I.

OVERVIEW
Laos, one of the world's few remaining communist states, is one of east
Asia's poorest countries. Since the collapse of the Soviet Union in 1991 it has
struggled to find its position within a changing political and economic
landscape.
Communist forces overthrew the monarchy in 1975, heralding years of
isolation. Laos began opening up to the world in the 1990s, but despite
tentative reforms, it remains poor and dependent on international donations.
The government has implemented gradual economic and business reforms
since 2005 to somewhat liberalize its domestic markets. In 2011, it opened a
stock market in Vientiane as part of a tentative move towards capitalism.
Economic growth since the 1990s has reduced poverty levels to some degree,
but Laos still relies heavily on foreign aid and investment, especially from
Japan, China and Vietnam.
The Asian currency crisis of 1997 caused the national currency, the kip, to
lose more than nine-tenths of its value against the US dollar.
Laos is a landlocked, mountainous country, widely covered by largely unspoilt
tropical forest. Less than 5% of the land is suitable for subsistence
agriculture, which nevertheless provides around 80% of employment.
The main crop is rice, which is grown on the fertile floodplain of the Mekong
River. Vegetables, fruit, spices and cotton are also grown. Part of the region's
heroin-producing "Golden Triangle", Laos has all but stamped out opium
production.
Outside the capital, many people live without electricity or access to basic
facilities.
But Laos is banking on the anticipated returns from the $1.3bn Nam Theun 2
dam scheme, which was inaugurated in 2010 and is intended to generate
electricity for export to Thailand, to boost its economy and infrastructure.
A further significant upgrade to Laos' infrastructure is expected from the
construction of the first high-speed rail line between China and Laos, on
which work was due to start in early 2011.

Public dissent in Laos is dealt with harshly by the authorities, and the
country's human rights record has come under scrutiny.
Laos denies accusations of abuses by the military against the ethnic minority
Hmong. Hmong groups have been fighting a low-level rebellion against the
communist regime since 1975.
Laos becomes a new member of the Association of Southeast Asia Nation
(ASEAN) on 23 July 1997. Like other members of ASEAN; Laos signed the
ASEAN Free Trade Area (AFTA) and agreed to undertake the Common
Effective Preferential Tariff (CEPT) scheme. AFTA was established with the
goals to increase ASEANs competitive edge as a production base in the world
market through the elimination, within ASEAN, of tariffs and non-tariff
barriers; and to attract more foreign direct investment to ASEAN, while CEPT
is the primary mechanism for achieving the goals. According to this
mechanism, tariffs on goods traded within the ASEAN region, which meets a
40% ASEAN content requirement was supposed to be reduced to 0-5% by
the year 2002 / 2003. For Laos, the deadline is 2008.
Lao has considerably eliminated quota restrictions to exports and imports.
Laos market is relatively open in the region. The government has established
a National AFTA Unit of the Lao PDR (NAUL) under the Ministry of Finance to
facilitate the process of liberalisation and also to develope trade relations with
ASEAN members and other countries in the world.
As of 2001, Laos has had a total of 1,673 tariff lines (47% of her total tariff
lines) in the Inclusion List (IL); 1,716 tariff lines (48% of total tariff lines) in
the Temporary Exclusion List (TEL); 88 tariff lines in the Sensitive List (SL)
and 77 tariff lines in the General Exception List.
AFTA in the sense of trade liberalization will create additional opportunities
for Laos in terms of accession to markets in the ASEAN member countries
without barriers.
However, trade liberalization will also make Laos facing challenges in internal
economic development acceleration of import, export and environment as the
Lao economy is not yet healthy enough to be able to compete with those
member countries in trading activities. Many sectors are still initial stage of
development. Because Laos has a weak economy, human resources,
technology, quality of products, business has weak experience.

Moreover, Laos is realizing of AFTA over the last few years still far away from
the AFTA impact. But we are learning from old ASEAN country members
especially Thailand and Vietnam being aware of both negative and positive
impact of AFTA on its economy and small producers.

II.

