Wednesday, 29 August 2001

THE RELATIONS BETWEEN CENTRAL ASIAN COUNTRIES AND WTO, SYMPTOMATIC OF POLITICAL STRATEGIES

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By Gael Raballand (8/29/2001 issue of the CACI Analyst)

BACKGROUND: Relations between Central Asian countries and WTO are guided by political manoeuvres. In this region, WTO is mainly perceived as a symbol of the western world – a sort of a NATO counterpart regarding trade issues. It is worth noting that the negotiation process is closely linked to the image those countries are striving to give in the region.

BACKGROUND: Relations between Central Asian countries and WTO are guided by political manoeuvres. In this region, WTO is mainly perceived as a symbol of the western world – a sort of a NATO counterpart regarding trade issues. It is worth noting that the negotiation process is closely linked to the image those countries are striving to give in the region. For instance, Kyrgyzstan aspired to be considered as a part of the western world, the so-called ‘Switzerland of Central Asia’, and thus did its best to join WTO as soon as possible. The negotiation process proceeded with exceptional speed, taking only twenty-eight months to the actual accession whereas the average time in the period 1996-2000 for the twelve newcomers was fifty-two months. On the other hand, Turkmenistan, which is professing its ‘positive neutrality’, considers WTO as a ‘non-neutral organization’ and has consequently not made any move toward the WTO. Tajikistan is in the same camp, for a different reason: as a Russian ‘protectorate’, Dushanbe does not have enough political leeway to join WTO in defiance of Moscow’s stance. Uzbekistan is too preoccupied with stability to make an attempt toward the Geneva-based organization even though was the first country in the region to apply, in December 1994. Kazakhstan stands between these two sides. It has a willingness to be perceived as an open market economy in order to attract foreign direct investment. Within this framework, a WTO membership would be a great achievement. But, in the same time, Astana has to take into account Moscow’s susceptibility on this issue. When it started negotiations with the WTO, Russia explained that it would not accept the accession of any CIS country to this organization prior to its own admission, on the plea of tariffs discrimination and causing further economic deterioration in the region. Moscow threatened with tariffs retaliation. However, contrary to Uzbekistan, Kazakhstan is really involved in the negotiation process and has a real perspective of membership in the future.

IMPLICATIONS: The economic benefits of accession are still rather limited for Central Asian countries. The major interest in WTO entry is to gain access to major markets on a preferential basis. Indeed, CIS countries, except Kyrgyzstan and Georgia, have to deal with Sections 402 and 409 to the US Trade Act of 1974, more known as the Jackson-Vanik amendment, which still has legal force. This provision enables US President to grant countries most-favored nation clause on an annual basis. The renewal is granted only if the demanding country can demonstrate that this clause would not contribute to limit emigration to the West. In general, it is closely linked to the human rights policy in those countries. Accession to WTO means the inapplicability of this provision due to the non-discriminatory policy among WTO members. Unfortunately, this benefit is rather theoretical. Due to the remoteness of Central Asia from major markets and the land-lockedness of the region, trade with major markets is still limited. Imports from Central Asian countries represented less than 0,1 % of the total imports of the European Union in 1998. Researchers Steven Radelet and Jeffrey Sachs have even demonstrated that due to excessive transport costs, a strategy centered on export-led growth is not sustainable in the long term for land-locked countries. But the main hurdle between Central Asian countries and WTO is political. The Kazakhstan slow-track policy is most probably linked to Russian policy. Kazakhstan started the accession process in January 1996. But negotiations are not moving at the same pace they did earlier. Uzbekistan is dedicated to its gradual economic reform policies, and is unlikely to abandon them for WTO membership. As far as Turkmenistan and Tajikistan are concerned, they have not even applied to this organization. Even the Kyrgyz accession was lead by political motives. Bishkek did want, with its entry to the world organization, to gain financial and political support from the WTO in general and major economic powers like the EU and the US, and probably also intended to exert pressure on traditional partners like Kazakhstan and Russia. Hence Kyrgyzstan did very substantial tariffs concessions (an average of 6,7 % of individual tariff bindings for non-agricultural products and 11,7 % for agricultural products). The latter figure is significant: among the new entrants in the WTO in 1996-2000, only Croatia and Albania had to accept even further tariffs reduction. It is known that the Kyrgyz economy is based on agriculture, and it is not surprising that Bishkek is presently unable to follow all of its commitments. Moreover, it had to tackle a trade war with neighbouring countries in 1999. Kazakhstan and Russia raised the fear of the Kyrgyz membership in December 1998. According to them, it would have harmed the functioning of the Customs Union (now the Eurasian Economic Union) and aggravated constraints on economies of the region. In the economic field, the argument vis-à-vis the Eurasian Economic Union was groundless because there was no common external tariff between CU members, and even the free-trade area was, and remains, absent on the ground. Thus, there are no real privileged economic relations between these states. In fact, Russians and Kazakhs, with the 1999 trade war, showed the Kyrgyz that becoming a WTO member was equivalent to leaving the house. CONCLUSIONS: In Central Asia, politics prevail over economics. Central Asian countries are not willing to undertake any major reforms in the political field. Hence, it is most unlikely to expect any new WTO membership in the short term. Indeed, an accession can only follow willingness to reform old economic structures. That is why only the Kazakh attempt to join the WTO has a great chance to succeed. The current situation vis-à-vis the Geneva-based organization is symptomatic of the lack of willingness to truly reform old economic and political systems.

AUTHOR BIO: Gaël Raballand specializes in the study of economies in transition. He is currently a doctoral candidate in economics at the Sorbonne University. His research is centered on the economic analysis of land-lockedness with a gravity approach.

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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 the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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