In Laos, a Strategic Opening the United States Cannot Miss

A remarkable yet little-noticed development in the U.S. rebalance to the Asia Pacific has been Washington’s overtures to Laos, a country long isolated and often overlooked by U.S. officials. Shifts in geopolitical and regional economic trends in recent years have led the Lao government, which traditionally turned to Beijing or Hanoi for support, to explore opportunities to engage new partners and tap into the United States’ renewed attention to the region.

While recent changes in U.S.-Lao relations are hopeful, much remains to be done to consolidate U.S. interests in a country that has become more crucial in the battle for hearts and minds in Southeast Asia.

Until recently, China seemed set to establish a dominant position in Laos. In 2013, it displaced Thailand and Vietnam to become Laos’s biggest foreign investor, with Chinese companies holding large economic concessions ranging from energy and mining to agriculture and manufacturing. The Lao economy has expanded at an average rate of 8 percent in recent years, but maintaining this level of growth requires the government to attract annual foreign investment of at least $1.7 billion. Chinese companies invested over $1.3 billion in Laos in 2013 alone, the major portion of which funded land-based projects.

While its economic footprint has afforded China added leverage with Laos’s top leaders, an overdependence on Chinese investment in northern Laos has caused friction between local populations and authorities over land and environmental issues.

More importantly, China has overplayed its hand. Beijing insists on pushing through a railway project in Laos, which would be connected to the planned China-ASEAN railway running from Kunming to Singapore, at financing terms that are unviable for Laos. On top of that, the railway will provide few tangible benefits for Laos. This has caused concern among not just officials in Vientiane but also Laos’s neighbors. In particular, Vietnam, which has been battling Chinese assertiveness in the South China Sea, has found it increasingly difficult to match China’s growing footprint in Laos. Hanoi worries that Chinese influence in its next-door neighbor, if left unchecked, could have geopolitical ramifications down the road.

As a result, Vientiane, at the encouragement of Hanoi, has begun to seriously explore its options in cooperating with partners such as Japan, South Korea, and the United States. Laos has emerged as a critical ground in Japanese prime minister Shinzo Abe’s efforts to boost his country’s regional leadership profile. Tokyo and Vientiane in 2013 agreed to expand their bilateral security ties, while Japanese companies, including Toyota and Nikon, have tapped into Laos’s manufacturing potential and its location at the center of the East-West Economic Corridor, an ambitious Japanese-backed project that runs through Vietnam, Laos, Thailand, and Myanmar.

This shift is happening as Laos prepares for a leadership transition in 2016 that is expected to see 5 out of 11 Politburo members of the ruling Lao People’s Revolutionary Party retire, including a few known to be extremely close to China. Although the old guard is ambivalent about the West, the rising cadre of Lao leaders is much more exposed and open to engaging with the outside world. This changing attitude is coupled with a desire by Vientiane to turn Laos from an impoverished, landlocked economy to one that is land-linked with larger regional economic players in the context of greater economic integration within ASEAN.

These factors mean that the United States now has a strategic opportunity to build a new type of relationship with Laos. While the United States and Laos have worked to address longstanding war legacy issues such as unexploded ordnance left over from the Vietnam War, U.S. economic and investment ties with Laos have been lackluster. While companies from France, Japan, and South Korea have been playing catch-up with their Chinese, Thai, and Vietnamese counterparts, the United States is nowhere to be seen in the list of top foreign investors in Laos.

Granting Laos access to the U.S. Generalized System of Preferences (GSP) could give a significant boost to Lao exports to the U.S. market, which were a mere $31 million in 2013. Since signing a bilateral trade agreement with the United States in 2005 and acceding to the World Trade Organization in 2013, the Lao government has implemented a number of reforms in its trade regime, policymaking process, and customs rules.

U.S. government agencies in recent years have done a commendable job of assisting Laos on health and environmental issues. Yet education and vocational training should be a key priority in U.S.-Lao engagement going forward. Due to its small population of about 7 million and the consequences of years of conflict, Laos suffers from a serious lack of skilled labor. This hampers foreign companies’ ability to fill their factories with qualified employees and expand their operations in Laos. As cooperation in education has played a central role in improving U.S. relations with another former battlefield foe, namely Vietnam, Washington should explore ways to better engage rising Lao leaders and shape the country’s future generations.

Washington and Vientiane should also work to increase high-level visits and exchanges. These visits are necessary to persuade Lao officials that they should not be anxious about greater engagement with the United States and to affirm that Vientiane’s decision to diversify Laos’s diplomatic relations makes strategic sense. Former secretary of state Hillary Clinton was the most recent high-level U.S. official to visit Laos, in 2012, and because Laos will chair ASEAN next year, President Barack Obama and other senior U.S. officials are expected to travel to Laos in 2016. In the meantime, Washington should invite more Lao leaders to visit the United States and tour its institutions.

As the United States and Laos look to improve ties, they will need to hold frank discussions on human rights issues. The disappearance of respected agronomist and community leader Sombath Somphone in 2012 alerted the international community to Vientiane’s problematic rights record. But without forging a level of trust with Laos’s leaders, U.S. officials will find it hard to broach their human rights concerns.

Vientiane’s strategic autonomy is in the interest of the United States and its allies and partners in the region. Washington cannot miss the opportunity afforded by the historic winds of change in Laos.

(This Commentary originally appeared in the April 2, 2015, issue of Southeast Asia from Scott Circle.)

Phuong Nguyen is the research associate for the Sumitro Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2015 by the Center for Strategic and International Studies. All rights reserved.




Phuong Nguyen