barriers to trade in ca

8/8/2019 Barriers to Trade in CA

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25Chapter 3 - Barriers to Trade in Central Asia

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Barriers to Tradein Central Asia

T he recent merchandise trade performance of theCA R s has been adversely affected by the presence of numerous barriers to trade in Central Asiathat is,factors that obstruct exports from and/or imports to theCA R s. Some of these trade barriers (such as relativelyweak trade links between the CA R s and non-FS Ucountries) are a legacy of the FSU while others (e.g.,barr iers to cross-border movements of goods, people, andtransport equipment among the CA R s) emerged after thebreakup of the FS U . Some of themlike additionaltransport costs and transit times needed for internationalshipments to and from the CA R s due to their landlockedlocation and difficult topographyare beyond theircontrol. H owever, otherssuch as policy barriers createdby the CA R s and their trading partnerscan be reducedby the CA R s through unilateral or collective action.

T his chapter identifies some of the more importantbarriers to trade in Central Asia that the CARs canpotentially lower through regional cooperation in trade

policy, transport, and customs transit.1 It also highlightscosts of these trade barriers, including their adverse effectson the recent trade merchandise performance of the CA R s.

3.13.13.13.13.1 Barriers PBarriers PBarriers PBarriers PBarriers Pertaining to Tertaining to Tertaining to Tertaining to Tertaining to Trade Prade Prade Prade Prade Policyolicyolicyolicyolicy

T he CA R s had very similar trade policy regimes atthe time of their independence, but these have divergedsignificantly since then. T he Kyrgyz R epublic liberalizedits trade policy rapidly in the first half of the 1990s (seeFigure 3.1). K azakhstan also made considerable progressin trade liberalization in the first half of the 1990s, but thiswas partly reversed in the late 1990s. A zerbaijan liberalizedits trade policy fairly fast after concluding a ceasefireagreement with Armenia in 1994, as did Tajikistan afterthe end of the civil war in 1997 . U zbekistan has maderelatively limited headway in trade liberalization, with asignificant reversal in the mid-1990s. Consequently, tradepolicy regimes in the C A R s vary widely today from veryliberal in the K yrgyz Republic to fairly liberal in Azerbaijan,Kazakhstan, and Tajikistan, to quite restrictive in Uzbekistan.

Tariffs are fairly low and uniform in A zerbaijan, KyrgyzR epublic, and Tajikistan (see Table 3.1) . Kazakhstan has a

rather complex tariff schedule with a large number of tariff bands and a high maximum tariff rate, although its nonweightedaverage tariff rate is not high. U zbekistan has a complex tariff

1 The chapter does not discuss the barriers to trade in Central Asia (such as difficulties with customs clearance of goods beingexported from or imported to the CARs and restrictions on domestic marketing of exportable and imported goods) that cannotbe reduced through regional cooperation in trade policy, transport, and customs transit.


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26 Central Asia: Increasing Gains from Trade Through Regional Cooperation in Trade Policy, Transport, and Customs Transit

schedule and a relatively high nonweighted average tariff rate.2

A serious problem with tariffs in Azerbaijan, Kazakhstan,Tajikistan, and U zbekistan is that changes in tariff schedulesare rather frequent and unpredictable. Also, there is an

escalation of tariffsi.e., a rise in tariff rates with a degree ofprocessingin all the CA Rs. T his is more pronounced inAzerbaijan, K azakhstan, and U zbekistan than in the KyrgyzR epublic and Tajikistan.

2 In Uzbekistan, tariffs, the value-added tax, and excise taxes are levied on imports by legal entities only. Imports by individualsare subject to a unified tax on imports, the rate of which is 26% for flour, 40% for other food products, and 70% for nonfoodproducts. The rate of the unified tax is lower than the combined rate of the tariff, the value-added tax, and the excise tax formost food products, but higher than that for most nonfood products.


