Prospects for Regional Integration in Central Asia
10/31/2014 11:38 AM EDT
Prospects for Regional Integration in Central Asia
Fatema Z. Sumar
Deputy Assistant Secretary, Bureau of South and Central Asian Affairs
George Washington University
October 28, 2014
Remarks as prepared
Good afternoon. It’s a pleasure to be here with all of you. I want to start by thanking George Washington University for organizing today’s discussion about the prospects for regional integration across Central Asia. I spend a lot of time dealing with this issue and will be traveling next week to Bishkek to represent the United States at the Central Asia Regional Economic Cooperation Ministerial Conference. So today’s discussion is timely.
Developments Affecting Central Asia
During these past few months, there have been a number of developments in the region and across the globe that are having a real impact on the political, economic, and security situation in Central Asia. On the regional front, first and foremost, the Afghanistan transition continues, with the drawdown of U.S. and Coalition forces. Just this weekend, British troops ended their combat operations in Afghanistan, handing over Camp Bastion in Helmand province to Afghan National Security Forces.
While Central Asian countries have been anxious about this transition – in particular its effects on stability of the government in Kabul and the ability of the Afghans to combat terrorism and narco-trafficking, there are encouraging signs of recent progress. Last month’s inauguration of a new national unity government led by President Ghani and Chief Executive Officer Abdullah was a major step forward. The signing of the U.S.-Afghanistan Bilateral Security Agreement – which provides the necessary legal framework to allow U.S. troops to remain in Afghanistan beyond 2014 for a limited mission to train, assist and advise Afghan forces, and to conduct counter-terrorism operations with our Afghan allies – also demonstrates our commitment to the region. And our redoubled efforts to advance the New Silk Road initiative economically linking Afghanistan with Central and South Asia is helping countries reestablish and expand connections across the region.
I would also say that Russia’s actions in Ukraine are a real source of concern. President Obama said in New York last month that Russia’s aggression is reminiscent of the days when big countries could trample small ones at will. Countries in Central Asia that share close political, economic, security, and people to people ties with Russia understand the danger better than most as they balance their historical ties with Russia with their need to exercise sovereignty and independence. When we observe developments relating to the Eurasian Economic Union, we recognize that all countries have the right to choose their own path of economic development according to their national interests. But no country has the right to determine the political and economic orientation of another country.
On the global front, there are major challenges that also have an impact on Central Asian states. For instance, the threat of ISIL is clear. As groups like the Pakistani Taliban declare their support for ISIL and order their fighters across the region to support the group’s efforts to establish an Islamic caliphate, Central Asian governments worry about the impact this will have on their own states. Already, a small number from Central Asia have joined various extremist groups fighting in Syria. We need to work together to address the real threat of foreign fighters and counter violent extremism.
Finally, global oil prices are having a major impact locally. Since June, global oil prices have dropped 26 percent, largely hurting Russia, Iran, Venezuela, and Iraq the most. The price decrease has been driven by abundant supply, unexpectedly weak demand, a strengthening U.S. dollar, and reluctance by Gulf suppliers to cut output. Prices may see a seasonal increase as winter arrives, but continued supply growth and structurally weak demand point to a long-term downward trend in oil prices. Hydrocarbon-dependent economies in the region, such as Kazakhstan, are already feeling the impact of this decline.
This decline, along with the effect of sanctions post-Ukraine, has the potential to be particularly difficult for Russia, whose economy is near stagnation, according to the World Bank. The first half of 2014 only saw growth of 0.8 percent, and consumer and business sentiments remain weak. Central Asian governments who share strong economic ties with Russia may be concerned about the medium term impact low Russian growth rates will have for their own economies.
Importance of Supporting Regional
These are just some of the challenges the region faces. So the question in my mind is, given these realities, how can Central Asian countries best plan for their own futures? The truth is the region is already connected when it comes to the reach of terrorist networks, drug traffickers, and smugglers. No walls are high enough to keep out the bad influences. But when it comes to positive influences, the region has enormous barriers preventing the movement of people, goods, energy, and ideas. So while the virtuous networks are inhibited, the vicious networks of jihadists and criminals thrive. The only answer is in better governance, better education, and better connectivity to counter these threats, to improve security and stability by enhancing opportunity and creating shared prosperity.
On the last point of connectivity, this is why the United States has been such a champion of expanding regional integration across Central and South Asia. Despite difficult political relations, the fragility of many of these states, and the Soviet legacy of complicated borders, we see an opportunity for people across this region to have a better future. We believe it is in the economic interest of these states to have stable neighbors, where economic conditions are enhanced by economic diversification.
Last month at an Asia Society event in New York, Kazakhstani Foreign Minister Idrisov highlighted Kazakhstan’s position as a land bridge between European and Asian markets. He challenged all of us to support a future where Central Asia is land-linked rather than land-locked.
This is exactly the vision the United States is supporting through our New Silk Road initiative, which focuses on four concrete areas over the coming years: creating a regional energy market, facilitating trade and transit, streamlining customs and borders, and connecting people and businesses. We believe new North-South trade routes across Central and South Asia can complement important East-West routes that tie Europe and East Asia. And despite the real difficulties of regional integration, we know it can pay real dividends in the long-term for both economic prosperity but also political stability.
