The year is 1998. In the impoverished countryside of of young, well-educated Lao nationals as they Lao PDR, farmers eke out livelihoods at subsistence return from their studies abroad. Having been levels. On the dusty streets of the sleepy capital, largely segregated from the international trade Vientiane, infrastructure and industry are only landscape for so long, the concept of private sector nascent concepts, with the first major bridge to development remains somewhat taboo. Yet, foreign the booming Thai economy having been completed firms are now investing heavily in natural resource just four years prior. The communist old guard exploitation. And in response, budding cooperation has given way to just over a decade of minimal and coordination with international development experimentation with decentralized open markets partners on trade issues begins to climb the and private enterprise. The country is still not well government agenda. Accession to the World Trade integrated into the regional and global economy. Organization (WTO) is deemed a priority. And in a By all accounts, it is among the poorest in the move to further stimulate trade policy reform and world. With nearly 40 percent of the population trade facilitation, Australia and the European Union living below the international poverty line, it is donate nearly $8 million to a new multi-donor trust designated a Least Developed Country (LDC) fund to be administered by the World Bank. by all international indicators, and the ongoing Asian financial crisis is only making matters more In 2015, Lao PDR is virtually unrecognizable from complicated. what it was just a decade ago. A more open, more outward trade landscape has transformed Fast forward to 2006. While little has changed in the country from a closed-off backwater into a the countryside, the gradual shift toward openness fast-growing developing country—complete with is starting to bear fruit. City streets are beginning coffee shops, restaurants, and billboards lining to buzz with activity. Tourists are arriving in ever the streets of what is now a much busier and larger numbers. And for the first time in generations, more lively Vientiane. Rural-urban migration is the country welcomes home a growing number underway as non-agricultural opportunities are on 3 the rise. Importers and exporters are experiencing an increasing level of government transparency. Customs operations are nearly fully automated and border clearance times have been drastically reduced. As a crowning achievement—and after 15 years of negotiations—Lao PDR is now a member of the WTO, with its eyes set on establishing itself as an equal partner in the ASEAN Economic Community (AEC). The situation has improved to such an extent that the country has become a model for other LDCs undertaking trade reform. Optimism is in the air, and reformers know that having come so far there is still a tremendous amount to be done. Within the context of a complex and largely incomplete transition from a planned to a market economy, the strides taken by the Lao government in the relatively niche area of trade policy reform and trade facilitation merit attention. In particular, the political will and commitment to press for trade reforms in such a low capacity environment have resulted in a string of successes that are well-documented by departments within the Lao government and by their donor counterparts. And yet, outside these circles, this string of successes is not well known. The country still has many visceral challenges to overcome. Trade reform is much less visible, quite often not a front-page story, and rarely capable of changing people’s fortunes overnight. Rather, it is a process of deliberate, subtle changes that over time provide the atmosphere for a country to bloom— and Lao PDR is blooming. Understanding the scope and scale of reform that has occurred in order for the country to reach this point is not always easy. Without looking back over the last few years, without peering deeper into the structures that have changed—it is possible to miss just how remarkable this story truly is. 4 The origins of trade reform in Lao PDR As the only landlocked country in Southeast Asia, was unwilling to embark on private sector and Lao PDR has long faced significant barriers to trade reform. Rather, it lacked clarity at both trade. Since carrying out its first outward-looking government and institutional levels as to which economic reforms in 1986, trade with the outside reforms should be undertaken and what they world has mostly been a one-way street: imports. might entail. The very prospect of pushing the low- For years, the country has had a weak regulatory capacity bureaucratic machine into action was framework, lacked proper infrastructure, and daunting, even for reform champions within the offered a very poor investment climate. Domestic government who were committed to furthering the producers have faced unknown or unclear export trade and competitiveness agenda. procedures, paper-based and obsolete customs operations, and a level of cooperation between As a bid to jumpstart the reform process, the government agencies on trade-related matters government made accession to the WTO a top that as recently as the mid-2000s was almost priority. The goal was to modernize, and the WTO nonexistent. This has resulted in an inability to path infused every reform initiative undertaken plug into regional supply chains and has limited by the government with a sense of justified potential economic growth. legitimacy. Having accession as a tangible goal led to stakeholder buy-in and positively influenced the Nevertheless, Lao PDR’s location in the heart of degree to which reform efforts would later succeed. Southeast Asia and its political commitment to While institutional commitment to reform varied continue the economic liberalization process made at times, consensus among policymakers on the the country well positioned to experience gains need for modernization and to be seen as an equal from trade reform. It was not that the country partner among regional and international bodies 5 allowed WTO, and later ASEAN, commitments to procurement procedures institutionalized, and be used as a lever for regulatory reform. other line ministries crucial for WTO accession identified. For example, cooperation from the The country’s struggles and inefficiencies in the Ministries of Agriculture and Finance would be vital trade arena throughout the nineties and early in making many of the country’s regulations WTO- 2000s made it a prime candidate to benefit from compliant, but coordination was extremely difficult the Integrated Framework (IF) process, a WTO given the differing incentives and lack of historical program designed to help LDCs more actively cooperation between the agencies. Similarly, an