Lao Bao – Densavan cross-border trade zone emerges as new growth’s driving force

In the context of connectivity and cooperative development becoming a common trend in the region, Vietnam and Laos are striving to propose connectivity initiatives, creating new impetus for bilateral economic cooperation. The establishment and development of the Lao Bao-Densavan Cross-Border Economic Trade Zone hold strategic significance, providing fresh momentum for Vietnam-Laos cooperation.

Strategic significance

The research and development of the Lao Bao-Densavan Cross-Border Economic Trade Zone have been of particular interest to the leadership of the Vietnamese and Laotian Parties, States, as well as the authorities of Quang Tri Province and Savannakhet Province. Since 2015, Quang Tri Province has actively proposed to the central government to study and develop this project. Document No. 35-TB/VPTW dated April 21, 2017, from the Office of the Central Committee announced the results of the working visit of General Secretary Nguyen Phu Trong to Quang Tri Province, agreeing to "select Quang Tri Province as a focal point for studying and proposing to the Politburo, the Governments of both Vietnam and Laos to pilot some outstanding mechanisms and policies in the Lao Bao Cross-Border Economic Trade Zone and the Densavan Border Trade Zone."

Document No. 6977/VPCP-QHDP dated August 7, 2019, from the Government Office of Vietnam assigned the Ministry of Planning and Investment, in coordination with the Ministry of Foreign Affairs and the People’s Committee of Quang Tri Province, to develop the aforementioned economic zone. Resolution No. 26-NQ/TW dated November 3, 2022, of the Politburo clearly stated the direction of "Promoting economic cooperation through border gates in the region linked to the East-West Economic Corridor."

The planning of the Joint Cross-border trade zone.

Subsequently, Document No. 993/VPCP-QHQT dated March 30, 2023, from the Government Office announced the decision to task Quang Tri Province with "coordinating with relevant agencies from Vietnam and Laos to report to the competent authorities of both countries for consideration, studying and piloting the model of a cross-border economic trade zone along the East-West Economic Corridor in accordance with prescribed procedures."

Recognizing the importance of the above-mentioned Cross-Border Economic Trade Zone, Laos and Savannakhet Province also wish to cooperate with Vietnam in studying and developing this economic trade zone. During the visit of the Quang Tri Provincial leadership delegation to Savannakhet Province (February 17-19, 2022), "Both sides agreed to coordinate in studying special mechanisms and policies to be submitted to the Politburo and the Governments of both countries for piloting the establishment of the Lao Bao-Densavan Cross-Border Economic Trade Zone."

The construction and development of the Lao Bao-Densavan Cross-Border Economic Trade Zone hold strategic significance in promoting Vietnam-Laos economic connectivity, contributing significantly to enhancing the fraternal cooperation between Vietnam and Laos, and ensuring defense and security for both countries. The construction and development of this economic zone have become a necessary and urgent task in the context where new notable factors are emerging in regional cooperation and connectivity, as follows:

Firstly, economic connectivity, with a focus on transportation infrastructure and trade connectivity, is becoming a major trend among countries in the region. Between China and Laos, China and Vietnam, and other countries in the region, models of cross-border economic cooperation zones have been implemented; experimenting with new customs clearance models, smart border gates, etc. These are good models for Vietnam and Laos to refer to.

Secondly, the China-Laos railway has officially commenced operations, significantly impacting regional connectivity. This promotes tourism development and various industries, as well as economic and trade exchanges for Laos and other countries in the region, creating opportunities for foreign enterprises to invest in Laos and increasing the demand for goods passing through the Lao Bao-Densavan Border Gate.

Thirdly, Vietnam and Laos are intensifying economic development and connectivity. Vietnam has planned and developed numerous transportation infrastructure projects to promote East-West connectivity and connectivity with Laos. Resolution No. 26-NQ/TW dated November 3, 2022, of the Politburo identifies building a synchronized, modern transportation infrastructure system, facilitating internal connectivity in the North Central and Central Coastal regions, and inter-regional connectivity; calling for and promoting investment in the Hanoi-Vientiane expressway, the Cam Lo-Lao Bao expressway; investing in the construction of new airports in Phan Thiet and Quang Tri...

