Wednesday, 04 March 2015

U.S. New Silk Road Initiative Needs Urgent Renewal

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By Richard Weitz (03/04/2015 issue of the CACI Analyst)

Despite the drawdown of U.S. military forces in Afghanistan, the withdrawal of U.S. forces from Central Asia, and a preoccupation with developments in East Asia and the Middle East, the Obama administration continues to affirm support for promoting the economic integration of South and Central Asia through its New Silk Road initiative. Launched soon after the administration assumed office, the policy seeks to promote regional trade and transit, improve customs and border flows, and deepen business and popular ties among these countries in order to promote peace and prosperity. But the administration must take urgent action to renew the project and achieve its worthy objectives.

BACKGROUND: The administration's "New Silk Road" (NSR) initiative aims to deepen and broaden economic integration between Afghanistan and its Central and South Asian neighbors to expand investment, jobs, and government revenue. The initiative's four prongs consist of "building a regional energy market, facilitating trade and transport, improving customs and border procedures, and linking businesses and people". In particular, the NSR has sought to integrate Afghanistan into neighboring regions by renewing traditional trading routes and reconstructing infrastructure links broken by decades of conflict. Among other achievements, NSR projects have launched projects to extend the Afghan Ring Road, establish rail links between Afghanistan and its neighbors, construct the Turkmenistan-Afghanistan-Pakistan- India (TAPI) gas pipeline, and create a regional electricity market by establishing a transmission line between Central Asia and South Asia (CASA-1000).

The logic of the NSR is sound. U.S. officials believe that forging stronger ties between Afghanistan and its neighbors through the development of better transportation and other links would create jobs and generate national revenue, thereby improving the region's prosperity and security by decreasing support for extremists and bolstering the capabilities of the local governments. Furthermore, the New Silk Road would decrease the landlocked Central Asian states' economic dependence on Russia by giving them new markets in South Asia and, through access to the Indian Ocean, well beyond that. In order to reinforce trade links between Europe and Eurasia, Washington has also aspired to expand the thousands of kilometers of roads built or improved by the U.S. in Afghanistan and Pakistan, as well as the U.S.-constructed Northern Distribution Network through which NATO governments send non-lethal supplies to their military contingents in Afghanistan. Finally, the NSR intends to complement the Istanbul Process, a regionally led initiative established to promote confidence building measures and other links between Afghanistan and other countries in the "Heart of Eurasia."

The NSR initiative has also made progress in breaking down some trade barriers in cooperation with the Asian Development Bank's (ADB) Central Asia Regional Economic Cooperation (CAREC) program, an informal group of countries and multilateral institutions that has funded hundreds of projects worth billions of dollars. CAREC's efforts focus on facilitating trade by building roads, railways, power lines, and other transportation and energy infrastructure, as well as by decreasing transit time for goods and vehicles moving across Eurasian borders. But the NSR faces enduring challenges in its failures to establish a fully-integrated Central Asia-South Asia regional energy market, build the TAPI pipeline, develop a large region-wide civilian market to complement the voluminous trade in military goods, significantly reduce the cost of transport through pivotal corridors connecting Afghanistan with neighboring regions, reform counterproductive regulations, improve the climate for Western investment, promote free market principles, and attain universal Central Asian accession to the World Trade Organization (WTO), which would help promote a common and transparent legal regime.


IMPLICATIONS: Central Asia remains one of the least integrated economic regions in the world, with abnormally low levels of region-wide trade and investment due to the landlocked countries' high transportation costs, expensive and inefficient customs and border procedures, an overwhelming orientation to Russia and China at the expense of other international markets, the absence of common membership in the WTO or region-wide free-trade agreements, and Eurasia's undeveloped transportation, communication, and other essential commercial infrastructure. Progress has been made in building new energy pipelines between China and Central Asia, but these major energy conduits do not extend to Europe or South Asia. Beyond hydrocarbons, the region's poor infrastructure and storage capacity impedes even simple agricultural trade in fresh fruits and vegetables.

Furthermore, these barriers to regional trade create an unattractive environment for foreign investment since investors want a larger market than any single Central Asian country can offer. Foreign companies are unaware of many local public sector investment opportunities due to limited advanced notice of tenders, short bidding windows, and a lack of transparency in awarding public contracts. Similarly, innovation is stifled by weak protection of intellectual property rights due to undeveloped legal bases for technology transfers and judicial systems whose members lack autonomy and are ill-equipped to adjudicate disputes. Whatever their governments might say in public at multinational conferences, Central Asian political and business elites shun Afghanistan due to its violence and poor infrastructure. They also resist freer trade when it could deprive them of revenue – legal or otherwise – or expose them to security threats due to terrorist infiltration.

Despite its admirable goals, the U.S. approach has suffered from serious defects. The U.S. government has refused to inject New Silk Road projects with major resources except for some of those focused on Afghanistan. Moreover, rather than expend substantial U.S. funds for the initiative, the NSR has relied primarily on support from other foreign donors, multilateral development banks, and private sector actors. For example, U.S. funding to raise the global competitiveness of Central Asia has mostly supported relatively minor projects such as the Special American Business Internship program, which brings managers from Central Asia to the U.S. for training and meetings with U.S. companies. But drawing in domestic firms requires mitigating the political risks, legal uncertainties, and logistical challenges that construct a poor business climate for investors, who normally pursue easier and more lucrative regions. Therefore, more publically funded initiatives are needed to increase the incentives for private sector engagement, which will then create a benign circle of more trade and profits attracting more foreign investment.

Even more serious has been the lack of high-level political support for U.S. initiatives in the region. President Obama and his senior cabinet officials regularly travel to Afghanistan and India but never visit Central Asia. This lack of attention worries the region's pro-Western groups petitioning for more visible attention from Washington to balance the frequent visits of Russian and Chinese presidents and prime ministers. Indeed, breaking Central Asia's logjams often requires the personal intervention of such national leaders. In order to promote Western objectives such as more inclusive governments, the rule of law, human rights, strong civil societies, and more transparent and open economic institutions, the United States and its EU partners must commit to more sustained high-level engagement in Central Asia.


CONCLUSION: Although Chinese and Russian economic goals for Central Asia may be broadly harmonious with American objectives, their geopolitical ambitions are not. The Obama administration should build on its strong partnership with New Delhi to pool Indian-U.S. efforts to connect South Asia with Central Asia, thereby joining China and Russia in seeking to build transcontinental east-west connections. Further, the president should visit the Central Asian states and direct his civilian bureaucracies to devote more attention and resources to the region, taking advantage of the resources freed up by the U.S. military's drawdown as well as the desire of local leaders for Western partners to balance the assertive leaders in Moscow and Beijing.


AUTHOR'S BIO: Dr. Richard Weitz is a Senior Fellow and Director of the Hudson Institute Center for Political-Military Analysis.

Image Attribution: Wikimedia Commons

Read 4216 times Last modified on Monday, 09 March 2015

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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with Johns Hopkins University's Nitze School of Advanced International Studies, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst brings cutting edge analysis of the region geared toward a practitioner audience.


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