The protracted negotiations between Uzbekistan and EAEU show the unpreparedness of the Uzbekistan economy to fast adaptation within the bloc.
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The matter of Uzbekistan’s accession to the Eurasian Economic Union (EAEU), according to the Russian media, is a solved case – all the parties need to do is to negotiate the most sensitive issues.
However, if everything were so simple, then Tashkent would not only join the EAEU, but also the World Trade Organisation (WTO), which Tashkent has failed to do in the last 25 years. The national economy is not prepared for fast adaptation within the economic alliance.
The ruling elite is not ready to part with state monopolies, make equal conditions for all actors on the market by unifying customs duties, and withdraw from preferential taxation for selected companies, which are together the deterrent to the accession to WTO. The ‘third Renaissance’ declared by the president of Uzbekistan is unlikely to sacrifice the sources of richness of the Uzbek oligarchs for the interests of Russia.
CABAR.asia is figuring out how the country is getting prepared to be the member of the EAEU and the terms that can provide comprehensive interaction between Tashkent and the economic alliance.
Uzbekistan, without being the member of the EAEU, has beneficial trade relations with its members. First, with Russia and Kazakhstan – the trade turnover with them amounts to almost 25 per cent of the foreign trade volume of the republic. Moreover, this number is soaring due to the thaw in relations between Tashkent and regional neighbours and Russia.
The republic seems to do well without membership in the EAEU. However, at the end of 2020, the CIS free trade zone agreement expired, according to which Uzbekistan had a number of benefits and preferences. The terms of trade under this agreement will be revised this year and, most likely, not in favour of Tashkent, according to the report of the Centre for International Private Enterprise (CIPE).
Speaking to CABAR.asia, economist Khayotkhan Nasreddinov said that Russia is not the actor on the foreign political map of the region that one can say no to.
“Russia is certainly the key driving force of the EAEU. It is the initiator and pursues the aim to have the CIS countries under its control. Their talks about voluntary accession are just talks. Rates of growth and vast natural reserves make Russia the absolute leader in the community. Its word will always be critical. This means the loss of sovereignty and independence [for Uzbekistan] in decision-making,” he said.
According to Nasreddinov, Uzbekistan can become the guarantor for Russia in terms of the security of its southern borders. Instead, as expected, the country will receive Russian investments and enjoy particular preferences. However, no one knows what kind of preferences they will be.
As to the Russian party, President Vladimir Putin needs new members in the union. Firstly, to show that the Union does work and grow – the EAEU has not had new members since 2015, after the accession of Kyrgyzstan. Secondly, to gain the strategic support of Uzbekistan in waging geopolitical wars of the Kremlin.
One of the guarantors of successful Russia-Uzbekistan negotiations is going to be the Russian oligarch of Uzbek origin, Alisher Usmanov. It’s not only charitable projects, business interests that link him with the Uzbek elite, but also kinship, Usmanov’s nephew was married to the niece of President Shavkat Mirziyoyev.
The links between Usmanov and Russia’s administration have been repeatedly reported by international investigative journalists. The head of FBK, Aleksei Navalny, has even dedicated a whole film to such links.
Uzbekistan for Russian companies is a rapidly growing market area with almost 35 million people. Usmanov’s holding USM jointly with Megafon have already announced the creation of the joint Russian-Uzbek enterprise.
Representatives of the expert community see the perspectives of Uzbekistan in the EAEU in different ways. But all of them share the opinion that the economy of Uzbekistan is vulnerable in its current state.
Public activists and advisor on public sector innovations, Aziza Umarova, criticised the project of possible accession of Uzbekistan to the economic bloc. She said it was symbolic that the Russian party announced the country’s plan to join the EAEU (Valentina Matvienko, the speaker of the Senate of Russia, said about it on October 3, 2019 by results of the visit to Uzbekistan), while Tashkent kept silent about it.
According to Umarova, Uzbekistan is not experienced in holding talks to achieve particular preferences. According to her, Russia sees the prototype of the Soviet Union in this alliance; therefore, sovereign Uzbekistan is going to face isolation and dependence from economically unstable Russia.
The main antagonist of her in this regard is Bakhrom Ismailov, the human rights defender and the member of the Anticorruption Committee Council of the State Duma of Russia. According to him, the economic integration project will be of benefit to Uzbekistan. Moreover, Russia’s influence on its performance is grossly exaggerated – the EAEU, in substance, is a supranational institution that respects the interests of all of its members.
The obvious benefit of membership in the EAEU is traditionally the common labour market, according to the supporters of the integration. Following Kyrgyzstan that became the member in 2015, Uzbekistan can increase the export of migrant workers to Russia and, as a result, increase the volume of money remittances.
According to the Central Bank, in 2020 Uzbekistan received nearly 6 billion dollars in remittances. The lion’s share in this amount was remittances from Russia.