GENERAL PROFILE
Full name: Lao People's Democratic
Republic
Population: 6.4 million (UN, 2012)
Capital: Vientiane
Area: 236,800 sq km (91,400 sq miles)
Major languages:
diplomatic purposes)

Lao,

French

(for

Major religion: Buddhism

Life expectancy: 66 years (men), 69
years (women) (UN)
Monetary unit: 1 new kip = 100 ath
Main exports: Clothing, timber products,
coffee, gold, copper, electricity
GNI per capita: US $1,130 (World
Bank, 2011)
Internet domain: .la
International
+856

dialling

code:

III.

ECONOMIC PROFILE

Economic Situation
The economic reforms that began in 1986 with the New Economic Mechanism
(NEM) have gradually shifted the economy from socialist central planning
towards greater market orientation.
Ongoing economic reforms aim to further liberalise the economy, to create an
enabling environment for the private sector and to stimulate trade and
investment.
Early reforms under the NEM included price liberalisation and exchange-rate
unification, the removal of the Governments monopoly on trade and the
expansion of foreign and inter-provincial trade. Private farms were
encouraged instead of collectives and private firms were allowed to trade.
Structural reforms continued into the 1990s with limited restructuring of the
banking sector and other State-Owned Enterprises (SOEs). The Asian
economic crisis of 1997-1998 was a severe blow to the Laotian economy.
Growth fell, inflation rose and monetary and fiscal management broke down.
By 2001, however, stability had been restored and inflation was back under
control. In the period since then there has been some acceleration in the rate
of reforms, while the stabilisation programme has remained firm. Attempts
are currently being made to strengthen public expenditure management,
improve banking and the provision of rural financial services, continue the
reform of SOEs, and continue improvements in forestry, trade and the
promotion of the private sector.
In general, on the economic front, the situation has improved in Laos
particularly since late 2005. Real GDP growth rates averaged 5.7% during the
years 2001-2004 and rose to 7% in 2005. Over the past two years however,
growth rates have increased to 7-8%.
Inflation remains in single digits and dropped remarkably in the last months
of 2006 to 5.5% in September and 3.7% in October.
The economy remains highly reliant, although to a decreasing extent, on the
agricultural sector. It is a source of income for nearly 80% of the population

despite the fact that its share of GDP declined from 61% in 1990 to 49% in
2003. The industrial sector increased its share of GDP from 14% to 26% in
the same period thanks mainly to development of the textiles and garment
industry. With the ending of the Multi-Fibre Agreement, Lao PDR lost some of
the advantages it has enjoyed and future growth in this sector is uncertain.
Growth is thus mainly fuelled by heavy investment in a few large mining and
hydroelectricity projects, as well as tourism.
Electricity generation has recently attracted substantial foreign investments in
the Nam Theun II (NT II) dam, which was officially opened in November
2005 following the approval of a PRSC loan by the World Bank in March 2005.
NT II will begin generating electricity revenues in 2009, and is expected to
become the largest single contributor to the state budget. The project has
cost some 1.2 billion USD and has been financed through 9 loans and equity
participation. The Nam Theun II Power Company Ltd is owned by a
consortium of four equity holders: Electricit de France (35%), the
Government of Lao PDR (25%), the Electricity Generating Authority of
Thailand (25%), and Ital Thai plc (15%). The European Investment Bank
(EIB) has lent USD 55 million to the Government of Lao PDR to help finance
its equity contribution.

Although the budget deficit was reduced to 3.9% in 2004, public external
debt reached 84% of GDP in that year and remains a cause for concern. The
expected net inflows from NT II will contribute towards improving the
external balance, but fiscal reforms and monetary discipline are central to
ensuring continued macroeconomic stability.
Progress in improving government revenue collection has been slow. This is
largely due to human capacity constraints and the highly decentralised nature
of revenue administration, whereby provinces collect a substantial proportion
of government revenues but only remit a fraction of this to central
government. The Government is taking measures to address the situation. It
is restoring control over seven international border crossings, increasing
control over major provincial large taxpayers units and increasing control over
the granting of tax exemptions to investors. Thus, for the first time in recent
history, revenue collection has improved reaching 12.4% of GDP in 2006 well
ahead of prognosis and the Governments own plans.
The key challenge to Lao PDRs economy however still remains the need to
make further progress on structural reforms in the area of fiscal
management. Domestic revenue mobilisation needs to be further
strengthened, public expenditure management improved, the restructuring of
state-owned banks and enterprises should be completed and private sector
activity and investment further promoted. The imbalance between recurrent
and capital expenditures also needs to be redressed. To this end, Lao PDR
intends to introduce VAT in early 2007 to strengthen revenues and