participate in the global multilateral trading NIU had to be created and staffed from scratch, system. In 2004, the Lao Government began forcing the MoIC to overhaul its institutional that process in earnest under the stewardship of structure and juggle the politics of embedding Australia and other development partners. This technical assistance from abroad therein. compelled the Government—in collaboration with donor partners—to coordinate its trade-related Nevertheless, the process drove forward, buoyed line ministries, compile documents, and conduct by the strong mandate from the highest levels studies toward the completion of a Diagnostic of government. Step by step, as progress was Trade Integration Study (DTIS) being carried made, the MoIC grew increasingly confident in its out by the World Bank. The goal was to identify own capacity and in the continued financial and constraints on competitiveness, supply chain technical support from development partners who weaknesses, and sectors with high growth and remained engaged in the process. export potential in Lao PDR. The IF process also prescribed mainstreaming trade into the country’s Two years later, in 2006, the Government’s national development plan and establishing a efforts reached a turning point. Firstly, the DTIS national implementation unit (NIU) to oversee the was completed and validated, which strongly reforms. The engagement marked the cultivation emphasized the need to increase competitiveness, of the earliest relationships between government as well as deepen international and regional reformers and donor counterparts on trade issues, integration. The DTIS identified priority areas which included the creation of a World Bank upon which to concentrate external trade-related financed Customs and Trade Facilitation project technical assistance, as well as laid the foundation in the Ministry of Finance (MoF)—each of which for better management of Official Development helped cement the foundation of future reform. Assistance (ODA) in the trade sector. Secondly, a multi-donor trust fund known as the Trade Still, the early days of the IF process presented Development Facility (TDF) was established a considerable challenge for the Government. as a financing mechanism to implement the By the admission of leaders in the Ministry of recommendations of the DTIS. Australia and the Industry and Commerce (MoIC), in particular European Union committed resources of AUD the Director-General of the Foreign Trade Policy 3.05 million and EUR 4.2 million, respectively. The Department who oversaw the process, the IF’s World Bank—which had contributed country-level many requirements and stipulations caused analytical work in the preparation of the DTIS stress within the Government. The MoIC was a and which had its existing Customs and Trade low capacity environment in those days, lacking Facilitation lending project underway with the the technical expertise and experience to navigate MoF—acted as administrator for the MDTF, as well such a program, and inexperienced in working as contributed its own resources to supervise the with outside organizations given its closed past. project. Relevant stakeholders had to be convened, 6 Promoting the trade facilitation agenda Trade facilitation was singled out both as a priority Leadership of the NTFS was split between two area in the DTIS as well as a major component of ministries, with the Vice-Minister of the MoIC the TDF project. Three very tangible goals quickly and the Head of Customs acting as chair and became apparent to both donors and the Lao deputy-chair, respectively. In addition, the TDF Government: the need for a strategy; the need financed local consultants to serve in the NTFS for a permanent national body to coordinate as facilitators for the private sector. Given that the activities of different agencies; and finally, various leaders and heads of associations had their the need for a deliverable, something that could own business-related affairs to see to and could visibly demonstrate to the trading community not attend endless government meetings, these that the Government was in fact interested in facilitators helped to identify and prioritize private facilitating trade. The World Bank was particularly sector issues and bring them to the table. The active in helping to conceptualize and implement NTFS was a major factor in improving government these goals, beginning with the development of a coordination. It brought all stakeholders together National Trade Facilitation Strategy, which had under one umbrella in an unprecedented manner, to be agreed upon not just by the MoIC, but by all and its creation represented a major milestone in relevant agencies. the evolution of Lao trade reforms. Furthermore, the power share at the top has continued to serve Even after finalizing the Strategy, the emerging as a symbolic nod to the body’s esprit de corps and champions of the trade agenda knew there would be collaborative ambition. no other way to achieve their goals or to implement other accession-related reforms without bringing the relevant line agencies together in the form of a National Trade Facilitation Secretariat (NTFS). They also knew they would have to bring agencies onboard that either wouldn’t understand the reform efforts or would put up resistance. To deliver on the Strategy, the forum provided by the NTFS was needed for issues to be discussed, consensus reached, and decisions taken. Eventually, hesitant ministries saw mutual gains could be borne out of the process. Lao political culture had long dictated that if the objective was big, included concrete steps, and was understood by everybody to be a positive—as was rightfully the case with WTO accession—the agencies would coordinate and cooperate at the end of the day. 8 “ The situation has improved a lot ” in terms of coordination Atsaphangthong Siphandone, Director-General of Customs, on the impact of the NTFS The Lao Trade Portal pushes into new territory For further progress to be made, the Government That solution lay in an online portal where all rules, needed to take a full account of existing trade law. regulations, procedures, and fees could be indexed, At the time, hundreds of contradictory regulations, cross-referenced, and searched by commodity forms, and procedures related to trade existed code for the benefit of all. Such a portal would within the Government, making information institutionalize procedures for traders and lay on business processes highly difficult to obtain. to bed any doubts regarding which forms and Private sector representatives in the NTFS were payments were lawful and which were erroneous. It making it clear that the lack of transparency and could also be used as a very effective vehicle to build predictability surrounding regulations was a major consensus and cooperation between government investment climate constraint. Transactions had to agencies. be done face-to-face, and informal channels and payments were the norm. Any given government The online portal solution was at once extremely official in Lao PDR could claim the necessity of a useful and relatively non-threatening to government, certain form, payment, or task in order to process as it required nothing of them other than to provide a procedure, with little recourse for traders who had information. But in reality, information on trade no way of knowing or proving that such red tape regulations and procedures was neither structured was truly law. Similarly, many well-intentioned nor systematically documented or maintained government officials themselves did not know within the Government. In some cases, certain which rules to apply in certain situations. The laws and regulations simply did not exist. This had Government needed a solution. created an environment favorable to rent-seeking. 