Trade
How Laos is overcoming landlockedness and bolstering growth
Author: Sandra Seno-Alday, University of Sydney
Laos is one of the fastest growing economies in Southeast Asia. From 2010 to 2018, it realised the second highest compound annual growth rate (CAGR) in exports in the region, next only to Vietnam. The country’s rapid growth in exports is more remarkable considering it is the only landlocked country in Southeast Asia.
Landlocked countries have no direct access to the sea. Exports and imports, therefore, must transit through neighbouring countries to get to-and-from seaports. Given around 80 per cent of world trade is done by sea, landlocked countries’ trade is significantly slower (between 9 and 130 per cent) and more costly (between 8 and 250 per cent).
Laos has proactively established trade and economic networks by participating in regional integration agreements and free trade agreements. Doing so has sent a strong signal to the regional and international community that the country is economically and politically open and committed to domestic reform. In 1991, it signed the Laos–Thailand regional trade agreement (RTA) and upon its 1997 accession to ASEAN it became part of the ASEAN Free Trade Area (AFTA).
As a member of ASEAN, Laos is party to a range of RTAs involving China (2007), Japan (2008), South Korea (2008), Australia and New Zealand (2011), and India (2011). The country also independently participated in the Asia Pacific Trade Agreement (APTA) with Bangladesh, China, India, South Korea and Sri Lanka in 1975.
Laos has successfully harnessed the trading potential of these agreements. In 2018, its five largest export partners were Thailand, China, Vietnam, Japan and India. Its exports to Thailand grew at an 8-year CAGR of 13 per cent, China at 27 per cent and Vietnam at 28 per cent. These countries are its largest transit neighbours. Export growth in these large, geographically-close markets covered by regional integration or free trade agreements is certainly notable but unsurprising.
But export growth in more geographically distant markets also deserves highlighting. Exports to Japan grew at a CAGR of 16 per cent and India at 156 per cent. While these countries accounted for less than five per cent of Lao exports in 2018, success at growing exports beyond immediate neighbours in the face of its landlockedness is exceptional.
Laos is poised to take advantage of further opportunities for trade growth and trade diversification in an increasingly efficient trading environment. Five of its eight trade agreements cover trade in both goods and services. And it is also in the process of implementing the World Trade Organization’s (WTO) Trade Facilitation Agreement.
Laos has embraced technology in trade facilitation. To increase customs efficiency, Laos has established the Automated System for Customs Data (ASYCUDA) at 24 of its border posts. This is a critical time and cost saving mechanism for the cross-border movement of products in general, but this is particularly key in light of the importance of the agricultural sector in the country’s international trade.
The country has channelled investments into upgrading infrastructure and improving manufacturing capability. Its manufacturing sector has grown at an 8-year CAGR of 7 per cent, while its services sectors have grown at a CAGR of 12 per cent from 2010 to 2018. It is participating in China’s Belt and Road Initiative through the Laos–China Railway project, which will help strengthen the strong export-import cluster it has developed with its largest and most important trading partners: Thailand, China and Vietnam.
Other major infrastructure initiatives include the Vientiane–Vangvieng stretch of the China–Laos highway and the Boten–Vientiane high speed rail that will make the historic Luang Prabang site in central Laos more accessible to regional tourists. These upgrades to physical infrastructure links together with increased manufacturing capability place Laos in a strong position to further increase its economic engagement with the broader region.
Laos has been successful at diversifying its resource-based economy over time. Its Competitive Industrial Performance (CIP) Index score increased at a CAGR of 4 per cent over eight years. Developed by the United Nations Industrial Development Organization (UNIDO), the CIP Index captures a country’s capability to competitively manufacture and export products.
The country’s performance thus shows indications of disproving the so-called ‘resource curse’: when a country’s dependence on resource exports results in slower growth and…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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