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In addition to explicit tariffs, some of the CA R simpose other taxes on imports that are not levied ondomestically produced goods or have higher rates forimported goods than for domestically produced goods.3 InA zerbaijan and K azakhstan, the coverage of excise taxeson imported and domestically produced goods are identical,but the rates of the former are considerably higher thanthose of the latter for some commodities. In U zbekistan,excise taxes are levied on a wide range of imported, but notdomestically produced, consumer products. T hese includeice cream (subject to a 200% excise tax), mineral water(100%) , most types of juices (70%) , poultry meat (70%),cheese (50%), yogurt (50%), plastic tableware andkitchenware (50%), and soap (20%).4 Certain

commodities, such as construction materials, are subject tothe value-added tax (VAT ) when imported, but exemptfrom this tax when produced domestically.5 Furthermore,nonfood products brought to U zbekistan for commercialpurposes from neighboring countries without a certificateof origin, but not necessarily originating in those countries,are subject to a 20% surcharge.

Explicit taxes on exports are less common in CentralAsia than taxes on imports. In A zerbaijan, exports of metals

and articles of nonferrous metals (with the exception of aluminum products) are subject to an export tax. Further,25% of the difference between the export price and thedomestic wholesale price of products with regulated domesticprices is to be transferred to the state budget. Kazakhstanlevies export taxes on a limited number of commodities whenthey are exported to non-E A EC countries.6

While all the CA R s prohibit or license exportsand/or imports of certain goods to protect national security,

public health, and environment, some of them do so also

for economic purposes. In particular, Azerbaijan prohibitsexports of scrap metals to ensure their availability fordomestic consumption. U zbekistan prohibits imports of packed tea in an effort to increase demand for domesticallyproduced packed tea. U zbekistan also prohibits exportsof flour, meat, sugar, vegetable oil, and a number of othermostly consumerproducts to ensure theiravailability in the domestic market at relatively low prices.For the same reason, K azakhstan temporarily prohibitsexports of diesel fuel and fuel oil during harvesting andheating seasons, respectively. L icensing of certain exportsand importssuch as imports of tobacco and alcoholicbeverages to A zerbaijan and Tajikistan, exports of scrapof nonferrous metals from the Kyrgyz Republic, and

exports of precious metals and their scrap fromU zbekistan appears to be primarily intended to preservethe existing monopolies.

In addition to taxes and quantitative restrictions onimports and exports, some CA R s use other policy tools asan instrument of trade policy. N otably, U zbekistan appearsto continue using restrictions on access to foreign exchangein regulating imports even though itde jure introduced fullconvertibility of its national currency for current international

transactions in October 2003. It is not always possible topurchase foreign exchange through official channels evenfor bona fide imports. A nd it is generally more so for importsof consumer goods than for imports of capital goods.U zbekistan also uses restrictions on cross-border movementsof people and transport equipment to restrict imports. In2002, for example, it tightened rules and procedures formovements of people and vehicles across Kazakh-U zbekand Kyrgyz-U zbek borders in an apparent effort to restrictimports of consumer goods from K azakhstan and the

Kyrgyz R epublic.

3 The difference between the rates of these taxes on imported and domestically produced goods constitutes an implicit tariff.4 In what appears to be a policy inconsistency, Uzbekistan tries to lower the domestic price for poultry meat by prohibiting its exports

and simultaneously attempts to raise its domestic price by levying a 50% excise tax on imported poultry meat.5 In Azerbaijan and Uzbekistan, some commodities are exempt from the VAT when they are imported, but subject to it when

produced domestically. This constitutes a negative implicit tariff on these commodities.6 These include scraps of ferrous metals, whose exports to the European Union (EU) are also exempt from the export tax.


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Besides the trade barriers relating to trade policy inthe CA R s, there are also significant barriers to trade inCentral A sia induced by trade policy of countries outsidethe region. M ost notably, exports of agricultural p roductsfrom the C A R s to developed countries face relatively hightariffs. Large export and other subsidies that developedcountries provide to their farmers further impede importsof agricultural products to these countries. Cline (2005)estimates that when both tariff and the tariff-equivalent of domestic subsidies are taken into account, agriculturalprotection amount to about 20% in the U S, 50% in Canadaand E U , and 80% in Japan. Furthermore, countries outsidethe region occasionally impose or threaten to imposeantidumping duties on imports from the CA R s. T he U S,

for example, charges antidumping duties on imports of silicomanganese from Kazakhstan and the E U imposesquotas on imports of steel from K azakhstan. A ll of theCAR s, with the exception of K azakhstan, have a nonmarketeconomy status in developed countries, which exposes theirexports to those countries to relatively restrictive anti-dumping measures.

