2009 INVESTMENT CLIMATE STATEMENT FOR LAOS

UNCLAS SECTION 01 OF 33 VIENTIANE 000063



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E.O. 12958: N/A

TAGS: ECON, EINV, OPIC, USTR, KTDB, LA

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS



REF: 08 STATE 123909



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------



1. The Lao government is open to foreign investment as a matter of

policy. It allows 100% foreign ownership of investments. The

overall investment climate is poor but improving. Laos rates very

low in international indices of transparency and ease of doing

business.



2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated

October 22, 2004, purport to promote foreign direct investment as a

means of boosting development and economic growth. Under the 2004

Law on the Promotion of Foreign Investment, scheduled to be updated

at the end of 2009, foreign investors may invest in all business

sectors and zones of investment in the Lao People's Democratic

Republic, except in business activities which are detrimental to

national security, have a negative impact on the environment, or are

regarded as detrimental to health or national traditions. In recent

years Laos has seen a significant increase in FDI, especially in

mining, hydropower, and plantation agriculture. Major foreign

investors are Thailand, China, Vietnam and Australia.

3. When bidding for the right to large contracts, companies

frequently offer the government the "option" of purchasing part of

the company at a later date, often with money borrowed from the

investor or multilateral institutions. The investment term of a

foreign investment enterprise depends on the nature, size, and

conditions of the business project but normally cannot exceed fifty

years. Under special circumstances, foreign investment enterprises

may be extended with the approval of the government. However,

foreign enterprises that receive extension approval from the

government may not exceed a total investment term of seventy-five

years.

4. Foreign investors seeking to establish operations in Laos must

submit project proposals to the Department for Promotion and

Management of Domestic and Foreign Investment (DDFI),Ministry for

Planning and Investment (MPI). The proposal is then screened by the

relevant line ministries and adjudicated by the Prime Minister's

Office. Under Prime Minister Decree No 301, dated October 12, 2005,

proposals for projects worth US$20 million or more require the

approval of the Prime Minister. The Minister of MPI can approve

investments below $20 million USD while the vice Minister can

approve investments of less than $10 million USD. FDI equal to or

less than $3 million USD can be approved at the provincial level by

all provinces, and in four of the larger provinces - Vientiane

Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for

provincial level approval is $5 million.

5. Foreign investors in a joint venture must contribute at least

thirty percent (30%) of the venture's registered capital. Capital

contributed in foreign currency must be converted into kip based on

the exchange rate of the Bank of the Lao People's Democratic

Republic on the day of the capital contribution. Wholly

foreign-owned companies may either be a new company or a branch

office of an existing foreign company. Throughout the period of

operation of a foreign investment enterprise, the assets of the

enterprise must not be less than its registered capital. The

screening process at the Department for Promotion and Management of

Domestic and Foreign Investment (DDFI) in the Ministry of Planning

and Investment (MPI) takes into account the financial and technical

feasibility of the project, input from relevant line ministries, and

whether the proposed project conflicts with government policy. Upon

receipt of an application, the MPI must coordinate with relevant

sectors and local authorities to consider and respond in writing to

the foreign investor. Responses to projects, depending on project

type, are supposed to be forthcoming within 15-45 working days.

6. Foreign investors are required to obtain a foreign investment

license, an enterprise registration certificate, and a tax

registration certificate from the MPI office nearest the place where

the foreign investors are licensed. Thereafter they shall be

considered as enterprises established in conformity with the laws of

the Lao People's Democratic Republic. Within 90 days from the date

of receipt of an investment license the foreign investment

enterprise must commence business activities. If the investors fail

to do so, the foreign investment license is subject to termination.

7. In addition to the investment license, foreign investors are

required to obtain other permits. These include a business

registration which must be annually renewed from the Ministry of

Industry and Commerce, a tax registration from the tax department in

the Ministry of Finance, a business logo registration from the

Ministry of Public Security, permits from each line ministry related

to the investment (i.e., Ministry of Industry and Commerce for

manufacturing; Ministry of Public Works and Transportation, etc.),



VIENTIANE 00000063 002 OF 033





appropriate permits from local authorities, and an import-export

license, if needed. Obtaining the necessary permits can pose a

challenge to foreign investors, especially in areas outside the

capital. The recent creation of a "one-stop shop" for many permits

within the Ministry of Planning and Investment should help ease

permitting difficulties in the future.

8. Lao law provides for sanctity of contracts. The following link

is for a translation of the Lao contract law.

http://www.undplao.org/ whatwedo/bgresource/demogov/

Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf



However, since Laos is a communist one-party state, the sanctity of

contracts is subject both to political interference and a number of

socialist principles enshrined in the law. For example, according

to the contract law:

A contract can be voided if it is disadvantageous to one party, and

A voidable contract can be declared void by the disadvantaged

party.

9. Although a commercial court system exists, in practice most

judges adjudicating commercial disputes have little training in

commercial law. Those considering doing business in Laos are

strongly urged to contact a reputable law firm for additional advice

on contracts.

10. In 2006 the Lao government ceased imposing import restrictions

on trading companies, whether foreign or domestic, in an effort to

let the market respond to actual demand. The Lao government no

longer requires companies to file an annual import plan for approval

by the Ministry of Commerce. The main exception is the fuel

industry, where individual companies are still required to file an

annual import plan. The government controls the retail price and

profit margins of gasoline and diesel. A large American oil company

announced in late 2007 that it was leaving the Lao market to focus

on more profitable countries within Asia. Government documents

articulating the restrictions and explaining the policy are

difficult to obtain. Goods that are always prohibited for import

and export range from explosives and weapons, to literature that

presents a negative view of the Lao government, to certain forestry

products and wildlife. For a detailed list of import & export

restrictions please visit http://www.moc.gov.la/default.asp



11. Agriculture production and most manufacturing production is

private. State-owned enterprises (SOEs) currently account for only

one percent of total employment. Approximately 97 percent of

manufacturing units are small (fewer than 10 employees). Foreign

companies interested in acquiring SOEs should apply through the

Department for



--------------

CONVERSION AND TRANSFER POLICIES

--------------



12. In order to facilitate business transactions, foreign investors

generally open commercial bank accounts in both local and foreign

convertible currency at domestic and foreign banks in Laos.

Australian, Vietnamese, Thai, Cambodian and Malaysian banks

currently have a presence in Laos. Bank accounts must be maintained

in accordance with the Enterprise Accounting Law. The law places no

limitations on foreign investors transferring after-tax profits,

income from technology transfer, initial capital, interest, wages

and salaries, or other remittances to the company's home country or

third countries so long as they request approval from the Lao

government. These transactions are conducted at the official

exchange rate on the day of execution, upon presentation of

appropriate documentation. Supply of foreign exchange has in the

past been limited in Laos, which imposed a de facto limit on

repatriation of capital. Foreign currency inflows in recent years,

however, have reportedly solved this problem and large

multinationals in Laos report no problems with access to foreign

exchange. Foreign enterprises must report on their performance

annually and submit annual financial statements to the Ministry of

Planning and Investment (MPI).



--------------

EXPROPRIATION AND COMPENSATION

--------------



13. Foreign assets and investments in Laos are protected by laws and

regulations against seizure, confiscation, or nationalization except

when this is deemed necessary for a public purpose, in which case

foreign investors are to be compensated. While there have been no

expropriations, the Lao Government has revoked the foreign

investment licenses of companies in a less than transparent process.

Revocation of an investment license cannot be appealed to an

independent body, and companies whose licenses are revoked must then



VIENTIANE 00000063 003 OF 033





liquidate their assets relatively rapidly. In addition, a company

that fails to begin conducting business within ninety days of

registering could be dissolved, if it does not have a reasonable

explanation.

--------------

DISPUTE SETTLEMENT

--------------



14. According to the Foreign Investment Law, investors involved in

investment disputes must seek arbitration before taking legal

action. If arbitration does not result in an amicable settlement,

litigants may submit their claims to the economic arbitration

authority of Laos, or that of the investor's country, or an

international organization agreed on by both parties. In practice,

there are no adequate independent arbitration venues in Laos.

Foreign investors are therefore generally advised to seek

arbitration outside the country, since Laos' nascent domestic

arbitration authority lacks enforcement powers. Laos is not a

member of the International Center for the Settlement of Investment

Disputes. It became a party to the New York Convention of 1958 on

the Recognition and Enforcement of Foreign Arbitral Awards on

September 15, 1998, but Laos has never been asked to enforce a

foreign arbitral award. Laos is a member of the United Nations

Convention on International Trade Law.

15. In disputes involving the Ministry of Planning and Investment,

decisions can only be appealed back to the Ministry itself. There

is no separate independent body. Thus a company which feels it is

receiving unfair treatment from the government has no independent

recourse. In 2007, two U.S.-owned small companies were involved in

disputes with the Lao government. One company had its investment

license revoked and the U.S. owners were given no option other than

to liquidate their assets. Another is still working with Lao

authorities to resolve the issue. The Lao government has cooperated

with the Embassy in addressing the disputes.



16. Laos' legal system is evolving, but remains incomplete in many

regards. Laws sometimes contradict each other and often lack

implementing regulations. For example, tax exemptions and low

import duties guaranteed to foreign investors under the foreign

investment law are not reflected in customs or tax law. Supported

by the Japan International Cooperation Agency (JICA),Singapore, and

the United Nations Development Program (UNDP),some laws have been

officially translated into English. These include the business,

tax, bankruptcy, customs, and secured transaction laws.

Implementing regulations for the Foreign Investment Law, which are

crucial to enforcement, were approved on October 10, 2005. The

reliability of unofficial translations varies considerably, which

can create an environment of uncertainty and ambiguity among foreign

investors. Application of Lao law remains inconsistent and

knowledge of the laws themselves is often limited (especially

outside the capital). The existence of a large number of government

decrees, sometimes unpublished, further complicates the situation.

While the trend under the current government is towards more

openness and more accountability, investors are cautioned to

recognize that economic and legal reform remain a work in progress.

17. Projects funded by the Australian government, the EU, the U.S.,

and the UN Development Program to assist Lao accession to the World

Trade Organization (WTO) include components aimed at bringing Lao

commercial law into conformity with WTO standards. A commercial

court was established during 2003, and began to hear cases in 2005.

The Lao Bar Association was set-up in 2007.



18. Laos has no anti-trust statutes. The bankruptcy law permits

either the business or creditor the right to petition the court for

a bankruptcy judgment, and allows businesses the right to request

mediation. There is no record of foreign-owned enterprises, whether

as debtors or as creditors, petitioning the courts for a bankruptcy

judgment.

--------------

PERFORMANCE REQUIREMENTS AND INCENTIVES

--------------



19. Laos does not impose performance requirements per se. Foreign

investors are encouraged to give priority to Lao citizens in

recruiting and hiring. According to the foreign investment law,

foreign personnel can be hired, although they may not exceed ten

percent (10%) of the enterprise's total labor force. In the case of

skilled labor, or politically important projects, the Ministry of

Planning and Investment has confirmed that enterprises can hire over

10% foreign labor if necessary. Before bringing in foreign labor,

the enterprise must apply for work permits from the Ministry of

Labor and Social Welfare. A foreign personnel list must also be

submitted to the Planning, Monitoring and Evaluation Division of the

Department for Promotion and Management of Domestic and Foreign



VIENTIANE 00000063 004 OF 033





Investment (DDFI).

20. Incentives for Foreign Investment: Laos grants incentives for

foreign investment depending on the sectors and zones of investment

promotion. The government defines promoted activities under Article

16 as follows:



1) production for export;

2) activities relating to agriculture or forestry, and agricultural,

forestry and handicraft processing activities;

3) activities relating to industrial processing, industrial

activities using modern techniques and technology, research and

development, and activities relating to the protection of the

environment and biodiversity;

4) human resource development, skills development and public health;



5) construction of infrastructure;

6) production of raw materials and equipment to be supplied to key

industrial activities; and,

7) development of the tourism industry and transit services.



21. The Law on the Promotion of Foreign Investment:



http://www.undplao.org/whatwedo/bgresource/

demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%

20Investment.pdf



describes geographic and tax incentives in articles 17 and 18.



22. Foreigners employed in Laos, including foreign investors, must

pay an income tax of 10 percent of their total income to the Lao

Government, unless they are citizens of a country with which the Lao

Government has signed a double taxation agreement. The United

States has no such agreement with Laos. The turnover tax is

scheduled to be replaced in 2009 with a Value Added Tax (VAT).

23. Foreign investors are not required to pay import duty on

equipment, spare parts and other materials used in the operation of

their enterprises. Raw materials and intermediate goods imported

for the purpose of processing and re-export are exempt from import

duties. Raw materials and intermediate goods imported for the

purpose of import substitution are also eligible for import duty

reductions on a case-by-case basis. On an individual basis, foreign

investors are also eligible for profit tax and import duty

reductions or exemptions, if the investment is significantly large

or determined to have a significant benefit to Laos' socio-economic

development. To date the Lao Government appears to have honored its

incentives. Annual business license renewal is contingent upon

certification that corporate income taxes have been paid. The tax

code was streamlined and simplified in April 2005, but some

investors still report significant difficulties in obtaining tax

certifications in a timely manner.



24. The Foreign Investment Law stipulates that foreign investors

and their families, including foreign professionals and foreign

employees of an enterprise, shall be facilitated by issue of

multiple entry visas and, if approved by the government, long term

residence in the Lao PDR. They also, in theory, have the right to

apply for Lao nationality in accordance with the Law on Nationality.



--------------

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

--------------



25. The government recognizes the right of private enterprise

ownership, and foreigners may transfer shares of a foreign-invested

company without prior government approval. However, the business

law requires that all shareholders be listed in the articles of

association, and changes in the articles of association of a

foreign-invested company must be approved by DDFI-Ministry of

Planning and Investment (MPI) , per the Enterprise Law

http://www.moc.gov.la/default.asp. Thus, transferring shares in a

foreign-invested company registered in Laos does require the

indirect approval of the government (DDFI-MPI).