This is why we continue to pursue greater connectivity even for our own domestic markets. As you know, the United States is seeking diversification and improved access to foreign markets through the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. Our approach highlights the importance of global trading platforms to enhance competitiveness, market openness and economic growth.
New Silk Road
For instance, when we look at energy markets in Central Asia, there is tremendous opportunity to further develop capacity and seek new markets for export. This is particularly relevant where dependence on one single external market can have real economic consequences. Several Central Asian countries have already found a market for their electricity in Afghanistan. These exports are literally powering Afghanistan’s economic development, but they are also generating needed revenues for infrastructure and related improvements back at home.
We are pleased to see critical progress to further expand exports from Central to South Asia through projects such as the CASA-1000 and TUTAP electricity lines. In fact, earlier this month, the World Bank’s CASA-1000 project which aims to bring surplus summer power from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan reached another important milestone with the signing of the transit price agreement between Afghanistan and Pakistan.
Action on the development of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline can provide additional markets for Turkmen natural gas in South Asia. Unlike other regional energy projects such as CASA-1000, TAPI can only be financed by the private sector and not the donor community. Therefore, it is critically important to identify an international oil company that is willing to lead the TAPI consortium and help bring the project to fruition.
On the trade-transit front, we also see long-term value in finding ways for Central Asians to be able to trade in South Asia, a market of over 1.6 billion consumers. Moving goods and services between Central Asia and Afghanistan, Pakistan, and even one day India would help transform this region dramatically. Building physical infrastructure – the roads, bridges, rail lines – will be an important part of this effort. But just as important is creating the right regulatory architecture, and this is the major focus of the U.S. effort in supporting greater trade-transit facilitation.
This is why the United States has been such an ardent supporter of World Trade Organization membership for Central Asian countries. Improved access to global trade platforms through the WTO’s transparent and enforceable rule-based system makes goods, services, and markets more accessible for all. We strongly support ongoing efforts by Kazakhstan and Afghanistan to join Tajikistan and the Kyrgyz Republic in the WTO, and hope that Uzbekistan and Turkmenistan will actively pursue similar membership in the future.
Other trade and transport agreements can also pay dividends. We hope countries in the region will take immediate steps to operationalize and expand the Afghanistan-Pakistan Transit-Trade Agreement and implement the Cross-Border Transport Agreement between Afghanistan, the Kyrgyz Republic and Tajikistan so that goods can more freely cross these borders.
Again, let me emphasize that these new trade routes can complement growing East-West trade. For instance, we see the construction and expansion of port facilities in Kazakhstan and Turkmenistan mirrored across the Caspian Sea in Azerbaijan as evidence of local governments introducing new opportunities for trade routes. We have watched Kazakh wheat being exported not only south into Afghanistan, but also west across the Caspian along faster export routes. A train-car ferry system from Aktau and Turkmenbashi to Azerbaijan can then be linked to a rail network crossing Georgia to connect to the Turkish rail network and passage to Europe for goods from Central Asia.
To support all these trade routes, governments have to take steps to facilitate trade at their borders while adopting global best practices for keeping their borders safe from transnational threats like drug trafficking and terrorism. This means taking real action against corruption and reducing the cost and time of doing business on the borders.
Lastly, connecting markets and businesses across the region is particularly important. Later this week, a Central Asian Trade Forum will take place in Almaty where over 300 businesspeople from Central Asia, South Asia and Europe will gather to sign deals. In early November, a trade delegation from Kazakhstan will travel to Mazar-e Sharif to find similar deals. These are just two examples where the private sector, which is the real engine of economic growth, can help drive connectivity, with U.S. assistance.
International Support for Regional
As we work in partnership with countries in the region on the New Silk Road initiative, we are not doing this work alone. Later this week, China will be hosting the Heart of Asia ministerial meeting where a coalition of states will look to increase confidence building and ties to help stabilize Afghanistan and the neighborhood. Similarly, the Central Asia Regional Economic Cooperation program – a partnership consisting of 10 countries supported by six multilateral institutions – shows broad support from countries inside and outside the region. Next week, these parties will come together in Bishkek for a CAREC conference specifically focused on “Linking Connectivity with Economic Transformation” throughout the region. Turkey, China, Japan, South Korea, European countries, and many other partners and international institutions share these priorities for Central Asia’s development as a region where these connections can create lasting benefits.
As I wrap up my remarks, I am personally impressed by the real progress we have seen in recent years to start building this type of regional connectivity. But in many ways, we are just starting and this will be a generational goal. South and Central Asia are the least economically integrated regions of the world with only about six percent of intra-regional trade flows in Central Asia. So we have a lot of work to do in the coming years to strengthen economic institutions and customs/border management, promote energy diversification and domestic energy upgrades, support confidence building measures to enhance good relations among neighbors, promote fair transboundary water management, and adopt regulatory best practices for healthy financial markets.
But the good news is there is growing momentum in the region and within the international community to support greater connectivity in Central Asia. The United States continues to support a stable, secure and prosperous future for this region.
As we prepare for upcoming discussions in Beijing and Bishkek in the coming days, I look forward to hearing your thoughts. Thank you.