[Joint House and Senate Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
113th Congress Printed for the use of the
1st Session Commission on Security and Cooperation in Europe
_______________________________________________________________________
THE NEW SILK ROAD STRATEGY: IMPLICATIONS FOR ECONOMIC
DEVELOPMENT IN CENTRAL ASIA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
JULY 31, 2013
Briefing of the
Commission on Security and Cooperation in Europe
______________________________________________________________________
Washington: 2015
Commission on Security and Cooperation in Europe
234 Ford House Office Building
Washington, DC 20515
202-225-1901
[email protected]
http://www.csce.gov
Legislative Branch Commissioners
SENATE HOUSE
BENJAMIN L. CARDIN, Maryland, CHRISTOPHER SMITH, New Jersey,
Chairman Co-Chairman
SHELDON WHITEHOUSE, Rhode Island JOSEPH PITTS, Pennsylvania
TOM UDALL, New Mexico ROBERT ADERHOLT, Alabama
JEANNE SHAHEEN, New Hampshire PHIL GINGREY, Georgia
RICHARD BLUMENTHAL, Connecticut MICHAEL BURGESS, Texas
ROGER WICKER, Mississippi ALCEE HASTINGS, Florida
SAXBY CHAMBLISS, Georgia LOUISE McINTOSH SLAUGHTER,
JOHN BOOZMAN, Arkansas New York
MIKE McINTYRE, North Carolina
STEVE COHEN, Tennessee
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THE NEW SILK ROAD STRATEGY: IMPLICATIONS FOR ECONOMIC DEVELOPMENT IN
CENTRAL ASIA
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July 31, 2013
WITNESSES
Page
Craig Steffensen, North American Representative, Asian Development Bank
2
Danica Starks, Senior Desk Officer for Russia, Caucasus and Central
Asia, U.S. Department of Commerce......................................
4
Eric Stewart, Executive Director, U.S.-Turkmenistan Business Council...
8
Joshua Kucera, Freelance Journalist and Analyst........................
11
PARTICIPANT
Shelly Han, Policy Advisor, Commission on Security and Cooperation in
Europe.................................................................
1
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THE NEW SILK ROAD STRATEGY: IMPLICATIONS FOR ECONOMIC DEVELOPMENT IN
CENTRAL ASIA
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July 31, 2013
Commission on Security and Cooperation in Europe
Washington, DC
The briefing was held from 2:05 to 3:46 p.m. EST in 340 Cannon
House Office Building, Washington D.C., Shelly Han, Policy Advisor,
CSCE, presiding.
Ms. Han. Good afternoon. I'd like to welcome you all to the
Commission on Security and Cooperation in Europe's briefing on economic
development in Central Asia. We're focusing our attention today on what
is broadly called the New Silk Road strategy. It's a strategy that's
been around for quite some time but has been resurrected as part of our
post-2014 strategy for Afghanistan.
The U.S. has struggled to define a strategic value for engagement
in Central Asia that goes beyond security or counterterrorism or
energy, and Central Asia has become more important after the invasion
of Afghanistan in 2001and then a similar shift occurred in 2009, with
the creation of the Northern Distribution Network.
Over the past few years, I get the impression that our economic and
foreign policy in the region has been led by military logisticians and
that it will create some challenges as we move away from the need for
these supply lines and to seek other avenues of engagement.
All of the countries in Central Asia face economic challenges, even
the resource-rich countries like Kazakhstan and Turkmenistan.
Kazakhstan and Turkmenistan are both facing problems, even though they
literally have oil and gas to burn. They're having problems creating a
more coherent economic strategy that can provide jobs, and then also
the high employment and the fragile economies in Tajikistan and
Kyrgyzstan and Uzbekistan mean that job seekers often have to leave the
country in order to find work. Remittances have become important
linchpins in these economies.
Combine these economic challenges with the lack of political
freedoms and we have a recipe for potential future instability.
Because we have a limited time for discussion today, we're going to
leave aside an in-depth discussion of the political challenges and
focus on the challenge of economic development as a key component of
stability in the region. I realize that the political and the economic
are always intertwined, and nowhere more so than in Central Asia, but I
think that we've all heard the very good and persuasive political
arguments on why economic integration is important. But what I think
would be most interesting to do today--and it doesn't get as much
attention--is hearing the business case for investment in Central Asia.
I'd like to ask the panel to talk about where we are in terms of
building a better foundation for that economic development and how
integration to the south, east and west can help accomplish that.
Once we hear from the panelists, I'll kick off the question-and-
answer period, and then we'll open it up to the audience for questions
as well.
I'm going to start with Craig Steffensen, who is the North American
representative for the Asian Development Bank. Craig just moved to
Washington in May. I think you just came from Thailand, right? Before
that, had spent time in Afghanistan and Kazakhstan, and so bring some
good experience from the region. I look forward to hearing your
thoughts.
Mr. Steffensen. Thank you, Shelly and members and staff of the
Helsinki Commission, for this opportunity to join you this afternoon.
I'd like to especially thank Senator Cardin and Representative Smith
for hosting this discussion on economic development in Central Asia.
By way of introduction, I'm originally from Alexandria, but I've
lived and worked in Asia for 30 years, most of them with the Asian
Development Bank, almost all of them in the field. I hope, therefore,
that my view from the trenches that you'll hear when we move to the
discussion section will be useful.
