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Cablegate: New Transportation Arteries and Trade Initiatives

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RR RUEHCHI RUEHDT RUEHHM
DE RUEHVN #0524/01 1760851
ZNR UUUUU ZZH
R 250851Z JUN 07
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 1347
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RHHMUNA/CDR USPACOM HONOLULU HI
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 VIENTIANE 000524

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS
STATE FOR INL/AAE
PACOM FOR POLAD
PACOM FOR JIATFW

E.O. 12958: N/A
TAGS: EAID ECIN ELTN ETRD KCRM KHIV LA PGOV SNAR
TH, VM, XC
SUBJECT: NEW TRANSPORTATION ARTERIES AND TRADE INITIATIVES
AID LAOS' DEVELOPMENT AND ILLICIT TRAFFICKING ALIKE

REF: A. VIENTIANE 259
B. VIENTIANE 257

1. (SBU) Summary. New highways and trade initiatives may
boost Laos' growth but will provide greater opportunities for
illicit trafficking as well. With the opening of a
Savannakhet, Laos-Mukdahan, Thailand bridge, the East-West
Economic Corridor (EWEC) that transects southern Laos is now
complete from Da Nang, Vietnam to Bangkok, Thailand. The new
China-Thailand Highway that will connect Yunnan Province to
central Thailand via northwestern Laos is also nearly
complete. Both of these transportation arteries will provide
badly needed capacity to Laos' austere transportation
network. Regional trade agreements, such as the ASEAN Single
Window Initiative (ASWI), will provide a welcome relief for
shippers who currently have to contend with a multitude of
customs procedures and forms just to move cargo a few hundred
miles but across several borders. Unfortunately,
improvements designed to facilitate trade can also facilitate
illicit trafficking. The Government of Laos (GOL) is well
aware of the potential pitfalls and is urgently seeking
assistance to develop the country's capacity to control its
own borders. Laos wants the benefits of trade but would like
to avoid the downside that could come with it. The new
transportation corridors and trade initiatives are regional,
making it almost impossible for Laos to solve border control
issues on its own. Regional and domestic interagency
cooperation will be critical. Laos is already the transit
route of choice for traffickers in mainland Southeast Asia;
if its law enforcement capacity remains below the regional
standard, the region will suffer the consequences. End
Summary.

The New Mukdahan-Savannahket Bridge

2. (U) The bridge between the provincial capitals of
Savannakhet, Laos and Mukdahan, Thailand opened in January,
completing the roadway spine of the EWEC from the Burmese
border with Thailand to Da Nang, Vietnam. Only the final leg
of the EWEC through Burma to the Andaman Sea remains
unfinished. The drive from Da Nang to Savannakhet can be
completed in nine hours; the trip from the bridge on to
Bangkok or the Thai port of Lam Chabang would take slightly
less.

3. (SBU) Laos is not the destination for the majority of
vehicles crossing the new span. Thailand and
Vietnam--larger, more efficient, and better developed--will
be the primary beneficiaries of the new highway. Hindering
Lao aspirations is a lack of competitiveness; Vietnam enjoys
a substantial advantage in labor productivity, so much so
that Lao roads are often built by Vietnamese workers, and
Laos' weak educational system produces graduates whose skills
pale in comparison to their Thai counterparts. In addition,
Laos, with its small population, outmoded economy, and
landlocked location has never been the magnet for foreign
direct investment that its neighbors have.

4. (U) Lao officials, however, remain optimistic that their
country will share in the benefits of the EWEC. Laos has set
aside two large tracts of land to serve as special economic
zones, one at Dene Savan, Savannakhet Province, adjacent to
the Vietnamese border, and another at Xeno, just north of the
new bridge. The Ministry of Commerce expects industrial
development in the special economic zones to commence in less
than two years.

5. (U) These free trade zones are exempt from import or
export duties, and customs procedures can be completed within
the zones, facilitating rapid passage at border checkpoints.
Once the zones are developed, the current flow of 200 to 300
vehicles per day across the bridge may increase to thousands.
Small businesses servicing the transportation sector have
already opened along the highway, including roadside stops
that provide fuel, food, lodging, and entertainment for
truckers hauling heavy cargoes and Thai tourist buses bound
for Vietnam's beaches.

