Abstract
This paper analyses the interaction of regionalism and multilateralism in the five Central Asian countries’ trade policies. The basic question is why have leaders been willing to sign so many regional agreements, which often include visions of regional trading arrangements (RTAs), and yet so unwilling to implement any preferential trading arrangements? The paper examines the durability of multilateralism and the added incentives for joining the World Trade Organization in light of China’s WTO accession in 2001 and Russia’s expected accession. The final section draws together arguments for multi-dimensional (bilateral, plurilateral, and regional) regional cooperation within a WTO framework.
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Notes
Especially for Turkmenistan and Uzbekistan whose forex markets were tightly controlled such comparisons are subject to caveats about data and the appropriate exchange rate. For Kazakhstan and Turkmenistan the high export/GDP ratios are driven by energy exports, while for the Kyrgyz Republic and Tajikistan they reflect a low denominator. Uzbekistan’s relatively low ratio hides its dependence on cotton, of which Uzbekistan is in most years the world’s fourth largest exporter.
Especially in the early years after independence, borders within the former Soviet Union were loosely monitored and customs duties were rarely collected on goods crossing these borders. Collection was tightened in the late 1990s and early 2000s, although some differential treatment for intra-CIS trade may have remained as a result of still-porous borders with corrupt officials or of the agreements described in the next section.
The term spaghetti bowl effect originated from Jagdish Bhagwati, and for Central Asia the effect is illustrated in UNDP (2005, Fig. 2.1).
In 1996 Kazakhstan’s WTO accession seemed more imminent than proved the case. For both the Kyrgyz Republic and Kazakhstan, harmonizing their tariffs with Russia’s would bring no benefits, and would lead to trade diversion and trade destruction; (a) Russian goods would have a larger preference margin, encouraging greater replacement of imports from the least-cost supplier by more costly Russian goods, and (b) higher external tariffs would encourage displacement of some imports by inefficient domestic producers.
Although Ukrainian President Yushchenko attended the August 2005 UES summit (held in conjunction with the CIS summit), he was only willing to sign 15 of the 29 agreements signed by the other three UES members and made it clear that any economic cooperation within the UES was subordinate to the larger aim of pursuing EU membership. Earlier in the same month the presidents of Ukraine and Georgia announced a plan to create a Commonwealth of Democratic Choice, which was supported by Poland and Lithuania, but not by Russia.
The Interstate Central Asian Bank of Cooperation and Development was created in June 1994, but by January 1997 the participating countries had given the Bank only some two-thirds of its charter capital, and it was clearly incapable of drawing substantial external funds into Central Asia for investment in collaborative projects. Borrowers in Uzbekistan were effectively excluded after the introduction in October 1996 of strict exchange controls, because the Bank made hard currency loans and required repayment in hard currency.
The history and evolution of ECO are analyzed in Pomfret (1999).
With the support of the United Nations Economic and Social Commission for Asia and the Pacific and the United Nations Economic Commission for Europe, the presidents of Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan signed the Tashkent Declaration on 26 March 1998 creating SPECA, and in September 1998 Turkmenistan officially indicated its intention to sign the Declaration and to participate in SPECA projects.
CAREC is, like SPECA, supported by an alliance of multilateral institutions led by the Asian Development Bank, and also including the United Nations Development Program, the European Bank for Reconstruction and Development, the International Monetary Fund, the Islamic Development Bank and the World Bank. In June 2005 consideration was being given by CAREC members to invite the Russian Federation and Afghanistan to participate as new members. Turkmenistan has been invited but has so far refused to participate.
There have been exceptions when trade barriers have been imposed at internal CIS borders, but some of these measures have been temporary.
Tajikistan did increase some tariffs in 2004 in order to give itself more leeway in negotiating WTO accession without committing to bound tariff levels which would be unacceptable to Russia as a common external tariff for the customs union. As mentioned above, however, there is a strong economic disincentive for the smaller economies to accept a Russian-devised tariff which would discourage their citizens from buying imports from the most competitive source.
The timing and number of Working Party meetings provides a reasonable but imperfect guide to the progress of accession negotiations. Uzbekistan’s Working Party did not meet 1994–2002 because little or no progress was being made during that period. A large economy or a more complex case will require more Working Party meetings than simpler or less contentious cases. The 28 meetings of Russia’s Working Party reflect more progress than in the case of Uzbekistan, but also the complexity of Russian negotiations and the relative importance of the Russian economy, so that existing WTO members scrutinize Russia’s offers more carefully than the offers of, say, the Kyrgyz Republic or Kazakhstan.
