Cross-Border Impacts of Thai Sezs on Lao Sezs and Collaboration in the Midst of Regional Integration

CROSS-BORDER IMPACTS OF THAI SEZS ON LAO SEZS AND COLLABORATION IN THE MIDST OF REGIONAL INTEGRATION

Alay Phonvisay, Viengsavang Thipphavong and Thantavanh Manolom1

Abstract Out of the 10 new SEZs of Thai Government, five will be located in the Thai provinces along the border with Laos where SEZs have already been set up and some are in operation. To attract investors to these planned SEZs, Thai Government has proposed a new measure to facilitate cross border labor movements of both skilled and unskilled types. This paper aims to address potential impacts of Thailand‟s SEZ initiative on Laos‟ SEZs by combining desk studies and semi-structured interview based on locational choice model in majors Laos‟s SEZs. Considering SEZs in Laos tends to be more attractive to investors because of cheaper electricity, treated water supply, land lease, and labor cost. Moreover, the direction and the objective of SEZ development has been cleared compare to Thailand‟s SEZs which are not clearly identify. Moreover, there is high probability of cooperation between those SEZs along the border in order to gain the most benefit. In order to gain the most benefit from SEZs for Laos and Thailand, strengthening coordination between public and private sector is necessary.

Key words: SEZs, cross-border impacts, Thai-Lao, regional integration.

1 Dr. Alay Phonvisay, Economic lecturer, Faculty of Economic and Business Administration, National University of Laos ([email protected]). Viengsavang Thipphavong, Director of Trade Policy Research Division, The Economic Research Institute for Industry and Trade (ERIIT), MOIC, Lao PDR ([email protected]). Dr. Thantavanh Manolom, Research Fellow, The Economic Research Institute for Industry and Trade (ERIIT), MOIC, Lao PDR ([email protected]).

CROSS-BORDER IMPACTS OF THAI SEZS ON LAO SEZS AND COLLABORATION IN THE MIDST OF REGIONAL INTEGRATION

1. Introduction SEZs have been established in many countries as a mechanism for attracting foreign direct investment (FDI), accelerating industrialization and creating jobs. SEZs have the potential to create immense employment opportunities, directly, by firms invested in the SEZs, and indirectly, by local suppliers providing inputs to firms located in SEZs and by local businesses selling goods and services to workers employed by those firms. Also, SEZs are townships of their own, with shopping malls, restaurants, amusement parks setup around to attract people, thus resulting in more economic development in that area. Technology and knowledge transfers could be other benefit of SEZ development to a host country in particular a country which has a chronic shortage of skilled and qualified workers in order to keep up with its economic growth.

Recently, Thai Government has planned to develop 10 SEZs along the border areas with Laos to attract investors to the areas, and five will be located in the Thai provinces bordering Lao provinces, where Lao SEZs have already been set up and some are in operation. This will inevitably directly compete with Lao SEZs located right across the border. However, Thailand sees this strategy as crucial to accelerating border trade, which currently accounts for 12% of the country‟s total exports and it is projected to grow to 20-25 percent in 2015. Under this plan, Thailand has identified 13 target industries for those SEZs, including agriculture and fisheries; ceramics; garments, textiles and leather; furnishings and furniture; gems and jewelry; medical equipment, automobiles and parts; electrical appliances and electronics; plastics; pharmaceuticals; logistics; industrial estates and tourism-related to education, healthcare, retail, and hospitality. The planned new SEZs have completed the Environmental Impact Assessment within October 2015, and construction is expected to start in the end of 2016 and ready for space sales in 2019 (BOI, 2015a). To attract investors to these planned SEZs, Thai Government has proposed a new measure to facilitate cross border labor movements of both skilled and unskilled types. Also, the new Thai SEZs will allow investors to employ foreign unskilled workers, in addition to providing tax and non-tax incentives (BOI, 2015).

The Thai planned SEZs as such has raised two major concerns among Lao policy makers and leaders: 1) competition for workers away from Lao SEZs, which has already faced difficulties attracting qualified workers, and 2) competition for investors away from Lao SEZs. As SEZs in Laos grow, the need for both skilled and unskilled workers also increases. However, as Thai employers commonly offer wages higher than those offered by Lao employers, and with Thailand‟s growing need for unskilled workers, there is a strong concern that the Thai new SEZs along the border regions would attract Lao workers at the expense of the SEZs on the Lao side of the border. Beside the fact that Thailand generally has better infrastructure and services (better road and telecom services, hospitals, school for children, modern shopping malls) that provide the convenience of daily living, with tax and non-tax incentives to investors in the Thai SEZs, Thai SEZs may not just attract workers, but future investments at the expense of Lao SEZs and Laos as a whole.

Nonetheless, Thailand has recently expressed an interest in cooperating with Laos in investment promotion, industrial linkage program and knowledge sharing. With cooperation, it is unclear how will Thai SEZs impact Lao SEZs. In the light of this, the Lao National Committee for Special Economic Zone Secretariat Office (S-NCSEZ) is in need for a study to provide an insightful analysis of the repercussions Thailand‟s planned new SEZs would have on Laos‟ SEZs. S-NCSEZ also needs to know strengths and weaknesses of the SEZs in Laos vis-à-vis those in Thailand in order to identify possible areas for cooperation for mutual benefits of the two countries.

Major questions that this study seeks to answer are:

(1) What are the potential impacts of Thailand‟s SEZ initiative on Laos‟ SEZs and beyond the SEZs, especially on FDI and labor supply? (2) How attractive and competitive are Lao SEZs and in which areas are they required for improvement in order to improve their attractiveness and competitiveness? (3) What are the potential areas for win-win cooperation with Thai SEZs in the context of regional integration? (4) What would be a suitable labor policy that Lao SEZs should advocate for in order to ensure an adequate and sustained supply of labor in the context of regional integration? (5) How and by how much do Lao SEZs contribute to job creation and income generation in the local economies, and what strategic policy would be appropriate for enhancing linkages between SEZs and local economies?

2. Literature Review Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country‟s typical economic laws. The SEZ category covers a broad range of special zone types, including Free Trade Zone, Export Processing Zones, Free Zones, Industries Estates, Free Ports, Urban Enterprises Zone and others. Usually, the goal of SEZ structure is to increase foreign investment. There are approximately 3,000 SEZs operating in 120 countries worldwide, which account for over US$ 600 billion in exports and about 50 million jobs (N. Kadam, 2012).

SEZs are important in today‟s context for the third world countries which have been in the race for rapid economic growth. There are many positives which emerge out of establishing an SEZ. By offering privileged terms, SEZs attract investment and foreign exchange, create employment and boost the development of improved technologies and infrastructure. To undertake any kind of massive development program, the Government requires a huge amount of funds. So, it looks out for potential partners to help carry out the program. For setting up an SEZ, the Government may partner with a private investor, who is willing to invest in that area, thus creating a win-win situation for both. As the Government gets the capital and expertise needed to establish the required infrastructure, the private investor, on the other hand, gets the right to market and use of the SEZs with relaxed tax laws. With such a partnership arrangement, the private company can increase its revenue generating capacity and grow in a more efficient way. Actually, SEZs with relaxed import tariffs help the import- dependent and export-driven industries to flourish by helping them develop manufactured goods at competitive prices.

The concept of SEZ is described in no less than 19 different terms across countries in the world, such as Free Trade Zone (FTZ), Industrial Zone (Singapore), Maquiladoras (Mexico), Export Processing Zone (EPZ) and the common variants are FTZ, EPZ and SEZ. They are undistinguished from one another in meaning. Thomas (1956) defines Free Trade Zones as: “An isolated, enclosed and policed area, in or adjacent to a port of entry, without resident population, furnished with necessary facilities for loading and unloading for supplying fuel and ship‟s stores for storing goods for reshipping them by land and water, an area where goods may be landed, stored, mixed, blended, repacked, manufactured and reshipped without payment of duties and without the intervention of custom officials.” This definition highlights their function as trading and reshipping ports. Later the revolutionary decline in the transportation costs and emergence of standards made it possible to move goods efficiently towards where processing had comparative advantages. Thus the “Free Trade Zones” evolved into export processing zones.

