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Thursday, May 26, 2016
- After almost a decade of major economic transformation, the Lao People’s Democratic Republic is on the brink of World Trade Organisation (WTO) membership.
But the small country’s Herculean effort to join the exclusive trade club is a reminder to the ten other least developed countries (LDCs) now seeking membership of the cumbersome process involved.
“LDCs think it is easy to accede to the WTO, like becoming a United Nations member, but it is not,” Nicolas Imboden, director of the Geneva-based Ideas Centre, told IPS. The non-governmental organisation has been counselling Lao PDR, whose accession will be completed in October, for fourteen years. It is now starting to assist Liberia and Comoros, two other least developed countries on a waiting list that also includes Afghanistan, Bhutan, Equatorial Guinea, Ethiopia, Sao Tome, Sudan, Vanuatu and Yemen.
“They have to adopt the rules of the WTO and this is a huge task for most of them,” said Imboden. “They must undertake reforms, completely revise their legal systems and establish rules that apply to all foreign investors and importers, without discrimination.”
Imboden noted that many LDCs justify clamouring for membership on the grounds that it will open up new markets, a motive he argued is “flawed”, since LDCs already have good trade relations with most countries.
Rather, the “benefits” of membership are mainly domestic: aligning national economic policies with the WTO regime sets up the basis for improved economic efficiency and attracts companies eager to invest in these countries, not because of their market size, but to export to the neighbouring region.
Laos is still a communist country and transforming its state-run economy into a free market system is a huge task, particularly when a part of the administration wants to open up the economy and some party members don’t.
For example, before the accession process began, exporters had to deposit their money in Laotian banks and convert it into the local currency, while importers had to pay for a special licence. If the government felt a particular import was undercutting state-owned enterprises, it simply did not issue the licence.
“I remember having seen a whole store of watches at the central market in Vientiane,” Imboden continued. “Importing watches was forbidden, but they were coming in illegally and the government would not acknowledge that it was unable to control the licences. Now all this (illegal licencing) is abolished.”
“From the experience of other recently acceded members, such as Cape Verde and Tonga, contentious issues (for Lao PDR) at this stage may include trading rights, customs valuation, and intellectual property,” Pholsena admitted.
Intellectual property has not hitherto been protected in Laos, so the country has had to build up a national institution and set up laws on patents and patenting rights.
“In 2003 there were few lawyers in the country and nearly half of them were working on intellectual property,” Imboden recalled. “This is not in line with Laos’ priorities. The WTO asks LDCs to adopt provisions on intellectual property that may be necessary and useful, but not needed at this stage of development and take up too many resources.”
Services liberalisation may also be a challenge, since acceding countries have to liberalise more aggressively than others. “Recently acceded countries have to pay a higher price for WTO entry,” Pholsena said.
For example, “Out of a total of 160 services sub-sectors, Cambodia committed to 110, in contrast to 24 sub-sectors made by existing LDC members. Lao PDR is facing pressure to liberalise at a similar level.”
“We are aware that there will be both winners and losers as a result of these reforms and the government has to do its utmost to help the latter overcome the negative effects and transform challenges into opportunities,” Pholsena added.
She believes sectors like tourism, agro-business and natural resource-intensive industries are in Lao PDR’s comparative advantage and will prosper.
Imboden, too, is positive. He doesn’t see many risks for Laotian industry. Competition from ASEAN (the Association of Southeast Asian Nations), with which Laos has a free trade agreement, already exists; and competition from the rest of the world is going to be limited since Lao PDR doesn’t have big industries or inefficient state-owned enterprises, like China did.
In agriculture, he argues, the accession process has already had positive effects. In flat lands, exports have increased. Lao PDR cultivates coffee that is processed locally and exported with a good value added. And the majority of people who live on small plots and produce mainly sticky rice will face little competition from abroad, he added.
A big chunk of the accession process is represented by the market access negotiations that are held bilaterally. Each WTO member asks the acceding country to reduce tariffs on certain items by a given percentage. Most of them don’t put excessive demands on LDCs, but some do.
Ukraine, for example, put a lot of pressure on Lao PDR at the end of the accession process, like it did with Montenegro, blocking the accession of this small European country for a year.
It asked Vientiane to reduce a substantial number of tariff lines below the applied rate, which had never before been demanded of an LDC.
“We told Laos not to give up and the other countries tried to convince Ukraine to be less demanding, particularly after the last WTO ministerial conference, where the decision was taken to ease the accession of LDCs.”
Lao PDR also had very difficult negotiations with the United States, but Washington has relaxed some of its requirements.