Econ Change Restruct (2009) 42:4768

DOI 10.1007/s10644-008-9060-6

Regional integration in Central Asia

Richard Pomfret

Published online: 12 October 2008

Springer Science+Business Media, LLC. 2008

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 Chinas WTO accession in 2001 and Russias expected accession. The final
section draws together arguments for multi-dimensional (bilateral, plurilateral, and
regional) regional cooperation within a WTO framework.
Keywords

Central Asia
Regional integration
Multilateralism

The trade policy experience of the five Central Asian countries since they became
independent at the end of 1991 has been a microcosm of trends in international trade
policy. Many regional and bilateral trade agreements have been signed, often at the
highest political level, since 1991. The rhetoric of these agreements has envisioned
recreating the economic space (but not the economic system) part of the Soviet
Union or establishing a customs union on the European Union model or establishing
a free trade area, but their striking feature is the general lack of progress in
establishing or implementing preferential trade policies. Despite their presidents
espousal of regionalism, in practice the Central Asian countries have in their trade
policies largely followed the path of policy autonomy combined with nonPaper presented at the Conference on The Political Economy of Regional Economic Integration: The
Challenges for the Emerging Economies, held in Ravenna, Italy, 1819 November 2005. Parts of this
paper draw on background papers which I prepared for UNDP (2005) and ADB (2006).
R. Pomfret (&)
School of Economics, University of Adelaide, Adelaide, SA 5005, Australia
e-mail: richard.pomfret@adelaide.edu.au

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discriminatory multilateralism. Their actual trade patterns have become much more
diversified since independence, with greater integration into global rather than
regional markets. Nevertheless, the governments have been cautious about
accession to the World Trade Organization and so far only one of the five countries
has become a WTO member.
This paper analyses the interaction of regionalism and multilateralism in the trade
policies of the Central Asian countries and their neighbors. The opening section
provides a brief economic survey of the five countries. The second section assesses
regional economic agreements involving the Central Asian countries; the common
question running through these assessments is why have the Central Asian 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? Section 3 examines the durability of multilateralism and the added incentives for joining the World Trade Organization in light
of Chinas WTO accession in 2001 and Russias expected accession. The fourth
section analyses the political economy of the choice between regionalism and
multilateralism, and sets out the distinction between regional trading arrangements
and regional cooperation in trade, and why the latter is a desirable concomitant of
WTO membership. The final section draws together the arguments for multidimensional (bilateral, plurilateral, and regional) regional cooperation within a
WTO framework and offers some conclusions.
1 Background1
The five Central Asian countries became independent with the dissolution of the
Soviet Union at the end of 1991. Their role in the Soviet economy had been
primarily as producers of raw materials, mainly cotton, minerals, oil, and natural
gas. The four southern republics had, together with Azerbaijan, been the poorest
republics in the Soviet Union, while Kazakhstan had higher incomes and a more
diversified economy. In the early 1990s all five countries suffered substantial
economic decline following the end of central planning, the breakdown of economic
links within the former Soviet Union, and hyperinflation. The five countries
economies began to grow after the mid-1990s and by 2005 they had essentially
completed the transition from central planning, although the timing and the type of
market-based economy varies substantially from country to country.
During the 1990s Uzbekistan, which pursued a gradual reform strategy, was the
most economically successful of all former Soviet republics, but a tightening of
economic controls after 1996 hurt long-term growth and its economic performance
has been less positive since the turn of the century. Turkmenistan has an even more
repressed economy with highly limited economic freedom, but the regime has been
able to survive thanks to large rents from natural gas. The most liberal economy in
the region is that of the Kyrgyz Republic, but economic performance has been
stymied by lack of natural resources, poor transport links, and poor institutional
1

This highly condensed account is based on my two books on Central Asia (Pomfret 1995, 2006).

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development. Tajikistans history has been dominated by a bitter civil war which
lasted until 1997, and which effectively swept away the old economic structure; like
the Kyrgyz Republic it is resource-poor and with a difficult location for accessing
world markets. Kazakhstan has pursued more liberal polices than Uzbekistan, but
the privatization process in the 1990s was characterized by large-scale corruption;
the countrys economic performance has been a tale in two acts with disappointing
results until 1998, and an oil-fuelled boom since 1998 which made it the richest and
fastest growing economy in the region.
Table 1 provides summary statistics on the five countries economies. Uzbekistan
and Kazakhstan are the two leading regional powers, the former with the largest
population and the latter with the highest GDP. The data from Turkmenistan are the
most suspect and few observers would accept that the reported per capita GDP
figures reflect true living standards in the country, especially in rural areas which
have experienced serious economic and environmental problems. The Kyrgyz
Republic and Tajikistan have become impoverished, with Tajikistan now ranking
among the least-developed countries in the world. All five countries have
maintained the relatively high social indicators of the Soviet Union, with life
expectancies of 6670 years and almost universal literacy, although there are
concerns about declining educational and health standards.
In all five countries the leaders from the Soviet era repositioned themselves as
national leaders, and in all but Tajikistan the President in the early 2000s was the
first secretary appointed by Gorbachev in the final phase of the USSR. All of
these leaders established systems which gave power to the president, and limited
the role of the legislature. In Tajikistan the situation was confused by the civil
war, but by the mid-1990s the President was establishing a super-presidential
system similar to that in the other Central Asian countries. In spring 2005 this
uniformity began to crack, as the Kyrgyz President fled the country, although it is
unclear whether his successor will, despite asserted commitments to greater
democracy and transparency, establish a less centralized system. In May 2005
protests in Andijan were violently suppressed by the Uzbek government,
signaling its Presidents willingness to use force to retain power. At the time
of writing a question mark hangs over the political future of Kazakhstan whose
Table 1 Economic and social indicators, 2002
Population
(Millions)

Life expectancy
at birth (years)

GDP
(Billion
US dollars)

GDP per cap

(US dollars)

GDP per cap

@ PPP
(International
dollars)