compensate for the loss incurred by the reduction of import tariffs in

accordance with its AFTA commitments (estimated at 0.7% of GDP). Reforms
are also under way to re-centralise authority over tax and customs
administration.
Many of these structural reforms are being deepened under the umbrella of
the Poverty Reduction Support Operation (PRSO), a reform programme of the
Government supported by an IDA grant from the World Bank.

Trade Structure
Although Lao PDR is not currently a WTO member, it is seeking to become
one, and lodged an application for WTO membership in 1997. The first
Working Party meeting was held in 2004 and the second such meeting is
expected to be held in 2006. Accession negotiations with WTO members are
ongoing and domestic legislation is being reformed to conform to WTO
regulations and requirements. The trade regime of the country is
characterised by an import tax system that promotes imports of materials and
equipment for investment while protecting domestic production and limiting
imports of luxury products.
Import quotas and import bans are in force.
Garments, wood products, minerals, timber and electricity are major export
products, accounting for some 71% of total exports. The countrys terms of
trade are therefore vulnerable to fluctuations in world commodity prices.
Export diversification is necessary and formulation of the first national export
strategy is under way. The abolition of WTO textile quotas at the end of 2004
affected world prices for garments and garment prices quoted to Lao firms
have fallen by some 20-30%. While it is too early to judge the long-term
impact of the elimination of quotas, Lao garment exports in the first half of
2005 were down 10% on the same period in 2004. Exports of electricity are
expected to increase significantly once the Nam Theun II dam comes into
operation as scheduled in 2008.
Current account deficits have steadily increased from 3.7% of GDP in 2001 to
8.5% of GDP in 2004. Export-to-GDP ratios remain limited at around 23%.
The main export destinations of Lao PDR are the EU, Thailand and Vietnam,
which together absorb some 64% of Lao exports (with 28.3% for the EU
alone). Bilateral trade flows with the US are expected to grow following the

normalisation of trade relations with the US in 2004. This will allow import
duties on Lao products to the US to be reduced from 40-90% to 5-20%. The
EU is the second trading partner of Lao PDR, but its first export destination.
Lao PDR has enjoyed trade surpluses with the EU in recent years. Garments
account for some 86% of exports to the EU. Lao PDR benefits from the
Everything-But-Arms (EBA) scheme of the EU GSP and its exports, except for
arms and ammunition, enjoy duty-free and quota-free access to the EU
market.3 Exports of certain textile products have benefited since 1997 from
the derogation from the GSP rules of origin which have been extended to
2008.
Lao PDR has engaged in regional and bilateral arrangements that are
expected to assist its integration into regional and international markets. Lao
PDR has participated in the ASEAN Free Trade Area (AFTA) since 1997 and,
under the Common Effective Preferential Tariff (CEPT), import duties
applicable to imports from AFTA members are to be reduced to 0-5% by
2008 and abolished by 2015. In the context of ASEAN, Lao PDR also
participates in free trade area negotiations with Japan, China, India, Australia
and New Zealand. Through ASEAN integration, Lao PDR cooperates in the
areas of Trade Facilitation, Intellectual Property, Standards and Conformity,
and Transportation and Communication. Lao PDR is also participating actively
in a new regional initiative entitled ACMECS. It also takes part in the TransRegional EU-ASEAN Trade Initiative (TREATI), which is a forum for dialogue
and regulatory cooperation to improve the EUASEAN trade and investment
relationship and support the process of ASEAN economic integration. ASEAN
and the European Commission are also exploring closer economic
cooperation, including the feasibility of an EU-ASEAN Free Trade Agreement,
through the work of a Vision Group on economic partnership.
In September 2006, the Government officially adopted the Diagnostic Trade
Integration Study and Action Matrix which articulate key policy actions to be
taken by the Government to increase export competitiveness and promote
trade and investment in the country. The EC has participated as a leading
donor in the Diagnostic Trade Integration Study and has contributed to the
design of a multi-donor trust fund for supporting trade related initiatives. The
EC has been heavily involved in the Integrated Framework process that aims
to link trade policy to wider development policy.