“Export Processing Zone” is one of the most common terms. Warr (1988) defines it in the following way, “Export Processing Zones (EPZs) are economic enclave within which manufacturing for export occurs under virtual free trade conditions.” This is a generic definition that also fits most SEZs very well, naming that there should be enclaves, manufacturing for exports and free trade conditions. World Bank (1992) describes EPZs as an area with free trade zone elements and industrial park elements. This serves as a fruitful division, though there can be other elements as well. Ge (1999) defines SEZs in a more general term as “a geographic area within the territory of a country where economic activities of certain kinds are promoted by a set of policy instruments that are not generally applicable to the rest of the countries.”

The above definitions are not concrete and there are many exceptions, some EPZs may not be demarcated by physical barriers as in the case where free trade applies throughout the country, as in the case of the city states of Singapore and Hong Kong (previously). Similarly, China‟s Special Economic Zones are spread on such a large scale that they seem to evade the above definition of EPZ.

The oldest (Special Economic Zones) SEZs can be traced back to the form of free port in Italy in 1547. However, the SEZs that were manufacturing based were first established in the late 1920s in Spain. Since then, there were many complex types of SEZs emerge such as comprehensive SEZs, high tech parks, enterprise specific zones, service zones, country specific SEZs, hybrid zones, and so on (Aggarwal, 2010).

Now SEZs have been established in many countries as a mechanism for attracting foreign direct investment (FDI), accelerating industrialization and creating jobs. In general, establishment of SEZs is aimed to attract FDI, alleviate large-scale unemployment, diversify exports, and experimental laboratories for the application of new policies and development approaches (Engman, 2011; White, 2011). SEZs offer many advantages to investors otherwise wary of dealing with an unfamiliar foreign regime. Those advantages include relaxed labor, environmental, registration and land use laws, along with lower taxes, less cumbersome procurement of materials and more streamlined negotiation of projects. SEZs have been proven in many developing countries to be an effective means to accelerate economic development (Farole and Akinci, 2011). Furthermore, as international trade and investment flows evolve, economic cooperation between neighboring countries to promote strategic cooperation for regional development has become increasingly more important, and at times through the SEZ framework (Koyama, 2011; Zhao and Farole, 2011).

By taking an advantage of ASEAN economic integration and aiming to transform Laos from one of a land-locked to one of land-linked country, SEZ policy has been promoted by Lao Government for accelerating the country‟s socio-economic development, regional and global integration, and poverty eradication through job creation. It is hoped this approach will ultimately contribute to the country‟s graduation from the least developed country status by 2020. Lao Government‟s SEZs can be separated into two types: Special Economic Zones and Specific Economic Zones. Both types of SEZs are zones having a separate economic space with an investment and business environment which is especially favorable for investors within fixed geographical boundaries, and being established pursuant to the conditions, order and procedures stipulated in a legal document. A Special Economic Zone must have an area over 1000 ha, managed by a managing board (chaired by Lao Government) and an economic board (chaired by developer), and 100% private ownership of the SEZ is not allowed. For the Specific Economic Zone, 100% private ownership is allowed, only an economic board (chaired by developer) is required to manage the zone, and the zone‟s land area is unlimited (S-NCSEZ, 2012).

Up to date, 12 SEZs have been established throughout the country, in rural as well as in urban areas, and a combined of more than USD 1 billion have been invested, creating more than 10,000 jobs combined in these SEZs.

3 Research Methodology and Data This research focuses on the economic aspect of the problem, although major associated social and political issues that are considered important parts of the problem are not ignored. Combined quantitative and qualitative data were employed and both secondary and primary data were analyzed in details. Quantitative data include investment, production, employment and wages in the SEZs, income in the surrounding areas, and Government revenues from taxes and fees. Qualitative data include types of jobs created by the SEZs directly and indirectly, labor quality, regulatory and policy issues dealing with investment, production, employment and wages, environment, taxes, cross border shipment, and some other relevant and essential factors that may be found as the study progresses.

The semi-structured interview was conducted based on the determinants of location choice model and linkages effect model. Both location choice model and linkages effect model are used to analyze the potential impacts of Thailand‟s SEZ initiative on Lao SEZs and on Laos‟ FDI inflows beyond the SEZ and to analyze the impacts of investment in the SEZs on job and income creation inside Laos. The determinants of locational choice model which capture location choices of foreign investors either inside or outside the SEZ consist of four groups of variables including demand side variables, agglomeration variables, supply side variables and policy variables (Grossman, G.M., et al, 2004; Fazia., P & Laura., R, 2005).

In addition to desk studies on the policy and investment promotion of Lao SEZs and Thailand new SEZs, field visits were carried out to collect data and conduct interviews Mukdahan provincial governor in Thailand and four SEZs management committees, 12 investors, and 7 lines of ministries and departments in Lao SEZs in Vientiane Capital, Savannakhet, and Bokeo provinces. Critical data concerning Thai new SEZs located in proximity with Lao SEZs across the Mekong River on Thailand‟s territory used were solely from secondary sources.

4. Overview of SEZ in Laos and Thailand 4.1 Broad picture of Lao and Thai SEZs development and issues

4.1.1 SEZs development in Laos

The concept of SEZ used in Laos was started from a feasibility study of the 2nd Lao-Thai Friendship Bridge construction in Savannakhet presented by JICA, Japan in the end of 2000. The main objective of the SEZ development at the time was to attract and promote domestic and foreign investment along the road No. 9 from the Friendship Bridge tip in Savannakhet to Vietnam. The Lao Government decided to construct the Savan-SENO special economic zone as an experimental site by investing in the construction of basic infrastructures of the zone. The law on investment promotion No 02/NA classifies SEZ in two different types: special economic zone and specific economic zone. A special economic zone as an area that the Government designated to develop into a new modern town, as a place to attract domestic and foreign investments which has an area of at least 1,000 hectares, has the special promotion policy and autonomous economic and financial system. It is to be a smaller administration but wider society management system, and managed by SEZ Management Board and SEZ Economic Executive Board. The population in these zones are not subjected to resettlement; they will be participated within the zone activities in order to develop the zone, raise a sustainable income, to have sustainable security and sustainable environment. A special economic zone may be made up by combining many different specific economic zones. A specific economic zone means the area determined by the Government as either industrial zone, production-for-export zone, tourism zone, duty free zone, technology and information development zone, border trade zone, etc. The establishment of a specific economic zone is based on specific characteristics of each zone, its development, production and services. The specific economic zone is managed by the Economic Executive Board via one-seal mechanism, where the territory is clearly identified and no people live in there (SEZ secretariat office, 2010).

Lao Government has been trying to improve and create a good environment to support SEZs and, as a result, an investment promotion law was approved by the Parliament in July 2009. This followed, in October 2010, by the issuance of a Prime Minister Decree on Special Economic Zone that serves as a legal framework to promote SEZ investment. In the same year, the National Committee and the Secretariat Office to the National Committee for Special Economic Zone were established to lead the development and management of all SEZs in the country. These two governmental bodies are tasked to set up a competitive SEZ legal system and guidelines, open door policy for SEZ development in all sectors in the country, set up SEZ based on the Market-Driven Method, simplify process for investors to invest and operate by creating a One Stop Service, and develop SEZ based on equity, accountability, sustainability and preserving environment (SEZ secretariat office, 2010).

However, since the mid-2016, the SEZs were placed under direct supervision of the Ministry of Planning and investments and the names of The National Committee for Special and Specific Economic Zone management had changed to The National Committee for Special Economic Zone (NCSEZ). Management structure of special economic zone in the Laos is illustrated in Figure 4.1. To provide an efficient service to investors intended to invest in the SEZ, a One Stop Service was set up. Figure 4.2 illustrates working procedures of the One Stop Service Office, which is used at each special economic zone to provide land use right license, enterprise registration certificate, seal registration certificate, import-export

5 certificate, construction license, environmental impact certificate, management of citizens and labor, and tax payment.

Figure 4.1: Management Structure of SEZ (2016)

Source: SEZ Secretariat Office, 2016

Figure 4.2: One stop service office in SEZ of Laos

Source: SEZ Secretariat Office, 2016

The main objectives and goals of setting up SEZs in Laos is to create more jobs for local people, transfer skill and technology from foreigner staffs to local people, increase Government revenue and contribute to GDP growth. Since the establishment of first SEZ, the Savan-Seno, in 2003, Lao Government has been trying to improve and create a good environment for both domestic and foreign investors by issuing laws and decrees on SEZs. Since then, 11 more SEZs have been approved for development countrywide, with five approved since the end of April 2011. As of November 2016, Lao Government has approved a total of 12 SEZs, including four special economic zones and eight specific economic zones as illustrated in Table 4.1.