The ADB has embarked upon the rebuilding of a New Silk Road that
connects Afghanistan with Central Asia--and there's no stretch to say
the Eurasian supercontinent--beginning in 2001. Much of the required
investment that's taken place has been administered through the Central
Asia Regional Economic Cooperation, or CAREC, program to what the ADB
serves as a de facto secretariat. I was the head of the CAREC unit in
Almaty, Kazakhstan, for a few years, in 2004 to '07.
To date, CAREC has funded some 136 projects, focusing primarily on
transport, energy and trade facilitation, valued at more than $21
billion. Some $7.5 billion has been financed by the ADB, $4.2 billion
by the governments themselves and another $9.4 billion by our
development partners who work with us on CAREC.
For those of you who don't know CAREC, it's a voluntary grouping of
10 countries from Azerbaijan to Mongolia, including all the ``stans,''
together with six multilateral institutions--ADB, the European Bank for
Reconstruction and Development, the IMF, the Islamic Development Bank,
UNDP and the World Bank. It's not founded by a treaty or a charter.
It's a very practical, results-oriented sort of building block approach
to development.
The officials involved are not from ministries of foreign affairs.
They tend to come from economic ministries, most of them at the
technical level.
There's annual ministerial-level conference that signs off on
things. There are quarterly senior officials meetings, who prioritize
and sequence what needs to be done. Then there are lots of working
groups in transport, energy, trade policy and in trade facilitation
that meet as needed to flesh out the details of what can and should be
done.
In simple terms, CAREC--it's all about projects. It's also the only
ADB-supported regional cooperation program that has a results framework
which has been endorsed by all the country ministries to monitor the
programs' effectiveness.
Is CAREC achieving the results? Well, I'm probably not the one to
say so, but I believe yes, it is. As part of CAREC's transport strategy
that calls for six transport corridors running east and west, north and
south, ADB has already helped build about 2,500 miles of new roads,
2,000 miles of new railways, 1,500 miles of transmission lines, and
trade facilitation or the time it takes to get goods, people and
vehicles across borders has seen a 50 percent improvement in time.
In Afghanistan, CAREC is helping to rehabilitate the Ring Road, a
1,367-mile highway that links major cities like Kabul and Kandahar with
Mazar-e Sharif and Herat. It's also supporting the development of a
north-south corridor that will one day provide improved access for
Central Asian countries to the ports of Karachi and Gwadar in Pakistan.
It's also supporting a new expressway linking Kabul with Jalalabad,
and a new 46-mile railway line that connects Mazar-e Sharif with
Uzbekistan and, for that matter, with the railway network of Central
Asia, Europe, Russia and China.
So I'd like to believe that CAREC is playing a pretty important
role in linking Afghanistan with its neighbors.
You may have heard of the TAPI project or the Turkmenistan-
Afghanistan-Pakistan-India natural gas pipeline project. It's something
we've been supporting for about 10 years. We put about a million
dollars a year into it. I used to think it was a pipe dream, but I
think every time they meet there's a little bit of progress, you know,
towards moving this project towards reality. It's currently envisioned
to be able to transport 90 million cubic meters of natural gas a day
from Turkmenistan to Pakistan and India.
In Afghanistan, I think the--my proudest moment working there for
six years was the day that the Ministry of--the Ministry of Energy
flipped the switch for lights to come on in Kabul via a transmission
line from Uzbekistan across some pretty mountainous country in
Afghanistan to reach Kabul. It currently provides about 40 percent of
the town with 24-hour-a-day reliable adequate power.
Let me skip ahead here and say that the construction and formation
of the New Silk Road--it's very much underway, and there's been a lot
of success over the past 11 years. We project that by 2020 more than
$50 billion in additional infrastructure is required to complete the
six transport corridors, improve energy security and promote new
corridors.
We look forward to the continued support to our multilateral
partners to support the United States, one of ADB's largest
shareholders, together with Japan, on these initiatives. The U.S. has
been very important to ADB over the years, and we look forward to
closer collaboration with the U.S. to ensure that Afghanistan resumes
its rightful place at the heart of the Silk Road.
Thank you for your attention, and I look forward to the discussion.
Ms. Han. Thanks, Craig, I appreciate that.
Next, we're going to turn to Danica Starks, who is the senior
international trade specialist in the Office of Russia, Ukraine and
Eurasia for Market Access and Compliance in the International Trade
Administration of the Department of Commerce. Danica spends basically
all day of every day trying to promote U.S. engagement, particularly
economic engagement, in the region. So I'm looking forward to hearing
her thoughts.
Ms. Starks. Great, thank you, Shelly and thank you to the members
of the Helsinki Commission for having me on this panel today. You all
have my statement; I will run through parts of it as briefly as I can
and am definitely open to questions later.
My role today is centered around three primary areas that I'll talk
about, and that is looking through strictly a commercial lens, what is
there to be gained by the strategy, the New Silk Road strategy? Is it
viable going forward? What are the challenges that need to be overcome
to make the strategy effective? How is the Commerce Department in
particular leveraged its mission in terms of promoting American
business, but also its expertise in trade and investment and economic
development, to promote regional--the regional integration policies of
the New Silk Road strategy?
As has been mentioned before, the idea of a regional approach into
development is certainly not new. I can say, at least for the last 10
years, there have been various iterations of regional integration
versus North-South corridor, and there's always been a certain amount
of controversy going with it, especially the idea of integration for
the region. There is a lot of sensitivity coming from many of the
countries of the region with integration sort of having a context of
domination, that the idea of integration would mean therefore a zero-
sum game in terms of less political and economic independence, for
nations that were legitimately trying to struggle for an independent
identity, as well as an independent economic identity.