--------------

PROTECTION OF PROPERTY RIGHTS

--------------



26. Foreign investors are not permitted to own land. The

government grants long-term leases, and allows the ownership of

leases and the right to transfer and improve leasehold interests.

Government approval is not required to transfer property interests,

but the transfer must be registered and a registration fee paid.

This includes mortgage leases.

27. Secured interests in property are inadequately covered by the

Secured Transactions Law of 1994. Because the law offers no



VIENTIANE 00000063 005 OF 033





instructions for the creditor to enforce security rights (the

creditor, for example, can only request repayment from the debtor),

the law favors the debtor. Moreover, since the Ministry of

Finance's registry system is not computerized, and cannot

cross-reference records, it is difficult to determine if a piece of

property is encumbered. Enforcement of a mortgage is further

complicated by the legal protection given mortgagees against

forfeiture of their sole place of residence.

28. Laos issued a trademark decree in January 1995. The National

Science and Technology Organization (NSTO),part of the Prime

Minister's Office, controls the issuance of trademarks on a

first-come, first-register basis. Applicants do not have to

demonstrate prior use. There are currently over 18,109 trademarks

registered in Laos.

29. Laos became a member of the ASEAN Common Filing System on

patents in 2000 but lacks adequate personnel qualified to serve as

patent examiners. A draft decree on patents was sent to the Prime

Minister in February 2000 for approval and in 2002 the Prime

Minister's Office issued patent regulations. Since Thailand and

Laos have a bilateral Intellectual Property Rights (IPR) agreement,

in principle a patent issued in Thailand would also be recognized in

Laos.

30. Currently, no system exists to issue copyrights in Laos. Laos

became a member of the World Intellectual Property Organization

(WIPO) Convention in January 1995 and the Paris Convention on the

Protection of Industrial Property in October 1998; it has not yet

joined the Bern Convention on Copyrights, however. Although WIPO

began to assist Laos in drafting an intellectual property law in

1996, a WTO-compliant law has not yet been implemented. In December

2007 the National Assembly approved a law the Lao government claims

will cover its U.S. Bilateral Trade Agreement (BTA)

responsibilities, as well as be WTO compliant. An English

translation sponsored by the U.S. Government is currently being

finalized. Overall, there is currently little protection for

intellectual property rights in Laos, although the authorities have

taken steps to crack down on some pirated goods.

--------------

TRANSPARENCY OF THE REGULATORY SYSTEM

--------------



31. The principal laws, regulations, decrees and guidelines

governing international trade and investment, as well as the current

protection of intellectual property, are available to the public,

although not all have been officially translated into English. Laws

and their schedules for implementation are customarily published in

Lao daily newspapers, and relevant line ministries are beginning to

put laws and regulations on websites. The website for UNDP Laos

maintains a partial list of translated Lao laws:

http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php



Laws can also be found via the following websites. Laws on the

National Assembly website represent the officially approved English

translations:

http://www.na.gov.la/index.php (look under legislation on the left

side);

http://www.poweringprogress.org/ index.php?option=com_

content&view=

index.php?option=com _content&view=article&id= 242&Itemid=109

http://www.moc.gov.la/gioithieuAP.asp

In addition, implementation of the budget law commenced with the

restructuring of the Ministry of Finance (MoF) via Prime Ministerial

Decree Number 80 of February 28, 2007. In September 2007, the Prime

Minister issued Order No 35 instructing the MoF to move ahead with

centralization of customs, tax and treasury departments. In January

2009 the Government introduced a Value-Added Tax (VAT). Full

implementation of the tax is likely to take a number of years.

32. A lack of transparency in a centralized decision-making

process, as well as the difficulty encountered in obtaining

information, augment the perception of the regulatory framework as

arbitrary and inscrutable. There have been reports that the

government has recently begun discussing some proposed laws and

regulations with the business community, and acted upon the advice

given, before making final decisions. The Lao Tourist Association

has repeatedly urged the Lao government at the "Lao Business Forum,"

a business-government meeting sponsored by the Lao government and

the International Finance Corporation (IFC),to discuss proposed

laws with industry prior to implementation.

-------------- --------------

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

-------------- --------------



33. Laos does not have a developed capital market. Three-month

treasury bills are occasionally offered for sale when there is a

need to absorb excess liquidity in the economy. The largest



VIENTIANE 00000063 006 OF 033





denomination of currency is 50,000 kip (about US$5). Credit is not

available on the local market for large capital investments,

although letters of credit for export can sometimes be obtained

locally. International reserves fluctuate, with the latest

available 2007 data showing sufficient coverage for 5 months of

imports and numbering $485 million.

34. The banking system is under the supervision of the Bank of Lao

PDR, and includes:

* three state-owned commercial banks: Banque pour Le Commerce

Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion

Bank;

* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;



* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai

Military and Ayoudhiya Banks whose activities are mainly limited to

providing services to local Thai businesses;

* one Vietnamese bank: Sacombank

* five private banks (3 foreign and two domestic): Malaysia - Public

Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the

Association of Cambodia Local Economic Development Agencies (ACLEDA)

Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao

Bank

one representative office: Standard Chartered Bank.



35. A new banking law passed in 2006 allows private foreign banks

to establish branches in all provinces of Laos. (Previously,

foreign banks were permitted to establish branches only in

Vientiane.) The Commercial Bank Law is available on the Bank of Lao

PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has

correspondence arrangements with the following banks (US dollars):



JP Morgan Chase Bank, New York

Citibank, New York

Wachovia Bank, New York

American Express Bank, Ltd., New York

HSBC Bank, New York

Standard Chartered Bank, New York

Barclays Bank Plc., London

Credit Suisse First Boston, Zurich

Bank of Tokyo-Mitsubishi, Ltd, Tokyo

Natexis Banque Populaires, Singapore

Standard Chartered Bank, Singapore

Bank for Foreign Trade of Vietnam, Hanoi

TMB, Bank Public Co, Ltd, Bangkok

Bank Thai Public Co. Ltd. Bangkok

Calyon, Bangkok

Sumitomo Mitsui Banking Corporation, Tokyo



36. The Lao banking sector is in flux, with new private and foreign

banks opening to provide modern banking options to Lao and foreign

businesses. While continuing to receive outside assistance, central

bank supervision of the sector remains somewhat weak. Although

non-performing loans have decreased significantly since 2003,

through work-outs, write-offs, and transfers off balance sheets, the

three state-owned commercial banks (SCBs) remain, according to

official estimates, insolvent. For detailed information see the IMF

Article IV report:

http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf

The Asian Development Bank has provided both program loans and

technical assistance to Laos' financial sector, as have the World

Bank and the IMF. These programs have led to some reforms but

overall capacity within the governance structure remains weak and

the banks face many challenges.

The Government of Laos is planning to open a stock exchange in 2010,

with technical assistance provided from the South Korean

government.



--------------

POLITICAL VIOLENCE

--------------



37. Laos is generally a peaceful and politically stable country.

The remnants of an insurgency occasionally carry out small-scale

attacks on government personnel and civilians. Foreign persons are

not deliberately targeted, but visitors are advised to use caution

when traveling in remote districts.



--------------

CORRUPTION

--------------



38. The Prime Minister's Office has made combating corruption a

priority, including issuance of an anticorruption decree in November

1999, but corruption remains a problem. Although the 1999 decree



VIENTIANE 00000063 007 OF 033





specifically notes the responsibility of the state-owned mass media

in publicizing corruption cases, there has been no reporting on this

issue. In 2005, an anti-corruption law was passed by the National

Assembly. According to the State Inspection Authority, the Lao

Government has prosecuted some individuals for corruption but it

cannot publicize the information. The State Inspection Authority,

located in the Prime Minister's Office, is charged with analyzing

corruption at the national level and serves as a central office for

gathering details and evidence of suspected corruption.

Additionally, the State Inspection Department in each Ministry is

responsible for a ministry's internal problems.



39. Laos is not a signatory to the OECD Convention on Combating

UNCLASSIFIED

PROG 02/06/09

AMB: RRHUSO

ECON: JCARCHIBALD

DCM: PMHAYMOND

POL PDS



AMEMBASSY VIENTIANE

SECSTATE WASHDC

INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS

CIMS NTDB WASHDC

USDOC WASHDC

US DEPARTMENT OF COMMERCE WASHDC

US DEPARTMENT OF TREASURY WASH DC



SIPDIS



STATE FOR EAP/MLS EMERY

STATE FOR EEB/IFD/OIA

STATE PASS USTR FOR BISBEE

COMMERCE FOR HP PHO



E.O. 12958: N/A

TAGS: ECON, EINV, OPIC, USTR, KTDB, LA

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS



REF: 08 STATE 123909



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------



1. The Lao government is open to foreign investment as a matter of

policy. It allows 100% foreign ownership of investments. The

overall investment climate is poor but improving. Laos rates very

low in international indices of transparency and ease of doing

business.



2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated

October 22, 2004, purport to promote foreign direct investment as a

means of boosting development and economic growth. Under the 2004

Law on the Promotion of Foreign Investment, scheduled to be updated

at the end of 2009, foreign investors may invest in all business

sectors and zones of investment in the Lao People's Democratic

Republic, except in business activities which are detrimental to

national security, have a negative impact on the environment, or are

regarded as detrimental to health or national traditions. In recent

years Laos has seen a significant increase in FDI, especially in

mining, hydropower, and plantation agriculture. Major foreign

investors are Thailand, China, Vietnam and Australia.

3. When bidding for the right to large contracts, companies

frequently offer the government the "option" of purchasing part of

the company at a later date, often with money borrowed from the

investor or multilateral institutions. The investment term of a

foreign investment enterprise depends on the nature, size, and

conditions of the business project but normally cannot exceed fifty

years. Under special circumstances, foreign investment enterprises

may be extended with the approval of the government. However,

foreign enterprises that receive extension approval from the

government may not exceed a total investment term of seventy-five

years.

4. Foreign investors seeking to establish operations in Laos must

submit project proposals to the Department for Promotion and

Management of Domestic and Foreign Investment (DDFI),Ministry for

Planning and Investment (MPI). The proposal is then screened by the

relevant line ministries and adjudicated by the Prime Minister's

Office. Under Prime Minister Decree No 301, dated October 12, 2005,

proposals for projects worth US$20 million or more require the

approval of the Prime Minister. The Minister of MPI can approve

investments below $20 million USD while the vice Minister can

approve investments of less than $10 million USD. FDI equal to or



VIENTIANE 00000063 008 OF 033





less than $3 million USD can be approved at the provincial level by

all provinces, and in four of the larger provinces - Vientiane

Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for

provincial level approval is $5 million.

5. Foreign investors in a joint venture must contribute at least

thirty percent (30%) of the venture's registered capital. Capital

contributed in foreign currency must be converted into kip based on

the exchange rate of the Bank of the Lao People's Democratic

Republic on the day of the capital contribution. Wholly

foreign-owned companies may either be a new company or a branch

office of an existing foreign company. Throughout the period of

operation of a foreign investment enterprise, the assets of the

enterprise must not be less than its registered capital. The

screening process at the Department for Promotion and Management of

Domestic and Foreign Investment (DDFI) in the Ministry of Planning

and Investment (MPI) takes into account the financial and technical

feasibility of the project, input from relevant line ministries, and

whether the proposed project conflicts with government policy. Upon

receipt of an application, the MPI must coordinate with relevant

sectors and local authorities to consider and respond in writing to

the foreign investor. Responses to projects, depending on project

type, are supposed to be forthcoming within 15-45 working days.

6. Foreign investors are required to obtain a foreign investment

license, an enterprise registration certificate, and a tax

registration certificate from the MPI office nearest the place where

the foreign investors are licensed. Thereafter they shall be

considered as enterprises established in conformity with the laws of

the Lao People's Democratic Republic. Within 90 days from the date

of receipt of an investment license the foreign investment

enterprise must commence business activities. If the investors fail

to do so, the foreign investment license is subject to termination.

7. In addition to the investment license, foreign investors are

required to obtain other permits. These include a business

registration which must be annually renewed from the Ministry of

Industry and Commerce, a tax registration from the tax department in

the Ministry of Finance, a business logo registration from the

Ministry of Public Security, permits from each line ministry related

to the investment (i.e., Ministry of Industry and Commerce for

manufacturing; Ministry of Public Works and Transportation, etc.),

appropriate permits from local authorities, and an import-export

license, if needed. Obtaining the necessary permits can pose a

challenge to foreign investors, especially in areas outside the

capital. The recent creation of a "one-stop shop" for many permits

within the Ministry of Planning and Investment should help ease

permitting difficulties in the future.

8. Lao law provides for sanctity of contracts. The following link

is for a translation of the Lao contract law.

http://www.undplao.org/ whatwedo/bgresource/demogov/

Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf



However, since Laos is a communist one-party state, the sanctity of

contracts is subject both to political interference and a number of

socialist principles enshrined in the law. For example, according

to the contract law:

A contract can be voided if it is disadvantageous to one party, and

A voidable contract can be declared void by the disadvantaged

party.

9. Although a commercial court system exists, in practice most

judges adjudicating commercial disputes have little training in

commercial law. Those considering doing business in Laos are

strongly urged to contact a reputable law firm for additional advice

on contracts.

10. In 2006 the Lao government ceased imposing import restrictions

on trading companies, whether foreign or domestic, in an effort to

let the market respond to actual demand. The Lao government no

longer requires companies to file an annual import plan for approval

by the Ministry of Commerce. The main exception is the fuel

industry, where individual companies are still required to file an

annual import plan. The government controls the retail price and

profit margins of gasoline and diesel. A large American oil company

announced in late 2007 that it was leaving the Lao market to focus

on more profitable countries within Asia. Government documents

articulating the restrictions and explaining the policy are

difficult to obtain. Goods that are always prohibited for import

and export range from explosives and weapons, to literature that

presents a negative view of the Lao government, to certain forestry

products and wildlife. For a detailed list of import & export

restrictions please visit http://www.moc.gov.la/default.asp



11. Agriculture production and most manufacturing production is

private. State-owned enterprises (SOEs) currently account for only

one percent of total employment. Approximately 97 percent of

manufacturing units are small (fewer than 10 employees). Foreign

companies interested in acquiring SOEs should apply through the



VIENTIANE 00000063 009 OF 033





Department for



--------------

CONVERSION AND TRANSFER POLICIES

--------------



12. In order to facilitate business transactions, foreign investors

generally open commercial bank accounts in both local and foreign

convertible currency at domestic and foreign banks in Laos.

