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Streamlining Lao PDR’s trade regulations to help its poorest citizens

Jose Daniel Reyes's picture
Laos customs office

Economic growth and global economic integration go hand-in-hand for Lao PDR.  As a small, land-locked, and commodity-dependent country in a fast-expanding region, Lao PDR’s growth prospects are directly linked to its ability to integrate with the global economy. This is why the government has been prioritizing economic integration with both the Southeast Asia region and the multilateral rules-based trading system. In 2010, Lao PDR became signatory to the ASEAN Trade in Goods Agreement (ATIGA), acceded to the World Trade Organization (WTO) in 2013, and ratified the Trade Facilitation Agreement in 2015.

However, efforts to modernize Lao PDR’s regulatory framework governing trade and the overall investment climate have not been matched with welfare improvements. In a recent study, we provide a comparative overview of the landscape of Non-Tariff Measures (NTMs) affecting imports in Lao PDR, and identify lingering regulatory hurdles that hamper its ability to reap the gains of deeper integration with the global economy. Our findings reveal that while the existing NTM framework is broadly in line with regional practices (figure 1), the current import licensing scheme in Lao PDR and the associated array of fees linked to it raises the time and cost to bring products to market.Ultimately, the system of quantitative controls applied by Lao PDR is equivalent to an ad-valorem tariff of 5.4%, which is well above regional and world averages.

There are three main problems associated with the procedures for obtaining import licenses in Lao PDR:

How can G20 trade policies benefit developing countries?

Michele Ruta's picture
Cambodia garment factory (Chhor Sokunthea / World Bank)

A key topic for the G20 this year is what can be done to boost inclusiveness in the global economy. Ministers and officials, with advice from the World Bank Group and others, have been looking into what policies they can adopt to maximize the development prospects of lower income countries outside the G20 (what the Turkish Presidency has termed “low-income developing countries” -LIDCs). A critical area of action is in trade – an area where G20 countries have asked the Bank Group to survey the current situation and provide recommendations.

In our work, we found that the value of LIDC imports and exports has increased substantially over the last decade, but it still represents only between 3 and 4% of world trade (Figure 1). The share of LIDC exports in the global services market is similarly low and has remained stagnant during the last 3 decades. Although there are some exceptions – Vietnam and the Philippines – LIDCs are poorly integrated into global value chains (GVCs) – they constitute only 3% of world imports in parts and components.

G20 countries are the main trading partners of LIDCs. Around 70% of imports of LIDCs come from the G20 and around 80% of LIDC exports are directed to the G20. Trade costs between LIDCs and any G20 country, however, are systematically higher than the trade costs between G20 countries or other non-LIDCs and any G20 country (Figure 2).

Naturally, many domestic factors that inhibit the productive capacity of LIDCs contribute to the low connectivity of LIDCs to GVCs and world trade more generally. However, trade policies of G20 members can help low-income developing countries integrate in the world economy. In our analysis for the G20 we reviewed key G20 trade policies and how they could be improved to benefit LIDCs.

Rise of Non-Tariff Protectionism amid Global Uncertainty

A troubling phenomenon is occurring in large, emerging economies: the gates are closing. Governments, skittish about global economic trends, are introducing new policies to limit imports and exports. The aim is to protect domestic industry in tough times, but the tools they are using threaten to make their economic problems worse.

A December World Bank analysis documents a trend of creeping protectionism in countries such as Argentina, Brazil and Indonesia – all countries with burgeoning industry. Instead of tariffs, other, more indirect policies are being used to hinder free commerce between countries. The Bank analysis, based on World Trade Organization (WTO) monitoring reports and data from the Global Trade Alert, a network of think tanks around the globe, found that the number of non-tariff measures (NTMs) –including quotas, import licensing requirements and discriminatory government procurement rules –showed an increasing trend in the first two years post-2008, and rose sharply in 2011. India, China, Indonesia, Argentina, Russia and Brazil together accounted for almost half of all the new NTMs imposed by countries world-wide.