10 A portal could provide the transparency necessary trading community to make use of the portal to shine a light on such practices, but would first remains an ongoing challenge, the site has still require a much fuller understanding of the systems received over 406,000 visits, with an average of in place. Making the portal a reality would require more than 500 visits per day. a broad scope, one that would require changes in governance, operational models, and technical architecture. The exercise began in mid-summer 2011, immediately disrupting the status quo. Ministries with contradicting regulations were forced to reconcile inconsistencies in a massive streamlining effort. This ensured that only final, polished versions of regulations were posted on the portal. For procedures that had previously been either unformalized or nonexistent, new protocols were created. In effect, the project quickly became one not just of aggregating information, but also of creating information, with anything posted on the portal representing the utmost legitimacy for government and traders alike. The Lao Trade Portal (LTP) was officially launched on June 22, 2012, twelve months after the start of the project. The portal offers extensive instructions to traders in Lao and English, and allows them to target queries to specific government agencies. Since its inception, the LTP has increased voluntary compliance amongst traders, by significantly reducing the amount of time needed to track down accurate information, as well as reducing the likelihood that they follow inaccurate procedures or incorrectly interpret laws and regulations. Traders no longer have to make multiple trips to government ministries to complete a transaction. The LTP has been instrumental in helping Lao PDR comply with WTO and ASEAN commitments that require member countries to make their trade- related regulations publicly available and easily accessible. The NTFS has instituted a network of contact points within each agency to monitor changes in laws, regulations, or procedures and ensure they are reflected on the portal in a timely and accurate manner. Although encouraging the 11 Customs reforms Official customs law has been formalized in Lao PDR procedures, by early 2015 ASYCUDA was being since 1994, and improved over time to incorporate used at 22 customs checkpoints nationwide. international conventions and practices. Spurred The training of all customs officers has now been by close collaboration with the World Bank on completed, and mechanisms are in place to send a customs-specific project that predated the any new departmental procedures, instructions, TDF, the country had become a member of or manuals to on-duty officers, as well as publish the World Customs Organization by 2005. In them on the Customs Department’s website. the wake of the TDF, the country subsequently The Department also sends inspectors to check made a stronger push toward full centralization the performance of officers on a quarterly basis. of customs operations in accordance with the Customs officers have proven up to the challenge conditions of membership in the WTO and the of implementing the new, more transparent AEC. The backbone of this centralization was the system as cross-border trade procedures have adoption of the Automated System for Customs become more routine and more efficient. According Data (ASYCUDA), part of a two-pronged customs to the current Director-General of Customs, the modernization strategy to automate procedures improved capacity of customs officers and their and build the capacity of customs officials. improved ability to utilize technology in customs administration has been the “most outstanding Automation of customs now covers 95 percent achievement” of the reform process. of trade in Lao PDR. After a lengthy process to completely abolish all manual and paper-based 12 The customs modernization strategy also covers Lao PDR’s impending AEC commitments, requiring a review, and in many cases revision, of all laws. This is now a top priority of the department. By negotiating certain conditions to facilitate trade in the context of ASEAN, the Lao Government has begun a fruitful dialogue with regional partners, including helpful feedback on its own lingering customs inefficiencies. Nevertheless, the country’s simplifications of customs regulations and procedures, its reductions in the share of cargo subject to physical inspection, and its fewer processes and faster clearances (from a mean clearance time of 17.9 hours in 2009 to 11.2 hours in 2012) have made it a welcome partner at the ASEAN negotiating table. 13 Addressing labour needs in manufacturing Garment Skills Development Centre In Lao PDR, economic growth is booming due to labor productivity is one of the biggest reasons for natural resource exploitation, which according to this shortfall, due partially to a shortage of semi- the World Bank’s Investment Climate Assessment1 skilled workers and a high labor turnover rate on the provides limited potential in terms of generating one hand, and lack of modern technology, logistics increased employment. Conversely, the garment services, and human resources on the other. Basic manufacturing sector, which is the country’s training remains in-house and rudimentary at largest non-resource sector, represents one the entry level, and virtually non-existent at the of the few industries in which meaningful and supervisor and managerial levels. plentiful jobs can be created, especially for workers migrating from rural areas. Labor accounts for 20 Under the broader context of WTO accession and percent of garment production costs on average its growing portfolio of trade reforms financed and is the only homegrown, non-imported input in under the TDF, the MoIC decided to team up with the entire sector. the