Border Regimes and Trade in Central Asia

1. Border Regimes and Trade in Central Asia Saumya Mitra The World Bank Brussels, March 2-3, 2009

2. World Bank’s involvement • Cross-border trade within the CAREC (2007) – completed • Trade Corridor Performance Measurement in Central & South Asia (2006 and 2007) • Bazaars and Trade Integration of CAREC countries (June-October 2008) – ongoing • Deepening integration in border regions within CAREC - ongoing

3. Cross-border trade within the CAREC Background • Ministers of CAREC countries recognize the importance of border trade; • At a meeting in Urumqi in October 2006, they requested that the World Bank conduct a study on border trade amongst the CAREC countries. Key objectives • To identify • The scope and content of border trade – actual and potential; • Its drivers; • The impediments it faces, such as physical, i.e., infrastructure of border crossing points, and non-physical barriers (e.g., customs practices); • Major actors; and • Its impact on poverty reduction The World Bank’s response • Project was designed in January-February 2007 • It was launched in April 2007 with the completion of recruitment of national teams in Kazakhstan, Kyrgyzstan and Tajikistan. Uzbekistan refused participating in it.  Surveys of selected border crossing points in three countries above were conducted in May and June 2007

4. Cross-border trade within the CAREC Our work has shown that cross-border trade hinges critically on: • The ability of people to routinely cross the border without paying a large unofficial payment; • The ability of people to routinely cross the border with goods without having to pay prohibitive tariffs, or taxes or duties and border charges • The ability of people to cross the border with their own passenger vehicles or with light vehicles from bordering regions.

5. Cross-border trade within the CAREC Governments can intervene to facilitate cross-border trade First example: • The Afghan-Tajik cross-border project represents the first stage towards wider and deeper integration based on cross-region cooperation. In 2003, the Government of Tajikistan launched a program designed to facilitate cross-border trade with Afghanistan. The program has enabled the opening of BCPs together with bazaars located within Tajik territory (diagram below for their layout). The facilitating aspects can be summarized as follows: • Bazaars opened at several BCPs between Tajikistan and Afghanistan • No visas required from Afghan citizens to enter the bazaar (they surrender ID or passport and collect it when they leave the fenced bazaar); Second example: The Chinese-Kazakh Korgas BCP Cross-border trade benefits from two key measures: • Residents of the Kazakh Panfilov district can enter China without any visa if they stay no longer than one day. The waiving of the visa requirement is important, as visas can be only obtained in Almaty, about 300 kilometers from Jarkent, and are expensive. • Some cargo brought into Kazakhstan from China is duty-free. Cargo whose weight does not exceed 50 kilograms and value not exceed US$1,000 can be brought into Kazakhstan without paying any border charges. This set of preferential arrangements has benefited the development of cross-border trade. The Korgas bazaar, often described as a "showcase of cross-border trade," has emerged as one of the most important platforms supplying southwestern parts of Kazakhstan.

6. Cross-border trade within the CAREC But Government intervention can create obstacles to Cross Border trade • Visa requirements The cost of a visa alone can erect an insurmountable barrier to cross-border trade. Visa requirements or even visa-free entry if combined with large stamps (covering at times an entire page) to mark each entry and exit in the passport, constitute a barrier to engage in trading activities. Applying and obtaining a visa requires a trip to the capital or the consulate city. • Vehicular restrictions Local people usually cannot drive their own vehicles in other countries, are restricted to a few kilometers into the territory of another country, or are burdened with unreasonable paperwork and high fees. • Opening hours for BCPs Hours of operation could be a significant barrier.

7. Cross-border trade within the CAREC (cont.) • Closure of BCPs Several BCPs of Uzbekistan vis-à-vis Kazakhstan, Kyrgyzstan and Tajikistan have been closed. Examples are BCPs in Batken and Djalal Abad oblasts. Evidence suggests that such closures have had an adverse impact on local livelihoods. • Exemptions Uzbekistan imposes much smaller limits on exemptions from taxes and other border charges than other central Asian Carec countries. This clearly discourages cross-border trade. • Uncertainty in implementation of rules Cross-border traffic can be limited by uncertainty associated with the implementation of rules. Thus, the open border agreement between Kyrgyzstan and Uzbekistan, which went into effect on February 12, 2007, ceased to be implemented from March 2007, thereby compelling Kyrgyz and Uzbek nationals to obtain visas, but was subsequently restored so that both nationals can now travel visa-free and without stamps in passports.

8. Cross-border trade within the CAREC • Closure of bazaars There are cases of bazaars located next to BCPs being forcibly closed or being made to move 20-odd kilometers away from the border (e.g., the one near Dostuk BCP in the Ferghana valley). • Infrastructure Among border posts sampled in the report’s survey, border-post infrastructure has not appeared as a significant constraint to cross-border trade. But rehabilitated infrastructure will support border-trade only if accompanied by facilitating procedures. • Role of regulations Transport arrangements may discriminate against cross-border traders. Example of the Kulma pass BCP. But regulations can also ease border resident movements.

9. Wider public policy concerns • Security is often cited as a factor for imposing controls as is the discouragement of contraband trade. But such government-imposed obstacles are usually a blunt and expensive instrument to attain such public policy aims. • Visa, security policies and the like are often very difficult questions. The effectiveness of government-imposed obstacles can be weak (restrictions often are countered by smuggling or unofficial payments). • The ultimate public policy aim of prosperity and security is perhaps best achieved through a combination of highly liberal cross-border trading conditions accompanied by intelligent policing and customs practices.