Kazakhstan

15.5

66

24.6

1,656

5,870

Kyrgyz Rep

5.1

68

1.6

320

1,620

Tajikistan

6.2

69

1.2

193

980

Turkmenistan

4.8

67

7.7

1,601

4,300

25.7

70

7.9

314

1,670

Uzbekistan

Source: UNDP Human Development Report 2004online statistical database at http://hdr.

undp.org/statistics

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Table 2 Average import tariff, 2002 (%)

Kazakhstan

7.9

Kyrgyz Republic

5.2

Tajikistan

8.3

Turkmenistan
Uzbekistan

0.5
19.0

Source: IMF data reported in World Bank (2004, Table 3.2)

President is less likely to allow a peaceful revolution than his Kyrgyz counterpart
was, but he is also unlikely to be as ruthlessly repressive as his Uzbek
counterpart. In Turkmenistan the political future is highly uncertain because the
regime is highly personalized with no obvious successor when the President
becomes incapacitated or dies.
When the five Central Asian countries became independent, they had open
economies measured by the ratio of exports and imports to GDP, but their trade
was geographically heavily concentrated, with 8590% involving partners from
the former Soviet Union. Both trade and GDP were adversely affected by the
negative shocks of the early 1990s, but trade flows began to recover in the mid1990s and in the process became substantially more diversified, with over half of
the five countries international trade being outside the CIS after 1996. By the
early twenty-first century, all five countries were substantially involved in the
global economy, almost entirely as raw material exporters. Export/GDP ratios
estimated by World Bank staff with 2000 data were: Kazakhstan 59%, Kyrgyz
Republic 42%, Tajikistan 81%, Turkmenistan 63%, and Uzbekistan 25% (World
Bank 2004, p. 9).2
The trade policies of the five countries have generally been liberal, with low
average tariffs (Table 2) and without great tariff variance. This has not always
been true, as countries have levied high duties in reaction to external shocks
(e.g., Kazakhstans response to the 1998 Russian Crisis) or to protect specific
producers (e.g., the UzDaewoo car factory), and liberal trade policies have been
nullified by exchange controls introduced in Uzbekistan in 1996 (but loosened
since 2003) and Turkmenistan in 1998. Nevertheless, as might be expected of
export-oriented economies, the general picture is of tariff barriers which are not
especially high and which are collected on a multilateral rather than preferential
basis.3
2

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. Uzbekistans relatively low ratio hides its dependence on
cotton, of which Uzbekistan is in most years the worlds 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.

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Table 3 Membership in regional organizations

CIS
Azerbaijan

EAEC

UES

CACO

SPECA

ECO

SCO

CAREC

China
9

Kazakhstan

Kyrgyz Rep

Tajikistan

Turkmenistan

Uzbekistan

Russia

Mongolia

9
9

Iran

Pakistan

Turkey

Afghanistan

Armenia

Belarus

Georgia

Moldova

Ukraine

Note: See text for details

2 Regional trading arrangements in Central Asia

The Central Asian countries are involved in several regional organizations, some of
which seek to create a regional trading arrangement, as well as having signed
numerous bilateral trade agreements. This section analyses the evolution and current
activities of the various organizations and arrangements.4 Most have at some time
envisaged preferential trade policiesvariously described as free trade areas,
customs unions, common markets, or a common economic space. These selfdescriptions do not always follow the normal usage, and it is better to examine the
specific content of each arrangement.
The membership of the various regional organizations in 2005 is summarized in
Table 3. The bilateral trade agreements are even harder to track, and the list of such
agreements with the date of signing in Table 4 is both too long, because some of the
agreements have not been implemented, and probably too short, because some
agreements may have been omitted. These often overlapping agreements, to the
extent that they envisage preferential treatment of regional or bilateral trade, exhibit
a spaghetti bowl effect.5
4

This section summarizes material in Pomfret (2003) and Sect. 4 of Pomfret (2005a), which provide
more details on the historical evolution of the various organizations.

The term spaghetti bowl effect originated from Jagdish Bhagwati, and for Central Asia the effect is
illustrated in UNDP (2005, Fig. 2.1).

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Table 4 Bilateral free trade agreements involving Central Asian republics and other CIS members
Kazakhstan
Armenia
Azerbaijan

Kyrgyz Rep

Tajikistan

Turkmenistan

Uzbekistan

1996

1996

1996

1995

1993

1995

1994
1997

2004

Belarus

1998

1993

Georgia

1999

Moldova

1995

1995

Russia

1992

1993

1992

1998

1994

Ukraine
Source: Tumbarello (2005, Table 1)

The five Central Asian countries are all members of the Commonwealth of
Independent States (CIS), which was initially conceived as a framework in which to
maintain economic ties among the Soviet successor states. In both the political and
the economic spheres, however, the replacement of the Soviet Union by sovereign
nations created conflicts that the CIS framework was unable to contain. The CIS has
made no progress in introducing special treatment for trade among members,
although some members trade and tax policies continue to favor CIS partners.
In December 1994, Kazakhstan announced the formation of a customs union with
Russia and Belarus, which came into effect in 1995. The Kyrgyz Republic acceded
in 1996 and Tajikistan in 1999 making it a Union of Five. Despite the formal
agreements between 1994 and 2000, there was little evidence of implementation by
the Central Asian countries, and members actual policies were going in
contradictory directions. For example, the tariff bindings which the Kyrgyz
Republic agreed to in the negotiations leading to its 1998 WTO accession would for
Russia or Belarus be unacceptably low as part of the custom unions common
external trade policy, and for similar reasons President Nazarbayev indicated in
September 1996 that Kazakhstan would leave the customs union when it acceded to
the WTO (Webber 1997, p. 56).6
In October 2000 the Union of Five was renamed the Eurasian Economic
Community (EAEC) and a new treaty was signed in Astana, which came into effect
in May 2001. Although the institutional framework was strengthened in a bid to
ensure better implementation, the functional areas of the EAEC differ little from
those agreed within the earlier frameworks, with emphasis on free intra-community
trade and a common external tariff as well as a common market for labor and
capital, common policies towards migration, and more general policy harmonization. A specific intention was to coordinate WTO accession negotiations, but even
this attempt at a common external trade policy is dubious given that the Kyrgyz
6

In 1996 Kazakhstans WTO accession seemed more imminent than proved the case. For both the
Kyrgyz Republic and Kazakhstan, harmonizing their tariffs with Russias 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.