Association of Lao Garment Industries in 2011 to establish the Garment Skills Development Centre Yet despite preferential trade access to the (GSC). The GSC develops and delivers demand- European Union and United States, the Lao driven, fee-based training services, consulting, and garment industry has struggled to compete with coaching to garment manufacturers. The courses more seasoned exporters in countries such as were originally intended to target supervisors with neighboring Cambodia and Vietnam. Stagnant the goal of improving management. However, the 1 http://documents.worldbank.org/curated/en/2014/12/23884202/investment-climate-assessment-2014-policy- uncertainty-midst-natural-resources-boom-vol-2-main-report 14 modular curriculum, adapted from a similar facility employee training, the GSC is beginning to make its in Indonesia, provides lessons and training to boost mark. Early impact evaluation of training services productivity in a number of positions, including delivered on-site for supervisory skills in the factory topics such as line leading, quality management, has shown an average 18 percent increase in daily leadership, and motivational skills. Although only productivity among targeted production lines. a limited number of firms are willing to pay for 15 Sustainability: Lao Government takes the reins In 2011, the Lao Government released its 7th However, with support from the Ministry of National Socio-Economic Development Plan Planning and Investment and funding from the (NSEDP), setting the country on a course to from the Enhanced Integrated Framework (EIF), the graduate from LDC status by 2020. With the MoIC produced a completely updated, analytically country on the verge of WTO accession at the time, robust study in 2012 that would once again serve increased international integration remained an as the guide for all aid-for-trade programs in Lao explicit focus of the Plan. Yet, there were concerns. PDR. This second DTIS included a clearer vision The economy was growing, but also growing less and a more granular analysis of private sector diverse. Exports were on the rise, but the types of and investment problems that had emerged while products were limited and reaching only a small set meeting the goals of its predecessor. of destinations. The concern over resource-driven growth decreasing the competitiveness of non- The new DTIS quickly became the basis of resource exports was palpable in trade circles and a new roadmap, or action matrix, known as in the higher seats of government. the Programme for Trade and Private Sector Development. The Programme would work towards Facing these challenges, and recognizing the need alleviating the concerns of the Government in to truly dig in and set the roots of trade reform, meeting its trade-related goals under the National the MoIC made the unprecedented decision to Socio-Economic Plan, ensuring the country would conduct its own DTIS—something never before become a modern and diversified economy capable accomplished "in house" by an LDC government. of leaving behind its days as an LDC once and for all. 16 It also presented further proof of the Government’s to meet development goals, and to the increasing capacity and capability, just how far it had come in confidence of donors in the capacity of the Lao a matter of just a few years, and how much further government. it could go with the continued support of its donor partners. TDF-2 is now in place and operational. It is funded by a World Bank/International Development Cognizant that projects aligned with government Association (IDA) grant of US$4 million, as well priorities had the strongest chance of continued as another MDTF grant of US$10 million in government action, these developments opened contributions from Australia, the European Union, another window of opportunity for the World Bank Germany, Ireland, and the United States. Like and the donor community. The World Bank saw this its predecessor, the TDF-2 has been designed as a critical moment to cement its commitment to support the implementation of trade and to the Government’s agenda on trade and regional integration priorities outlined in the Updated 2012 integration, drawing up plans for a new, second DTIS. But just as the DTIS had evolved to meet new Trade Development Facility project (TDF-2). This challenges, so too has the TDF-2: its key intent is time, however, the pool of willing donors had to now progressively shift from a pre- to a post- grown to include the German, Irish, and American WTO accession agenda, and this requires a clear, international aid agencies—a testament to both coherent, and coordinated approach. the success of the original TDF-1 in leveraging trade 17 The second TDF project sets its sights on the private sector TDF-2 has three components, each aimed at designed to help enterprises develop more robust contributing to improved competitiveness and business growth plans. Thirty-five grants totaling diversification beyond the natural resource roughly US$220 thousand had been approved sectors. It is buoyed by a strong awareness within as of November 2014, well ahead of the target government that, despite all the successes of the for approvals for the first year of grants. The first TDF and the reforms related to WTO accession, majority of proposals thus far have come from there are still monumental challenges for improving tourism, hospitality, and garment manufacturing the investment climate. To that end, a new series of enterprises based in Vientiane. Yet there are still activities aims to ensure that firms, entrepreneurs, plenty of positives to take-away, especially the employees, and consumers in Lao PDR are the fact that over a quarter of BAF grant approvals are ultimate beneficiaries of a more transparent and for female-owned businesses. predictable business environment. Activities will aim to improve productivity, skills, and standards. In addition, TDF-2 will use pilot programs like the They will aim to enhance the capacity of small- DTIS Challenge Facility to further sharpen the and medium-sized enterprises to participate in technical skills within the NIU and the MoIC on the global economy. And they will aim to support private sector development and programmatic women’s economic empowerment. reform. Establishing a fully program-based approach will be a tremendous challenge for the One such new mechanism for facilitating implementation team. Meeting it will require diversification and competitiveness within continued and deepened investment in capacity the private sector is the Business Assistance development within the MoIC, Facility (BAF). BAF is a grant-matching program 18 “ At the end of the day, we need to show that without raising competitiveness we can’t get ” to where we want to go Khemmani Pholsena, Minister of Industry and Commerce