The China-Thailand Highway

6. (U) Construction work on the new China-Thailand highway
is nearing completion. Once the road is complete, the drive

VIENTIANE 00000524 002 OF 003


from the Chinese border at Boten (in Laos' Luang Namtha
Province) to the Thai border at Houay Xai (in Laos' Bokeo
Province) will take only four to five hours. From Houay Xai,
Bangkok is less than twelve hours away. The fact the road is
not yet 100% complete has not prevented Chinese entrepreneurs
or Thai trucking firms from using it. Vehicles bearing
Chinese license plates can be seen more and more throughout
Luang Namtha and Bokeo Provinces. The highway also
intersects the road to the Burmese border at Xieng Kok (along
the Mekong River), approximately four hours to the west. The
GOL has announced that it is planning new spans across the
Mekong at both Houay Xai and Xieng Kok, facilitating much
easier travel within the Green Triangle (intersection of
China, Burma, and Laos) and Golden Triangle (intersection of
Thailand, Burma, and Laos) regions.

7. (U) The GOL has established a special economic zone at
Boten similar to those in Savannakhet. Unlike the southern
zones, Boten is already being developed. Chinese firms have
moved quickly to invest in tobacco, rubber, and casino
projects, and the northern end of the highway in Laos is
taking on a boomtown aura. Smaller Chinese traders are also
an increasingly visible presence in Luang Namtha, Udomxay,
Houay Xai, and Xaignabouri Provinces.

New Trade Initiatives

8. (U) The new transportation arteries are only one
component of a broader effort to promote trade in the region.
New agreements promise to lower duties and ease customs
procedures for companies doing business in Laos, which
already has a bilateral agreement with Vietnam and
hopes to have one with Thailand in the not too distant
future. When the ASWI is fully implemented, which according
to the GOL will occur here in 2012, it will be a further step
forward toward regional integration. Under the ASWI,
shippers can complete all of the necessary customs procedures
in the country of origin, and will not have to worry about
any additional customs formalities until the goods arrive at
the final destination. A central database will allow customs
officials in any participating country to access information
on any shipment transiting their borders. The initiative is
aimed at ending the burden on shippers and speed cargoes by
streamlining paperwork and eliminating the need for
inspections at every border. For the majority of
containerized cargoes, this will mean a streamlined
documentation process and only one inspection for a shipment
between any two ASEAN members.

Looming Problems

9. (SBU) However, GOL law enforcement agencies are concerned
that the measures designed to facilitate trade and
development may also assist illicit traffickers. More
vehicles on faster highways, combined with fewer inspections,
will make the work of interdicting the flow of trafficked
humans, illegal drugs, and precursor chemicals very difficult
throughout the region. Under the ASWI, the GOL will reduce
the number of agencies responsible for border controls from
ten to three: Customs, Immigration, and Agriculture. In
addition to making drug and human trafficking easier, the
streamlined procedures could lead to more trade in illegal
timber, un-inspected poultry, weapons, cash, forged
documents, and cultural relics. Savannakhet already has
problems with trafficking in persons and drugs; the opening
of the new bridge is likely to further aggravate both. With
the increased traffic comes another concern, the spread of
HIV/AIDS. The Golden Triangle/Green Triangle regions of Laos
are potentially more vulnerable, and HIV/AIDS could become a
serious issue in northwestern Laos once the China-Thailand
highway is complete.

10. (SBU) Comment. The GOL continues to reiterate its
request to donors for assistance to build the law enforcement
capacity it will need to meet the challenges intrinsic to
growing trade. What Lao Customs officials need most are
basic contraband inspection equipment and training in their
use. China has announced that it will provide $19 million in
loans to fund five container x-ray machines at key points of
entry such as Boten and Savannakhet, but the machines will be
expensive to operate and maintain, and are probably not
appropriate for Laos' current border control infrastructure.

VIENTIANE 00000524 003 OF 003


Even under the best circumstances, this is a task Laos cannot
undertake successfully without greater regional cooperation;
regional trafficking issues will require regional solutions.
End Comment.
MCGEEHAN

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