2009 INVESTMENT CLIMATE STATEMENT FOR LAOS

UNCLAS SECTION 01 OF 11 VIENTIANE 000067

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

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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. According to Lao
government figures, the five largest foreign investors
are Thailand, China, Vietnam, France, and Japan.


3. Large FDI projects, especially in mining and
hydropower, often either find it advantageous or are
required to give the government partial ownership,
frequently with money borrowed from the investor or
multilateral institutions. Perhaps the most well-known is
the Nam Teun II dam, whose 25% government ownership stake
was financed by a wide range of international financial
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 MinisterQs Office. Under
Prime Minister Decree No 301, dated October 12, 2005,
proposals for projects worth $20 million USD 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 Q 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 ventureQs registered
capital. Capital contributed in foreign currency must be
converted into kip based on the exchange rate of the Bank
of the Lao PeopleQs 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 15Q45
working days.


6. Foreign investors are required to obtain a foreign

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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 PeopleQs 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 businesslogo
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/de mogov/
Lao%20Translated%20Laws/First%20Volume/4.%20C ontracts.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.
The Mekong Law Group, a well-known local law firm, has noted in
its QLao Legal & Investment GuideQ that according to the contract
law:

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

A contract is void if it conflicts with State or public
interests.


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. 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 forPromotion and
Management of Domestic and Foreign Investment (DDFI) in the
Ministry of Planning and Investment (MPI). Equity in medium
and large-sized SOEs can be obtained through a joint venture
with the Lao government.

--------------
CONVERSION AND TRANSFER POLICIES
--------------


12. In order to facilitate business transactions, foreign
investors generally open commercial bank accounts in both

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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 companyQs 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.
The second company was unable to renew its operating license in
2008 and is in the process of departing Laos. 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,

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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 enterpriseQs
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.%20Forei gn%
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 government began replacing the turnover tax with a Value
Added Tax (VAT) in 2009.


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

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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 LaosQ 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 FinanceQs 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 MinisterQs 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 MinisterQs 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 1998 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

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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 QLao Business Forum,Q 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$6). 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
2008 data showing sufficient coverage for 5 months of imports
and numbering $660 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

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Agriculture Promotion Bank;

- three joint-venture banks: Joint Development Bank,
the Lao-Viet Bank, and a joint venture between BRED Bank of
France and BCEL, expected in June 2009;

- 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 (4 foreign and one domestic):
Malaysia - Public Bank (Berhad); ANZ Vientiane Commercial
Bank Limited, the Association of Cambodia Local Economic
Development Agencies (ACLEDA) Bank Lao Ltd, and the
Indochina Bank. Phongsavanh Bank is currently the sole
private, domestic 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 IMF 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 LaosQ 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.


37. The Government of Laos is planning to open a stock exchange
in 2010, with technical assistance provided from the South
Korean government.

--------------
POLITICAL VIOLENCE
--------------


38. Laos is generally a peaceful and politically stable country.
Visitors are advised to use caution when traveling in remote
districts. For current State Department information please see:
http://travel.state.gov/travel/cis_pa_tw/cis/ cis_946.html


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CORRUPTION
--------------

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39. 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 ministryQs internal problems.


40. Laos is not a signatory to the OECD Convention on Combating
Bribery. Both giving and accepting bribes are criminal acts
punishable by fine and/or imprisonment. Besides bribes to
low-level officials for the purpose of expediting time-sensitive
applications, such as business licenses, importation of
perishable items, customs, etc., anecdotal evidence of more
pervasive corruption is growing. Laos is rated 151 out of 180
countries on Transparency InternationalQs corruption perception
index (with one being the least corrupt). Generally, the
government tends to deal with serious corruption problems by
forcing corrupt officials to retire or move to a new position.