What can other client countries learn from the Lao trade program? In the case of the Lao trade program, the ownership of the process lay squarely on the shoulders of the MoIC. The core people working on the program came from within the Ministry, creating a culture not of outside people spending outside money with outside intentions, but rather of the Government implementing its own program with donors supporting them in that process. Thus, other LDCs can learn a lot from the experiences in Lao PDR, not by being told simply to “take ownership”, but by understanding the capacity building elements at the more granular and pragmatic level that helped foster country ownership. Increasing capacity is a component of every development strategy, but with regard to trade reform in Lao PDR, it was truly effective. Why? 20 Leadership can be learned The Lao trade program benefited from a At home, the IF process played a similar role. progressive leadership style: on the one hand a By fostering critical intra-ministry dialogue, hands-off Minister of Industry and Commerce, information sharing, and coordination, it marked the Dr. Nam Viyaket, with full confidence in his team beginning of staff learning within the government. to carry out the work, and on the other a very Cooperation was in line with the WTO accession untraditional, very open-minded Deputy Minister mandate. If one ministry’s views or proposals were in Madame Khemmani who drove the process. at odds with another’s, they had to be reconciled The latter, who later became minister herself, has out of political necessity. This back-and-forth been complemented in her efforts by a swelling environment spawned the emergence of individuals group of young leaders that have grown under with the social, tactical, and progressive influence her tutelage to assume high-ranking positions. to overcome deadlock. After WTO accession would What is now a respected network of national trade ultimately be achieved, it would be the journey experts initially began as a group with limited that began here—with the increased coordination technical capabilities and foreign language skills, a and development of new leaders more so than the tremendous accomplishment in its own right. destination of WTO accession itself—that would be viewed as the most valuable consequence of Learning-by-doing was the primary vehicle embarking on the process. through which this team was empowered to lead. Exposure, especially through informal channels Nowhere has the increase in government capacity of communication and cooperation both within manifested itself more than in the NIU, the core the government and with external partners, was unit responsible for managing aid-for-trade pivotal in constructing the capacity of individuals resources in Lao PDR. The NIU began as a very that would go on to become trade champions in small, relatively inexperienced team that, after the MoIC. Representatives at the Lao mission to five years of implementing the TDF, has grown the WTO in Geneva, for example, worked with staff into a highly capable, ambitious, and motivated from other missions, and often exchanged views group. Its successful in-house completion of the in largely informal settings. Not only were they 2012 DTIS update was a particularly outstanding able to observe the way negotiations unfolded for achievement, to go along with its increasing their peers, but they also got to know one another, procurement portfolio. The growth of its leaders explained difficulties, listened to one another, and is largely attributable to the early tolerance within shared information before formal meetings. These the MoIC for risk-taking and trial-and-error, observations and learning experiences prepared without which the NIU would have ended before it Lao representatives for their own bilateral talks began. That faith in the team paved the way for and, in a sense, made them feel like they belonged the creation of the NIU’s well-developed planning on the international stage. process, which ultimately served as the backbone of the TDF-2. 22 “ We are committed to our ” organization. Banesaty Thephavong, Director-General, Department of Imports and Exports Empowering youth mobilizes implementation In a government consisting of many employees its position within the hierarchy of power, and from an older generation educated under a different carrying out its mandate were processes carrying paradigm, MoIC leadership saw talent in a younger significant risk. These were, quite frankly, often generation. Contrary to conventional custom in make-or-break decisions for someone at that point Lao PDR at the time, they focused more on merit in his career. His willingness to take those risks and and talent than on years of service in their hiring his ability to see them through, however, spoke to practices. They placed young, competent people in the confidence of the MoIC in Mr. Phouvieng. But, key positions. This younger generation embraced perhaps more importantly, it illustrated how this new challenges. Many had studied overseas at a younger generation of Lao professionals saw not postgraduate level or higher, and they channeled obligation, but opportunity in government. their ambition into mobilizing, driving, and implementing the trade reform process. The commitment to empowering young staff also manifested itself in chances to travel and Mme Khemmani advocated heavily for her staff— enrich the personal and professional lives of young and in particular the NIU—to think through reform employees. Training and exchange opportunities efforts comprehensively, challenging them to in Manila, Singapore, Geneva, Washington, and convince her that a given path was the right one. beyond—often made possible via TDF funding— She showed little hesitation to ask questions or to significantly broadened the horizons of young test the validity of propositions she agreed with in staff. They returned to their institutions with new principle by putting forward opposing arguments, insights, often providing pathways to progress and the process was not without significant on existing challenges. This continuing education hiccups. Mme Khemmani harkens back to an wasn’t seen as a perk of the job, but as a major asset old adage from Ho Chi Minh in her progressive to valuable members in a budding meritocracy. approach to human resources: “To reap a return This phenomenon, at least partially, explains the in ten years, plant trees. To reap a return in 100, somewhat remarkable lack of a brain drain among cultivate the people.” Thus, her young staff was young Lao professionals in government. given real responsibilities from an early stage. The man charged with building and leading the newly minted NIU, Mr. Phouvieng Phongsa, is an example of reaping these rewards. A fresh-faced young employee, Mr. Phouvieng was