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Republic is already a WTO member and that Belarus appears to have differing
WTO goals than Russia.
The EAEC was from its 1995 origins explicitly aimed at being a customs union.
A formal agreement on the common external tariff (CET) for the customs union,
signed in February 2000, envisaged a CET consisting of tariff lines that were
common to Belarus, Kazakhstan and Russia with the remaining tariff lines to be set
at a subsequent stage. The implementation period was 5 years, but by 2005 the CET
covered only 6,156 of the 11,086 tariff lines identified in the Unions classification
system. The remaining tariffs are set independently by each member. Although
substantial harmonization of external tariffs is often reported, this applies to noncontentious tariff lines; for example, the Kyrgyz Republic still has to align a third of
its tariff lines, and these are presumably the ones where the costs of change are seen
to be highest.
An alternative grouping among CIS countries emerged in February 2003 when
the leaders of Russia, Belarus, Ukraine and Kazakhstan reached a tentative
agreement to create a United Economic Space (UES). Russia promoted the concept,
but the other three countries have to varying degrees bridled at suggestions of
establishing supranational institutions and of adopting the Russian ruble as a
common currency. The outcome of the December 2004 Ukraine election makes
cooperation even less likely.7
After the collapse of the ruble zone in November 1993, the presidents of
Kazakhstan, the Kyrgyz Republic and Uzbekistan agreed to create the Central Asian
Economic Union, announced in the Tashkent Declaration of January 1994 and
formalized in the Cholpon-Ata Treaty signed by the heads of state in April 1994.
Intended to be modeled on the European Union, this organization evolved into the
Central Asian Economic Community (CAEC), when Tajikistan joined in 1998.
Apart from the activity of the now effectively defunct Interstate Central Asian Bank
of Cooperation and Development, the CAEC had little in the way of practical
achievements.8 Officials claimed to have made contributions in tax harmonization
and elimination of double taxation, but these are difficult to document, and the
CAEC had little impact on intra-regional trade. By some counts, at the CAEC
meetings the Central Asian leaders passed over 250 resolutions, but the implementation record fell far behind the statements of intentions.
In February 2002 the four Presidents proclaimed the Central Asian Cooperation Organization (CACO) as the successor to the CAEC. They attempted to
7

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.

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distinguish the CACO from its predecessor by emphasizing improved effectiveness, but the founding agreement of the CACO continued to make lofty
aspirations without paying much concern to institutionalizing implementation.
The CACO summit in Dushanbe in October 2002 was combined with the
meeting of the four heads of state of the International fund to save the Aral Sea,
and a regional business forum held its first session in November 2002 in
Tashkent, but after this initial flurry of activity the CACO seemed little different
from its predecessor. In May 2004 Russia became a CACO member, but this was
a sign of Uzbekistan-Russian rapprochement rather than a strengthening of the
CACO. The logical next step was for Uzbekistan to join the EAEC, or
equivalently, as announced at the CACO summit in Saint Petersburg in October
2005, for CACO and the EAEC to merge.
The newly independent Central Asian countries, Azerbaijan and Afghanistan
joined the Economic Cooperation Organization (ECO) in 1992.9 ECO aspires to
be a RTA, and the three founding ECO members (Iran, Pakistan, and Turkey)
offer preferential tariff treatment to one another. However, the list of eligible
products for preferential tariff treatment is extremely restricted, and, although the
Central Asian countries have expressed commitment to ECO principles, they
have not accepted even the limited preferential trading arrangements agreed
among the three founding members. Trade between the Central Asian countries
and their southern neighbors has expanded since 1992, but from a low base and
more slowly than many observers expected. Moreover, it has done so on a nondiscriminatory MFN basis rather than within an RTA such as the ECO founding
members envisaged in the early 1990s. In 1996 the Council of Ministers
approved the establishment of a permanent ECO Secretariat in Tehran, but this
was a highpoint for ECO at which subsequent summits broke down in acrimony.
As with the CAEC/CACO, the practical impact of ECO has been limited. In both
organizations a fundamental obstacle to regional integration is the similarity of
the member countries economies, which all tend to be specialized on a small
group of primary products (oil, gas, minerals, and cotton).
The Special Programme for the Economies of Central Asia (SPECA) was
launched in 1998 as a forum for regional cooperation, and differs from the
EAEC, CACO or ECO insofar as it has no intention of promoting preferential
regional trade.10 The main purpose of SPECA is to support the Central Asian
countries in strengthening their cooperation in order to both stimulate their
economic development and facilitate their integration with the economies of Asia
and Europe. Although SPECA could have become an institutional framework for
trade cooperation, its achievements have been minimal. In part, this is because it
has no self-funding mechanism, but the lack of achievement also reflects
incomplete participation; Uzbekistan and Turkmenistan have not attended the
9

The history and evolution of ECO are analyzed in Pomfret (1999).

10

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.

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meetings of the Regional Advisory Committee, the governing body of SPECA