But one of the things that I would like to offer is that regardless
of the terminology, regional integration, New Silk Road and other
things, that the greater issue is that regional collaboration at the
very least needs to increase in order for the economic viability of
this regional to be fully realized.
New Silk Road or not, no matter what we call the policy,
ultimately, companies are going to go where the opportunities of the
market meet what they perceive as the risk and what their risk
tolerance level is. In looking at the region, the question becomes,
does this strategy or how do the strategies that the U.S. government is
working on help to mitigate this risk? That is definitely something
that the Commerce Department in particular is looking at.
Taking it back to Economics 101, I think we still believe that the
development of economies of scale and the pursuit of comparative
advantage still increases economic efficiency and is still a viable
economic model that companies often look to in making a decision as to
whether or not they're going to export to, invest, import from the
region. Companies will go where the market is, and the greater the
market and economic opportunity, the greater of amount of risk that
they generally are willing to pursue.
In my work, I meet with companies pretty much on a daily basis,
answering questions about what the business environment in the region
is like and what are the opportunities, and I've been told on many
occasions that in their--companies are often in a wait-and-see mode.
They're either in the region doing certain projects and waiting to see
whether or not they can expand to other countries in the region and do
other projects, or they're waiting on the margins of the region, often
doing business in countries such as Turkey or Russia, looking at
opportunities in Central Asia.
In some cases, depending on the business model, the companies do
not see the potential of just operating ad hoc-ly in one or two markets
in the region. They really need to see a fuller, more developed market
of the whole region, partly for population reasons, in terms of selling
consumer products, consumer goods, but also logistics in order to make
it viable to enter into the region. So for example, if a company wants
to set up in Country X, they would like to be able to use Country X to
be able to export to Countries Y and Z.
The other thing that we have noticed is--I'll take an example of
the franchising sphere--we've done quite a bit of work trying to help
facilitate U.S. franchise businesses to take root in the region. We
noticed that especially looking at a lot of the smaller markets, given
the logistics with both supply chain, as well as the need to control
quality, to control branding, that often, the master franchisers are
looking for the ability to conduct a franchise agreement with the
region, not just one country. In other words, they don't necessarily
want to go through what it would take to set up in, say, Kazakhstan
alone, without there being a plan to use that as a base for further
work in the region.
So often, when you see a franchise open up in one country, very
often, the person who got that license actually has a license for the
whole region, not just one country.
In addition to those things, the geography of the region, mainly
the fact that the region is landlocked--and even the countries that
border a sea do not border an ocean there's increased transportation
infrastructure links, ease of customs administration on a regional
level in order for individual countries to be successful in getting
their goods out to market, especially outside of the region.
There really is simply a lot more business that could be done if
the region would work together.
There's a recent article that I came across in Industry Magazine
called ``Cold Facts,'' and it was a newsletter and it was an article
written by a gentleman named Bsrat Mezghebe and he's the knowledge
manager for the Global Cold Chain Alliance. He noted that there are
many opportunities for further investment and further work in exports
agriculture from the region if the cold chain storage infrastructure
and transportation and road infrastructure were improved. He noted that
from the Caucasus to Central Asia, fresh vegetables and fruits, frozen
produce often do not make it to market due to the poor infrastructure
and the lack of cold storage capacity.
In this case, this is an example of why regional collaboration is
imperative. If one country were to develop an elaborate road system and
one for cold storage, that's great, if you're only staying in that one
country. But if your goods need to move anywhere else, you need every
country the route to have developed the same level of capacity.
Some countries have made more progress than others, ultimately, it
really depends on a regional approach to looking at things such as
supply-chain management. We've seen some successful examples of where
regional collaboration has led to transformative projects and success.
Assistant Secretary Blake from the State Department spoke in March and
he mentioned the Baku-Tbilisi-Ceyhan pipeline as an example in the
energy sphere of a promising area. And he said, and I quote, that the
Baku-Tbilisi-Ceyhan energy corridor shows us that linking producers in
the region with consumers in Europe is a win-win. The leadership and
collaboration among Azerbaijan, Georgia and Turkey and the development
of the pipeline was critical not only in opening up that pipeline and
that corridor, but also paid forward for further projects, as the Baku-
Tbilisi-Kars railway.
Mr. Blake also went on to note the TAPI project that my fellow
panelists also mentioned, the Turkmenistan-Afghanistan-Pakistan-India
gas pipeline, and that this project, just like BTC, could be another
transformative moment in the region, opening up not just the energy
corridor, but a corridor for goods in transit.
As we look specifically to Afghanistan, it's definitely imperative,
based on a lot of the nascent industries in Afghanistan, that
transportation links be improved. The benefits in general, again, are
not just limited to the New Silk Road. It's not just about Afghanistan
and Central Asia. A lot of this regional collaboration is necessary if
these countries are going to compete with the world and are going to be
able to do business with the world. The challenges have been
enumerated, the invitation to this event actually laid out very well a
lot of them, in terms of the governments being able to create the
necessary conditions, the questions about infrastructure development,
customs regimes, reliable transportation networks, and the political
divide.
I would like to proffer two other challenges from the commercial
perspective that we see: One is looking at the area of public sector
procurement. Companies have noted to myself and my colleagues very
often that they're unaware of the opportunities in the region, because
there is a lack of advance notice about opportunities in mining, in
road construction and other things that are done by the governments of
the region. Even when these opportunities are announced, often the
window for applying is very short, they're very short lead times.
