62043 Issue 12 / July-August 2009 THE WORLD BANK Laos In IN THIS ISSUE Page 1  Trading Across Borders Page 2  Cross-border Agribusiness  The Product Space  World Bank Events Page 3  World Trade Organiza- tion Accession Update  Time Release Study Page 4  Poor Sanitation Costs Lao PDR 5.6% of GDP Annually Trading Across Borders Implementing the Integrated Framework through the Trade Sector-Wide Approach T he Government of Laos (GoL) is investing in its future The Poverty Reduction Support Operations (PRSOs) are development by implementing an ambitious trade an annual budget support program implemented by the agenda that seeks to increase economic growth and Ministry of Finance and financed by IDA. Recent improve export competitiveness. To implement this agenda, accomplishments under the 5th PRSO completed during the GoL have established a National Integrated Framework 2008/09 include the passing of legislation to move to an import Governance Structure (NIFGS), a multi-agency coordination licensing negative list and the preparation of a draft Trade entity, to ensure more effective implementation of the GoL Facilitation Action Plan to bring a common approach to trade reform program and to reduce the transaction costs from stand facilitation across Government. IDA financing for PRSO5 alone development partner assistance. provided direct to the GoL budget amounted to US$20 million. The World Bank (WB) is currently supporting the GoL’s trade Mr. Phouvieng Phongsa, Project Director for the National agenda through three trade related projects. Implementation Unit - Foreign Trade Policy Department, Ministry of Industry and Commerce discusses the role of the The Trade Development Facility (TDF) is a Multi Donor Integrated Framework and Trade Sector-Wide Approach for Trust Fund financed by the European Commission and Laos. Australian Government and administered by the WB. The TDF is the first stage of efforts to build a Sector-Wide Approach in What are the objectives of the GoL program on trade trade-related assistance to the Lao PDR, and is implemented by under the National Integrated Framework Governance the National Implementation Unit in the Ministry of Industry Structure? and Commerce. The US$6.8 million funding will be used to The main objectives of the Integrated Framework (IF) are to support the GoL through investments, capacity building and develop a more simplified trading environment, improve the regulatory reform across trade facilitation, sanitary and legal and regulatory framework, enhance the capacity of line phytosanitary standards (SPS), export competitiveness, and ministries involved in trade, improve the private sector’s trade policy (which includes support of the World Trade capacity to compete in the international market, and participate Organization accession process- see page 3) more effectively in bilateral and regional negotiations. The US$6 million funding for the Customs and Trade Facilitation Project is provided by the World Bank’s With Compliments International Development Association (IDA). The aim of the grant, which is being implemented by the Lao Customs Attn: Department, is to upgrade and modernize the Lao customs processes and will include the installation of a computerized ASYCUDA (Automated Systems for Customs Data Management) system and will include equipment, customization, installation and training. Page 2 http://www.worldbank.org/lao July-August 2009 << CONTINUED FROM LAST PAGE Why is it important to move towards a sector-wide What do you think will be the impact of Laos becoming approach in trade? more integrated into the regional and international Using a sector-wide approach (SWAp) is a way of reducing the economy? costs involved in working with multiple donors to deliver trade We will see an improvement in business with more related aid. Under this scheme, donors work with a single competition, greater export competitiveness and more government-led program which streamlines the coordination investment, revenues from exports and services coming into process, eliminates overlaps and gaps, and ensures that our the country. Another important impact will be greater trade priorities are met. We would like to convince other opportunities to improve human capacity, knowledge and skills development partners to join our sector-wide approach to in our country. << mainstream the National Development Plan. How is the World Bank contributing towards this process? The WB is one of the six core agencies involved in formulating the Integrated Framework process that we are using to implement projects today. The WB was selected to act as trust fund manager in administering the Trade Development Facility, and continues to work closely with us by providing technical and financial assistance. Staff members from the National Implementation Unit Cross-border Agribusiness Cross- The Product Space A S Scoping Study on Cross-border Agribusiness in Lao PDR: taff from the World Bank are currently applying the Focus on Champasack Province was recently undertaken to “product space” methodology to Lao export data as understand the dynamic nature of agricultural commodity a means of assessing long-run trends of export trading in southern Lao PDR. The study focused on the alignment diversification. The product space is a map of world trade between trade, investment, and agricultural development in where each node represents trade in a given product. By Champasack Province, and the market pull factor of Ubon comparing the map of a country’s export products with Ratchathani Province, Thailand. Cross-border trade has expanded world trade flows, one can investigate the current value from US$2.4 million in 2005, to US$9.2 million in 2008. A program and growth potential of the national export basket. initiated by the Thai Government in 2004 Export products located towards the centre of the product provided the basis for trade expansion by space tend to demonstrate higher income earned and applying a zero tariff rate on imports to have more linkages with other products (and therefore Thailand of selected food and agricultural more opportunities for a country to diversify). Preliminary products produced under contract farming evidence suggests that the Lao export basket is arrangements and specified in an annual comparatively unsophisticated and dominated by Memorandum of Understanding (MOU) be- products with low value addition and few linkages to tween officials from Champasack and Ubon products with higher value addition. More importantly, the Ratchathani provinces, and agribusiness country does not appear to be catching up with regional enterprises.