Border Regimes and Trade in Central Asia

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Border Regimes and Trade in Central Asia

• Saumya Mitra
• The World Bank

Brussels, March 2-3, 2009
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World Banks 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

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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 Banks 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

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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.

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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 US1,000 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.

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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.

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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.

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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 reports
  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.

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• 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.

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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

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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.

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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)

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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

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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

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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.

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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

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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

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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)

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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)

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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