This article was originally published by the East Asia Forum on 9 August 2014.
Earlier this year Laos celebrated the first anniversary of its WTO membership. Laos’ accession to the WTO has been less talked about than that of its neighbours China and Vietnam, who joined the organisation in 2001 and 2007, respectively. This is partly due to Laos being a small, landlocked economy whose accession would not be expected to make a big impact on international trade.
But Laos’ clout is more than may first appear.
Until recently Laos had been the only member of ASEAN that remained outside the WTO. Laos’ membership in the WTO has strengthened ASEAN’s position in the multilateral trading system. ASEAN now has a louder voice at the WTO negotiating table. And, given it is a sizeable market of over 600 million people, ASEAN cannot be overlooked. ASEAN is also one of the world’s most dynamic trading blocks and is aiming to establish an economic community by 2015.
The admission of Laos also demonstrates that the WTO is an inclusive organisation for least developed countries (LDCs). There have been heated debates over whether WTO accession has become tougher and takes a longer time to complete. The accession of Laos is no exception to this trend — negotiations took 15 years to complete. When Laos entered the WTO, then director-general of the WTO Pascal Lamy remarked, ‘Laos has come a long way since it embarked on the road to membership in 1997’. He added that the process has never been easy for LDCs.
Laos’ initial accession steps were slow, but the country has recently reformed its economy and domestic institutions to align with international trade rules.
Laos has agreed to similar terms of WTO membership to other LDC applicants. Laos has bound its tariffs at 18.8 per cent on average for all products (19.3 per cent in agriculture and 18.7 per cent in non-agricultural sectors). In terms of services, Laos has committed to liberalise 10 sectors (or 79 sub-sectors): business services; courier and telecoms; construction; distribution; private education; environmental services; insurance; banking; private healthcare; tourism; and air transport services. These commitments will be implemented fully over a maximum period of seven years after the date of accession.
Laos has also agreed to adhere to WTO principles, including those related to trading rights; import licensing; customs valuation; investment; sanitary and phytosanitary measures; technical barriers to trade; trade in services; and trade-related intellectual property rights.
The government is working on disseminating its accession package to different stakeholders. On the one hand, this aims to ensure government agencies at various levels understand the contractual obligations that Laos now has with the international community. On the other, it aims to educate the business community and the public at large of the opportunities that arise from joining the WTO.
Laos has used its WTO accession to implement its decision to establish a market economy. The accession process allows countries to align their trade policy with the principles of non-discrimination and transparency. Over the course of 15 years of accession negotiations, Laos enacted some 90 laws and regulations to bring them in line with WTO rules. This is expected to help create an enabling environment for the private sector. Such reform momentum should be maintained post-accession if Laos is to be competitive in the region.
WTO membership provides export opportunities for Laos, but such opportunities need to be realised. Despite its relatively robust growth of around 7.5 per cent per year over the last decade, Laos has to broaden its export base. To date, its exports are dominated by a limited number of products, mainly resource-based products (mining and electricity), primary commodities (agriculture and wood) and products with low value add (garments). Opening up the internal market to
foreign competition will help to stimulate reform in both the import-competing and export-oriented sectors.
Laos has bound its tariffs for all agricultural and industrial products, while a grace period has been granted for tariffs on items that are significant parts of Laos’ domestic production or tariffs that contribute significantly to government revenue. In the medium to long term, alternative measures that are legal under the WTO, such as trade remedies, need to be put in place to address the possible impacts of an import surge.
Adapting to the WTO rules is a long-term challenge. Both the public and private sectors need to be prepared. Joining the WTO is not an end in itself. It is a tool to assist countries in adjusting their internal system to the norms of the world trade community. The true benefits of WTO accession can only be gained if Laos takes the results of the accession negotiations seriously and implements its obligations proactively — but its first year has been a good start.
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Buavanh Vilavong is a PhD scholar at the Crawford School of Public Policy, ANU. He was previously part of Laos’ negotiation team on WTO accession and retains his position as Deputy Director General in the Ministry of Industry and Commerce.