Table 4.1 Special Economic Zones in Laos as end-of 2016

Estimated Investment No SEZ Location Year Establish Objective (million USD) 1 Savan-Seno SEZ Savannakhet Province 2003 74 Industrial zone 2003 Luangnamtha Trade and 2 Boten SEZ (Upgraded 500 Province Logistic 2012) 2007 Tourist and 3 Golden Triangle Bokeo Province (Upgraded 1,000 New Urban 2014) Center 2009 4 VITA Park Vientiane Capital (Upgraded 43 Industrial Zone 2010) 5 Phoukyo SEZ Khammuan Province 2011 708 Industrial Zone 2010 6 Saysettha SEZ Vientiane Capital (Upgraded 128 Industrial Zone 2011) Tourist and 7 Thatluang SEZ Vientiane Capital 2011 1,600 New Urban Center 2008 Tourist and 8 Long Thanh SEZ Vientiane Capital (Upgraded 1,000 New Urban 2012) Center 2009 Trade and 9 Dongphosy SEZ Vientiane Capital (Upgraded 50 Logistic 2012) Trade and 10 Thakhek SEZ Khammuan Province 2012 80 Logistic

11 Champasak SEZ Champasak Province 2015 492.5 Industrial Zone Tourist and LuangPrabang LuangPrabang 12 2016 1,200 New Urban SEZ Province Center Source: SEZ Secretariat Office, 2016.

In total, 19,621 ha of land area has been occupied by the 12 SEZs approved, with a combined planned investment of USD 6.8 billion by 295 firms invested in the 12 SEZs, which can potentially create 15,544 jobs. Of all investment types, 38% are in services, 28% in industry, and 34% in trade and logistic. Until the end of 2016, real investment in these 12 approved SEZs totaled USD 1.62 billion, comprising of USD 23.9 million from Government, USD 1.2 billion from zone developers, and USD 329.5 million from joint-ventures. The aforementioned figures are showing the contribution of each party to the SEZs development and by those results it could be reaffirmed that a 14-year of SEZs development in Laos is heavily relied on private sector driven, especially the foreign developers and investors. Nonetheless, last fiscal year 2015-2016 when Champasak and Luangprabang SEZs were officially established the government‟s share more than 10 folds of actual investment in the

7 zones if compared to previous 14 year by average, and this was in contrast to the developer (Table 4.3).

Table 4.3: Investment value of SEZs in Laos by type of investors (2003-September 2016)

Real Invested Real Invested Capital Capital Sector % Share % Share (2003 - 2016) (2015 - 2016) (USD) (USD) Government 23,957,171 1.48 17,337,927 20.20 Zone Developer 1,270,210,298 78.23 34,599,906 40.31 Investors 329,545,112 20.30 33,896,885 39.49 Total 1,623,712,581 100 85,834,718 100

Source: SEZ Secretariat Office, 2016

Since first SEZ was established in 2003 the Lao SEZs has received total investments by 2016 amounted to more than USD 8.21 billion of which USD 2.66 billion was foreign investments (Table 4.4). In addition, it could be seen that from 2003 to 2016 the most significant foreign investors in SEZs in terms of registered capital are from China, Thailand, Vietnam, USA and Japan. Nonetheless, domestic investors and joint domestic/foreign investors are actually playing a vital role in capital investments in the SEZs. On the other hand, even though SEZs could attract billion of dollars from both foreign and domestic investors, the capital investments are spread unevenly in each zone. A third high density of investments is in Savan-Seno SEZ, Golden Triangle SEZ and VITA Park which by 2015 had 74, 59 and 38 enterprises respectively invested and registered capital in the zones (figure 4.3). The difference among SEZs investment attraction in Laos is highly likely to depend on zone configurations namely, location, infrastructure development, incentives and marketing strategy of each developer.

Figure 4.3 Investment in SEZs by number of investors from 2003 to 2015

74 80 70 59 60 50 38 40 30 14 16 18 9 13 20 4 8 10 2 0

Note: there is no data on investors available for Luangprabang Special Economic Zone Source: SEZ Secretariat Office, 2016

Table 4.4: Investment by country in SEZs of Laos (2003-September 2016)

Registered Number of No. Country capital enterprises (USD) % Share 1 China 134 1,551,450,658 58.18 2 Thailand 29 523,273,250 19.62 3 Japan 21 28,045,000 1.05 4 Malaysia 6 17,745,000 0.67 5 France 5 1,900,000 0.07 6 Vietnam 2 302,500,000 11.34 7 Australia 2 450,000 0.02 8 Honlland 2 1,000,000 0.04 9 South Korea 3 1,830,000 0.07 10 Germany 1 100,000 0.004 11 Denmark 1 500,000 0.02 12 USA 1 235,549,092 8.83 13 Hong Kong 1 2,000,000 0.07 14 Belgium 1 500,000 0.02 Total 209 2,666,843,000 100.00

I Foreign 209 2,666,843,000 32.45 II Domestic 63 2,736,804,323 33.30 Joint III 23 2,815,630,000 34.26 Domestic/Foreign Total 295 8,219,277,323 100.00

Source: SEZ Secretariat Office, 2016

SEZs in Laos are likely falling into two types, one is industry and service based SEZ and other one is purely service based SEZ. The former can include Savan-Seno SEZ, VITA park, Champasak SEZ, Xaysetha SEZ, Dongphosy SEZ, Thakhek SEZ and Phoukyo SEZ. The later is Boten SEZ, Golden Triangle SEZ, Thatluang SEZ, Long Thanh SEZ and Luangprabang SEZ. Based on classifying SEZ by two types it can be foreseen that SEZ in the first type will be able to do export to overseas market. Meanwhile the second type will concentrate on service users in the zone. However, so far only 3 SEZs (Savan-Seno, VITA park and Champasak) are well functioned and able to export, and the rest are still in the process of developing infrastructure and seeking partners/investors.

4.1.2 SEZ development in Thailand

Thailand‟s Special Economic Development Zones (SEZs) goes back to the country‟s first five-year National Economic and Social Development Plan (1958-1963), when the groundwork was laid out in the country‟s industrialization strategy, which emphasized private sector-led, FDI-driven, and export-led growth economic development strategy (ERIA, 2015). It took roughly 10 years before the country‟s first industrial estate, a state-owned project called Banchan Industrial Estate, was established, in 1969 (ERIA, 2015).

Thailand‟s industries development is indicative of its rural–urban gap. However, at the onset of industries development, the gap between the urban core and the rural periphery expanded with the increase in the number of industries. That was partly because Government‟s development strategy did not pay much attention to regional economic disparities. Seeking private sector–led development resulted in centralization of industries in Bangkok and its outskirts given the accessibility to Laem Chabang port and Don Mueang international airport. Bangkok, as the capital city, with the largest population cluster, more developed infrastructure and market than elsewhere in the country, was an attraction for investment in Thailand. This has led Thailand‟s industrial development to be clustered within and around Bangkok, causing congestion within Bangkok and greater disparities between Bangkok and the rest of the country. Variables that created agglomeration effect include a large population (which provided pools of labor supply for various specialized skills and consumers), business services (financial, legal, logistic, input chains, etc.), transportation and communication infrastructures, public services businesses need, and proximity to ports for surface and air transportations. These together created a favorable investment ecosystem that attracted businesses and people to Bangkok area. Newer industrial estates grew eastward out from Bangkok and its surrounding area and the Eastern Sea Board was established which had considerably contributed to Thailand‟s industrialization in the 1980s-90s.

It is not surprising that Bangkok and the surrounding provinces seemed to be the best FDI destinations for foreign investors. Moreover, the Government developed industries in the country, was also set up in Bangkok. Due to the rapid industrialization in the late 1980s, major urban problems such as insufficient labor force, burgeoning wages, and congestion in Bangkok and its vicinities became worse (ERIA, 2016); the gap between central with surround provinces are wilder especially in border areas.

Zoning as a solution for bridging the gap to tackle these difficulties, as for Thailand, the establishment of SEZs is in terms of EPZs. Thailand has had Board of Investment of Thailand (BOI) since 1977 and BOI devised an investment incentive scheme called „Zoning‟ in 1987. This scheme divided the country into three zones on the basis of the level of regions‟ economic development. Zone 1 comprises Bangkok and the bordering provinces, Zone 2 consists of the provinces around Bangkok, and Zone 3 covers the remaining peripheral provinces with low per capita income which included border provinces.

