Transparency of the Regulatory System
Regulations in Laos can be vague and conflicting, a subject which the private sector raises regularly with the government, including through official fora such as the Lao Business Forum. The 2013 Law on Making Legislation mandated that all laws be available online at the official gazette website. Draft bills are also available for public comment through the official gazette website. Though the business climate and economic regulatory framework continues to improve, the realities of doing business in Laos can fail to correspond with existing legislation and regulation. Implementation and enforcement often do not strictly follow the letter of the law, and vague or contradictory clauses in laws and regulations provide for widely varying interpretations. Regulations at the national and provincial levels can often diverge, overlap, or contradict one another. Many local firms complain of informal or gray competition from firms that offer lower costs by flaunting formal registration requirements and operating outside of government regulatory structures.
The nascent legal, regulatory, and accounting systems are not particularly conducive to a transparent, competitive business environment. International accounting norms apply and major international firms are present in the market, though understanding and adherence to these norms is limited to a small section of the business community. There are only four companies listed on the Lao stock exchange. Regulations dictate that companies listed on the exchange are to be held to accounting standards, but capacity to enforce those standards is low. According to the Law on Making Legislation, laws should be made available for comment through the electronic gazette, though this occurs inconsistently in practice.
International Regulatory Considerations
Laos is a member of the ASEAN Economic Community (AEC), and would seek to implement any AEC-agreed standards domestically. However, the local capacity to develop regulatory standards is weak, while enforcement of technical regulations is weaker still.
Legal System and Judicial Independence
The Lao legal sector is underdeveloped and lacking in capacity. The government aims to become a “rule of law state” by 2020 and continues to work with many international donors on a comprehensive legal sector reform plan. From 1975 to 1991, Laos did not have a constitution, and government decrees, issued by many ministries and officials, provided the country’s legal framework. While there have been dramatic improvements in the legal system in recent years, there are relatively few lawyers, inexperienced judges, and laws often remain vague and subject to broad interpretation.
The existing legal system incorporates some major elements of the French civil law system, but is also influenced by the former Soviet Union’s legal system as well as those of regional neighbors. Court decisions are neither widely published nor do they dramatically affect future decisions or set precedent. The Lao judicial system is bureaucratically independent of the government cabinet, but still subject to government and political interference.
Contract law in Laos is lacking in many areas important to trade and commerce. While it does provide for sanctity of contracts, in practice, contracts are subject to political interference and patronage. Business have reported that contracts can be voided if found disadvantageous to one party, or if an agreement conflicts with state or public interests. Foreign investors have described contracts in Laos as being considered “a framework for negotiation” rather than a binding agreement, and even when faced with a judgment, enforcement is weak and susceptible to corruption and bribery. Although a commercial court system exists, in practice most judges adjudicating commercial disputes have little training in commercial law. It is advisable that those considering doing business in the country contact a reputable law firm for additional advice on contracts.
Laws and Regulations on Foreign Direct Investment
A new investment law remained under consideration as of April 2017, but is expected to be approved during the year. The 2010 Law on Investment Promotion introduced uniform business registration requirements and tax incentives that apply equally to foreign and domestic investors. Foreigners may invest in any sector or business except in cases where the government deems the investment to be detrimental to national security, health, or national traditions, or to have a negative impact on the natural environment. Aside from these sectors, there are no statutory limits on foreign ownership or control of commercial enterprises, but in practice many companies seek a local partner.
Most laws of interest to investors will be featured on the Lao Trade Portal website , , with many laws and regulations translated into English, or on the Official Gazette website . The 2012 Law on Making Legislation stipulated that any legislation not posted by the end of 2014 to the electronic Official Gazette would be void. While many laws were placed on the site before the end-2014 deadline, others older laws, which would have been voided on January 1, 2015, have been placed on the site after the deadline and without being formally re-approved by the relevant legal bodies, resulting in a legal gray area.
Neither the government’s investment bureaucracy nor the commercial court system is well developed. Investors have reported government practices that deviate significantly from publicly available law and stipulated regulations. Some investors decry the courts’ limited ability to handle commercial disputes and the judicial system’s vulnerability to corruption and bribery. The Lao government has repeatedly underscored its commitment to increasing predictability in the investment environment, though in practice, with some exception in SEZs and for larger companies, foreign investors describe inconsistent application of law and regulation.
Competition and Anti-Trust Laws
A new competition law was approved in 2015 which applies to both foreign and domestic individuals and entities. The law was drafted with the assistance of the German government and other donors. The competition law was one of the Lao government’s policy efforts to implement the ASEAN Economic Community, or AEC, before 2016. The law established two new government entities, the Business Competition Control (BCC) Commission and the BCC Secretariat. The BCC Commission is the senior body and its membership is decided by the Prime Minister with the advice of the Minister of Industry and Commerce. According to the legislation, it should include senior officials from multiple ministries as well as businesspeople, economists, and lawyers. The BCC Commission can draft regulations, approve mergers, levy penalties, and provide overall guidance on government competition policy and regulation. The BCC Secretariat, a lower-level institution equivalent to a Ministry of Industry and Commerce department or division, can hear complaints, conduct investigations, and conduct research and reporting at the request of the Commission.
Expropriation and Compensation
According to law, foreign assets and investments in Laos are protected against seizure, confiscation, or nationalization except when deemed necessary for a public purpose. Public purpose can be broadly defined, however, and government land grabs are feared by Lao nationals and expatriates alike. In the case of government expropriation, the Lao government is supposed to provide fair market compensation. A business relying on a specific parcel of land may lose is investment license if the land is in dispute. Revocation of an investment license cannot be appealed to an independent body, and companies whose licenses are revoked must then quickly liquidate their assets. Small landholdings, land with unclear title, or land on which tax has not been paid is at particular risk of expropriation.
ICSID Convention and New York Convention
Laos is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention). It is, however, a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
According to the Law on Investment Promotion, dispute resolution should be escalated through the following methods: mediation, administrative dispute resolution, dispute resolution by the Committee for Economic Dispute Resolution, and finally, litigation. However, due to inefficiencies and underdevelopment in the Lao legal system and the limited capacity of many Lao legal administrators, foreign investors are generally advised to seek arbitration outside the country. There are few publicly available records on international investment disputes. In disputes involving the Ministry of Planning and Investment, decisions can only be appealed back to the Ministry itself. There is, as of early 2017, no separate independent body involved in moderating or adjudicating investment disputes. Thus, a company alleging unfair treatment by the government has no independent recourse.
International Commercial Arbitration and Foreign Courts
Beyond those listed above, there are no formal Alternative Dispute Resolution mechanisms provided in Lao law. There is no known history of Laos enforcing foreign commercial arbitral decisions.
The 1994 bankruptcy law permits either the business or creditor the right to petition the court for a bankruptcy judgment and allows businesses the right to request mediation. The law authorizes liquidation of assets based upon the request of a debtor or creditor. However, there is no record of a foreign-owned enterprise, whether as debtor or as creditor, petitioning the courts for a bankruptcy judgment. According to the World Bank’s Ease of Doing Business Report, Laos remains at the very bottom of the global rankings for “ease of resolving insolvency.”