Countries and Regions

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p. 11 of 22 BACK | NEXT I. Summary II. Background and Rationale III. The ADB Initiative Towards Economic Cooperation in Central Asia IV. Sector Priorities and the Proposed Program 2001-2003 A. Trade B. Energy C. Transportation V. Addressing Poverty and Governance and other Cross-Cutting Concerns VI. Issues and Challenges

Central Asian Regional Economic Cooperation : IV. Sector Priorities and the Proposed Program 2001-2003

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A. Trade

23. Since independence, the CARs have made significant if uneven progress in domestic trade liberalization, helped along by privatization and the introduction of market-based incentives. In a relatively short time, prices have been freed on most goods and services, and strides have been made toward establishing the legal and regulatory framework necessary for the smooth functioning of market-based economies. Moving on quite a different reform path, the same is true of Xinjiang, PRC.

24. The potential for expanding intra-regional trade in products is considerable. The monoculture agricultural regime practiced by the Soviets, coupled with the isolation and specialization of industrial facilities, means that restructuring is needed to exploit this potential. The most immediate possibilities include agricultural chemicals (for instance, the Kyrgyz Republic needs to import fertilizers, pesticides, and herbicides), farm produce, skins and hides, and textiles. Consumer goods is another area of potential trade, especially between Xinjiang, PRC and the former Soviet republics. None of the republics produce consumer goods in any significant amount, and if incomes rise, the demand for these goods would increase.

25. Despite the progress toward open economies, policy restrictions and barriers to trade continue to impede the flow of goods, technology, services and capital within the region. These barriers may be classified into three categories: tariffs and related policies, procedures and regulations, and governance problems.

• Tariff constraints to trade are relatively minimal. However, in some cases the CARs impose export taxes on goods shipped from one country to the next, resulting in double taxation that discourages exports and depresses trade volumes. Policy-related constraints to trade include import quotas, export licensing arrangements, visa policies, and transport restrictions.

• Procedural and operational barriers to trade include a variety of impediments. There are often cumbersome and arbitrary procedures and bureaucracies throughout the region administer regulations that are archaic and frequently conflicting. Regulations change continuously, usually without notice. There are also slow, difficult border procedures, multiple cargo inspections within a single country, and prohibitions that prevent vehicles from transporting goods between countries. Although the former Soviet republics had permitted the movement of citizens across borders for short periods of time with few restrictions, visa requirements are becoming common.

• Governance problems include arbitrary and extra-legal transit fees and the costs of dealing with corrupt border officials and local police. These problems are particularly discouraging to transit operations–third country cargoes and passengers are particularly vulnerable to abuse of official privilege. Administrative systems that lack transparency and accountability invite corruption and inhibit the growth of trade necessary for the region to prosper.

26. Removing barriers to trade within the region primarily involves changing attitudes toward trade and policy reform. As a step towards this direction, the Central Asian countries have applied for membership in the WTO, which requires compliance with internationally accepted trade practices.

27. The absence of a modern banking sector in the former Soviet republics also limits trade relations. Letters of credit, money orders, credit cards, and other modern payment instruments for commercial transactions are unavailable or limited in use. Trade financing, including financing of receivables and guarantees, is nonexistent. Currency overvaluation and the lack of convertibility also hinder trade expansion and produce economic distortions in the region. Partly as a result of this deficiency, a great deal of trade is driven into informal and illegal channels.

28. The ADB has been energetic in examining trade barriers and raising the issue to the Governments. It should continue, especially with the firm establishment of resident missions, to press the case that only through an expansion of regional trade, can the potential for growth and the significant reduction in poverty occur. The ADB should continue to support regional conferences, workshops and studies, heavily involving local consultants and Government officials, to build a core understanding of the costs of discouraging trade and traffic. The ADB should expand its efforts in these areas with others in the international community. Efforts should also continue to link infrastructure financing to reforms in the policy environment. The forthcoming regional roads project (the rehabilitation of the Almaty-Bishkek highway) offers a model in this respect: infrastructure rehabilitation is being planned in the context of a cross-border agreement to ensure that trade and traffic are encouraged not discouraged.

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