Trade Development Facility Project in Lao PDR

Challenge

Lao PDR is a least developed country and the only landlocked country in Southeast Asia. The country’s main challenge, at the time of project appraisal, was that it was not very well integrated into the regional and global economy.  The lack of a strong regulatory trade framework and a poor investment climate acted as barriers for trade. The Diagnostic Trade Integration Study (DTIS), prepared in 2006, strongly emphasized the need to build competitiveness and increase international and regional integration. It also set out an action matrix of priorities for implementation.

Solution

The project was designed to provide resources so that Lao PDR could implement the priorities set out in the trade and integration action matrix.

The project consisted of five components: (i) trade facilitation; (ii) strengthening of frameworks for sanitary and phytosanitary standards and technical barriers to trade; (iii) increasing export competitiveness; (iv) capacity building, trade policy, trade agreements and global opportunities, and (v) strengthening of the National Implementation Unit.

The project was the first coordinated effort among development partners to pool resources around a single approach led by the government.

Results

Project interventions achieved positive results. In addition, the Ministry of Industry and Commerce’s capacity to manage a large multi-sectoral reform program (through the NIFGS) has grown substantially.

Over the implementation period from 2008 to 2013, Lao PDR became much more closely integrated into the regional and international economy, as measured by substantial increases in trade in goods and services , including from non-natural resource sectors (100 percent growth in services, over 40 percent growth in goods) that generate the majority of jobs necessary reduce poverty in Laos.  Activities undertaken with financing from the project contributed towards faster and more transparent trade facilitation; better coordination among government agencies operating at the border; improved integration into the regional and multilateral trading system; increased productivity in the garments export sector (a key diversified manufacturing industry); and increased aid-for-trade management capacity.

Key achievements during January 2009 until March 2013 include:

• Substantial trade negotiating efforts culminating in Lao PDR’s formal accession to the World Trade Organization in February 2013 – a key part of the country’s efforts to become more integrated into the global trading system;
  
  
• The approval and implementation of a first National Trade Facilitation Strategy and Action Plan, and the establishment of a permanent National Trade Facilitation Secretariat – as part of efforts to improve coordination among agencies operating at the border, towards reducing costs and making cross-border trade faster and more efficient;
  
  
• The launch of an electronic Trade Portal that puts all trade-related information on tariffs, licenses, measures, laws, regulations and import/export procedures into the public domain – a landmark achievement that brought Lao PDR to the forefront of regional efforts to improve transparency of trade regulations for the private sector;
  
  
• Substantial legislative reforms on sanitary and phytosanitary measures associated with WTO accession. An inter-agency Sanitary and Phytosanitary Measures Risk Evaluation Group was established – helping to ensure that Lao PDR is both able to effectively protect domestic health and agriculture from external pests, and helping to facilitate fair market access abroad for Lao agricultural products;
  
  
• The launch of fee-based productivity training services in the Garment Skills Development Centre – contributing to improved skills in the largest source of manufacturing employment in Lao PDR;
  
  
• Support to the operations and commercialization of the Lao Handicrafts Festival – supporting livelihoods in a sector where trade can play an effective role in reducing poverty;
  
  
• Measured growth in domestic trade policy research capacity, including the design of a technical trade policy and competitiveness curriculum for civil servants; and the publication of the Lao Trade Research Digest – important steps towards the building of stronger institutional capacity for trade policy formulation within Lao PDR.

Bank Group Contribution

The World Bank acted as the trust fund administrator and contributed additional resources for product supervision.

Partners Contribution

The total cost of the project was $ 7.6 million and was financed through a multi donor partnership.

The National Implementation Unit, under the Department of Planning and Cooperation (of the Ministry of Industry and Commerce), was responsible for coordinating activities financed by the project.

The Ministry of Industry and Commerce, along with development partners, established the Trade Development Facility as the principle mechanism for financing the implementation of the trade and integration action matrix via a Multi Donor Trust Fund.  The trust fund consisted of the contributions from the European Union, Australia, and Germany

Moving Forward

Lao PDR now has the key building blocks to manage and implement an effective aid-for-trade program. It has an enlarged capacity and is largely motivated for the next phase of the program – the Second Trade Development Facility, which started in April 2013.

Beneficiaries

A key aspect of the project was efforts to make trade regulations more accessible to the private sector.

“The Trade Portal is an important step towards maintaining transparency when conducting trade,” said Sinouk Sisombat, Lao Coffee Association president, “It isn’t only for us entrepreneurs but also for government officials,”

Lao producers and workers, whose income opportunities have improved because of the country’s better integration into the world economy and through improved external competitiveness, have benefited from the project.

The government also benefited because of an increased capacity to effectively manage its trade reform agenda and better coordination for the aid-for-trade support it receives from the donor community.