Free Trade Concerns in Tajikistan

As the Tajik government tries to speed up the country's accession to the World Trade Organisation, economists are warning that signing up too soon would damage the country’s still fragile economy.



In an interview with IWPR, Ghafur Rasulov, the head of public relations at the Ministry of Economy and Trade, said Tajikistan could join the WTO as early as next year.



That would make it only the second Central Asian state to accede to the free trade association, after Kyrgyzstan, which joined in 1998. Of the other Soviet states, only Armenia, Georgia and the three Baltic states are members, although Russia and Kazakstan are some way along the negotiating process.



The Tajik government submitted an application to enter the WTO in 2001, and talks have been ongoing since then.



One of the immediate consequences for a country like Tajikistan is that it has to amend a whole range of economic laws, trade regulations and customs arrangements to harmonise with the WTO’s rules. The improvement in the framework governing trade should have the added benefit of encouraging foreign investors, who are currently put off by the perceived lack of regulation.



According to Rasulov, an inter-departmental government commission working on the accession process has already done a substantial amount of work to meet WTO standards. “We have reviewed a list of 12,000 goods and amended hundreds of laws in order to comply with WTO norms,” he said.



In the long run, this should smooth trade relations. “The WTO has 150 members, and once we’ve had to agree with them this once, we won’t have to go through the routine of reaching bilateral agreements with these countries again,” said Rasulov.



Outside the government, WTO membership is supported by a number of Tajik economists.



“Being a WTO member will enable us to apply the preferential rules applied to exports of goods from all WTO member states,” said economist Khojimuhammad Umarov. “And importing low-price raw materials and components will enable us to reduce the prime cost of production to competitive levels, therefore boosting the rate at which the real economy develops.”



Tajikistan is already a member of two regional groupings that envisage free trade arrangements – the Commonwealth of Independent States, the original association of former Soviet states established in 1991, and the Eurasian Economic Community, a more limited grouping dating from 1997 and consisting of Russia, Kazakstan, Kyrgyzstan, Tajikistan plus recent member Uzbekistan. But customs harmonisation and rules on transit trade – important for landlocked Tajikistan – have not been fully implemented.



Advocates of WTO membership argue that it might achieve what earlier arrangements have failed to do.



“Given that all the Central Asian countries are going to enter the WTO, all the unjustifiably high customs and transit duties that Tajikistan now has to pay will be lifted. Those duties have already cost the country [to date] more than 15 billion US dollars,” said Umarov.



However, other analysts are wary about the impacts the new trading regime will have on an economy that remains largely uncompetitive aside from the key areas of aluminium, cotton and hydroelectric power. Apart from aluminium and cotton, which are traded internationally, and electricity which goes to neighbouring Central Asian states, Tajikistan’s principal export market remains Russia.



A World Bank study on Tajikistan’s trading system published in December said that while the country would eventually benefit from membership, the study cautioned that “accession will not suddenly improve market access abroad for Tajikistan’s exports”, simply because these already enjoy the terms applied to WTO states. The inherent saleability of aluminium and cotton on world markets potentially places Tajikistan in a better position as an exporter than other developing countries which have found their textiles, for example, blocked by anti-dumping measures imposed by stronger states within the WTO.



The study argued that the main negative effect of WTO accession was the short-term cost of regulatory reform.



But local analysts are more concerned that WTO membership will flood the domestic market with cheap imports, driving all but the strongest Tajik firms out of business.



“Entering the WTO will affect different parts of the economy in differing ways,” said Maksud Odinaev, Tajikistan programme manager for the WTO’s International Trade Centre. “For some it will have positive consequences, while for others it will prove destructive. It will depend on how well companies in these areas are prepared for WTO membership.”



The Tajik economy was the weakest in the USSR, and the subsequent collapse of Soviet trading links and the 1992-97 civil war created huge problems from which the country is only now recovering.



“Objectively, Tajik enterprises are not ready to work to the WTO’s conditions, and they will all go bankrupt,” warned economist Rustam Babajanov.



Nuriddin Kaumov, director of the Centre for Economic Research, agreed, saying the warning signs were already apparent. “At the moment, the republic has one of the lowest customs duty rates for imported goods, and the domestic market is filled with foreign products. After [WTO] accession, all the customs barriers will be removed and this will seriously damage companies that even now are economically unstable,” he said.



Political scientist Said Yuldashev argued that small and medium-sized firms were most at risk, “Since they have been unable to fulfil their promise on the domestic market, they will undoubtedly be crowded out by incoming international firms.”



Odinaev believes it is the government’s responsibility to ensure that local producers do not suffer.



“Small and medium businesses have only just begun to emerge, and entering WTO will kill them off at such an early stage of development,” he said. “In order to join the WTO, the government as the prime mover must take steps to improve the competitiveness of domestic producers….



“WTO membership needs to be on terms that meet our country’s national interests, and do not create a threat to local domestic producers.”



New WTO members, especially the poorer ones, are able to claim certain privileges and exemptions to mitigate the shock effects of accession. But the experts interviewed by IWPR were sceptical about how much Tajikistan would benefit.



As Babajanov explained, “Tajikistan is recognised to be one of the poorest of all the former Soviet republics, so the WTO may accept some [restrictive] import conditions in return for limiting [Tajik] exports. However, one needs to realise that all such preferential terms will be only temporary in nature.”



Odinaev added that the Tajik state was too weak to exercise the theoretical rights it would have within the world trade grouping. “It is unlikely that the country will be able to negotiate such preferential treatment at the WTO. To do that, Tajikistan would need a permanent team of negotiators based in Geneva. That’s impossible, as the cost of doing so would be beyond Tajikistan’s means,” he said.



Opponents of rapid accession point to neighbouring Kyrgyzstan as an example of what can go wrong. The parallels are relevant, as the two countries are the smallest in Central Asia, and lack the oil and gas resources that make their bigger neighbours at least potentially wealthy.



“We shouldn’t repeat the sad experience of Kyrgyzstan, which entered the WTO hastily,” said Umarov. “That country did not complete the process needed to eliminate [trade] barriers and raise foreign investor confidence.”



Trade barriers or not, Kyrgyzstan failed to address the underlying issues that hindered investment, said Odinaev.



“The factors that made Kyrgyzstan less attractive for investors were political instability and widespread corruption. This is a lesson that should be learned by the Tajik government, so as to avoid inaction during WTO accession preparations – [otherwise] the end result will be counterproductive.”



Artyom Fradchuk is an IWPR contributor in Dushanbe.