3.23.23.23.23.2 Barriers PBarriers PBarriers PBarriers PBarriers Pertaining to Tertaining to Tertaining to Tertaining to Tertaining to Transport and Customsransport and Customsransport and Customsransport and Customsransport and CustomsTTTTTransitransitransitransitransit

All the CARs are landlocked and situated far frommajor international seaports and developed country markets.In addition, the CA R s have a difficult topography thatcomplicates their transport links with the other parts of theworld, particularly South Asia. T he situation is exacerbatedby deficiencies of the CA R s transport networks, high costsand low quality of transport and logistics services in the region,and difficulties with movements of goods and transportequipment across borders and through the territories of theCAR s and neighboring countries. T he result is generallyhigh transport costs and long and unpredictable transit timesfor international shipments to and from the CA R s.

Figures 3.2 and 3.3 compare the actual transportcosts and transit times for shipments by road and by railbetween the four CA R s (K azakhstan, Kyrgyz R epublic,Tajikistan, and U zbekistan) and selected countries outsidethe region with the corresponding transport costs and transittimes in the ideal world (i.e., a world with balancedtransport flows, competitive markets for transport services,smooth border crossing, low transit fees, and no visaproblems and unofficial payments). T he figures show thatthe actual transport costs are much higher and the actualtransit times are much longer for shipments to and fromthe CARs than those in the ideal world.7 Moreover,transit times for international shipments by road for longerdistances (e.g., shipments from the Benelux countries) vary

more than those for shorter distances (e.g., shipments fromIstanbul). T his indicates that transit times for internationalshipments become increasingly unpredictable as thedistances involved increase.

Figures 3.2 and 3.3 also demonstrate the significanttransport costs and transit time disadvantage faced by theCA R s compared with the Baltic States and Moldova.Transport costs for shipment by road between the CA R sand the Benelux countries are 1.52.5 times as high as

those for road shipments between the Baltic States andMoldova, on the one hand, and the Benelux countries, onthe other, while transit times are 2.03.0 times as long.Even for shipments by rail between the CA R s and Moscow,transport costs are generally higher and transit times aresignificantly longer than those for rail shipments betweenthe Baltic States and Moldova, on the one hand, andMoscow, on the other.

Finally, Figures 3.2 and 3.3 show that there is anasymmetry in transport costs for international shipmentsbetween Central Asia and Europe. For example, it costs$8,500$10,500 to ship a truckload of cargo from theBenelux countries to Central Asia, and only $6,000$7,000

7 Only for shipments by rail and by sea from Central Asia to the East coast of the PRC through Bandar Abbas, Iran, the actual transportcost is lower than the t ransport cost in the ideal world. The reason is that transport flows from the PRC to Middle East, most ofwhich goes through Bandar Abbas, exceed transport flows in the opposite direction and transport costs for shipments from BandarAbbas to the PRC are relatively low.


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8 According to freight forwarders, only a small fraction of trucks carrying goods from the EU to Central Asia return with cargo despite therelatively low costs of shipments from Central Asia to Europe. This is not only due to the relatively small amount of exports from CentralAsia to the EU that need to be transported by road, but also because many road transporters refuse to carry a less-than-truckload ofconsolidated cargo to avoid excessive and cumbersome border crossing and transit procedures. As a result, a lot of cargo capacity iswasted. The total loss due to this problem is estimated at around $300 million per year.

Asia to Europe consist mostly of primary commoditiestransported by rail and through pipelines, while imports fromEurope to Central Asia consist mostly of manufacturedproducts transported by road and by air.8

to ship in the opposite direction. In the ideal world,shipments would cost $5,500$6,000 in either direction.T his is due to the particular commodity composition of tradebetween Central Asia and Europe. Exports from Central


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comprise less than 10% of the value of products and transportcosts are only 1/3 of logistics costs.

