Regional Cooperation in Central Asia: Another Step Forward with CAREC

Baku, Azerbaijan, November 21, 2008 – Economic ministers from eight Central Asian countries met today with senior officials from six multilateral institutions to approve a set of important new initiatives for regional cooperation under the auspices of the 7^th Ministerial Conference of the Central Asia Regional Economic Cooperation Program (CAREC).

Founded in 1997 and operating since 2002 at ministerial level, CAREC focuses on four key areas of cooperation: transport, trade facilitation, trade policy and energy. The participating countries are Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan. Participating multilateral institutions (MIs) are Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), International Monetary Fund (IMF), Islamic Development Bank (IDB), United Nations Development Program (UNDP) and World Bank. CAREC represents a unique experiment of cooperation among countries and multilateral institutions.[i]

Based on CAREC’s Comprehensive Action Plan, which was approved in 2006 at the 5^th Ministerial Conference in Urumqi, China, CAREC sector committees hammered out sectoral strategies and action plans for transport and trade facilitation, trade policy and energy. These were now approved at the 7^th Ministerial Conference in Baku. In addition, the Ministerial Conference endorsed a work plan for the CAREC Institute and a proposal to convene a CAREC Partnership Forum. The Conference also approved a new focus on private sector engagement in regional integration efforts and welcomed a Chinese proposal for the establishment of a CAREC Business Forum, which will meet next year in Urumqi. The remainder of this note briefly summarizes and assesses each of these initiatives.

Transport and Trade Facilitation Action Plan

The CAREC Transport and Trade Facilitation Strategy was approved at the 6^th Ministerial Conference in Dushanbe, Tajikistan, in November 2007. It identified six priority transport corridors potentially linking Central Asian countries with each other and with their neighbors from China to Europe, and from the Indian Subcontinent to Russia. The Implementation Action Plan for the Transport and Trade Facilitation Strategy identified a set of priority investment projects and technical assistance initiatives to be implemented over the next ten years for improvement of the multi-modal transport network (roads, rail, ports and air) as well as for improvements in border crossing, transit and logistics management along the priority corridors. The Action Plan also envisages an in-depth monitoring of reductions in transport cost and time along the corridors in order to ensure that the investments actually bring the intended benefits. The financing of these ambitious initiatives ($21 billion for investments and $69 million for technical assistance) will come from countries’ own resources, from loans and grants by the MIs, and from other external financing, possibly involving public-private partnerships. An outstanding example for the kind of investment to be funded is the multi-billion dollar investment in CAREC Corridor 1b, which will link Kazakhstan (and other Central Asian countries) with China to the East and with Russia and Europe to the West. Planning for this corridor is far advanced with financing expected from ADB, EBRD, IDB, Japan International Cooperation Agency (JICA) and World Bank.

Trade Policy Action Plan

Central Asia has relatively low average trade tariffs and few quantitative restrictions by developing country standards. However, the Trade Policy Strategic Action Plan identifies a number of important initiatives which will help to stimulate trade among the Central Asian countries and with their neighbors. This includes a gradual reduction in tariff dispersion and in the number of tariff bands, abolishing the existing quantitative restrictions, improvements in border trade—allowing neighboring communities to trade more easily across borders—and early accession to WTO for those countries which are not yet WTO members.

Energy Sector Strategy

Central Asia is rich in energy resources, including oil, gas, coal and hydropower. Despite the recent collapse of energy prices, in the longer term these resources represent a very important base for Central Asia’s development and are of great interest to all the big neighbors, including China, Europe, India and Pakistan. The CAREC Energy Sector Strategy lays out the rationale and principles for cooperative development of these energy resources and identifies priority investment projects (over $20 billion), technical assistance initiatives ($13 million) and institution building requirements. Some key investments under the strategy are in an advanced stage of preparation, including the Central Asia-South Asia 1,000 KWh power transmission line, which is expected to permit electricity exports from Kyrgyz Republic and Tajikistan to Afghanistan and Pakistan.