Australian, Vietnamese, Thai, Cambodian and Malaysian banks

currently have a presence in Laos. Bank accounts must be maintained

in accordance with the Enterprise Accounting Law. The law places no

limitations on foreign investors transferring after-tax profits,

income from technology transfer, initial capital, interest, wages

and salaries, or other remittances to the company's home country or

third countries so long as they request approval from the Lao

government. These transactions are conducted at the official

exchange rate on the day of execution, upon presentation of

appropriate documentation. Supply of foreign exchange has in the

past been limited in Laos, which imposed a de facto limit on

repatriation of capital. Foreign currency inflows in recent years,

however, have reportedly solved this problem and large

multinationals in Laos report no problems with access to foreign

exchange. Foreign enterprises must report on their performance

annually and submit annual financial statements to the Ministry of

Planning and Investment (MPI).



--------------

EXPROPRIATION AND COMPENSATION

--------------



13. Foreign assets and investments in Laos are protected by laws and

regulations against seizure, confiscation, or nationalization except

when this is deemed necessary for a public purpose, in which case

foreign investors are to be compensated. While there have been no

expropriations, the Lao Government has revoked the foreign

investment licenses of companies in a less than transparent process.

Revocation of an investment license cannot be appealed to an

independent body, and companies whose licenses are revoked must then

liquidate their assets relatively rapidly. In addition, a company

that fails to begin conducting business within ninety days of

registering could be dissolved, if it does not have a reasonable

explanation.

--------------

DISPUTE SETTLEMENT

--------------



14. According to the Foreign Investment Law, investors involved in

investment disputes must seek arbitration before taking legal

action. If arbitration does not result in an amicable settlement,

litigants may submit their claims to the economic arbitration

authority of Laos, or that of the investor's country, or an

international organization agreed on by both parties. In practice,

there are no adequate independent arbitration venues in Laos.

Foreign investors are therefore generally advised to seek

arbitration outside the country, since Laos' nascent domestic

arbitration authority lacks enforcement powers. Laos is not a

member of the International Center for the Settlement of Investment

Disputes. It became a party to the New York Convention of 1958 on

the Recognition and Enforcement of Foreign Arbitral Awards on

September 15, 1998, but Laos has never been asked to enforce a

foreign arbitral award. Laos is a member of the United Nations

Convention on International Trade Law.

15. In disputes involving the Ministry of Planning and Investment,

decisions can only be appealed back to the Ministry itself. There

is no separate independent body. Thus a company which feels it is

receiving unfair treatment from the government has no independent

recourse. In 2007, two U.S.-owned small companies were involved in

disputes with the Lao government. One company had its investment

license revoked and the U.S. owners were given no option other than

to liquidate their assets. Another is still working with Lao

authorities to resolve the issue. The Lao government has cooperated

with the Embassy in addressing the disputes.



16. Laos' legal system is evolving, but remains incomplete in many

regards. Laws sometimes contradict each other and often lack

implementing regulations. For example, tax exemptions and low

import duties guaranteed to foreign investors under the foreign

investment law are not reflected in customs or tax law. Supported

by the Japan International Cooperation Agency (JICA),Singapore, and

the United Nations Development Program (UNDP),some laws have been

officially translated into English. These include the business,

tax, bankruptcy, customs, and secured transaction laws.

Implementing regulations for the Foreign Investment Law, which are



VIENTIANE 00000063 010 OF 033





crucial to enforcement, were approved on October 10, 2005. The

reliability of unofficial translations varies considerably, which

can create an environment of uncertainty and ambiguity among foreign

investors. Application of Lao law remains inconsistent and

knowledge of the laws themselves is often limited (especially

outside the capital). The existence of a large number of government

decrees, sometimes unpublished, further complicates the situation.

While the trend under the current government is towards more

openness and more accountability, investors are cautioned to

recognize that economic and legal reform remain a work in progress.

17. Projects funded by the Australian government, the EU, the U.S.,

and the UN Development Program to assist Lao accession to the World

Trade Organization (WTO) include components aimed at bringing Lao

commercial law into conformity with WTO standards. A commercial

court was established during 2003, and began to hear cases in 2005.

The Lao Bar Association was set-up in 2007.



18. Laos has no anti-trust statutes. The bankruptcy law permits

either the business or creditor the right to petition the court for

a bankruptcy judgment, and allows businesses the right to request

mediation. There is no record of foreign-owned enterprises, whether

as debtors or as creditors, petitioning the courts for a bankruptcy

judgment.

--------------

PERFORMANCE REQUIREMENTS AND INCENTIVES

--------------



19. Laos does not impose performance requirements per se. Foreign

investors are encouraged to give priority to Lao citizens in

recruiting and hiring. According to the foreign investment law,

foreign personnel can be hired, although they may not exceed ten

percent (10%) of the enterprise's total labor force. In the case of

skilled labor, or politically important projects, the Ministry of

Planning and Investment has confirmed that enterprises can hire over

10% foreign labor if necessary. Before bringing in foreign labor,

the enterprise must apply for work permits from the Ministry of

Labor and Social Welfare. A foreign personnel list must also be

submitted to the Planning, Monitoring and Evaluation Division of the

Department for Promotion and Management of Domestic and Foreign

Investment (DDFI).

20. Incentives for Foreign Investment: Laos grants incentives for

foreign investment depending on the sectors and zones of investment

promotion. The government defines promoted activities under Article

16 as follows:



1) production for export;

2) activities relating to agriculture or forestry, and agricultural,

forestry and handicraft processing activities;

3) activities relating to industrial processing, industrial

activities using modern techniques and technology, research and

development, and activities relating to the protection of the

environment and biodiversity;

4) human resource development, skills development and public health;



5) construction of infrastructure;

6) production of raw materials and equipment to be supplied to key

industrial activities; and,

7) development of the tourism industry and transit services.



21. The Law on the Promotion of Foreign Investment:



http://www.undplao.org/whatwedo/bgresource/

demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%

20Investment.pdf



describes geographic and tax incentives in articles 17 and 18.



22. Foreigners employed in Laos, including foreign investors, must

pay an income tax of 10 percent of their total income to the Lao

Government, unless they are citizens of a country with which the Lao

Government has signed a double taxation agreement. The United

States has no such agreement with Laos. The turnover tax is

scheduled to be replaced in 2009 with a Value Added Tax (VAT).

23. Foreign investors are not required to pay import duty on

equipment, spare parts and other materials used in the operation of

their enterprises. Raw materials and intermediate goods imported

for the purpose of processing and re-export are exempt from import

duties. Raw materials and intermediate goods imported for the

purpose of import substitution are also eligible for import duty

reductions on a case-by-case basis. On an individual basis, foreign

investors are also eligible for profit tax and import duty

reductions or exemptions, if the investment is significantly large

or determined to have a significant benefit to Laos' socio-economic

development. To date the Lao Government appears to have honored its



VIENTIANE 00000063 011 OF 033





incentives. Annual business license renewal is contingent upon

certification that corporate income taxes have been paid. The tax

code was streamlined and simplified in April 2005, but some

investors still report significant difficulties in obtaining tax

certifications in a timely manner.



24. The Foreign Investment Law stipulates that foreign investors

and their families, including foreign professionals and foreign

employees of an enterprise, shall be facilitated by issue of

multiple entry visas and, if approved by the government, long term

residence in the Lao PDR. They also, in theory, have the right to

apply for Lao nationality in accordance with the Law on Nationality.



--------------

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

--------------



25. The government recognizes the right of private enterprise

ownership, and foreigners may transfer shares of a foreign-invested

company without prior government approval. However, the business

law requires that all shareholders be listed in the articles of

association, and changes in the articles of association of a

foreign-invested company must be approved by DDFI-Ministry of

Planning and Investment (MPI) , per the Enterprise Law

http://www.moc.gov.la/default.asp. Thus, transferring shares in a

foreign-invested company registered in Laos does require the

indirect approval of the government (DDFI-MPI).

--------------

PROTECTION OF PROPERTY RIGHTS

--------------



26. Foreign investors are not permitted to own land. The

government grants long-term leases, and allows the ownership of

leases and the right to transfer and improve leasehold interests.

Government approval is not required to transfer property interests,

but the transfer must be registered and a registration fee paid.

This includes mortgage leases.

27. Secured interests in property are inadequately covered by the

Secured Transactions Law of 1994. Because the law offers no

instructions for the creditor to enforce security rights (the

creditor, for example, can only request repayment from the debtor),

the law favors the debtor. Moreover, since the Ministry of

Finance's registry system is not computerized, and cannot

cross-reference records, it is difficult to determine if a piece of

property is encumbered. Enforcement of a mortgage is further

complicated by the legal protection given mortgagees against

forfeiture of their sole place of residence.

28. Laos issued a trademark decree in January 1995. The National

Science and Technology Organization (NSTO),part of the Prime

Minister's Office, controls the issuance of trademarks on a

first-come, first-register basis. Applicants do not have to

demonstrate prior use. There are currently over 18,109 trademarks

registered in Laos.

29. Laos became a member of the ASEAN Common Filing System on

patents in 2000 but lacks adequate personnel qualified to serve as

patent examiners. A draft decree on patents was sent to the Prime

Minister in February 2000 for approval and in 2002 the Prime

Minister's Office issued patent regulations. Since Thailand and

Laos have a bilateral Intellectual Property Rights (IPR) agreement,

in principle a patent issued in Thailand would also be recognized in

Laos.

30. Currently, no system exists to issue copyrights in Laos. Laos

became a member of the World Intellectual Property Organization

(WIPO) Convention in January 1995 and the Paris Convention on the

Protection of Industrial Property in October 1998; it has not yet

joined the Bern Convention on Copyrights, however. Although WIPO

began to assist Laos in drafting an intellectual property law in

1996, a WTO-compliant law has not yet been implemented. In December

2007 the National Assembly approved a law the Lao government claims

will cover its U.S. Bilateral Trade Agreement (BTA)

responsibilities, as well as be WTO compliant. An English

translation sponsored by the U.S. Government is currently being

finalized. Overall, there is currently little protection for

intellectual property rights in Laos, although the authorities have

taken steps to crack down on some pirated goods.

--------------

TRANSPARENCY OF THE REGULATORY SYSTEM

--------------



31. The principal laws, regulations, decrees and guidelines

governing international trade and investment, as well as the current

protection of intellectual property, are available to the public,

although not all have been officially translated into English. Laws

and their schedules for implementation are customarily published in



VIENTIANE 00000063 012 OF 033





Lao daily newspapers, and relevant line ministries are beginning to

put laws and regulations on websites. The website for UNDP Laos

maintains a partial list of translated Lao laws:

http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php



Laws can also be found via the following websites. Laws on the

National Assembly website represent the officially approved English

translations:

http://www.na.gov.la/index.php (look under legislation on the left

side);

http://www.poweringprogress.org/ index.php?option=com_

content&view=

index.php?option=com _content&view=article&id= 242&Itemid=109

http://www.moc.gov.la/gioithieuAP.asp

In addition, implementation of the budget law commenced with the

restructuring of the Ministry of Finance (MoF) via Prime Ministerial

Decree Number 80 of February 28, 2007. In September 2007, the Prime

Minister issued Order No 35 instructing the MoF to move ahead with

centralization of customs, tax and treasury departments. In January

2009 the Government introduced a Value-Added Tax (VAT). Full

implementation of the tax is likely to take a number of years.

32. A lack of transparency in a centralized decision-making

process, as well as the difficulty encountered in obtaining

information, augment the perception of the regulatory framework as

arbitrary and inscrutable. There have been reports that the

government has recently begun discussing some proposed laws and

regulations with the business community, and acted upon the advice

given, before making final decisions. The Lao Tourist Association

has repeatedly urged the Lao government at the "Lao Business Forum,"

a business-government meeting sponsored by the Lao government and

the International Finance Corporation (IFC),to discuss proposed

laws with industry prior to implementation.

-------------- --------------

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

-------------- --------------



33. Laos does not have a developed capital market. Three-month

treasury bills are occasionally offered for sale when there is a

need to absorb excess liquidity in the economy. The largest

denomination of currency is 50,000 kip (about US$5). Credit is not

available on the local market for large capital investments,

although letters of credit for export can sometimes be obtained

locally. International reserves fluctuate, with the latest

available 2007 data showing sufficient coverage for 5 months of

imports and numbering $485 million.

34. The banking system is under the supervision of the Bank of Lao

PDR, and includes:

* three state-owned commercial banks: Banque pour Le Commerce

Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion

Bank;

* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;



* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai

Military and Ayoudhiya Banks whose activities are mainly limited to

providing services to local Thai businesses;

* one Vietnamese bank: Sacombank

* five private banks (3 foreign and two domestic): Malaysia - Public

Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the

Association of Cambodia Local Economic Development Agencies (ACLEDA)

Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao

Bank

one representative office: Standard Chartered Bank.



