Will Laos WTO Membership Increase Foreign Investment and Boost Economic Engagement?

February 6, 2013

By Gretchen A. Kunze

On Saturday in Vientiane, Laos announced its full membership in the World Trade Organization (WTO). The WTO is the global international organization that deals with the rules of trade between nations, with the goal of helping producers of goods and services, exporters, and importers conduct their business. The WTO puts it this way: WTO “agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets.”

In recent years, Laos has achieved some of the world’s highest economic growth, generally ranging between 7-8 percent annually. Above, the capital, Vientiane, buzzes with activity. Photo/Michelle L. Chang

The process leading to approval for membership in the WTO often takes a country about five years and is a badge of marked economic achievement. For Laos, this effort has taken 15 years. To be admitted to the organization, Laos wrote and adopted scores of new laws and procedures in such areas as investment, regulation, and intellectual property in order to align itself with international trade norms. Laos can now claim to be the WTO’s 158th member.

For Laos, membership is a solid indicator of the nation’s growing engagement in the global economy. A single-party state since 1975 when the Communist government came to power, Laos began to open its economy in 1986. In recent years, the small, landlocked country has achieved some of the world’s highest economic growth, generally ranging between 7-8 percent annually. As of yet the benefits of the booming economy have not spread much beyond the capital city of Vientiane, and Laos remains among the world’s poorest nations. The growth is overwhelmingly due to the nation’s rich natural resources, and particularly hydropower dam construction and mining. With the goal of graduating from the list of least developed countries by 2020, sustaining this growth is critical.

The great hope here is that the WTO accession will provide a stamp of legitimacy that will attract increased foreign investors and thereby drive economic growth and reduce poverty. There are unofficial murmurs that the nation would also like to diversify its investors. Powerful neighboring countries – China, Vietnam, and Thailand – have dominated foreign investment in Laos. Until now, Western countries in particular have deemed the country’s investment and regulatory environment far too risky, and have passed over Laos in favor of countries with a more predictable legal and regulatory environment. The Lao people hope that the WTO acceptance will change that.

Even with the improved legislation in place, skeptics question what actual effect membership in the global trade body will have on the country’s economy given its other competitive disadvantages. Being landlocked adds substantial costs to exporting goods manufactured in Laos. The entire population is only 6.5 million. There is no significant domestic market. The workforce is small and unskilled compared to its neighbors. These conditions are only some of the major differences with Vietnam, a country that did see a sizable increase in foreign investment after it joined the WTO in 2007.

But whether for symbolic or tangible reasons, the accession is surely welcomed in Laos and beyond, and particularly by the other members of the Association of Southeast Asian Nations (ASEAN). Of the 10 member countries, Laos is the final one to be admitted into the WTO. The timing could also prove beneficial considering the effort currently underway to establish the ASEAN Economic Community by 2015, as now all 10 diverse ASEAN nations start from the common ground of being beholden to the rules of the WTO.

Gretchen Kunze is The Asia Foundation’s country representative in Laos. She can be reached at gkunze@asiafound.org. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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