Border Regimes and Trade in Central AsiaSaumya Mitra The World BankBrussels, March 2-3, 2009

World Banks 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 CARECBackgroundMinisters 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 objectivesTo 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; andIts impact on poverty reductionThe World Banks responseProject was designed in January-February 2007It 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

Cross-border trade within the CARECOur 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 CARECGovernments can intervene to facilitate cross-border tradeFirst 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 AfghanistanNo 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 CARECBut 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--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 CARECClosure 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 reports survey, border-post infrastructure has not appeared as a significant constraint to cross-border 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 government-imposed 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 cross-border 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

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.

Kyrgyz Republic and Kazakhstan with assistance from international donor community

Uzbekistan

Uzbekistan

Much better access for Kazakh citizens to services offered in Bishkek (health care, education, automotive, etc.) and increased income to their providers

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 AsiaKey objectivesIdentify barriers to trade flowsDevelop recommendations on improvement of infrastructure and procedures Dialogue with the regional governmentsEstablish baseline to measure project impact: road construction, customs modernizations, trade facilitation and other projectsBenchmark against other trade corridors and Regional TTF programs

Trade and border issues as seen within Trade Corridor Performance Measurement in Central & South AsiaCentral Asia has the potential to flourish as a corridor for transit trade between Russia, China, South Asia and EuropeSignificant physical and non-physical barriers to trade and transport, thereby increasing the economic distanceTransit transport by road is primarily used for connecting Central Asia with markets in Western Europe, Turkey and the Russian FederationIn 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.

InstrumentsFive major instruments are being employed:On-site physical measurementsTruck driver interviewsSurvey of freight forwardersSurvey of customs brokersTrip diaries

Next step is of Corridor Performance Measurements to South Asia (co-financed by USAID)

Summary of observations Informal barriers are high in Central AsiaDelays by other border agencies can be significantly more than CustomsElimination of delays needs careful assessmentMeasurements should be continued on a systemic basisResults 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 bazaarsIdentification of policy implications and developing recommendations

Bazaars and Trade Integration of CAREC countriesSignificance 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 countriesAn 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 CARECWhat is Euroregio? 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: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 cooperationHEALTH Emergency ambulances operation across border (Belgium France) Cooperation of mountain assistance (France-Italy; Briancon-Turin) Nurse training (France-Spain; Lavelanet-Mataro) Cross-border Network for the primary prevention of drug addiction (Germany-Poland)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, transportENVIRONMENT 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 CARECWhy is the experience with Euroregio worth exploring?It has laid foundation for sharing benefits of more open borders also among countries not parties to preferential regional arrangementsIt has piloted various ideas of deeper integration tested first at a micro-levelIt has proven to be an effective instrument complementing bottom-down integrationIt 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 CARECKey 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 CAREC-led regional integration effort.To develop ideas for the areas to be included as Asiaregio-type cross-border cooperation

The objective of the study is to quantify a set of indicators for the Central Asian region to assess the performance of the regions transport corridors against international benchmarks. This will identify the key trade facilitation and transport bottlenecks where improvements are needed. This will help to improve policy and investment decisions in trade and transport facilitation in Central Asia, to streamline the trade facilitation process, reduce costs and waiting times. The study focuses on performance measurement and diagnostic along selected major transport corridors and border crossings in Central Asia.

The study draws on the Banks experience in Trade and Transport Facilitation in Southeast Europe (TTFSE). The methodology is based on TTFSE but tailored to the specificities and condition of Central Asia corridors. Central Asia has the potential to flourish as a corridor for transit trade between Russia, China, South Asia and Europe. This potential has not been fully realized as a consequence of significant physical and non-physical barriers to trade and transport, thereby increasing the economic distance (defined as the sum of all time and cost expenditures for moving a consignment to a market ).

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 !The pilot corridor performance measurements in Central Asia conducted in 2006 and 2007 were successful in achieving their original purpose: they have proved the corridor performance measurement methodology to be viable and reliable in terms of providing performance results in the medium and long term. In addition, the subsequent corridor measurements carried out provided performance measurement baseline data for a variety of road corridors. The results of the performance measurements have proved the presence of informal barriers to trade development in the region. Their elimination requires precise assessment.

As a result of using these surveys, it has become clearer that multiple road checks produce delays and act as a significant barrier to trade. In addition, the suspicion that government agency officials use the anonymity of the roads to extract unofficial payments from drivers has been documented to a relatively high degree.

It is important to continue the dialogue between government officials and private sector transporters in order to agree measures to reduce these barriers to trade.