which is responsible for strategic decisions, and as SPECA became closely
associated with the EAECs members it became divisive rather than uniting for
the Central Asian region as a whole. The existence of SPECA is symptomatic of
the proliferation of institutions in Central Asia; if, for example, the CAEC/CACO
had been an effective regional organization, there would have been little need for
SPECA.
Another institutional vehicle for regional cooperation is the Central Asia
Regional Economic Cooperation (CAREC) program, an initiative to encourage
economic cooperation in transport, energy, trade policy, and trade facilitation
between Azerbaijan, Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan,
Uzbekistan, and Xinjiang autonomous region of China.11 Despite slow progress
since its launch in 1997, CAREC has some achievements in coordinating transport
and trade facilitation among the member states. The IMF has led support for the
operations of the CAREC trade policy coordinating committee, which was
established in September 2004 and which may signal a willingness to take definite
steps on trade facilitation (including cooperation on transport and on transit), where
the greatest gains from regional cooperation lie in the short-run. Expansion of
CAREC to include Afghanistan and Russia will increase its coverage in
geographically relevant directions, although it may dilute the decision-making
ability of CAREC.
Another overlapping configuration, dubbed the Shanghai Five, emerged from a
meeting in 1996 of China, Russia, Kazakhstan, the Kyrgyz Republic, and
Tajikistan intended to demilitarize borders. At a summit in Dushanbe in July
2000, the Shanghai Five, with Uzbekistan as an observer, took up a number of
economic issues, and the group changed their name to the Shanghai Forum. At the
June 2001 summit Uzbekistan became the sixth member and the group was
renamed the Shanghai Cooperation Organization (SCO). At the 2004 summit
Mongolia was admitted as an observer. After the June 2004 SCO summit,
Uzbekistan and Russia signed a strategic partnership agreement and China
announced plans to extend $900 million in loans and credits to Central Asian
countries. There has, however, been no move towards creating preferential trading
among SCO members.
The regional arrangements described in this section have often been in
implicit competition, reflecting differing and mutually exclusive political pacts,
and such ebbing and flowing of interest in alternative regional permutations has
inhibited the institutional development of any regional organization involving
the Central Asian countries. The main caveat to this generalization is that intraCIS trade tends to be freer than trade with non-CIS countries, and the internal
free trade regime is especially true with respect to trade among EAEC
11
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.

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Table 5 Status of WTO accession negotiations to mid-2005

Applied

Working parties

Kazakhstan

January 1996

7 meetings 19972004

Kyrgyz Rep.

1993

Tajikistan

May 2001

1 meeting, March 2004

Uzbekistan

December 1994

2 meetings, July 2002 & June 2004

Turkmenistan

Not applied

China

1986

Russian Fed.

June 1993

Member

DeD December 1998

December 2001
28 meetings, 19952005

Source: WTO website

members,12 but progress towards proposed customs unions has been slow over
the past decade.13 Otherwise, steps to make preferential trade policies
mandatory or to harmonize external trade policies have been practically
fruitless, and none has posed a threat to multilateralism in the Central Asian
countries trade policies. The economic impact of all of the manifold regional
agreements signed by Central Asian countries since 1991 has been minimal.

3 Multilateralism and the World Trade Organization

Membership in the World Trade Organization (WTO) is a natural institutional
counterpart to economic openness. In the 1990s, however, the Central Asian
countries (apart from the Kyrgyz Republic) were suspicious of international
obligations which placed constraints on their policy autonomy. They were happy to
join the United Nations as a signal of nationhood, and to join the International
Monetary Fund and World Bank and the regional development banks as potential
sources of capital, but they held back on WTO accession. For Turkmenistan, this
attitude remains even in 2005, as the President views WTO membership as
incompatible with the countrys neutrality.
With low average tariffs, the main obstacle to WTO membership has been
governments unwillingness to formally abjure their policy independence, and right
to impose temporary tariffs or artificial non-tariff barriers. So far, only the Kyrgyz
Republic has joined the WTO (Table 5). Kazakhstans application is fairly faradvanced, with an active program of Working Party meetings in recent years. The
accession process of Uzbekistan and Tajikistan is at an earlier stage than
12
There have been exceptions when trade barriers have been imposed at internal CIS borders, but some
of these measures have been temporary.
13
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.

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Kazakhstans, although for all three countries the process has speeded up since
2002.14
WTO membership brings both costs and benefits, although the costs are often
misinterpreted. The Kyrgyz Republics WTO accession was followed by recession,
which critics of the WTO ascribe to the onerous obligations of WTO membership,
but this confuses before/after and with/without comparison. The Kyrgyz post-WTO
troubles arose because non-WTO factors (such as the Russian Crisis, Kazakhstans
50% devaluation, and the collapse of three of the countrys four largest banks)
dominated any positive WTO effect. The WTO is no panacea, and for the Kyrgyz
Republic the positive effect of accession was weak because transport and transit
conditions stymied Kyrgyz trade.
A more robust criticism of the Kyrgyz Republics accession experience is that the
negotiators, whether due to inexperience or by intent, failed to make transitional
arrangements or gain exemptions that would have protected Kyrgyz interests. Some
learning process is reflected in Kazakhstans lengthier and more detailed WTO
negotiations, and harder stance on some of the voluntary codes. The appropriate
negotiating balance must reflect a countrys preferences and compliance capabilities; immediate compliance may be problematic and a phasing-in period desirable.
Nevertheless, even this criticism lacks much force, because WTO-based restrictions
on trade practices are largely what a small open economy should be doing in its own
interests, and WTO members retain flexibility over applied tariffs as long as they are
below the bound level.
The more substantial costs of WTO accession are in building institutions
to ensure compliance with the various WTO codes, even though bilateral and
multilateral donors can assist with this institution-building. Many of these non-core
elements of the WTO are, like the commitments to non-discriminatory trade policies
and not to increase bound tariffs, in the interest of the acceding country, but the
introduction, implementation, and enforcement costs may outweigh the benefits for
a poor country.15 One lesson learned from the Kyrgyz Republics brief accession
negotiations is the desirability of being selective in entering into non-core
commitments.

14

The timing and number of Working Party meetings provides a reasonable but imperfect guide to the
progress of accession negotiations. Uzbekistans Working Party did not meet 19942002 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 Russias
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 Russias offers more carefully than the offers of, say, the Kyrgyz Republic or Kazakhstan.
15
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
Cambodias 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 Cambodias experience, see Hoekman and Bernard (2005).