35. A new banking law passed in 2006 allows private foreign banks

to establish branches in all provinces of Laos. (Previously,

foreign banks were permitted to establish branches only in

Vientiane.) The Commercial Bank Law is available on the Bank of Lao

PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has

correspondence arrangements with the following banks (US dollars):



JP Morgan Chase Bank, New York

Citibank, New York

Wachovia Bank, New York

American Express Bank, Ltd., New York

HSBC Bank, New York

Standard Chartered Bank, New York

Barclays Bank Plc., London

Credit Suisse First Boston, Zurich

Bank of Tokyo-Mitsubishi, Ltd, Tokyo

Natexis Banque Populaires, Singapore

Standard Chartered Bank, Singapore

Bank for Foreign Trade of Vietnam, Hanoi

TMB, Bank Public Co, Ltd, Bangkok

Bank Thai Public Co. Ltd. Bangkok



VIENTIANE 00000063 013 OF 033





Calyon, Bangkok

Sumitomo Mitsui Banking Corporation, Tokyo



36. The Lao banking sector is in flux, with new private and foreign

banks opening to provide modern banking options to Lao and foreign

businesses. While continuing to receive outside assistance, central

bank supervision of the sector remains somewhat weak. Although

non-performing loans have decreased significantly since 2003,

through work-outs, write-offs, and transfers off balance sheets, the

three state-owned commercial banks (SCBs) remain, according to

official estimates, insolvent. For detailed information see the IMF

Article IV report:

http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf

The Asian Development Bank has provided both program loans and

technical assistance to Laos' financial sector, as have the World

Bank and the IMF. These programs have led to some reforms but

overall capacity within the governance structure remains weak and

the banks face many challenges.

The Government of Laos is planning to open a stock exchange in 2010,

with technical assistance provided from the South Korean

government.



--------------

POLITICAL VIOLENCE

--------------



37. Laos is generally a peaceful and politically stable country.

The remnants of an insurgency occasionally carry out small-scale

attacks on government personnel and civilians. Foreign persons are

not deliberately targeted, but visitors are advised to use caution

when traveling in remote districts.



--------------

CORRUPTION

--------------



38. The Prime Minister's Office has made combating corruption a

priority, including issuance of an anticorruption decree in November

1999, but corruption remains a problem. Although the 1999 decree

specifically notes the responsibility of the state-owned mass media

in publicizing corruption cases, there has been no reporting on this

issue. In 2005, an anti-corruption law was passed by the National

Assembly. According to the State Inspection Authority, the Lao

Government has prosecuted some individuals for corruption but it

cannot publicize the information. The State Inspection Authority,

located in the Prime Minister's Office, is charged with analyzing

corruption at the national level and serves as a central office for

gathering details and evidence of suspected corruption.

Additionally, the State Inspection Department in each Ministry is

responsible for a ministry's internal problems.



39. Laos is not a signatory to the OECD Convention on Combating

UNCLASSIFIED

PROG 02/06/09

AMB: RRHUSO

ECON: JCARCHIBALD

DCM: PMHAYMOND

POL PDS



AMEMBASSY VIENTIANE

SECSTATE WASHDC

INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS

CIMS NTDB WASHDC

USDOC WASHDC

US DEPARTMENT OF COMMERCE WASHDC

US DEPARTMENT OF TREASURY WASH DC



SIPDIS



STATE FOR EAP/MLS EMERY

STATE FOR EEB/IFD/OIA

STATE PASS USTR FOR BISBEE

COMMERCE FOR HP PHO



E.O. 12958: N/A

TAGS: ECON, EINV, OPIC, USTR, KTDB, LA

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS



REF: 08 STATE 123909



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------





VIENTIANE 00000063 014 OF 033





1. The Lao government is open to foreign investment as a matter of

policy. It allows 100% foreign ownership of investments. The

overall investment climate is poor but improving. Laos rates very

low in international indices of transparency and ease of doing

business.



2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated

October 22, 2004, purport to promote foreign direct investment as a

means of boosting development and economic growth. Under the 2004

Law on the Promotion of Foreign Investment, scheduled to be updated

at the end of 2009, foreign investors may invest in all business

sectors and zones of investment in the Lao People's Democratic

Republic, except in business activities which are detrimental to

national security, have a negative impact on the environment, or are

regarded as detrimental to health or national traditions. In recent

years Laos has seen a significant increase in FDI, especially in

mining, hydropower, and plantation agriculture. Major foreign

investors are Thailand, China, Vietnam and Australia.

3. When bidding for the right to large contracts, companies

frequently offer the government the "option" of purchasing part of

the company at a later date, often with money borrowed from the

investor or multilateral institutions. The investment term of a

foreign investment enterprise depends on the nature, size, and

conditions of the business project but normally cannot exceed fifty

years. Under special circumstances, foreign investment enterprises

may be extended with the approval of the government. However,

foreign enterprises that receive extension approval from the

government may not exceed a total investment term of seventy-five

years.

4. Foreign investors seeking to establish operations in Laos must

submit project proposals to the Department for Promotion and

Management of Domestic and Foreign Investment (DDFI),Ministry for

Planning and Investment (MPI). The proposal is then screened by the

relevant line ministries and adjudicated by the Prime Minister's

Office. Under Prime Minister Decree No 301, dated October 12, 2005,

proposals for projects worth US$20 million or more require the

approval of the Prime Minister. The Minister of MPI can approve

investments below $20 million USD while the vice Minister can

approve investments of less than $10 million USD. FDI equal to or

less than $3 million USD can be approved at the provincial level by

all provinces, and in four of the larger provinces - Vientiane

Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for

provincial level approval is $5 million.

5. Foreign investors in a joint venture must contribute at least

thirty percent (30%) of the venture's registered capital. Capital

contributed in foreign currency must be converted into kip based on

the exchange rate of the Bank of the Lao People's Democratic

Republic on the day of the capital contribution. Wholly

foreign-owned companies may either be a new company or a branch

office of an existing foreign company. Throughout the period of

operation of a foreign investment enterprise, the assets of the

enterprise must not be less than its registered capital. The

screening process at the Department for Promotion and Management of

Domestic and Foreign Investment (DDFI) in the Ministry of Planning

and Investment (MPI) takes into account the financial and technical

feasibility of the project, input from relevant line ministries, and

whether the proposed project conflicts with government policy. Upon

receipt of an application, the MPI must coordinate with relevant

sectors and local authorities to consider and respond in writing to

the foreign investor. Responses to projects, depending on project

type, are supposed to be forthcoming within 15-45 working days.

6. Foreign investors are required to obtain a foreign investment

license, an enterprise registration certificate, and a tax

registration certificate from the MPI office nearest the place where

the foreign investors are licensed. Thereafter they shall be

considered as enterprises established in conformity with the laws of

the Lao People's Democratic Republic. Within 90 days from the date

of receipt of an investment license the foreign investment

enterprise must commence business activities. If the investors fail

to do so, the foreign investment license is subject to termination.

7. In addition to the investment license, foreign investors are

required to obtain other permits. These include a business

registration which must be annually renewed from the Ministry of

Industry and Commerce, a tax registration from the tax department in

the Ministry of Finance, a business logo registration from the

Ministry of Public Security, permits from each line ministry related

to the investment (i.e., Ministry of Industry and Commerce for

manufacturing; Ministry of Public Works and Transportation, etc.),

appropriate permits from local authorities, and an import-export

license, if needed. Obtaining the necessary permits can pose a

challenge to foreign investors, especially in areas outside the

capital. The recent creation of a "one-stop shop" for many permits

within the Ministry of Planning and Investment should help ease

permitting difficulties in the future.



VIENTIANE 00000063 015 OF 033





8. Lao law provides for sanctity of contracts. The following link

is for a translation of the Lao contract law.

http://www.undplao.org/ whatwedo/bgresource/demogov/

Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf



However, since Laos is a communist one-party state, the sanctity of

contracts is subject both to political interference and a number of

socialist principles enshrined in the law. For example, according

to the contract law:

A contract can be voided if it is disadvantageous to one party, and

A voidable contract can be declared void by the disadvantaged

party.

9. Although a commercial court system exists, in practice most

judges adjudicating commercial disputes have little training in

commercial law. Those considering doing business in Laos are

strongly urged to contact a reputable law firm for additional advice

on contracts.

10. In 2006 the Lao government ceased imposing import restrictions

on trading companies, whether foreign or domestic, in an effort to

let the market respond to actual demand. The Lao government no

longer requires companies to file an annual import plan for approval

by the Ministry of Commerce. The main exception is the fuel

industry, where individual companies are still required to file an

annual import plan. The government controls the retail price and

profit margins of gasoline and diesel. A large American oil company

announced in late 2007 that it was leaving the Lao market to focus

on more profitable countries within Asia. Government documents

articulating the restrictions and explaining the policy are

difficult to obtain. Goods that are always prohibited for import

and export range from explosives and weapons, to literature that

presents a negative view of the Lao government, to certain forestry

products and wildlife. For a detailed list of import & export

restrictions please visit http://www.moc.gov.la/default.asp



11. Agriculture production and most manufacturing production is

private. State-owned enterprises (SOEs) currently account for only

one percent of total employment. Approximately 97 percent of

manufacturing units are small (fewer than 10 employees). Foreign

companies interested in acquiring SOEs should apply through the

Department for



--------------

CONVERSION AND TRANSFER POLICIES

--------------



12. In order to facilitate business transactions, foreign investors

generally open commercial bank accounts in both local and foreign

convertible currency at domestic and foreign banks in Laos.

Australian, Vietnamese, Thai, Cambodian and Malaysian banks

currently have a presence in Laos. Bank accounts must be maintained

in accordance with the Enterprise Accounting Law. The law places no

limitations on foreign investors transferring after-tax profits,

income from technology transfer, initial capital, interest, wages

and salaries, or other remittances to the company's home country or

third countries so long as they request approval from the Lao

government. These transactions are conducted at the official

exchange rate on the day of execution, upon presentation of

appropriate documentation. Supply of foreign exchange has in the

past been limited in Laos, which imposed a de facto limit on

repatriation of capital. Foreign currency inflows in recent years,

however, have reportedly solved this problem and large

multinationals in Laos report no problems with access to foreign

exchange. Foreign enterprises must report on their performance

annually and submit annual financial statements to the Ministry of

Planning and Investment (MPI).



--------------

EXPROPRIATION AND COMPENSATION

--------------



13. Foreign assets and investments in Laos are protected by laws and

regulations against seizure, confiscation, or nationalization except

when this is deemed necessary for a public purpose, in which case

foreign investors are to be compensated. While there have been no

expropriations, the Lao Government has revoked the foreign

investment licenses of companies in a less than transparent process.

Revocation of an investment license cannot be appealed to an

independent body, and companies whose licenses are revoked must then

liquidate their assets relatively rapidly. In addition, a company

that fails to begin conducting business within ninety days of

registering could be dissolved, if it does not have a reasonable

explanation.

--------------

DISPUTE SETTLEMENT



VIENTIANE 00000063 016 OF 033





--------------



14. According to the Foreign Investment Law, investors involved in

investment disputes must seek arbitration before taking legal

action. If arbitration does not result in an amicable settlement,

litigants may submit their claims to the economic arbitration

authority of Laos, or that of the investor's country, or an

international organization agreed on by both parties. In practice,

there are no adequate independent arbitration venues in Laos.

Foreign investors are therefore generally advised to seek

arbitration outside the country, since Laos' nascent domestic

arbitration authority lacks enforcement powers. Laos is not a

member of the International Center for the Settlement of Investment

Disputes. It became a party to the New York Convention of 1958 on

the Recognition and Enforcement of Foreign Arbitral Awards on

September 15, 1998, but Laos has never been asked to enforce a

foreign arbitral award. Laos is a member of the United Nations

Convention on International Trade Law.

15. In disputes involving the Ministry of Planning and Investment,

decisions can only be appealed back to the Ministry itself. There

is no separate independent body. Thus a company which feels it is

receiving unfair treatment from the government has no independent

recourse. In 2007, two U.S.-owned small companies were involved in

disputes with the Lao government. One company had its investment

license revoked and the U.S. owners were given no option other than

to liquidate their assets. Another is still working with Lao

authorities to resolve the issue. The Lao government has cooperated

with the Embassy in addressing the disputes.



16. Laos' legal system is evolving, but remains incomplete in many

regards. Laws sometimes contradict each other and often lack

implementing regulations. For example, tax exemptions and low

import duties guaranteed to foreign investors under the foreign

investment law are not reflected in customs or tax law. Supported

by the Japan International Cooperation Agency (JICA),Singapore, and

the United Nations Development Program (UNDP),some laws have been

officially translated into English. These include the business,

tax, bankruptcy, customs, and secured transaction laws.

Implementing regulations for the Foreign Investment Law, which are

crucial to enforcement, were approved on October 10, 2005. The

reliability of unofficial translations varies considerably, which

can create an environment of uncertainty and ambiguity among foreign

investors. Application of Lao law remains inconsistent and

knowledge of the laws themselves is often limited (especially

outside the capital). The existence of a large number of government

decrees, sometimes unpublished, further complicates the situation.

While the trend under the current government is towards more

openness and more accountability, investors are cautioned to

recognize that economic and legal reform remain a work in progress.

17. Projects funded by the Australian government, the EU, the U.S.,

and the UN Development Program to assist Lao accession to the World

Trade Organization (WTO) include components aimed at bringing Lao

commercial law into conformity with WTO standards. A commercial

court was established during 2003, and began to hear cases in 2005.

The Lao Bar Association was set-up in 2007.



18. Laos has no anti-trust statutes. The bankruptcy law permits

either the business or creditor the right to petition the court for

a bankruptcy judgment, and allows businesses the right to request

mediation. There is no record of foreign-owned enterprises, whether

as debtors or as creditors, petitioning the courts for a bankruptcy

judgment.

--------------

PERFORMANCE REQUIREMENTS AND INCENTIVES

--------------



19. Laos does not impose performance requirements per se. Foreign

investors are encouraged to give priority to Lao citizens in

recruiting and hiring. According to the foreign investment law,

foreign personnel can be hired, although they may not exceed ten

percent (10%) of the enterprise's total labor force. In the case of

skilled labor, or politically important projects, the Ministry of

Planning and Investment has confirmed that enterprises can hire over

10% foreign labor if necessary. Before bringing in foreign labor,

the enterprise must apply for work permits from the Ministry of

Labor and Social Welfare. A foreign personnel list must also be

submitted to the Planning, Monitoring and Evaluation Division of the

Department for Promotion and Management of Domestic and Foreign

Investment (DDFI).

