US President Barack Obama removed Laos and Cambodia from a trade blacklist, opening the way for US loans to companies doing business in the former US adversaries.
The United States has been boosting ties with both Southeast Asian nations. But the decision on Laos was sharply criticized by campaigners for the country's Hmong minority, which says it faces persecution.
In brief declarations, Obama said Cambodia and Laos had each "ceased to be a Marxist-Leninist country," a designation that prevented financial support by the US Export-Import Bank for businesses operating in the two nations.
The move, which still must go through formalities, means that US businesses would be eligible for US government-backed loans and credit guarantees as they can receive when operating in most countries.
"Given the commitment of Cambodia and Laos to open markets, the president has determined that this designation is no longer applicable," an Obama administration official said.
With the decision, the United States forbids US-backed loans for businesses to operate in only six countries -- Cuba, Iran, Myanmar, North Korea, Sudan and Syria.
US ties with Cambodia and Laos were long clouded by concerns about the fate of US service members missing since the Vietnam War. In Cambodia, the United States worried about corruption and accountability for Khmer Rouge war crimes.
But the United States has been moving closer to both nations, where China is also stepping up influence. Washington established normal trade ties with Laos in 2004 and three years later lifted all restrictions on aid to Cambodia.
Obama's decision to boost trade ties with Laos came under fire from supporters of the Hmong, a hill people who supported US forces during the Vietnam War and say they face retaliatory abuse decades later.
A recent report by Paris-based Medicins Sans Frontieres, or Doctors Without Borders, said Hmong who fled since 2005 to Thailand have said they suffered killings, gang-rape and malnutrition at the hands of Laotian forces.
Obama's declaration "is completely shocking and outrageous," said Philip Smith, executive director of the Center for Public Policy Analysis, which promotes Hmong rights.
"This is a one-party regime which is closely allied with Burma (Myanmar) and North Korea," he said. "This will embolden the Laos government to continue to slaughter and massacre civilians."
Many Hmong are still in hiding in Laos. Another 250,000 Hmong have resettled in the United States.
Last month, Medicins Sans Frontieres pulled out of the sole Hmong refugee camp in Thailand, complaining that the kingdom was forcing some 4,700 people in the camp back to Laos where they fear persecution.
US lawmakers plan to send a letter next week to Secretary of State Hillary Clinton, asking her to press Thailand to halt the repatriation of the Hmong to Laos.
"The US has been a champion of the Hmong since the Vietnam War," said the letter, so far signed by 17 members of Congress.
"We continue to have a vital national security interest in and moral obligation to assist our former allies, especially those with bona fide persecution claims," it said.