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What next for Laos’ growth strategy?



An image of the new Vientiane-Vangvieng Expressway, Laos, 29 December 2020 (Photo credit: article author).

Author: Souknilanh Keola, IDE-JETRO

The economic growth trend in Laos started when it first opened to foreign trade and investment in the early 1990s. Three major economic crises have hit Laos since, profoundly affecting the country’s growth strategies.

Laos is a landlocked country whose substantial interaction with the outside world is carried out through Thailand, one of its immediate neighbours. Trading with or through Thailand to the west had long been the most economically efficient route for geographic and historical reasons. Most cities in Laos are also distributed along the western border with Thailand, making trading westward simply more efficient. The formalisation of trade and investment westwards in 1989 was a pragmatic reverse of the stagnant attempts to establish an alternative connectivity eastward via Vietnam since 1975.

Trade westward brought sustained economic growth to Laos until the Asian financial crisis hit the country in 1998. Laos was struck much harder than neighbouring Thailand. The heavy impacts came from the drastic drop in investment from Thailand and high inflation caused by a steeper depreciation of the Lao Kip against the Thai Baht compared to the US dollar, sharply reducing its capacity to import. Laos realised it needed to secure alternative linkages with the world.

Laos quickly wrapped up preferential trade agreements with Vietnam and China in the early 2000s that aggressively slashed tariff and non-tariff barriers. This move paid off, coinciding with the rise of China. Both exports and imports with China increased from less than 1 per cent in 2000 to about 10 per cent in 2008. Investment from China quickly constituted a major portfolio of foreign direct investment (FDI) into Laos. The economy remained almost unaffected by the global financial crisis in 2008. China’s Belt and Road Initiative accelerated the development partnership.

COVID-19 has become the third crisis. Before 2020 foreign tourists and remittances accounted for about US$1 billion in annual foreign exchange revenue. The statistics reveal a mixed reality for cross-border movements of goods. While imports from Thailand between January and November 2020 declined by 13 per cent compared to 2019, exports increased by 6 per cent. Transit goods from Thailand to Vietnam decreased by about 20 per cent but increased by around 13 per cent from Vietnam to Thailand. Transit goods from Thailand to and from China increased by about 8 per cent and 34 per cent, respectively.

Construction rail and motorways continued almost without disruption. A 109-kilometre long dual-carriage highway linking the capital Vientiane and Vang Vieng began in 2019 and was completed under lockdown ahead of schedule. Construction of a further 137 kilometres linking to the former capital of Luang Prabang was approved in December 2020. This construction will boost tourism. The completion of a 200-kilometre highway to Boten, the border with China, will secure another linkage in addition to the current one via Thailand.

The heavy debt surrounding the development partnership with China is still a source of concern. The scale of some projects is so large that parts of them may put unmanageable pressure on Laos’ financial position, especially during economic crises. Laos still decided to take the risk because of its high growth target within a fixed time frame. In its 2030 vision, Laos aims to quadruple per capita GDP between 2016 and 2030. An annual investment of around 30 per cent of GDP is required to achieve this target.

But economically profitable investment opportunities are limited given the size and distribution of the population. Labour-intensive FDI in the garment industry levelled out quickly because of the low population density, scattered over a relatively large and difficult landscape. The relatively high growth since 2000 has been mostly propelled by a rapid expansion of natural resources and hydroelectric power exports, as well as steady increases in foreign tourist arrivals. Attracting FDI into these sectors in Laos was not easy. The impact on the environment and local communities are major concerns accompanying natural resources and hydropower developments, while dependency on foreign tourists and accessibility are the challenges of the tourism industry. China is currently the only country with the capacity and willingness to fill present supply and demand gaps needed for continued rapid growth in Laos.

The annual growth target has been revised down substantially, from around 8 per cent to 4 per cent, in the next five-year plan…

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Fixing fragmentation in the settlement of international trade disputes



Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.

Fragmentation in Global Trade

Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.

Challenges with WTO Dispute Settlement

The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.

The Path Forward for Global Trade

Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.

Source : Fixing fragmentation in the settlement of international trade disputes

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WTO ministerial trading in low expectations and high stakes



The WTO’s 13th Ministerial Conference is set to focus on e-commerce transparency, investment facilitation, and admitting new members. However, progress may be hindered by disputes, especially regarding fisheries subsidies.

The World Trade Organisation’s 13th Ministerial Conference

The World Trade Organisation’s (WTO) 13th Ministerial Conference is set to take place in Abu Dhabi on 26–29 February, with expectations of deals on electronic commerce transparency, investment facilitation for development, and the admission of Timor Leste and the Comoros as WTO members. Despite these positive developments, the expectations are relatively modest compared to promises made at the 12th Ministerial Conference, which included addressing fisheries subsidies and restoring a fully functioning dispute settlement mechanism by 2024.

Challenges in Dispute Settlement and Agricultural Trade Reform

However, challenges remain, especially in the deadlock of dispute settlement since December 2019 due to a US veto on the appointment of Appellate Body judges. Progress in restoring the dispute settlement mechanism has stalled, and discord continues regarding India’s grain stockholding policy as a potential illegal subsidy. Restoring a fully functioning dispute settlement mechanism hinges on addressing US concerns about perceived bias against trade remedies in relation to China’s state subsidies.

Geopolitical Tensions and the Future of Trade Relations

The likelihood of reaching agreements amid geopolitical tensions between Western democracies and China appears slim, with issues surrounding subsidies and global supply chains causing rifts in trade relations. As nations focus on self-reliance within the global value chain, opportunities for trading face obstacles. Advocacy for open markets and addressing protectionist sentiments remains crucial for fostering resilience to external shocks and promoting economic growth.

Source : WTO ministerial trading in low expectations and high stakes

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Getting Vietnam’s economic growth back on track



Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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