Hong Kong: Laos - Legal System And Foreign Investment Law

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, September 2016
The Lao People's Democratic Republic ("the Lao PDR") has a population of less than four million, 60 per cent of whom are ethnic Lao and 40 percent are hill tribe people who are scattered throughout the mountainous regions of the country. The density of the population is in the capital Vientiane, which is the largest city. The second largest population in the Lao PDR, is in Savannakhet.

In 1975 the Communist Party of the Lao PDR came to government and proceeded to implement a closed economic policy. After that, in the late 1980s, the government began to launch new economic policies aimed at instituting a market-oriented economy and encouraging foreign investment.

There are two groups of legislation at the centre of this new economic policy. The first group relates to the reform of the domestic economy and the establishment of "autonomous enterprises" whose managerial functions are separated from state interference, as well as those which are privately owned domestic Lao enterprises. The second group of legislation relates to foreign investment and consists of the Foreign Investment Law of the Lao People's Democratic Republic ("Foreign Investment Law") and, in 1994, the National Assembly passed the new Foreign Investment Law contained in the Law on the Promotion and Management of Foreign Investment in the Lao People's Democratic Republic.

(A) Emergence of Lao Legal System

When the French came to the country, a mixture of French imperialist Code Law and Legal traditions were adopted. Traditional Lao Law still applied to civil and family matters. After liberation in 1975, all existing laws were abolished. Thereafter, traditional Law was re-adopted along the principles of law in socialist countries. In this respect, traditional Law, where adopted as law, became law. Such traditional Law remained vitally important to the post 1975 system. However, French Law did not totally disappear. Judges of tribunals, who were familiar with French Law or who had had French legal training after 1975, had nothing to use as a reference except French Law. Consequently, French Law after 1975 has been applied informally by reference. At the beginning of 1976, a decree issued from the Prime Minister's Office carried the force of law. However, it was discovered that decrees in themselves were not sufficient to meet the needs of a rapidly growing economy and society. After the Government adopted the "New Economic Policies", it became clear to both the Government and people of the Lao PDR that more laws and forms of legislation would be required for the Lao PDR, to embark on a program of accelerated economic development.

According to the Ministry of Justice, the Constitution of the country should be the source of law for the nation. The Constitution was passed by the People's Supreme Assembly on August 14, 1991. It contains provisions guaranteeing freedom of religions, of the press, of speech, of association, of literary and artistic creativity, and the right to hold demonstrations which are non-contradictory to the laws. It also set forth the powers that the Government can introduce, such as the People's Supreme Assembly, the Council of Ministers, and the Local People's Councils and Administrative Committees as well as the People's Tribunals. The draft Constitution also grants universal suffrage and equal rights among sexes.

(B) Procedures for the Creation of Law

1. The Constitution is passed by the People's Supreme Assembly and promulgated by the President.

2. Organic Law (organisational law separating and setting forth the structure of national organisations and their administration) is passed by the People's Supreme Assembly and promulgated by the President.

3. Territorial organisation (laws establishing the relationship between provincial and national bodies) is passed by the People's Supreme Assembly and promulgated by the President.

4. Provincial laws (governing the local assemblies in the provinces) are passed by the People's Supreme Assembly and promulgated by the President.

5. Normal general laws (such as the Civil or Penal Law) are passed by the People's Supreme Assembly and promulgated by the President

6. Decrees (which implement the general laws) are passed by the Council of Ministers and promulgated by the Prime Minister.

7. Regulations (regulatory rules) are passed by the individual Ministries in the relevant areas under their own jurisdiction and promulgated by the Minister.

8. Provincial regulations (regulatory rules applicable to individual provinces only) are passed and promulgated by the Governor of the Province or the President of the Committee for Provincial Administration.

(C) Foreign Investment Law

The first Foreign Investment Law was promulgated on 1st August, 1988 and set forth the procedures governing foreign investment in the Lao PDR. The Law on Foreign Investment in the Lao People's Democratic Republic requires the business to have been properly approved by the State and to be issued with the appropriate licences in order to operate. The Law provides that businesses established in such a manner shall have freedom over their assets, be able to operate and function freely and be responsible for their own financial affairs, without State interference. This law had been used to implement the governing of foreign investment until 1994 and the Government promulgated the Law on the Promotion and Management of Foreign Investment in the Lao People's Democratic Republic (the "Foreign Investment Law"). The Lao Government has looked more favourably upon proposals which emphasise technology transfer to the Lao PDR. The Foreign Investment Law has amended the provisions regarding the forms of foreign investment, from three forms provided in the Law on Foreign Investment in the Lao PDR, including Co-operative or contractual business, Joint Ventures, and wholly foreign-owned enterprises, to two forms by keeping only the form of joint venture and wholly foreign-owned Enterprises.

(D) Land Owner

Land is the property of the national community, represented by the State of the Lao PDR which manages the land on a centralised and unanimous basis at national level. State organisations will exercise the right of control usufruct and make decisions. Land may be leased by the individuals as provided by the laws and in accordance with their jurisdiction and the state plans. Foreign residents living and working in Lao PDR and foreign organisations have the right to possess and use land, in the form of lease or concession, according to specific regulations.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".

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