20. Incentives for Foreign Investment: Laos grants incentives for

foreign investment depending on the sectors and zones of investment

promotion. The government defines promoted activities under Article

16 as follows:





VIENTIANE 00000063 017 OF 033





1) production for export;

2) activities relating to agriculture or forestry, and agricultural,

forestry and handicraft processing activities;

3) activities relating to industrial processing, industrial

activities using modern techniques and technology, research and

development, and activities relating to the protection of the

environment and biodiversity;

4) human resource development, skills development and public health;



5) construction of infrastructure;

6) production of raw materials and equipment to be supplied to key

industrial activities; and,

7) development of the tourism industry and transit services.



21. The Law on the Promotion of Foreign Investment:



http://www.undplao.org/whatwedo/bgresource/

demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%

20Investment.pdf



describes geographic and tax incentives in articles 17 and 18.



22. Foreigners employed in Laos, including foreign investors, must

pay an income tax of 10 percent of their total income to the Lao

Government, unless they are citizens of a country with which the Lao

Government has signed a double taxation agreement. The United

States has no such agreement with Laos. The turnover tax is

scheduled to be replaced in 2009 with a Value Added Tax (VAT).

23. Foreign investors are not required to pay import duty on

equipment, spare parts and other materials used in the operation of

their enterprises. Raw materials and intermediate goods imported

for the purpose of processing and re-export are exempt from import

duties. Raw materials and intermediate goods imported for the

purpose of import substitution are also eligible for import duty

reductions on a case-by-case basis. On an individual basis, foreign

investors are also eligible for profit tax and import duty

reductions or exemptions, if the investment is significantly large

or determined to have a significant benefit to Laos' socio-economic

development. To date the Lao Government appears to have honored its

incentives. Annual business license renewal is contingent upon

certification that corporate income taxes have been paid. The tax

code was streamlined and simplified in April 2005, but some

investors still report significant difficulties in obtaining tax

certifications in a timely manner.



24. The Foreign Investment Law stipulates that foreign investors

and their families, including foreign professionals and foreign

employees of an enterprise, shall be facilitated by issue of

multiple entry visas and, if approved by the government, long term

residence in the Lao PDR. They also, in theory, have the right to

apply for Lao nationality in accordance with the Law on Nationality.



--------------

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

--------------



25. The government recognizes the right of private enterprise

ownership, and foreigners may transfer shares of a foreign-invested

company without prior government approval. However, the business

law requires that all shareholders be listed in the articles of

association, and changes in the articles of association of a

foreign-invested company must be approved by DDFI-Ministry of

Planning and Investment (MPI) , per the Enterprise Law

http://www.moc.gov.la/default.asp. Thus, transferring shares in a

foreign-invested company registered in Laos does require the

indirect approval of the government (DDFI-MPI).

--------------

PROTECTION OF PROPERTY RIGHTS

--------------



26. Foreign investors are not permitted to own land. The

government grants long-term leases, and allows the ownership of

leases and the right to transfer and improve leasehold interests.

Government approval is not required to transfer property interests,

but the transfer must be registered and a registration fee paid.

This includes mortgage leases.

27. Secured interests in property are inadequately covered by the

Secured Transactions Law of 1994. Because the law offers no

instructions for the creditor to enforce security rights (the

creditor, for example, can only request repayment from the debtor),

the law favors the debtor. Moreover, since the Ministry of

Finance's registry system is not computerized, and cannot

cross-reference records, it is difficult to determine if a piece of

property is encumbered. Enforcement of a mortgage is further



VIENTIANE 00000063 018 OF 033





complicated by the legal protection given mortgagees against

forfeiture of their sole place of residence.

28. Laos issued a trademark decree in January 1995. The National

Science and Technology Organization (NSTO),part of the Prime

Minister's Office, controls the issuance of trademarks on a

first-come, first-register basis. Applicants do not have to

demonstrate prior use. There are currently over 18,109 trademarks

registered in Laos.

29. Laos became a member of the ASEAN Common Filing System on

patents in 2000 but lacks adequate personnel qualified to serve as

patent examiners. A draft decree on patents was sent to the Prime

Minister in February 2000 for approval and in 2002 the Prime

Minister's Office issued patent regulations. Since Thailand and

Laos have a bilateral Intellectual Property Rights (IPR) agreement,

in principle a patent issued in Thailand would also be recognized in

Laos.

30. Currently, no system exists to issue copyrights in Laos. Laos

became a member of the World Intellectual Property Organization

(WIPO) Convention in January 1995 and the Paris Convention on the

Protection of Industrial Property in October 1998; it has not yet

joined the Bern Convention on Copyrights, however. Although WIPO

began to assist Laos in drafting an intellectual property law in

1996, a WTO-compliant law has not yet been implemented. In December

2007 the National Assembly approved a law the Lao government claims

will cover its U.S. Bilateral Trade Agreement (BTA)

responsibilities, as well as be WTO compliant. An English

translation sponsored by the U.S. Government is currently being

finalized. Overall, there is currently little protection for

intellectual property rights in Laos, although the authorities have

taken steps to crack down on some pirated goods.

--------------

TRANSPARENCY OF THE REGULATORY SYSTEM

--------------



31. The principal laws, regulations, decrees and guidelines

governing international trade and investment, as well as the current

protection of intellectual property, are available to the public,

although not all have been officially translated into English. Laws

and their schedules for implementation are customarily published in

Lao daily newspapers, and relevant line ministries are beginning to

put laws and regulations on websites. The website for UNDP Laos

maintains a partial list of translated Lao laws:

http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php



Laws can also be found via the following websites. Laws on the

National Assembly website represent the officially approved English

translations:

http://www.na.gov.la/index.php (look under legislation on the left

side);

http://www.poweringprogress.org/ index.php?option=com_

content&view=

index.php?option=com _content&view=article&id= 242&Itemid=109

http://www.moc.gov.la/gioithieuAP.asp

In addition, implementation of the budget law commenced with the

restructuring of the Ministry of Finance (MoF) via Prime Ministerial

Decree Number 80 of February 28, 2007. In September 2007, the Prime

Minister issued Order No 35 instructing the MoF to move ahead with

centralization of customs, tax and treasury departments. In January

2009 the Government introduced a Value-Added Tax (VAT). Full

implementation of the tax is likely to take a number of years.

32. A lack of transparency in a centralized decision-making

process, as well as the difficulty encountered in obtaining

information, augment the perception of the regulatory framework as

arbitrary and inscrutable. There have been reports that the

government has recently begun discussing some proposed laws and

regulations with the business community, and acted upon the advice

given, before making final decisions. The Lao Tourist Association

has repeatedly urged the Lao government at the "Lao Business Forum,"

a business-government meeting sponsored by the Lao government and

the International Finance Corporation (IFC),to discuss proposed

laws with industry prior to implementation.

-------------- --------------

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

-------------- --------------



33. Laos does not have a developed capital market. Three-month

treasury bills are occasionally offered for sale when there is a

need to absorb excess liquidity in the economy. The largest

denomination of currency is 50,000 kip (about US$5). Credit is not

available on the local market for large capital investments,

although letters of credit for export can sometimes be obtained

locally. International reserves fluctuate, with the latest

available 2007 data showing sufficient coverage for 5 months of

imports and numbering $485 million.



VIENTIANE 00000063 019 OF 033





34. The banking system is under the supervision of the Bank of Lao

PDR, and includes:

* three state-owned commercial banks: Banque pour Le Commerce

Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion

Bank;

* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;



* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai

Military and Ayoudhiya Banks whose activities are mainly limited to

providing services to local Thai businesses;

* one Vietnamese bank: Sacombank

* five private banks (3 foreign and two domestic): Malaysia - Public

Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the

Association of Cambodia Local Economic Development Agencies (ACLEDA)

Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao

Bank

one representative office: Standard Chartered Bank.



35. A new banking law passed in 2006 allows private foreign banks

to establish branches in all provinces of Laos. (Previously,

foreign banks were permitted to establish branches only in

Vientiane.) The Commercial Bank Law is available on the Bank of Lao

PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has

correspondence arrangements with the following banks (US dollars):



JP Morgan Chase Bank, New York

Citibank, New York

Wachovia Bank, New York

American Express Bank, Ltd., New York

HSBC Bank, New York

Standard Chartered Bank, New York

Barclays Bank Plc., London

Credit Suisse First Boston, Zurich

Bank of Tokyo-Mitsubishi, Ltd, Tokyo

Natexis Banque Populaires, Singapore

Standard Chartered Bank, Singapore

Bank for Foreign Trade of Vietnam, Hanoi

TMB, Bank Public Co, Ltd, Bangkok

Bank Thai Public Co. Ltd. Bangkok

Calyon, Bangkok

Sumitomo Mitsui Banking Corporation, Tokyo



36. The Lao banking sector is in flux, with new private and foreign

banks opening to provide modern banking options to Lao and foreign

businesses. While continuing to receive outside assistance, central

bank supervision of the sector remains somewhat weak. Although

non-performing loans have decreased significantly since 2003,

through work-outs, write-offs, and transfers off balance sheets, the

three state-owned commercial banks (SCBs) remain, according to

official estimates, insolvent. For detailed information see the IMF

Article IV report:

http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf

The Asian Development Bank has provided both program loans and

technical assistance to Laos' financial sector, as have the World

Bank and the IMF. These programs have led to some reforms but

overall capacity within the governance structure remains weak and

the banks face many challenges.

The Government of Laos is planning to open a stock exchange in 2010,

with technical assistance provided from the South Korean

government.



--------------

POLITICAL VIOLENCE

--------------



37. Laos is generally a peaceful and politically stable country.

The remnants of an insurgency occasionally carry out small-scale

attacks on government personnel and civilians. Foreign persons are

not deliberately targeted, but visitors are advised to use caution

when traveling in remote districts.



--------------

CORRUPTION

--------------



38. The Prime Minister's Office has made combating corruption a

priority, including issuance of an anticorruption decree in November

1999, but corruption remains a problem. Although the 1999 decree

specifically notes the responsibility of the state-owned mass media

in publicizing corruption cases, there has been no reporting on this

issue. In 2005, an anti-corruption law was passed by the National

Assembly. According to the State Inspection Authority, the Lao

Government has prosecuted some individuals for corruption but it

cannot publicize the information. The State Inspection Authority,



VIENTIANE 00000063 020 OF 033





located in the Prime Minister's Office, is charged with analyzing

corruption at the national level and serves as a central office for

gathering details and evidence of suspected corruption.

Additionally, the State Inspection Department in each Ministry is

responsible for a ministry's internal problems.



39. Laos is not a signatory to the OECD Convention on Combating

UNCLASSIFIED

PROG 02/06/09

AMB: RRHUSO

ECON: JCARCHIBALD

DCM: PMHAYMOND

POL PDS



AMEMBASSY VIENTIANE

SECSTATE WASHDC

INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS

CIMS NTDB WASHDC

USDOC WASHDC

US DEPARTMENT OF COMMERCE WASHDC

US DEPARTMENT OF TREASURY WASH DC



SIPDIS



STATE FOR EAP/MLS EMERY

STATE FOR EEB/IFD/OIA

STATE PASS USTR FOR BISBEE

COMMERCE FOR HP PHO



E.O. 12958: N/A

TAGS: ECON, EINV, OPIC, USTR, KTDB, LA

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS



REF: 08 STATE 123909



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------



1. The Lao government is open to foreign investment as a matter of

policy. It allows 100% foreign ownership of investments. The

overall investment climate is poor but improving. Laos rates very

low in international indices of transparency and ease of doing

business.



2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated

October 22, 2004, purport to promote foreign direct investment as a

means of boosting development and economic growth. Under the 2004

Law on the Promotion of Foreign Investment, scheduled to be updated

at the end of 2009, foreign investors may invest in all business

sectors and zones of investment in the Lao People's Democratic

Republic, except in business activities which are detrimental to

national security, have a negative impact on the environment, or are

regarded as detrimental to health or national traditions. In recent

years Laos has seen a significant increase in FDI, especially in

mining, hydropower, and plantation agriculture. Major foreign

investors are Thailand, China, Vietnam and Australia.

3. When bidding for the right to large contracts, companies

frequently offer the government the "option" of purchasing part of

the company at a later date, often with money borrowed from the

investor or multilateral institutions. The investment term of a

foreign investment enterprise depends on the nature, size, and

conditions of the business project but normally cannot exceed fifty

years. Under special circumstances, foreign investment enterprises

may be extended with the approval of the government. However,

foreign enterprises that receive extension approval from the

government may not exceed a total investment term of seventy-five

years.

4. Foreign investors seeking to establish operations in Laos must

submit project proposals to the Department for Promotion and

Management of Domestic and Foreign Investment (DDFI),Ministry for

Planning and Investment (MPI). The proposal is then screened by the

relevant line ministries and adjudicated by the Prime Minister's

Office. Under Prime Minister Decree No 301, dated October 12, 2005,

proposals for projects worth US$20 million or more require the

approval of the Prime Minister. The Minister of MPI can approve

investments below $20 million USD while the vice Minister can

approve investments of less than $10 million USD. FDI equal to or

less than $3 million USD can be approved at the provincial level by

all provinces, and in four of the larger provinces - Vientiane

Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for

provincial level approval is $5 million.

5. Foreign investors in a joint venture must contribute at least

thirty percent (30%) of the venture's registered capital. Capital



VIENTIANE 00000063 021 OF 033





contributed in foreign currency must be converted into kip based on

the exchange rate of the Bank of the Lao People's Democratic

Republic on the day of the capital contribution. Wholly

foreign-owned companies may either be a new company or a branch

office of an existing foreign company. Throughout the period of

operation of a foreign investment enterprise, the assets of the

enterprise must not be less than its registered capital. The

screening process at the Department for Promotion and Management of

Domestic and Foreign Investment (DDFI) in the Ministry of Planning

and Investment (MPI) takes into account the financial and technical

feasibility of the project, input from relevant line ministries, and

whether the proposed project conflicts with government policy. Upon

receipt of an application, the MPI must coordinate with relevant

sectors and local authorities to consider and respond in writing to

the foreign investor. Responses to projects, depending on project

type, are supposed to be forthcoming within 15-45 working days.