barely off the plane from a recently completed scholarship stint in Australia when he was put in charge of spearheading what was, in essence, an empty vessel at the time. Assembling his team, establishing 25 An effective institutional structure is important, but don’t wait for the perfect solution Since embarking on the IF process a decade how to best restructure government institutions. ago, the institutional structures of governance The structure had to be tweaked many times to encompassing trade and competitiveness in Lao account for evolving government staffing needs, PDR have evolved to meet new realities. While many shifting priorities, and practicality considerations. important cogs within the bureaucracy remain The tree of new institutions that has grown firmly and appropriately in place, the pathway to as a result now consists of a web of technical reform has been littered with iteration after iteration recommendations, advisory support, and approval of organizational charts and workflow matrices. processes that are natural candidates for regular Generally speaking, these charts document the ebb and flow. It is a system that works effectively hierarchical relationship between the various levels within this specific context—one that was flexible of coordination in the institutional structure, from enough to grow and adapt, and yet firm enough to national policy formulation at the top to technical develop a reputation for effectiveness. supervision and implementation at the bottom. More importantly, however, is what the networks of The MoIC’s newly formed Department of Planning people within the NIU, the DPC, and the MoIC more and Cooperation (DPC), within which the NIU is now broadly, were able to achieve during this process housed, has played a particularly active and central of experimentation. An effective institutional role in redrawing organigrams as necessary. As structure is important, certainly. In Lao PDR, the its capacity grew, it was instrumental in drafting marriage of a defined political agenda and the proposals—many of them politically sensitive—for need for a fundamental reshaping of institutional 26 structures provided a suitable enough setting for success. But all of this realignment would have been meaningless were it not for the social and “ They would have to think of which ministry or minister truly understands the horizontal relationships at the personal level— importance of trade. He or she should be the the literal human capacity—that coalesced to one to talk to the higher authorities within deliver results in an often convoluted governing government and convey its importance. environment. Institutions matter, but so do people, They themselves have to know how to set and people are likely to mobilize support and up the reform mechanism, but it is not improvise solutions long before institutions can necessarily like in Laos. Maybe what works be molded in a way that resembles anything near in Laos doesn’t work elsewhere. It depends perfection. on their culture. They have to understand their own people, their own line ministries, While many of the positive experiences in Lao’s trade reform efforts are, at least in theory, universal and ” and especially their own culture. replicable, many key players in the Lao trade reform process are quick to recognize the uniqueness of their situation. There is simply no getting around the differences in reality from country to country. Madame Banesaty Thephavong, Director-General of the Department of Imports and Exports within the MoIC, muses on the challenges facing any developing country government struggling to improve trade facilitation: 27 Embedding international consultants with national counterparts has its benefits There is disagreement in the development who is professionally astute and understands community about how, exactly, technical assistance the politics of reform in developing countries is (TA) from abroad should be implemented, but obviously critical. The key of course is that technical the Lao experience illustrates the importance of advisors do just that: advise. Too often in donor- governments taking sole responsibility of hiring client relationships of this sort, the TA is in the driver consultants, managing donor money, overseeing seat, creating the rather toxic perception that they procurement, and handling related tasks. The first are imposing an outside agenda. This can especially iteration of the NIU included embedded TA from be the case when an advisor is not physically abroad, pairing with Mr. Phouvieng to create the embedded in the unit, rather working remotely and earliest drafts of institutional restructuring. And the not seen as a true member of the team. While such early going was shaky. This was a government that an approach may inevitably get quicker results was unaccustomed to a foreign presence within its and is often favored by many bilateral donors, its walls. Building trust between the technical advisors longer term sustainability is highly suspect, and and their national counterparts was paramount. the paternalism that it perpetuates is undeniable. Without the proper chemistry, these working relationships can fail, as they did on occasion in The embedded approach can be more difficult Lao PDR. and more time-consuming to implement, but it is also one that can be far more sustainable If trust can be created and nurtured, however, the and, ultimately, foster real national ownership. benefits far outweigh the risks. A technical advisor This was certainly true in Lao PDR—both in the 28 NIU, where the advisors were embedded and Mr. Phouvieng’s team called the shots, as well as in the administration of the Lao Trade Portal project, which was implemented by a young and dynamic team of MoIC professionals with the guidance (but not managerial control) of a technical advisor whom they themselves vetted and chose. Due diligence in the process of vetting and placing a technical advisor is imperative. Merely scanning curricula vitae and conducting phone interviews is unlikely to lead to the best selection of a candidate. Personality and personal constitution are key traits that merit deeper consideration. Technical advisors can serve many roles beyond simply TA. For instance, they can serve as conduits through which managers and ministers within the government, who must be cognizant of certain political realities, can push through change. Provided the level of trust is deeply ingrained and genuine, an embedded technical advisor can deliver hard messages, and have them be seen as coming from someone internally, who has been part of the reform struggle. And finally, the situation may call for a TA that can act as a much needed, and preferably willing, safety valve to protect young reformers and those taking risks when putting forward controversial or drastic proposals. 