Tajikistan: Accession to the Eurasian Customs Union: Pros and Cons. By Sino Ruziev.

Sino Ruziev, Master Student at the OSCE Academy in Bishkek.

The Eurasian Customs Union (ECU) is a supranational project led by Russia on the post-Soviet space. It aims at economic integration of its members. Genuinely, it was meant to set common external tariffs and gradually eliminate internal border controls. The opinions on what the real purpose of such a union is have divided. On one hand, the union is perceived as just another toolkit for Russia to ensure the post-Soviet countries in Central Asia still look in the direction of Moscow (Voskanyan, Tumanyan, 2014). On the other hand, the Eurasian Customs Union could be seen as an attempt to keep the Chinese expansion at bay (Shumylo-Tapiola, 2012). Unlike great powers for whom such unions may become part of their larger geopolitical game, the decision to join the union by small states like Tajikistan may depend on the regime in power. Previously, the government of Tajikistan had thought to increase its economic gain without giving up its relative independence. Now the accession of Tajikistan to the Eurasian Customs Union may appear a viable option to benefit economically, and, therefore, obtain resources for preservation of power. However, for Tajikistan such a geopolitical milestone as joining the Customs Union carries its positive and negative consequences.

Benefits from the ECU for Tajikistan

The ECU could stimulate a comparative gain for Tajikistan in certain sectors as well as to improve purchasing power of ordinary citizens. Approximately 41% of all imported goods come from Russia and Kazakhstan (Economic Development of the Republic of Tajikistan). With accession of Tajikistan to the union the prices on essential products like wheat, oil and gas might drop (Hornbrook, 2015). To illustrate, Tajikistan is one of the biggest wheat consuming countries per capita, whereas Kazakhstan is the largest wheat producer in the region (Muratova, Fingleton. 2014). The removal of internal tariffs between the ECU members will benefit both countries as long as the markets are easily accessible. At the same time, it would have an effect on raising purchasing power of Tajikistani consumers and giving a chance for them to save some capital. The local businesses, in turn, would benefit from increased rates of return. Moreover, oil and gas coming from Russia and Kazakhstan is expected to become cheaper which would, consequently, down the costs of production and would stimulate the national economy (Voskanyan, Tumanyan. 2014). Beyond that, as long as the ECU cancels much of paperwork and registration procedures it would considerably ease the exchange of goods at borders. For example, in order for goods to be shipped from Tajikistan to Russia, an intermediary is required to pay high fees (official and unofficial) and asked to undergo numerous bureaucratic procedures. With the accession to the ECU “the rules would be unified and requirements which cause complexities and costs eliminated” (Regnum: Media Agency, 2013). All in all, it is vital for the economy of Tajikistan to establish solid trade relations with the immediate neighbors as long as it improves the lives of ordinary citizens and performance of national industries.

Tajikistan would be required to level domestic legislature in the field of trade to the standards of the ECU. Concomitant liberalization of trade and foreign direct investment (FDI) would carry certain benefits for local businesses (The Eurasian development Bank, 2013). Since Tajikistan has a prospective market for investments in energy and mining of precious metals and minerals, the businesses from Kazakhstan and Russia might bring capital in this niche.  Moreover, it has been estimated that the country’s capability to absorb around 2.5 billion of investment resources in more than a year would invite an additional 2% of an annual economic growth (The Eurasian development Bank, 2013). With the help of foreign investments such projects like Rogun dam and Bokhtar Gas Reserves could be materialized. Beyond that, FDI could push domestic competition high driving the weaker players out and pushing the stronger ones to find more efficient ways of doing business. That would foster development. First, “increase the degree of competition in host country markets and in that way force existing inefficient firms to make themselves more productive by investing in physical or human capital” (Blomstrom, 1991, 1). Secondly, the presence of technologies at the hands of foreign companies might trigger the spillover to domestic producers. That might increase the productivity of local producers in the region (Blomstrom, 1991, 8). Finally, the willingness of the government to attract investors would promote business climate improvement in Tajikistan at the virtue of the ECU.