--------------
BILATERAL INVESTMENT AGREEMENTS
--------------


41. Laos has bilateral investment agreements with the
following countries:

Country Date Signed Date Entered Duration
Into force (in years)
Australia 4/6/94 4/8/95 10
Cambodia 11/24/08 - 10
China 1/31/93 6/01/93 10
Cuba 4/28/97 6/10/98 10
Denmark 9/28/98 5/9/99 10
DPRK 8/20/97 8/22/98 10
France 12/12/89 3/8/91 10
Germany 8/9/96 3/24/99 10
Holland 5/23/03 - 10
India 11/09/00 1/6/03 10
Indonesia 10/18/94 10/14/95 10
Japan 16/01/08 8/04/08 10
Kuweit 8/5/08 - 30
Malaysia 12/8/92 3/25/93 10
Mongolia 3/3/94 10/29/94 10
Myanmar 5/5/03 8/28/07 -
Netherlands 5/16/03 - -
Pakistan 4/23/04 3/19/07 -
Philippines 6/8/07 - 10
Rep of Korea 5/15/96 6/14/96 15
Russia 12/6/96 22/03/06 15
Singapore 3/24/97 3/25/98 10
Sweden 8/29/96 1/1/97 20
Switzerland 12/4/96 12/4/96 10
Thailand 12/08/90 07/12/90 10
United Kingdom 6/1/95 6/1/95 10
USA 3/8/96 - -
Vietnam 1/14/96 6/22/96 10

On February 1, 2005 a Bilateral Trade Agreement (BTA) came
into force between the U.S. and the Government of Laos.
Laos and the United States do not have a bilateral taxation
treaty.

--------------
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS
--------------


42. The United States and Laos signed an Overseas Private
Investment Cooperation (OPIC) agreement in March 1996.
In 1998 Laos signed an agreement with the Multilateral
Investment Guarantee Agency (MIGA). EXIMBANK does not
currently operate in Laos.


43. The kip, while not an internationally traded currency,
has been appreciating against the U.S. dollar over the past

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year, thanks in part to being pegged to the Thai baht.
As large amounts of dollars continue to enter Laos, it is
unlikely the kip will depreciate against the dollar barring
a significant economic downturn.

--------------
LABOR
--------------


44. Over 70 percent of Laos' work force of 2.7 million is
engaged in subsistence agriculture. The Lao government
estimated the total non-agricultural work force in 2007 to
number 483,560 people, roughly 25,000 of whom were
employed in garment manufacturing. The total labor force
is expected to increase by more than 30 percent over the
next ten years.


45. The Labor Law passed in 1994 provides for the formation
of trade unions; specifies working hours and compensation
standards; allows for maternity leave and benefits; workers'
compensation and retirement benefits; and establishes
procedures for labor dispute resolution. The Lao government
raised the official minimum wage to 405,000 kip per month
(about $48 USD) in 2008. Wages for unskilled labor at
garment factories, including bonuses and lunch, now run
about 290,000 kip or about US $34 monthly. Labor unions can
be formed in private enterprises, but they must operate
within the framework of the Lao Federation of Trade Unions
(LFTU),which is controlled by the Lao PeopleQs Revolutionary
Party. In 2008, membership in the LFTU numbered 122,111.
Strikes are not prohibited by law, but a government ban on
subversive activities or destabilizing demonstrations makes
them unlikely.


46. Laos has significant human resource deficiencies
in virtually all sectors. English is not widely spoken.
In 2008, about 23 percent of the population age 15 and
above remained illiterate. The shortage of skilled labor
is particularly acute in high-tech sectors. The country has
a few technical colleges, one scientific research facility--the
National Institute of Hygiene and Epidemiology--and almost
no effective post-graduate degree programs. The Lao Government
has dedicated very few of its own resources to improve the
countryQs education system and tends to rely heavily on
international donors for support; there are a few state
training programs and some foreign-funded programs. Potential
investors should note the need to dedicate substantial
resources, both human and capital, to train employees. It is
not unusual for foreign investors to bring in Thai managers
due to a lack of skilled local personnel.

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FOREIGN TRADE ZONES/FREE PORTS
-------------- --------------


47. The Foreign Investment Law allows for the establishment
of free trade zones as an investment incentive. A zone in
southern Savannakhet province, which borders both Vietnam
and Thailand, is such a Special Economic Zone. Lao laws
pertaining to trade are supposedly applied uniformly across
the entire customs territory of Laos, including all sub-central
authorities, special economic zones and border trade regions.
In reality, however, customs practices vary widely at ports of
entry in the provinces. The recent centralization of customs
collection with the central government could lead to more
uniform practices and increase the flow of customs revenue
to the central government by an estimated fifty to seventy
percent.