29 What can development partners learn from the Lao trade program? Identifying and empowering reform champions is essential There is a common, albeit seldom verbalized public-private dialogue on trade issues, and a sentiment among many reformers across the demonstrated increase in government capacity. developing world and in development institutions: if a government really wants to get something As indicated, this type of coordination between done, the powers that be will install someone agencies can only overcome deadlock with the capable of getting the job done. But this is an emergence of real leaders and reform champions. oversimplification. For one, it too often gives credit However, in the context of a larger government for reform to a single individual, creating the notion bureaucracy, there may be very few of them. that there must first be a benevolent leader for Donors must recognize the political nature of reform to take place. It also disregards and ignores identifying and empowering these champions, and the myriad of potential political, fiscal, external, or provide them with enough leeway to navigate the logistical challenges that could stop even the most corridors of power in an effective manner. capable leader in his or her tracks. One of the best ways for donors to abet and Without a doubt, however, the trade reform incentivize such national counterparts—and process in Lao PDR benefitted immensely from something which bore out in the Lao case—is the progressive leadership of Mme Khemmani, the to recognize the importance of compromise. current Minister of Industry and Commerce. But Supporting and empowering reformers is a give by her own admission, the trade reform milestones and take proposition. In allowing somebody else achieved by her government were first and to drive a program, donors may not always get foremost a team effort, much more attributable what they want when they want it. But taking the to the development and expansion of her team’s calculated risk of empowering reform champions capabilities than to any one person. She describes encourages success, particularly if it is coupled the increased ability of the agencies within with a commitment to provide these reformers government to coordinate—amongst themselves, with genuine learning opportunities. Such between government and donors, and increasingly opportunities, specifically multilateral negotiations with the private sector—as the greatest success of support, trainings at the local and regional levels, the trade story thus far. and funding scholarships to pursue postgraduate studies abroad, were pivotal in Lao PDR. And she is right. Sustained inter-ministry dialogue and the resulting improvement in collaboration unequivocally contributed to the passing of new and transparent trade regulations, streamlined and automated customs operations, increased 31 Donor participation in a pooled approach encourages them to “speak with one voice” Interactions between donors and governments in its engagement strategy. the context of ODA can be disjointed, overlapping, and even contradictory in their goals. Each Making the TDF a reality required the donors to development partner often approaches ODA- give up precious visibility to be part of something recipient governments with its own agenda. Prior bigger, in spite of substantial stakeholder pressure to the creation of the TDF, there had never been a to increase their individual profiles. Joining a multi- culture or precedent for donor coordination in Lao donor trust fund meant taking a backseat from PDR. Donors with a comparative advantage on the more familiar, hands-on bilateral relationships trade issues, such as the World Bank, had not been the donors were used to. But the shift to the the biggest players in the country. Their portfolio MDTF unmistakably coincided with the most paled in comparison to the more traditional regional prominent successes of trade reform in Lao PDR. donors like the Japan International Cooperation The creation of the TDF, and the implementation Agency and the Asian Development Bank. But once of its funding, stands out for the dual role it has the importance of WTO accession became part of played in facilitating cooperation amongst donors the government narrative, it opened a window of and developing capacity in the government. opportunity for like-minded donors interested in trade to work together and create a unified voice. Today the MoIC continues to receive aid offers from It is critical that donors make the most of these development partners seeking to create bilateral opportunities. engagements on trade projects. The MoIC has often responded with the foresight and maturity The European Union, Australia, and the World to direct such suitors to the TDF, where they now Bank became the founding donors of the TDF. know from experience that well-managed donor Here, the importance of personal relationships in resources from a unified and established source administering aid-for-trade cannot be understated. serve them better than might a potentially lopsided Negotiations between the MoIC—in particular its bilateral deal. fledgling NIU created during the IF process—and the TDF donors were at once complicated and highly beneficial for both sides. The counterparts argued. There was conflict. But with fortuitous circumstances on their side, their ability to work through differences and reach compromise demonstrated the benefits of empowering a new generation of practitioners. Each counterpart from the donor institutions was early in his or her career, willing to think outside the box, and willing to let the donor community step outside of the spotlight in 33 The goal is to support, not to impose Trust between the Lao government and donors took In other words, being flexible in component many years to build, from the IF process through design and implementation is more effective than the years leading up to the TDF—especially given being dogmatic. Adjusting to the concerns of the largely closed environment from which the the beneficiaries is more palatable to clients and country was emerging. In the case of the TDF, it was more likely to foster deeper reform in the longer time and commitment to the cause that helped run. The best example of this in Lao PDR took foster strong working relationships. In a rather place during the infant stages of the information unorthodox twist for donors, the TDF partners gave gathering process leading up to the creation of government officials space: space to experiment, the Lao Trade Portal. There was a strong desire space to lead, space to both commit and learn among donors, particularly the World Bank, that from errors. And this has continued to the present the regulatory process be simplified concurrently day. Erring from a long and rather established with the collection of regulatory information from tendency for development organizations to impose the different line ministries. This insistence was their will—hiring consultants without stakeholder met with resistance on the part of the MoIC, which consultation, designing programs to meet was already stretched thin in its efforts to gather organizational mandates—the donor community in information. Donor willingness to allow for a more Lao PDR embraced a culture of support rather than gradual implementation by relaxing this insistence imposition. While donors provided analysis and allowed the project to proceed with the full and technical assistance, it was the government that continued backing of the MoIC, and the task of chaired meetings, recruited the actual technical simplifying procedures ultimately did get underway assistance, and ultimately drafted the country’s at a later stage. “action matrix” of reform itself. 