GMS SUMMIT CELEBRATES IMPROVED REGIONAL

C O N F I D E N T I A L SECTION 01 OF 03 VIENTIANE 000226

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STATE FOR EAP/MLS BESTIC
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PACOM FOR POLAD

E.O. 12958: DECL: 04/10/2018
TAGS: ECON EINV PREL ETRD PGOV LA CH CM VN BM TH
SUBJECT: GMS SUMMIT CELEBRATES IMPROVED REGIONAL
INFRASTRUCTURE

REF: 07 VIENTIANE 524

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Classified By: AMBASSADOR RAVIC R. HUSO. REASON: 1.5 B AND D


1. (C) Summary: The third Greater Mekong Subregion (GMS)
Summit March 30-31 featured the meeting of all six GMS heads
of state in Laos. The GMS leaders agreed to the "Vientiane
Plan of Action for GMS Development," an ambitious 5-year plan
with a reported $20 billion price tag. During the two hour,
closed-door session on March 31, the leaders reportedly had a
frank and wide-ranging discussion which touched upon the
continued necessity of building up the regional
infrastructure, the importance of coordination in developing
Mekong Basin water resources, and the possibility of a Lao
spur for the "Singapore-Kunming" railway. The water
discussion is of particular interest--a senior Lao MFA
official told us that in the absence of China joining the
Mekong River Commission as a full member, the GMS process
provides an alternative forum for involving China in issues
surrounding the Mekong region. The GMS leaders also
celebrated the official opening of Route 3 in Laos, linking
Kunming in Yunnan China to Bangkok in Thailand. The new road
has cut travel time through Laos, border-to-border between
China and Thailand, from a couple of days, especially in the
rainy season, to as little as three or four hours. The Lao
organizer of the summit expressed satisfaction with the
outcome and noted the leaders had tasked their GMS Ministers
to implement measures to ease customs logjams at key points
in the GMS economic corridors. End Summary.


2. (U) The Greater Mekong Subregion (GMS) is comprised of
Laos, Vietnam, Thailand, Burma, Cambodia, and two southern
provinces of China--Yunnan and Guangxi. In 1992, with help
from the Asian Development Bank (ADB),which acts as a
secretariat and is the lead donor, the six countries

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launched a program of sub-regional economic cooperation to
promote cross-border economic linkages. The GMS is,
according to the ADB, "based on activities, rather than
formal rules." Focusing on the "Three C's: Connectivity,
Competitiveness, and Community," the GMS implements
sub-regional projects in transport, energy,
telecommunications, environment, human resource
development, tourism, trade, private sector investment, and
agriculture. In practice this has meant an emphasis on
developing the regional transportation, energy, and
communication infrastructure -- the hardware -- and improving
cross-border customs interaction and "economic corridors" --
the software. (A comprehensive collection of GMS
information, including the just released "Vientiane Action
Plan", is available at www.adb.org/gms). The GMS summit is a
triennial event begun in 2002.


3. (U) The third GMS Summit was held March 30-31 at the Don
Chan Palace Hotel in Vientiane and was an opportunity for the
six GMS heads of government to officially open Route 3 in
northern Laos, a key part of the GMS North-South economic
corridor linking Kunming in China's Yunnan province to
Bangkok, Thailand. Prime Minister (PM) of Laos Bouasone
Bouphavanh hosted the event and was joined by Cambodian PM
Hun Sen, Premier of the People's Republic of China Wen
Jiabao, Burmese PM Thein Sein, Thai PM Samak Sundaravej, and
Vietnamese PM Nguyen Tan Dung.


4. (U) The Lao portion of the highway, which transits Laos
from the Chinese border at Boten to the Thai border at
Houayxai, is approximately 98% complete, with only a few
segments requiring remedial work to overcome roadbed defects.
It is the best engineered road in northern Laos, a two/three
lane macadam thoroughfare that wends its way through the
hills of Luang Namtha and Bokeo provinces utilizing a series
of deep excavated cuts. The highway was built in three
segments, the northernmost by a Chinese contractor, the
central portion by a Thai contractor, and the southern leg by
a Thai-Lao joint venture. Completion has reduced the transit
time through Laos on this route from as much as several days
(in the rainy season) to as little as three or four hours.

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5. (U) There has been some concern that Laos will see only
limited benefits from the new road, and that the majority of
vehicles will simply pass through Laos, stopping only briefly
for food or fuel. However, an explosion of home and small
business construction along the highway during the past year
indicates that some economic benefits are already being
realized by local entrepreneurs taking advantage of greater
access to regional markets. Chinese companies have already
built several factories alongside the road in Luang Namtha,
and a Thai concern is daily hauling dozens of truck loads of
lignite south on Route 3 from an adjacent open pit mine.


6. (U) The Mekong River crossing, however, remains a
chokepoint, as trucks queue up for hours waiting for a spot
on ferries that are short in both number and operating hours.
Although a site for a new bridge connecting Bokeo province
with Chiang Rai, Thailand, has been surveyed several
kilometers south of Houayxai, the completion date has been
pushed back to 2012. Thai media reports claim that Chiang
Rai provincial officials, concerned about cheap Chinese
industrial goods rapidly flooding into Thailand and
undercutting Thai producers, are dragging their feet on
completing the bridge. The full benefits of the north-south
corridor will not be realized until this final link is
complete.