3.33.33.33.33.3 Costs of TCosts of TCosts of TCosts of TCosts of Trade Barriersrade Barriersrade Barriersrade Barriersrade Barriers

T he presence of the above trade ba rriers hasadversely affected the recent merchandise trade performanceof the CA R s in several ways. F irst, they have constrainedgrowth of trade. A lthough in all the CA R s exports andimports expanded considerably in 20002004 and the

actual ratio of exports plus imports to GDP exceeded theestimated potential level in 2004, cumulative growth of exports in the Kyrgyz Republic, Tajikistan, and U zbekistanand the cumulative growth of imports in the KyrgyzR epublic and U zbekistan were lower than those in manyother countries, including the P R C and M ongolia ( twoother CAREC member countries), and the world as awhole (see Figure 3.4). Excluding exports of crude oiland oil products and imports of capital goods for oil sectordevelopment, growth of exports and imports in A zerbaijanand K azakhstan were also relatively modest.

Second, trade barriers have adversely impacted onthe direction of trade in the CA R s. In particular, relativelyhigh transport costs and long and unpredictable transit times

for international shipments to and from the CA R s havehindered reorientation of their trade from FS U to non-FS U countries, which partly explains why the CA R sgenerally overtrade with other CIS countries but under-trade with most East and South Asian and WesternEuropean countries.

T hird, trade bar riers have had an adverse impacton the composition of trade in the C A R s. N otably, longand unpredictable transit times have constrained exportsof time-sensitive goods and manufactured products withrelatively low profit margins more than exports of primarycommodities, which are not time-sensitive and can betransported in bulk at relatively low costs. T his is onereason for the limited participation of the CA R s inG P N s and related international trade in manufacturedproducts, and for the domination of their exports by ahandful of primary commodities, such as crude oil,cotton fiber, and metals.9

In addition to the adverse impacts on the tradeperformance of the CA R s, trade bar riers have othernegative effects. In particular, they encourage illegal trade.Faced with high trade taxes or restrictions, traders oftenresort to illegal ways of conducting trade, such as smuggling

9 Raballand, Kunth, and Auty (2005) argue that high transport costs play a critical role in causing Kazakhstan, Kyrgyz Republic,Tajikistan, Turkmenistan, and Uzbekistan to generate more trade with other countries of the CIS and less trade with the EU thantheir relative location would suggest. In addition, high transport costs partly explain why exports of these countries are compressedonto a handful of primary commodities.


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and under-invoicing.10 As a result, a substantial proportion of trade in the region goes unrecorded and the governments lose aconsiderable part of the proceeds from taxes on internationaltrade. It is estimated that unrecorded imports of consumer goodsfrom the PRC and Turkey to the Kyrgyz R epublic exceededU S$94 million in 2002 and unrecorded imports of gasolineand diesel fuel from neighboring countries were almost US$31million. U nrecorded exports of the small-scale sewing industrywere estimated at about U S$45 million and the value of reexported consumer goods (including the shuttle tradersmargins) at around U S$70 million. The total value of theseunrecorded imports and exports was about U S$240 million oraround a fifth of the value of recorded trade.

By increasing incentives for smuggling and under-invoicing and creating opportunities for rent-seeking, high-trade taxes and restrictions fuel corruption. Traders sometimes

bribe government officials to obtain licenses for lucrativeexports and imports. T hey often bribe border guards andcustoms officials to turn a blind eye on smuggling or under-invoicing. N ot surprisingly, corruption is a particularly seriousproblem in the CA R s when it comes to international trade.

Trade taxes and restrictions lower domestic prices forexportable goods and raise domestic prices for imported goods.T his generally worsens social welfare. N otably, import taxeson consumer goods raise the domestic prices for these goodsand worsen consumers welfare. A lthough they also generaterevenue for the government and increase the income of domesticproducers, their net effect on social welfare is usually negative.A typical example is the tariffs on colored T Vs in Uzbekistan,which raised the domestic price of colored T Vs by about 82%and caused a deadweight loss of between U S$5.8 millionand U S$16.6 million in 2004 (see Box 3.1) .