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The most important benefit of WTO membership is to place trade on a common

basis of international trade law, and potentially to separate trade from politics.
Accession by more Central Asian countries would provide a common framework
for formal trade policies and dispute resolution with respect both to a greater
proportion of intra-regional trade and to trade with all of the regions
economically important neighbors. The WTO rules also impose some consistency
on customs and border practices which will help to facilitate trade within the
region. The benefits to Central Asian countries from WTO membership have been
accentuated by Chinas accession in 2001 and will be further reinforced by
Russias imminent accession.16 Pakistan and Turkey have long been WTO
signatories, and Irans WTO accession is also on the horizon after a March 2005
announcement by the USA that it would not oppose an application. There are
important network benefits from WTO rules. When Mongolia and the Kyrgyz
Republic joined the WTO in 1997 and 1998, the benefits were limited because
their neighbors were not members. Chinese accession in December 2001 and the
imminent Russian accession dramatically transform the situation. The benefits of
common rules are greater as more people play by them.
The importance of a common and enforceable institutional framework is
illustrated by the Kyrgyz Republics experience. The Kyrgyz Republic has formal
free trade agreements with all CIS members except Georgia, and yet Kyrgyz trade
with partners covered by these bilateral agreements has been subject to many
restrictions whether as emergency reactions to the 1998 Crisis in Kazakhstan, or
Uzbekistans attempts to discourage shuttle traders by tariff increases, or by
arbitrary anti-dumping duties imposed by CIS trading partners. Most of these
measures would be illegal under WTO rules, but the Kyrgyz Republic has been
unable to do much about the restrictions and WTO membership offers little
protection as long as most of its CIS partners are not bound by WTO
membership. While WTO accession would limit the ability of countries to
suddenly increase their own tariffs, the benefits from guarantees against partners
doing the same thing is more valuable and increasingly so as more neighbors
accede to the WTO.
A basic explanation of the disappointing trade performance of the Central Asian
countries is the poor institutional environment. WTO membership could alleviate
this major obstacle to trade by providing the framework in which regional and wider
trade can flourish. Trade is difficult if players play by different rules, and the WTO
provides a set of rules to ensure that one country isnt playing soccer rules while
another plays hockey rules. Access to the strengthened dispute resolution process of
the WTO is an important benefit for smaller trading nations, who have a credible
recourse against large countries which bend the rules.17
16
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.
17
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.

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WTO accession could bring further benefits by encouraging liberal policies and
punishing backsliding on commitments. At a minimum, WTO membership ensures
that tariff rates are bound, but as members sign on to more codes of behavior there is
a greater legal commitment to policy stability, and WTO dispute settlement
mechanisms offer some recourse for people damaged by unforeseen policy changes.
Such an environment helps to attract foreign direct investment, as well as making
domestic investment more attractive.
With a positive domestic environment, WTO membership helps to ensure that a
country can reap benefits from specialization and trade with diminished fear of
protectionist responses in foreign markets. Small trading nations have always been
open to unilateral restrictions on their exports to larger trading nations, but one of
the major developments in the WTO, as opposed to the pre-1995 situation, is that
the dispute settlement mechanism provides a more credible means of redress. Less
powerful trading nations have won cases against the major trading nations, and the
judgments have been implemented by the latter. Of particular interest to Central
Asian countries is the October 2004 WTO ruling in support of Brazils complaint
against US subsidies for cotton production; although the USA is drawing out the
year-long appeal process, there is a time limit to this and little doubt that the
eventual outcome will be some reduction in support for US cotton producers.
Finally, WTO membership would grant some leverage to reduce existing illiberal
polices. Most immediately, Uzbekistan and Tajikistan would want to join WTO
member countries lobbying for reduced subsidies to cotton producers in the USA
and EU.18 Four West African countries have had success in publicizing the harmful
impact of these subsidies on some poor countries export earnings, and they
formally introduced the Cotton Initiative into the Doha Development Agenda in
April 2003. Central Asian cotton-producing nations would broaden the coalition and
highlight the iniquity of subsidizing rich country farmers to the detriment of poor
farmers in areas with a comparative advantage in growing cotton. More generally, a
feature of the WTO negotiating process, especially since the September 2003
Cancun ministerial meetings, has been the formation of various groupings of
countries to lobby on particular issues. The Central Asian countries may want to
join the group of 19 developing and emerging economies pressuring for changes to
WTO rules on agriculture, or conceivably in future Kazakhstan might want to join a
group lobbying against EU and US iron and steel policies, or Azerbaijan and
Kazakhstan might be interested in an energy-related trade group.
There is symmetry in the analysis of regional trading arrangements and WTO
membership as routes to realizing greater gains from trade. Regionalism may appear
attractive, but on deeper investigation using preferential tariffs to encourage imports
from a neighbor who is not the least-cost producer of a good has economic costs.
Multilateralism formalized by WTO membership may look like an unattractive
restriction on policy autonomy, but on deeper investigation it provides the best

18
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 36% larger in the absence of the EU and US subsidies.

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framework within which the Central Asian countries can develop their international
economic relations.

4 The political economy of regional trading arrangements versus regional

cooperation
Despite the lengthy history of non-achievement by RTAs signed since 1992,
proposals for regional trading arrangements continue unabated, whether in the form
of a free trade area, a customs union, or deeper economic union. At the eighth ECO
summit in Dushanbe in September 2004, Iran proposed committing to an ECO free
trade zone by 2015. Also in 2004 President Karimov of Uzbekistan called for a
Central Asian customs union, even though it seems implausible that Uzbekistan
would accept the Kyrgyz tariff as the common external tariff of a customs union,
and the Kyrgyz Republic would have to renounce its WTO obligations to raise its
tariffs in March 2005 Presidents Karimov and Nazarbayev set up a working group
on the creation of a free trade zone between the two countries.19 What is the
fascination with RTAs in Central Asia despite their abject record?
Part of the motivation behind announcements of regional initiatives is political,
and the various groupings must be viewed in light of individual countries political
objectives. Among the smaller countries, Turkmenistan, with abundant rents from
natural gas and cotton and with an autocratic leadership, has seen no need to impose
any limits on its policy independence.20 At the other extreme, the Kyrgyz Republic
with limited natural resources and relatively liberal leadership was most open to the
suggestions of international institutions that it integrates rapidly into the global
economy. Tajikistan went through a bitter civil war for most of the 1990s, and the
leadership is well aware of its debt to Russia for military assistance. The two largest
countries have had broader visions of their role on the international stage and
competition for regional leadership has never been far from the surface, but
Kazakhstan is constrained by the large Russian minority whose location near the
Russian border poses a constant implicit threat of secession. Thus, Kazakhstan has
leaned closer to Russia, but both Kazakhstan with its oil and Uzbekistan with cotton
and gold are open economies supplying global commodity markets in which
preferential treatment is irrelevant for export promotion and undesirable in
constraining import choice.
Superimposed on these more or less structural political considerations have been
fluctuating international relations objectives. In 1992 and 1993, after the unexpected
and largely unwanted independence of their countries, the Central Asian presidents
were concerned with nation-building, cementing their own authority, and
19
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 Unions adoption of
the euro.
20
The centerpiece of Turkmenistans 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.

