The Lao PDR WTO Accession

Process: Next Steps Toward

Accession and Lessons from
Vietnam

DRAFT – FOR DISCUSSION ONLY

Steve Parker, LUNA-Lao Project Manager
September 10, 2010

Organization of Presentation
• Overview of the WTO and the WTO Accession Process,
Process and
where Laos stands in the WTO accession process
• How Vietnam proceeded through the WTO accession process
– The key role played by the US-Vietnam Bilateral Trade Agreement (BTA)
as a stepping stone to WTO accession
– The BTA/WTO as a roadmap for modernizing the legal system
– Strong economic impact of the BTA and WTO
• Current challenges for Lao PDR WTO accession process
– Progress made, challenges that remain

• Similarities and differences between WTO

accession in Laos and Vietnam

1
 Key Principles of the WTO – 153 Member Countries
• Rules- based global trade system; stated in more than 60 negotiated
agreements
• Non-discrimination among countries:
– Most-favored nation (MFN) treatment provides the same treatment
for all trading partners
– National treatment (NT) provides the same treatment for foreign
and Laos businesses in the Lao economy
• Commitment to bind and lower trade barriers over time, to prevent
backsliding (schedule of commitments for trade and services), and to
nott offset
ff t border
b d liberalization
lib li ti with
ith behind
b hi d the
th border
b d protection
t ti
• Commitment to transparency
• Any exceptions to WTO Principles, such as trade remedies or special
and differential treatment for LDCs, are carefully prescribed
• Commitment to resolve policy disputes through WTO dispute
settlement processes

What the WTO Covers

• Trade in goods and services
– GATT and GATS: Tariffs, customs processes, trading rights,
SPS/TBT, subsidies, trade remedies, agriculture, regulation
of services, ++
• Intellectual property rights (TRIPS)
• Investment development (TRIMS)
• Transparency (in-country, notification and comments
among WTO Members, WTO trade policy reviews)
• Right to appeal government decisions
• Trade policy dispute settlement

2
Laos Is Acceding to the WTO as a Least Developed
Country
• Only a few countries have acceded through this window
• Most developing countries acceded to the WTO as
members of the GATT; they entered the GATT easily as
newly independent countries
• Cambodia and Nepal are recent examples of countries that
acceded as a least developing country; Vietnam acceded to the
WTO as a full-standingg country
y
• What does Least developing country status mean:
• Except for a few exceptions, LDCs will have to comply with all WTO
requirements
• LDC status, however, allows longer phase in periods to meet WTO
standards

WTO Accession Process – Lao PDR Accession

Negotiations Getting Increasingly Serious and
Substantive

• Laos will hold its 6th Working Party meeting in Geneva on Sept.
24, with bilateral negotiations on the side
• Transparency stage of questions and answers leads to
development of the Working Party Report
• Bilateral negotiations on schedule of concessions to bind tariffs
and market access to service sectors
• Final approval by all WTO members of Working Party Report,
negotiated by members on the Working Party
• ASEAN countries do not negotiate on WTO accession, but Laos
is covered by ASEAN requirements

3
 Lao PDR WTO Accession Process
• Transparency period (hundreds of questions and
answers to allow WTO members to understand the
acceding country’s trade-related policies)
– Often takes many years (around 8-10 years for both Laos
and Vietnam)

• Although
g there are still some q
questions,, Laos moved
out of this phase several years ago

Lao PDR WTO Accession Process

• Bilateral negotiations on market access for goods and services –
starts after members satisfied with Q&A
– Negotiating bound tariff rates for goods and market access for
services (Laos bound rates likely above applied rates)
– Laos has entered into serious bilateral negotiations over the last
two years: completed with China and with EU on goods
• Complications
• Will WTO members allow MFN exception for Lao commitments to
fully open most services in US-Lao BTA?
• For WTO,
WTO Laos has to bind tariff rates over time
time, but most bound
rates likely above actual tariff rates
• Implications of WTO accession on tariff rates:
• Laos unlikely to have to reduce current applied tariff rates;
• Flexibility to increase applied rates up to bound rates;
• Inflexibility to increase applied rates above WTO bound
rates

4
 Lao PDR WTO Accession Process

• Development of the Working Party Report

– Builds on the transparency questions and answers -- reviews
the current status of a country’s trade-related laws,
regulations, institutions, and policies, and shows how the
acceding country is meeting WTO Agreement requirements.
– Laos has started to develop first draft Working Party Report
– As a LDC, Working Report:
• Shows recognition
g of the commitment to meet all key
y
WTO legal/institutional requirements; and,
• Shows how Laos brought domestic laws and regulations
into WTO compliance; or,
• Refers to Action Plans for how Laos will fully meet WTO
obligations after accession