Level of Socio-economic Development

The Lao regime proclaims its support for both ethnic and gender equality but,
in both cases, inequality is to a large extent structurally ingrained. Poverty, a
lack of infrastructure, and poor government services in remote and
mountainous parts of the country still put ethnic minorities at a disadvantage.
Backed by the World Bank and Asian Development Bank, the government has
thus committed itself to a long-term poverty reduction program aimed at
lifting the country out of its least-developed country status by 2020. In 2011,
the Lao PDRs Human Development Index score stood at 0.543, ranking Laos
138th out of 187 countries.
Poverty has fallen but remains widespread in rural areas. Between 2002 and
2008, the latest year for which figures are available, the percentage of the
population surviving on less than $2 a day fell from 76.9% to 66%. Bolstered
by increasing foreign aid and burgeoning FDI, per capita GDP rose to $2,790
in 2011, but most of this increased wealth was concentrated in the national
and provincial capitals.
Between 2002 and 2008, the Gini coefficient of income distribution worsened
from 32.6 to 36.7. Moreover, gross corruption has concentrated wealth in the
hands of relatively small political elite. Even accounting for remittances from
rural migrants seeking employment abroad (especially in Thailand), the ruralurban divide has continued to be the greatest structural barrier to decreasing
disparities in wealth and living standards.
Although Laos has a relatively poor Gender Inequality Index score of 0.483
(2012), ranking 100 of 148 countries, the reality of gender exclusion is
somewhat mixed.
Female labor force participation was 77.7%, almost the same as for men
(78.9%), women had a higher life expectancy than men (69 years compared
to 66) and in 2011 women won a quarter of the seats in the National
Assembly, a relatively high number in the region. Yet, while female
participation in education has also improved, the ratio of female to male
enrollment remains low 93.3, 85.3 and 73.6 at primary, secondary and
tertiary levels, respectively. Adult female literacy has improved to 70% but
remains significantly lower than for men (85%).

Organization of the Market and Competition

Laos has made progress in moving from a command to a market-based
economy. For example, prices are now set by the market, the Lao kip is
convertible and profits from foreign investments can be transferred abroad.
But competition operates within a relatively weak institutional and regulatory
framework. When disputes arise, the legal system fails to provide businesses
with protection against those with powerful political connections. In addition,
while efforts have been made to provide foreign businesses with certainty,
they remain vulnerable to arbitrary decision-making and collusion between
local business and political interests. Moreover, the government retains
ownership of what it considers to be strategic enterprises. The informal
sector of the economy is significant.
The Decree on Trade Competition (2004) provides a rudimentary framework
for regulating competition and monopolies, but the Trade Competition
Commission it envisaged has not yet materialized. Regulations can often be
circumvented through political contacts and a number of expanding business
groups depend upon political connections. While most state-owned
enterprises (SOEs) have been sold off or otherwise privatized, the
government still retains control of those it considers strategic or essential
for national development. These tend to be monopolistic, though this is
changing in certain sectors including telecommunications and aviation.
Laos has moved to liberalize foreign trade since the mid-1980s. Tariffs have
been reduced in order to meet the requirements of the ASEAN Free Trade
Area (AFTA).
Import trade is competitive, but some key exports (such as timber) are
controlled.
Having applied in 1997, Laos finally joined the WTO in February 2013. In the
process, it has implemented a number of important reforms in areas such as
taxation, foreign exchange, investment, and import and export procedures.
There will be costs as well as benefits from WTO accession, with the former
falling disproportionally on the agricultural sector.
Although legislation governing the Lao banking system is oriented toward
international standards, and the government frequently reiterates its intention

not to be involved in quasi-fiscal activities, a considerable degree of political

