OPPORTUNITIES FOR USING WEST EUROPEAN INTEGRATION EXPERIENCE IN CENTRAL ASIA
Ravshanbek Duschanov, Research associate, University of World Economy and Diplomacy (Tashkent, Uzbekistan)
In rejecting political and economic isolation and seeking to implement an open door policy at the initial stages of national economic reform, Uzbekistan relies not only on its own resources, but also on the development of international ties as the basis for its further integration into the world economy. The republic’s leadership starts from the assumption that entry into the world community will only be possible if the country meets today’s standards of a democratic state with an economically developed market system. At the same time, it is emphasized that Uzbekistan can be modernized only if it joins the world community, that is, if it finds a fitting place in the international division of labor and takes an active part in developing regional and global security systems.
For our newly independent republic these problems are particularly topical today, at a time when it is working to consolidate its statehood and build a civilized democratic society. In this context, great importance attaches to the experience of integration in the Western countries. The European Union is the world’s only integration structure that has fully completed the formation of a single internal market and has got down to the establishment of an economic and monetary union.
Economic integration in the EU has been developing in an area with uniform legal, economic and social methods of regulating the economy and with free movement of labor, capital and products of labor (goods and services). The ideal here is the economy of a single state. When several countries integrate, a single economic space cannot be created right away, since the participating countries differ from each other in terms of economic and political development level, regulatory mechanisms, national traditions, etc. The distinguishing features of a single economic space include the absence of customs boundaries or barriers to the movement of labor, a single monetary system, and also synchronized economic development.
Uzbekistan’s external economic activities and broad integration into the world community are to continue on the basis of principles already formulated in the republic: supremacy of national-state interests with due regard for equality, mutual benefit and noninterference in each other’s internal affairs, economic openness, precedence of international rules over national rules, and strengthening of relations under bilateral and multilateral agreements. The main task for the long term is further integration into world economic relations in order to enjoy the advantages of the international division of labor. The development of integration processes paves the way for full realization of the possibilities for economic growth and for building new economic and political relations with all other countries.
Theory and practice have produced several approaches to the political science concept of “integration.” The general idea is that regional integration should result in the delegation of a part of the governmental functions of individual states to a specially established central authority. In the West European countries, there has been a merging of the political and economic aspects of integration and a quantification of its extent coupled with a justification of the need for admitting new members to the regional union. In view of these circumstances, it is quite natural that the existing and predominant integration model could be used in the process of joining the world economic system.
The economically developed countries of the European Union are about to enter a new historical period when broad use of the latest technology, computerization and automation of production, and an expansion of the free economic area allow fuller realization of the integrative and social functions of the market system. More stable growth of the economies of these countries is mostly ensured by large multisectoral and multinational corporations.
Considering the need for deeper integration in Central Asia, it would make sense to accelerate the advance toward a new stage in this process, that is, to extend the scale of integration and to interest the participating countries in the establishment of an economic and political union.
Economic integration in Central Asia, whose purpose is to meet the requirements of its peoples, potentially encompasses the whole territory of the region (about 4 million sq km, or 18% of CIS area) with its abundant natural and labor resources (51 million people, or 19% of the CIS population) and with a high export potential. An assessment of these natural and economic conditions shows that the starting position of these states and of the entire macroregion poised for independent entry into the international market, though not ideal, has solid reserves. Among the most significant factors serving to intensify interstate economic relations and integration ties between the republics of Central Asia one could single out the following. First, the region’s advantageous geographical location on the Eurasian continent, at the juncture of East and West. Second, its substantial land, plant, mineral and other raw material resources and its unique soil and climatic conditions favorable to the development of agriculture as a source of raw materials for the processing industry. Third, high and steady rates of reproduction of the population and labor resources. Such rates are expected to be maintained in the future, which will increase the supply of labor in the economy and, given a rise in the training standards of national personnel, will open up wide opportunities for a rapid and effective buildup of the export potential. Fourth, the existing structure of the regional economic complex, the substantial scientific, technological and production potential, and the fairly high professional standards of specialists at every level will make it possible to draw the newly independent countries of the region into world economic relations on a broader scale. And fifth, the territorial proximity and adjacency to China, Mongolia, Turkey, Afghanistan, Iran and other countries of the Middle East and Southeast Asia make for effective international cooperation with these countries.
Central Asian integration began to be institutionalized in January 1992, when all the five republics set up an interstate structure, the Central Asian Regional Cooperation, whose main purpose is economic unification through the creation of a common economic space and a single regional market. Later on, Turkmenistan and Tajikistan moved away from participation in these integration processes for a number of objective and subjective reasons, while Uzbekistan, Kazakhstan and Kyrgyzstan concluded a new Treaty on the Creation of a Single Economic Space (1994).
