Jul 11, 2012

Laos - U.S. Looks to Tiny Laos for Influence

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Hillary Clinton's visit to Laos on Wednesday will be the first by a U.S. secretary of state in 57 years, and it comes at a crucial time: The small, landlocked nation is taking on growing importance as it is pulled deeper into China's orbit.

The trip to Vientiane, following a stop by Mrs. Clinton in Hanoi, reflects U.S. efforts to rebuild alliances in Southeast Asia at a time when Beijing is rapidly expanding its influence in the region.

Laos, a small, landlocked nation, has fewer residents than New York City, with a population under seven million. It also has the smallest economy in Southeast Asia, with annual output of about $7 billion, versus about $125 billion for Vietnam, its eastern neighbor.

But Laos has significant untapped mineral resources and a growing consumer market. It is also becoming a more important player in some of the region's geopolitical issues, especially tensions over territorial rights in the resource-rich South China Sea, where China, Vietnam, the Philippines and several other countries have overlapping claims.

Regional leaders are expected to debate a code of conduct to govern behavior for China and other rival claimants in the Sea this week at an Association of Southeast Asian Nations summit in Cambodia, in a challenge to China's position that it prefers to discuss sea claims on a bilateral, rather than multilateral, basis.

It will be difficult to obtain a consensus. Maritime states, including Vietnam and the Philippines, want to limit China's activities in the sea, but other Asean nations, including Thailand and Cambodia, have resisted steps that could embarrass Chinese leaders.

Those divisions are enhancing the clout of countries such as Laos and Myanmar, which share borders with China but are increasingly seen by Washington as potential allies in limiting Beijing's reach. "I think the U.S. is worried it doesn't have enough clout within Asean and East Asia as China becomes so significantly important, and so I think they feel a vote is a vote—whether you're the size of Indonesia or the size of Laos, you're still a vote in the Asean environment," said Christopher Bruton, an analyst at Dataconsult Ltd. in Bangkok.

State Department officials said Mrs. Clinton would meet with Laos Prime Minister Thongsing Thammavong and other senior government officials to discuss regional issues, including efforts to more closely integrate Southeast Asia's economy and promote a U.S.-led project known as the Lower Mekong Initiative. The initiative was introduced by Mrs. Clinton in 2009 to boost development in areas such as education and the environment in countries through which the Mekong flows. It also has the benefit of boosting American influence there, analysts say.

The environmental health of the Mekong is itself an important issue, as Laos seeks to develop a controversial $3.5 billion dam project as part of a strategy to become a hydroelectric power hub for Southeast Asia. Countries downriver—notably Cambodia and Vietnam—have complained the Thailand-financed project could block river flow and have a potentially devastating impact on fish and other food supplies.

Scientists from the U.S. Geological Survey have joined in raising concerns about dams on the Mekong River, adding to speculation that U.S. officials would seek to broker some kind of compromise within Asean. Washington wants to see more cooperation in Southeast Asia, in part so it can become more unified in dealing with China. Laos officials said recently they were putting the project on hold while more studies are done, though it has indicated it hopes to proceed eventually.

Laos isn't a natural ally of the U.S. It is one of the remaining communist outposts; relations have been strained since U.S. bombers destroyed much of the countryside during the Vietnam War, leaving areas riddled with unexploded ordnance. Trade between the U.S. and Laos was just $71 million in 2010.

Vietnam and China, by contrast, have exercised far more influence over Laos in recent decades, with China increasingly beating out Vietnamese investors to launch mining and plantation projects there, diplomats say. Other projects include a $7 billion Chinese high-speed rail link through Laos, though the project has bogged down over the past year amid discussions over land rights and other issues, according to people familiar with the matter.

"The bulk of the money comes from China" in Laos now, said A. Barend Frielink, deputy country director for the Asian Development Bank in Laos. China is now Laos's biggest source of foreign direct investment. Mr. Frielink said he expected Laos's economy to grow by 7.8% this year, with about 20 hydropower projects under development.

Laos has introduced a number of market overhauls over the years that analysts say indicate a willingness to boost growth further, including through more trade with the West. The U.S. normalized trade relations with Laos in 2004, and a number of trade delegations have ventured into the country over the past year.

The trips included a delegation organized by the U.S.- Asean Business Council last year that featured some of the biggest American corporations, including Coca-Cola, Chevron, General Electric and Johnson & Johnson. That trip followed a similar delegation sponsored by the U.S. embassy, the American Chamber of Commerce in Thailand and the U.S. Commercial Service in Thailand that included Citibank and other American businesses.

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