interference remains, for instance the financing of state-owned enterprises by
state-owned commercial banks (SOCB). Having twice been restructured and
refinanced because of nonperforming loans, the SOCBs have demonstrated
improved performance over the past decade. Yet the overall bank loan to
deposit ratio increased from 71% in June 2011 to 85% in June 2012, while
the level of nonperforming loans increased from 2.2% to 3.7%. The World
Bank attributes these increases to increased credit growth, though continued
political interference in determining loan eligibility may also be a factor.
Several foreign banks have had branches in Vientiane, the nations capital, for
some time. More recently, there has been a pronounced expansion in the
sector, with the establishment of new Lao-foreign joint ventures and Lao
private banks. Coupled with rapid expansion in credit and limited supervision
capacity, this has prompted the World Bank to caution Laos over the need to
manage domestic demand. Tentatively, Laos is also developing a capital
market. In 2009, Laos issued its first international bonds (denominated in
Thai baht). In January 2011, a stock exchange opened for business in
Vientiane, though only two companies both SOEs were listed as of
February 2013. This model of partial privatization seems set to continue.

Currency and Price Stability

Lao monetary policy over the past decade indicates the government is aware
of the importance of keeping inflation under control. After annual inflation hit
110% in 1998-1999 when the government, for political reasons, attempted
to spend its way out of the Asian economic crisis the government embarked
upon a macroeconomic stabilization program. Inflation was reduced to an
average of 15% between 2000 and 2003 and has remained under 10% since
2007. Since falling to zero in 2009 in the wake of the global financial crisis,
inflation has fluctuated between 5.5% and 7.6%.
The central bank of the Lao PDR is controlled by the state. The bank oversees
a managed floating exchange rate regime. The official exchange rate tracks
the free-market rate. Party policy is to maintain this system.
Lao authorities are aware of the need for macroeconomic stability, but in the
Laos, politics takes priority. This means that ultimate decisions are taken not
by the central bank, or even by the Ministry of Finance, but by the Politburo,

most members of which have little understanding of macroeconomics. The

party is not populist in its response to macroeconomic challenges, however,
and decision makers do take note of expert advice. As a result, the
government has been prudent in limiting the deficit in order not to stoke
inflation.
Since 2010, growing hydropower and mining receipts have boosted
government revenue from 16.4% to 19.7% of GDP. With expenditure
increasing only marginally, from 21.3 to 22% of GDP, the fiscal deficit has
fallen from 4.9% to 2.3% of GDP. However, planned increases to public
wages threaten to reverse this performance in 2013. Public debt fell to 44.4%
of GDP in 2011. The corresponding net present value of debt (29.8%)
convinced the IMF and World Bank to reclassify Laoss risk of debt distress
from high to moderate. However, the prospect of heavy borrowing to fund
large-scale projects, including the Laos-China railway, has raised concerns
over future debt sustainability. Gross foreign-exchange reserves fell to $608
million in June 2012, prompting World Bank caution over the need to manage
domestic demand.
IV.

INVOLVEMENT ON AFTA
Laos signed the Protocol for the Accession to AFTA of the Lao Peoples
Democratic Republic to the Agreement on the Common Effective Preferential
Tariff Scheme (CEPT) for the ASEAN Free Trade Area (AFTA) on 23 July 1997.
And began implementing the CEPT commitment on 1 January 1998 in five
equal installments due to the agreement of ASEAN beginning 1 January 2001
and ending January 2005. Since the year of 2001 to 2004, Lao PDR.
Transferred the products from the Temporary Exclusion List into the Inclusion
List completed four equal installments together 2967 items. The remaining
435 items are in the 5th. Equal installment for the transference the products
from the Temporary Exclusion List will be transferred into the Inclusion List in
the year 2005.
The Sensitive List has 75 items will be also transferred into Temporary
Exclusion List but should be in the extra plan and tariff reduction and ending
on 1 January 2015. The General Exception List of the Lao PDR has 74 items.
Therefore, the product items to be implemented under the CEPT product lists
of total 3,551 tariff lines of ASEAN Harmonized Tariff Nomenclature six digits
(Harmonized System 1992).