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minimizing, or at least controlling, economic change. They retained the ruble for
longer than most other former Soviet republics, and they participated in the many
summits aimed at maintaining the Soviet economic space. As the collapse of the
ruble zone became inevitable during the second half of 1993, the presidents of
Kazakhstan and Uzbekistan made several statements on the need to maintain a
common economic space in Central Asia. After 1994, however, as Uzbekistan
attempted to assert a stronger leadership role in Central Asia, Kazakhstans interest
in the CAEC waned and interest in a Russian-centered RTA grew.
The rapid accession to ECO in 1992 reflected a keenness of all of the Central
Asian leaders to diversify their countries direction of trade and to assert their
solidarity with Islamic neighbors, especially if they supported secular Islam. The
southern orientation was reinforced by linguistic and cultural ties between Tajiks
and Iran and between the other four countries and Turkey, but the willingness of the
three ECO founders to provide practical assistance to the new ECO members fell
short of the Central Asian countries expectations. In 1995 and 1996 Uzbekistan,
partly responding to Kazakhstans pro-Russia shift, moved closer to the USA. This
undermined relations with Iran, and the 1996 ECO summit ended early amid
acrimonious insults between Iran and Uzbekistan. Within the CIS a split deepened
between the Union of Five members (Russia, Belarus, Kazakhstan, the Kyrgyz
Republic, and Tajikistan) and the GUUAM (Georgia, Ukraine, Uzbekistan,
Azerbaijan, and Moldova) group, and the fault line ran down the middle of Central
Asia.21
The role of the USA in the region grew in the early 2000s, as the USA established
bases in Uzbekistan and the Kyrgyz Republic for military operations in Afghanistan.
This development was viewed with suspicion by other regional powers, but Russia
and China at least initially were constrained to pay lip-service to a common cause
against terrorism. China had been shifting away from support for the USA during
the late 1990s.22 This was reflected in Chinas participation in the predecessors to
the SCO; Chinas first real experiment with regional arrangements. In the 1990s and
early 2000s China obtained little response from the Central Asian countries, who
harbored lingering suspicions of their large neighbors territorial ambitions and fear
of Chinese immigration.23 After the 2003 invasion of Iraq, however, the welcome
for US troops in Central Asia began to be reassessed. A greater emphasis on the
SCO, especially by Uzbekistan, reflected growing concerns about the reliability of
21
Turkmenistan remained ostentatiously neutral. Armenia, in a cold war state with Azerbaijan, was
effectively in the Russian-led camp, although the diaspora kept Armenias 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.
22
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.
23
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.

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Table 6 Welfare effects of implementing the eurasian economic community customs union (million US
dollars)
Kazakhstan

Kyrgyz Republic

Change in tariff revenue

?223.4

?22.8

Change in consumer surplus

-255.2

-26.3

-31.8

-3.5

Net welfare effect

Source: Tumbarello (2005, Table 4)

the USA. Although the economic motives for closer ties with China and Russia had
not changed, the political motives became stronger as Uzbekistan recognized
kindred spirits in the Chinese and Russian leaderships attitude towards democracy
and civil rights.
The relative position of the USA, China, and Russia was highlighted after the
March revolution in the Kyrgyz Republic and the Andijan events of May 2005. US
calls for an independent inquiry into the deaths at Andijan were met by an Uzbek
demand that the US base in Uzbekistan be vacated within 6 months. On 5th July the
SCO requested the USA to set a deadline for the withdrawal of US military
personnel from Central Asia. The Russian foreign minister meanwhile justified his
countrys complaisance with the Uzbek regime by saying that Uzbekistan is not a
CSTO member, and we do not interfere in the internal affairs of other countries.24
A China Foreign Ministry spokesman said About what happened in Uzbekistan
recently, we think its their internal affair, but we strongly support the government
crackdown on separatists, terrorists and extremists.25
The apparent shift towards China and Russia was, however, incomplete, as the
Kyrgyz Republic, despite the SCO policy, renewed the US lease on an airbase near
Bishkek. When US secretary of state Condoleezza Rice visited Central Asia in
October 2005, she visited Kazakhstan, the Kyrgyz Republic, and Tajikistan, while
pointedly avoiding the formerly strongest US ally in the region, Uzbekistan.
Superficially at least, there had been a reversal of alliances as the three countries
formerly closest to Russia now tilted towards the USA, and the two most repressive
regimes shifted towards Russia.26
The speed with which political alignments have changed in Central Asia since
1991 helps to explain the ephemeral nature of the many regional arrangements. For
the presidents, treaties of friendship and economic cooperation are cheap ways of
signaling political alignments. From a Soviet culture which paid little respect to
economic contracts, there was most likely little expectation that these agreements
would ever be implemented in their economic details. That was, however, not the
24
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.
25
Quoted in International Pressure on Tashkent mounts over Andijon, posted 1 October 2005 at
www.eurasiant.org.
26
Turkmenistan had begun to deviate from its strict neutrality, bordering on political isolationism, by
seeking Russian economic assistance.