Under the Treaty, the parties established the institutional structures of the new organization—Interstate Council, Council of Prime Ministers, Ministers of Foreign Affairs and Defense, Executive Committee of the Interstate Council, and Central Asian Bank for Cooperation and Development—and prepared a program for industrial integration aimed at developing joint investment projects to meet the needs of the entire region. At a meeting in Cholpon-Ata (Kyrgyzstan) in 1997, the heads of states parties to the Treaty signed documents on the establishment in the region (in order to ensure full and rational use of the potential of these countries) of a number of international consortia in the fields of energy, water resources, food, communications, and production and processing of mineral and other raw material resources.
In 1998, with the accession of Tajikistan to the 1994 Treaty, the process of economic integration in the region received a new impetus. At the same time, here is how President Islam Karimov of Uzbekistan assessed the situation: “At a definite stage in our relations, the economic community accomplished important tasks. But one must frankly admit that today it no longer meets the demands of the times. As in the CIS, many documents adopted by the community are no longer effective here.”
Specialists predict that in the 21st century the world market will take shape as a result of integration of the Euroatlantic and Asia-Pacific markets. In order to find a fitting place in the forming global market, Uzbekistan’s strategy of integration into the world community should make the utmost use of the republic’s geopolitical and geo-economic position.
Large-scale cooperation between the countries of the region is facilitated by their natural and economic potential, by the experience gained in Soviet times (when they were Union republics of the U.S.S.R.) and now constituting the basis of their further social and economic development, by the fairly similar state of their economies, dependence on exports of primary products, common historical roots, and common production and social infrastructure (energy facilities, communication lines and natural resources).
The experience of foreign countries can be used to chart the sequence of integration steps in the region and the order of establishing the institutions required to implement these processes: agreements on trade preferences with a gradual phaseout of customs duties between the parties to the Treaty and the introduction of a single set of customs rules; a free trade area with the lifting of all customs restrictions; a customs union implying, apart from the removal of all customs restrictions within the community, the establishment of a common external customs tariff; a common market requiring a concerted economic, financial, social and tax policy, which will provide opportunities for the free movement of goods, services, capital and labor; an economic and monetary union characterized by the introduction of a single currency or fixed exchange rates between the national currencies of the participating countries; and a political union, which guarantees the implementation of each member state’s foreign policy through the supranational bodies of the given regional association.
For a further deepening of integration in the region, it is first of all necessary to work out a common strategy for the economic development of its countries, to keep approximating their national macroeconomic indicators, and to coordinate their macroeconomic policies, including interest rates, exchange rates, inflation indicators, money supply and fiscal policy. Naturally, this requires support from foreign countries and international organizations.
A point to note here is that the integration of Central Asian countries is supported by the U.N. Economic Commission for Europe (ECE) and the U.N. Economic and Social Commission for Asia and the Pacific (ESCAP). Such cooperation implies the possibility of regarding the region as a bridge between the West and the East, and also facilitates its access to the European market. In particular, the United Nations has been implementing a special program for the economies of the region (SPECA). This four-year program includes 32 projects for technical assistance in the following areas: strategy and policy in the transition period; development of energy, mineral and water resources; transport; industrial restructuring; enterprise, organization of small and medium business; trade; and protection of the environment. These projects are to be financed under the U.N. Development Program (UNDP).
By decision of the Interstate Council of Kazakhstan, Kyrgyzstan and Uzbekistan (24 July, 1997), its Executive Committee was authorized to consider (jointly with the governments of the Central Asian states) matters relating to the implementation of the aforesaid projects with the U.N. ECE and ESCAP. The program covers all the Central Asian countries and provides the basis for the region’s comprehensive development and integration into the world economy. But each republic will have to choose a project that is high on the list of its priorities and act as coordinator of that project for all the five countries of the region. The development of such a program will help the participating countries to determine the most effective lines of integration and will markedly accelerate integration processes in the region.
In view of the shortage of own capital sources, Uzbekistan will continue to be in need of foreign investments. In order to attract such investments and increase their share in GDP, it is necessary to reduce noncommercial investment risks and to create favorable conditions for foreign investor activities in the country, primarily through stable tax treatment. Policy in this area should be improved along the following basic lines: development of a stable legal framework regulating the attraction of foreign investments and business activities in the country, including a taxation and customs regulation system, and also the development of normative acts laying down the rules for the export and import of shares and other securities by foreign investors, payment of dividends to them, and conversion of cash income and interest on bonds; improvement of the forms of organizational structures such as international consortia and leasing companies; measures to stimulate the influx of foreign investment into production, with emphasis on export-oriented and import-substituting products, especially consumer goods produced with the use of advanced technology; downstream processing of agricultural produce; production and processing of mineral resources with due regard for environmental requirements; development of radio electronics, instrument making, transport, communications and infrastructure facilities; increase in the production of resource- and energy-saving equipment; arrangement of an effective system of investment guarantees and insurance, and also of a hypothecation system; development of a system for information and advisory support and marketing of investment programs and projects, establishment of investment organization networks in foreign countries, creation of a data bank for investment projects and reference information on the terms of operation of foreign investors; and closer cooperation with international financial institutions.
