ISSN 2330-717X

Kyrgyzstan’s Choice Between Free Trade And Survival – Analysis

By

In the first world we usually do not equate gasoline tariffs with revolution and genocide, but those in Kyrgyzstan know too well the effects of trade when it is used as a political weapon. While it may sound farfetched, it is widely accepted that the punitive Russian gasoline export tariff, implemented in the spring of 2010, was the main instigator which lead to the ouster of Kyrgyzstan’s then president Kurmanbek Bakiev1,2. In the chaos that followed, ethnic clashes broke out in the southern region of the country, which killed hundreds of people and left a society which has not recovered from the trauma socially or economically3.

As severe as this example may be it is still not the end of the trade story for Kyrgyzstan. Its membership in the WTO is now under threat as Russia is again flexing its economic muscle to force the Kyrgyz into a Customs Union of former Soviet countries, which would have a disastrous effect on its economy4. What is essentially happening today is a new version of what Rudyard Kipling 200 years ago called “The Great Game,”5 only today the players are slightly different with the current, rising, and falling super powers6 all colliding in their aim to gain influence in Central Asia, often to the detriment of countries like Kyrgyzstan.

Kyrgyzstan
Kyrgyzstan

Why Care about Kyrgyzstan?

While few people realize it, their first academic introduction to world trade was usually about Kyrgyzstan. Albeit 3rd grade social studies lessons on the Silk Road may seem like a distant memory, it provided an excellent economic illustration of the powers of supply and demand that moved ancient humans across thousands of miles of frozen tundra, treacherous mountain passes and scorching deserts to bring textiles from one continent to another. Kyrgyzstan was blessed then, just as it is now, with a unique geographic location that still makes it a major hub for trade in the region, and a natural gateway between east and west – all this despite being effectively double landlockedi.

Kyrgyzstan’s location however, is as much a blessing economically as it is a curse politically. Its revolution and violence of 2010 is in no small part an extension of a three way power struggle between Russia, China and the US vying for influence over the tiny nation, all for different reasons, but all connected to its geography. Specifically the US is interested in Kyrgyzstan for its proximity to Afghanistan and its ability to safely support combat operations there. China is a main trading partner that is investing heavily in Kyrgyzstan which lies on a key route overland through the western part of the country and hopes one day to build a railway to connect itself overland to markets in the west7. Last, but most influential is Russia, who considers Kyrgyzstan part of its “sphere of influence,” as one of its former Soviet Republics, it ultimately seeks to bring Kyrgyzstan under its wing politically8 and economically through the Customs Union.

Where Trade Comes In

These geopolitical issues and the three way superpower struggle for influence in Kyrgyzstan are critical to understanding the current dilemma of maintaining its status as the free trade center of Central Asia. As one of the few countries in the area without natural reserves of fossil fuels, Russia controls 70% of the gasoline that is imported by Kyrgyzstan9 and with one decision can cause an energy shortage along with an economic crisis spurred by the accompanying inflation3. This means that if Russia has a problem with Kyrgyz policy, it doesn’t have to do much to get Kyrgyzstan to reconsider. Bishkek just recently has begun rationing gas as hydrocarbon exports have been shut off for the second time in the last year, with the sole purpose of showing Kyrgyzstan it’s serious about wanting them in the customs union and NATO out of the picture10, but there are those who understand that the new trade agreement is not in their best interest for several reasons.

The first and most important is that Kyrgyzstan has profited as a remanufacturer and reseller of cheap Chinese imports, up to 75% of what they bring in from China goes on to other countries in the region and as far away as the UAE and Turkey11. Markets in Kyrgyzstan like Dordoi and Ak-Su have been built specifically for this and combined account for 33% of its GDP employing over 70,000 people12. Under the new agreement Kyrgyzstan would have to raise tariffs on items that currently enjoy little or no tariff under WTO regulations. According to the Central Asian Free Market Institute, things like sugar, milk, flour, clothing and electronics could see their tariff rates increase by 50 to 100%. Medicine, which is currently duty free, would have a 10% tariff placed on it in a country where T.B.13 is still a problem14. These tariffs on staple items are especially regressive taxes given Kyrgyzstan is the second poorest country in the CIS and should be reason alone to not to enter the customs union15.