At the present time, Lao PDR has changed the ASEAN Harmonized Tariff
Nomenclature: 8 digits (Harmonized System 2002), all the Tariff Lines are
moved from 3,551 into 10,689 Tariff Lines.
On 23 July 1997 the Lao PDR, was formally admitted into the Association of
South East Asian Nations. As a member of AEAN, the Lao PDR has to
implement all ASEAN Agreements and Protocols including the Agreement on
Common Effective Preferential Tariff-CEPT Agreement and other nine
Economic Agreements. These were signed by the Lao delegation during the
ASEAN Economic Ministers Meeting on 10 October 1997 in Kuala Lumpur,
Malaysia.
Based on the CEPT Agreement, the implementation of CEPT scheme for AFTA
has started on 1 January 1998 for a ten-year period ending by 2008, with
tariff rates of 0-5%.
The implementation of the CEPT Scheme for AFTA is based mainly on the
implementation of the four Products List such as: the Inclusion List (IL), the
Temporary Exclusion List (TEL), the Sensitive List (SL), and the General
Exception List (GEL). While the completion of the Inclusion List, is the main
objective, the implementation of the Inclusion List requires the compliance
with measures and conditions stipulated in the CEPT Agreement.
The National AFTA Unit of the Lao PDR (NAUL) was established on 22 July
1997.
The first task of NAUL was the collective formulation of the four abovementioned Product Lists in accordance with the provisions of the CEPT
Agreement.
Laos signed the Protocol for the Accession to AFTA of the Lao Peoples
Democratic Republic to the Agreement on the Common Effective Preferential
Tariff Scheme (CEPT) for the ASEAN Free Trade Area (AFTA) on 23 July 1997.
Under the terms and conditions of its accession, the Lao PDR is to:

Extent Most Favored Nation Treatment and National Treatment to

ASEAN Member Countries;
Provide relevant information on the trade regime as and when
requested;

Prepare a list for tariff reduction and begin tariff reduction effective 1
January 1998;
Phase in products which are temporarily excluded in five equal
installments beginning 1 January 2001 and ending January 2005, and
at 0-5% by 1 January 2008 and prepare a list of these products for
their annual installment; and
Phase in agricultural products which are temporarily excluded
beginning 1 January 2002 and ending 1 January 2008 at 0-5% and
prepare a list of these products for their annual installment.
Phase in agricultural products which are considered sensitive
beginning on 1 January 2006 and ending on 1 January 2015 at 0-5%,
except certain highly sensitive products whose final rates shall be
subject to further negotiation. However, encouraged accelerating the
tariff reduction for these products.

Lao PDR began implementing the CEPT commitments on 1 January 1998. Lao
has already submitted the CEPT package Inclusion, Temporary Exclusion,
Sensitive and General Exception Lists.
The Lao PDR has placed a total of 533 tariff lines in the Inclusion List,
representing 15.2% of the total tariff lines. All the products in the Inclusion
List have tariff rates of 5%. The products in the Inclusion List have no
quantitative restrictions. The bulk of the products in the Inclusion List
consisted of machinery and electrical appliances (242 tariff lines or 45.40%)
and optical and precision instruments (102 tariff lines or 19.14%). The
Temporary Exclusion List of the Lao PDR contains 2,820 tariff lines,
representing 79.4% of the total tariff lines. The products in the TEL will be
phased into the CEPT scheme in five equal installments beginning on 1
January 2001 and ending on 1 January 2005 and at 0-5% tariff rates by 1
January 2008. This means that by 1 January 2008 the Inclusion List of the
Lao PDR will consist of 3,353 (the sum of the present Inclusion List and
present TEL) tariff lines, representing 94.4% of total tariff lines. The Lao PDR
has 96 tariff lines in the Sensitive List. Most of the items in the Sensitive List
are agricultural products. These products will be phased in the beginning on 1
January 2006 and ending at 0-5% 0n 1 January 2015. The General Exception
List of the Lao PDR consists of 102 tariff lines, representing 2.9% of the total
tariff lines.

The Government will implement the CEPT under AFTA by reducing tariff on a
range of products to 0-5 percent by 2008. This will almost eliminate
remaining trade barriers between the Lao PDR and its ASEAN counterparts
and thus increasing trade. These tariff reductions, as well as the
harmonization of standards and rules, will mean that the ASEAN market will
be a favorable environment to attract foreign investment, particularly with
regard to export orientated investment.
V.