An oft-cited example is the cost to Cambodia of adopting and implementing legislation consistent with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) code, which was signed as part of Cambodia’s 2004 WTO accession. Despite external assistance in training officials and the private sector in anticipation of TRIPS enforcement, the government still spent much legislative time drafting laws, and lawyers, judges, law enforcement and customs officials were taken away from other duties to be trained in TRIPS compliance. Given the low probability of Cambodia producing intellectual property that can benefit from TRIPS protection, the net benefit from all of these activities is unlikely to have outweighed the opportunity cost of scarce human capital. For more detailed treatment of these compliance costs, including a box on Cambodia’s experience, see Hoekman and Bernard (2005).
The Russian Federation, at the 27th session of its Working Party on 13 and 15 April 2005, completed bilateral negotiations on goods with 29 WTO members (the EU counting as one), who account for 87% of total Russian imports.
The lack of dispute resolution or enforcement mechanisms has often been a weakness of RTAs, so that for the Central Asian countries common WTO membership is likely to provide superior recourse against large neighbors’ RTA- or WTO-illegal trade measures than membership in an RTA would.
Removing subsidies to US and EU cotton producers would lead to a higher world price for cotton. Pomfret (2005c), using World Bank data, estimates that in Uzbekistan, Turkmenistan and Tajikistan GDP per annum would be 3–6% larger in the absence of the EU and US subsidies.
In 2004 there were also proposals for monetary integration. The Chairman of the Kazakhstan central bank proposed a common currency for the EAEC and senior Russian political leaders proposed adopting the ruble as a common currency for the UES, both aspiring to follow the European Union’s adoption of the euro.
The centerpiece of Turkmenistan’s diplomacy was obtaining recognition of its neutrality by the UN General Assembly in 1995. The President rarely participated in meetings of regional organizations of which Turkmenistan is a member, e.g., he was a non-attendee at the CIS August 2005 summit in Kazan.
Turkmenistan remained ostentatiously neutral. Armenia, in a cold war state with Azerbaijan, was effectively in the Russian-led camp, although the diaspora kept Armenia’s profile positive in the USA. Uzbekistan formally joined the four GUAM countries in 1999, effectively withdrew from the alliance in 2002, and withdrew de jure in May 2005.
China had been a strong supporter of the US-led multilateralist response to the 1997 Asian Crisis, but by the turn of the century it was cooperating with Japan in building regional monetary institutions such as the Chiang Mai Initiative (Pomfret 2005b). The US bombing of the Chinese embassy in Belgrade appears to have been a catalyst.
The xenophobic fears of the 1990s reflected the isolation of Soviet Central Asia and inherited territorial claims by China. By the end of the decade Kazakhstan, the Kyrgyz Republic and Tajikistan had all reached border delimitation agreements with China, and were ready for normal relations. For Uzbekistan the presence of China as a counterweight to Russia made the SCO acceptable at a time (1999–2002) when Uzbekistan was a member of the anti-Russian GUUAM group.
Quoted in “The Geopolitical Balance in Central Asia tilts towards Russia”, posted 6 July 2005 at www.eurasiant.org. The Collective Security Treaty Organization (CSTO) includes the members of the Eurasian Economic Community and is headed by a Russian ex-general.
Quoted in “International Pressure on Tashkent mounts over Andijon”, posted 1 October 2005 at www.eurasiant.org.
Turkmenistan had begun to deviate from its strict neutrality, bordering on political isolationism, by seeking Russian economic assistance.
For both Azerbaijan and Uzbekistan some of the major obstacles to concluding the accession negotiations are policies which are not in their own national interest, notably the desire to retain through high bound tariff levels the ability to protect inefficient import-competing industries and the desire to exclude structural reforms of subsidized public utilities. More fundamentally, the governments seem to share, albeit in less extreme form, Turkmenistan’s reluctance to accept the external constraints on policy autonomy which are inherent in fuller participation in the global economy.
Because they do not involve WTO members, many of the agreements negotiated by the Central Asian countries are not notified to the WTO or recorded by the WTO. Thus the count of RTAs on the WTO website, which is used by most authors, is lower than the true number, but the actual significance of RTAs is not understated by omitting the Central Asian RTAs.
Such an approach to air transport is advocated by Chorobek Imashev “Trade Facilitation in Central Asia: Perspective for Kyrgyz Republic” (paper commissioned by the Swiss government and presented at an ADB workshop in Almaty on 10–11 June 2005).
The economic shock was bigger perhaps only in Mongolia, which has bucked the regionalism/bilateralism trend insofar as it is in the only WTO member with no RTA.
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Pomfret, R. Regional integration in Central Asia. Econ Change Restruct 42, 47–68 (2009). https://doi.org/10.1007/s10644-008-9060-6
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DOI: https://doi.org/10.1007/s10644-008-9060-6