Vietnam Experience with WTO Accession

• Vietnam took 12 years to accede to the WTO; during
the first 5 years they also negotiated the US-Vietnam
Bilateral Trade Agreement to normalize economic
relations with the US
• In 1995, Vietnam started BTA and WTO negotiations, and
entered into ASEAN, which included phasing in the ASEAN
Free-Trade Agreement
• BTA came into force December 10,
10 2001
• WTO Accession approved on January 11, 2007

5
 Vietnam Development Context in 2001 As the BTA
Came into Effect – Remembering When Vietnam
Was Not Dynamic
– The Demographic Bubble: 1.5 million new entrants a year
and existing underemployment in rural areas; need to
create millions of new jobs
– Early Stage of Industrialization: GDP per capita income
around US$700; need a surge of investment in
infrastructure and industry
– Abnormal Trade Structure Before the BTA: Primary
exports dominated, exports to US almost non-existent; now,
US a top market for exports
– Political Will: political and social stability required broad-
based, rising standards of living, but not confident about
international integration and market-driven growth
– Outdated Legal System: legal system based on
Napoleonic Code and Soviet Law, far from international
best practice
11

Key Impacts of the BTA

• Opened the U.S. Market for Vietnamese Exports -- Immediately upon
entry into effect of the BTA, the U.S. extended normal trade relations
(most favored nation) status to Vietnam, reducing literally overnight
tariffs on imports from Vietnam into the U.S. from an average of around
40% to around 4%
• Modernized Vietnam’s Commercial and Legal Systems in Line with
International Best Practice -- Vietnam committed to extensive reforms
to bring its laws, regulations and administrative procedures in line with
international practices, with some reforms due upon entry into force and
a number of other reforms with deadlines phased in over 1 to 10 years.
• Opened Vietnamese Service Sectors to Greater Foreign
Competition -- The BTA required reductions in tariffs applied on a MFN
basis for only 261 product tariff lines, but required major improvements
in market access for U.S. investors throughout the economy and
specifically for U.S. firms in most major service sectors, phased in over
time.

12

6
 Key BTA-Related Legal Reforms
• Almost 100 laws and regulations adjusted to comply with BTA
commitments, some due upon entry into force and others phased
in from one to ten years
– Accord national treatment and most favored nation treatment
– Assure uniform, impartial and reasonable application of the law
– Eliminate dual pricing
– Customs reform
– Reduce duties on 261 tariff lines and eliminate almost all import
quotas
– Develop trade remedy processes (anti-dumping, CVD, safeguards)
– Reforms to technical barriers to trade (TBT) for industrial products
and sanitary and phyto-sanitary (SPS) rules for agricultural and food
products
– Liberalize trading rights
– Upgrade commercial dispute settlement processes and capacities

13

Key BTA-Related Legal Reforms

(continued)
• Almost 100 laws and regulations adjusted to comply with BTA
commitments
– Substantially strengthen IPR enforcement
– Liberalize market access to around 20 major service sectors and
abide by WTO agreements and annexes on services -- financial,
telecommunication, distribution, business services, construction and
engineering, health and education, tourism
– Liberalize access and procedures, and improve safeguards for
investment; improve corporate governance
– Enhance
E h b
business
i ffacilitation
ilit ti
– Improve transparency for legal normative documents, including
public comments on draft laws and regulations
– Improve system for appealing administrative actions

14

7
 BTA Transformed Economic and Legal Reality
• Bilateral trade between Vietnam and the U.S. has
boomed from 2002 to 2006
– Labor-intensive Vietnamese exports to the U.S. have
surged, increasing eight fold in just five years
– U.S. exports to Vietnam have more than doubled over
five years, led by sales of aircraft
• American investment into Vietnam grew strongly over
the first five years of BTA implementation
– U.S.-related
U S related FDI is one of the largest so sources
rces of FDI into
Vietnam since 2003, although normal, reported FDI data
significantly undercounts the role of U.S. FDI
– Americans appear to be leading foreign indirect
investors in Vietnam’s stock market and private equity
placements
15

The BTA as a Stepping Stone to WTO Accession:

Differences Between the BTA and WTO
• Most legal reforms required by the BTA and WTO are the same
– The BTA has stronger requirements on investment and corporate
governance
– The WTO has stronger requirements in several areas, including SPS, TBT
and particularly subsidies
– Otherwise, most of requirements for the BTA involved direct implementation
of WTO Agreements and principles
– Even though the BTA included only bilateral requirements, most of the legal
changes made to implement the BTA were applied to all countries, not just
the U.S.
• Th
The BTA iimmediately
di t l expanded
d d market
k t access ffor Vi
Vietnamese
t
exporters by opening the U.S. market; the WTO does not require
trading partners to increase market access
– Although, the U.S. did eliminate its quota on Vietnamese textiles and
apparel with accession to the WTO, a major market opening
• The WTO requires much greater opening of the Vietnamese
market, with major tariff reductions and more comprehensive
market access opening in service sectors
16

8
 Vietnamese Exports to the U.S.
US

17

VN Exports to the U.S. Before and After the BTA

12,000
,
Pre BTA Post BTA Pre WTO Post BTA

10,000

8,000 31%

6,000 41%

58%
55% 35%
4 000
4,000
80% 18%
7%
171% 8%
2,000
2% 164%
1764% -2%
31%
21% 28% 3% 29%
0 38%

2000 2001 2002 2003 2004 2005 2006 2007

Primary Products Clothing Other Manufactures 18

9
 Overall FDI into Vietnam
50,000 80

45,000
70

40 000
40,000
60
35,000

50
30,000

25,000 40
WTO Accession
20,000 US-BTA
30

15,000
20
10,000

10
5 000
5,000

- -
1991 - 1996 - Jan-July
2001 2002 2003 2004 2005 2006 2007
1995 2000 2008
Registered capital 3,533 5,252 3,143 2,999 3,191 4,548 6,840 10,200 20,347 44,497
Implemented capital 1,304 2,589 2,451 2,591 2,650 2,853 3,309 4,100 8,400 6,000
Project average size 13 15 6 4 4 6 7 10 14 68
Implemted/registered % 37 44 47 49 51 52 52 50 48 37

19

U.S. Foreign Direct Investment in Vietnam

1200
U.S. Related Implemented FDI (LHS) 20% 20%
1000 19%
U.S. Reported Implemented FDI (LHS)
17%
Share of U.S. Related Implemented FDI (RHS)
800 15%
12%

600 11% 1
11% 10%
0
8% 9% 0
8%
400 7
7% 5
4 5%
3
200 2 2 2 4
2 1 2 1 1
6 7 7 9
2 9 5 6
0 6 1 4 6 8 9
0 0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 and
six month
20 2006
Source: MPI

10
 How Vietnam Used the BTA/WTO to
g and Economic Systems
Transform Its Legal y
1) Vietnam used the BTA/WTO as a catalyst to
systematically modernize its legal, regulatory
and administrative systems
– Vietnam used the BTA/WTO to modernize and deepen
its legal system, re-writing or establishing anew around
100 laws and regulations from 2002 through 2006
• major ne
new la
laws
s and implementing reg
regulations
lations helped Vietnam
meet BTA and WTO requirements, bringing its legal system and
judicial procedures much more closely in line with international
best practice
• many new laws required for the effective operation of a market
economy were also promulgated – these were not directly
required by the BTA or WTO, but were needed to make the BTA
21 and WTO work effectively in practice (e.g. much improved
contract law and law on secured transactions)

Transformation in Vietnam (continued)

2) The gradual increase in BTA-related foreign competition,
especially in services,
services eased the transition toward greater market
opening in the WTO accession
• Many service and manufacturing sectors grew strongly,
gaining in competitiveness, improving quality of products and
services – Multinational investment encouraged parallel
domestic investment, introducing world-class goods and
services, technology and management
3) The post-BTA boom in Vietnamese exports to the U.S. bolstered
Vietnamese confidence and solidified political will toward WTO
accession; continued with strong post-WTO
post WTO export growth
• Generated positive sum games; shift from export pessimism to
optimism; solidified capability of Vietnam to develop domestic
capability to participate fully in global markets
4) MOST IMPORTANT -- The trade agreements were key elements of a
national, system-wide effort by Vietnam to develop a much more
transparent, rule-based commercial system with improved
22
economic governance and dispute settlement processes