10 There is a large body of theoretical and empirical literature showing that trade taxes and restrictions lead to under-invoicing,smuggling, rent seeking and other forms of directly unproductive profit-seeking activities. See, for example, Anam (1982),Bhagwati (1974), Bhagwati and Hansen (1973), Bhagwati and Srinivasan (1980), Johnson (1974), Krueger (1974), Pitt (1981),and Sheikh (1974).


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By lowering domestic prices for exportable goods

and raising domestic prices for imported goods, tradebarriers distort domestic relative prices vis--visinternational relative prices. A good measure of domestic

11 Although demand for colored TVs is considered to be relatively price inelastic in high-income countries (with -0.5 being a typicalestimate), it is likely to be more price elastic in middle-income countries, like Uzbekistan. Similarly, domestic supply of coloredTVs is likely to be more price elastic than 0.5.

12 The effective rates of protection for a particular product is the difference between value added (per unit of the product) at domesticprices and value added at international prices expressed as a percentage of the latter.

relative price distortions resulting from taxes on

international trade are levels of and the variation ineffective rates of protection (E R P ).12 Table 3.3 presentsthe estimated ER Ps for selected products in Kazakhstan,

BoBoBoBoBo x 3.x 3.x 3.x 3.x 3. 1: P1: P1: P1: P1: P ararararar tial Equilibrium Analysis of Wtial Equilibrium Analysis of Wtial Equilibrium Analysis of Wtial Equilibrium Analysis of Wtial Equilibrium Analysis of W el fel fel fel fel f are Efare Efare Efare Efare Ef fffffects of Tects of Tects of Tects of Tects of T rade Trade Trade Trade Trade T axaxaxaxax es: The Case of Impores: The Case of Impores: The Case of Impores: The Case of Impores: The Case of Impor t Tt Tt Tt Tt Tarifarifarifarifarif fffffssssson Colored TVs in Uzbekistanon Colored TVs in Uzbekistanon Colored TVs in Uzbekistanon Colored TVs in Uzbekistanon Colored TVs in Uzbekistan

Trade taxes generally have a negative effect on social welfare. A typical example is the tariffs on colored TVs in Uzbekistan.

In 2004, Uzbekistan produced 53,345 units of colored TVs. Additional 70,000 units were imported legally and anestimated 10,000 units imported illegally. Thus, the domestic consumption was 133,345 units. It is estimated that theaverage domestic retail price was US$300 per unit. The explicit tariff on imported colored TVs was 30% and the implicittariffthat is, the difference between the rate of the excise tax on imported and domestically produced colored TVswas40%. Hence, the average domestic price would have been about US$165 per unit in the absence of the tariffs. Assuming(conservatively) that the price elasticity of demand for a colored TV is -0.5 and that of supply is 0.5, the tariffs reduced thedomestic consumption of colored TVs by 68,450 units and increased their domestic production by more than 18,100 units(see Figure B3.1). 11 As a result, domestic consumers lost US$22.6 million (sum of areas A, B, C, and D on Figure B3.1), whiledomestic producers gained US$6.0 million (area A on Figure B3.1). A total of US$10.8 million (area C on Figure B3.1) wentto the government (in the form of tariff revenues), corrupt border guards, customs and tax officials, police officers, etc. (inthe form of bribes) and illegal importers (in the form of extra profit), and was at least partly lost due to inefficiencies inherentin smuggling. The net effect of the tariffs on social welfare was somewhere between minus US$5.8 million and minusUS$16.6 million depending on how much of US$10.8 million was lost due to inefficiencies in illegal imports of colored TVs.

This deadweight welfare loss was larger if the absolutevalues of the price elasticity of demand for and supplyof colored TVs were greater than 0.5.

Accordingly, a reduction in the tariffs on coloredTVs would lower their domestic price, increase domesticconsumption and imports, and improve social welfare.Policymakers may worry that it would also reducegovernment revenue and cause a decline in domesticproduction, which would increase unemployment. Inaddition, the increase in imports of colored TVs maylead to exchange rate depreciation. These are validconcerns. However, international evidence suggests thatindirect effects of reducing tariffs are on balance positive

rather than negative. Apart from direct gains inconsumers welfare, reducing tariffs increase the varietyof goods and enhance competit ion in domestic markets.This in turn stimulates domestic producers to improvetheir own efficiency. As for the loss of governmentrevenue, taxes on income or general consumption areless distortionary than taxes which discriminate againstimports.

