Central Asia | China factor raising expectations for ECO’s prospects

China factor raising expectations for ECO’s prospects

Altay Atli March 9, 2017 12:32 PM (UTC+8)
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Last week’s summit of the Economic Cooperation Organization (ECO), which was founded by Turkey, Pakistan and Iran in 1985 and later joined by Afghanistan, Azerbaijan and the five ‘Stans of Central Asia (and the Turkish Republic of Northern Cyprus as well, albeit only on an observer status) went largely unnoticed in international media. This was not really surprising, as over the more than three decades of its existence, the ECO had not achieved much in terms of delivering the economic integration and political coordination that its charter was promising.

The member nations were probably also not expecting much, as it took five years for them to get together for another summit after the latest one held in 2012.

The ECO covers countries located at the heart of the Eurasian continent, with large populations, growing markets, and access to energy resources. Despite this geo-economically valuable position, the organization did not bring about the economic cooperation its name was suggesting.

The ECO Trade Agreement, which was signed in 2003 (and needed five years to go into effect), exists only on paper – it has not been implemented in practice. The ECO Trade and Development Bank, which includes six of the 10 member countries of the ECO, is functional, but its capabilities for mobilizing investment finance is limited.

Trade volumes in the region are increasing, but there is little evidence that the ECO has played a role in this process. The ECO was, and still is, a good idea, but it faced several structural challenges from the beginning.

To start with, there is a lack of complementarity among the member countries’ economies, which has made it difficult for them to find common ground on which to build regional cooperation. In the meantime, while the ECO countries are in geographical proximity to one another, the lack of an adequate transportation infrastructure in the region continues to be a major barrier against trade integration.

More important, there was not much political commitment to this project on behalf of the member countries’ governments. In a region with a wildly diverse array of political interests, preferences, loyalties and alliances, whatever economic benefits the ECO was promising to its members fell dramatically short of generating the political will for decision makers to invest in this integration project.

In Islamabad last week, however, the mood was profoundly optimistic. “I believe that the ECO’s time has truly come,” said the host of the summit, Pakistani Prime Minister Nawaz Sharif. “It is primed to make momentous advancement. There has never been a more opportune time to realize our dream of connectivity for regional prosperity.”

Turkish President Recep Tayyip Erdogan and his Iranian counterpart Hassan Rouhani agreed, making references to the fraternity among the member countries and emphasizing the need for a structural reorganization of the ECO to render it functional.

This re-energized faith in what the ECO can deliver, despite all the shortcomings of the past three decades, is more than empty summitry rhetoric. In fact, it reflects the changing environment and increasing expectations due to the new actor in the scene: China and its “One Belt, One Road” (OBOR) project. It is indeed, as Sharif stated, an “opportune time” for ECO countries, as Chinese finance, technology and knowhow is making an entry into the region in large volumes.

The China-Pakistan Economic Corridor initiative, which is a collection of Chinese-backed infrastructure projects within Pakistan, is a concrete sign of what integrating with Beijing’s grand plan can generate in terms of economic benefits for the countries in the region. And it is not only Pakistan: Almost all the ECO member countries have expectations from the OBOR, particularly in the form of Chinese investment for infrastructure development and greater connectivity.

A quick look at the Islamabad Declaration issued at the end of the ECO Summit clearly reveals that it is the new momentum (and money) that China’s OBOR is expected to bring that is raising the expectations for the ECO’s prospects for greater trade integration in the near future.

The declaration signed by the leaders of member countries makes the case for a “flexible approach to regional connectivity and integration that enables member states to contribute to, be part of and benefit from the various connectivity and integration programs in a gradual and progressive manner according to their respective state of preparedness”; recognizes “the existence of various connectivity initiatives in the ECO region”; and explicitly sets the target by “welcoming in this regard the China-Pakistan Economic Corridor as a far-reaching initiative that would act as catalyst for the development of the entire region”.

Integrating with OBOR/CPEC can bring a new momentum for the ECO and help the member countries make greater progress toward their stated objective of improving “connectivity as a dynamic concept that encompasses multiple dimensions including cyber, energy, rail, road, and ports and shipping”. Improved economic prospects can also generate greater political will among the governments.

However, this is easier said than done. There will be a number of challenges down the road.

First of all, much will depend on the extent of political stability, both within individual member countries and region-wide. Political issues continue to plague not only the domestic scene in member countries, but also the relations among them, in some cases forcefully moving them apart from each other. This is a barrier against greater cooperation among the actors, and also a major discouragement for the Chinese side.

Second, there remains the question of to what extent the ECO will be able to act in unison when dealing with the Chinese and, in a similar way, to what extent the Chinese will prefer to deal with the ECO as a multilateral organization instead of engaging all the member countries bilaterally. If China collaborates with the ECO as a whole, this could in fact strengthen the cooperation among member countries, which will go after common benefits. However, if China continues to deal with ECO member countries bilaterally, as is mostly the case at the moment, it will produce the opposite effect, by increasing the competition among the ECO member countries to reap benefits from Chinese investment.

For now, the Chinese side seems to be exploring ways of engaging the ECO, as evidenced by the fact that Vice Foreign Minister Zhang Yesui was in Islamabad to attend the summit. It remains to be seen whether the positive mood in Islamabad can translate into a virtuous cycle wherein the China factor produces the will for member countries to work in closer cooperation and to revitalize the ECO by putting more political capital into the project, which in turn would cause China to supplement its current bilateral approach with a region-wide perspective through the ECO. This, together with the economic benefits it would bring to the region, would encourage the ECO members to  strengthen the partnership.

The ECO’s record so far is not compelling. However, a major economic restructuring is currently in progress in Eurasia, and a more competent ECO could emerge as a significant actor in this process.

Altay Atli
Dr. Altay Atlı is an Istanbul-based academic and writer specialising in international political economy and international relations. He is a research associate at the Asian Studies stream of Istanbul Policy Center (IPC) at Sabancı University, and teaches courses on international political economy, international economics and comparative Asian political economy at various universities.
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