Lao foreign policy was dramatically redefined in the 1990s after the collapse of the former USSR. Laos now has one of the most open foreign policies in the world and is basically on good terms with every nation. It has, for example, established diplomatic relations with both North and South Korea. In July 1997, Laos became a formal member of the Association of Southeast Asian Nations (ASEAN). Though membership places a financial burden on the country, it should help to facilitate expanded and diversified trade and foreign investment. As of 2003, Laos appears to be grouped in a bloc of underdeveloped, authoritarian states within ASEAN (with Cambodia, Burma and Vietnam). Vietnam is still perceived as Laos's "elder brother" in guiding its foreign policy, if not its economic relationships.
In the 1980s, foreign aid was received primarily from the USSR and Eastern bloc countries. Since then Laos has successfully diversified its sources of foreign aid and technical assistance. The major donor is currently Japan, but substantial aid is also received from the World Bank, Asian Development Bank, Australia, the Nordic countries, Switzerland, France, and Germany. The historic bridge across the Mekong River, which opened in April 1994, was financed by Australia.
Since the border war of early 1988, Lao-Thai relations have improved significantly, and Thailand is now the country's major trade partner and largest foreign investor. The improved nature of this relationship is reflected in visits of Laotian leaders to Thailand and the frequent visits of the Crown Princess of Thailand to Laos. However, the exploitive nature of Laos's growing economic dependence on Thailand has been a serious concern, and key political figures have been demoted because of their perceived closeness to Thai interests. China has come to nearly rival Thailand as a trading partner and has assisted in infrastructure development to facilitate transport of goods northward through Laos to its Yunnan border. In 2000, Khamtay and Chinese President Jiang Zemin exchanged visits to each other's countries to cement trade and diplomatic links.