Academic journal article Journal of Southeast Asian Economies

Export Growth, Export Potential and Export Resistance: A Case Study of Laos

Academic journal article Journal of Southeast Asian Economies

Export Growth, Export Potential and Export Resistance: A Case Study of Laos

Article excerpt

1. Introduction

Before the late 1980s, Laos was regarded as a closed and centrally planned economy. Since the introduction of market-oriented reforms, the country has gradually opened up its economy and liberalized trade by simplifying its tariff structure and reducing tariff rates. The country's external trade has since expanded, with total export value increasing from US$11.3 million in 1984 to US$311.2 million in 1995. The top two export destinations are Thailand and Vietnam, and the following products are exported to them: wood products; garments; agricultural products and live animals; coffee; and electricity (Vixathep 2011). In 1998, Laos joined the ASEAN Free Trade Agreement (AFTA) and became a member of the Association of Southeast Asian Nations (ASEAN) in 1999. Under AFTA, Laos reduced its tariff rates along with other new members. AFTA offered Laos substantial market access particularly for exports to the ASEAN-6 via the Common Effective Preferential Tariff (CEPT) scheme.

Since the 1990s, Laos has also benefitted from the Generalized System of Preferences (GSP) scheme granted by developed countries. The GSP scheme is a multilateral trade agreement that allows Laos to export its products with no duties and quota-free access. In particular, it benefits Laos' garment exports to Europe and Japan. However, non-tariff barriers such as local content regulations and rules of origin are imposed under this scheme, which inhibits Laos' export potential. The country reached another trade liberalization milestone when it gained membership into World Trade Organization (WTO) on February 2013. This allows Laos to access a larger market together with 158 other members on a Most Favoured Nation (MFN) basis, guided by clear trade regulations. It also experienced a reduction in non-tariff barriers particularly when accessing developing markets (Haddad et al. 2006). This gives Laos more political power over trade negotiations and is in line with other domestic trade policy reforms such as regulatory and institutional reform.

After joining ASEAN and engaging in other multilateral trade agreements, (1) the country's exports as a share of GDP have been increasing and stood at 37.7 per cent of GDP in 2011, although they faced slight setbacks during the 1997-98 Asian Financial Crisis (AFC) and the 2008-09 Global Financial Crisis (GFC). The total export value tripled from US$0.7 billion in 2005 to US$3.1 billion in 2011; this growth has been driven by the mineral and hydro-power sectors, garments and agricultural products. These sectors are a dominant portion of total exports. During 2001-11, Laos' exports grew at an average annual rate of 22.7 per cent. Based on market share, Thailand and Vietnam dominated the share of total trade. This figure stood at 45.7 per cent. Figures for trade with China, the European Union (EU), the United States, Japan and other trading partners stood at: 15.37 per cent; 12.7 per cent; 1.56 per cent; 1.97 per cent; and 23.4 per cent, respectively. The terms "trading partners" and "importing countries" are used interchangeably in the paper.

Although exports have performed well over the last two decades, and trade liberalization has been progressive with respect to the removal of tariff and non-tariff barriers through trade agreements, the competitiveness of Laos' exports lags behind its neighbours and competitors. For instance, the share of Laos' exports to world exports was relatively small (0.016 per cent) in 2011 compared to neighbours such as Cambodia (0.037 per cent), Indonesia (1.13 per cent), Malaysia (1.26 per cent), Myanmar (0.046 per cent), the Philippines (0.26 per cent), Thailand (1.27 per cent) and Vietnam (0.54 per cent).

This study seeks to identify key factors that influence export growth, reduce both behind- and beyond-the-border constraints and increase Laos' export competitiveness. Three factors related to export growth are examined: (i) core factors (income per capita, population, exchange rate and other factors); (ii) implicit behind-the-border constraints; and (iii) implicit beyond-the-border constraints. …

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