Also, there's often a nontransparent or perceived nontransparent
selection process for many of these tenders, so we have had experiences
where U.S. companies have wanted to go after projects in the region and
have not been able to, solely because they can't actually bid on the
tender.
Another area that has reduced and has potential to reduce
commercial interest in the region is the limited infrastructure for
innovation, and by this I mean the legal infrastructure: poor and in
some cases nonexistent protection of intellectual property rights, a
lack of legal basis for technology transfer, judiciary systems that are
not equipped to adjudicate commercial disputes and commercial issues
and also that are perceived as being heavily influenced by the
executive or other government ministries, and then an often outdated or
nonexistent policies regarding standards and other quality control
items that disincentivize not just U.S. but any companies coming to the
region to innovate but also discourage local innovation as well. In
terms of a commerce response, in my statement that you have in paper,
you'll see that we have a lot of programs to offer. But I wanted to
really emphasize that our goal is broader. It's--in our opinion, it's
not just narrowly about a new Silk Road. It really is about enabling
this region to be the commercial partners that will allow people on
both sides of the water to do more business. I note that, you know,
ideally we would love for Kyrgyz farmers to sell their food in markets
not just to Kyrgyzstan but Afghanistan and Pakistan. If Uzbek traders
could fly directly to Dushanbe, if businessmen flying from New York
could visit Azerbaijan, Kazakhstan and Turkmenistan in one week--how
many of us in this very room have tried to string together three
countries on a trip to Central Asia and just can't do it because the
flights don't exist? You can't drive. It's definitely a challenge. We
want to move beyond just a new Silk Road to really helping these
countries to be competitive globally. Listing several of the programs
that we have working in this area, I'm from the International Trade
Administration, which, broadly speaking, strengthens competitiveness of
U.S. industry by promoting trade and investment. We work to improve the
global business environment. We work to promote U.S. exports to this
region and all the regions of the world. We support efforts, for
example, with accession to the World Trade Organization, which several
countries in the region are pursuing. We have another program that I'll
be mentioning, our Special American Business Internship Training
Program, which we lovingly called SABIT, and that program brings
managers from all over Eurasia, as well as Afghanistan and Pakistan, to
the U.S. for sector-specific training and interaction with U.S.
companies. We have an Afghanistan Investment and Reconstruction Task
Force that supports the development of the Afghan private sector
through business, business matchmaking and various other programs. We
have our commercial law development program, which is under our general
counsel's office, which works to try to help U.S. foreign policy goals
by advising on commercial legal reform.
I'll just list out a couple of examples. The rest you can read in
the statement. The Regional Business Integration program of our
Afghanistan reconstruction task force is going to be assisting its
participating Afghan firms to develop relationships that can produce
opportunities for trade. One of the programs that they have coming up
is called Sheep to Shop, and it's an interagency initiative to develop
Afghanistan's carpet sector. The carpet sector is still Afghanistan's
top legal export. The idea is to help introduce Afghan carpet producers
to wholesale retail markets and also giving them a sense of what modern
trends are in terms of rug design. We're also doing several business
missions, helping Afghans to access markets in Oman, Turkey, the UAE,
Singapore and others places. Our Special American Business Internship
Training Program, among the sectors that it runs programs in, we have
programs in transportation and logistics and cold-chain storage, where
we bring these companies from the region to meet with U.S. companies
and logistics in these areas. I can explain more about that later. Our
commercial--our development program has been implementing programs in
Kyrgyzstan as a pilot for the rest of the region, looking at legal
infrastructure. They've been working on intellectual property rights.
They've been working on customs. They've been working on public
procurement. They submitted a proposal in cooperation with the U.S.
trade representative to do a regional program looking at standards and
customs. In conclusion, I wanted to emphasize that we do not believe
that our core mission, which is primarily to support American business,
American exports, is not mutually exclusive to helping the countries of
the region. In fact, we believe that as we, the U.S., are looking to
promote our own economic growth and to grow domestic jobs, that
building opportunities in this region only helps us. This region taken
together does have tremendous opportunity for U.S. exports, does need
U.S. goods and services, lots of needs and equipment in other areas.
Creating better markets there creates better markets for U.S. products.
Our efforts are not in vain. Our SABIT program that I mentioned has
received a 14:1 return investment for the money--U.S. government money
that was used--that has been used to run the program, they have
generated over $900 million in U.S. exports.
We believe that in helping these countries to compete not just
locally but globally, that there will also potentially be investors for
the U.S. One of the things that this administration has looked at is
how to increase foreign investment in the U.S. I have to put in the
obligatory plug. The Commerce Department is having a first-ever
SelectUSA Summit--Investment Summit October 31 to November 1st, where
we're encouraging people from other countries to come and learn about
opportunities to invest all over the U.S. We would love one day, if not
this year, to see companies from Central Asia coming to maybe franchise
their products and to franchise their businesses in the U.S. and to
employ U.S. workers. We believe that there's return on investment in
these programs, that there is potential but tremendous amount of
challenges. But we're looking forward to working to try to do what we
can to meet those challenges. Thank you.
Ms. Han. Thanks, Danica, that's great.
Next, I'd like to ask Eric Stewart to offer his expertise. He is a
partner with the Washington, D.C., firm of Williams & Jensen, and he
also serves as the executive director of the U.S.-Turkmenistan Business
Council. Prior to that, he was a deputy assistant secretary for Europe
at the Department of Commerce. But Eric gets a gold star in my book
because he's the first U.S. businessman I met at an economic forum of
the OSCE. So he's one of the few U.S. businesspeople who understand
that OSCE process. So over the years I've followed your work, and am
interested to hear how the U.S.-Turkmenistan Business Council is going
and how that parlays into the new Silk Road strategy.
