As we know, Lao PDR officially became the 158th WTO membership on the 2nd February 2013. In principle, being a WTO member should lead to Non-Discrimination in trade and you may ask whether if it will affect the preferential Trade Benefits of Lao PDR. Whilst the WTO requires the application of the Non-Discrimination principle, there are some exceptional preferences for Free Trade Areas (FTA) and Preference Policy is given to developing countries and least developed countries. Therefore, Lao PDR is also receives preferential Trade Benefits. In many cases the tariff rate is 0% or lower than the agreed rate among the WTO member. Membership of WTO membership is very beneficial for Laos in order to improve internal legal and administrative mechanisms in line with to international good practice. The WTO expects member countries to implement several regulations such as in the area of import permits and customs valuation to ensure harmonization of implementation and transparency of international trade. On the other hand, the WTO has also the most effective mechanism for conflict resolution even though it involves high legal costs.
Presently, Lao PDR is involved in international trade with more than 60 countries around the world, obtaining preferential trade benefits from almost 50 countries. There are 3 types of Generalized System of Preferences that Laos has obtained: the Generalized System of Preferences, the Preferential trade benefit for developing countries, Preferential trade under Free Trade Areas. The Generalized System of Preferences or GSP is a preference on exception or tariff reduction given by developed countries to developing countries and least developed countries such as: Generalized System of Preferences of U.S, Canada, Norway, EU (29 countries) and Switzerland. At this time, Lao has not yet received the US Generalized System of Preferences and the Ministry of Industry and Commerce (MOIC) is currently moving towards applying for it as the U.S GSP is one of the requirements for Lao PDR to enter into WTO membership. The second GSP is a preference that certain developed countries (China, India, and South Korea) are willing offer to least developed countries.
The Third GSP is a preference under a Free Trade Area. The most important one for Laos is the ASEAN Trade in Goods Agreement or ATIGA. Products from Laos have received a tariff reduction schedule of 0-5% for almost all commodities by 2015, except for exports to new ASEAN members (Cambodia, Burma and Vietnam) for which tariff reduction for some agricultural commodity will be reached in years 2017-2018. In this session, Lao PDR’s exports have been obtained preferential trade benefit from partners in the following order: a trade value with Thailand of USD 623 million in year 2012, followed by Vietnam and Singapore with a trade value USD 69 million and USD 44 million. In addition, exports to Malaysia and Indonesia with preferential trade benefits did not exceeded USD 2 million in each market. The main export items were mined gold and agricultural products. Lao PDR also exports to ASEAN dialogue countries like China, Japan and South Korea agricultural products, garments, handicrafts and natural products. There are also alternative ASEAN dialogue export markets like India and the Australia-New Zealand country group.
Furthermore, Laos is also an associate of other Free Trade Areas that offer preferential trade benefits to each other like Vietnam and Asia-Pacific Trade Agreement. However, currently, Lao exporters have yet to utilize benefits from the Asia-Pacific Trade Agreement as some countries are already dialogue countries such as: China, South Korean and India.
Obtaining Generalized System of Preferences status will enhance production and Lao exporters will benefit from reduced tariff costs below full rate, which will reduce the price of their products and allow them to compete on the global stage. To apply for GSP, the exporter needs to request a Certificate of Origin from the Department of Import and Export, Division of Industry and Commerce at the Provinces and Vientiane Capital, Lao National Commerce Chamber. In particular, from the 1st July 2013 onward, Nhongthong-Vientiane Industrial Area is authorized to the issue the Certification of origin for goods entitled to preferential trade for the 35 service point of Lao PDR.
Therefore, the exporter should implement some importance procedures when exporting in order to obtaining the Generalized System of Preferences as detailed below:
- Note 1: Check whether the Tariff, HS CODE and Commodity to be exported are eligible for any tariff reduction from any exporting market;
- Note 2: Check whether the commodity to be exported is included in the GSP list of import countries, because some exceptional commodities are not covered by the GSP;
- Note 3: Check the commodity origin requirements such as whether use of raw materials or processing in country are covered by any conditions
- Note 4: Review the distribution conditions. There may be a specific regulation of the importing country requiring transport directly to the end country with no storage and additional processing in the third country;
- Note 5: Preparation and arrangements for the Certificate of Origin must be accurate according to the requirements of the importing country certified from the Department of Import and Export or concerned sections that are authorized to issue and implement the certification of origin for goods entitled to preferential trade;
- Note 6: Circulating the necessary export documents to customs authorities of the end country.
All the above is fundamental information and procedures for exporting in order to obtain the Generalized System of Preferences, learn and facilitate the business sector on how to minimize the cost and prepare to compete in regional and international integration through WTO membership and ASEAN Economic Integration be year 2015.
By: B.Vilavong
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