A problem of illegal migration will be solved with accession of Tajikistan to the ECU. It is estimated that around 1 million of illegal labor migrants from Tajikistan work in Russia (Hornbrook, 2015). The Russian Federal law on labor migration requires foreign workers to pass through painful and costly set of procedures that dramatically lowers affordable perspectives to stay and work in Russia legally.[1] An illegal status deprives a worker from access to health care, education and social security. The regulations applied to the members of the Eurasian Customs Union ideally oblige a host state – member to the Eurasian Customs Union – to provide social security to labor migrants from other member-states (The Eurasian development Bank, 2013). Furthermore, the membership in the Eurasian Customs Union associates with elimination of work permits, thereby, creating more opportunities for Tajikistani migrants to be employed in the ECU economic space. As a result, according to the Eurasian Development Bank, the accession of Tajikistan to the ECU will be reflected in the rising volume of remittances up to 3.5 billion of GDP annually. Thus far, Tajikistan has not managed to diversify the flow of migrants into other countries except Russia. Accessing the ECU would at least mitigate the hardships of many citizens of Tajikistan living and working in Russia.

Prospective challenges for Tajikistan after accession to the ECU

More than 70% of Tajikistan’s export goes to countries outside the CIS (Economic Development of the Republic of Tajikistan). After joining the ECU,  the exports turn over with the Third World would be affected as import tariffs will have to be adjusted to a standard level. Besides, the goods from the ECU states would hamper development of certain sectors of the Tajikistan’s economy. During the Soviet Union, Tajikistan produced mainly dairy products, vegetables, fruits, and canned food (The Encyclopedia Iranica, 1997). However, the local food producers are much less competitive than their Russian or Kazakh counterparts partly because the transportation and logistics have deteriorated with time and need major reconstruction (Hornbrook, 2015). New stronger players stepping in a manufacturing business present another threat to the local businesses who may be pushed out of business. As Jonathan Hornbrook argues, before Tajikistan makes a decision in favor of the ECU it has to do a very clear study “as some sectors will win (vegetables and fruits) and some will lose” (manufacturing).

Tajikistan would partially lose its sovereignty to the Eurasian Customs Union. Russia has dominated the executive block (Eurasian Economic Commission) of the ECU. It has 57% of the votes meanwhile Kazakhstan and Belarus have 21.5% each (Shumylo-Tapiola, 2012). The decision is taken by two-thirds qualified majority, which, basically, makes it impossible for other members to challenge any measure. To this end, Kazakhstan and Belarus had to adjust to the Russian import tariffs as a standard level of the Eurasian Customs Union. Moreover, the Eurasian Customs Union fall prey to the whims of the Russian authorities which on the ground violates the code. To illuminate, Russia has occasionally been blocking the free flow of goods with Kazakhstan and Belarus thereby invoking harsh criticisms from the members (Shumylo-Tapiola, 2012). Consequently, there is no guarantee that Russia might not attempt to do it again once the interests of Russian businesses are threatened. Another possible risk stems from further “conservation of a bad climate and a lack of protection for doing business” if Tajikistan joins the ECU (Bondarenko, 2015). As Konstantin Bondarenko comments: “by joining with such a state like Russia in an economic union Tajikistan will basically be conserving the existing problems” (Bondarenko, 2015). In addition, the dependency of Tajikistan on remittances coming from Tajikistani migrants in Russia may only intensify with the accession making it more difficult to build sustainable independent economy. Russia’s economy has been hit by the isolation from the West and plunging oil prices, which led to the economic slowdown. According to Bondarenko, if Tajikistan is not going to be able to diversify its economy and move away from the heavy reliance on the Russian economy then Tajikistan might fall in default following Russia, as it is predicted in two years. Hence, Tajikistan has found itself in precarious situation: on one hand, the authorities of Tajikistan have pursued the way to secure stability by preserving the labor market for its unemployed population and, on the other hand, intensified already strong economic dependency on another country.

