 11-member committees, each made up of representatives of the government ministries, retail business operators, local people living in the community, and chaired by the provincial governor, must agree with the development before a chain can expand in that province, according to a copy of the draft obtained by Bloomberg.

A 15-member central committee made up of the permanent secretaries of Thailand's commerce, interior and industry ministries and representatives from large and small retailers will supervise the provincial units and set rules and regulations, including store location conditions and licensing.

``Expanding with new stores will be very difficult or may be impossible after the law is imposed,'' said Thanapon Tangkanana, president of Thai Retailers Association, whose members include Tesco and Big C. ``We expect the rules and regulations of this new committee to be very tough to open any new stores because the government has made it clear it wants to curb the number.''

The law aims to ease the pressure the expansion of big chains in regional areas have placed on local retailers, Siripol Yodmuangcharoen, director-general of the Internal Trade Department, said March 7.

`Government Duty'

``The government has the duty to look after all small and large businesses,'' Siripol said in March. ``The law is needed to ensure their coexistence even though there will be some objection.''

The rapid expansion of chain stores that combine supermarket and department store merchandise has ``damaged some cultural values'' in Thailand, former Finance Minister Pridiyathorn Devakula said on Dec. 18. The law will lead to the mutual existence of both large and small retailers, he said.

The earlier draft was criticized as ``too broad'' by Cabinet, who sent it back for commerce ministry revisions on March 27, Yongyuth said at the time. Cabinet demanded specific powers for the proposed National Wholesale and Retail Business Supervision Board, limiting its scope to decide where the stores can open.

Investors have been spooked by recent government and central bank rule changes, including tightening foreign ownership limits, capital controls and shareholder probes.

``The law goes against the principle of a free economy that the government has tried to show overseas investors,'' Thanapon said. ``We should let consumers make their own decision on their purchases of goods and services instead of introducing a new law to limit their options.''

Low Confidence

Confidence in Southeast Asia's second-largest economy has fallen to a five-year low among consumers and businesses as anti- government groups step up protests in Bangkok and terrorist attacks escalate in southern provinces.

The Bank of Thailand, the central bank, said last month economic growth may slow to as little as 3.8 percent this year from 5 percent in 2006. It has cut Thailand's benchmark interest rate three times this year to try and spur growth and encourage spending.

The junta-installed government's reversal of many of the ousted government's populist policies that showered cash on rural areas had caused ``too much of a shock'' and stalled consumption, Finance Minister Chalongphob Sussangkarn said in a March 23 interview.

Cheshunt, England-based Tesco, Britain's largest supermarket chain, said in November its Thailand unit would ``temporarily freeze'' new convenience-store openings for three months to comply with a government request pending legislation that may limit retail chains in the kingdom.

Tesco, Carrefour

Tesco has a Thai venture that operates 59 hypermarket stores under the Tesco Lotus brand, according to its Web site. Thailand's biggest hypermarket operator runs 189 smaller outlets under the Tesco Express brand, it said.

Paris-based Carrefour, the world's second-largest retailer after Wal-Mart Stores Inc., has 18 supermarkets in the Bangkok area and has expanded into at least five other provinces, according to its Web site.

Big C, Thailand's second-biggest discount store operator, has 49 outlets nationwide and six Leader Price stores, according to the Web site of the unit of Casino Guichard-Perrachon SA of France.

Siam Makro operates discount store chains and wholesale cash and carry warehouses.

C.P. 7-Eleven, the world's fourth-largest operator of the convenience store franchise, operated 3,784 7-Eleven stores in Thailand as of December 2006, according to its results presentation. The Thai company also operates supermarkets in China.

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Beth Jinks in Bangkok at bjinks1@bloomberg.net

Last Updated: May 8, 2007 05:37 EDT