7. (C) The formal summit meeting was a two hour,
closed-door event on March 31, attended by the six GMS
leaders and the ADB President (the ADB is invited in its
role of secretariat, not as a donor). ADB Country Director
Gil-Hong Kim told econoff April 3 the meeting was
surprisingly frank and interactive, with the leaders freely
discussing issues after their prepared remarks. Of primary
interest to the leaders was the state of the GMS
infrastructure. Although much improved over the past 15
years, it remains far from that of the EU or developed
western countries. According to Kim, Chinese Premier
Wen committed to financing a Mekong bridge linking Houayxai
in Laos' Bokeo province with Xieng Khong in Thailand's Chiang
Rai province. The group also discussed the
"Singapore-Kunming" railway, and discussed Laos connecting
via a spur from Thakek, located on the Mekong in central
Laos' Khammouan province, to the Vietnamese
border. Thai PM Samak offered to fund a feasibility study
for the spur. During the Summit discussion, ADB president
Haruhiko Kuroda reinforced the importance of institutional
reform and international cooperation for successful
cross-border rail traffic.


8. (C) Kim noted that human resource constraints were raised
by Cambodian PM Hun Sen, who pushed for the hiring of more
local consultants and fewer expatriates in order to maximize
local knowledge development. Hun Sen also raised the
importance of coordinating water resource development, noting
that upstream actions on the Mekong have many downstream
effects. Chinese PM Wen evidently agreed to share
information on water projects, and, according to Kim, stated
that China would protect the upland headwaters of the Mekong
from development. The Chinese premier also reportedly pushed
for the GMS countries to redouble their efforts in the areas
of customs simplification and coordination to speed
cross-border transit. While all agreed to refocus on
implementing the Cross Border Trade
Agreement (CBTA (See also paragraph 10)),PM Hun Sen
reportedly said that the leaders needed to be realistic about
what could be accomplished with the current systems.


9. (C) In discussing the future, Kim stated that the role of
the ADB as honest broker and counterweight would be even more
critical. The participation of the ADB allows the smaller
countries such as Laos and Cambodia to sit at the table with
China and Vietnam as equals, according to Kim,
and helps limit potential arm-twisting. (Comment: Kim did
note that the inevitable bilateral side meetings presumably
took place on a less equal footing. End Comment) Kim also

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pointed out that, while in the previous 15 years GMS projects
with a value of approximately $10 billion had been initiated,
the Vientiane Action Plan foresees $20 billion worth of
projects over the next 5 years. Additional donor financing
will be necessary to complete such an aggressive investment
plan.


10. (SBU) Econoff met April 2 with Keobang A Keola, Acting
Permanent Secretary for the Lao Government's newly
established Water Resources and Environment Administration
(WREA),who was responsible for organizing Lao participation
in the summit and whose unit has responsibility for GMS
activities for Laos. Unsurprisingly, she portrayed the
summit as a great success. Besides opening Route 3, she
noted that the PMs also agreed to focus on the CBTA, tasking
the GMS Ministers in each country to make it workable within
three years. Although the CBTA, designed to facilitate the
cross-border transit of goods and people, entered into force
in December 2003, implementation has gone slowly. The
original test area, the Dansavanh (Laos)-Lao Bao (Vietnam)
border crossing, is
not yet working as planned and will remain the focus for
implementation trials. Ms. Keola said she would be attending
a GMS senior official meeting May 14 and 15 in China to begin
discussions on developing a road map for implementation of
the Vientiane Action Plan.


11. (C) Comment: The opening of Route 3 significantly
improves sub-regional transportation in the northern region
of the GMS, and the Chinese offer to pay for the bridge over
the Mekong emphasizes the importance China places on market
access for Chinese goods throughout Southeast Asia. Route 3
now gives China relatively easy access to either the
excellent Thai road network or to additional ports on the
Mekong. A number of Embassy contacts commented on the role
of China at this summit, with one Ambassador saying she
thought the summit was pitched to show China as the leading
player in the GMS. Contacts also noted that the Lao were very
careful to keep the foreign press (primarily Japanese) away
from Chinese Premier Wen Jiabao, evidently afraid they would
ask embarrassing questions about the situation in Tibet. A
senior member of the MFA told us he thought that, because
China has so far refused to join the Mekong River Commission
as a full member (it has observer status),the GMS process
was an alternative way to involve China in decisions being
made about the Mekong region.


12. (C) Comment continued: The press, perhaps due to a lack
of access to the principals, was often focused on less
serious parts of the summit. Thai PM Samak was observed
sleeping during the opening ceremony, kept his fellow leaders
waiting for a group picture, and fell ill from ....
something. The original scuttlebutt was that the Don Chan,s
notoriously bad catering had felled him. A later news report
blamed bad fish from a local Lao food stall, while the final
Thai media report we saw absolved Laos completely, blaming
his illness on the flu (for which he reportedly received
treatment in a Thai hospital.)
HUSO