IMPACT OF AFTA
Laos have joined ASEAN since 1997. As member of ASEAN Laos is obliged to
accede to all ASEAN Economic Agreement. With regard to AFTA, Laos has to
implement the Framework Agreement on Common Effective Preferential Tariff
for ASEAN Free Trade Area. Like other new member of ASEAN, Laos has a
10-year time frame for implementing the CEPT for AFTA, that means by 2008
all the products in IL will have tariff of 0-5%. As far as agricultural products,
Laos will have to minimize to zero tariff by 2018.
The main objective of AFTA is to further liberalize intra-ASEAN trade by
reducing customs tariff and elimination of non-tariff barriers. Besides CEPT
for AFTA, member states agreed to accelerate cooperation in other important
areas including the harmonization of tariff nomenclature, customs valuation
and procedures, mutual recognition of product certificate, harmonization of
standard, simplification of trade and investment related toprocedure. It is
understand that, in response to these requirements, Laos needs to readjust
its legal framework to be consistent with more prevailing in ASEAN. The
implementations of joining AFTA are multi-dimensional.
However, the most potential challenges of Laoss participation in AFTA are
the impacts of tariffs change on budget revenue. The import tariff collection
contribute almost one fourth of the total revenue collection. These will be
happen may be in 10 years time. The Lao Government is now intensively
study and will introduce Value Added Tax by the year 2007 for replacement
of what that has foregone by import tariffs.
As far as small producers, AFTA will of course adverse them, so long that
they stay on the same place. They need to have a Road-Map of
improvement. Participation in AFTA means that trade and economic regime
will further liberalized and more open, for those who are WTO member

means WTO Plus. As a result of tariff reduction and elimination of NTB, and
in combination with its comparative advantages, Laos can attract more
foreign direct investments and strengthen its comparative advantages. In fact
we should accept that in the path of globalization process, the trade
liberalization in the world Agenda; any country slowdown economic and trade
liberalization, will miss the opportunity for Economic Growth. In this sense,
the faster the implementation of AFTA, the better it is for Laos. Laos is
located strategically in the heart of the Mekong Sub-region, that can fit very
good to link East Asia to South Asia with it East-West Economic Corridor
policy.
Again Lao reaffirm its AFTA participation means creation a wider market
access and expand production and trade in general.
In summary, Laos is one of the poorest countries in Southeast Asia. The
major sector of the economy is agriculture. Its contributed over 50% of the
GDP; the industry is still in the infant try stage. Laos lagged far behind of all
other ASEAN member countries in all various aspects. In the short run, low
level of industry and manufacturing, as well as low productivity in Agricultural
sectors will limit the countrys ability to benefit effectively from reciprocal
concession offered under AFTA principles. This will reflect in the limit of Laos
Export in ASEAN, and as the result-notably negative balance of trade within
ASEAN.

References:
The agro-forestry research institute (the Naphoc Cener- 1997)
Data from department of custom, Ministry of financial
Data from Ministry of labour and social welfareData from The Gold
Coin DN Lao Company
Part 4-Lao of New ASEAN
Lao PDR Economic Monitor, World Bank Vientiane Office, May 2004
AFTA reader, Current economic developments in the Lao PDR and its
participationin AFTA, December 1998.
Key indicators of development Asian and Pacific countries
Laos dilemmas and option. Edited by Mya than & Joseph L.H. Tan.
1997 Institute ofSoutheast Asian studies. Singapore.
Information provided by the Division of ASEAN Economic Cooperation
of
Ministry of Foreign Affairs (MOFA). Vientiane, 2005.
Planning Socio-Economic Development 2004-05 of National Economic
Research Institute of Laos, Vientiane, 2005
www.adb.org/countries/lao-pdr/economy
BTI 2014:Laos Country Report
Latest Key Economic Indicators - Malaysia
www.treasury.gov.my
The World Factbook
MALAYSIA'S ECONOMIC SYSTEM - www.csudh.edu
Holdings: AFTA: Impact on the Malaysia's Industry
Malaysia Economy - overview Economy - www.indexmundi.com
Malaysian Institute of Economic Research: Malaysian Economy
AFTA: Malaysia 2014
AFTA INITIATIVES ON TRADE AND TRANSPORT:
IMPLICATIONS FOR MALAYSIAS MARITIME SECTOR by Nazery Khalid,
Research Fellow, Center for Economic Studies