Mr. Stewart. Great. Thank you very much, Shelly. I thought I was
going to earn the gold star because I drove back from vacation today
for this hearing.
Ms. Han. That too, that too.
Mr. Stewart. I'm going back to vacation right after this. Hence the
tan. I have not submitted my paper to you yet, Shelly, but I will do
that after this.
Ms. Han. Taking away the gold star.
Mr. Stewart. Yeah, yeah. I'm going to just talk a little bit and--
rather than go directly through my paper, just give some collective
thoughts on my view of the region and these ideas, something that we've
been talking about, Danica and I have been talking about for many, many
years. What do we do? If somebody actually put out a map out front,
which was really nice to have the map so everyone can see where the
countries are. But if you look at the map, Central Asia really is in
the middle of the world. When you consider the fact that you are
surrounded by China, Europe, Russia, India and the Middle East, the
only thing you're really missing is the Americas and Africa. I mean,
other than that, you're surrounded by the world. And so what a great
strategic asset. In addition to oil and gas and minerals and
agricultural, what a great strategic asset. But there's always a but.
There's a hook, right? So the Central Asian countries are in the most
wonderful strategic location in the world, but the hook is, you're
landlocked. If you're landlocked, you can't develop maritime. Well,
right now, the maritime between Europe and the West, if you will, the
West more generally and Asia, 90 to 95 percent of all the goods going
back and forth between Asia and the West is maritime. Utilization of a
supply route is something you can't utilize. So what do you do? You
develop the land transportation, and that's essentially what really
needs to happen. And you're starting to see a fair amount of the land
transportation being developed: Kazakhstan, China, Turkmenistan,
Russia. A lot of the countries are developing the rail and putting a
lot of emphasis and investment into rail, which is a great idea. But
roads need to also be significantly developed as well, because road
transportation is a great mechanism not just for the long haul between
Europe and Asia, but for the short-distance trading. And why is this
critical? Because this is where the Central Asian countries will input
their goods and their products into the--in the process as well. So if
the roads aren't developed along with the rail, then what you're
essentially doing is building a bridge over or through Central Asia,
and that's obviously not the strategy or the development that will lead
to a long-term development for the republics of Central Asia. It's
critical that we not only have rail development but we have road
development as well.
In a previous sort of life, if you will, I ran a program at the
U.S. Chamber of Commerce called the Eurasia Business Platform. It was a
program that we ran for a number of years that was focused literally on
this very idea of how do we develop and create an interesting policy
program that would be of interest to American companies and doing more
business in Central Asia, because at the end of the day, you know, each
of the countries is doing well enough, right? Each of the countries is
developing. Each of the countries is developing at their own pace. They
are having success. Kazakhstan, obviously, has attracted billions of
dollars in U.S. investment. Turkmenistan--we have--as the head of the
Turkmenistan Council, we have almost 20 American companies that are
members of our council, which is absolutely significant. The countries
are, themselves, doing well in many respects.
They could be doing better, though. That's the idea, and that's the
discussion that we're having today is, how do you--how do you make it
better? What Danica has talked about, and what's been discussed for
many, many years, this idea of the great Silk Road is, you create some
type of regional hub, you create some type of regional interaction.
The fact of the matter is, those discussions--the way we have had
those discussions are not working, in my opinion. The reason they're
not working is, we continue to have these discussions, in my opinion,
with the Central Asians as a group. We group the Central Asians
together and say, you are Central Asia.
That doesn't work very well, in my opinion. Each of the individual
countries need to be treated as individual nations, as individual
republics, and on a very bilateral basis, with the same messaging and
the same points, but not together as a group. This is something that I
think the U.S. government and specifically the USTR recognized a number
of years ago when they had this Central Asia TIFA--the Trade &
Investment Framework Agreement, which is supposed to be a mechanism
leading to future free trade agreements, if you will and a number of
years ago, made the decision to not just have Central Asia discussions
regionally, but made a decision to have regional discussions and
bilateral discussions.
That's something that I think is absolutely essential and critical,
but I think for me and the number of companies that I talk and the
businesses that I talk to, what's essential is to work with the Central
Asian republics to the point where they see the future value and the
immediate value of developing what I consider to be the lowest common
denominator of working together, which is to create some type of
harmonized customs and border procedures, going to Danica's point from
the Commerce Department, because individually, the largest country in
Central Asia is just under 30 million; the smallest is a couple of
million.
Well, for the distance, the complexity, the cultural differences
that we have--that's a long way to go for many American companies to
make an investment. Now, if you bring all the Central Asian governments
together, now you're looking at a substantial market. You put the
Central Asian and the Caucasus together, now you have a market of 80
million people, which is roughly the size of Germany. Now you have an
interesting--from a business standpoint, an interesting market that has
a lot of consumer potential for not only trading but also investing and
potentially creating hubs.
The lowest common denominator, in my opinion, that needs to be
accomplished, is to have some type of harmonized customs and border
procedures. And again, I believe this is something that needs to happen
individually with each of the nations and understanding what they would
be comfortable with and what they're willing to do, recognizing that
security is going to be a--one of the top issues on that agenda, in
addition to the ease of doing business.