<< neighbors in terms of the sophistication of its export basket. Hence a key World Bank Events conclusion is that it 8 September is essential for the Lao PDR to InfoSpace Launching Ceremony, Central Library, National University of Laos accelerate investment climate 9 September reforms as a means 5th Poverty Reduction Support (PRSO 5) of reducing costs Signing Ceremony and raising returns Launch of “Doing Business 2010” to the export 14-15 September discovery and the Lao exports tend to be distributed around the survival process for periphery of the product space, where income 6th Poverty Reduction Support (PRSO 6) Re- non-natural resource is lower and where there are fewer linkages treat and Wrap Up, Lao Plaza and opportunities to move into higher value based products. << products 15 September High Level Dialogue Between the GoL and Development Partners on the Responses to the Global Financial Crisis Further information, including the full analytical paper, is Launch of “World Development Report 2010” available from the World Bank Office in Vientiane. July-August 2009 http://www.worldbank.org/lao Page 3 World Trade Organization Accession S ince 1997, the Government of Laos years we have shifted the focus from (GoL) has been seeking to join the explaining the foreign trade regime to World Trade Organization (WTO). implementation of legislative reforms for The WTO is a global body where the compliance with WTO principles which rules for trade between nations are ne- exhibits the seriousness and credibility of Some members of the WTO accession team the GOL to further integrate into the gotiated and agreed. For the Lao PDR, global trading system”. He further added accession to the 153-member continue to explain our trade regime to organization requires agreement with “This process takes time and WP members that need verification on countries represented in the Working understanding, but we believe it will be trade related issues. It is important to good for our country to build a nation push forward the legislative review and Party (WP) on access to goods and governed by the rule of law”. reform process. Progress is required on services. Once consensus has been What was achieved at the recent 5th amending rules of origin, and reached with all 59 WP members, a Working Party (WP) negotiations in implementing previously adopted laws on report along with the schedules of standardization, customs, taxes and in- commitments will be submitted to the Geneva? tellectual property. The campaign to WTO Ministerial Conference or General Leading up to the WP meeting this year inform the public and private sector will Council by the WP recommending that progress was made on legislative be expanded. There is a need to improve Laos be admitted as a member. To date reforms. A new Law on Livestock our business practice and to be more Laos has completed five such meetings. Production and Veterinary as well as Law aggressive in terms of exporting. It’s on Plant Protection were adopted in important that we don’t rush the process The most recent WP took place on July 2008. The Presidential Decree on Fees and make unrealistic commitments, if WP 14, 2009 in Geneva. and Charges was amended. A new members are flexible we could join the Mr Buavanh Vilavong, Director of the National Food Safety Policy has been WTO next year or it could be 2020, we Multilateral Trade Policy Division, Ministry adopted as well as Decree on Import have to do what is best for our country. of Industry and Commerce explains the Licensing. A new Investment Law was The sixth WP meeting is planned to be process and current status of adopted by the National Assembly. A held early next year. negotiations. draft Decree on Rules-of-Origin is in the final stages of preparation. What do you think will be the What is the latest position on plans impact of Laos joining the WTO? by the Lao PDR to accede to the With substantial progress and willingness WTO? to move forwards, the GoL has received The benefits of joining the WTO, will be the green light from WP members to increased opportunities for economic Laos applied to join WTO in 1997, the growth, income, employment and begin drafting the elements of the WP same year it was admitted to the investment. Our trade rules and report. Likewise, Laos concluded bilateral Association of Southeast Asian Nations regulations will be more transparent and agreements with China and with the EC (ASEAN). Since then we have been business-friendly so private enterprise on goods last year. Laos hopes to preparing responses and action plans on will flourish, with more competition in the conclude bilateral deals with a few more Customs Valuation (CV), food safety, market. For example, recent changes to members prior to next WP. animal and plant health (Sanitary and the banking sector have resulted in more Phytosanitary measures or SPS), What are the next steps and when commercial banks investing in Laos Technical Barriers to Trade (TBT), and do you think Laos will formally join which leads to improved access to Trade-related Aspects of Intellectual the WTO? finance and formal lending, and has Property Rights (TRIPS). The GoL has Our progress depends on the extent to provided increased employment also implemented reforms such as which we bring the trade sector into opportunities for Lao people. We can reviewing and amending trade and in- compliance with WTO Agreements. Our learn from our neighbors, China and vestment related laws and regulations accession must be facilitated through Vietnam, who have successfully joined that don’t comply with WTO rules. simplified and streamlined procedures the WTO and enjoyed fast-growing The negotiation process is accelerating including market access, rules, process, economies. We need to shift the position as the GoL introduces a series of new and trade-related technical assistance of Laos from being a landlocked country laws and regulations. “Over the last few and capacity building. We need to to a ‘land-linked country’.