Fourthly, economic cooperation between Vietnam and Laos has achieved many notable achievements but has stagnated in recent years, particularly evident in slow growth in investment and trade. For example, in the field of trade, the growth rate of Cambodia-Vietnam trade during the 2016-2020 period reached 9.7% per year, while the trade between Laos and Vietnam experienced a significant decrease during the 2016-2020 period, with a negative growth rate of 2% per year. This necessitates the urgent need for more innovative models and solutions to enhance the quantity and quality of economic cooperation between the two countries.

New direction

The implementation of the construction of the Lao Bao-Densavan Cross-Border Economic Trade Zone presents both opportunities and challenges for Vietnam and Laos:

Primary Opportunities:

• Vietnam and other regional countries have gradually implemented the construction of cross-border economic cooperation zones, providing models for reference. Vietnam has been studying and implementing models of cross-border economic cooperation with China and Laos at five international border gates (four with China, one with Laos).

• There is a strong political trust and good development of Vietnam-Laos economic cooperation relations. Vietnam continues to be the third-largest foreign investor in Laos with a total investment capital of over $5 billion. Some strategic transportation connection projects are actively being implemented. Quang Tri Province and Savannakhet Province have a good relationship of friendly cooperation.

• The Lao Bao Cross-Border Economic Trade Zone has a favorable location, situated on the East-West Economic Corridor transportation route, connecting with the important economic centers and transportation infrastructure of the region, hence facilitating the development of service industries such as transportation and logistics, trade, tourism, etc.

• The legal framework and conditions for developing cross-border trade between Vietnam and Laos are relatively favorable. Vietnam and Laos have established comprehensive mechanisms and policies for managing and operating cross-border trade activities, including regulations on immigration and vehicle entry, regulations on goods traded across borders, etc.

• The technical infrastructure related to cross-border trade activities at the two border gates has been gradually invested in. Both provinces have been keen on investing in the development of commercial infrastructure, including border gate infrastructure, transportation infrastructure connecting with border gates and border markets, warehouses, and increasing border trade support services.

Common Challenges:

• China has implemented cross-border economic cooperation models with neighboring countries since 2006, but there is currently no successful model to refer to.

• The Lao Bao Cross-Border Economic Trade Zone and the Densavan Border Trade Zone are located in mountainous border areas, far from provincial centers, airports, and seaports, posing challenges to transportation and freight movement.

• Implementing experimental economic cooperation models like the Lao Bao-Densavan Cross-Border Economic Trade Zone requires the establishment of specific legal frameworks (such as agreements between the two governments of Vietnam and Laos).

Proposed Directions and Timeline for Cooperation in Building the Joint Cross-Border Economic Trade Zone:

Based on the assessment of necessity, the new context, and the opportunities and challenges mentioned above, we propose that Quang Tri Province and Savannakhet Province propose to the Governments of Vietnam and Laos to establish the Lao Bao-Densavan Cross-Border Economic Trade Zone with the following key contents:

Regarding the area, scope, and functions of the joint Cross-Border Economic Trade Zone:

• The development area includes the entire Lao Bao Cross-Border Economic Trade Zone with an area of ​​15,804 hectares and the Densavan Border Trade Zone with an area of ​​about 4,000 hectares. It is necessary to identify the central area for priority investment (the area on both sides of the Lao Bao-Densavan Border Gate).

• In terms of nature and function: it is a comprehensive multi-sector, multi-field economic trade zone with modern technical infrastructure and synchronized social infrastructure, linked to environmental protection and ensuring defense and security. Within the scope of the economic trade zone are industrial zones, export processing zones, non-customs zones, tourist destinations, etc. Key development sectors and industries include:

  • Industry: production of construction materials; modern textile industry, high value-added industries, energy industry development (wind power, solar power, processing agricultural products, etc.).

