Dustin R. Roses and Dr. Earl Fry, Political Science
To complete this research project I traveled to Laos and spent three weeks conducting interviews with the leaders of export-oriented businesses. My main goal was to investigate the success of normal trade relations status (NTR) as a means of stimulating foreign investment and economic activity in developing nations.
The implementation of NTR status in Laos in February 2005 was expected to cause an immediate boom of economic growth and investment resulting from Laos’ ability to export products to the United States at much lower tariff levels. I expected to find that NTR status has only slightly improved the export economy of Laos and that few foreign firms have found it profitable to invest in Laos. This is because Laos must compete with its neighbors for exports to the U.S., and unlike Laos, these neighbors enjoy membership in the World Trade Organization and have much stronger economic ties with the U.S. I actually discovered that Laos’ economy is rapidly developing because of its trade with nations besides the U.S. However, despite the improvement of conditions in Laos even before the U.S. established NTR status, Laos needs to overcome serious obstacles in order to modernize its economy and attract foreign investment. The improvement of trade relations between Laos and the U.S. will likely have many long-term positive implications, but my study of only one year of improved trade can only accurately reflect the short-term implications of the new trade pact.
In my pre-departure research, I contacted several American companies that lobbied in favor of NTR status for Laos and committed to pursuing operations in Laos once NTR status was granted. None of these companies had yet pursued operations in Laos, but they were not able to explain why. I thus decided to focus heavily on researching native Lao businesses and foreign firms already operating in Laos. A few of my key contacts in Vientiane and Paxan were able to help me arrange some excellent interviews, but in some of the smaller provincial cities it was very difficult to arrange interviews on a cold-contacting basis. It would have been better to have more time to establish quality relationships that would eventually lead to greater access to interviews with top business leaders. Nonetheless, I was quite successful using a snowball sampling approach, and I was still able to make a lot of quality contacts by openly approaching people.
I successfully interviewed the leaders of nineteen exporting businesses in Laos . My interviews were conducted as informal conversations in which I asked the interviewees to explain how NTR status, or increased trade with the U.S., has affected their business and to elaborate on the specific challenges that their business currently face. I was surprised to find that most business leaders in Laos have well-articulated feelings about NTR status and the general status of the business environment in Laos and Southeast Asia.
Normal trade relations status has impacted the Lao economy in limited ways. About half of the businesses I interviewed had experienced some form of increased trade with the U.S. Goods produced by state-owned enterprises and expensive specialty items have experienced dramatic success from NTR status. Beer Lao, a state-owned enterprise, has experienced a massive boom in exports since NTR, and other state-owned companies have quickly benefited from NTR status. Exports of silk as well as fine silverwork and exotic coffee have all dramatically increased as a result of NTR; however, despite the immediate boom of exotic goods, there is only limited interest for these goods in the U.S., so exports will likely peak soon.
In general, NTR status in Laos did not bring about a massive economic miracle because Laos has already been experiencing a period of strong economic growth due to other factors. Laos maintains excellent trade ties with its neighbors through the Association of Southeast Asian Nations (ASEAN). Every business that I encountered attributed its success to trade with Thailand, Vietnam, Cambodia, or China. Many European and North Asian nations have also improved trade ties with Laos over the last few decades. Because the U.S. failed to pursue trade with Laos in the past, it must now struggle to find its niche in Laos’ rigidly-established structure of economic connections. Contrary to my hypothesis, increased trade between the U.S. and Laos’ neighbors has brought increased opportunity to Laos. I spoke to four agricultural and raw material producers who are exporting massive amounts of their products to Vietnam and Thailand so that these countries can replace the products that they are exporting to developed nations. One furniture factory owner explained that as Laos’ neighbors produce high-quality furniture for export, they purchase lower-quality Lao furniture for their own use, which gives Laos an opportunity to export as a direct result of their neighbors’ increased trade. Also, many factories in neighboring countries are purchasing Lao-made component parts because they are now acceptable to use in goods made for export to the U.S.
In this research I have discovered that NTR status is just one small aspect of a more complex web of international economic cooperation. Although Laos lacks a seat in the WTO and enjoys only rudimentary trade preference status with most industrialized nations, the success of its neighbors and its participation in ASEAN trade cooperation provide good short-term opportunities for Laos and give Laos an opportunity to develop in ways that will present opportunities for greater long-term international trade participation. Despite the focus of my research on international market access factors that affect the economies of Laos and other developing nations, most of the business leaders that I interviewed cited several domestic factors that present even greater challenges to development. The Lao government still maintains tight control over economic activity, essentially hand picking the winners and losers through a complex web of political favors and connections. Most business leaders see this mafia-like behavior as an indication that the government is only seeking better trade relations to serve state-owned industries and the business interests of political elites. Foreign firms see this behavior as an investment risk, and most cannot afford the bribes and kickbacks that are required in order to operate in Laos. Businesses are also concerned that they lack the technical ability to produce products that are even marginally acceptable to consumers in developed nations. As the world opens up to greater economic participation with Laos, the key to development in Laos now lies in the hands of the Lao government. It is essential for the Lao government to adopt the progressive policies needed to promote a favorable investment climate and to allow the Lao people to improve their vocational skills with the assurance that their hard work and innovation will be rewarded in a free and fair market economy.