11
 Average WTO-Bound Tariff Rates
WTO
Imports, Applied Tariff Bound WTO WTO WTO
Product Sector 2006 (US$ Rates at Rates at Bound Bound Bound
millions) Accession* Accession Rates 2008 Rates 2010 Rates 2014
2007
Animal products 94 16.0 18.5 17.7 15.9 14.5
Dairy products 223 20.9 22.4 21.3 19.2 17.8
Fruits, vegetables, plants 437 23.9 24.6 23.4 21.1 20.4
Coffee, tea 18 32.8 33.2 31.7 28.8 27.4
Cereals and preparations 503 26.7 28.1 26.6 24.1 23.0
Oilseeds, fats & oils 359 16.4 19.0 18.3 16.8 15.8
Sugars 132 17.1 36.7 35.7 33.5 32.1
Beverages and tobacco 506 52.9 69.3 66.9 62.2 57.4
Cotton 72 6.0 14.0 14.0 14.0 14.0
Other agricultural products 249 8.0 8.8 8.4 7.7 7.6
Fish and fish products 243 29.8 29.8 26.8 21.0 18.7
Minerals and metals 6,829 9.1 15.1 14.4 13.2 12.1
Chemicals 5,014 6.4 11.0 10.0 8.3 6.8
Wood, paper, etc. 1,226 13.4 14.0 13.0 11.2 10.0
Textiles 4,321 10.5 11.4 11.2 11.0 10.9
Cl thi
Clothing 202 19 6
19.6 19 9
19.9 19 9
19.9 19 9
19.9 19 9
19.9
Leather, footwear, etc. 1,295 16.5 18.9 17.7 15.8 14.6
Non-electrical machinery 3,137 6.0 9.3 8.8 8.0 7.4
Electrical machinery 2,406 10.1 12.7 11.8 10.2 9.0
Transport equipment 1,778 33.7 47.9 45.9 42.0 36.3
Other manufactures 1,046 13.0 13.9 12.9 11.1 10.3
All tariff lines $30,091 13.7% 17.2% 16.4% 14.8% 13.4%

23

Average Applied Tariff Rates, as Affected by

Reductions in Bound Rates
Imports, Applied Tariff WTO WTO
WTO Bound
Product Sector 2006 (US$ Rates at Bound Bound
2014*
millions) Accession 2008*
2008 2010*
2010
Animal products 94 16.0 15.4 13.9 12.6
Dairy products 223 20.9 19.9 18 16.9
Fruits, vegetables, plants 437 23.9 22.9 20.8 20.1
Coffee, tea 18 32.8 31.7 28.8 27.4
Cereals and preparations 503 26.7 25.6 23.2 22.1
Oilseeds, fats & oils 359 16.4 15.9 14.9 13.9
Sugars 132 17.1 16.6 15.5 14.8
Beverages and tobacco 506 52.9 51 47.1 43
Cotton 72 6.0 6.0 6.0 6
Other agricultural products 249 8.0 7.6 6.9 6.8
Fish and fish products 243 29.8 26.8 21 18.7
Minerals and metals 6,829 9.1 8.8 8.5 8.3
Chemicals 5,014 6.4 6.0 5.2 4.3
Wood, p paper,
p etc. 1,226 13.4 12.6 10.9 9.8
Textiles 4,321 10.5 10.4 10.3 10.2
Clothing 202 19.6 19.6 19.6 19.6
Leather, footwear, etc. 1,295 16.5 15.9 14.5 13.3
Non-electrical machinery 3,137 6.0 5.8 5.3 4.9
Electrical machinery 2,406 10.1 9.6 8.4 7.4
Transport equipment 1,778 33.7 38.1 36.7 32.6
Other manufactures 1,046 13.0 12.3 10.6 9.8
All tariff lines 30.091 13.7 13.1 12.1 11.2

24

12
 Post-WTO Challenges
• Post-WTO Macroeconomic Crises (policy roller coaster)
– Inability to manage huge capital inflows in terms of foreign indirect
and direct investment following WTO accession in January 2007
• Ineffective sterilization; excessive fiscal spending
– Big spike in inflation, excessive growth – forced March 2008 shift
toward constraint and stabilization; major impact of high inflation on
the poor
– Onset of global crisis – little impact on financial markets, but
significant decrease in exports; but decline in exports cushioned by
steady increases in global market share
– November 2009 shift to stimulative monetary and fiscal policy
– Growth holds up well – 8.5% in 2007; 6.2% in 2008; 5.5% in 2009
– Inflation moderates but remains high, major real appreciation
25

Key Lessons from Vietnam’s Experience with WTO

Accession
• Made market access commitments in BTA with the
US to begin to open markets, mainly service sectors,
to gradually allow the sectors to adjust to greater
multilateral opening for service sectors.
• BTA as stepping stone to WTO – laws and market
opening; and got trade growth to build political
support and confidence for WTO
• BTA/WTO as a guideline and catalyst for
modernizing legal system for market economy,
greater rule of law and improved governance
• Modernized supporting laws and institutions as open
up for greater international integration -- really key!!

