One Year Memorandum of Laos' Accession to the WTO

It was February, 2014 in Riverside Road, Vientiane.

At the same time of last year, Thongloun Sisoulith, Deputy Prime Minister and Minister of Foreign Affairs of Laos, as well as Nam Viyaketh, Lao Minister of Industry and Commerce together with other government officials and more than 1,500 citizens ran happily in the streets of Vientiane and celebrated that their country became WTO's 158th member. The roads they ran were wide and long, and the strides they made were strong and solid. All these seemed to indicate that Laos began to step on a new and fast path for development.

According to the statistics, the vehicle population of Vientiane is about 600,000, which keeps growing at a rate of 5,000 per month. Nevertheless, the city has only a population of around 850,000.

Some Lao officials think that the rise of vehicles is the embodiment of rapid economic growth as well as the improvement of people's livelihood.

Just a year later, the road in Laos suffered the choking traffic jam.

Streams of cars kept moving fast or slow. And impatient drivers honked their horns occasionally, trying to overtake.

The rapid increase of vehicles has caused severe traffic congestion during rush hours. To reduce pressure, many main roads in Vientiane are being upgraded and expanded. Also, local government is planning to raise purchase tax for vehicles. Infrastructure development and government regulation will be the most effective ways to alleviate traffic jams.

Changes in Riverside Road look like the miniature of Lao society, which acceded to the WTO for just over a year.

Economy: between Red-hot and Overheated

In parallel to the rapid growth of vehicles, Lao economy is red-hot as well.

A leading Lao newspaper reported, Laos’ GDP was expected to exceed 8% in 2013 with the per capita GDP of $1,490. And the target of 2014 will be 8.3% and $1,674 separately.

Another newspaper, Vientiane Times, said the GDP of Laos totaled $10.19 billion from 2012 to 2013 with the per capita GDP of $1,534. As Lao government prepares to draft the eighth five-year national socio-economic development plan, it has set a target for economic growth of 8.5 - 9 % annually in the period of 2016 to 2020, while per capita income should be $3,200 by 2020.

As one of the Asia’s least developed nations, Laos has maintained the rapid economic growth for a long time. From 1970 to 2010, it was viewed as one of the ten fastest-growing countries in the world. From 2001 to 2011, its GDP doubled and maintained an average annual growth at 7.3%, achieving the millennium development goal of lifting the population out of poverty by 2015.

The increase of merchandise exports benefited from various free trade agreements, the inflows of foreign investment and the international aid have helped Laos keep such a high and sustained growth.

Currently, economic growth in Laos has been driven by hydropower, mining, manufacturing, tourism, agriculture and service industry. With 13 completed hydropower stations and about another 70 in construction or planning stage, including the Thailand-funded Xayaburi Dam across the mainstream of Mekong River, Laos plans to build itself as the “power station of Southeast Asia”. Laos has also been making great efforts to develop large-scale infrastructure projects. For example, it has built or adjusted highways and high-speed railways, hoping to become the trade crossroads among China, Thailand and Vietnam. In addition, 10 economic development zones with an area of 130 square kilometers were approved and established in Laos. It aims to set up 25 economic development zones by 2020, thus to facilitate Laos’ development in all regions.

Nevertheless, highly exploited resources, loose lending policies and numerous development models of major infrastructural projects left potential problems for Laos’ economic development. Affected by rising food, oil, electricity and gas prices, Lao annual inflation rate was up to 5.64% in 2013, an increase of 1.19% compared to 2012. Besides, huge capital expenditures on projects led to an increase in the budget deficit, which rose to 6.5% of Laos’ GDP.

Ashvin Ahuja, an economist from IMF (International Monetary Fund), led a delegation to Laos in 2013. As he stated, the economic development in Laos was overheated. In September 2013, Prime Minister Thongsing Thammavong also warned, “Laos is running a high level of debt and is at risk of a financial crisis.” He then ordered ministries and government agencies to implement austerity measures.

When the economy steps on the fast lane, risks and challenges will lurk everywhere, and opportunities and traps will also closely co-exist. After 15 years’ negotiations, Laos joined the WTO. The future road before Laos will be longer and more tortuous, but definitely worth expecting.

Battery of Southeast Asia: A Tough Game

It was November 7th, 2012 in Xayaburi. Somsavat Lengsavad, Deputy Prime Minister of Laos announced that Xayaburi Dam in Mekong River was officially started. This happened exactly two weeks after WTO approved Laos’ entry into the organization.

As the first large hydroelectric project across the mainstream of the Mekong River, Xayaburi Dam has received widespread attention.

With the total investment of $3.8 billion, the 1,260-megawatt hydropower project is scheduled to be completed by 2019.

