(kindly provided by the Embassy of Peoples Democratic Republic of Laos to the United States of America)
Since 1986, when the Government of the Lao PDR adopted its new economic policy, commercial relations with foreign countries have been widely expanded in line with government policy to open up the country.
Currently, Laos has trade relations with more than 30 nations around the world. Trade volume has increased in each year by an average of 18.7%. Even so, the foreign trade deficit still increases by an average of 15.4% per year. However, trade is active as can be seen from the trend towards the balance of export and import goods for general use and consumption. The difficulty arises from imports for the construction of a basic national economic infrastructure for the development of the economy, and especially for future exports.
At present, the important trading partners of the Lao PDR are mainly Asian and Pacific nations, such as Thailand, Vietnam, Japan, China, Singapore, Hong Kong and some European nations like France, Germany, Italy, the United States of America, Russia and others. Laos export goods are mainly timber products, electricity, gypsum, rattan products, coffee, cardamom, sesame, forest products, garments and handicraft items.
The goods imported into Laos mainly foods, fabrics, garments, equipment and machinery for construction work and agriculture, electrical goods, medicines, fuels and consumer goods.
Lao foreign trade policy mainly thrusts towards reducing progressively the trade deficit with foreign countries to establish a balanced or over-balanced status in the future.
For the period from now until the year 2000, based on its situation and actual potential, the government will make every effort to achieve self-sufficiency in terms of food and certain consumer goods. That is, it will put more effort into balancing exports and imports of consumer goods, or weighing exports more heavily than imports and establish favorable conditions that will make Laos into a business and service transit route for this region in the future.
From 1986, the government has encouraged all economic sectors to participate in the business process. Only some important business sectors are still owned by the state, like electricity, water supply, communications, and national bank.
The management of state enterprises has been improved and modified. The state has given to state enterprises the right to complete autonomy, thus becoming responsible for losses or profits in doing business.
The business activities of all economic sectors are carried out on the basis of a policy to allow free but legal activities that involve both competition and participation. Currently, private business comprises more than 80% of the total business community.
At the macro-economic level, the government has negotiated, agreed and signed commercial cooperation agreements, payments and other agreements with foreign countries to lay the foundation for the trade relations of state and private enterprises.
In addition, Laos has promoted and expanded schemes for transit trade, re-export, free trade zones, zones of production and processing for export and domestic consumption.
The government regulates the import of goods by systematically classifying them into groups or types of goods like those encouraged, controlled and prohibited by the state through a taxation and duties scheme.
The encouraged imported goods are machinery and equipment required for the construction of the basic economic infrastructure.
The importers of foreign goods must be enterprises registered correctly under the relevant laws of Laos and operating in authorized business sectors.
The goods prohibited for import under regulation No. 482 dated 8/2/1994 of the Ministry of Commerce include all types of war items, all kinds of drugs, toxic chemicals and dangerous industrial products and all types of obscene items.
Export promotion is the main task of foreign trade policy. The Lao Government encourages production for export in the following ways:
Laos has bilateral agreements with Vietnam, Thailand, Myanmar, Cambodia, China, Mongolia, the Russian Federation and other Eastern European countries. These agreements are of a general character with the aim of further developing and strengthening in every possible way the trade relations between the countries on the principle of equality and mutual benefits.
Private Sector Participation
The government is encouraging private sector participation in the new economic system giving full support to every sector. Soon after the Lao Government adopted its move towards a market economy, private businessmen lost no time stepping into the new economic environment. The number of exporters, importers, business representatives, partnership firms, limited companies, foreign companies, commodity associations, joint venture corporations and chambers of commerce and industries registered with the ministries concerned up to June 1996 has reached many thousands.
Trade Patterns and Trends
Like most developing countries, Laos is mainly an exporter of agricultural and other primary products while its imports consist of manufactured goods. Main export items include wood and wood products, electricity, forest products, coffee, tea, minerals, garments, handicrafts and others. The major import items are capital goods, industrial raw materials, spare parts and consumer goods.
In the short and medium term, the export and import patterns may reasonably remain unchanged, but in the long term with the development of natural resource-based industries and implementation of economic reforms, it can be reasonably expected that Lao export-import patterns may develop value-added items like semi-manufactured or manufactured products.
The policy of the Lao Government is to develop and strengthen bilateral trade relations with neighboring countries, Vietnam, Thailand, China, Myanmar and Cambodia further using border trade as a mechanism for trade expansion.
Lao Export Structure
Increasing and diversifying exports, and improving the quality of export products are among the main objectives of the government. A number of new items in the manufacturing and processing sectors have been introduced.
The volume of exports according to provisional data reached more than US$ 359 million in 1997.
Lao Import Structure
The volume of total imports in 1997 accounted for more than US$ 705 million. The traditional import pattern, as mentioned earlier, includes capital goods, industrial raw materials and consumer goods among others. Reflecting the trade liberalization measures, substantial changes are taking place in the pattern of imports as well. In spite of the fact that capital goods and raw materials are still taking the lion’s share, there is also a sharp increase in the import of consumer goods.
Direction of Trade
Lao foreign trade is mainly with other Asian countries: Japan, Singapore, Thailand, China and Vietnam are its main trading partners. Regionally, the European Union ranks second in importance. With the change in the pattern of trade, the direction of trade may also be changed.
The importation of goods requires a series of procedures ranging from the conclusion of a contract to import payments. The general import procedures include the conclusion of import contracts, the securing of import permissions, customs clearance and payments for imports. Procedures included in the optional category depend on the type of transaction and the nature of the goods to be imported.