13
Lao PDR Progress toward WTO Accession

• Advanced through transparency (Q&A) and into

serious bilateral negotiations and drafting the
Working Report – light is now at the end of the tunnel
– Laos has explained adequately to WTO members its laws,
policies and institutions;
– It has made some important legal reforms;
– It is learning from WTO members what additional legal/policy
reforms are required to quality for accession, and where
Action Plans can be developed to phase-in changes after
accession ; and
– Bilateral negotiations on market access advancing

General Status of WTO-Related Legal Reforms

• Laos has made a number of important legal

reforms in line with meeting WTO
requirements
• But many of the reforms are incomplete
• Important areas still not in compliance with
WTO
• How many problems can be solved with PM
Decrees and Ministerial regulations, and how
many require revision or development anew
of Law?

14
 Progress in Intellectual Property

• Intellectual Property – Developed a comprehensive

Law on Intellectual Property:
• consolidated previous disparate regulations;
• clarified IP definitions;
• strengthened enforcement; and
• expanded IP coverage into new areas covered by trade
agreements

More to Do on Intellectual Property

– IP Law still not in compliance with TRIPS -- more work to do:

• IP Law is still partly out of compliance with WTO-TRIPS
• IP Law implementing decree has not been completed
• A number of IP Treaties and Conventions must be
acceded to
• Enforcement needs to be improved, including in the civil
and criminal courts and with the prosecutors and police
• Public awareness needs to be raised
• Border measures required to keep out infringing imports
– most counterfeit, fake and pirated IP products are
imported!

15
Customs and Trading Rights: Major Improvements

• Customs and Trading Rights

– Customs valuation requirements developed now in Customs
Law, PM implementing decree, MOF Instruction, and
especially Customs Instruction just recently approved.
• Key challenge now is implementing the customs valuation
process effectively - - Lao PDR relies strongly on customs
revenue for public financing – need to manage under-invoicing
– Has accept HS tariff classifications/nomenclatures
– Trading rights – is establishing a more transparent system
for allocating export and import licenses, with a negative list
of sectors where non-automatic licenses are required.

Customs and Trading Rights: More Work to Do

• Customs Legal Reforms Major Step Forward

– Challenge is effective implementation
– Requires stronger risk assessment processes, including
strong post-clearance auditing, to police under-invoicing
– Needs to automate customs administrative systems to
increase efficiency and facilitate border clearance
– Need better coordination among check-point inspections,
inspections
building into a national single window
• On Trading Rights, Need to Approve and Implement
Key Decree on Managing Exports and Imports

16
 SPS and TBT: Major Progress Coming

• A key requirement for WTO accession is increasing

transparency for SPS and TBT regulatory systems,
and to make sure these measures are not used as
back-door protection.
– New PM Decree on SPS/TBT Enquiry Points and WTO
Notification Authority
– Still need Ministerial Regulations (and resource mobilization
for operation) in NAST, MAF and MOIC to bring Points and
Notification into operation
– Need WTO review of new Standards Law, and development
of PM Decree and ministerial regulations to implement the
new Standards Law

Need for Major Improvement in Legal Transparency

and Participation in Policy/Regulatory Processes
• Laos far behind other countries in legal transparency
(but almost exactly where Vietnam was in 2001)
• Need to require all laws and regulations to be
published in the Official Journal for some period of
time (15 days) before coming into force
g y q
• Need for legally-required p
public comment p periods on
drafts laws and regulations
• Where required by the WTO, need for notification and
WTO member comment on draft laws and regs
• Momentum growing for developing a strong Law on
Laws

17
How Laos is Different than Vietnam Regarding WTO
Accession and Its Impact
• Laos-US BTA had much less of an impact on the Lao
PDR’s legal system and economy
– When the U.S. opened up its market to Laos exporters, there
was little response
• Laos still has to complete many legal reforms to
modernize its commercial system
• Laos has been less effective at using the BTA/WTO as a
catalyst for systematic reforms
• WTO has quickened the pace of reform, but as a LDC,
allows more time than Vietnam had

How Laos is Different than Vietnam Regarding WTO

Accession and Its Impact
• Laos as a natural resource intensive economy has a
much different development trajectory that does
Vietnam, which is a labor-intensive economy
• Laos challenge easier in some areas, harder in
others
• Laos has less ppressure to create jjobs; but this p
puts
less pressure on improving the business environment
• Laos must manage concentrated wealth generation
and large investment in natural resource sectors,
which directly provide few jobs
– $1 of investment in Laos creates much fewer jobs than in VN

18
How Laos is Different than Vietnam Regarding WTO
Accession and Its Impact

• Challenge of governance harder in Laos

• Laos must raise revenue from natural resources, and
invest in social development and infrastructure
• Laos as a small economy will always import much of
its consumption, and must find competitive export
niches. Development model may be more like
Singapore than Vietnam, although legal and political
systems more like Vietnam

19