The project was surrounded in controversy due to complaints from environmentalists, Vietnamese and Cambodians, who were worried that it might bring adverse effects to people's life, fisheries and agriculture. The U.S. State Department also released a statement and opposed the project. Thailand supported the project and planned to purchase 95% of its electricity. CH. Karnchang Public Company Limited (CK), Thailand's largest infrastructure developer, is the leading contractor for the project.

Under different pressures, the construction of Xayaburi Dam was delayed for a few times. Just a year before it started to be built, the governments of Cambodia, Laos, Thailand, and Vietnam agreed to delay the construction of the Xayaburi Dam, thus to further study on its environmental impact.

Xayaburi Dam is an important project for Lao government’s "resources for funding" strategy. The government plans to build another 8 dams in the mainstream of Mekong River. These dams, together with dozens of small hydropower stations on the stretch of the Mekong River, constitute the "Battery of Southeast Asia". They will become the key industry affecting Laos’ future development. Lao government’s insistence on constructing the Xayaburi Dam amid the controversy shows that the nation relies heavily on the hydropower industry as well as its determination to speed up economic development.

The game was filled with obstacles and the decision was tough to make. Even so, after being a WTO member for a year, Laos has still made great efforts in fulfilling its WTO commitments, improving the legal system and coordinating the relationship between development and environment and so on, earning recognition of the international community. For instance, it amended, formulated and adopted regulations such as Environmental Protection Law and Electronic Transactions Law, as well as raised resource taxes and limited the quota for timber cutting. Due to Laos’ great efforts and transparent aid spending, it got more aid under the condition that official development assistance (ODA) has been continuously declining around the world.

Special Zones: the Places Where Economic Engine Starts to Accelerate

It was November 12th, 2012 in Boten.

Approved by Lao government, Boten special economic zone was officially founded. As the neighbor of Yunnan and Mohan Port, a transportation hub of Indo-China Peninsula, Boten was famous for its casinos.

Experiencing a sluggish period at inception, Mohan Port has currently achieved substantial growth with 1.2312 million tons of import & export goods annually and nearly 1 million person-time of entry-exit passengers. Moreover, China and Laos are working together on the construction of Mohan-Boten Cross-border Economic Cooperation Zone. To satisfy the need for growing entry-exit personnel and import & export goods, two sides also plan to set up exclusive channels between China and Laos within the zone.

It is Laos’ established development plan to promote regional economic growth through the economic development zones. In Laos, 2 special economic zones and 8 specialty economic zones have been set up since 2000.

Over 100 enterprises have been attracted to the zones, the total investment exceeded $1 billion, and about 8,000 jobs were created, according to the latest data from Lao National Committee for Special Economic Zone.

Through the active involvement of enterprises, the industrial development situation in Laos has been greatly improved and injected fresh vitality. For instance, Korean KO LA0 Group has set up a minivan plant in Savannakhet province, which is the first modern minivan manufacturing and installation factory in Laos; Chinese-funded That Luang Lake Specific Economic Zone will be built as a lakeside town that integrates commerce & trade, culture, tourism, leisure and housing; A square in Laos is being built by China Chongqing Wande Real Estate Development Co., Ltd., which will become Vientiane’s landmark because of the 33-storey five-star hotel.

Transport: Strive for Being A Vital Hub of Indo-China Peninsula

It was December 11th, 2013 in Houayxay.

The Fourth Thai-Lao Friendship Bridge which connects Thailand’s Chiang Khong to Lao PDR’s Houayxay was officially opened, ending the history that people and cargo on Kunming-Bangkok Highway had to cross the river in ferry boats. Now the vehicles on the bridge run smoothly and the traffic time is greatly shortened.

Kunming-Bangkok Highway stretches over 1, 800 kilometers from Kunming, China in the north to Bangkok, passing through Yuxi, Pu’er, Mohan Port, Houayxay (Laos) and Chiang Khong (Thailand).

Kunming-Bangkok Highway brings Laos closer to the dream of being an important trading hub linking Southeast Asia and China.

As an inland country, Laos is very ambitious.

As early as in 2010, it was approved by the 10th session of the 6th Congress of Laos to build a high-speed railway from Kunming, China to Vientiane, Laos. As a part of Pan-Asian Railway Plan, the railway will be connected to Singapore in the future. In October 2012, not long before Laos joined the WTO, its Congress passed the railway plan. Half a month later, Laos and Vietnam inked an agreement on developing the 220km track from Savannakhet to Lao Bao, near the Vietnam border, which would open the maritime route for Laos’ economic development.

Thus, the railway construction linking Nong Khai, Thailand and Thanaleng, Laos (3.5 kilometers) and the building of 7.75 kilometers extension of railway line from Thanaleng to Vientiane, are only small steps of the long journey. All these steps are consolidating Laos’ ambition and confidence for being a new transportation and trading hub.

Laos’ entry into the WTO is a new impetus and also brings this nation new risks and challenges.

More importantly, Laos is already on the way.