Another setback is the fact that these tariffs conflict with the terms outlined in Kyrgyzstan’s WTO membership. It states that tariffs must be capped at around 5% with many sectors having no customs charge at all16. While it most likely will not be kicked out of the WTO for these violations, Kyrgyzstan only stands to lose because of Moscow’s desire to reassert itself in Central Asia.

Lastly, is that the customs union mirrors more of a collusion or cartel of countries rather than an actually trading block. Certainly streamlining paperwork and tariffs provide benefits when trading between members, but for a globalized country like Kyrgyzstan the cost of doing business is only going to go up when it needs to trade outside the limited Customs Union of three other countries. Just as is the case with most issues of trade, there is much more politics than economics that is going into decision making, why else would Kyrgyzstan and Tajikistan need to be coerced into joining the union if it only made it easier to trade17. It could be argued that Russia is trying to gain leverage over China in Central Asia by cutting off any free/low duty trade routes through Kyrgyzstan and forcing China to deal with a uniform tariff regime across its western border.

The Lesser of Two Super Powers

Even though the economic disadvantages are numerous, a severe reduction of economic freedom seems like a small price to pay compared to the threat of another Russian petroleum embargo. This is why most signs in Kyrgyzstan point to it joining the Customs Union in the very near future, despite the grumblings of a number of prominent businessmen, who will lose their livelihoods when this happens18. As they are quick to point out, Kyrgyzstan can benefit greatly from the prosperity that comes from normalized relations with its neighbors and open borders to trade. Yet most of the leaders in Russia and Central Asia are hold overs from the Soviet times and still view outside trade and influence as at best a luxury and at worst a threat to their power.

Ultimately it is Russia who gains the most in the short run from its effective economic bullying, which has whipped its allies into securing its interests from being threatened by the Americans and the Chinese. At the moment there seems no viable alternative for Kyrgyzstan in the near future than to cast its lot in with Russia. In the long run, anyone can speculate, but it is often said that free markets lead to free people, let’s hope with the recent developments in Kyrgyzstan, now the first parliamentary democracy in the region19, that the converse of this theory is not true.

Notes:
1 Tynan, Deirdre. “Kyrgyzstan: Kremlin Lifts Punitive Fuel Tariff on Bishkek.” http://www.eurasianet.org/node/62774
2 Bakiev was also brought into power from a “popular” uprising in 2005 known as the Tulip Revolution
3 World Bank, World Development Indicators
4 Akishev, Anna Lelik Ulugbek. “Will Dordoi Become a “Graveyard of Containers” after Kyrgyzstan’s Entry into the Cu?” http://kloop.info/2011/11/18/special-report-will-dordoi-become-a-graveyard-of-containers-after-kyrgyzstan- s-entry-into-the-cu/
5 “The Great Game” was a book by Kipling which was a 19th century cold war between Britain and Russia for control of Central Asia.
6 Respectively: The US, Russia, China (Current, Former, Rising Super Powers)
7 Allen, Daniel. “China Strengthens Its Role in Kyrgyzstan.”. http://www.atimes.com/atimes/China/JH01Ad01.html.
8 Arykbaev, Aykөl Bolotbekova and Eldiyar. “Kyrgyz Mps Back United Russia in Elections to the Duma.” http://kloop.info/2011/11/30/kyrgyz-mps-back-united-russia-in-elections-to-the-duma/.
9 Wire, Central Asia News. “Russia to Resume Fuel Exports to Kyrgyzstan.” (http://www.universalnewswires.com/centralasia/viewstory.aspx?id=4490
10 Liberty, Radio Free Europe & Radio. “Kyrgyzstan Rations Gasoline after Russian Deliveries Halted.”
http://www.rferl.org/content/kyrgyzstan_rations_gasoline_after_russian_deliveries_halted/24269531.html
11 Orozobekova, Cholpon. “Joining Russia’s Customs Union Would Be a Disaster for Kyrgyzstan.”
http://freemarket.kg/en/analytics/joining-russias-customs-union-would-be-disaster-kyrgyzstan
12 Akishev, Anna Lelik Ulugbek. “Will Dordoi Become a “Graveyard of Containers” after Kyrgyzstan’s Entry into the Cu?”.. http://kloop.info/2011/11/18/special-report-will-dordoi-become-a-graveyard-of-containers-after- kyrgyzstan-s-entry-into-the-cu/.
13 Tuberculosis
14 W.H.O
15 World Bank: Country Data 2010
16 http://tariffdata.wto.org/TariffList.aspx
17 Marat, Erica. “Kyrgyzstan and Tajikistan Forced into Customs Union.”
http://www.jamestown.org/programs/edm/single/?tx_ttnews%5Btt_news%5D=38568&cHash=69f77830843f992b bb7c72df06bb9540.
18 RFERL. “Kyrgyz Premier Supports Joining Regional Customs Union.” http://www.rferl.org/content/kyrgyz_premier_supports_joining_regional_customs_union/2327462.html.
19 Telegraph, The. “Kyrgyzstan Voters Back Parliamentary Democracy.” In, (2010). Published electronically 28 Jun 2010. http://www.telegraph.co.uk/news/worldnews/asia/kyrgyzstan/7858165/Kyrgyzstan-voters-back- parliamentary-democracy.html.

