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    Central Asia
     Jan 18, 2013


Tajikistan tries WTO for prosperity path
By Fozil Mashrab

Tajikistan's recent accession to the World Trade Organization has been mostly driven by its government's desperate attempts to attract foreign investment to its remittance dependent economy, while potential greater economic benefits for the country remain uncertain.

Tajik President Emomali Rakhmon signed the accession deal in Geneva on December 10, 2012, and the lower house of Tajik parliament was reported on January 9 to have ratified the deal and fast-tracked it to the upper house for final approval to complete the internal ratification procedure, which is expected to finish by April.

Tajik leaders seem upbeat on their country's imminent membership of the world trading body. Rakhoman hailed the move

 
as a "landmark event" in his country's history, while Minister of Economic Development and Trade Sharif Rahimzoda forecasts "increased trade and prosperity" for the impoverished and landlocked country.

WTO officials led by chairman Pascal Lamy were keen to welcome Tajikistan as the organization's 159th member and expressed hope that Tajikistan's accession would translate into greater growth and more jobs for the country. They believe that WTO membership will accelerate necessary economic reforms in the country and will "send a clear signal to all its partners that Tajikistan is willing to play by global rules".

Predictability and the rules-based system that supposedly come with the WTO label are expected to help Tajikistan to attract more foreign investment, but as neighboring Kyrgyzstan's experience shows, membership does not necessarily make the country a magnet for foreign investment or bring prosperity and more jobs.

With or without WTO membership, Tajikistan will have to compete with the rest of the world for foreign direct investment even in those sectors that offer a competitive advantage, such as textiles, food processing and mining.

Kyrgyzstan was the first former Soviet republic to join the WTO, in 1998. At that time, Kyrgyzstan's erstwhile leaders harbored the same positive expectations as their Tajik counterparts do now - that WTO membership would help quickly modernize their economy and attract foreign investment. To say that these expectations were even partially fulfilled would be an overstatement.

More than a decade since Kyrgyzstan joined the world trading body, even the little manufacturing industries that existed in the country were forced to close down as their products could not compete with cheaper imported goods, especially those coming from next door in China. Foreign investments were also slow in coming, largely because of political instability.

The Kyrgyz government was required by WTO rules to drastically lower the import tariffs for many consumer products and goods, exposing its weak domestic manufacturers to fierce competition from abroad.

As a result, Kyrgyzstan quickly turned into a regional hub for the re-export of Chinese goods to other countries in the region without seeing much development of its domestic industries. Some claim that even without WTO membership these small Central Asian countries by virtue of their geographic proximity and lack of access to open sea ports could not escape becoming captive markets for Chinese products and sources of raw materials for Chinese economy.

These two countries and their economies are pretty much the same in terms of their development and attractiveness to foreign investors. Both countries are plagued with corruption and predatory attitudes of state officials towards private and foreign enterprises.

The two already have large external trade deficits, with Tajikistan's negative external trade balance reaching an all-time high in 2012 of $2.4 billion. Tajikistan's overall trade in 2012 was recorded at $5.1 billion. Therefore, there is a real risk that the WTO membership will not make much of a difference for Tajikistan but could even compound its existing trade imbalances by increasing its trade deficit.

Besides that, landlocked Tajikistan mostly depends on Uzbekistan and to a lesser extent Afghanistan for transporting its goods to third markets. The latter is still considered to be unsafe and unstable, while the former has a long-standing dispute with Dushanbe over the Tajik government's plans to build large and controversial hydroelectric power stations.

The Uzbek government imposes hefty transit fees for all trucks carrying goods to and out of Tajikistan which are increased on an annual basis. In all likelihood, Uzbek government will not hesitate to use Tajikistan's dependence on its transport system as powerful leverage whenever bilateral disputes flare up. Thus, Tajikistan's dependence on neighbors for transporting its exports and imports will significantly curtail its trade relations with the outside world.

As far as a trans-Afghan corridor is concerned, the governments of Afghanistan and Pakistan have agreed to extend the Afghan-Pakistan Transit Trade Agreement to Tajikistan in 2012 in an attempt to encourage trilateral trade between these countries. But recent developments indicate that the challenges for this route are not only related to security and lack of transportation infrastructure but also on the absence of common standards and simple understanding, which makes reaching commercial deals quite complicated.

A recent problem over the supply of 30,000 tonnes of sugar from Pakistan to Tajikistan is a case in point. Since August 2012 in a very awkward and funny way both sides seem to have misread each other on every occasion. Transportation challenges due to weather conditions and later on the misunderstandings on the type of sugar - white refined sugar or white powdered sugar - required by Tajikistan or available in Pakistan have kept the deal from being realized.

On the positive side, WTO membership could encourage Tajik government to carry out all necessary economic reforms, in accordance with mainstream international practices, though that may not be sufficient to attract foreign investments.

Moreover, WTO membership also bestows on Tajikistan the status of a "free market economy" and thus makes it eligible to access various lucrative Western markets on favorable terms, which could potentially help the Tajik government lure various manufacturers, especially apparel manufacturers, to establish factories in Tajikistan, though stiff competition with other developing countries is unavoidable.

Due to their own lack of understanding or for some other reason, Tajik government officials have so far preferred to make only general statements on the virtues of WTO membership, instead of explaining in a persuasive way how the benefits of membership outweigh potential negative consequences for their country. They seem to treat the issue of their country's membership as a necessary step that they would have to make sooner rather than later, without giving much thought to the potential consequences.

They also seem to like projecting WTO membership as their country's "coming of age moment", and a matter of prestige, as there are increasingly few countries left outside the WTO. These include Afghanistan, Iran, Syria, Belarus, Sudan, Uzbekistan, Kazakhstan, Azerbaijan and a few other small countries. Importantly, all successfully developing and developed countries and major trading nations are part of the WTO.

WTO membership can indeed help Tajikistan to become the successful developing nation that it aspires to become. However, the fundamental hurdles that exist on its way for greater economic integration and trade with the rest of the world will never allow it to fully realize the potential benefits that WTO membership would avail it.

These include its geographic isolation, the low level of trade and cooperation with some of its important neighbors on whom it depends to access transnational transportation infrastructure, a general lack of understanding among Tajik entrepreneurs and officials on the WTO rules, and others.

Fozil Mashrab is a pseudonym used by an independent analyst based in Tashkent, Uzbekistan.

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