Considering border special economic zones, ADB suggested strategic framework transform transport corridors according to the Greater Mekong Sub-region program (GMS) into economic corridors. As a result, Office of the National Economic and Social Development Plan (NESDB) initiated the frame work to develop Thailand‟s border SEZs in 2004. Also, Policy International Institute for Trade and Development XLVI formulation and Regulation of Prime Minister‟s Office to establish border SEZs have been setup in 2013. Under bottom-up approach, a special economic zone can be proposed to the Policy

Committee on Special Economic Development Zone. The government will support infrastructure development, one stop service consisting with ASEAN Single Window, and any necessary measures required for economic expansion.

The SEZs are in border areas contiguous to Myanmar, at Kanchanaburi; Laos, at Chiang Rai, Mukdahan, Nhong Khai and Nakhon Phanom; Cambodia, at Sa Kaeo; and Malaysia, at Songkhla and Narathiwat. In the past 5 years (2010-2014), the trade value between Thailand and the four above mentioned countries has grown continuously to an average of 900,000 million Baht, and will continue to grow, especially after the formation of the AEC at the end of 2015. At present, distribution centers and labor intensive industries are beginning to take interest in investing in these countries in order to access labor and to distribute goods to neighboring countries conveniently, as well as import goods, including raw materials or parts, from neighboring countries to Thailand.

Currently, Thai government under the National Council for Peace and Order (NCPO) has approved the development of 12 Border SEZs in 10 provinces. As mentioned, they will be located in the northern, northeastern, eastern, western and southern parts of Thailand along the borders with Cambodia, Laos and Myanmar. The purpose of promoting the 12 zones of Thai government is not only for economic interest, but also for national security. The committee states that the objectives of SEZs are to increase competitiveness, increase employment and people‟s well-being, solve a problem of illegal migrants to the central areas of the country, deal with smuggling of agricultural products from neighboring countries and reduce congestion at the border check points. With a change in domestic structure and regional policies, development of border SEZs becomes one of the important issues of Thailand. The Government provides supporting measures and other promotions for the development of basic infrastructure, including tax and non-tax incentives, setting up One Stop Service Center (OSS) and other facilitating measures. Suitable activities or industries suitable for investment SEZs include labor intensive industries, industries relying on raw materials from neighboring countries, border trading requiring the establishment of a bonded warehouse, and distribution centers to neighbor countries, tourism supporting businesses as well as various service activities to support community expansion around the SEZs (BOI, 2015). However, at present, there is no clear model and administrative frame work of SEZs in Thailand yet.

The SEZs are divided into two types, namely SEZs for production activities and SEZs for service activities. The structure of these two types zone can be summarized in Table 4.6 and Table 4.7.

Every SEZs will have a One Stop Service Center (OSS) that is set up to facilitate investors by emphasizing trade and investment service, as well as labor issues, public health and security, in a fast and complete manner. Investors can contact many government agencies at one location, a OSS providing information and coordination with related government agencies for submission of applications. Services provided by the OSS comprise of three forms as follows:

1. Providing information and recommendations with database system related to business operation in the SEZs, both regulation related information, database for carrying out business in the district and contacts of related government agencies. 2. Acceptance of matter, submission to concerned agencies and follow up. 3. Approval and Permission (only where the stationed official has the complete authority).

Table 4.6: Thailand‟s structure of SEZs for production activities

Areas - Bounded and specific areas. - Concentrate on the areas with migrant workers. Economic - In the short run, concentrate on labor- intensive industries. activities - In the long run, aim to establish co-production base with high technology or high skilled labor and move labor – intensive industries to neighboring countries via outward FDI. Tax incentives - Tax incentives in accordance to BOI‟s rules, in case of production for export; have flexible requirement on the share of foreign workers and local worker. Incentives for - Have more flexible requirement on a share of foreign workers in order to utilization of obtain BOI incentives. foreign workers/ - Have more relaxed requirement on migrant workers‟ registration in case of migrant workers the day-trip migrant workers. Other incentive - Allow for production for domestic sales. This activity still attains incentives for utilization of migrant workers but not tax incentives from BOI. - May set up financial supports for creative industries, R&D or industries that promote knowledge and technology. Management - Committee composed of central government‟s representatives, local structure government‟s representatives, private sector, and NGOs. - Rely on the current organization structure in terms of implementation and operation. Long-run - Establishment of co-production bases with neighboring countries strategies - Promotion of outward FDI in case of labor-intensive industries Source: BOI, 2015a

According to NC-SEZ Announcement No. 1/2558 and 2/2558, twelve border SEZs comprise areas located in the 10 provinces and divided in two phases (Appendix A). Among those 12 border SEZs, four SEZs are located at the opposite side of the border from major SEZs in Laos. Thus, the analysis in this paper focuses on four Thailand‟s SEZs that are located at the border between Laos and Thailand (Figure 4.4 and table 4.8).

Table 4.7: The structure of SEZs for service activities

Areas - Bounded and specific areas - Concentrate on the areas with migrant workers Economic - Logistics and transports. activities - Free zones inside the area. - May consider other potentials such as health care services, education and tourism. Tax incentives - Tax incentives for services inside the designated areas served for foreign customers or the services that have final users in other countries. Incentives for - Have more flexible requirement on a share of foreign workers in order to utilization of obtain BOI incentives. foreign workers/ - Have more relaxed requirement on migrant workers‟ registration in case of migrant workers the day-trip migrant workers. Other incentive - Duty free zones. - May set up financial supports for creative industries. Management - Committee composed of central government‟s representatives, local

12 structure government‟s representatives, private sector, and NGOs. - Rely on the current organization structure in terms of implementation and operation. Long-run - Establishment of co-production bases with neighboring countries. strategies - Promotion of outward FDI in case of labor-intensive industries. Source: BOI, 2015a

Figure 4.4: Border SEZs between Laos and Thailand

Source: Journal of The American Chamber of Commerce in Thailand, 2015

5. Impact of Thai SEZs on Lao SEZs

The analysis in this paper focuses on eight Laos‟s SEZs and four Thailand‟s SEZs that are located at the border between Laos and Thailand (Table 5.1). The analysis in this paper comprises of comparative analysis and impact of SEZs on Lao economy:

Table 5.1: Laos SEZs and Thailand border SEZs

SEZs in Laos SEZs in Thailand (1) Golden Triangle special economic zone Chiang Rai Special Economic Zone (2) Vientiane Industrial Trade Area Park (VITA Nong Khai Special Economic Zone Park)

(3) Saysettha Development Zone

(4) Thatluang Lake Specific Economic Zone

(5) Long Thanh Vientiane Specific Economic

Zone

(6) Phoukhyo specific economic zone Nakhon Phanom Special Economic Zone (7) Thakhek specific economic zone (8) Savan-Seno special economic zone Mukdahan Special Economic Zone Source: Authors‟ adaptation from SEZ Secretariat Office, 2016, and BoI, 2015b

5.1. Comparative Analysis

In order to be able to see the impact of Thai SEZs on Lao SEZs if Thai bordered SEZs have been setup and fully operated, it is important to know the strength and limitation of these SEZs. Therefore, the comparison analysis has been adopted in this paper. The comparison in this paper bases on investment category; incentive and input cost; investors, ease of entry, and zone management. These factors are important factors that investors consider before investment.

5.1.1 Investment Category in SEZs

After comparing investment categories of each SEZ in Laos and Thailand, it is found that 10 out of 13 investment target categories of SEZs in Laos and Thailand are matched. These investment categories are Agricultural, fishery and other related industries, Textile, garment, and leather industries, Manufacture of furniture, Gems and jewelry, Automotive, machinery, and parts, Electrical appliances and electronics, Plastics, Medicine, Logistics, Industrial estates/zones, Tourism related industry (Table 5.2).

In order to analyze the potential impacts of Thailand‟s planned border SEZs on Laos‟ SEZs, we pair Lao SEZs and Thai SEZs that are located close to each other (Table 5.1). In the north, Chiang Rai SEZ is paired with the Golden Triangle SEZ in Laos. Our in-depth field survey found that the Triangle SEZ is mainly aiming for tourism and developing new urban center, while Chiang Rai SEZ would initially focus on industrial processing and tourism related activities. Currently, Chaing Rai SEZ is still at a feasibility study stage, and its administrative committee is working closely with the Triangle SEZ management board to find rooms for cooperation, to coordinate their investments and avoid costly competition.