But as we talk about this and go through this process, I'm sort of
struck by curiosity as to what's in the Russia-Kazakhstan-Belarus
customs agreement, and, you know, here is something that was able to be
accomplished between three neighbors, two of them very important--or
three of them, really--all three of them very important for the land
bridge, if you will, between Asia and Europe. Is there enough in there
that would allow for the transparency, the security, the stability for
some type of mechanism that Western companies would be comfortable
with?
I don't know the answer to that question; I'm simply throwing the
question out to experts who might. But I think, in my opinion, that's
really what it comes down to, is really finding a way to develop the
borders, because if you don't, then they will--each country will
continue to develop on its own pace, which is not, frankly, in my
opinion, fast enough for each of the countries to allow themselves to
really take their God-given potential in this global economy and
developing at the rate they should be for where they're located and for
the great natural resources that they have.
I think, in order to achieve this has to be an approach with a lot
of organization--we call them the alphabet soup, if you will; the ADBs,
the UNCTADs, the UNECEs, WCO, UNDP, World Bank--I could go on and on;
you name it--but also with the countries themselves, the Turkeys and
Russia and China and the European member states. What else is really
interesting about this is because the first contact points into
Europe--if you were to truly develop a private sector Silk Road that
really made sense are some of the U.S.' closest friends and allies
anywhere in the world. I mean, and a lot of the first entry point
countries are going to be Poland, Romania, Lithuania, into the European
Union. These are countries that we worked with very closely.
I think also, it is very interesting--these are countries, I think,
that would be good partners and good role models and good interlocutors
with Central Asian countries simply because of some of the shared
history and some of the shared challenges that they have jointly gone
through together, and especially when you look at some of the Baltic
countries, the--a lot of the populations are similar in size. So I
think they could be good interlocutors in the process. And in fact,
over the last five years or so, we've seen a lot of heads of state from
the Baltic countries and Central Asian countries visiting one another,
and from Central Europe as well. So I think there's a--there's a real
potential there.
I've gone longer than I expected to talk, but the bottom line is,
my message is, very simply, the importance of some type of custom
harmonization border control program that not only allows trade between
Europe and Asia, but allows the Central Asian countries to participate
and develop in that, so they service the land bridge, but then they
also participate in the land bridge as well. If that's possible, then
we end up with a win-win-win-win situation, thanks.
Ms. Han. Thanks, Eric. Batting clean-up is Josh Kucera, who is a
journalist who writes for EurasiaNet. He also has his own blog--or do
you--the Bug Pit is your blog, right?--and travels a lot in the region;
just recently came back from Tajikistan and also an extended trip to
the Caucasus and the Baltic countries. I've asked Josh to sort of step
back from the details that we've been talking about and give a little
broader view of what's going on, in your perspective. Thanks.
Mr. Kucera. Well, thanks, Shelly, for inviting me to this. So as a
journalist covering Central Asia, and especially U.S. policy towards
the region, I've been closely following the development of the U.S.'
New Silk Road Initiative since it was formally announced by Secretary
of State Clinton two years ago, and even before that, when it was a
concept being worked out by think tanks here in Washington and by
military policy planners at CENTCOM who were looking at long-term ways
to stabilize Afghanistan.
For those of you who are--don't recall the New Silk Road Initiative
when it was rolled out, Secretary Clinton spoke--it was almost exactly
two years ago in India; her sort of takeaway quote from this--
announcing this New Silk Road Initiative--let's work together to create
a New Silk Road; not a single thoroughfare like its namesake, but an
international web--a network of economic and transit connections. That
means building more rail lines, highways, energy infrastructure like
the proposed pipeline to run from Turkmenistan through Afghanistan
through Pakistan into India; it means upgrading the facilities at
border crossings, such as India and Pakistan are doing now at Wagah,
and it certainly means removing the bureaucratic barriers and other
impediments to the free flow of goods and people. It means casting
aside the outdated trade policies that we are all living with and
adopting new rules for the 21st century.
That's a very ambitious statement. Even before this initiative was
rolled out two years ago, there was a lot of skepticism about whether
it was workable. Two years since then have only given more reasons to
doubt its efficacy. Two years after it was announced and a year--only a
year before the U.S. starts to pull out its forces from Afghanistan, it
seems that the New Silk Road remains more of a talking point than an
actual initiative.
When we talk about the New Silk Road, it's important to clarify
exactly what we're talking about. Generally speaking, the New Silk Road
is basically a marketing term that encompasses anything that involves
trade between Asia and the West, whether the former Soviet Union or the
Middle East or Europe.
No doubt there are connections like that popping up all over the
place. That was an inevitable result of the collapse of the Soviet
Union.
With the opening up of the borders of Russia and Central Asia--the
Central Asian states of China and South Asia--of course, cross-border
commerce of all kinds is filling that vacuum that was artificially
created by those hard Soviet borders. Companies now ship goods by rail
from China to Europe through Kazakhstan. New railroads are being built
from Kazakhstan through Turkmenistan to Iran. China, Iran and Turkey
are building roads and bridges in Tajikistan.
However, when we talk about the U.S.'s New Silk Road initiative,
this is something much more specific. This initiative puts Afghanistan
at the center, as a hub of regional trade. This is why the U.S., when
it talks about the New Silk Road initiative, you'll hear them over and
over mention two specific projects: TAPI, like several people here have
already mentioned, and the CASA-1000 electricity export project, which
would ship electricity from Kyrgyzstan to Tajikistan to Afghanistan and
Pakistan.