Source: Authors


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Kyrgyz R epublic, and U zbekistan. It indicates that there areconsiderable variations in the ER Ps and thus price distortions

in all three countries. Moreover, both levels of and the variationin the ERPs in U zbekistan are much larger than those inKazakhstan and the Kyrgyz R epublic, suggesting that pricedistortions in the former are more severe than in the latter.

Price distortions resulting from trade barriers in turnhave many negative consequences. First, they often affordimport-competing products a much higher degree of effectiveprotection than the corresponding tariffs suggest. A s shownin Table 3.3, the estimated E RPs for cigarettes and a DaewooNexia car in Uzbekistan are more than three times as highas the ad valorem components of the combined tariffs onthese products. Second, relative prices distorted in favor of import-competing sectors shift resources from export-orientedto import-competing sectors and redistribute income from

the general public and export-oriented sectors to import-competing sectors. S ince agriculture is a major export-oriented

sector in all the CA R s, the majority of the poor live in ruralareas, and import-competing sectors are mostly located inurban areas, the price distortions effectively redistributeincome from rural to urban population and from the poor tothe rich. T hird, distorted relative prices result in sub-optimalallocation of resources and inefficient utilization of scarcefactors of production. Fourth, price distortions may lead towelfare-reducing economic growth, which occurs when outputgrowth is generated by inefficient import-competing sectorsthat take away resources from efficient export-orientedsectors.13 In the case of severe price distortions, highlyprotected import-competing sectors may produce positivevalue added at domestic prices but negative value added atinternational prices.14 G rowth generated by these sectorswould be spurious and reduce social welfare.

13 See Johnson (1967) for a discussion of the possibility of aggregate income losses from output growth in protected import-competing sectors.

14 See McKinnon (1993) for an exposition of how a firm producing positive value added at distorted domestic prices may actuallybe producing negative value added at international prices.


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R estrictions imposed by U zbekistan on cross-bordermovements of people and transport equipment in an effortto restrict imports from neighboring countries obstructmovements of people for purposes not relating to trade,often forcing them to use more costly alternative routes.T he Tashkent-Samarkand highway offers a good example.It is one of Uzbekistans key motor roads used extensivelyin both domestic and international transportation. It wasbuilt during the period of the Soviet U nion and passesthrough Kazakhstan. D uring the first 11 years after thebreakup of the FS U , U zbek vehicles could, more or less,freely pass through the K azakh territory along the highway.In 2002 , however, U zbekistan closed the K azakh sectionof the road for U zbek vehicles.15 A s a result, most U zbek

vehicles now have to take a detour around the K azakhterritory, which is 56 km longer than the direct route.Moreover, the bypass is narrower and in worse conditionthan the Tashkent-Samarkand highway.

A ccording to a study commissioned by ADB, some15,500 vehicles took the detour daily in December 2004.With the detour, the vehicles spent 1.01.5 hours more toget to the destination than if they had been allowed to usethe direct route. T his is partly due to the stopping of many

of the vehicles at numerous stationary and mobile trafficpolice posts along the bypass. In addition, each vehiclespent 523 liters of fuel more than what it would havespent if it had used the direct route. T he total cost of extrafuel spent by all vehicles taking the detour was estimated atabout 45.6 million soums or U S $44 ,00 0 a da y atDecember 2004 prices. T his means that the closure of transit through Kazakhstan costs U zbek drivers andtransport operators around 17 billion soums or U S$16million a year in terms of extra fuel needed to get from

Tashkent to Samarkand or vice versa.