34 Continuity of support goes a long way, and upfront technical investment in the design of activities pays dividends As a development partner, the World Bank had a commitment cannot be overstated. Most donors comparative advantage in delivering specialized have a shifting array of priorities and countless advisory services and assistance due to its ability development initiatives beyond trade. It takes to deploy technical specialists in-country, often a great deal of faith, foresight, and patience in from World Bank headquarters. By establishing a understanding that translating reforms into results full time, in-country facilitation team, the Bank was takes time. This is particularly true of trade reform, able to provide essential implementation support which is often institutional or regulatory and rarely and complementary analytical work on trade, on translates into visible results for the private sector demand. From the very early stages, resources in the short term. from the Bank-executed portion of the TDF were mobilized to support the WTO accession process The more stakeholders there are, the harder it through negotiation support, sector impact becomes to sustain reform momentum (and with evaluations, and legal technical assistance. But the larger TDF-2, the number of stakeholders in Lao this grew to also include carrying out assessments PDR is growing). Thus, it is important for donors not of the trade and transport facilitation environment, only to trade some visibility for a more sustainable, the regulatory framework for trade in services, and country-driven initiative, but also to adopt a the challenges facing crucial trade corridors, all realistic level of ambition and focus more deeply in with the diagnostic tools at its disposal. fewer areas. One way to do so is to play an upfront and active role in the technical design of activities. In a low capacity environment, the presence of this The World Bank’s technical guidance with regard dedicated trade team on the ground in Lao PDR has to the Lao Trade Portal and improved customs played an essential role. Not only has it provided efficiency measures provide some examples of how meaningful support, but it has also allowed for projects that are designed well at their inception over a decade of nurturing relationships and allow for a better allocation of resources and can cultivating genuine trust with reform champions avoid major implementation delays. and counterparts in government. This long-term 35 Moving toward the future There is no master blueprint for making effective use The Lao trade story is far from a fairytale. For of aid for trade, and often a confluence of specific all the effort put into the last decade of reforms, events and specific personalities creates the ideal it is merely the ink on the first few chapters of a environment for reform to blossom. Sometimes it story that has much more to be written. The Lao is not necessarily about overhauling entire systems economy, and in particular its private sector, and processes, but rather about identifying small is beset by a formidable number of remaining pockets of effectiveness that can grow into a larger challenges, as outlined in the World Bank’s 2014 engine for reform. The MoIC was one such pocket. Investment Climate Assessment. The country’s The Customs Department became another. And impressive economic growth is heavily reliant on today, these two organizations are leading by a natural resources boom that will neither last example within a government apparatus that has forever, nor provide sufficient jobs for the growing not been swift to modernize in all areas. As Mme workforce in the future. The lack of quality Khemmani says, “You have to understand what private investment in diversified sectors is stifling you want to get.” For her ministry and her country, labor productivity and the ability to attract new the goal was clear. The reason the MoIC and other investment has been hindered by a subpar business line agencies were able embark on this arduous enabling environment. Workforce education and path—and emerge in a better place—was because skills continue to lag behind those of comparable they knew what they wanted to achieve and they countries. And a gap still remains between written wanted to do it the right way. laws and day-to-day business on the ground due to inconsistent and unpredictable enforcement. 36 Yet, from the perspective of the World Bank, the trade program in Lao PDR thus far—these first few chapters—has been a tremendously positive story. Not only has it begun to deliver real results, but it represents the fruits of what genuine long-term country engagement on trade can realistically achieve. The ends are not analytics, investment lending, and policy dialogue. These are the means. And in the Lao trade story, as the second chapter of the TDF turns a new page, one sees strong evidence of confident central characters with the capacity to effectively manage aid-for-trade resources. Of course, with WTO accession now achieved, the overarching and tangible goal that drove the process forward for over a decade is gone. Complacency is a real threat, especially if the MoIC allows its influence and convening power to dwindle in the absence of such a clear mandate. But sustaining its reform momentum presents Lao PDR with an opportunity to prove doubters wrong. The accession process was not a superficial undertaking. By demonstrating its commitment to maintaining a WTO-consistent regulatory framework, Lao PDR can reveal a deeper understanding that accession was not an end in itself, but a broader means of building economic competitiveness. Meeting its WTO commitments and fulfilling its pending regional commitments in the ASEAN Economic Community should provide healthy incentives. Mme Khemmani sums it up wisely: “How can you call it a success story, there are still a million things to do!” 37