6. Foreign investors are required to obtain a foreign investment

license, an enterprise registration certificate, and a tax

registration certificate from the MPI office nearest the place where

the foreign investors are licensed. Thereafter they shall be

considered as enterprises established in conformity with the laws of

the Lao People's Democratic Republic. Within 90 days from the date

of receipt of an investment license the foreign investment

enterprise must commence business activities. If the investors fail

to do so, the foreign investment license is subject to termination.

7. In addition to the investment license, foreign investors are

required to obtain other permits. These include a business

registration which must be annually renewed from the Ministry of

Industry and Commerce, a tax registration from the tax department in

the Ministry of Finance, a business logo registration from the

Ministry of Public Security, permits from each line ministry related

to the investment (i.e., Ministry of Industry and Commerce for

manufacturing; Ministry of Public Works and Transportation, etc.),

appropriate permits from local authorities, and an import-export

license, if needed. Obtaining the necessary permits can pose a

challenge to foreign investors, especially in areas outside the

capital. The recent creation of a "one-stop shop" for many permits

within the Ministry of Planning and Investment should help ease

permitting difficulties in the future.

8. Lao law provides for sanctity of contracts. The following link

is for a translation of the Lao contract law.

http://www.undplao.org/ whatwedo/bgresource/demogov/

Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf



However, since Laos is a communist one-party state, the sanctity of

contracts is subject both to political interference and a number of

socialist principles enshrined in the law. For example, according

to the contract law:

A contract can be voided if it is disadvantageous to one party, and

A voidable contract can be declared void by the disadvantaged

party.

9. Although a commercial court system exists, in practice most

judges adjudicating commercial disputes have little training in

commercial law. Those considering doing business in Laos are

strongly urged to contact a reputable law firm for additional advice

on contracts.

10. In 2006 the Lao government ceased imposing import restrictions

on trading companies, whether foreign or domestic, in an effort to

let the market respond to actual demand. The Lao government no

longer requires companies to file an annual import plan for approval

by the Ministry of Commerce. The main exception is the fuel

industry, where individual companies are still required to file an

annual import plan. The government controls the retail price and

profit margins of gasoline and diesel. A large American oil company

announced in late 2007 that it was leaving the Lao market to focus

on more profitable countries within Asia. Government documents

articulating the restrictions and explaining the policy are

difficult to obtain. Goods that are always prohibited for import

and export range from explosives and weapons, to literature that

presents a negative view of the Lao government, to certain forestry

products and wildlife. For a detailed list of import & export

restrictions please visit http://www.moc.gov.la/default.asp



11. Agriculture production and most manufacturing production is

private. State-owned enterprises (SOEs) currently account for only

one percent of total employment. Approximately 97 percent of

manufacturing units are small (fewer than 10 employees). Foreign

companies interested in acquiring SOEs should apply through the

Department for



--------------

CONVERSION AND TRANSFER POLICIES

--------------





VIENTIANE 00000063 022 OF 033





12. In order to facilitate business transactions, foreign investors

generally open commercial bank accounts in both local and foreign

convertible currency at domestic and foreign banks in Laos.

Australian, Vietnamese, Thai, Cambodian and Malaysian banks

currently have a presence in Laos. Bank accounts must be maintained

in accordance with the Enterprise Accounting Law. The law places no

limitations on foreign investors transferring after-tax profits,

income from technology transfer, initial capital, interest, wages

and salaries, or other remittances to the company's home country or

third countries so long as they request approval from the Lao

government. These transactions are conducted at the official

exchange rate on the day of execution, upon presentation of

appropriate documentation. Supply of foreign exchange has in the

past been limited in Laos, which imposed a de facto limit on

repatriation of capital. Foreign currency inflows in recent years,

however, have reportedly solved this problem and large

multinationals in Laos report no problems with access to foreign

exchange. Foreign enterprises must report on their performance

annually and submit annual financial statements to the Ministry of

Planning and Investment (MPI).



--------------

EXPROPRIATION AND COMPENSATION

--------------



13. Foreign assets and investments in Laos are protected by laws and

regulations against seizure, confiscation, or nationalization except

when this is deemed necessary for a public purpose, in which case

foreign investors are to be compensated. While there have been no

expropriations, the Lao Government has revoked the foreign

investment licenses of companies in a less than transparent process.

Revocation of an investment license cannot be appealed to an

independent body, and companies whose licenses are revoked must then

liquidate their assets relatively rapidly. In addition, a company

that fails to begin conducting business within ninety days of

registering could be dissolved, if it does not have a reasonable

explanation.

--------------

DISPUTE SETTLEMENT

--------------



14. According to the Foreign Investment Law, investors involved in

investment disputes must seek arbitration before taking legal

action. If arbitration does not result in an amicable settlement,

litigants may submit their claims to the economic arbitration

authority of Laos, or that of the investor's country, or an

international organization agreed on by both parties. In practice,

there are no adequate independent arbitration venues in Laos.

Foreign investors are therefore generally advised to seek

arbitration outside the country, since Laos' nascent domestic

arbitration authority lacks enforcement powers. Laos is not a

member of the International Center for the Settlement of Investment

Disputes. It became a party to the New York Convention of 1958 on

the Recognition and Enforcement of Foreign Arbitral Awards on

September 15, 1998, but Laos has never been asked to enforce a

foreign arbitral award. Laos is a member of the United Nations

Convention on International Trade Law.

15. In disputes involving the Ministry of Planning and Investment,

decisions can only be appealed back to the Ministry itself. There

is no separate independent body. Thus a company which feels it is

receiving unfair treatment from the government has no independent

recourse. In 2007, two U.S.-owned small companies were involved in

disputes with the Lao government. One company had its investment

license revoked and the U.S. owners were given no option other than

to liquidate their assets. Another is still working with Lao

authorities to resolve the issue. The Lao government has cooperated

with the Embassy in addressing the disputes.



16. Laos' legal system is evolving, but remains incomplete in many

regards. Laws sometimes contradict each other and often lack

implementing regulations. For example, tax exemptions and low

import duties guaranteed to foreign investors under the foreign

investment law are not reflected in customs or tax law. Supported

by the Japan International Cooperation Agency (JICA),Singapore, and

the United Nations Development Program (UNDP),some laws have been

officially translated into English. These include the business,

tax, bankruptcy, customs, and secured transaction laws.

Implementing regulations for the Foreign Investment Law, which are

crucial to enforcement, were approved on October 10, 2005. The

reliability of unofficial translations varies considerably, which

can create an environment of uncertainty and ambiguity among foreign

investors. Application of Lao law remains inconsistent and

knowledge of the laws themselves is often limited (especially

outside the capital). The existence of a large number of government



VIENTIANE 00000063 023 OF 033





decrees, sometimes unpublished, further complicates the situation.

While the trend under the current government is towards more

openness and more accountability, investors are cautioned to

recognize that economic and legal reform remain a work in progress.

17. Projects funded by the Australian government, the EU, the U.S.,

and the UN Development Program to assist Lao accession to the World

Trade Organization (WTO) include components aimed at bringing Lao

commercial law into conformity with WTO standards. A commercial

court was established during 2003, and began to hear cases in 2005.

The Lao Bar Association was set-up in 2007.



18. Laos has no anti-trust statutes. The bankruptcy law permits

either the business or creditor the right to petition the court for

a bankruptcy judgment, and allows businesses the right to request

mediation. There is no record of foreign-owned enterprises, whether

as debtors or as creditors, petitioning the courts for a bankruptcy

judgment.

--------------

PERFORMANCE REQUIREMENTS AND INCENTIVES

--------------



19. Laos does not impose performance requirements per se. Foreign

investors are encouraged to give priority to Lao citizens in

recruiting and hiring. According to the foreign investment law,

foreign personnel can be hired, although they may not exceed ten

percent (10%) of the enterprise's total labor force. In the case of

skilled labor, or politically important projects, the Ministry of

Planning and Investment has confirmed that enterprises can hire over

10% foreign labor if necessary. Before bringing in foreign labor,

the enterprise must apply for work permits from the Ministry of

Labor and Social Welfare. A foreign personnel list must also be

submitted to the Planning, Monitoring and Evaluation Division of the

Department for Promotion and Management of Domestic and Foreign

Investment (DDFI).

20. Incentives for Foreign Investment: Laos grants incentives for

foreign investment depending on the sectors and zones of investment

promotion. The government defines promoted activities under Article

16 as follows:



1) production for export;

2) activities relating to agriculture or forestry, and agricultural,

forestry and handicraft processing activities;

3) activities relating to industrial processing, industrial

activities using modern techniques and technology, research and

development, and activities relating to the protection of the

environment and biodiversity;

4) human resource development, skills development and public health;



5) construction of infrastructure;

6) production of raw materials and equipment to be supplied to key

industrial activities; and,

7) development of the tourism industry and transit services.



21. The Law on the Promotion of Foreign Investment:



http://www.undplao.org/whatwedo/bgresource/

demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%

20Investment.pdf



describes geographic and tax incentives in articles 17 and 18.



22. Foreigners employed in Laos, including foreign investors, must

pay an income tax of 10 percent of their total income to the Lao

Government, unless they are citizens of a country with which the Lao

Government has signed a double taxation agreement. The United

States has no such agreement with Laos. The turnover tax is

scheduled to be replaced in 2009 with a Value Added Tax (VAT).

23. Foreign investors are not required to pay import duty on

equipment, spare parts and other materials used in the operation of

their enterprises. Raw materials and intermediate goods imported

for the purpose of processing and re-export are exempt from import

duties. Raw materials and intermediate goods imported for the

purpose of import substitution are also eligible for import duty

reductions on a case-by-case basis. On an individual basis, foreign

investors are also eligible for profit tax and import duty

reductions or exemptions, if the investment is significantly large

or determined to have a significant benefit to Laos' socio-economic

development. To date the Lao Government appears to have honored its

incentives. Annual business license renewal is contingent upon

certification that corporate income taxes have been paid. The tax

code was streamlined and simplified in April 2005, but some

investors still report significant difficulties in obtaining tax

certifications in a timely manner.





VIENTIANE 00000063 024 OF 033





24. The Foreign Investment Law stipulates that foreign investors

and their families, including foreign professionals and foreign

employees of an enterprise, shall be facilitated by issue of

multiple entry visas and, if approved by the government, long term

residence in the Lao PDR. They also, in theory, have the right to

apply for Lao nationality in accordance with the Law on Nationality.



--------------

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

--------------



25. The government recognizes the right of private enterprise

ownership, and foreigners may transfer shares of a foreign-invested

company without prior government approval. However, the business

law requires that all shareholders be listed in the articles of

association, and changeQin the articles of association of a

foreign-invested company must be approved by DDFI-Ministry of

Planning and Investment (MPI) , per the Enterprise Law

http://www.moc.gov.la/default.asp. Thus, transferring shares in a

foreign-invested company registered in Laos does require the

indirect approval of the government (DDFI-MPI).

--------------

PROTECTION OF PROPERTY RIGHTS

--------------



26. Foreign investors are not permitted to own land. The

government grants long-term leases, and allows the ownership of

leases and the right to transfer and improve leasehold interests.

Government approval is not required to transfer property interests,

but the transfer must be registered and a registration fee paid.

This includes mortgage leases.

27. Secured interests in property are inadequately covered by the

Secured Transactions Law of 1994. Because the law offers no

instructions for the creditor to enforce security rights (the

creditor, for example, can only request repayment from the debtor),

the law favors the debtor. Moreover, since the Ministry of

Finance's registry system is not computerized, and cannot

cross-reference records, it is difficult to determine if a piece of

property is encumbered. Enforcement of a mortgage is further

complicated by the legal protection given mortgagees against

forfeiture of their sole place of residence.

28. Laos issued a trademark decree in January 1995. The National

Science and Technology Organization (NSTO),part of the Prime

Minister's Office, controls the issuance of trademarks on a

first-come, first-register basis. Applicants do not have to

demonstrate prior use. There are currently over 18,109 trademarks

registered in Laos.

29. Laos became a member of the ASEAN Common Filing System on

patents in 2000 but lacks adequate personnel qualified to serve as

patent examiners. A draft decree on patents was sent to the Prime

Minister in February 2000 for approval and in 2002 the Prime

Minister's Office issued patent regulations. Since Thailand and

Laos have a bilateral Intellectual Property Rights (IPR) agreement,

in principle a patent issued in Thailand would also be recognized in

Laos.

30. Currently, no system exists to issue copyrights in Laos. Laos

became a member of the World Intellectual Property Organization

(WIPO) Convention in January 1995 and the Paris Convention on the

Protection of Industrial Property in October 1998; it has not yet

joined the Bern Convention on Copyrights, however. Although WIPO

began to assist Laos in drafting an intellectual property law in

1996, a WTO-compliant law has not yet been implemented. In December

2007 the National Assembly approved a law the Lao government claims

will cover its U.S. Bilateral Trade Agreement (BTA)

responsibilities, as well as be WTO compliant. An English

translation sponsored by the U.S. Government is currently being

finalized. Overall, there is currently little protection for

intellectual property rights in Laos, although the authorities have

taken steps to crack down on some pirated goods.

--------------

TRANSPARENCY OF THE REGULATORY SYSTEM

--------------



31. The principal laws, regulations, decrees and guidelines

governing international trade and investment, as well as the current

protection of intellectual property, are available to the public,

although not all have been officially translated into English. Laws

and their schedules for implementation are customarily published in

Lao daily newspapers, and relevant line ministries are beginning to

put laws and regulations on websites. The website for UNDP Laos

maintains a partial list of translated Lao laws:

http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php



Laws can also be found via the following websites. Laws on the



VIENTIANE 00000063 025 OF 033





National Assembly website represent the officially approved English

translations:

http://www.na.gov.la/index.php (look under legislation on the left

side);

http://www.poweringprogress.org/ index.php?option=com_

content&view=

index.php?option=com _content&view=article&id= 242&Itemid=109

http://www.moc.gov.la/gioithieuAP.asp

In addition, implementation of the budget law commenced with the

restructuring of the Ministry of Finance (MoF) via Prime Ministerial

Decree Number 80 of February 28, 2007. In September 2007, the Prime

Minister issued Order No 35 instructing the MoF to move ahead with

centralization of customs, tax and treasury departments. In January

2009 the Government introduced a Value-Added Tax (VAT). Full

implementation of the tax is likely to take a number of years.