<< Time Release Study A component of the Customs and Trade Facilitation goods and measuring the time required for each intervening Project is the Time Release Study. The purpose of the event until they are released. The baseline data from the study study is to measure the time between the arrival and will then be used to determine the efficiency of customs release of goods across the Lao border and examine the clearance and streamline the process. The expected outcomes procedures and agencies involved. The study will be conducted include; a reduction in the duplication of forms, reduced time during September-October and will involve collecting data at (for goods to clear customs) and improved system of border posts using a detailed questionnaire and following information sharing amongst agencies.<< Page 4 http://www.worldbank.org/lao July-August 2009 Poor Sanitation Costs Lao PDR 5.6% of GDP Annually T he Economic Impacts of Sanitation Sanitation is a neglected aspect of makers: study shows that Lao PDR lost an development. Without information on the 1) give greater priority to investments in estimated 5.6% of gross domestic link between sanitation and economic sanitation and hygiene promotion; product, or LAK 1.9 trillion (US$ 193 mil- development, it is not surprising that 2) target investments to the rural lion) annually, due to poor sanitation and sanitation is sidelined. To help raise the un-served as well as to the urban poor; hygiene. This sum is equivalent to LAK profile of sanitation, the World Bank’s 3) strengthen promotion and information 346,000 (USD$ 34.4) per person per Water and Sanitation Program (WSP) in campaigns to improve personal hygiene year. Of the impacts evaluated in the East Asia and the Pacific region is leading practices, focusing on hand washing with study, health contributes 60% to total the Economics of Sanitation Initiative soap; and economic costs, followed by 18% for (ESI) to compile existing data sets and to 4) improve monitoring and evaluation of accessing clean drinking water, 13% for generate new evidence on socio- the impact of improved sanitation additional time to access unimproved economic aspects of sanitation. The options in Lao PDR. sanitation, and 9% due to tourism ultimate aim of the ESI is to assist The first activity of the ESI which was losses. decision-makers at various levels to conducted in collaboration with the make informed choices on sanitation Poor sanitation, including hygiene, National Economic Research Institute policies and resource allocations. The causes at least 3 million disease episodes (NERI), Ministry of Planning and initiative covers five countries: and 6 thousand premature deaths Investment, is a study to estimate the Cambodia, Indonesia, Lao PDR, the annually. The resulting economic impact national impacts of poor sanitation on Philippines, and Vietnam. is more than LAK 1.1 trillion (US$ 115 Lao PDR’s economy. As a follow-up on million) per year. Poor sanitation also The study shows that Lao PDR has made the first ESI activity, the second ESI contributes significantly to water good progress towards the United study has commenced in 2009: the pollution, adding to the cost of Nations Millennium Development Goals ‘sanitation options study’ that examines households accessing safe and clean (MDG) to halve by 2015 the proportion the costs and benefits of sanitation water supplies. The associated economic of people without sustainable access to improvement options and management costs of polluted water attributed to poor safe drinking water and basic sanitation, approaches in a range of rural and urban sanitation exceed LAK 350 billion (US$ if efforts to increase sanitation coverage settings in each of six countries, 35 million) per year. This excludes compete with population growth, which Cambodia, China (Yunnan), Indonesia, accessing clean water for non-drinking stands at an estimated 2.3 % per Lao PDR, the Philippines, and Vietnam. purposes and loss of productive value for annum. At this rate, an additional The Water and Sanitation Program fisheries and agriculture due to polluted 130,000 Laotians will require improved (WSP) is a global donor-funded program water. Poor sanitation also contributes sanitation facilities every year from 2006 administered by the World Bank.<< LAK 250 billion (US$ 25 million) losses until 2015, thus adding to the 3.1 million per year due to additional time required people currently living without improved Contacts: to access unimproved sanitation, and sanitation. Dr. Guy Hutton, Senior Water and possibly over LAK 150 billion (US$ 17 To avert the financial and economic Sanitation Economist, WSP-EAP, million) per year in tourism losses. losses, it is recommended that decision- E-mail: ghutton@worldbank.org Mr. Viengsamay Vongkhamsao, Country Team Leader, WSP, Lao Country Office, E-mail: vvongkhamsao@worldbank.org Ms. Dalaphone Sihanath, Communica- tions Associate, WSP, Lao Country Office, E-mail: dsihanath@worldbank.org For more information about the World Bank in Laos, please contact: Viengsamay Srithirath Email: vsrithirath@worldbank.org Souridahak Sakonhninhom Email: ssakonhninhom@worldbank.org Website: http://www.worldbank.org/lao Editor: Sue Pretty