President Obama is set to become the first ever American president to visit Lao PDR when he attends the Asean Summit in the capital Vientiane in September 2016. Daniel A. Clune, US Ambassador to the Lao PDR, explains how the bilateral relationship has grown from strength to strength in recent years, and pinpoints areas to increase trade and investment.
What is your assessment of the current state of relations between the USA and Laos?
I think the current state of US-Lao relations is outstanding. We have had a series of high-level visits recently, including Secretary of State John Kerry in January 2016; Deputy National Security Advisor Ben Rhodes in October 2015; Dr Jill Biden, the Vice-President’s wife, in July 2015; and the very historic visit of President Barack Obama coming up in September, who will be the very first US president ever to visit Laos. Even pre-1975, no US president had visited Laos.
We are building a new relationship for the 21st century while we continue to address the legacies of the 20th century. The USA and Laos have a difficult history and we need to continue to address the legacies of this, particularly through our continuing efforts to account for American personnel missing in action and to clear unexploded ordinance left over from the Vietnam War. While we do that, we want to be trusted and reliable partners in the economic and social development of Laos, and to that end we’ve increased assistance to Laos across the board in fields such as the clearance of unexploded ordinance, school meals programs, child nutrition, and so on.
How do you assess the significance of President Obama’s visit for the people of Laos?
I think people are excited about the visit. As I said, the US and Laos have a difficult history and for a period the relationship was antagonistic. However, the people of Laos have warm feelings toward the people of the United States. That is partly because there are around 600,000 Lao-Americans living in the United States.
In a country of 6 million people, it means one out of every 10 live in the United States, which as a practical matter means that just about everybody in Laos has a relative in the US. This creates a strong tie that is unusual between countries. I think the relationship has been improving in recent years, but the President’s visit places a very large exclamation point at the end of that.
Americans go to the polls in November to elect a new president. Do you envision that the Lao PDR will retain its current level of importance in foreign policy regardless of who is in the White House next year?
The Obama Administration has implemented a policy which has been referred to variously as the “pivot” towards Asia or the “rebalance” towards Asia. I expect that policy to continue under the next Administration, whether it be Republican or Democrat, for the simple reason that it is in the US’s national interest to be heavily and constructively engaged in Asia. We believe that the history of the 21st century will be written in Asia and that the economic development in the 21st century will be centered in Asia. It is in our interest to be present in Asia and Southeast Asia is an important part of continent as a whole. Laos lies at the center of Southeast Asia, so it’s in our national interest to stay engaged in Laos. It’s not a partisan issue.
In fact, at the Sunnylands meeting of Asean leaders hosted by President Obama, a group of senators from both parties issued a statement in support of the summit, including Senator John McCain who was, as you know, the Republican candidate for president in 2008, and Democratic Senator Ben Cardin, who serves on the Senate Foreign Relations Committee.
The visit of President Obama will undoubtedly focus the attention of the American public on the Lao PDR, at least temporarily. How does the US Embassy here in Laos intend to capitalize on this visit to help strengthen trade and business ties and facilitate American investment into the Lao PDR?
Currently the level of US trade and investment in Laos is very low. The US is the single largest investor in Asean as a whole. Some of the Asean countries, including Vietnam, export a great deal to the United States. In fact, I think the United States just recently became the largest export market for Vietnam. However, currently I think trade with the US accounts for something like 1% of Laos’ total trade. The US is the 14th largest investor in the country and we really need to improve that. The challenge for us is to attract more US companies to come and invest in Laos.
The biggest challenge for Laos in attracting investment is that it’s a very small domestic market of 6 million people. The Asean economic market offers a real opportunity for Laos to attract foreign investors looking for a production base for the larger Asean market, especially for the larger Southeast Asian market.
We have some examples recently: Coca-Cola became the first US Fortune 500 company to invest here and 70% of production from its new bottling plant will be exported to Thailand. The main advantage for Coca-Cola is that production costs are lower here. The wage rates in the Lao PDR are lower than in Thailand, China, and Vietnam. Also, the production plant is closer to much of Thailand than Bangkok is, and enjoys good transport links.