Meanwhile, in Vientiane Capital, despites its 5 special economic zones: namely, VITA Park, Saysettha, Thatloung Lake, Long Thanh Vientiane, and Dongphosy specific economic zone, only VITA Park, Saysettha, and Dongphosy specific economic zone that have the potential to compete with Nongkhai SEZ thank to their SEZs development direction focusing mainly on the light industry, trade and logistic. For Thatloung and Long Thanh SEZ, their primary focuses are on tourist and new urban town, while the industrial category in VITA Park, Saysettha, and Nongkhai are almost identical. However, Nongkhai‟s SEZ development progression is still at the feasibility stage in comparison with that of VITA Park and Saysettha, which are already in operation.

Other SEZs created closed to each other across the border are Thakhek and Phoukhyo specific economic zone in Laos, and Nakhon Phanom Special Economic Zone in Thailand. As yet Nakhon Phanom special economic zone has not made any concrete decision on any

14 specific type of investment; nonetheless, as per its development plan, the zone will take the direction of the development of Agricultural, fishery and related industries, Logistics and trade, Industrial estates/zones, Tourism related industry, resulting in direct competition with that of Thakhek on account of the same development direction. As for Phoukhyo specific economic zone, it is clear that the zone development is directed at light industry which will not be in rivalry with that of Nakhon Phanom. However, Nakhon Phanom SEZ is still at its initial stage of the development in comparison with that of Thakhek, which is well under way since 2012 with a total investment of USD 80 million. Moreover, since its establishment, Lao government has earned some USD 2.2 million in the form of tax revenue from the zone. Recently, the governor of Nakhon Phanom is also working closely with Thakhek administrative leader and its SEZ managing board, thus developing a potential for the collaboration of the two special economic zones.

Among these SEZs, Savan-Seno Park in Laos is the most active industrial zone with the longest operational time, while Mukdahan SEZ, the only one in Thailand, is being listed and still in its first phase of the development. In order to be able to capture the impact of Thailand‟s SEZ, it is essential to draw a comparison between Savan-Seno Park and Mukdahan SEZ.

Table 5.2 Investment Category

Golden Nakhon Chiang Rai VITA Saysettha Dongphosy Nong Khai Mukdahan Phoukhyo Savan-Seno Triangle Phanom Agricultural, fishery and related industries P P P P P P P P Ceramic products P Textile, garment, and leather industries P P P P P P P Manufacture of furniture P P P P P Gems and jewelry P P P Medical equipment P P Automotive, machinery, and parts P P P P P Electrical appliances and electronics P P P P P P Plastics P P Medicine P P P Logistics P P P P P P P P P Industrial estates/zones P P P P P P P P P P

Tourism related industry P P P P P P

Source: SEZ Secretariat Office, 2016, and BoI, 2015b

It can be seen there exists a number of similarities in term of light industrial category between Savan-Seno Park and Mukdahan SEZ. In spite of being listed as one to be in the first phase of SEZs in Thailand, Mukdahan SEZ has yet to be given direction regarding the type of investment besides the broad guideline given by Thai Board of Investment (BOI). Moreover, the zone has yet to bring in developers and investors. On the other hand, Savan-Seno SEZ

15 established in 2002 is currently able to attract some 42 investors engaging mostly in light industry. Following the announcement of Mukdahan SEZ, there was some concern about the possible competition between Mukdahan and Savan-Seno SEZ. However, there was some relief after these two SEZs, namely Savan-Seno Park and Mukdahan SEZ, made the decision to cooperate and support one another. As a result, Savan-Seno SEZ will keep focusing on light industry, while Mukdahan SEZ will be directed at tourism and service industry.

Overall, most of the special economic zones in Laos established since 2003 along the border and opposite to Thailand‟s special economic zones have already had the zone‟s developers and investors. On the other hand, the direction of the industrial category of Thailand special economic zones along the border with Laos is still unclear because all of the Thai zones are still at the stage of feasibility study, including Mukdahan special economic zone still in the first phase of Thailand‟s special economic zone. Since Thailand‟s announcement of its special economic zone, there is a strong possibility of collaboration between Lao and Thai administration regarding the direction of the development and investment. Thus, in term of investment category, Laos and Thailand SEZs tend to be more supportive rather than competing with each other.

5.1.2 Incentive and Input cost In general, tax policy and incentives offered by SEZ to investors comprise Profit tax holiday, Personal income tax, Value added tax, and Import-export customs duty. All tax policies and incentives of special economic zone are first listed in decree 177/PM 2003 and other decrees on special economic zone No.47/SC and 443/PM in 2010. For Thailand‟s special economic zone tax policy and incentives are listed under the Industrial Estate Authority of Thailand (IEAT). Regarding tax policy and incentive, special economic zones in Laos have a better offer to investors than the ones in Thailand. In terms of profit tax holiday, special economic zone in Laos offers a longer period with a maximum up to 10 years, in comparison with 8 years in Thailand. After tax holiday, the tax rate will be 8% or 10% for investors in Laos‟s special economic zone. Although the investors in Thailand‟s special economic zone will be offered 50% off from profit tax for 5 years after tax holiday. Overall, the profit tax after tax holiday is still higher than the one in Laos because of the initial profit tax, 20%. In addition to the profit tax, Laos‟s special economic zones also offer a better personal income tax which is only 5% flat rate, while the one in Thailand‟s special economic zone is progressive rate starting from 5% up to 35%. Moreover, the value-added tax and import and export customs duty exemption period are also longer in Laos‟s special economic zone which is up to 10- year exemption in comparison with those in Thailand‟s, 5-year exemption.

Table 5.3 Tax policy and incentive

Tax Policy and Incentive Laos's SEZ Thailand's SEZ Profit tax holiday 2-10 Years up to 8 years Profit tax after tax holiday 8% or 10% 10% for 5 years, after that 20% Personal Income tax flat rate at 5% 5% up to 35% Value added tax 0% up to 10 Years 0% up to 5 Years Import and export customs duty rate 0% up to 10 Years 0% up to 5 Years Source: SEZ Secretariat Office (2016), and BoI, 2015b

Besides tax policy and incentive, land lease rate and other input cost such as electricity, treated water and minimum wage are also important factors that investors would consider

16 before investing in the special economic zone (Table 5.4). Regarding land lease rate, special economic zone in Thailand has a higher rate in comparison with most of the special economic zones. The minimum land leasing rate in Thailand‟s SEZs is about 0.42 USD/m2/month which is much higher than the land leasing rate of most SEZs in Laos, namely VITA Park (0.025 - 0.06USD/m2/month), Phoukhyo specific economic zone (0 - 0.19USD/m2/month), Thakhek specific economic zone (0 -0.19USD/m2/month), and Savan-Seno special economic zone (0.028USD/m2/month). Moreover, the land lease rate in Thailand SEZs will increase by 15% in every 5 years. In Thailand‟s the electricity and the treated water are charged at the same rate throughout SEZs; however, such utilities are charged at a different rate in different SEZs in Laos. It is clear that the input cost such as the one of electricity, treated water, and minimum wage are much higher in Thailand SEZs, almost 100 times higher for electricity and about 9 times for treated water. The electricity cost in Laos‟s SEZs ranges from the low 0.059 USD/Kwh to the high 0.09 USD/Kwh in comparison with the one in Thailand‟s costing 4.96 USD/Kwh to the high 9.41 USD/Kwh; furthermore, the treated water in Laos‟s SEZs is charged between 0.05USD/m3 and a maximum of 0.79USD/m3 in comparison with that in Thailand‟s running from the low 0.31 to the high 0.469USD/m3.