However, while this U.S. vision is more specific, the means by
which the U.S. intends to implement it remain very unclear. U.S.
officials emphasize they are supporting a regionally-owned vision
rather than putting their own money into it or developing their own
projects.
But the problem is that very few existing regional integration
projects involve Afghanistan, for the obvious reason, that it's very
unstable and has very poor infrastructure. There are very few pairs of
countries that if you try to imagine, you know, the most advantageous
way to get goods from one to the other that the route would pass
through Afghanistan. Making this even less likely is that the U.S.
explicitly says that it doesn't want these projects to include Iran,
Afghanistan's giant neighbor and probably its most convenient corridor
to Europe. So effectively, that leaves only trade between ex-Soviet
Central Asian republics and South Asia projects like TAPI and CASA-
1000.
So those projects, even if they do develop, hardly seem like the
kind of game-changing projects that Secretary Clinton said were part of
the U.S.' vision of the New Silk Road. This focus on Afghanistan I
think is the fundamental flaw to the U.S.' vision of the New Silk Road.
However, there's also a number of more specific reasons that it
won't work. I'm going to focus primarily on, you know, Afghanistan's
northern neighbors, the ex-Soviet Central Asian republics. I think
there are analogous issues. Pakistan's relationship with Afghanistan
obviously is very complex, not to mention with India, that sets on a
set of issues but I'm going to focus here on the Central Asian
question.
The first problem is the lack of a market for this sort of
commerce. U.S. officials have repeatedly argued that the Northern
Distribution Network, the series of military transport routes that it
uses to ship cargo to soldiers in Afghanistan can serve as a proof of
concept for the New Silk Road. And NDN has indeed been a success in
terms of ensuring relatively smooth delivery of supplies to the
military in Afghanistan via the Central Asian states. Recently, the
U.S. celebrated its 100,000th container shipped via the northern spur
of the NDN, originating in the Baltics. But the NDN has a market:
troops in Afghanistan. Absent the military, the U.S. has failed to
demonstrate what sort of market there might be for an Afghanistan-
centered New Silk Road.
The second reason, and this is a big one, is that these countries
fear Afghanistan. Most Central Asian countries want nothing to do with
Afghanistan. They see it as a source only of potential problems,
primarily drugs, radical Islamism and guns.
One buzz word that you now regularly hear in Central Asia, Central
Asian capitals, is spillover. This is the idea that once U.S. forces
leave Afghanistan, the chaos there will increase and spread into
Central Asia. I would argue that these fears are somewhat overblown and
exaggerated for their own internal reasons. Nevertheless, it's obvious
that these countries see Afghanistan, especially post-2014, as more of
a problem than as a solution.
U.S. government officials, when they talk about the New Silk Road
initiative, indirectly acknowledge this fear by saying that increased
trade will result in positive spillover from Afghanistan. But this--
while it's a nifty rhetorical device, there's no indication that
Central Asian governments believe it.
One telling statistic is that while about 80 percent of military
cargo going into Afghanistan has been shipped via the NDN, only 4
percent of the goods being shipped out go via the NDN. That's because
Uzbekistan, which is the first stop after Afghanistan on the main route
of the NDN, has thrown up a number of barriers to traffic coming out of
Afghanistan, making it almost prohibitive to use that route. Shipping
companies working on the NDN say that the government of Uzbekistan is
apparently afraid that contraband can be smuggled via these trains
carrying U.S. military cargo back. The U.S. is sending scanners to the
Uzbekistan border to help expedite this process of clearing these
shipments, but it speaks to the great mistrust that Uzbekistan has of
Afghanistan.
A third big problem is regional mistrust, not just of Afghanistan
but among the Central Asian countries themselves. No Central Asian
regional integration plan can work without Uzbekistan. This is
something everybody agrees on. It's the most populist country in the
region, the only ex-Soviet Central Asian republic to border all the
others. It's the hub of the Soviet legacy transportation system and has
by far the best connection from Afghanistan's north to the rest of the
world. However, it has very bad relations with nearly all of its
neighbors and has exhibited no interest in U.S.-backed regional
integration programs like the Istanbul process.
In addition to the problems mentioned before with Afghanistan,
Uzbekistan has also systematically cut off commerce with Tajikistan. If
you look at the map, you'll see that Tajikistan really relies on
Uzbekistan to--for commerce with the rest of the world. Uzbekistan has
used--with various political problems, has used that fact as a lever to
pressure Tajikistan in various ways. Over the past decade, Uzbekistan
has mined the border, repeatedly raised import duties, imposed visa
regimes on Tajikistan citizens and blocked rail traffic.
Neighboring countries have begun to react to this by creating rail
projects that bypass Uzbekistan, like the Kazakhstan-Turkmenistan-Iran,
and the Tajikistan-Afghanistan-Turkmenistan projects. And while the
projects are necessary lifelines for these countries to avoid the road
blocks that Kazakhstan is throwing up, a real regional strategy has to
include Uzbekistan. U.S. officials, however, almost never acknowledge
Uzbekistan's intransigence on this, let alone criticize it, needing to
stay on the good side of the government for the sake of the NDN.
Fourth big reason is the lack of interest in free trade in the
region. Boosters of the New Silk Road initiative argue that it doesn't
require hardware. It doesn't require the U.S. to necessarily spend any
money on large infrastructure projects, but only software, like
reducing bureaucracy on borders.
