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

Border Regimes and
Trade in Central Asia
Saumya Mitra
The World Bank
Brussels, March 2-3, 2009
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
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
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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.
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.
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.
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.
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 crossborder 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.
Wider public policy concerns
 Security is often cited as a factor for imposing controls as is the
discouragement of contraband trade. But such governmentimposed 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.
Summary of Recommendations
Table 5.1: Summary of Recommendations
Recommendation
Country
Expected impact
A. Recommendations on operations of border-crossing points
From May to October it would
be advisable to keep the Kulma
BCP with Tajikistan open for
the whole month rather than
only 15 days a month
China
Opportunity for crossborder trading and
associated income and
employment generation for
residents of the poorest
region in Tajikistan
Open the Korgas crossing-point
during the weekends
China
Smoother movement
through BCP and higher
trade turnover
Kordai BCP: in order to address
current bottlenecks, an
infrastructure upgrade is badly
needed with a separate crossing
point for international freight
traffic
Kyrgyz Republic and
Kazakhstan with
assistance from
international donor
community
Much better access for
Kazakh citizens to services
offered in Bishkek (health
care, education,
automotive, etc.) and
increased income to their
providers
Open the BCPs with
Kazakhstan, Kyrgyz Republic
and Tajikistan that were
unilaterally closed.
Permit the re-opening of
bazaars close to BCPs that were
forcibly shut.
Uzbekistan
Uzbekistan
Revival of border trade
flows and poverty
reduction in affected
communities.
B. Recommendations on movement of motor vehicles
Open BCP to light vehicle
traffic (mini-buses and vans)
for residents of a bordering
region
Afghanistan, China,
Uzbekistan, Tajikistan
Lowering of transaction
cost thanks to lower
transport cost and no need
for loading/unloading at
the border
Crack down on the road police
extracting bribes from vehicles
registered in bordering areas
Kazakhstan, Kyrgyz
Republic, Tajikistan and
Uzbekistan
Lowering of transport cost
C. Recommendations on movement of people living in contiguous regions
Make local ID sufficient to
cross the border for residents of
contiguous regions
Kyrgyz Republic and
Tajikistan
Larger number of people
involved in cross border
trading: increased incomes
and lower prices
Do not stamp each entry in
passport or introduce a separate
sheet registering the length of
stay of residents of bordering
EURASEC countries
Uzbekistan on inflows
from neighboring
EURASEC countries
Lowering transaction costs
and increasing the number
of people involved in
cross-border trading
activities
Visa-free entry for residents
living in administrative districts
of Afghanistan, Kyrgyz and
Tajik areas in which a BCP is
located for a period of at least
one day but preferably two days
and in areas where Chinese
urban centers are remotely
located
Afghanistan, China,
Tajikistan
Major beneficiaries would
be residents, larger number
of traders visiting
marketplaces there and
lower prices for consumers
in adjacent regions
D. Recommendations on movement of goods among contiguous regions
Raising the limit on the weight
of agricultural products exempt
from border charges from 50
kilograms to 100 kilograms
Kazakhstan, Kyrgyz
Republic, Tajikistan
Boost cross-border trade in
agricultural products with
positive impact on incomes
of the poorest segments of
population
Overhaul of limits on goods
imported for personal use and
replacing it with the provision
of US$1,000 worth of goods
and 50 kilograms (industrial
products) and 100 kilograms
(agricultural produce)
Uzbekistan
Boost cross-border trade in
agricultural products
Enable establishment of market
places at the border instead of
moving them 20 kilometers
from the border
Uzbekistan
Lowering transaction cost
would boost cross-border
trade and increase the
number of people involved
in cross-border trading
activities
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
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.
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)
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
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
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.
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
Deepening integration in border
regions within CAREC
What is ‘Euroregio’?
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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:
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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
Examples of cross-border cooperation
HEALTH
• Emergency ambulances
operation across border
(Belgium – France)
• Cooperation of mountain
assistance (France-Italy;
Briancon-Turin)
• Nurse training (FranceSpain; Lavelanet-Mataro)
•Cross-border Network for
the primary prevention of
drug addiction (GermanyPoland)
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
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
Deepening integration in border
regions within CAREC
Why is the experience with ‘Euroregio’ worth exploring?
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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)
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 CARECled regional integration effort.
• To develop ideas for the areas to be included
as Asiaregio-type cross-border cooperation