Table 5.4 Land lease rate, Electricity, Treated Water and Wage rate

Special Economic Land lease Electricity Treated Water Minimum Wages Zone (USD/m2/month) (USD/Kwh) (USD/m3) (USD/month) VITA Park 0.025 - 0.06 0.059 - 0.065 0.25 - 0.35 111.80 Phoukhyo specific 0 - 0.19 0.06 - 0.08 0.07 - 0.79 111.80 economic zone Thakhek specific 0 - 0.19 0.059 - 0.065 0.05 111.80 economic zone

Savan-Seno special 0.028 0.09 0.65 111.80 economic zone

Thailand special 0.42 4.96 - 9.41 0.31 - 0.469 254.52 economic zone Source: SEZ Secretariat Office, 2016 and BoI, 2015b

Regarding the minimum wage in Laos, it is less than half that of Thailand‟s, with USD 111.8- equivalent in Laos and USD 254.52-equivalent in Thailand. As suggested by the survey, cheaper labor cost is one of the most attractive factors that investors are interested in Laos‟s SEZs. Moreover, the workers in Laos‟s SEZs also enjoy flat rate income tax which is only 5%. However, although, Savan-seno SEZ and VITA Park are the top two SEZs in Laos that have highest local labor employment rate, insufficient labor forces are still remaining problem for those two SEZs. Therefore, if the Thai Border SEZs are fully setup with same industrial category and free labor movement policy, it will cause labor shortage in Savan- seno SEZ and VITA Park. However, currently it seems that Laos‟s SEZs management board and Thailand‟s SEZs authority are working closely together in order to make SEZs in both countries support each other to avoid poaching labor. Moreover, in order to create more incentive for worker in Laos SEZs many factories in the zone creating career path and providing supporting incentive for worker in the factories such as creating positions and promoting system, providing some extra money for worker to hire someone else to work in the field during cultivating season.

5.1.3 Investors, Ease of entry, and Management Authority

From the field survey, the key determinants that attracted investors to Laos‟s SEZs are a much cheaper electricity and labor cost. Apart from Chinese investors in Laos‟s SEZs, a good number of the investors in the zones either have their mother factories or relocate their factories from Thailand to Laos seeking the low electricity and wage cost. Those factories are mostly classified as light industry requiring high power consumption and cheap labor cost. Therefore, electricity and wage cost are one of the strong point of Laos‟s SEZ. In addition, the investors can enjoy Generalized System of Preference (GSP) by relocating their factories or production lines to Laos, thus offering another economic advantage pointed out by most investors. Moreover, through the political stability and low risk of natural disaster Laos is able to gain the competitive edge over Thailand.

Also, despites the existence of one-stop service center on both sides of the river to facilitate investment in the SEZs, a license can be acquired within 5 working days in Laos, whereas in Thailand nothing is stated explicitly in terms of the number of pending days (needed) for the issuance of SEZ license.

One of the many distinct differences between Laos‟ SEZs and Thailand‟s is the Management /Economic Board. The one in Laos consists of one board general director (possibly from a zone investor or government officer), two deputy directors (one from the government side and another from the developer‟s). The board has the authority to completely manage SEZ zone with the exception of the activities relating to the political and national security issues. However, with no existing managing board for its SEZ bordering Laos‟, Thailand has yet to establish one which is one of the most pressing issues concerning its SEZ actually restraining the development and direction of its SEZs. Thus, Laos‟s SEZs with more flexibility in terms of the management has the edge on Thailand‟s.

5.2. Impact of SEZs on Laos

The economic impact of SEZs in Laos is measured using a standard means of analysis called an economic impact assessment. The paper focuses on three core channels of impact comprising: direct impacts, indirect impacts, and catalytic impacts.

Direct impact of the SEZs to Lao economy considers the jobs, GDP and fiscal contributions generated by SEZs. Regarding jobs creation, since the establishment of the first SEZ in Laos in 2003, more than 7,000 people have found employment at the SEZs. Amongst the 12 SEZs, some 4,128 and 1,198 peoples have been hired by Savan-Seno SEZ and VITA Park respectively (Table 5.5), accounting for almost 75 percent of the SEZ‟s labor force. Furthermore, with regard to 8,000 foreign laborers hired at the zones, an incredible 92% of them are actually hired in Golden Triangle SEZ. This could be the result of the zone still in its infancy stage of development and also Bokeo province‟s incapacity to supply local manpower to the zone.

In terms of GDP contribution, SEZs has contributed to GDP in 2013 is 0.3% and increased to more than 1% in 2014 and expected to be around 3% in 2015 (SEZ Secretariat Office, 2016). the country has earned USD 16.5 million since the establishment of the first SEZ in 2003. For the fiscal year 2015 and 2016 alone, the Government has collected USD 4,184,450 as tax on concession contract agreement (Table 5.6). After the tax holiday period, this contribution is expect to increase sharply (SEZ Secretariat Office, 2016).

Table 5.5: Employment in SEZs of Laos (2016)

No. SEZs Laotian Foreigners Total

1 Savan-Seno SEZ 4128 101 4229

2 Boten SEZ 212 429 641

3 Golden Triangle 338 7336 7674

4 Vita Park 1198 52 1250

5 Saysettha SEZ 82 132 214

6 Dongphosy SEZ 42 14 56

7 Phoukyo SEZ 60 12 72

8 Thatluang SEZ 112 93 205

9 Long Thanh SEZ 489 96 517

10 Thakhek SEZ 50 96 146

11 Champasak SEZ 469 71 540

12 Luang Prabang SEZ Total 7180 8364 15544

Source: SEZ Secretariat Office, 2016 Table 5.6: Tax revenue based on concession contract agreement (2003-2016) Tax Revenue Tax Revenue No. SEZs 2003-2016 2015-2016 (USD) (USD) 1 Savan-Seno SEZ 1,535,154 368,979 2 Boten SEZ 12,346 3 Golden Triangle 9,941,613 3,069,452 4 Vita Park 729,658 374,609 5 Saysettha SEZ 200,989 105,747 6 Dongphosy SEZ 280,446 60,714 7 Phoukyo SEZ 7,020 7,020 8 Thatluang SEZ 11,454 11,454 9 Long Thanh SEZ 1,527,645 172,639 10 Thakhek SEZ 2,212,452 11 Champasak SEZ 16,266 13,836 12 Luang Prabang SEZ Total 16,475,043 4,184,450 Source: SEZ Secretariat Office, 2016

Since 2003, Laos‟s SEZs has exported a total of USD 352 million and imported a total of USD 1.156 billion, particularly from Savan-Seno, VITA park and Champasak SEZ. However, only 10 out of 12 SEZs are able to do export and import activity during 2003 and 2016. Parenthetically, the service based SEZs and others are more likely to concentrate on

19 importing, such as construction materials for infrastructure development and consumer goods for service providing in the zone (Table5.6).

Table 5.6: Import –Export of SEZs (2003- 2015)

2003 –2016 2015 –2016 No SEZs Export Value Import Value Export Value Import Value (USD) (USD) (USD) (USD) 1 Savan-Seno 310,200,514 287,712,207 259,100,336 196,219,463 2 VITA Park 38,347,345 59,339,653 18,036,516 15,604,846 3 Champasak 3,627,694 4,917,235 1,493,240 1,647,282 4 Boten - 4,592,465 - 1,064,411 5 Golden Triangle - 7,416,300 - 5,900,161 6 Saysettha - 744,099,880 - 691,067,248 7 Thatluang - 10,630,434 - 1,397,427 8 Long Thanh - 31,416,591 - 583,926 9 Dongphosy - 92,955 - 28,051 10 Thakhek - 5,660,543 - 2,450,048 Total 352,175,553 1,155,878,263 278,630,092 915,962,863

Source: SEZ Secretariat Office, 2016

Regarding the indirect impact of SEZs in Laos which are jobs and GDP supported by the SEZs from its supply chain, there are evidences that SEZs generate more jobs to local, forward and backward linkage, and technological spill over. Due to the limitation of research method of this paper, the finding of indirect impact of SEZs might not so obvious. However, as suggested by the survey, some factories in SEZs have out-sourced Lao local firms to supply their output to the firms operating in SEZs. From the survey, it found that there is one garment factory from Denmark in VITA park purchases cartons from local company outside the zone which indirectly create jobs and also contribute to GDP.

For catalytic impact which is longer-term improvements in productivity and performance by SEZs, there is also a sign of technological spill over from the SEZs as well. For instant, in order to improve labor skill, the firms in Savan-Seno SEZ contracts Lao local Polytechnique school to train their workers under the supervision of the firms in the SEZ. It is projected by the zone developer that in the next five years the school will be able to provide enough skill labor to the zone. This knowledge could be taught and transfer to not only the workers in the zone but also other students as well. This impact result in longer-term improvements in productivity and performance either inside and outside the SEZs.