We’re also seeing some major Japanese firms set up similar operations in the special economic zone in Savannakhet. Toyota has opened up a factory in Savannakhet to manufacture automobile seats to be exported to Thailand for assembly in automobiles in Thailand. We have Nikon, the camera company, setting up an assembly operation in Savannakhet and wanting to bring as much of its supply chain along with it as possible.
One of the issues that is a priority for Laos during its Asean Chairmanship is connectivity. That means a number of different things, but one of the things it means is that it is in Laos’ benefit to be better connected by road and rail to its Asean neighbors. Savannakhet is right across the river from Thailand, so it is already very well connected to its neighbor. The roads going east to Vietnam and Da Nang are getting better and better, so it’s getting to the point where Savannakhet may be six or seven hours away from Da Nang. Once you’re that close you begin to be tied to the booming economy in Central Vietnam and you can benefit from that.
Which other areas of the economy do you see as having potential for further American investment, taking into account the Lao government’s own development plans and growth targets?
Laos has had one of the fastest growing economies in the world for the past few years. In fact, the Economist Intelligence Unit predicts that Laos will have the second highest GDP growth in the world in 2016 after Turkmenistan.
Much of the country’s growth has been driven in recent years by hydropower and resource extraction, as well as tourism. Going forward I see three big areas of continuing, sustainable growth. They are tourism, which is already beginning to grow because I think the country has tremendous potential in this area. Luang Prabang is already a major tourist destination, but there are other places I have visited which are just stunningly beautiful and basically have no tourism infrastructure yet. If you were to put a 5-star resort in these places they would be a huge attraction.
Manufacturing is the second one, which I spoke about earlier in relation to becoming a production base for the wider region.
The third area is agricultural processing. Laos is a lightly populated country. If you look at the map it’s roughly the size of Vietnam. Vietnam has 100 million people; Laos has 6 million. If you go driving up country you will drive for a long time through empty forests with no buildings and no people.
There is a lot for room for agriculture. Laos has very big agricultural markets right next door, especially China and Vietnam. Raising livestock, cattle, and pigs for export to the Chinese and Vietnamese markets makes sense.
You’ve already touched on the fact that Asean and the Asean Economic Community (AEC) are opening up opportunities that were previously limited by the small domestic market here. Laos and many other Asean member states have some way to go before they meet all their commitments to the AEC. How is the US supporting Laos in meeting those commitments?
We’ve had a project here for a number of years which is called the LUNA-Lao project, which is an acronym for the Laos-US International and Asean Integration project. This was initially focused on helping Laos to accede to the World Trade Organization. It was successful in that and is now focused on helping Laos implement all its World Trade Organization obligations, which is difficult, and to also meet its commitments under the AEC. That includes activities like helping to draft laws and regulations to bring Laotian law into compliance with those obligations. We also run workshops and seminars to familiarize the people who don’t know about these obligations with what the agreements require them to do.
Trade is a two-way street and trade between the US and Laos has always been minimal in both directions. Do you see scope for Laos to increase exports to the USA?
I do. The good side of having a low level of trade now is there’s big, big room for improvement. I think this past year Laos exported about $32 million worth of goods to the United States whereas Vietnam, which is roughly 10 times bigger, exported $32 billion, which is 1,000 times more. There’s obviously a lot of room for improvement.
In October 2015 I led the first Lao business delegation to the USA. We brought a group of successful Lao businesses to Seattle where they visited Microsoft, Amazon, Starbucks and Boeing. Then, down to Orange County, California, where they attended a big convention of companies interested in doing business in the Pacific.
One of the companies represented in the trade mission was Dao Coffee, a major producer of coffee that is already exporting big time to Thailand and Vietnam and to the United States. It’s an interesting story.
We met with Starbucks on the trade mission and talked about possibly of selling them products or Starbucks opening up stores here.
Besides the areas you have already mentioned, the other big driver of the Laos economy is hydropower. Do you see scope for American investment in the energy sector here, given that the government is planning major increases in capacity?