T he barriers to trade in Central Asia created bycountries outside the region also entails high costs for theCAR s. Most notably, farm subsidies in developed countriescause an oversupply of agricultural products in thesecountries, which are then dumped in the world markets.T his lowers world prices for agricultural products andadversely affects exports of these products from the CA R s.It is estimated that without cotton subsidies in the EU andthe U S, world cotton prices would have been 71% higher.With higher world cotton prices, the gain in export revenuewould have added 6% to Tajikistans GDP and 3% toU zbekistans G D P. T hese substantial benefits wouldaccrue every year after abolition of the subsidies. M oreover,with more attractive world prices, the quantity of cotton

exported would increase (by an estimated 5.8% inU zbekistan) , adding to the potential benefits.16

3.43.43.43.43.4 ConclusionsConclusionsConclusionsConclusionsConclusions

T here are significant barriers to trade in CentralAsia pertaining to trade policy, transport, and transitsystems in the CAR s, their neighbors, and trading partners.T he more significant trade barriers pertaining to trade policyin the CAR s include a complex tariff schedule and relatively

high tariffs (K azakhstan and U zbekistan); escalation oftariffs (all the CA R s); frequent and unpredictable changesin the tariff schedule (A zerbaijan, K azakhstan, Tajikistan,and U zbekistan) ; high implicit tariffs in the form of taxesthat are levied on imported goods but not on domesticallyproduced goods or have higher rates for imported goodsthan for domestically produced goods ( A zerbaijan,K azakhstan, and U zbekistan); explicit export taxes(Azerbaijan and Kazakhstan); and prohibition andlicensing of exports and imports of certain commodities (all

the CA R s). U zbekistan appears to continue using

15 The restriction does not apply to trucks transporting goods under a Transport International Routier (TIR) Carnet and vehicleswith foreign and diplomatic license plates.

16 The estimated subsidies, their impact on world prices and Uzbekistans supply response are from Baffes (2004). The increasesin GDP for Uzbekistan and Tajikistan even without any change in output are based on export volumes and GDP in 2000, reportedin Pomfret (2005).


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restrictions on access to foreign exchange in regulatingimports and imposes relatively tight restrictions on cross-border movements of people and transport equipment inan apparent effort to restrict imports from neighboringcountries. Large agricultural subsidies that developedcountries provide to their farmers also constitute a significantbarrier to trade in Central Asia.

O ther significant barriers to trade in Central Asiaare high transport costs and long and unpredictabletransport times for international shipments to and fromthe CA R s. T his is not only because of the landlockedand remote location of the CA R s and their difficulttopography, but also due to deficiencies of their transport

networks, high costs and low quality of transport andlogistics services in the region, and difficulties withmovements of goods and transport equipment acrossborders and through the territories of the CA R s andneighboring countries.

T he costs of these trade barriers for the CA R s arequite high. T hey have constrained growth of trade inCentral Asia and deprived the CARs of the benefits of forgone trade. T hey have also limited the participation of

the CA R s in G P N s and related trade in manufacturedproducts, skewed the structure of their exports towardsprimary commodities, and hindered the reorientation of their trade from FSU countries to the rest of the world. Inaddition, trade barriers have encouraged illegal trade, fueledcorruption, caused deadweight welfare losses, and distorteddomestic relative prices. Distorted relative prices in turn

have provided a high degree of effective protection to import-competing sectors and may have generated welfare-reducingand spurious economic growth. T hey have also shiftedresources from export-oriented to import-competing sectorsand redistributed income from the general public andexport-oriented sectors to import-competing sectors andfrom the poor to the rich. T he restrictions on border crossingimposed by U zbekistan in an effort to restrict importsfrom neighboring countrieshave obstructed themovements of people and transport equipment for purposesnot relating to trade. T his has resulted in considerable lossesfor drivers and transport operators.

Improved regional cooperation in trade policy,

transport, and customs transit could help the CA R s lowerthe trade barriers, expand trade, increase the gains fromparticipation in international trade and reduce theassociated risks. S pecifically, regional cooperation in tradepolicy could help the CARs reduce trade barrierspertaining to trade policy in the CA R s and their tradingpartners at relatively low costs, and expand tradeconsiderably. It could also help the CA R s reduce the riskof protectionist measures by trading partners. R egionalcooperation in transport and customs transit would help

the CARs reduce transport costs and transit times forinternational shipments and make transit times for suchshipments more predictable. T his would in turn help themboost trade, especially with more distant countries, takemore active part in G P N s and related international tradein manufacture products, and diversify trade both in termsof geographical distribution and commodity composition.

barriers to trade in ca

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