Bibliography
Akishev, Anna Lelik Ulugbek. “Will Dordoi Become a “Graveyard of Containers” after Kyrgyzstan’s Entry into the Cu?” In, Kloop.info (2011). Published electronically 18th November, 2011. http://kloop.info/2011/11/18/special-report-will-dordoi-become-a- graveyard-of-containers-after-kyrgyzstan-s-entry-into-the-cu/.

Allen, Daniel. “China Strengthens Its Role in Kyrgyzstan.” In, (2008). Published electronically Aug 1, 2008. http://www.atimes.com/atimes/China/JH01Ad01.html.

Arykbaev, Aykөl Bolotbekova and Eldiyar. “Kyrgyz Mps Back United Russia in Elections to the Duma.” In, Kloop.info (2011). Published electronically 11/30/2011. http://kloop.info/2011/11/30/kyrgyz-mps-back-united-russia-in-elections-to-the-duma/.

Jolly, David. “Russia Clears Last Hurdle for W.T.O. Membership.” In, New York Times (2011). Published electronically November 10, 2011. http://www.nytimes.com/2011/11/11/business/global/russia-clears-last-hurdle-for- wto-membership.html.

Liberty, Radio Free Europe & Radio. “Kyrgyzstan Rations Gasoline after Russian Deliveries Halted.” In, RFERL (2011). Published electronically November 30, 2011. http://www.rferl.org/content/kyrgyzstan_rations_gasoline_after_russian_deliveries_halted/24269531.html.

Marat, Erica. “Kyrgyzstan and Tajikistan Forced into Customs Union.” In, Eurasia Daily Monitor
(2011). Published electronically October 25, 2011. http://www.jamestown.org/programs/edm/single/?tx_ttnews%5Btt_news%5D=38568
&cHash=69f77830843f992bbb7c72df06bb9540.

Orozobekova, Cholpon. “Joining Russia’s Customs Union Would Be a Disaster for Kyrgyzstan.”
In, Central Asia Free Market Institute (2011). http://freemarket.kg/en/analytics/joining-
russias-customs-union-would-be-disaster-kyrgyzstan.

RFERL. “Kyrgyz Premier Gets Russia to Resume Gasoline Deliveries.” In, RFERL (2011). Published
electronically July 22, 2011. http://www.rferl.org/content/kyrgyz_premier_gets_russia_to_resume_gasoline_deliveries/24273760.html.
———. “Kyrgyz Premier Supports Joining Regional Customs Union.” In, (2011). Published
electronically 11/30/2011.
http://www.rferl.org/content/kyrgyz_premier_supports_joining_regional_customs_uni
on/2327462.html.

Telegraph, The. “Kyrgyzstan Voters Back Parliamentary Democracy.” In, (2010). Published
electronically 28 Jun 2010. http://www.telegraph.co.uk/news/worldnews/asia/kyrgyzstan/7858165/Kyrgyzstan-
voters-back-parliamentary-democracy.html.

Tynan, Deirdre. “Kyrgyzstan: Kremlin Lifts Punitive Fuel Tariff on Bishkek.” In, Eurasianet.org (2010). Published electronically January 26, 2011. http://www.eurasianet.org/node/62774.

Wire, Central Asia News. “Russia to Resume Fuel Exports to Kyrgyzstan.” In, Central Asia News Wire (2011). http://www.universalnewswires.com/centralasia/viewstory.aspx?id=4490.

Avatar

Roberto Hernandez

Roberto Hernandez was a Peace Corps Volunteer in the Kyrgyz Republic and may be reached at [email protected]

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.