MFN & NTR
Despite having signed a bilateral trade agreement with the US, the possibility for the Lao PDR to receive MFN or NTR status remains remote.
The article examines administrative incompetence of the Vientiane government on this issue. Moreoever, it also explores the costs and benefit of better trade relations with the US: who will benefit from it?
LAO MFN & NTR
by Staff of FREE LAO ALLIANCE (Aug. 2000)
The Most Favored Nation (MFN), now known as Normal Trade Relations (NTR), is considered the most coveted status any foreign government could obtained from the US. NTR promises better terms of trade; in practical term, it translates into export earnings for the country. To many government officials throughout the world, an NTR issue presents an opportunity no other economic or commercial enterprise could offer outside of the political arena. A country that has NTR with the US can command a premium price from direct foreign investment. The status allows the country to export it products to the US with little import tax. The better tax treatment under NTR makes the products of the recipient country more competitive in comparison to products originated from countries without an NTR status. Therefore, foreign investors searching for lower cost of labor sees a gold mine in countries with NTR status. In the 1980s, Thailand, for instance, had become an export processing center and a manufacturing base for foreign companies to produce products and export them to the US. For government officials, NTR presents opportunities for kick back money and extra income derived from “facilitating” business dealings with foreign investors. This potential loot particularly raises keen interest among the communist leaders in Lao.
The MFN or NTR issue is of particular interest to the communist leaders in Lao and the Lao intellectual community, as well as political dissidents. Many overseas Lao political dissident strongly oppose the granting of MFN or NTR to Lao PDR. This opposition group insists that the Lao government must improve its human rights record, allow a multiparty system and stamp out corruption before NTR can be granted. NTR will bring greater economic gain to the country. The communist leaders in Lao will become stronger day-by-day with new source of income. As their strength increases, the chance for democracy to return to Lao will be dimmer. This position is plausible if we examine the history of the Lao PDR from 1975 to the present. The communist leaders came to power with no administrative competence. Despite their inability to run the country, they were able to hold on to power through the help of foreign assistance. At times, military assistance from Russia and Vietnam kept the regime afloat. Humanitarian assistance also fatten the pockets of the cadres. As time passed, they learned to mimic the world on how to govern a country. Therefore, in further economic growth, the communist leaders would have more incentive to hold on to power because political liberalization means a potential loss of power. Moreover, granting NTR without requiring the Lao PDR to improve its human rights record seems to reward the communists in Lao for terrorizing the country.
However, while the opposition to Lao NTR is a valid point, it is equally important to note that economic expansion could also mean a threat to the regime. Economic growth will ultimately result in the creation of classes among people. Although the top echelon of the political pyramid remains unchanged, the bottom half will be swelled with the middle class. NTR will attract direct foreign investment into Lao. Foreign investment will result in the creation of jobs, physical infrastructure, and the improvement of the standard of living among the people. As employment grows, so does the earnings and discretionary income of the people. Commercial activities from foreign investment will also put greater pressure on the limited physical infrastructure of the country. As the communist leaders gain more from foreign investment, be it from tax collection that never arrived at the national treasury or private kick back money, the government will be compelled to expand the country’s infrastructure. In the whole, the standard of living of the people will be improved. The communists and non-communists alike will gain from NTR. However, the people will ultimately demand for more openness as commercial activities increases. As more foreign investment flow into the country, the government becomes closely tied and heavily obligated to protect the foreign interests. This development will ultimately loosen its political grip. With each notch the communists loosen their grip, they are rewarded with tangible incentives. The middle class will soon swell the country and demand for more changes. These changes will undoubtedly include political liberalization. This chain reaction is not at all utopian, but is shared by policy makers among the ASEAN countries. The whole point of admitting Lao, Cambodia and Vietnam into ASEAN was to neutralize potential threats these states pose to the region. By having these three countries share economic ties, ideological differences are set aside.
Economic growth from NTR then might result in the demise of communism in Lao. However, while no one disputes the potential political liberalization resulted from economic expansion, we are reminded by the deeper and stronger commitment toward human rights protection. As a matter of principle, by granting NTR to the Lao PDR without conditioning that government’s pledge to improve human rights, we are essentially rewarding a totalitarian state for its tyrannical rule. The political liberalization that will ultimately come from economic expansion would be nothing more than a natural development. While the end result may be acceptable, we are willing to accept the manner in which that result is achieved. We want a tit for tat. If the Lao PDR wants the carrot, we want to see that it lowers its stick and ultimately let it go altogether.
The debate on the issue of MFN or NTR for Lao continues to dominate the our political discussion. In practical term, the chance for Lao to receive NTR is almost nil. The requirement is too complicated for the Lao government to understand. The Lao government is too cheap to pay for lobbying cost.
In order for Lao to receive NTR, it must show following evidence: (i) a bilateral trade agreement with the US; (ii) human rights protections; (iii) increase trade with the US; (iv) cooperation in MIA/POW issue; (v) reduction in narcotics production; (vi) freedom of emigration; and (vi) protection of American business interests. We know that the Lao PDR fails in every requirements, except having in place the US-Lao bilateral trade agreement. The problem with the Lao government is that it does not know what are the requirements for NTR. Even having known these requirements, either through this site or other sources, the Lao PDR is still in the dark as to whom it should approach on this issue. For the past years, they have been operating under the impression that the US State Department, via the US Embassy in Vientiane, is a correct channel. As for the lobby work, it is up to the Lao PDR Embassy in Washington, DC to liaise with the President and Congress.
The US Embassy in Lao is powerless. It cannot be taken seriously on matters concerning an intensely contested issue such as Normal Trade Relations. The Embassy says and does whatever the US Statement Department commands it to do. The US State Department does whatever the President commands it to do. If the Lao PDR expects the US President to grant an executive grace on this issue, it is only a dream. Under the law, the President will not likely act unless he receives the urging from the United States Trade Representative Office (USTR). The USTR will not make any recommendations until all information had been collected and public participation had been fully accounted for on this sensitive issue. The public, i.e. those who have legitimate interest in granting or denying NTR to Lao has the right to voice their opposition or support to the USTR. It is at a critical juncture that the recommendation to the President most likely it is negative when it comes to granting NTR to Lao.
When the President acts at the affirmative urging of the USTR, he will still face a round of debate at the US Senate. There, the issue will be meted out in committees and public opinions will be solicited anew. In each step of the way, the voice of the opposition to the granting of NTR to Lao always drown out any inclination of extending such a favor. Therefore, the communists in Vientiane will probably not see Lao’s NTR with the US in their life time.
There are some policy makers who may contend that the denying of NTR hinders Lao’s economic development. Without NTR, Lao loses export earnings and will be left behind in its development. Presently, Lao depends on foreign assistance for developing its infrastructure. NTR will help Lao become self sufficient in developing the country. This type of argument is persuasive especially when it is made as a common sense appeal to policy makers in Washington, DC. It is the duty for all Lao people to make certain that human rights and other conditions must be inextricably tied to the granting of NTR. The USTR publishes its call for public opinions in the Federal Register. We must have our voice heard in those hearings. We support free trade and we support economic development of Lao. However, we do not support the granting of NTR to Lao if it means prolonging human right abuses in that country. The development of Lao must include the respect for freedom and liberty among the Lao people.