For a further development of four-party cooperation between Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan (under the Treaty on the Creation of a Single Economic Space), it is first of all necessary to take measures in pursuit of concrete lines of cooperation in the area of economic integration. In the immediate future, priority should continue to be given to the fuel and energy complex, where it is necessary to resolve the following problems: development of the concept of a common energy policy for the region, including coordinated supply of oil, oil products, natural gas, coal and electric power, joint development of major deposits of hydrocarbons, and the construction of oil and gas pipelines and large hydroelectric power stations under cost-sharing schemes; approximation of tariff policies in the fuel and energy complex and the development of a common strategy with regard to the foreign market of fuel and energy resources and electricity; settlement of accounts for electricity at mutually beneficial and economically justified prices; and joint development and use of the most progressive technological processes.
In the water complex, it is necessary to prepare programs for the rational use of resources, application of new irrigation methods, and formulation of a pricing policy for the use of water; to formulate the principles of cost sharing in the maintenance and repair of interrepublican facilities.
In the agroindustrial complex, the participating countries should devise a policy aimed to increase productivity in irrigated cropping, to raise yields and labor productivity. They could also make joint use of lands and of the agricultural experience accumulated in each republic, develop specialization and cooperation programs in order to form resources for mutual consumption, and improve the mechanisms for harmonizing the economic interests of the participating countries for fuller use of their potentialities within the framework of the regional market. This implies the need to provide for a change in the structure of sown area and in the varieties and species of crops with due regard for adequate supply of food and industrial materials to the population, to build an infrastructure for the storage, transportation and higher-quality canning of fruits, vegetables, melons and grapes, to ensure conditions for the development of direct market ties, commodity exchanges, and realization of finished products under integration agreements and contracts between individual commodity producers, and to set up a network of aftersales maintenance and repair, regional and territorial spare parts stores.
In the engineering complex, the main lines could include: broad integration in aircraft building on the basis of the Tashkent Aircraft Plant and Kazakhstan’s resources (Turgai bauxite mines and electricity from the Ekibastuz power stations), development of an aerospace complex on the basis of the Baikonur space-launch center; and cooperation in the automobile manufacturing industry, with location of the production of parts and components for UzDaewooAuto cars in the participating countries.
The region’s transportation system should develop based on the construction of traffic arteries running from Europe through Central Asia to the APR countries. For a solution of transit problems it is necessary to draw up a master plan for the development of transport in the region and to prepare a program for the manufacture and repair of machinery and for the construction and maintenance of roads, especially those which are part of the projected transportation corridors.
In the field of unification of the legislative framework for foreign economic activity and of the customs regime, it is necessary to resolve problems relating to uniform rules for regulating foreign economic activities; uniform rules and terms of freight transportation; introduction of a free trade regime; uniform basic principles of customs legislation; uniform procedure for customs control of goods subject to export or import licensing; single customs declaration form and uniform transit procedure; uniform rules for the movement of currency and transport vehicles across the customs border by natural persons; uniform rules for collecting customs payments, duties, VAT, excise taxes and customs clearance charges; unification of normative acts in the sphere of nontariff regulation; and preparation of a single list of goods falling within the system. In addition, trade and economic agreements with third countries should be in line with the trade regime adopted within the single economic space.
In the financial sphere (including mutual settlements), the parties will have to unify their currency regulation and control mechanisms, the main kinds of taxes and tax rates, pricing methodology and normative acts, and the procedure for regulating prices and tariffs for the products of natural monopolies, to take measures to ensure mutual convertibility of national currencies at quoted prices, and to set up a network of exchange offices.
One of the stages of economic integration is the eventual creation of a single market for the countries of the region. The thing to do here is to estimate the volume of their common resources and production potential, to determine the main lines and structure of trade relations based on an analysis of supply and demand in each country, to formulate common principles for regulating interstate commodity exchange and the procedure for settlements between entities, to create commodity markets and mechanisms for maintaining uniform price levels for staple foods and consumer goods, and to work out measures to prevent disruptions in supply and demand in this market from affecting uniform prices and measures to isolate that market from fluctuations in world prices.
The strategic line in addressing the region’s problems is to implement the program for the economic and social development of the Aral Sea area, and also to introduce an economic mechanism in water management.