13. Trade Corridor Performance Measurement in Central & South Asia Key objectives • Identify barriers to trade flows • Develop recommendations on improvement of infrastructure and procedures • Dialogue with the regional governments • Establish baseline to measure project impact: road construction, customs modernizations, trade facilitation and other projects • Benchmark against other trade corridors and Regional TTF programs

14. Trade and border issues as seen within Trade Corridor Performance Measurement in Central & South Asia • Central Asia has the potential to flourish as a corridor for transit trade between Russia, China, South Asia and Europe • Significant physical and non-physical barriers to trade and transport, thereby increasing the ‘economic distance’ • Transit transport by road is primarily used for connecting Central Asia with markets in Western Europe, Turkey and the Russian Federation • In physical terms, the corridor through Afghanistan and Pakistan offers the shortest distance to the Indian Ocean! • Lack of cooperation between countries, is a major issue.

15. Instruments • Five major instruments are being employed: • On-site physical measurements • Truck driver interviews • Survey of freight forwarders • Survey of customs brokers • Trip diaries • Next step is of Corridor Performance Measurements to South Asia (co-financed by USAID)

16. Summary of observations • Informal barriers are high in Central Asia • Delays by other border agencies can be significantly more than Customs • Elimination of delays needs careful assessment • Measurements should be continued on a systemic basis • Results should be disseminated in and outside the region • Further support from Governments and International organizations is needed

17. Bazaars and Trade Integration of CAREC countries Key objectives • Identification of the ‘map’ of ‘bazaar’ trading activities in terms of sources of supply and direction of flows: hubs and spokes. • Estimate of the scope and composition foreign trade flows intermediated by bazaars. • Estimate of welfare effects of bazaars • Identification of policy implications and developing recommendations

18. Bazaars and Trade Integration of CAREC countries Significance of the foreign trade ‘bazaar’ transmission channel • Shuttle large-bazaar-destined trade takes place in regional ‘hubs’ with international reach and local ‘spokes.’ • It is the major source of supply for most consumer products, with aggregate turnover exceeding that of retail stores in most Central Asian countries; • It is also an important source of employment and livelihood for large number of traders and producers alike.

19. Bazaars and Trade Integration of CAREC countries An examination of the bazaar channel and its welfare effects has important policy implication • First, a good understanding of factors driving this trade will shed light on weaknesses in respective foreign trade regime (as it applies to standard trade) or more broadly in business climate. • Second, there are important lessons that can be drawn from its use for necessary policy reforms that would transform these flows into regular or standard trade flows. • Third, an assessment of welfare impacts of these flows may tip the balance against taking measures designed to suppress this trade because of alleged foregone customs and tax revenues. One suspects that welfare gains in terms of employment and poverty reduction may be much higher than revenue losses

20. Deepening integration in border regions within CAREC What is ‘Euroregio’? • Its underlying concept stems from the simple idea that going a step ‘further and deeper’ beyond the existing framework of bilateral relations between governments is beneficial to the welfare of contiguous local communities, while paving way for better relations between nations. • It is a framework for cooperation among regions located across national borders; • It dates back to the late 1950s when a fatal episode close to the Dutch-German border in 1958 generated a push towards opening of the borders between two bordering regions; • Starting in the 1990s, the concept was adopted by countries outside the EU as well, with the strong support of both the European Commission and the Council of Europe. Model of ‘Euroregio’ usually entails cross-border cooperation: • Covering various areas such as development, environment, health and emergency assistance, business and trade, tourism activities, as well as culture and sport. • Addressing the movement of people, capital, goods and services often going beyond rules negotiated for the national economy. • In other issue-areas of relevance to contiguous communities

21. Examples of cross-border cooperation • ENVIRONMENT and CULTURE • Adriatic Euroregion • Includes projects for protection of the cultural heritage; protection of the environment; Ecotourism, fishery and agriculture • Euroregion Baltic (energy and water forums, green circle schools – network of schools for education and training in sustainable environmental development • BUSINESS, TRADE and TOURISM • EureGo (Udine and Slovenia) – local transport and infrastructure, joint tourist festivals and labor market activities) • Euroregio Karelia (Russia and Finland) - The coordination of Interreg and Tacis programmes • Kaliningrad (Russia), Poland and Lithuania – wholesale food market, development fund for Kaliningrad, aviation, transport • HEALTH • Emergency ambulances operation across border (Belgium – France) • Cooperation of mountain assistance (France-Italy; Briancon-Turin) • Nurse training (France-Spain; Lavelanet-Mataro) • Cross-border Network for the primary prevention of drug addiction (Germany-Poland)

22. Deepening integration in border regions within CAREC Why is the experience with ‘Euroregio’ worth exploring? • It has laid foundation for sharing benefits of more open borders also among countries not parties to preferential regional arrangements • It has piloted various ideas of deeper integration tested first at a micro-level • It has proven to be an effective instrument complementing bottom-down integration • It has energized public support and set the groundwork for closer cooperation at central government level Can Euroregio be transplanted? • While no equivalent of ‘Euroregio’ has as yet emerged along the borders of contiguous CAREC members, interactions already occurring and potential benefits stemming from their expansion make it an attractive concept to explore for CAREC governments. • Various arrangements already exist between bordering regions, formal and informal, that would benefit from stability assured by the status of Asiaregio e.g. Kulundu on TJK-KRG border and Korgaz on KAZ-CHN border below)

23. Deepening integration in border regions within CAREC Key objectives: • To adopt the concept to CAREC conditions and assess its potential benefits: • To identify contiguous regions that might benefit from institutionalized forms of closer cooperation: • To activate a ‘bottom-up’ dimension of CAREC-led regional integration effort. • To develop ideas for the areas to be included as Asiaregio-type cross-border cooperation