Communist Laos Looks to Capitalist ASEAN Trade Bloc for New Identity

This tiny Southeast Asian nation hopes to end its isolation but also fend off neighboring Thailand's influence

Western-style capitalism is slowly making its presence felt in this tiny, landlocked Asian nation. The proof is in the cooking.

In Vientiane, the sleepy capital of what is officially known as the Lao People's Democratic Republic, hungry diners now have two Italian restaurants to pick from when starved for tagliatelli or a slice of tiramisu.

A new coffee and pastry shop has also opened and even the cola wars have hit town, with locally bottled Pepsi holding an apparent edge over Coca-Cola imported from just over the Mekong River from the region's economic dynamo, Thailand.

Vientiane's once-quiet days are coming to an end. In mid-1997, Laos is expected to join the seven-nation Association of Southeast Asian Nations (ASEAN).

As it tries to raise its ranking from being one of the poorest countries in Asia, there seems to be no turning back for this one-party, authoritarian state. Still communist in name, the Lao People's Revolutionary Party has clearly opted for market forces and opened itself up to foreign investment.

From backwater status in the French colonial empire and political isolation from the West following the takeover in 1975 by the communist group known as Pathet Lao, Laos will suddenly be thrust into one of the world's most dynamic economic groupings, which includes Brunei, Indonesia, Malaysia, Singapore, the Philippines, Thailand, and Vietnam.

The 21st century express

Membership means that Laos will automatically subscribe to the ASEAN Free Trade Area (AFTA) agreement, which requires member countries to reduce tariffs on more than 40,000 manufactured and agricultural goods to a maximum of 5 percent by 2003. The decision could lead to wrenching economic changes for a country that is still nominally communist and where per capita gross domestic product is about $350.

"What we're seeing is a largely agrarian society trying to move into the 21st century in one decade," says Charles Jess, a commercial officer with the US Embassy in Vientiane.

How a rural-based nation of 4.6 million people can compete with ASEAN partners such as ultramodern Singapore (per capita income: $24,500) or Indonesia (population: 190 million) remains an open question. The primary concern here is Thailand, whose goods and investors have already flooded Laos as a result of closer ties and the opening of the Friendship Bridge - the first bridge across the lower Mekong River - in 1994.

"It's inevitable that Thailand will become the dominant player in Laos," claims a Western diplomat here. "Even without the bridge there's no doubt that Laos will become a part of the Thai economy."

Laotian authorities claim they are ready for the challenges of ASEAN. "We are convinced that we will surmount any difficulties and become a full member," declares Chaleum Yiapaoheu, a member of the ruling Lao People's Revolutionary Party's Central Committee. Yet both Laotian and foreign observers admit that the process will not be easy.

"Membership is a somewhat daunting proposition," notes the departing American ambassador to Laos, Victor Tomseth. "First of all it costs money. The ASEAN procedure is that all members pay dues.... [Oil-rich] Brunei can afford it, but for Laos it's a significant amount of money."

One basic problem is finding enough educated officials who can take an active role in the more than 200 official ASEAN meetings which take place each year. Only an estimated 15 percent of Laotian civil servants hold a university or technical school degree. "One important difficulty is the lack of manpower, [people] who fully understand friendly countries ... and have the proper education level," says Mr. Yiapaoheu. Another is the low number of officials who speak English, the official language of ASEAN.

On the macroeconomic level, Laos lacks trained middle- and senior-level managers capable of running enterprises that can compete with their ASEAN counterparts. The benefits Laos could gain from its central location as a transit point for trade in the region are negated by its decrepit infrastructure - less than a third of the country's 8,700 miles of roads are paved while a rail system is nonexistent. Laos also lacks a national power grid, with the number of telephone lines currently at at less than one per 100 residents.

Laos is expected to draw some economic benefits from ASEAN membership. The country should gain from cheaper imports, particularly for high-tech and electronic products, while its fledgling garments and manufacturing sectors could see exports within the region increase.

The negative impact from increased competition will also be lessened if, as expected, Laos asks for a transition period to meet its AFTA obligations. Nevertheless, the trade advantages to Laos are expected to be minimal at best.

"The fact is that these are not a set of complimentary economies," claims one Vientiane-based diplomat. "If you take Singapore aside, they are really competitive economies producing the same products for the same export markets."

But the government's determination to foster economic growth is also tempered by a reluctance to move too fast and a fear of losing control.

"The country doesn't want to be stampeded into a development path," says Romeo Reyes, senior economist at the United Nations Development Program here.

Just one of the 'guys'

The motives for joining ASEAN do not appear to be based on economics. Neither do political and security issues play a role as was the case for Vietnam, which saw ASEAN membership as a means of boosting international support for Hanoi's position in its Spratly Islands dispute with China. Laos sees no threat from its giant neighbor to the north, and Western concerns over a road construction project China financed in northern Laos in the 1970s have crumbled along with the roads.

The only potential problem is with Thailand with whom Laos fought a brief border war in 1987-88 and is now engaged in a minor dispute over the construction of river embankments, which could affect the course of the Mekong, the border between the two nations.

Laotian officials express confidence that the problem with Thailand - the No. 1 source of foreign investment and the leading exporter of cultural influence - will be resolved through the Mekong River Commission, a six-nation grouping set up to deal with river management issues.

The real motive for joining ASEAN, some observers say, is to give Laos a sense of identity and belonging both within the region and on the international level.

The country's historic identity was submerged during the French colonial period and, after 1975, by political domination from Vietnam. Its sense of belonging among neighbors has been hindered by its membership in the Soviet camp during the cold war.

Others argue that Laos has no other choice, given that its long-time political backer, Vietnam, has already become an ASEAN member and that Cambodia and Burma have expressed their intention to join the regional grouping.

Laotian President Nouhak Phoumsavanh noted in a Constitution Day speech on Aug. 15 that increased overseas business in Laos brought about by the country's new economic policy has "raised the role and status of the Lao PDR internationally, in particular in Southeast Asia."

Officials in Vientiane are hoping ASEAN will boost the country's international image and bring a further end to decades in the political and economic wilderness. The primary benefit from ASEAN, argues Laotian Vice Minister for Foreign Affairs Soubanh Srithirath, "is that we will no longer be isolated."