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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