Overview:
The Government of the Lao PDR has adopted its new economic policy in 1986 since then, the commercial relations with foreign countries has been widely expanded.
Currently Laos has trading relations with more than 30 nations of the world. The trade volume increase by an average of 18.7%.
However, Laos still heavy suffer from Foreign trade deficit. It increases by an average of 15.4% per year. This figure could be seen as a negative aspect in terms of the balance of foreign trade, but it reflects the active and comprehensive ones of the expansion of the Lao foreign trade as well as the whole economic system of the country. Because the deficit mainly involves the imports for the construction of the foundation of the national economic infrastructure and in particular for the future exports. That is in the line with the national economic development policy.
At present the major trading partners of Lao PDR are the Asian nations such as Thailand, Vietnam, Japan, China, Singapore, Hongkong and some European countries namely France, Germany, Netherland, Italy and ect…
The structure of the Laos exports goods mainly composes of electricity, gypsum, timber, wood and forestry products, coffee, sesame, garments, and handicraft.
The imports significantly consists of foodstuff, fabrics, garments, equipments and machineries for construction works and agriculture, electric wares, medicine, fuels.
Foreign trade Policy:
The foreign trade policy of the Lao PDR is significantly toward a progressively reduction in trade deficit with foreign countries in order to establish a balanced or overbalanced status in the future.
To achieve that goal the economic strategies have been generated:
- Great effort has been put in the agricultural and industrial production for the purpose of self-sufficient in terms of food and certain consumer goods.
- Establishing favorable condition to facilitate Laos becoming the center for transit business in the region.
- Encouraging all economic sectors to participate in business activities.
- Conducting a privatization of the ill state owned enterprises. Keeping only the most import and business sectors. Such as electricity, water supply, telecommunication, bank under control of the state.
- The remaining state owned enterprises have been treated equally as private ones.
- Increase the participation of private sector in business activities of all economic sectors. Currently private business covers more than 50% of the total business community freely.
- All business activities are carried out in consistence with the law and regulation concerned.
At the macroeconomics level, the government has concluded bilateral trade Agreement with foreign countries in order to facilitate and to lay the foundation of trade relations at micro level.
In addition, Laos has promoted various forms of transit trade including re-export, and diversified business activities by creating free trade zone.
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, agricultural products, coffee, tea, minerals, garments, handicraftsand others. The major import items are capital goods, industrial raw materials, spare parts, and consumer goods.
In the short term and medium term, the export and import patterns may more or less 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 become valued-added items like semi-manufactured or manufactured products.
Trade Agreements:
Bilateral Trade Agreement:
Laos has bilateral agreements with Vietnam, Thailand, Myanmar, Cambodia, China, Mongolia, Russian Federation, and other eastern European countries. These agreements are of general character with the aim to further develop and strengthen in every possible way the trade relations between the two countries on principle of equality and mutual benefits.
This is likely to be more beneficial for the Lao PDR than most if not all members of ASEAN. Most ASEAN economics are not the most important trading partners of other ASEAN economics.
So the additional access to market, which AFTA creates is of limited value. In the case of the Lao PDR, however, most trade is with other ASEAN economics.
A traditional benefit for smaller economics when we join trade arrangements which give us access to markets in bigger economics, is that it creates higher opportunities for the private sector to do business in bigger markets.
Multilateral Trading System:
World Trade Organization (WTO)
To materialize the open-up economic policy, the government of the Lao PDR would like to join WTO as member. Therefore, on 16 July 1997 an official application was submitted to the director-general of WTO. So far Laos is in the beginning stage of the accession process. However, reflects the aims of the Lao government that are always to promote foreign trade and not only within the region but also at the global level.
The accession of Lao PDR to WTO manifested the intention of the Lao government to bring laws and regulations in conformity with those of WTO. This will promote an inflow of foreign investment in Laos, stepping toward an increase in the production for export, contributing to the development of trading sector and the economy of the country as a whole.