32. A lack of transparency in a centralized decision-making

process, as well as the difficulty encountered in obtaining

information, augment the perception of the regulatory framework as

arbitrary and inscrutable. There have been reports that the

government has recently begun discussing some proposed laws and

regulations with the business community, and acted upon the advice

given, before making final decisions. The Lao Tourist Association

has repeatedly urged the Lao government at the "Lao Business Forum,"

a business-government meeting sponsored by the Lao government and

the International Finance Corporation (IFC),to discuss proposed

laws with industry prior to implementation.

-------------- --------------

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

-------------- --------------



33. Laos does not have a developed capital market. Three-month

treasury bills are occasionally offered for sale when there is a

need to absorb excess liquidity in the economy. The largest

denomination of currency is 50,000 kip (about US$5). Credit is not

available on the local market for large capital investments,

although letters of credit for export can sometimes be obtained

locally. International reserves fluctuate, with the latest

available 2007 data showing sufficient coverage for 5 months of

imports and numbering $485 million.

34. The banking system is under the supervision of the Bank of Lao

PDR, and includes:

* three state-owned commercial banks: Banque pour Le Commerce

Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion

Bank;

* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;



* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai

Military and Ayoudhiya Banks whose activities are mainly limited to

providing services to local Thai businesses;

* one Vietnamese bank: Sacombank

* five private banks (3 foreign and two domestic): Malaysia - Public

Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the

Association of Cambodia Local Economic Development Agencies (ACLEDA)

Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao

Bank

one representative office: Standard Chartered Bank.



35. A new banking law passed in 2006 allows private foreign banks

to establish branches in all provinces of Laos. (Previously,

foreign banks were permitted to establish branches only in

Vientiane.) The Commercial Bank Law is available on the Bank of Lao

PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has

correspondence arrangements with the following banks (US dollars):



JP Morgan Chase Bank, New York

Citibank, New York

Wachovia Bank, New York

American Express Bank, Ltd., New York

HSBC Bank, New York

Standard Chartered Bank, New York

Barclays Bank Plc., London

Credit Suisse First Boston, Zurich

Bank of Tokyo-Mitsubishi, Ltd, Tokyo

Natexis Banque Populaires, Singapore

Standard Chartered Bank, Singapore

Bank for Foreign Trade of Vietnam, Hanoi

TMB, Bank Public Co, Ltd, Bangkok

Bank Thai Public Co. Ltd. Bangkok

Calyon, Bangkok

Sumitomo Mitsui Banking Corporation, Tokyo



36. The Lao banking sector is in flux, with new private and foreign

banks opening to provide modern banking options to Lao and foreign

businesses. While continuing to receive outside assistance, central



VIENTIANE 00000063 026 OF 033





bank supervision of the sector remains somewhat weak. Although

non-performing loans have decreased significantly since 2003,

through work-outs, write-offs, and transfers off balance sheets, the

three state-owned commercial banks (SCBs) remain, according to

official estimates, insolvent. For detailed information see the IMF

Article IV report:

http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf

The Asian Development Bank has provided both program loans and

technical assistance to Laos' financial sector, as have the World

Bank and the IMF. These programs have led to some reforms but

overall capacity within the governance structure remains weak and

the banks face many challenges.

The Government of Laos is planning to open a stock exchange in 2010,

with technical assistance provided from the South Korean

government.



--------------

POLITICAL VIOLENCE

--------------



37. Laos is generally a peaceful and politically stable country.

The remnants of an insurgency occasionally carry out small-scale

attacks on government personnel and civilians. Foreign persons are

not deliberately targeted, but visitors are advised to use caution

when traveling in remote districts.



--------------

CORRUPTION

--------------



38. The Prime Minister's Office has made combating corruption a

priority, including issuance of an anticorruption decree in November

1999, but corruption remains a problem. Although the 1999 decree

specifically notes the responsibility of the state-owned mass media

in publicizing corruption cases, there has been no reporting on this

issue. In 2005, an anti-corruption law was passed by the National

Assembly. According to the State Inspection Authority, the Lao

Government has prosecuted some individuals for corruption but it

cannot publicize the information. The State Inspection Authority,

located in the Prime Minister's Office, is charged with analyzing

corruption at the national level and serves as a central office for

gathering details and evidence of suspected corruption.

Additionally, the State Inspection Department in each Ministry is

responsible for a ministry's internal problems.



39. Laos is not a signatory to the OECD Convention on Combating

UNCLASSIFIED

PROG 02/06/09

AMB: RRHUSO

ECON: JCARCHIBALD

DCM: PMHAYMOND

POL PDS



AMEMBASSY VIENTIANE

SECSTATE WASHDC

INFO ASSOCIATION OF SOUTHEAST ASIAN NATIONS

CIMS NTDB WASHDC

USDOC WASHDC

US DEPARTMENT OF COMMERCE WASHDC

US DEPARTMENT OF TREASURY WASH DC



SIPDIS



STATE FOR EAP/MLS EMERY

STATE FOR EEB/IFD/OIA

STATE PASS USTR FOR BISBEE

COMMERCE FOR HP PHO



E.O. 12958: N/A

TAGS: ECON, EINV, OPIC, USTR, KTDB, LA

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT FOR LAOS



REF: 08 STATE 123909



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------



1. The Lao government is open to foreign investment as a matter of

policy. It allows 100% foreign ownership of investments. The

overall investment climate is poor but improving. Laos rates very

low in international indices of transparency and ease of doing

business.





VIENTIANE 00000063 027 OF 033





2. The economic reforms adopted in 1988 and Decree No. 73/PO, dated

October 22, 2004, purport to promote foreign direct investment as a

means of boosting development and economic growth. Under the 2004

Law on the Promotion of Foreign Investment, scheduled to be updated

at the end of 2009, foreign investors may invest in all business

sectors and zones of investment in the Lao People's Democratic

Republic, except in business activities which are detrimental to

national security, have a negative impact on the environment, or are

regarded as detrimental to health or national traditions. In recent

years Laos has seen a significant increase in FDI, especially in

mining, hydropower, and plantation agriculture. Major foreign

investors are Thailand, China, Vietnam and Australia.

3. When bidding for the right to large contracts, companies

frequently offer the government the "option" of purchasing part of

the company at a later date, often with money borrowed from the

investor or multilateral institutions. The investment term of a

foreign investment enterprise depends on the nature, size, and

conditions of the business project but normally cannot exceed fifty

years. Under special circumstances, foreign investment enterprises

may be extended with the approval of the government. However,

foreign enterprises that receive extension approval from the

government may not exceed a total investment term of seventy-five

years.

4. Foreign investors seeking to establish operations in Laos must

submit project proposals to the Department for Promotion and

Management of Domestic and Foreign Investment (DDFI),Ministry for

Planning and Investment (MPI). The proposal is then screened by the

relevant line ministries and adjudicated by the Prime Minister's

Office. Under Prime Minister Decree No 301, dated October 12, 2005,

proposals for projects worth US$20 million or more require the

approval of the Prime Minister. The Minister of MPI can approve

investments below $20 million USD while the vice Minister can

approve investments of less than $10 million USD. FDI equal to or

less than $3 million USD can be approved at the provincial level by

all provinces, and in four of the larger provinces - Vientiane

Capital, Savannakhet, Champasack, and Luang Prabang, the ceiling for

provincial level approval is $5 million.

5. Foreign investors in a joint venture must contribute at least

thirty percent (30%) of the venture's registered capital. Capital

contributed in foreign currency must be converted into kip based on

the exchange rate of the Bank of the Lao People's Democratic

Republic on the day of the capital contribution. Wholly

foreign-owned companies may either be a new company or a branch

office of an existing foreign company. Throughout the period of

operation of a foreign investment enterprise, the assets of the

enterprise must not be less than its registered capital. The

screening process at the Department for Promotion and Management of

Domestic and Foreign Investment (DDFI) in the Ministry of Planning

and Investment (MPI) takes into account the financial and technical

feasibility of the project, input from relevant line ministries, and

whether the proposed project conflicts with government policy. Upon

receipt of an application, the MPI must coordinate with relevant

sectors and local authorities to consider and respond in writing to

the foreign investor. Responses to projects, depending on project

type, are supposed to be forthcoming within 15-45 working days.

6. Foreign investors are required to obtain a foreign investment

license, an enterprise registration certificate, and a tax

registration certificate from the MPI office nearest the place where

the foreign investors are licensed. Thereafter they shall be

considered as enterprises established in conformity with the laws of

the Lao People's Democratic Republic. Within 90 days from the date

of receipt of an investment license the foreign investment

enterprise must commence business activities. If the investors fail

to do so, the foreign investment license is subject to termination.

7. In addition to the investment license, foreign investors are

required to obtain other permits. These include a business

registration which must be annually renewed from the Ministry of

Industry and Commerce, a tax registration from the tax department in

the Ministry of Finance, a business logo registration from the

Ministry of Public Security, permits from each line ministry related

to the investment (i.e., Ministry of Industry and Commerce for

manufacturing; Ministry of Public Works and Transportation, etc.),

appropriate permits from local authorities, and an import-export

license, if needed. Obtaining the necessary permits can pose a

challenge to foreign investors, especially in areas outside the

capital. The recent creation of a "one-stop shop" for many permits

within the Ministry of Planning and Investment should help ease

permitting difficulties in the future.

8. Lao law provides for sanctity of contracts. The following link

is for a translation of the Lao contract law.

http://www.undplao.org/ whatwedo/bgresource/demogov/

Lao%20Translated%20Laws/ First%20Volume/4.%20Contracts.pdf



However, since Laos is a communist one-party state, the sanctity of



VIENTIANE 00000063 028 OF 033





contracts is subject both to political interference and a number of

socialist principles enshrined in the law. For example, according

to the contract law:

A contract can be voided if it is disadvantageous to one party, and

A voidable contract can be declared void by the disadvantaged

party.

9. Although a commercial court system exists, in practice most

judges adjudicating commercial disputes have little training in

commercial law. Those considering doing business in Laos are

strongly urged to contact a reputable law firm for additional advice

on contracts.

10. In 2006 the Lao government ceased imposing import restrictions

on trading companies, whether foreign or domestic, in an effort to

let the market respond to actual demand. The Lao government no

longer requires companies to file an annual import plan for approval

by the Ministry of Commerce. The main exception is the fuel

industry, where individual companies are still required to file an

annual import plan. The government controls the retail price and

profit margins of gasoline and diesel. A large American oil company

announced in late 2007 that it was leaving the Lao market to focus

on more profitable countries within Asia. Government documents

articulating the restrictions and explaining the policy are

difficult to obtain. Goods that are always prohibited for import

and export range from explosives and weapons, to literature that

presents a negative view of the Lao government, to certain forestry

products and wildlife. For a detailed list of import & export

restrictions please visit http://www.moc.gov.la/default.asp



11. Agriculture production and most manufacturing production is

private. State-owned enterprises (SOEs) currently account for only

one percent of total employment. Approximately 97 percent of

manufacturing units are small (fewer than 10 employees). Foreign

companies interested in acquiring SOEs should apply through the

Department for



--------------

CONVERSION AND TRANSFER POLICIES

--------------



12. In order to facilitate business transactions, foreign investors

generally open commercial bank accounts in both local and foreign

convertible currency at domestic and foreign banks in Laos.

Australian, Vietnamese, Thai, Cambodian and Malaysian banks

currently have a presence in Laos. Bank accounts must be maintained

in accordance with the Enterprise Accounting Law. The law places no

limitations on foreign investors transferring after-tax profits,

income from technology transfer, initial capital, interest, wages

and salaries, or other remittances to the company's home country or

third countries so long as they request approval from the Lao

government. These transactions are conducted at the official

exchange rate on the day of execution, upon presentation of

appropriate documentation. Supply of foreign exchange has in the

past been limited in Laos, which imposed a de facto limit on

repatriation of capital. Foreign currency inflows in recent years,

however, have reportedly solved this problem and large

multinationals in Laos report no problems with access to foreign

exchange. Foreign enterprises must report on their performance

annually and submit annual financial statements to the Ministry of

Planning and Investment (MPI).



--------------

EXPROPRIATION AND COMPENSATION

--------------



13. Foreign assets and investments in Laos are protected by laws and

regulations against seizure, confiscation, or nationalization except

when this is deemed necessary for a public purpose, in which case

foreign investors are to be compensated. While there have been no

expropriations, the Lao Government has revoked the foreign

investment licenses of companies in a less than transparent process.

Revocation of an investment license cannot be appealed to an

independent body, and companies whose licenses are revoked must then

liquidate their assets relatively rapidly. In addition, a company

that fails to begin conducting business within ninety days of

registering could be dissolved, if it does not have a reasonable

explanation.

--------------

DISPUTE SETTLEMENT

--------------



14. According to the Foreign Investment Law, investors involved in

investment disputes must seek arbitration before taking legal

action. If arbitration does not result in an amicable settlement,

litigants may submit their claims to the economic arbitration



VIENTIANE 00000063 029 OF 033





authority of Laos, or that of the investor's country, or an

international organization agreed on by both parties. In practice,

there are no adequate independent arbitration venues in Laos.

Foreign investors are therefore generally advised to seek

arbitration outside the country, since Laos' nascent domestic

arbitration authority lacks enforcement powers. Laos is not a

member of the International Center for the Settlement of Investment

Disputes. It became a party to the New York Convention of 1958 on

the Recognition and Enforcement of Foreign Arbitral Awards on

September 15, 1998, but Laos has never been asked to enforce a

foreign arbitral award. Laos is a member of the United Nations

Convention on International Trade Law.