If the Thai bordered SEZs are fully operated in the near future, the potential impact to Laos‟s SEZs would be mainly labor production rivalry. As the survey has suggested that there are two main types of investors in Laos‟s SEZs which are new investors from China and investors move from Thailand. According to current type of investors, the investors in the zone moving to Laos for taking advantage of special treatment for least developed countries

20 of import countries such as GSP, cheaper electricity and labor cost. Especially GSP and cheaper electricity cost are the most important factors attracted investors, and the companies in Thailand are functioned as receiving production orders and product distribution. Thus, even though Thai bordered SEZs are fully operated, regarding current investors points of view Laos‟s SEZs would still more attractive. However, the potential of labor poaching between Laos and Thailand is remain skeptical because higher wage level will attract Lao labor to the zone in Thailand. Since the direction of the industrial category of Thailand special economic zones along the border with Laos is still unclear because all of the Thai zones are still at the stage of feasibility study.

6. Conclusion and Recommendation

The main reason behind the establishment of SEZs is still lying on the conventional purpose for serving export-led growth policy of the developing countries, particularly in East Asian countries. By taking two countries comparison, Laos and Thailand, it can demonstrate that the rationale of SEZs development of both countries is not shifting away from the general mainstream. Laos perceives SEZs as a tool to pursue industrial development, a high rate of socioeconomic growth, integrate with regional and international economies, and to promote economic reform based on market mechanism (SEZs Secretary Office, 2012).

Currently, considering SEZs in Laos tends to be more attractive to investors because of cheaper electricity, treated water supply, land lease, and labor cost. Moreover, the direction and the objective of SEZ development has been cleared compare to Thailand‟s SEZs which are not clearly identify. In addition, regarding the flexibility and effective management, Laos‟s SEZs seem to have more advantage over Thailand SEZs. Because the SEZ management board, which will give more power to the zone developer to negotiate and decide the direction of zone development, has not been established yet. However, the evidences from the survey showed that since Thailand announced their border SEZs, the SEZs zone developer have been working closely with Thai governor such as zone developer in Savan-seno SEZ in order to avoid competition and to shape coordination between the two zones. Because of the close cooperation between concern parties in Thailand and Laos, there is high probability of cooperation between those SEZs along the border in order to gain the most benefit. Thus, promoting coordination policy between two zones is critical and need support from Lao government.

There are many challenges remain for SEZs in Laos regarding management and coordination between vertical and horizontal authority. The roles of local authorities in the provinces where SEZs are located still do not clear and there is lack of cooperation between local authorities and SEZ management board. Therefore, improving coordination and cooperation within management board member and between the zone management board and line of ministries outside the zones would be recommended policy. Beside issues regarding management, there are still issues regarding electricity supply. From the survey, it is found that there is randomly instability of electricity supply in Savan-seno SEZs due to changing power grid line. Moreover, investors do not understand electricity value-added tax policy on electricity because they still pay value-added tax on electricity consumption. Recently, there is also an issue on raising electricity fee at VITA park which has not settled down yet.

Regarding labor poaching issue among SEZs in Laos and Thailand, although the wage rate in Thailand is much higher than Laos. If the investors in Laos create other incentives in addition to raising wage rate for worker such as creating positions and promoting system, it would

21 attract more workers to work in Laos because Lao workers have not familiar with career path in private sector.

The development of SEZ may not be successful and sustainable in all regions because of many conditions and environments. Therefore, the determination of location and target for development of SEZ in each specific area is necessary. Generally, countries that succeeded in the development of SEZ locate in the sea front which provides the convenience for the import of inputs and export of goods. SEZ located at the sea front allows easy transportation for imported inputs and for exporting products from the zone. This minimizes costs of production and, thus, enables producers in the zone to be competitive in the international market. The countries that are located far from the seaport, but with suitable conditions and a good promotion policy (such as duty-tax, marketing, advertisement, political stability, skilful human resource, and a simple management and administration mechanism), can also establish and succeed in SEZ development. In sum, if there are the right policies of promotion, appropriate management, the development of special economic zone in other areas can also be successful and contribute to a more rapid development of the national economy.

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Appendix A: Thailand’ Special Economic Zones The 1st Phase of the Special Economic Development Zone according to NC-SEZ Announcement No. 1/2558 1:

1) Tak Special Economic Zone comprises 14 sub-districts in the 3 districts of Tak province, as follows: 1). Mae Sot district: 8 sub-districts including Mae Sot, Mae Tao, Tha Sai Luat, Phra That Pha Daeng, Mae Kasa, Mae Pa, Mae Ku, and Mahawan.; 2). Phop Phra district: 3 sub-districts including Phop Phra, Chong Khaep and Wale; and 3). Mae Ramat district: 3 sub-districts including Mae Charao, Mae Ramat, and Khane Chue. 2) Mukdahan Special Economic Zone comprises 11 sub-districts in the 3 districts of Mukdahan province, as follows: Muang Mukdahan district: 5 sub-districts including Si Bun Rueang, Mukdahan, Bang Sai Yai, Kham Ahuan, and Na Si Nuan; Wan Yai district: 4 sub- districts including Bang Sai Noi, Chanot, Wan Yai, and Pong Kham; and Don Tan district: 2 sub-districts including Pho Sai and Don Tan. 3) Sa Kaeo Special Economic Zone comprises 4 sub-districts in the 2 districts of Sa Kaeo province, including Aranyaprathet district: 3 sub-districts including Ban Dan, Pa Rai, and Tha Kham; and Watthana Nakhon: Phak Kha sub-district. 4) Trat Special Economic Zone comprises 3 sub-districts in Khlong Yai district of Trat province, including Khlong Yai, Hat Lek, and Mai Rut. 5) Songkhla Special Economic Zone comprises 4 sub-districts in Sadao district of Songkhla province including Sadao, Samnak Kham, Samnak Taeo and Padang Besar. The 2nd Phase of the Special Economic Development Zone according to NC-SEZ Announcement No. 2/2558:

1) Chiang Rai Special Economic Zone comprising 21 sub-districts in the 3 districts of Chiang Rai province, as follows: Chiang Khong district: 7 sub-districts including Krueng, Bun Rueang, Rim Khong, Wiang, Sri Don Chai, Sathan, and Huay Sor; Chiang Saen district: 6 sub-districts including Ban Saew, Pa Sak, Mae Ngern, Yonok, Wiang, and Sri Don Moon, and Mae Sai districts: 8 sub-districts including Koh Chang, Ban Dai, Pong Ngam, Pong Pa, Mae Sai Wiang Pang Kham, Sri Muang Chum, and Huay Krai. 2) Nong Khai Special Economic Zone comprising 13 sub-districts in 2 districts of Nong Khai province, as follows: Muang Nong Khai district: 12 sub-districts including Kai Bok Wan, Nai Muang, Ban Deu, Phra Tat Bung Puan, Po Chai, Poan Sawang, Mee Chai, Wiang Cook, Si Gai, Nhong Gom Koh, Hat Kham, and Hin Ngom; and Sa Krai district: Sa Krai sub- district. 3) Nakhon Phanom Special Economic Zone comprising 13 sub-districts in 2 districts of Nakhon Phanom province, as follows: Muang Nakhon Phanom district: 10 sub-districts including Kuruku, Ta Kor, Na Sai, Na Raj Kwai, Nai Muang, Ban Peung, Poh Tak, Nhong Yard, Nhong Sang, and Ard Samart; and Ta U-Tane district: 3 sub-districts including Nohn Tan, Ram Raj, Vern Prabaht. 4) Kanchanaburi Special Economic Zone comprising 2 sub-districts in Muang Kanchanaburi district of Kanchanaburi Province including Kang Sien and Ban Gao. 5) Narathiwat Special Economic Zone comprising 5 sub-districts in 5 districts of Narathiwat province, as follows: Muang Narathiwat district including Kok Kian sub-district; Tak Bai district including Jeh Hay sub-district; Yee Ngor district including La Harn sub- district; Wang district including Loh Jood sub-district; and Sungai Golok district including Sungai Golok sub-district.

Appendix B: Laos’ Special Economic Zones Industrial SEZ

Vientiane Industrial Trade Area Park (VITA Park) was established on October 30th 2009 by collaboration between the government of the Lao P.D.R represented by the Ministry of Industry and Commerce holding 30% share and the NAMWEI Development Co., LTD (Taiwan) holding 70% share, with total investment value of 43 million US dollars and registration fund of 13 million US dollar. The term of development is 75 years within total area of 110 ha at Km21 in Huaxiang village, Xaythany district, Vientiane capital. The share is composed by land property use of 110 ha provided by the Ministry of Industry and Commerce and cash shared by the Company to be used for infrastructure development of the zone. The main purpose of this development is to attract investment to this zone of light industries such as manufacturing, agriculture processing, garment and etc; and also service sector supporting industrial park such as logistics and dormitories. Currently there are 16 out of 32 companies already operating.