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point. The political twists and turns work against the establishment of any strong
regional organization; even the CIS is the subject of continual speculation about its
imminent death.
There are also strong economic reasons why the Central Asian countries do not
implement preferential regional trading arrangements (Pomfret 1997/2001). The
principle argument is the likelihood of trade diversion. Preferential duties on
imports from a neighbor will encourage consumers to purchase some goods which
appear to be better value than the tariff-inclusive price of lower-cost or higherquality imports. The government of the importing country loses tariff revenue, and
consumers are worse off than they would be with non-discriminatory tariff
reductions. Although the political leaders may not express their concerns in terms
such as trade diversion, there is a strong recognition when agreements come down
to implementation that, while a country may want to expand the market for its own
sheltered industries, they do not want to give preferential status to their neighbors
manufactured goods.
The most advanced RTA in the region is the Eurasian Economic Community. For
both the Kyrgyz Republic and Kazakhstan, harmonizing their tariffs with Russias
higher tariff rates would lead to trade diversion and trade destruction. This comes
out clearly in the scenarios for EAEC customs union analyzed by Tumbarello
(2005). Using a simple partial equilibrium model of the response of trade flows to
changes in tariff rates, she shows that both Kazakhstan and the Kyrgyz Republic
would receive more tariff revenue as customs union members, but the welfare
effects would be dominated by the loss of consumer surplus (Table 6). On the other
hand, if the Eurasian Economic Community members were to join the WTO and
hence bind their tariff rates before implementing the customs union, then the lower
tariffs would mean that although Kazakhstan would still lose from entering into a
RTA with Russia and Belarus, the welfare loss to Kazakhstan ($2.4 million) would
be less than ten percent of that in Table 6.
Similar quantitative exercises are not available for other RTAs in the region,
primarily because they are far from realization. Nevertheless, given the similarity of
economic structure of the members of ECO or CACO, it is apparent that the
potential for trade creation is small and the opportunities for trade diversion are
large. In sum, the potential for RTAs, whether simple preferential tariffs as among
the three founding ECO members or more ambitious free trade areas or customs
unions, is limited because they are likely to be economically harmful and there is no
political will to accept economic costs in the name of creating an economic or
political union. The prospects for deeper regional integration are likewise limited
under current circumstances, because no government in the region is ready to accept
constraints on its policy autonomy in the kind of areas that other deeper regional
integration schemes have entered such as financial sector regulation, competition
policy or monetary integration.
There remains, however, an important role for regional cooperation (UNDP
2005). Many of the obstacles to trade in Central Asia require regional
cooperation in order to reduce the costs of trade. Tariffs and traditional nontariff barriers, which are the subject of national policy, are only a small part of
the story. Trade facilitation, while more mundane, is an area in which progress

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could be made to reduce foregone opportunities for mutually beneficial trade and
also to enable landlocked countries to facilitate transit of goods to the wider
international market. With respect to trade facilitation, transport and transit,
regional cooperation is complementary to multilateralism in trade and must not
be confused with regional trading arrangements whose goal is preferential trade
policies.
Regional cooperation in areas not covered by the WTO is a complementary
element of the new institutional environment. The need for regional cooperation
appears to be recognized by the Central Asian leaders, but they have failed to
create suitable institutional mechanisms. This is highlighted by the example of
the ECO transit agreements, which on paper could have alleviated many of the
regions transit problems. Only eight countries signed the 1995 transit trade
agreement, and the two non-signatories, Afghanistan and Uzbekistan, straddle
some of the most important routes in the region. The agreement officially entered
into force in December 1997, but by early 1999 only five national governments
had ratified the agreement. The modified, and much watered down, 1998 transit
agreement had, as of mid-2000, only been approved by Azerbaijan and
Tajikistan, whose geographical position makes them marginal countries to an
ECO-wide transit arrangement. Many of the free trade agreements among CIS
members contain provisions on transit which have likewise not been honored.
The unwillingness of key countries to accept the principle of unhindered passage
of goods in transit remains a major obstacle to trade in Central Asia.
Apart from trade issues there is a pressing need for regional cooperation on
environmental issues, most dramatically the desiccation of the Aral Sea, and
perhaps on security matters in the face of insurgent threats. In the longer term a
more formal regional arrangement may be beneficial for some countries in the
region. Advocates of regional agreements often point to the success of the
European Union, and call on Central Asian leaders to follow this example. In the
current Central Asian context, this is a red herring, because the political will is
less and the economic costs greater. On the political level, the EU has been the
vehicle for closer political ties, whereas the Central Asian countries have no wish
to compromise their political autonomy. On the economic level, the least-cost EU
producers price (aside from agriculture) is generally little different from the
world price, so the costs of trade diversion have been low; among the
economically similar Central Asian countries the least-cost producer of an
import-competing good is unlikely to be close to matching the world price, and
trade diversion costs will be high. In the future, however, if a group of countries
in the region wish to pursue deeper regional integration, then a formal
arrangement may be desirable.
At the same time there are some less powerful pressures working against the
assertion of policy autonomy in trade matters. Increasing WTO coverage will
highlight the distinction of non-membership. Turkmenistan is the only country in
the region not to have applied for WTO membership and, if all other countries
acceded, this would highlight the unwillingness of Turkmenistan to accept the
norms of international trade law, exposing producers to specific risks such as sudden
changes in tariffs on imported inputs or in customs practices and deterring potential

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investors by the general institutional uncertainty. If Uzbekistan or Azerbaijan,

whose WTO negotiations are proceeding more slowly, were to remain non-members
as Russia, Kazakhstan, Tajikistan, and Iran became members, then these countries
would also share the outsider status of Turkmenistan. As mentioned above, there are
good reasons for taking care over the accession negotiations,27 but it is also
important to recognize the costs of non-membership and that these costs will
become more salient as the neighborhood is transformed from a non-WTO to a
WTO zone.

