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Lao firms urged to prepare for AFTA
A number of major Lao industries will face stronger business competition once the Asean Free Trade Area (AFTA) take places over next few years, according to a study.
The Asian Development Bank funded study on impact of the Asean-China Free Trade Area establishment shows that a number of businesses including motorbike assembling factories, cement processing plants and the wood processing industry would face serious competition once the AFTA takes place in 2015.
Laos will have to remove import tariffs for Asean member countries and China as part of its obligations to establish the Asean and China free trade area in 2015, abolishing the government policy and administrative measures to protect domestic firms.
At present, prices of imported motorbikes, cement and wood products are higher than domestic ones thanks to government policy to impose high tariffs. Despite the higher price of the imported goods, the Lao firms are already facing competition, giving questions how the Lao firms can survive over the next few years once the AFTA begins.
According to the case study, the evaluation of the motorbike assembling, cement maki ng and wood processing businesses shows that price competitiveness will fall substantially in all cases after tariffs have been completely removed under the Asean-China Free Trade Area.
However, the degree of impact varies substantially across industries. For domestic and import-substituted industries, such as wood products and cement, both price competitiveness and product quality will become issues when tariffs are removed.
Ensuring product quality in the face of increased competition from neighbouring countries will be crucial for both industries in order to maintain domestic market share and expand into ASEAN and Chinese markets, the study highlights.
For an FDI-led industry such as motorcycle assembly, the concern over price competitiveness seems to be less significant across all motorcycle brands. However, product quality and reputation will be a very important issue for Laos's motorcycle assemblers, particularly Kolao and Chinese brands, if they hope to penetrate the neighbouring Thai market.
The findings of these industry level case studies are complimentary to many of the conventional arguments found in the theoretical and empirical literature on the potential negative impacts of a regional free trade area on domestic industries.
The finding supports the conclusion that negative adjustments are likely to be short-term in nature. Yet, the findings suggest the importance of beginning preparations to adapt to the Asean-China Free Trade Area scheme prior to the full implementation of the agreement.
Lao cement factories admitted that the price of imported cement was cheaper than domestic cement and want the government to protect the domestic firms until 2015. They also said that they would be ready to face strong business competition over next few years
vientiane times
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