Saysettha Development Zone was established in the year 2010 and located on a 450-year route linking with the 13th southern national road in Vientiane Capital. The Saysettha Development Zone is the collaboration between Lao government and Chinese government. The term of development is 50 years within the area of 1,000 ha. The zone focus on Agro- processing zone (producing foods, organic produce and animal feeds), Timber processing, Manufacturing – machinery, electronic appliances, Green energy, Textile and garment, Logistics, Residence zone (leisure area, staff accommodation, commercial, cultural, educational and health facilities). Now there are 3 companies out of 9 companies already operating.

Phoukhyao specific economic zone comprising of 4,850ha was official established in Khammouane province in 2010 by VS group, local investor, who invests 100% for the value of contract of 708 million US dollars. The main objective is to develop this zone to become new town with commercial center, education, tourism, health treatment, production industrial factory, etc., now the development of the zone is still at initial phase of project detail conception and it‟s estimated to start the project from 2011. This zone is built according to decree regarding special development zone of Lao P.D.R No 443/PM on October 26th, 2010. Currently there are 16 companies are investing in the zone.

Savan-SENO special economic zone is the first special economic area established according to the decree of Prime Minister No 148/PM on September 29, 2003. The Savan-SENO special economic zone comprise of 1010 ha separated in 4 zones. The main objective of establishment of SEZ is to Corridor (EWEC) managed by specific decree of the zone based on the market economic mechanism under the management and inspection of government. The Svan-Seno is the central point of the East West Economic Corridor. ). It is the “Short Cut” route linking from the South China Sea at Da Nang in Vietnam through central of Laos and north and northeastern of Thailand to Andaman Sea at Mawlamyine of Myanmar. The investments in the zone focus on (1) Industrial Sector - Electrical appliance manufacturing plants, food-processing plants, wood processing plants, garment and textile, automobile assembly plant and other electronic parts assembly plant; (2) Distribution Logistics Service Sector - Transportation, cargo delivery service, freight forwarding, warehouses, cool storages; and (3) Service Sector - Banking, financial institution, training center, real estate.

Savan-Seno special economic zone especially zone C is the most active special economic zone compare to the other zones. Now 29 out of 52 company in zone C has already been operating.

Champasak Special Zone was established in 2015 in Champasak province within the area of 1,306 ha for 50 years of land tenure by Lao private Lao investor. The Zone consists of Pakse- Japan SME Specific Economic Zone, Champasak Lao-Service Industrial Park, CHAMPA CITY SEZ, and Vangtau-Phonthong SEZ. The investment of the zone focus on Light industrial projects such as Manufacturing, spare parts production; and Opportunity to cooperate with the Government to develop a new tourism specific economic zone.

Tourist and New Urban Center Golden Triangle Special Economic Zone was upgraded from Asian Triangle Golden Land integrated tourism project in 2014. Asian Triangle Golden Land integrated tourism project established in 2007, comprise of 827 ha at the beginning, with total cost of investment of 87 million US dollars which developed by DOK NGIOU KHAM Group LTD., Co. After upgrading to special economic zone, Golden Triangle special economic zone covers the area of 3,000 ha with land tenure of 99 years. The zone will focus mainly on residential and commercial areas, Office and business center, Sports and recreation center, and Cultural tourism. Now there are 235 companies are investing in the zone.

Thatluang Lake Specific Economic Zone was established in 2011 within the land area of 365 ha for 99 years of land tenure. The investment projects in the zone focus on Real Estate project - villa, town-house and apartments for residential and commercial areas, Office and business center, Sports and recreation center, and Cultural tourism. Currently there are 23 investors in the zone.

Long Thanh Vientiane Specific Economic Zone located in Vientiane Capital was established in 2008 within the land area of 560 ha for 99 years of land tenure. The zone focuses on Golf course construction project, High end villas construction project, 5 star hotel construction project, International trade centre project, International School project, International Standard Hospital project, and International Sporting Center project. Now in this zone there are 4 companies investing.

Thailand Special Economic Zone Chiang Rai Special Economic Zone is the “Tourist Destination, Food Manufacturing Hub, Agro-Products and Multimodal Transport”. The area located in 21 sub-districts in the 3 districts of Chiang Rai including Chiang Khong, Chiang Saen, and Mae Sai. The competencies and opportunities of Chiang Rai SEZ are including: located on the North- South Economic Corridor through which the North is connected to Southern China (Yunnan Province) both by land and sea. Industries located in the area include agro and food processing, furniture, and wood products, in which there is opportunity to increase the value chain. The competence activities of the Chiang Rai' SEZ are including: (1) in Mae Sai, the border checkpoint development to support trade, tourism, prepare the area for establishment of hotels, convention centers, duty free shops, mass transit station and tourist information centers; (2) in Chiang Saen, the Government develops free trade areas, free zones into international transportation center, prepare area for the establishment of seaport, cross dock warehouse, commerce, office and custom; and (3) in Chiang Khong, the trading, tourism, multimodal transportation prepare the area for logistic center, commerce, office and customs.

NongKhai Special Economic Zone is the zone of “International Trading Center, Tourism and Multimodal Transport”. The SEZ located in the area that cover of 13 sub-districts in the 2 districts of NongKhai province including Muang, NongKhai, and Sa Krai.The competencies and opportunities of NongKhai SEZ when compare to the others SEZs, founded that it is the channel for cross-border trade between Thailand and Laos with the highest cross-border trading value compared to cross-border trade via other checkpoints, and is located near UdonThani Airport (approximately 60 km). Moreover, the SEZ also linked to Vientiane (Laos, approximately 26 km) both by road and rail through to Bangkok. Therefore, NongKhai has transportation network, both by road, rail and air, which helps support the development of economic activities in the SEZ linking NongKhai and Laos (Vientiane and LuangPrabang) and Bangkok. In addition, NongKhai is an attractive residential city, which could be further developed into a residential area for both Thai and foreign investors. The competence activities for this SEZ will be developed to the international trading, tourism, and multimodal transportation by preparing areas for logistic center, commerce and Government agencies.

Nakhon Phanom Special Economic Zone, the “Cross-Border Trading and Logistic Service Areas”. The zone located in 13 sub-districts in 2 districts of Nakhon Phanom province including Muang Nakhon Phanom and Tha U-Tane.The competencies and opportunities of the area is a channel for cross-border trade to Vietnam and Southern China (Guang Xi Province) with the highest trading value and competent to become a transportation route to East Asia (Japan, Korea, Taiwan) via VungAng Seaport in Vietnam. The development plan for Nakhon Phanom Airport and Ban Pai Railway (KhonKhaen) Mahasarakam-Mukdahan- Nakhon Phanom will connect the railway in Nakhon Phanom with the main railway of Thailand, which offers opportunity to expand logistic activities, both domestic and international. In addition, SEZ is also being the production hub of quality agro-products i.e. rice, sugar cane, and tapioca, which support the development of processed agro-industry. Furthermore, the rim of Khong River has a panoramic view, which is suitable for tourism and development of residential area for both Thai and foreign investors. For the competence activities, the Thai Government supports the SEZ to develop the cross-border trade, areas providing logistical services and transportation, and land use for commercial zone and cross- border trade i.e. duty free shops, bonded warehouses, convention centers, hotels and tourism information centers.

Mukdahan Special Economic Zone is the “Trading Center and Multimodal Transportation”. The area covers 11 sub-districts along the border area of MuangMukdahan, Wan Yai, and Don Tan districts with a total area of 578.5 sq. km. Additional, the SEZ also cover the Mukdahan International Border Checkpoint ranks second in terms of cross–border trade value between Thailand and Laos. Competencies and opportunities of Mukdahan SEZ be located on the East-West Economic Corridor (EWEC) with connection to Laos and Vietnam, and through to East Asia (Japan, South Korea, and Taiwan). At the present, Mukdahan SEZ under construction and feasibility study, the development basic infrastructure development project in Mukdahan province is divided as follows: the highway No. 12 Kalasin-Bunjop, highway No. 12 Kalasin-Somdej district, feasibility study on railway from Ban Pai- MahasarakamRoi Et-Mukdahan-Nakhon Phanom immediate plan, highway No. 12 Kalasin- Na Krai-Kum Cha E district, highway No. 121 Wan Yai-Tat Phanhom, surrounding road around the city, including Mukdahan route Ngor 2 and Ngor 3 and Mukdahan Transport Station.