Conclusions

The accession of Tajikistan to the Eurasian Customs Union is not as clear cut as it may seem from the first sight. The participation of Tajikistan in the ECU carries certain pays and gains. On the one side, Tajikistani citizens could benefit from low prices on imports, doubled trade turnover with its adjacent neighbors, progressive inflow of foreign direct investments and legitimization of illegal migration. On the other side, Tajikistan might lose the sectors it barely managed to rebuild after the Civil War such as manufacturing and dairy products. Furthermore, the Eurasian Customs Union threatens to defuse some of decision-making powers which previously were at the hands of the local elite.

To sum up, Tajikistan needs to have more time for a thorough deliberation over the matter of joining the  ECU. As Bondarenko states: “It is strategically important to gain some time for Tajikistan, at least 1.5 years so that the country is able to assess possible risks”. However, the population of Tajikistan is enthusiastic about joining the union and disapproves of any delays. Tajikistan is at the crossroad. The decision the country makes now will significantly impact  the trajectory of its economic development in the near future.

Experts Interviewed:

Hornbrook Jonathon. Interview. [Programme Director of GIZ KG: Mineral Resources for Development]. 23 February, 2015.

Bondarenko Konstantin. [The Chairman of a Community Center “The Free Market of Tajikistan”]. 24 February 2015.

Reference used

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Casey, Michel. 2014. “Russia Sanctions Hit Central Asia Hard”. The Diplomat. http://thediplomat.com/2014/10/russia-sanctions-hit-central-asia-hard/ (accessed on February 18, 2015).

Dialogue: Tajikistan and World. 2014. “Andrei Zaharchenko: Pros and Cons of Tajikistan’s Accession to the Customs Union” (Андрей Захватов: Плюсы и минусы вступления Таджикистана в Таможенный Союз можно просчитать). http://www.dialog.tj/news/news19856 (accessed on February 15, 2015).

Demidenko, M.V., Volochkova, N.A. and Denisova, I.A. 2013. “The Assessment of Economic Effects on the Accession of Tajikistan to the Customs Union and Eurasian Economic Union”. (Оценка Экономического Эффекта Присоединение Республики Таджикистан к ТС и ЕЭП), No. 14 Eurasian Development Bank. http://www.eabr.org/r/research/centre/projectsCII/Tajikistan_CU_SES/ (accessed on February 15, 2015).

Iragir. 2014. “Ashot Agizoryan: The Challenges of the Customs Union in Central Asia”, (Ашот Егизорян: Проблемы Таможенного союза в Центральной Азии). http://www.lragir.am/index/rus/0/comments/rss/35599 (accessed on February 23, 2015).

Mgdesyan, Arshaluis. 2013. “The potential of GDP growth in Armenia in the case of Accession to the Customs Union is estimated to be up to 4.5% in a year” (Потенциал роста ВВП Армении при вступлении в Таможенный союз оценивается до 4,5% в год), Regnum: Media Agencyhttp://www.regnum.ru/news/polit/1732590.html  (accessed on February 19, 2015).

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Shumylo-Tapiola, Olga. 2012. “The Eurasian Customs Union: Friend or Foe of the EU?”, Carnegie Endowment For International Peace. http://carnegieeurope.eu/2012/10/03/eurasian-customs-union-friend-or-foe-of-eu/ (accessed on February 19, 2015).

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Voskanyan, Mariyam and Tumanyan, Rafik. 2014. “Prospects for Armenia’s accession to the Customs Union: pros and cons” (Перспективы Вступления Армении в Таможенный Союз: За и Против).  http://cyberleninka.ru/article/n/perspektivy-vstupleniya-armenii-v-tamozhennyy-soyuz-za-i-protiv (accessed on February 18, 2015).

[1] From January 1 foreign migrants are required to pass a test on the knowledge of a Russian language, history and constitution in order to pass to a next stage of selection. Moreover, migrants are expected to undergo through medical examination and at last pay for a working permit. At the end of the day, a migrant worker has to pay not less than twelve Russian rubles to have opportunity to work (Umarova Irina. 2015. “Tajiks Face New Obstacles to Work in Russia”, Institute for War and Peace Reporting. https://iwpr.net/global-voices/tajiks-face-new-obstacles-work-russia

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