Another thing that has to be done is to prepare and carry out proposals for the establishment of special economic zones in the territory of the participating countries, including foreign trade zones (free trade, transit and export-production zones, ports). Attention here should be paid to the Aktau port and to certain areas in the Tashkent, Shymkent, Andizhan and Osh regions. The parties should set up a network of export-oriented zones with the necessary production and public utility infrastructure in order to develop agribusiness, the chemical and petrochemical industry, ferrous and nonferrous metallurgy, the production of consumer goods (leather, fur and wool products), and the building materials industry. In the border area of the Tashkent and Shymkent regions, it would make sense to organize an agricultural zone for the intensive cultivation of early-maturing vegetables and potatoes; to create conditions for long-term lease of Kazakhstan lands for grain cropping and of pastures in the Altai Valley of Osh Region to farmers of the Uzbek part of the Ferghana Valley; and to establish a joint venture zone within the boundaries of the water-management basin of the Aral Sea.
Yet another promising avenue is to arrange tourist zones along the Great Silk Road running through the territories of neighboring countries; in the Ferghana tourist area, which mostly lies in Uzbekistan and partly in Kyrgyzstan; and in the Tashkent tourist area, which is rich in landscapes and has a large health-resort and recreation potential.
Implementation of concrete measures in these areas will help to strengthen integration links between the countries of the region and to create an effectively functioning single economic space.
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Central Asia has now come up against problems that have been addressed for several decades by many developed and developing countries of the world: the need for economic restructuring, market reform, privatization of the state sector, liberalization of the economy, and more active integration into the world market.
The record of economic cooperation between developed countries shows that it is designed to help them take advantage of their pooled national potentials and to internationalize the economy in the conditions of a larger economic space. At the same time, cooperation between such countries is a definite set of joint actions aimed at strengthening their positions in the world economy.
Although the deepening of integration ties between the Central Asian states pursues similar goals, it is primarily connected with a radical reconstruction of their productive forces, with a mobilization of financial and material resources for building large enterprises (naturally, without needless duplication) and with effective efforts to sustain competition in the internal market on the part of the developed countries.
It is known that integration in Western Europe has been particularly effective. That is why it is so important to study the integration experience of the European Union with a view to its practical application. At the present stage, of special interest for working out a strategy and devising a mechanism for Central Asian cooperation is the European Union’s experience in resolving agricultural problems, especially as regards joint efforts to increase self-sufficiency in food, to coordinate prices for exported raw materials (cotton, grain, wool), stimulate the development of farming, protect the environment, etc. The EU mechanism for financing integration activities, which has proved to be most effective, could also be of interest. The EU budget is mostly formed from such sources as taxes on agricultural products and customs duties on manufactures imported into the European Union.
However incomparable the potentials of the West European and Central Asian countries, their economic development levels and the degree of “sophistication” of the mechanism for regulating integration processes, the long record of EU establishment and activity can nevertheless be very instructive for the incipient economic cooperation of Uzbekistan, Kazakhstan, Tajikistan and Kyrgyzstan, and also any other countries that may eventually decide to join the regional integration process.
The situation in the Central Asian states, just as in the other CIS countries, is marked by continued disruption of the interrepublican economic ties that took shape in the days of the U.S.S.R., which does considerable damage to the economies of the newly formed states. At the same time, the reorientation of external economic ties toward the world market has not helped to overcome the difficulties in production, which is due to tough competition, the intricacies of the world market situation, and the inadequate economic development of the Central Asian republics. That is why at the initial stage of integration a solution to the problem should be sought not in a restoration of the pre-reform level of economic relations, but in the gradual creation of a single Central Asian market based on new forms of cooperation.
It should be noted that there is a dialectical interconnection between integration and structural policy. On the one hand, the joint efforts of the integrating states are largely directed toward rational division of labor, specialization and coordination of production. On the other hand, an effective outcome of integration processes in Central Asia is only possible given mutual coordination of structural policy, development of intersectoral specialization and cooperation, and concerted action in the foreign market. A key condition of effective economic performance is an optimal correlation between various branches of the national economy, primarily between mining and manufacturing industries, their vertically and horizontally balanced development.
Having gained national independence, Uzbekistan has projected the main tasks that have to be resolved in restructuring the economy. These include the need to overcome the raw material bias in exports; to develop lines of production connected with downstream processing of raw materials and manufacture of finished products with a simultaneous increase in the exports of such products to foreign countries; to develop structure-forming lines of production that ensure the republic’s economic independence and security, including the fuel and energy complex, chemical industry and agricultural engineering; and to build a production, financial and market infrastructure, including modern service lines, communications, financial and other institutions.
So, a solution of the above-listed problems in the economic integration of the Central Asian republics implies the need to establish institutional structures at different levels: national, sectoral, and between business entities, enterprises and their associations. This will help to strengthen and deepen the relations between these countries, to accelerate their economic reforms, and to gain effective access to the world market.