13
Table 3-2. Poverty trends in Laos
Table 3-3. Inequality trends in Laos
Table 3-4. Poverty and Nutrition (in %)
Source: World Bank and DOS (2009).
Note: Lao Expenditure and Consumption Census (LECS 4) in 2007/08.
LECS 1
LECS 2
LECS 3
LECS 4
1992/93
1997/98
2002/03
2007/8
Laos
46
39.1
33.5
28
Urban
27
22
20
17
Rural
with road
43
32
31
30
without road
61
51
46
43
Lowland
28
20.5
Midland
36.5
29
Upland
34
33
Source: World Bank and DOS (2009).
Note: LECS (Lao Expenditure and Consumption Census).
LECS 1
LECS 2
LECS 3
LECS 4
1992/93
1997/98
2002/03
2007/08
Laos
30.5
34.9
32.6
35.4
Urban
30.9
39.7
34.8
36.3
Rural
with road
29.3
32.1
30.3
33.2
with road
27.5
30.9
29.4
33.3
Region
Vientiane
29.7
36.9
36
38
North
26.9
34.5
30.7
35.2
Central
31.5
32.5
31
34
South
32.3
32.4
31.4
32.2
Source: World Bank and DOS (2009).
Note: LECS (Lao Expenditure and Consumption Census).
Stunting
Underweight
Richest
17.5
19.3
Rich
32
33
Middle
38
41
Poor
38
43
Poorest
43
54
14
4.0. TRADE POLICY AND CHARACTERISTICS OF LAO TRADE
4. 1. Trade Policy in Laos
Since trade policies are the core of the overall development strategy, their formulation and
implementation generally synchronize with the stages of economic development in Laos.
Evolution of the Lao economy and trade can roughly be divided into two phases: centrally-
planned economy and trade control (1975–1985); and market-oriented economy and export
promotion (1986–present) (Suvannaphakdy, 2013).
Prior to 1986, the Lao government had controlled over foreign trade (Otani and Pham, 1996,
p. 11). A battery of interventions, including foreign
exchange controls, protective tariffs, and
import restrictions, were employed to save foreign exchange. Both exports and imports were
monopolized by the state, except trade made by joint public and private companies or a few
state enterprises. Along with measures like deficit financing and selective credit allocation,
these policies had significant impacts on Laos’ early economic development. However, as is
usually the case, the state control of foreign trade had become increasingly complex and
inefficient as the allocation of foreign exchange had to comply with the provisions of various
bilateral trade and foreign assistance arrangements, leaving little room for flexibility.
However, the external trade system was liberalized in 1987 following the major economic
reform in 1986, resulting in the elimination of most of these restrictions on trade in 1988. To
promote exports, two types of export promotion policies were implemented. The first type
aimed at removing or neutralizing distortions resulting from protectionist policies enacted
during the centrally-planned economic system. It included, inter alia, liberalization of the
foreign exchange allocation system, substitution of tariff for nontariff protection, and rebates
of import duties. The other type involved the provision of new incentives for exports, to
which the establishment of export processing zones and tax incentives for exports belong.
Together with the continued domestic liberalization, Laos has been integrating into the
regional and global economy. Laos joined ASEAN in 1997 for geopolitical and
economic
development reasons and has gradually integrated into ASEAN over time. The agreement on
the Common Effective Preferential Tariff (CEPT) scheme for ASEAN Free Trade Area
(AFTA) required Laos to eliminate all of its import duties by 2015. By implementing the
CEPT scheme for AFTA, ASEAN members have made significant progress in lowering
intra-regional tariffs. However, the actual utilization by traders of AFTA preferential tariff
rates is still limited as it accounts for only 5% of total trade (Manchin and Pelkmans-
Balaoing, 2007, p.13). Nonetheless, participating in AFTA has significant impact on Laos’
trading patterns and trading volume (NSC and UNDP, 2006, p. 21). In addition, Laos plans
to join the World Trade Organization in 2013 which can provide larger export market for
Laos.
The potential trade-increasing effects of allowing international trade expansion in Laos will
provide a number of new opportunities and challenges. The opportunities include the access
of a larger variety of intermediate products and capital equipment by many rural people,
which enhances the productivity of their own resources; and the stimulation of cross-border
learning of production methods, product design, organization methods, and market
conditions. Unfortunately, not all of the effects of increases in trade would necessarily be
positive. At present, Laos could gain limited benefit from AFTA as the country is
characterized by small and medium size enterprises (SMEs) producing low value-added
products. Therefore, integrating Laos’ SMEs into the regional production network is
becoming a major challenge for reaping the full benefit from AFTA. Furthermore, since