Trade Agreements as Tools for Development: The Experiences of Lao PDR and Vietnam Steve Parker Project Manager and Trade Advisor USAID/LUNA-Lao Project Vientiane, Laos Sparker@Nathaninc.com Stanford University, CA February 6, 2013
Overview How trade agreements can support economic development and the rule of law Lao PDR and Vietnam Development Role of the U.S. Government
The Power of Trade Agreements for Economic Development and the Rule of Law Trade agreements, especially those negotiated by the USTR, have systematic and deep impacts on the domestic economy: WTO, regional (e.g. ASEAN) and U.S. bilateral trade agreements have broad coverage across many sectors goods and services; market access and behind the border Laying the foundation for a market economy through modernization of laws and policies with a stronger market, privatesector and international orientation Improving governance, especially transparency and participation Strengthening the rule of law Especially for a developing, transition economy 3
Comparing Experiences in Lao PDR and Vietnam But to a large degree, trade agreements are one size fits all Core principles, rules and procedures negotiated in the WTO and other international conventions with some innovations made in regional free-trade agreements Different levels of market access depending upon the type of trade agreement, but all aiming to open markets for goods and services with less formal links to opening of capital and labor markets Comparing the impact of trade agreements on Lao PDR and Vietnam, countries with similar political frameworks living in the same dynamic and geopolitical charged neighborhood, but with quite different economic development dynamics 4
The Role Played by the U.S. Government Big Picture -- U.S. policy to improve post-vietnam War bilateral relationships, with trade normalization a key initial step serving as a stepping stone to for WTO accession USTR through the U.S.-Lao PDR Bilateral Trade Agreement and WTO Accession sets the parameters for reforms USAID supports deep implementation of reforms Lao PDR and Vietnamese Governments request U.S. support because of limited understanding of international principles and best practices 5
Development Context for Lao PDR: The Challenges A least-developed country one of the lowest levels for the Human Development Index and for the Millennium Development Goals in ASEAN; per capita income of $1,130; population 6.3 million with around 40 percent ethnic minorities A transition economy a legacy of an old-fashioned, anti-market and incomplete legal and institutional system A land-locked, natural-resource-intensive economy different growth dynamic than other ASEAN countries need good governance to transform natural resource rents into investments in the future: health, education, infrastructure need good business environment to diversify and sustain economic development over time Currently fastest growing economy in SE Asia 6
Status of Key Lao PDR Trade Agreements 1995 Joins ASEAN strengthened in 2007 through the ASEAN Charter and commitment to achieve an ASEAN Economic Community by 2015 1997 begins WTO negotiations 2005 US-Lao Bilateral Trade Agreement normalizes bilateral trade relations 2010 WTO accession negotiations accelerate October 2012 WTO General Council approves Accession Package with Lao PDR becoming 158 th member of the WTO on February 2, 2013 7
Legislative Reforms for WTO Accession: Bringing the Lao PDR Legal System into Compliance with WTO Agreements More than 90 Laws/Regulations Adjusted for WTO accession, including key recent reforms: Law on Making Legislation legal transparency Revision to the Intellectual Property Law/Regs Government Decree to Implement the Law on Standardization; establish TBT Enquiry Point Revision to the Law on Customs/Regs Revisions to agricultural (SPS-related) regulations; establish SPS Enquiry Point Trading rights regulations Key Services PLUS many more 8
WTO Commitments on Market Access for Goods/ Services Lao PDR WTO Commitment to Bind Tariffs Average bound tariff rate for all goods = 18.8% Average bound tariff rate for agriculture = 19.3% Average bound tariff rate for industrial = 18.7% Vietnam average WTO bound tariff = 11.4% Actual Lao Current (Applied/Actual) Tariff Rates Average current tariff rate for agriculture = 18.7% Average current tariff rate for industrial = 10% Lao PDR Bound Service Sector Opening 79 out of 160 total service sub-sectors bound 9
Likely Economic Impact of WTO on Laos Direct, immediate impact of WTO accession on the Lao economy is likely to be relatively limited Limited increase in market access by foreign competitors into the Lao economy No direct increase in market access by Lao exporters to foreign markets Phase ins of several years for full implementation Major positive impact starting now and building into the longer-term developing a modern, systematic, market-oriented legal/ policy system to improve the Lao business environment and stimulate domestic and foreign trade and investment 10
Looking Beyond WTO Accession The WTO Accession is a milestone for Lao PDR development, rule of law and international integration It is an International Seal of Approval that foreign investors pay attention to It locks in the Lao PDR commitment to a market-oriented economy by treaty BUT, it is just a key first step!! 11
Looking Beyond WTO Accession Post-WTO accession challenges: need to continue to strengthen the legal system need to modernize institutions to manage and facilitate an open market economy need to continue to improve the business environment need to build competitive capacities need to participate effectively in WTO Using the WTO Accession as a Spring Board for Long-Term, Market-Led Development and Rule of Law! 12
LUNA-Lao: Large Ambitions, Limited Resources USAID-funded LUNA-Lao project Around $1.4 million a year for resident project No resident USAID office; managed by regional USAID office in Bangkok with close cooperation with U.S. Embassy in Vientiane Project Model demand driven TA supervised by a multi-ministry Government Steering Committee with an activity firewall relative to negotiations
Broad Reach to Many Sectors Supervised by Government Steering Committee and USAID (members can expand over time): Ministries of Industry and Commerce (lead counterpart ), Justice, Finance, Science and Technology, Agriculture and Forestry, Health, Telecommunications, National Assembly Supreme People s Court Lao National Chamber of Commerce and Industry 14