Imported goods legally enter into Laos when shipments have arrived at the port of entry, estimated duties have been paid, and delivery of the goods has been approved by the customhouse concerned. There are many possible trading methods including L/C and TT among others.
Conclusion of Contract
The importer unloads the imported freight and places it in a bonded area house. The customs clearance report can only be prepared by a consignee (importer). Employing a certified customs specialist or a certified customs clearance corporation.
Upon receipt of the import, the customs house inspector will verify that the contents of the imported merchandise correspond with that described in the import authorization form and confirms that the documentation is in order. The tariff on the merchandise is then calculated and levied, and an import approval is presented to the person reporting the import. This person may remove the imported merchandise from the bonded area. After doing so, the import procedures are complete.
Most of Lao export transactions are made under Letter of Credit, either in the form of at-sight drafts of issuance drafts. The export of goods also requires a series of procedures such as the conclusion of an export contract, the securing of export permission, the production of export goods, customs clearance and shipment, and the collection of payments.
As for export, those, subject to optional export procedures, are determined by the type of transaction involved and the nature of the goods to be exported. This section focuses on the L/C method.
The initial step in the export process is the conclusion of the export contract. The exporter receives a Letter of Credit from the importer. After receiving it, the exporter should, before obtaining export permission, get a recommendation from an authority assigned to review the items in question. This step is necessary to determine whether the export items are included on the list of products restricted from export under the government’s export-import notice.
The exporter should obtain an export an export permission for every export transaction he makes. This system is designed to ensure that export procedures are carried out in a lawful manner and to facilitate the collection of export bills. Authority for issuing the export permission is delegated to Provincial Trade Services. On the application form for the export permission, the exporter must include his name, the port of lading, settlement method, and period of validity, as well as specifications of the export items.
To maintain the good reputation of Lao export goods and thus enhance their international credibility, in some cases the government conducts uniform inspections of designated export items prior to shipment.
Procedures can be classified under four categories: quality, packaging
condition, material, design and manufacturing method inspection. Export
inspection is not required for all commodities but pertains only to those
items designated by the government.
National ability to develop attracts much attention, especially urban development. The government has divided development areas into three zones.
Zone 1. This is in the north. Husbandry will be developed in Xiengkuang, which is traditionally a large livestock source. Luangprabang is to be developed into an important tourist attraction while Huoixai District in Bokeo Province is to be an industrial estate for a project named the Economic Quadrangle (Laos-Thailand-Myanmar-South China). Major projects requiring urgent implementation are the development of a highway linking Bokeo and Luangnamtha and the transportation infrastructure in general; the development of industry and commerce; the development of a Lao Culture & Tradition Conservation Centre and the basic facilities to handle a tourism boom. In addition, Laos is planning to provide more privileges for foreign investors who invest in the north. For example, in commercial areas, tax exemption may last 8-12 years and tax exemption for industrial areas may last up to 15 years, instead of only 2-4 years as is normally provided. Investor confidence would be bolstered regarding risk guarantees and foreseeable benefits.
Zone 2. This covers the central region. Vientiane city would be conserved and the area treated as an arts and cultural centre to attract tourists. The construction of buildings more than 20 meters high is forbidden in the capital. Certain areas, like the Thailand-Laos Friendship Bridge area and Xaythany, have been declared as trade and industry zones.
At the end of the Friendship Bridge, a one-stop-service industrial estate is planned to be built. Part of this project is going to be a commercial New Town. Tall buildings of any height are allowed in the estate. Meanwhile, some factories in the Xaythany industrial zone have already commenced operation.
In Khammuane Province, Nag was declared an industrial zone since the location is suitable for the export of goods. The distance from Nag through to the sea at the Juror Pier in Vietnam is only 150 kilometers by road. The government is, indeed, urging the development of this line of transportation.
Khammuane Province also has its natural resources that attract investors. For example, there is a forestry industry suitable for the development of wood processing industry, the areas along the Nam Theun River suitable for hydropower dams. The province evidently contains enormous mineral resources, especially tin, coal, gypsum, potash and silver suitable for mining industry.
Zone 3. Savannakhet Province was declared a Trade and industry Centre and a free trade area has been planned. As such, import and export taxes may be kept at a very low or even zero – rate. In addition, Savannakhet’s development plan sets a goal of infrastructure development, especially roads and electricity supply, and will be able to provide such services by the year 2000.
Both Saravane and Attapeu Provinces tend to promote agro-business, natural resources exploitation and tourism. The areas are full of unexploited natural resources and suitable for cultivation. Both are also home to several ethnic Laotians of different traditions – a viable tourist attraction.
To the south, in Champasack, a Trade and Tourism Centre will be developed since the area borders several neighboring countries. That is, Thailand to the west, Vietnam to the east and Cambodia to the south. The town, therefore, becomes a major trade crossroads where imports from one country could be easily transferred to other provinces in the north as well as to other countries.
Moreover, there are many interesting places for tourists, such as Khone Phapheng, Huaoixai Waterfall Wat Phou Champasak and several other important ancient sites.
Today, the government allocates both budget and foreign aid for the repair of roads linking Thailand, Cambodia and Vietnam.
For more information on doing business in Laos, the Embassy of Peoples Democratic Republic of Laos to the United States of America has kindly provided extensive information in the following Guide to Doing Business in Laos. This can be viewed online or printed to assist you in your research and business efforts.
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Runckel & Associates