CAREC Institute Work Plan

The 6^th Ministerial Conference had approved the establishment of a “virtual” CAREC Institute. It will operate initially under the auspices of the CAREC Secretariat and contract with regional and international academic and professional institutions to provide training, research and outreach in the principal areas of CAREC’s engagement. The 7^th Ministerial Conference endorsed the proposed work plan for the Institute, which envisages a number of priority activities for the next three years, including a leadership development initiative for senior officials, training in support of CAREC sector committees, research on structural change and economic diversification, and a competitive program to fund small research projects by researchers in the region.

CAREC Partnership Forum

CAREC countries and institutions have long recognized that CAREC needs to reach out to other partners with an interest and engagement in regional cooperation and integration initiatives in Central Asia. This includes Central Asia’s neighbors, bilateral donors, and other Central Asian regional organizations. Expanding the number of regular participants in CAREC was not seen as an option since this would have risked reducing CAREC effectiveness as a highly focused and action-oriented program. Instead, the 7^th Ministerial Conference endorsed the establishment of a CAREC Partnership Forum, which will bring together senior officials from CAREC countries and from principal non-member partners once a year to explore common interests, programs and initiatives in one of the principal areas of CAREC’s engagement. In preparation for the Forum the CAREC Secretariat will commission a so-called “foundation study,” which brings together relevant information on the activities of the various partners in the area under discussion. The first CAREC Partnership Forum is to be held in 2009 and will focus on transport and trade facilitation.

The Way Forward for CAREC

In opening the 7^th Ministerial Conference ADB’s President, Haruhiko Kuroda, referred to this event as marking the “end of the beginning of CAREC”. With key strategies and action plans now prepared, he called for speedy implementation as the key challenge and opportunity for CAREC in the coming years. This theme was widely echoed by all participants in the Conference.

The next few years will tell whether CAREC, with its focus on technical, operational and financial solutions—rather than on high-level political dialogue—can substantially improve the infrastructure and institutional capacity of Central Asian countries to cooperate for greater and more effective integration with each other and with the rest of the world. The initial signs are encouraging, with some major initiatives already well advanced and ready for action, including investments in key transport and energy corridors, establishment of monitoring approaches and establishment of regional institutions (such as the CAREC regional electricity regulatory forum). However, CAREC still faces a number of challenges that it needs to overcome if it is to make the lasting impact that its members are hoping for. These include:

• Creating greater understanding and ownership of CAREC in and by its participating countries; this calls for intensive outreach within the countries and may require elevating the level of engagement of the countries’ leadership to a prime ministerial or presidential level.
• Ensuring continued engagement by the multilateral institutions at a time when their attention and resources may be drawn to fight the global financial and economic crisis gripping the world.
• Bringing Turkmenistan to the table as a regular member; Turkmenistan is a key link in the process of regional integration for Central Asia and its absence represents a significant gap.
• Improving links with other Central Asian regional organizations, especially the Shanghai Cooperation Organization.
• Selectively and cautiously expanding the CAREC’s areas of engagement to address other key areas of regional cooperation and integration, possibly including water management and disaster preparedness.
• Strengthening the CAREC Secretariat so it can effectively meet the rapidly expanding tasks it faces.

Central Asia is a critical link between East and West, North and South on the Eurasian super-continent. Central Asia’s stability and prosperity is therefore of great importance not only for the 120 million people of the region, but also for Eurasia as a whole. Effective cooperation of the Central Asian countries will be an essential ingredient to achieve this outcome and CAREC can play a significant role in ensuring that this happens.

[i] For more background on CAREC see Johannes Linn and Oksana Pidufala, “The Experience with Regional Economic Cooperation Organizations: Lessons for Central Asia”, Working Paper No. 4, Wolfensohn Center for Development at Brookings, October 2008. All CAREC documents approved by the 7^th Ministerial Conference and referred to in this article can be found on the CAREC Web site.