Sean C. Luangrath and Dr. Stanley E. Fawcett and Brent D. Wilson, Department of Business Management
In 1997, Laos was admitted into the Association of Southeast Asian Nations (ASEAN). This membership in a free-trade area has accelerated Laos’ economic growth but only to a certain extent—free trade is limited to only Southeast Asian countries. The two main economic groups in Southeast Asia are the Association of South-East Asian Nations (ASEAN) and the Asian Pacific Economic Cooperation (APEC). Many people argue that these associations are too bureaucratic and protectionalistic to be effective. How has Laos benefited since its admission into ASEAN in July 1997? Should Laos pursue membership in APEC? How economically effective is APEC? What are the pros and cons of membership? Laos is now at an economic crossroad. I believe Laos will greatly benefit by joining another economic cooperation such as APEC. This article will assess the current economic condition of Laos and its membership in ASEAN. It will also assess benefits and shortfalls of APEC membership and make recommendations for Laos to pursue or defer membership in APEC.
Laos is one of the poorest nations in the world. Since joining ASEAN in 1997, Laos has made significant strides in its development. Although still low compared to its neighbors, the level of Lao trade has increased steadily over the last few years. Laos’ exports to the U.S. increased over 45% to $4 million in its second year of membership in ASEAN.1 The benefits of joining the association was also illustrated shortly after its enrollment when Laos signed a bilateral trade agreement and investment treaty with the U.S.1 By joining ASEAN and implementing new economic policies, Laos has shown the world that it is ready to develop.
World War II, the global battle that pitted nation against nation, promoted protectionism and high tariffs which poisoned the world economy. In the past decade, thanks to international cooperation efforts such as the Uruguay round of the General Agreement on Tariffs and Trade (GATT), world trade has grown by 6% a year compared to 4% a year in the 1980s.2
APEC was formed in this environment of growth in 1989. Originally, APEC was established as a forum of 12 countries to promote economic integration in the Pacific region and to sustain economic growth. In 1998, Peru, Russia, and Vietnam were admitted into the group making a total of 21 members. 3
APEC has grown from an informal dialogue group to a more formalized institution that involves all major economies of the region. Since its first informal discussion, sponsored by President Clinton in 1993, each annual meeting has resulted in major advancements for the economic welfare of the region. A Major agreement was made in 1994 to achieve free and open trade and investment in Asia-Pacific by the year 2010. 3 This goal has been the underlying theme of all the efforts of APEC thus far.
APEC has been described as a club of winners for several reasons. First of all, two of its members, U.S. and Japan, are the world’s largest industrial economies. Secondly, two other members, China and Indonesia, are the world’s most populous and rapidly developing nations. APEC also has some of the most successful newly industrialized countries like Singapore, Chile, Hong Kong, and Malaysia. 4 In the past decade the value of the region has risen from $2.4 trillion to more than $6 trillion. Foreign direct investment has more than quadrupled during this period to almost $300 billion. GDP growth in the area has always been high at around 7% but in the past 10 years that growth rate has increased to about 9% yearly. East Asian economies used to account for one sixth of the world’s GDP but now represents one fourth and is expected to increase to one-third by the year 2005.4 This market of over 2 billion people definitely has tremendous growth potential.4 This explains why non-Pacific countries like Mongolia and India eagerly seek to join APEC.
The main arguments against APEC are its lack of leadership in environmental issues, regional trade practices, and lack of accomplishment. As the region’s leading economic framework, APEC and its super rapid growth has been blamed for the environmental degradation in the area. Environmentalists argue that APEC has promoted the migration of “dirty” industries into the region and has polluted the water, depleted the forests, devastated the land, and increased pollution.4 In addition to environmental problems, APEC has also been accused of regionalism. Because 70% of the region’s trade is intraregional, many non-APEC markets are concerned. 5 The rise and growth of APEC has caused other economic associations like the European Union to cooperate more willingly out of fear in the GATT talks.6 Lastly, many critics argue that APEC is powerless and ineffective because it still has not produce any significant treaty or agreement among its members since its conception. Josh Knight, of the International Division of the U.S. Chamber of Commerce, in a phone interview, supported this idea by suggesting that these types of associations do a lot talking and not to much of anything else.
The Asian-Pacific Economic Cooperation has become a major economic network in the end of the 20th century. The numbers show that APEC is and will continue to be one of the world’s dominant regional cooperative arrangements. Becoming part of APEC would tremendously benefit any county, especially Laos. And as APEC expands and becomes a more powerful and efficient organization, it will address its major problems such as the environment and regionalism. New issue-specific policies will make APEC more environmental conscious, globally active, and organizationally efficient. In conclusion to this research, my recommendation to Laos is to use all necessary resources to ready herself to join APEC.
- “Laos,” Source: http://us-asean.org/laos_page.htm visited 4/5/99
- “Spoiling World Trade,” Source: http://www.economist.com/archive/view.cgi visited 3/25/99
- Asia-Pacific Economic Cooperation,” Source: http://www.state.gov/www/regions/eap/fsapec_ 981026.html visited 4/5/99
- “APEC: Promise or Peril in the Asia-Pacific,” Source: http://www.nautilus.org/aprenet/library/hunter_apec.html visited 3/26/99
- “No. 8-Foreign Direct Investment and APEC Economic Integration,” Source: http://www.strategis.ic.gc.ca/SSG/ra01007e.html visited 3/26/99
- “Alphabetti Spaghetti,” Source: http://www.economist.com/archive/view.cgi visited 3/25/99