5 Conclusions
It has become commonplace to state that regional or bilateral trading
arrangements are becoming a major feature of the global trading system. Such
statements are supported by counting the number of RTAs notified to the WTO,
which reached at an all-time high in the early 2000s. Crawford and Fiorentino
(2005) state that Between January 2004 and February 2005 alone, 43 RTAs
have been notified to the WTO, making this the most prolific RTA period in
recorded history. One reason for the rapid increase in the number of RTAs
during the 1990s was the proliferation of bilateral and plurilateral free trade
agreements among former Comecon countries, which were a response to regional
disintegration, rather than a trend towards regionalism. On 1st May 2004 when
eight eastern European countries joined the EU, the web of bilateral trading
arrangements among the accession countries and of preferential agreements
between the accession countries and the EU became redundant, although with the
incorporation of eight more countries into the EU customs union the degree of
regionalism was increased. As a result of the EU enlargement in 2004 the
number of registered RTAs fell from 285 to 229 (World Bank 2005, p. 53n), so
that allowing for abrogation after the EU enlargement the net change in number
of RTAs during the period identified by Crawford and Fiorentino as the most
prolific RTA period in recorded history was negative (Pomfret 2007). Some
RTAs are important, but counting RTAs is nonsense because some arrangements
are of little importance and some are never implemented. In sum, the economic
significance of such arrangements (as opposed to the extent to which they
preoccupy trade negotiators and economic journalists) is not obvious. In contrast,
it is arguable that, despite the increased attention being paid to regional
arrangements, the hold of multilateralism is stronger than ever as practically all
trading nations have now acceded to the WTO, with lower trade barriers and
stronger trade dispute settlement procedures.

27
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, Turkmenistans reluctance to accept the external constraints on policy
autonomy which are inherent in fuller participation in the global economy.

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The gap between negotiated and actual RTAs is nowhere more apparent than in
Central Asia.28 The economic reasons for not implementing the many preferential
trading agreements signed by Central Asian countries since 1992 are powerful. They
are not a practical approach to realizing the gains from specialization and trade, and
they would impose substantial trade diversion costs as consumers responding to
distorted relative prices would be encouraged to purchase goods from favored
suppliers who are not the least-cost or best-quality producers. Quantitative estimates
of a Eurasian Economic Community customs union point to negative net economic
effects for Kazakhstan and the Kyrgyz Republic. Other putative RTAs are likely to
have even more strongly negative economic effects for the Central Asian countries,
especially when they involve competing economies whose exports are concentrated
in a narrow range of primary products. These are not just abstract exercises; they
help to explain why the many RTAs which have been signed have not been
seriously implemented.
Why have so many RTAs been signed in Central Asia? In the early 1990s many
were flailing attempts to limit the impact of huge negative shocks, by preserving
anachronistic trade flows or by establishing new markets, but RTAs were not an
effective strategy. By the mid-1990s a more powerful driving force was the use of
trade agreements as a foreign policy instrument, especially by the two largest
countries (Kazakhstan and Uzbekistan). The effectiveness of this policy tool is hard
for an economist to assess; the RTAs had little economic impact either for good or
for ill, apart perhaps from distracting the attention of policymakers from multilateral
trade diplomacy. Whether they achieved political goals of signaling friendship is
less clear. Because political allegiances in the region were shifting over the first
decade and a half after independence, none of the regional agreements led to
establishment of an effective regional organization in Central Asia.
The positive feature of the de facto multilateralism in trade relations is that the
region remains well-placed to take advantage of opportunities offered by Chinas
WTO accession and Russias imminent accession. Central Asian countries which
are or become WTO members will benefit from a rule-based environment in their
trade with all neighboring economies except Afghanistan and Iran. Moreover, WTO
rules are generally the most desirable trade practices for small open economies. The
costs in terms of restrictions on import-substitution strategies and other anti-liberal
trade policies and in terms of reduced potential for political grandstanding via
economic proposals in regional fora are minorand indeed the tying of
governments hands in such activities should benefit the countries citizens.
Additional benefits from WTO membership include a possible reform-reinforcing
effect, as well as access to the WTO dispute resolution mechanism and the ability to
join coalitions working towards reducing trade barriers facing important exports.
Regional cooperation to reduce trade costs is fully compatible with WTO
membership. To date there is no pre-eminent institutional setting for such
cooperation in Central Asia; existing organizations have either found it difficult
28

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.

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to implement agreements, or they do not include all relevant countries. In practice,

regional cooperation does not require a single institution; sometimes bilateral
agreements are appropriate (e.g., for coordination of border crossing arrangements),
while for other purposes a plurilateral agreement may be more appropriate (e.g.,
transit agreements). Regional regulatory regimes may be harmonized under the
General Agreement of Trade and Services (GATS) as more Central Asian countries
accede to the WTO and GATS is extended. Regional regulatory cooperation is
desirable in, for example, air transport, which was explicitly taken outside the WTO
in a Uruguay Round GATS annex; air transport is regionally poorly connected in
Central Asia (e.g., there are no direct flights between Almaty and Bishkek or
between Tashkent and Dushanbe) and could benefit from a regional open skies
agreement similar to the European Civil Aviation Area model which has greatly
increased the number of point-to-point services and brought down prices.29
Regional cooperation on environmental issues such as the desiccation of the Aral
Sea is even more desirable, although progress is slow. Deeper integration may be a
longer term goal for some countries in the region, e.g., some commentators in
Kazakhstan talk about deepening the EAEC after Russia and Kazakhstan have
joined the WTO, although this would clearly have a strong political dimension.
Although the trade policy experience of the five Central Asian countries has been
a microcosm of trends in international trade policy, with many regional and bilateral
trade agreements signed, often at the highest political level, since 1991 but with
limited implementation, there are distinctive features. The Central Asian governments faced almost uniquely traumatic shocks, for which they were ill-prepared and
which they had to deal with in the midst of nation-building from scratch.30
Policymakers had little experience of market economies and few instruments of
foreign policy. In this context, failure to appreciate the full economic impact of
trade policy decisions is understandable, while the Soviet experience encouraged
grandiloquent statements of international amity without seeing any obligation to
deliver on trade policy commitments. Fifteen years later, such excuses are wearing
thin, and WTO accession will harden the constraints on seeing RTAs as
opportunities for cheap talk rather than serious negotiations.

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29

Such an approach to air transport is advocated by Chorobek Imashev Trade Facilitation in Central
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an ADB workshop in Almaty on 1011 June 2005).
30
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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