Oct 6, 2012

Laos - Laos Is Poised to Take Last Asean Place in WTO

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The World Trade Organization is poised this month to accept Laos, the smallest economy in the 10-member Association of Southeast Asian Nations and the last one outside the global trading club.

The terms of Laos’s membership were agreed to last week by a working party on its accession, and now must be endorsed by all 157 members of the WTO, according to a posting on the Geneva-based group’s website.

Vietnam was the last member of Asean to join the WTO, in January 2007. Laotian accession further bolsters the association’s international position, as China and the U.S. compete for influence in the region and Myanmar moves away from decades of political isolation.

“It’s another feather in the cap for Asean,” said Markus Taussig, an assistant professor in the business school at the National University of Singapore, who researches emerging economies. “With Myanmar having turned from a pariah into the sexy emerging-market story and with Laos in the WTO, Asean can be fully represented in international discussions.”

The membership package is scheduled to go to the WTO’s General Council for formal approval on Oct. 26. Laos’s National Assembly will probably complete ratification in December, according to Lao Minister of Industry and Commerce Nam Viyaketh.

Providing Incentives

“Just as important as gaining better market access for Laos in its accession, is providing incentives for and anchoring domestic reforms,” said Mia Mikic, an economist at the United Nations Economic and Social Commission for Asia and the Pacific in Bangkok. She cited the need for updated regulations in areas including intellectual property rights, food safety, customs valuation and import licensing.

“There are also commitments regarding the treatment of state-owned enterprises and price controls which are perceived as further helping the development of the private sector,” Mikic said.

Laos committed to maximum import tariffs on goods that average almost 19 percent. In services, the country made market- access pledges in 10 industries, according to the WTO.

Working to overcome domestic opposition and “convince our internal partners of the justification of the reforms requested was one of our most difficult tasks,” Lao industry chief Nam said in a statement posted on the WTO’s website.

Laos has “made tremendous efforts in improving the investment climate and opening its market for goods and services,” Nam said. “As a landlocked country with long porous borders which are difficult to control, our ability to protect the internal market with high tariffs is thus very limited unless we simply want to encourage fraud.”

Stock Exchange

Laos has been accelerating its process of opening up in recent years. The country opened a stock exchange in January 2011, beating neighboring Cambodia, which opened its bourse about six months ago. Still, the Laotian exchange was only able to list two companies: a bank and a power provider.

Next month, Laos will host the Asia-Europe Meeting summit of heads of state and governments, which is held every two years, with the Laotian capital of Vientiane following in the footsteps of Brussels, the site of the 2010 meeting. The government is spending about 240 billion kip ($30 million) to organize the summit, the Vientiane Times reported last month.

The country’s 6.5 million people had a per-capita gross domestic product of $1,204 last year, according to the International Monetary Fund. By comparison, for the five countries with which Laos shares borders, China’s was $5,414, Thailand’s was $5,394, Vietnam’s was $1,374, Cambodia’s was $852 and Myanmar’s was $832.

Myanmar’s Growth

The economy of Myanmar -- which has been a member of the WTO since it was created in 1995 -- is benefiting from investment in oil, natural gas and power and expansion in tourism, construction and exports, with the growth forecast for this year “edged up following policy changes that improved its outlook,” the Asian Development Bank said this week.

The Laotian economy is forecast to grow 7.9 percent this year and 7.7 percent in 2013, driven by construction for hydropower and mining, according to the ADB.

Investment in the country by PanAust Asia, a unit of Australian-listed PanAust Ltd. (PNA), which operates mines in Laos that produce copper, gold and silver, “has coincided with the gradual liberalizing of the Lao economy, including internal banking, taxation and other constraints, as well as external barriers such as import rights and duties,” said Alistair Maclean, the company’s Vientiane-based general manager of external affairs.

“The legal and regulatory framework is developing in a generally positive direction, although it will be important that the momentum toward certainty and predictability for foreign investors is maintained,” Maclean said.

Indonesia, Thailand

Growth in five Asean economies -- Indonesia, Thailand, Philippines, Malaysia and Vietnam -- along with China and India will probably outpace the rest of the world in the next two years, the IMF said in an April report. The Asean-5 will grow 6.2 percent in 2013, compared with 2.4 percent in the U.S., 0.9 percent in the euro region and 1.7 percent in Japan, it said. The other five members of Asean are Brunei, Cambodia, Laos, Myanmar and Singapore.

Like Vietnam, Laos is a one-party state, ruled by the Lao People’s Revolutionary Party. Both countries began introducing market-oriented economic measures in 1986.

“The process has been slow, but progressively more liberal, and foreign direct investment has flowed in as a result, particularly from Thailand and Vietnam, and significantly more recently from China,” said Martin Stuart- Fox, an emeritus professor of history at Australia’s University of Queensland. “In Laos, as in China and Vietnam, economic liberalization in no way presages political liberalization.”

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