15. In disputes involving the Ministry of Planning and Investment,

decisions can only be appealed back to the Ministry itself. There

is no separate independent body. Thus a company which feels it is

receiving unfair treatment from the government has no independent

recourse. In 2007, two U.S.-owned small companies were involved in

disputes with the Lao government. One company had its investment

license revoked and the U.S. owners were given no option other than

to liquidate their assets. Another is still working with Lao

authorities to resolve the issue. The Lao government has cooperated

with the Embassy in addressing the disputes.



16. Laos' legal system is evolving, but remains incomplete in many

regards. Laws sometimes contradict each other and often lack

implementing regulations. For example, tax exemptions and low

import duties guaranteed to foreign investors under the foreign

investment law are not reflected in customs or tax law. Supported

by the Japan International Cooperation Agency (JICA),Singapore, and

the United Nations Development Program (UNDP),some laws have been

officially translated into English. These include the business,

tax, bankruptcy, customs, and secured transaction laws.

Implementing regulations for the Foreign Investment Law, which are

crucial to enforcement, were approved on October 10, 2005. The

reliability of unofficial translations varies considerably, which

can create an environment of uncertainty and ambiguity among foreign

investors. Application of Lao law remains inconsistent and

knowledge of the laws themselves is often limited (especially

outside the capital). The existence of a large number of government

decrees, sometimes unpublished, further complicates the situation.

While the trend under the current government is towards more

openness and more accountability, investors are cautioned to

recognize that economic and legal reform remain a work in progress.

17. Projects funded by the Australian government, the EU, the U.S.,

and the UN Development Program to assist Lao accession to the World

Trade Organization (WTO) include components aimed at bringing Lao

commercial law into conformity with WTO standards. A commercial

court was established during 2003, and began to hear cases in 2005.

The Lao Bar Association was set-up in 2007.



18. Laos has no anti-trust statutes. The bankruptcy law permits

either the business or creditor the right to petition the court for

a bankruptcy judgment, and allows businesses the right to request

mediation. There is no record of foreign-owned enterprises, whether

as debtors or as creditors, petitioning the courts for a bankruptcy

judgment.

--------------

PERFORMANCE REQUIREMENTS AND INCENTIVES

--------------



19. Laos does not impose performance requirements per se. Foreign

investors are encouraged to give priority to Lao citizens in

recruiting and hiring. According to the foreign investment law,

foreign personnel can be hired, although they may not exceed ten

percent (10%) of the enterprise's total labor force. In the case of

skilled labor, or politically important projects, the Ministry of

Planning and Investment has confirmed that enterprises can hire over

10% foreign labor if necessary. Before bringing in foreign labor,

the enterprise must apply for work permits from the Ministry of

Labor and Social Welfare. A foreign personnel list must also be

submitted to the Planning, Monitoring and Evaluation Division of the

Department for Promotion and Management of Domestic and Foreign

Investment (DDFI).

20. Incentives for Foreign Investment: Laos grants incentives for

foreign investment depending on the sectors and zones of investment

promotion. The government defines promoted activities under Article

16 as follows:



1) production for export;

2) activities relating to agriculture or forestry, and agricultural,

forestry and handicraft processing activities;

3) activities relating to industrial processing, industrial

activities using modern techniques and technology, research and

development, and activities relating to the protection of the



VIENTIANE 00000063 030 OF 033





environment and biodiversity;

4) human resource development, skills development and public health;



5) construction of infrastructure;

6) production of raw materials and equipment to be supplied to key

industrial activities; and,

7) development of the tourism industry and transit services.



21. The Law on the Promotion of Foreign Investment:



http://www.undplao.org/whatwedo/bgresource/

demogov/Lao%20Translated%20Laws/ First%20Volume/6.%20Foreign%

20Investment.pdf



describes geographic and tax incentives in articles 17 and 18.



22. Foreigners employed in Laos, including foreign investors, must

pay an income tax of 10 percent of their total income to the Lao

Government, unless they are citizens of a country with which the Lao

Government has signed a double taxation agreement. The United

States has no such agreement with Laos. The turnover tax is

scheduled to be replaced in 2009 with a Value Added Tax (VAT).

23. Foreign investors are not required to pay import duty on

equipment, spare parts and other materials used in the operation of

their enterprises. Raw materials and intermediate goods imported

for the purpose of processing and re-export are exempt from import

duties. Raw materials and intermediate goods imported for the

purpose of import substitution are also eligible for import duty

reductions on a case-by-case basis. On an individual basis, foreign

investors are also eligible for profit tax and import duty

reductions or exemptions, if the investment is significantly large

or determined to have a significant benefit to Laos' socio-economic

development. To date the Lao Government appears to have honored its

incentives. Annual business license renewal is contingent upon

certification that corporate income taxes have been paid. The tax

code was streamlined and simplified in April 2005, but some

investors still report significant difficulties in obtaining tax

certifications in a timely manner.



24. The Foreign Investment Law stipulates that foreign investors

and their families, including foreign professionals and foreign

employees of an enterprise, shall be facilitated by issue of

multiple entry visas and, if approved by the government, long term

residence in the Lao PDR. They also, in theory, have the right to

apply for Lao nationality in accordance with the Law on Nationality.



--------------

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

--------------



25. The government recognizes the right of private enterprise

ownership, and foreigners may transfer shares of a foreign-invested

company without prior government approval. However, the business

law requires that all shareholders be listed in the articles of

association, and changes in the articles of association of a

foreign-invested company must be approved by DDFI-Ministry of

Planning and Investment (MPI) , per the Enterprise Law

http://www.moc.gov.la/default.asp. Thus, transferring shares in a

foreign-invested company registered in Laos does require the

indirect approval of the government (DDFI-MPI).

--------------

PROTECTION OF PROPERTY RIGHTS

--------------



26. Foreign investors are not permitted to own land. The

government grants long-term leases, and allows the ownership of

leases and the right to transfer and improve leasehold interests.

Government approval is not required to transfer property interests,

but the transfer must be registered and a registration fee paid.

This includes mortgage leases.

27. Secured interests in property are inadequately covered by the

Secured Transactions Law of 1994. Because the law offers no

instructions for the creditor to enforce security rights (the

creditor, for example, can only request repayment from the debtor),

the law favors the debtor. Moreover, since the Ministry of

Finance's registry system is not computerized, and cannot

cross-reference records, it is difficult to determine if a piece of

property is encumbered. Enforcement of a mortgage is further

complicated by the legal protection given mortgagees against

forfeiture of their sole place of residence.

28. Laos issued a trademark decree in January 1995. The National

Science and Technology Organization (NSTO),part of the Prime

Minister's Office, controls the issuance of trademarks on a

first-come, first-register basis. Applicants do not have to



VIENTIANE 00000063 031 OF 033





demonstrate prior use. There are currently over 18,109 trademarks

registered in Laos.

29. Laos became a member of the ASEAN Common Filing System on

patents in 2000 but lacks adequate personnel qualified to serve as

patent examiners. A draft decree on patents was sent to the Prime

Minister in February 2000 for approval and in 2002 the Prime

Minister's Office issued patent regulations. Since Thailand and

Laos have a bilateral Intellectual Property Rights (IPR) agreement,

in principle a patent issued in Thailand would also be recognized in

Laos.

30. Currently, no system exists to issue copyrights in Laos. Laos

became a member of the World Intellectual Property Organization

(WIPO) Convention in January 1995 and the Paris Convention on the

Protection of Industrial Property in October 1998; it has not yet

joined the Bern Convention on Copyrights, however. Although WIPO

began to assist Laos in drafting an intellectual property law in

1996, a WTO-compliant law has not yet been implemented. In December

2007 the National Assembly approved a law the Lao government claims

will cover its U.S. Bilateral Trade Agreement (BTA)

responsibilities, as well as be WTO compliant. An English

translation sponsored by the U.S. Government is currently being

finalized. Overall, there is currently little protection for

intellectual property rights in Laos, although the authorities have

taken steps to crack down on some pirated goods.

--------------

TRANSPARENCY OF THE REGULATORY SYSTEM

--------------



31. The principal laws, regulations, decrees and guidelines

governing international trade and investment, as well as the current

protection of intellectual property, are available to the public,

although not all have been officially translated into English. Laws

and their schedules for implementation are customarily published in

Lao daily newspapers, and relevant line ministries are beginning to

put laws and regulations on websites. The website for UNDP Laos

maintains a partial list of translated Lao laws:

http://www.undplao.org/ whatwedo/bgresource/gov laolaws.php



Laws can also be found via the following websites. Laws on the

National Assembly website represent the officially approved English

translations:

http://www.na.gov.la/index.php (look under legislation on the left

side);

http://www.poweringprogress.org/ index.php?option=com_

content&view=

index.php?option=com _content&view=article&id= 242&Itemid=109

http://www.moc.gov.la/gioithieuAP.asp

In addition, implementation of the budget law commenced with the

restructuring of the Ministry of Finance (MoF) via Prime Ministerial

Decree Number 80 of February 28, 2007. In September 2007, the Prime

Minister issued Order No 35 instructing the MoF to move ahead with

centralization of customs, tax and treasury departments. In January

2009 the Government introduced a Value-Added Tax (VAT). Full

implementation of the tax is likely to take a number of years.

32. A lack of transparency in a centralized decision-making

process, as well as the difficulty encountered in obtaining

information, augment the perception of the regulatory framework as

arbitrary and inscrutable. There have been reports that the

government has recently begun discussing some proposed laws and

regulations with the business community, and acted upon the advice

given, before making final decisions. The Lao Tourist Association

has repeatedly urged the Lao government at the "Lao Business Forum,"

a business-government meeting sponsored by the Lao government and

the International Finance Corporation (IFC),to discuss proposed

laws with industry prior to implementation.

-------------- --------------

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

-------------- --------------



33. Laos does not have a developed capital market. Three-month

treasury bills are occasionally offered for sale when there is a

need to absorb excess liquidity in the economy. The largest

denomination of currency is 50,000 kip (about US$5). Credit is not

available on the local market for large capital investments,

although letters of credit for export can sometimes be obtained

locally. International reserves fluctuate, with the latest

available 2007 data showing sufficient coverage for 5 months of

imports and numbering $485 million.

34. The banking system is under the supervision of the Bank of Lao

PDR, and includes:

* three state-owned commercial banks: Banque pour Le Commerce

Exterior Lao (BCEL),Lao Development Bank and Agriculture Promotion

Bank;

* two joint-venture banks: Joint Development Bank and Lao-Viet Bank;



VIENTIANE 00000063 032 OF 033







* five Thai banks: Bangkok, Siam Commercial, Krungthai, Thai

Military and Ayoudhiya Banks whose activities are mainly limited to

providing services to local Thai businesses;

* one Vietnamese bank: Sacombank

* five private banks (3 foreign and two domestic): Malaysia - Public

Bank (Berhad); ANZ Vientiane Commercial Bank Limited, and the

Association of Cambodia Local Economic Development Agencies (ACLEDA)

Bank Lao Ltd . Domestic banks include Phongsavanh Bankand and Kolao

Bank

one representative office: Standard Chartered Bank.



35. A new banking law passed in 2006 allows private foreign banks

to establish branches in all provinces of Laos. (Previously,

foreign banks were permitted to establish branches only in

Vientiane.) The Commercial Bank Law is available on the Bank of Lao

PDR (BOL) website: http://www.bol.gov.la/index1.php. BCEL has

correspondence arrangements with the following banks (US dollars):



JP Morgan Chase Bank, New York

Citibank, New York

Wachovia Bank, New York

American Express Bank, Ltd., New York

HSBC Bank, New York

Standard Chartered Bank, New York

Barclays Bank Plc., London

Credit Suisse First Boston, Zurich

Bank of Tokyo-Mitsubishi, Ltd, Tokyo

Natexis Banque Populaires, Singapore

Standard Chartered Bank, Singapore

Bank for Foreign Trade of Vietnam, Hanoi

TMB, Bank Public Co, Ltd, Bangkok

Bank Thai Public Co. Ltd. Bangkok

Calyon, Bangkok

Sumitomo Mitsui Banking Corporation, Tokyo



36. The Lao banking sector is in flux, with new private and foreign

banks opening to provide modern banking options to Lao and foreign

businesses. While continuing to receive outside assistance, central

bank supervision of the sector remains somewhat weak. Although

non-performing loans have decreased significantly since 2003,

through work-outs, write-offs, and transfers off balance sheets, the

three state-owned commercial banks (SCBs) remain, according to

official estimates, insolvent. For detailed information see the IMF

Article IV report:

http://www.imf.org/external/pubs /ft/scr/2008/cr08350.pdf

The Asian Development Bank has provided both program loans and

technical assistance to Laos' financial sector, as have the World

Bank and the IMF. These programs have led to some reforms but

overall capacity within the governance structure remains weak and

the banks face many challenges.

The Government of Laos is planning to open a stock exchange in 2010,

with technical assistance provided from the South Korean

government.



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POLITICAL VIOLENCE

--------------



37. Laos is generally a peaceful and politically stable country.

The remnants of an insurgency occasionally carry out small-scale

attacks on government personnel and civilians. Foreign persons are

not deliberately targeted, but visitors are advised to use caution

when traveling in remote districts.



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CORRUPTION

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38. The Prime Minister's Office has made combating corruption a

priority, including issuance of an anticorruption decree in November

1999, but corruption remains a problem. Although the 1999 decree

specifically notes the responsibility of the state-owned mass media

in publicizing corruption cases, there has been no reporting on this

issue. In 2005, an anti-corruption law was passed by the National

Assembly. According to the State Inspection Authority, the Lao

Government has prosecuted some individuals for corruption but it

cannot publicize the information. The State Inspection Authority,

located in the Prime Minister's Office, is charged with analyzing

corruption at the national level and serves as a central office for

gathering details and evidence of suspected corruption.

Additionally, the State Inspection Department in each Ministry is

responsible for a ministry's internal problems.





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39. Laos is not a signatory to the OECD Convention on Combating