I do and I’m excited by General Electric’s recent acquisition of Alstom, which brings it back into the hydropower business. I hope to meet soon with GE’s hydropower division. The electric utility company here, EDL, Electricte du Laos, is interested in GE technology. One of the things that’s important for Laos is the connectivity of its electrical grid to its neighbors.
At the moment individual hydropower projects are hardwired to neighboring countries, usually Thailand. For example, the 1,200MW Xayaburi Dam, which is roughly halfway completed, will be connected directly to the Thai grid. It’s in Laos’ interests, and in the interest of the region as Laos becomes a greater and greater exporter of energy, to have a truly regional grid so that countries can move power around the region easily. Countries like Laos, who are exporters, can get the best price for their power, and countries like Cambodia, which right now is paying a very high price to generate electricity from oil, would be able to purchase cheap hydropower energy.
When you look at the recent Amcham Asean business executive survey, Laos is the country where respondents expressed the least interest in expanding their businesses at present. What would you say to those executives who have doubts about the potential for expansion in this country?
First, I’d say take a look at what your Japanese colleagues are doing. The Japanese Embassy tells me that they are hosting business delegations of 40 to 50 companies every few weeks. It seems like our Japanese colleagues may know something that our executives don’t.
Secondly, I’d say that you need to start thinking about Laos not as an isolated country with a population of 6 million people, but as a location within this very large and increasingly prosperous AEC market, one that offers certain advantages including low labor costs and political stability.
That said, Laos ranks 134th on the World Bank’s ease of doing business index which indicates they have some way to go towards making it easier to do business here. I know that the Lao government is committed to addressing this.
One of the issues that have undoubtedly impacted on US-Lao relations over the years is unexploded ordinance (UXO), as you mentioned earlier. Can you elaborate on the steps being taken by the US to rid this country of the deadly legacy of the Vietnam War?
We have a responsibility to address this problem. Casualties from UXO accidents have decreased in recent years from over 300 annually a few years ago to around 40 per year now, but that’s still 40 too many because many of these accidents involve small children. We have tripled the funding for UXO clearance in the past few years from $5 million a year to $15 million a year. I expect that President Obama when he comes here will further increase that funding.
In other areas of aid and development, we are working with the World Food Program and Catholic Relief Services on a school lunch program that encourages poor children to attend schools by providing a free lunch for them, which has dramatically increased attendance rates from say 60% to 99% in the schools where it operates.
We are also about to begin a child nutrition program to address the very serious problem of stunting here. Forty-five percent of Lao children are stunted, which means that they’re too short for their age. This in itself is not serious, but it indicates that they’re not getting enough nutrition to develop physically and mentally. Just last month we launched a new $6 million USAID child nutrition program. In addition, The Oregon Health and Science University is going to partner with the Laos Ministry of Health to establish a Lao-American Nutrition Institute to look into the causes of child nutrition and to determine which interventions can produce positive results.
Also, for many years the Department of Defense has built schools and hospitals in remote regions of the country where we’re conducting MIA operations.
Finally, as an American diplomat who has lived and worked all over the world, what are your personal thoughts on Laos as a place to live and do business?
I’ve been in the Foreign Service for 30 years now. I’ve lived in a number of countries including Australia, Indonesia, Peru and France. They’re all interesting and wonderful in their own ways, but I have to say that the nicest people we’ve ever lived or worked with are the Lao people. They’re extraordinarily pleasant and kind.
They also have a very interesting and colorful culture. The food is delicious, as you’ve learned. It’s a very rewarding time to be here in terms of the bilateral relationship because it is improving at a very fast pace. It’s rewarding to be part of that. I’m just grateful of the opportunity to be here.
What was the most surprising thing for you about Laos that you probably didn’t expect before you came here?
Two things, totally unrelated. One is the number of really good restaurants in Vientiane.
The second, which is more important, is the extent to which the government and the people here are open to improving the relationship with the United States. During my time here I’ve been really been pushing on a lot of open doors to improve relationships.