The Eurasian Development Bank (EDB) has evaluated the benefits and disadvantages of possible accession to the EAEU on the basis of another Central Asian country, Tajikistan. According to the experts, the incomes of Tajik migrant workers can increase by 10 to 30 per cent if bureaucratic obstacles are lifted.
If Uzbekistan joins the EAEU, its migrant workers will not have to buy patents anymore. Moreover, according to Ismailov, the budget of Russia is replenished every year by 2 billion dollars only by execution of documents for foreign citizens and holding Russian language and laws tests.
Such bureaucratic obstacles can be significantly reduced by customs declaration. Hypothetically, the benefits will be granted to agricultural producers who can de jure compete with other members of the Union on equal terms. The duty-free trade will result in the reduction of some imported goods and products. The largest banks of the Commonwealth are expected to enter the market of Uzbekistan to the full.
And finally, as a member, Uzbekistan will be able to expand the geography of export of their goods. The question is about China, Iran, who have trade and economic agreements with the EAEU. Another question is whether the Uzbek goods and services will be in demand in these markets.
Unlike WTO, EAEU is ruled by the strongest power. As the sanction wars between Russia and the West have shown, Moscow is not eager to consult with its partners in the economic bloc regarding trade wars.
According to the integration opponents, this will have a negative impact not only on the foreign trade of Uzbekistan, but also on the investment climate. Investors who make economic stability and predictability of the ruling regime the cornerstone will be wary of the Uzbek market, where Moscow will be dictating its terms. As a result, Russian investors will take the place of the foreign ones (other than former USSR states).
This is what Aziza Umarova warns about. The expert cited the monopoly of Russian grain carriers in Kazakhstan, which led to the rising cost of bread.
Economist Umida Khaknazar complained about the non-transparent negotiation process regarding the accession of Uzbekistan to the EAEU. Therefore, we can only assume what concessions will be made for the republic. According to the expert, everyone will have to fit in, no matter the benefits.
“All of our market niches are poorly developed for one simple reason – there’s no adequate competitive environment. But the point is not about the goods and services, it’s about business and investment environment,” she said.
Firstly, there are no guarantees of compliance with private property rights. Secondly, the commercial financial sector is ineffective. The economy of Uzbekistan is vulnerable due to obstacles that the country “has created for itself”, the economist said.
The economic risks of Uzbekistan’s accession to the EAEU are supposedly related not to the competition, but to hindered systemic reforms. On top of that, they are hindering the process of accession to WTO.
A fellow of the Centre for Central Asia, Caucasus and Urals-Volga Region Studies of the Institute of Oriental Studies of the Russian Academy of Sciences, Stanislav Pritchin, said to CABAR.asia that Uzbekistan may bargain for exclusive terms in the EAEU.
“If Uzbekistan raises the question of making any area a priority, it will face either an exemption, or an opportunity to protect their domestic producer for a grace period, or for ever. In other words, every member of the EAEU has their important economic areas that are closed for their neighbours,” he said.
According to Pritchin, it is difficult to predict what market niches can be occupied by the EAEU companies now. According to him, once major players enter the market, the banking sector of the republic can have intense competition, which is “underdeveloped.” The same is true about service aggregators and IT area. In any case, the end beneficiary of the competitive market will be the user, he said.
One of the state monopoly companies relying on special terms is auto-holding UzAvto. The automaker under the brand of General Motors is currently protected by high customs duties applicable to imported cars. As a result, the majority of cars in the republic have been produced by GM Uzbekistan.
Better customs rates are applied in the EAEU markets. According to Umida Khaknazar, once Uzbekistan lifts the “discriminatory excise tax” on the import of cars, the market will become highly competitive. The expert suggests that once the company loses its monopoly, it will readjust and find its niche in the competitive market.
“But if everything remains the same, it will be doomed for sure. The same will happen to other monopolies,” she said.
According to the Antimonopoly Committee of Uzbekistan, the republic has 136 natural monopolies. The largest of them are Uzbekiston Temir Yullari and Uzbekiston Havo Yullari carriers, energy companies Uztransgaz and Uzbekneftegaz.
If it joins the EAEU, it will have to make concessions by sacrificing entire sectors of economy. However, the final word will rest with Moscow, as, according to political analyst Kamoliddin Rabbimov, Moscow has a 90 per cent share in the EAEU.
“Recently, Putin has also suggested to distribute the votes in the organisation depending on the economic share or a share of taxpayers. In other words, he implied the monopoly of Russia,” he said.
According to the experts of the Centre for International Private Enterprise (CIPE), one of the most important consequences of Uzbekistan’s membership in the EAEU will be the intense increase of imports of consumer goods from third countries because the reduction of import taxes to the EAEU’s level (Uzbekistan has comparatively higher duties on imported goods) is a prerequisite for the accession to the EAEU. In other words, more import goods will be available on the shelves, which will lead to the deteriorate in the balance of trade and weakening of the national currency in the short-run.
However, we should keep in mind the deceleration of economic growth in Russia amid sanction wars and consequences of the pandemic, as well as commercial disputes within the EAEU concerning particular sectors.