Responds to Demand-Driven Requests Always Positioned as a Partner on the Frontier of Reform Quick response support tailored to the specific demand-driven needs of counterparts who are directly advancing reforms strong counterpart ownership and leadership Strategically leverages limited resources to priority reforms Support easily evolves and responds to new reform opportunities under the broad umbrella of the trade agreements and with our many approved counterparts 15
Flexible TA Responses Supports All Stages of Legislative Development and Implementation for Priority Reforms From drafting teams through the Government Office to the National Assembly to implementation authorities at national and local levels Sticks with draft legislation all the way through the process, with full support for and access to ministerial drafting teams, National Assembly Committees, and implementation authorities In some cases supports comprehensive multi-year legislative development process; in other cases asked to fire-fight draft legislation at late stages of development (avoiding trainwrecks) 16
Strategically Fits USAID TA into Broader USG Approach Activity Firewall Helps USAID-LUNA Work effectively with USG negotiators, especially USTR and the U.S. Embassy USTR leads negotiations, with US Embassy support USAID-LUNA does not work with Lao negotiators USAID-LUNA focuses on key domestic reforms, capacity building and public awareness needed to implement the trade agreements effectively USAID-LUNA does not pass Lao draft legislation or LUNA analysis to US negotiating team; supervised by the Government Steering Committee (Lao PDR and USAID) Informal communication to ensure strategic focus 17
Leverages Trade Agreements to Support Deep Domestic Reforms Supports Effective Implementation of Trade Agreements, But Always Asked to Advance Domestic Objectives Well-Beyond Trade Agreement Mandates First goal is to support implementation of trade agreement requirements But given close working relationships with partners, we are almost always asked to help improve all elements of draft legislation, which supports key domestic reforms well beyond the mandate of the trade agreements Allows USAID-LUNA to have an even deeper and more systematic impact on domestic law, governance, institutions and trade/economic policy 18
A Summary of USAID-LUNA Outputs from 2010 through 2012 Supported more than 70 workshops with more than 4,000 participants from all provinces raising public awareness of international best practice, encouraging public-private dialogue on legislative reforms throughout Laos and providing training Supported development/passage of 25 laws and regulations, with 5-10 more in process Supported the publication of more than 10,000 copies of reference materials with the USAID logo distributed throughout the country 19
Development Context Political, economic and demographic challenges create political will for strategy shift Greater market orientation Stronger push to work with US Vietnam reaches out; the U.S. responds positively Commercial interests China and ASEAN factors
Impact of BTA and WTO on Vietnam Huge positive economic impact, very limited domestic adjustment costs : Vietnam came from a very low income base Rapid expansion in foreign and domestic trade and investment Strong broad-based economic growth Solid reductions in poverty Almost everyone better off Still good income distribution relative to other countries, but has gotten worse poor have become less poor, but new middle class and rich have emerged Modernized legal system, greater legal transparency 21
Vietnam STAR 5+ year project (2001 to 2007); $13.6 million Strong expatriate and local technical staff (lawyers, economists, MBAs), supported by specialized STTA and large resident foreign law firm Office outside the ministries From BTA inception (December 2001) to WTO accession (January 2007) Massive, transformative legal reform Raise public awareness; On-the-job training By end of project, Vietnamese expertise on international best practice greatly expanded
Elements for Success for USAID-STAR High-level political GVN Steering Committee supervises all activity strong Vietnamese ownership and leadership Extensive access to more than 30 technical counterpart agencies, working with officials directly responsible for advancing reforms Responsive, tailored, demand-driven TA in real policy time Attention to Vietnamese and U.S. political sensitivities; low-key approach Policy firewall with USTR/State
Accomplishments by USAID-STAR Successful BTA implementation and WTO accession 93 Laws and Regulations 290 Policy Seminars and Training Workshops 20,400 Government Officials and Business Representatives Participating in STAR activities 58,000 copies of STAR-Supported Reference Materials Published and Distributed 28 study missions for 180 people
Post WTO Considerations for Vietnam Strong trade, investment and economic growth response to the US-BTA and WTO (2002 to 2007) Comprehensive modernization of legal framework and judicial procedures, improved transparency But Vietnam growth bogs down 2008 to 2012 Unplanned post-wto inflation surge dampens and in some cases reverses further reforms Vietnam fails to maintain deep reform momentum Systematic reform takes time; requires both better written laws as well as major institutional modernization/reforms for effective implementation 25
Comparing Results in Laos and Vietnam Law and Policy Technical/legal issues the same WTO/trade agreement requirements same for all countries Outdated, anti-market legal/policy systems transformed to market orientation more in line with international practices through comprehensive legal reforms, improved rule of law and governance Politics Political economy of reform similar Political leadership needed growth for political legitimacy, spurred by youth demographics stressing job creation and recognition of need to move to the market and to stimulate trade and investment
Comparing Results in Laos and Vietnam Economics Growth response much different Need to understand economic growth dynamics Vietnam labor-intensive, classic East-Asian Miracle with strong and immediate growth response to market-oriented liberalization, but unexpected surges in inflation bog down post-wto growth Laos natural-resource abundant, labor scarce with slower but longer-term economic response (less like SE Asia, more like Africa) Sustainability Over Time?? Vietnam builds on modernized legal system and more open markets, but slowed further institutional reforms as the discipline of the trade negotiations dissipated (ASEAN and TPP?) For Laos, time will tell
Thanks Questions and Comments Please! 28