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FOREIGN DIRECT INVESTMENT STATISTICS
--------------


48. GOL investment figures significantly overstate
actual investment, as they include all approved projects
regardless of whether the investment actually takes place.
Both the World Bank and the IMF have lower estimates than
Lao government figures. During 2008, the GOL approved
$659.2 million worth of foreign investment projects.
Hydropower schemes account for about 6.06 percent of that
amount. Foreign investment figures fluctuate widely from
year to year due to the prevalence of large-scale
investments in the hydropower and mining sectors. Foreign
direct investment figures from the Bank of Lao PDR for

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recent years follows below:

Real FDI inflow through Bank of Lao PDR (in Millions of US$)

2000 2001 2002 2003 2004 2005 2006 2007
33.9 23.9 4.5 19.5 16.9 27.7 187.3 323.51


FDI approved (in Millions of US$)

2000 2001 2002 2003 2004 2005 2006 2007 2008
20.4 42 49 3.8 550 533 1,245 2,699.7 1,136
659.19

49. In 2008, DDFI approved approximately $659.2 million in
investment projects. According to DDFI figures, 26 U.S.
projects were approved between 2000 and 2008, including 3
projects worth a total of $2.3 million in 2008. Foreign
investment now comes primarily from other Asian countries,
particularly Thailand (traditionally Laos' largest trade
and investment partner),China, Vietnam, France, Japan, Korea,
India, Australia, Malaysia, and Singapore.


50. Foreign Investment Licensed in the Lao PDR by countries
of origin, from 2000 through September 2008, in U.S. Dollars.
(Source: Department for Promotion and Management of Domestic
and Foreign Investment (DDFI),Ministry of Planning and
Investment (MPI).

Rank Country No. Projects Capital
1 Thailand 200 1,535,046,728
2 China 279 1,313,055,653
3 Vietnam 155 723,475,301
4 France 60 442,141,179
5 Japan 36 421,604,403
6 Korea 118 360,858,515
7 India 3 350,330,000
8 Australia 30 333,787,528
9 Malaysia 35 140,243,392
10 Singapore 27 103,259,000
11 Canada 11 54,633,750
12 Russia 11 50,325,310
13 Switzerland 6 41,050,000
14 USA 26 22,950,226
15 England 14 17,829,700
16 Taiwan 10 16,720,000
17 Sweden 4 13,935,135
18 Norway 2 12,920,000
19 Poland 1 5,000,000
20 Germany 14 4,681,508
21 Italy 3 3,600,000
22 Peru 1 3,000,000
23 Cambodia 4 2,069,500
24 Panama 1 1,750,000
25 Holland 2 1,300,000
26 Myanmar 4 1,180,000
27 Island 2 1,100,000
28 Israel 1 1,020,000
29 Indonesia 1 1,000,000
30 Belgium 4 900,000
31 Sri Lanka 1 200,000
32 Cuba 1 185,000
33 Portugal 1 100,000
34 Turkey 1 100,000
35 Nepal 1 100,000
36 Philippines 1 100,000
37 Spain 1 28,125


51. Foreign Investment Licensed in Lao PDR by Sector, from
2000 through September 2008, in US Dollars. (Source: Department
for Promotion and Management of Domestic and Foreign Investment
(DDFI, Ministry of Planning and Investment.)

Rank Sector No. Projects Capital
1 Electricity 42 3,334,791,585
2 Agriculture 181 865,830,875
3 Mining 157 725,019,864
4 Industry & Handicraft 211 597,897,047
5 Service 192 354,778,528
6 Trading 110 281,729,554
7 Construction 33 275,486,874
8 Hotel & Restaurant 66 189,811,245
9 Wood Industry 48 106,106,334
10 Banking 14 83,096,000
11 Telecom 4 72,390,980

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12 Garment 38 29,274,920
13 Consultancies 38 11,153,252
Total 1134 6,927,367,058


52. In 2008, the effects of the global financial crisis led
foreign investment in Lao PDR to decrease sharply. Actual
FDI is expected to decrease by about 40 percent, from roughly
$1,137 million in 2007 to about $659 million in 2008. Past FDI
growth has been driven by large investments in industry,
especially hydropower, agriculture and mining.

HUSO