  • Services: transportation and logistics services; commercial services; tourism services; financial services; healthcare services, and other services to serve residents and surrounding areas.

Regarding the function: it is an economic dynamic area, a new growth pole of Quang Tri Province, Savannakhet Province in particular, and the Vietnam-Laos border area in general; a place to pilot policies, and implement new production projects. At the same time, the economic trade zone is also a key area for urbanization expansion, enhancing regional connectivity, applying science and technology to production and business, vocational training, job creation, and increasing income for local workers and surrounding areas.

Model of the Cross-Border Economic Trade Zone

Based on negotiation experience and initial implementation of cross-border economic cooperation zones between China and Laos, Vietnam, and other countries in the region, we propose adopting the “two countries, two zones” model (symmetrical model) for the Lao Bao-Densavan Cross-Border Economic Trade Zone.

Proposed Policy Development Mechanisms (Common Pilot Policies for both Vietnam and Laos):

In the spirit of “implementing pilot mechanisms and policies at the Lao Bao Cross-Border Economic Trade Zone and the Densavan Border Trade Zone,” as emphasized in the guiding documents of the Parties and Governments of the two countries as mentioned in section 1 of this report, the joint Cross-Border Economic Trade Zone needs to apply pilot mechanisms and policies with the highest incentives according to current Vietnamese laws. Some specific policies are as follows:

• Regarding land policy, the land lease term for organizations to implement projects should not exceed 50 or 70 years.

• In terms of capital mobilization, the central budget should supplement objectives from revenue sources enjoyed by the central budget (or allocate a portion of the revenue to local budgets from import-export activities) generated at the joint Cross-Border Economic Trade Zone over a period of 10-15 years for infrastructure investment in the economic trade zone. The two provinces should prioritize investment in building common infrastructure. Both sides should create favorable conditions for investment procedures and loan applications by Vietnamese, Lao and other foreign enterprises investing in the economic trade zone; Vietnamese enterprises should be subject to simplified investment procedures and loan procedures similar to domestic investment.

• Regarding taxes, enterprises in the joint Cross-Border Economic Trade Zone should enjoy the highest preferential tax policies according to current Vietnamese or Lao laws.

• In terms of labor and human resources, the economic trade zone should be allowed to flexibly recruit labor under labor contracts. The proportion of Vietnamese and Lao labor working on projects in the economic trade zone may exceed the current legal provisions of Vietnam and Laos...

Timeline for Construction and Development of the Cross-Border Economic Trade Zone:

The exchange, negotiation, implementation, and development of the cross-border economic trade zone should follow a three-stage timeline:

• Stage 2024-2025: Request government negotiations; both parties negotiate and pass the Agreement on the Construction of the Lao Bao-Densavan Cross-Border Economic Trade Zone and issue guiding documents for the implementation of the Agreement.

• Stage 2026-2030: Focus on attracting investment, developing infrastructure, perfecting common preferential mechanisms and policies, investing in border gate areas, and forming some non-customs zones, industrial zones, and logistics zones.

• Stage after 2030: Comprehensive promotion of cooperation content (as mentioned above).

In conclusion, from the above analysis, assessment, and proposed recommendations, we believe that the study and construction of the Lao Bao-Densavan Cross-Border Economic Trade Zone is a very new and challenging task that requires strong participation from the authorities of Quang Tri Province, Savannakhet Province, relevant ministries, and the Governments of both countries. However, it is a necessary and urgent task in the current context and if successfully implemented, will create significant momentum to promote connectivity and enhance cooperation efficiency between Vietnam and Laos; it will also be a practical contribution to the formation of cross-border economic cooperation models in the region and the world.

Dr Nguyen Quoc Truong - Ngoc Mai