Like Eric said, that is the--you know, the primary barrier now to
trade in the region, but the bureaucracy on these borders, that is the
high customs fees and the pervasive corruption are in the minds, of
Central Asian government not bugs but features. Control of border
traffic is a sinecure which all Central Asian governments use to pay
off elites, including their family members. So while free trade may be
good for the countries of Central Asia, it would be bad for the members
of the government and their allies. That's who these governments serve.
That is a problem that the U.S. is incapable of solving.
The final problem is the lack of U.S. resources. This is an
incredibly ambitious vision with a lot of obstacles. The U.S. has
promised basically that it's not going to devote any resources to
implementing it. With a resurgent Russia exerting its authority again
in Central Asia, a China that's obviously becoming increasingly
economically active in the region, the U.S. has less and less clout to
throw around in Central Asia. Absent that, and without spending any
money, it's not clear what Washington hopes to do to steer these
regional integration projects in the direction that they want them to
go. Furthermore, U.S. interest in Central Asia is certain to decline
even more as the pullout from Afghanistan progresses.
In addition to the large amount of skepticism that Central Asia
watchers have regarding the New Silk Road initiative, among its few
backers, there's a frustration that the State Department and other
officials who are supposed to be implementing it are in fact slow
rolling it and not doing anything to implement it.
Taking that all into consideration, it's hard not to escape the
conclusion that the New Silk Road initiative is effectively a little
more than a talking point, a rhetorical fig leaf to make it appear as
if the U.S. isn't abandoning Central Asia after 2014.
Thanks for having me. And I look forward to your questions.
Ms. Han. Great way to start the discussion, Josh. I'm going to kick
off with a couple of questions for the panelists. There will also be an
opportunity for the rest of you to maybe react to some things that Josh
has said.
I think it's true that the term the Silk Road--and the State
Department does have a specific definition I believe on Silk Road
strategy itself, the New Silk Road, but we could look at it as a larger
issue of just economic development and whether or not you're looking at
Afghanistan being integrated with South Asia, India, Pakistan, or if
you're looking more at Central Asia or if you're talking about China to
Europe going through Central Asia, if we just look at this broadly and
ask, what are the opportunities?
I'm curious because Eric had touched on something that's always
been a question in my mind is if we look at the markets and where goods
go there was a great New York Times article last Sunday about Hewlett
Packard sending computers from China to Europe going across the--
Central Asia by rail. You mentioned that, you know, just rail routes
aren't going to cut it because you need the road infrastructure so
that--because even--but to me, it seems like even with roads, Central
Asia is just becoming another transit point.
Then how does transit then translate into economic development,
because it seems that without having any sort of value added by the
Central Asian states or inherent markets that it's difficult to have
growth, economic growth? They'll just become transit opportunities. And
no matter how many truck stops you would build, how is that going to
help the country?
If we could talk a little bit about what we see as opportunities
for actual development and what those things would be. It gets also
into the question of harmonization. I think the ADB and CAREC do a lot
of work on this in terms of the harmonization of the infrastructure.
And maybe you could talk a little bit more about what the ADB has done
and what Eric was talking about, the need for doing that. And Danica, I
think you also have that as well.
If you could also perhaps comment on the Eurasian Union proposal
and then also how, China, I believe, has also proposed a Shanghai
Cooperation Organization free trade area as well, and how those types
of opportunities could help or hurt this type of harmonization strategy
that is needed.
I'll start with Craig, then go to Danica and then Eric and Josh, if
you all want to weigh in.
Mr. Steffensen. Before moving to Washington a few weeks ago I
headed up ADB's office in Bangkok. And I worked quite a bit when I was
there on something called the Greater Mekong Subregion Economic
Cooperation program, which is a predecessor in some ways to the CAREC
program.
We like to show a PowerPoint where we show the sort of evolution of
the road and network across the sub-region. It shows transmission lines
and Internet, telecommunications, trunk lines, pipelines, what have
you.
From 1992, you know, you see one sort of grid, sort of a skeleton
framework, and then it switches to 2002 and then 2012, and the final
slide is what things, you know, may look like in 2022. It's all very
impressive to see these cascading slides of this road, power network
appearing.
That's the most dynamic region in the world today. We thought for a
long time that, GMS investments were sort of--undergirded a lot of the
development that's taking place.
But I saw some slides at a tourism forum recently--it had really
nothing to do with GMS program because it was all private sector--but
they showed the evolution of a low-cost air carrier network in that
part of the world. And it got started sort of in 2001, I think. And
they had only a few slides, but if you look what happened between 2001
and 2013, it makes everything that's happened on GMS look like, you
know, like it's not--it was wired. It looked like the backside of a--
you know, a computer chip under a microscope. It was amazing how
quickly the regional air network has come together. It's not something
that ADB or the governments were directly involved in. These are all
private investors. It's not something that really required a whole lot
of attention on our part. On the contrary, no one was really paying
much attention to this at all. Maybe that's the reason it's taken off
so well.
But extrapolating all this and applying it to Central Asia--and
what I'd like to say is that sometimes I think we sort of take as a
given that there are things we have to do for things to happen. I think
that maybe the low-cost air carrier network and the GMS shows that if
the conditions are right, if entrepreneurs believe that they can make a
buck, and that the government is not going to shut them down, and if
the demand is there, you know, if there are tourists who want to fly
from Bangkok to Mandalay, to Luang Prabang, up to Da Nang in Vietnam
and back to Bangkok, sort of a tourism circuit there, if the same thing
were to happen in Central Asia between--you know, between Tashkent and
Bamyan, and then Bishkek, and I could go on, there's nothing that
anyone really would have to do except to make it known that this is
possible. It's always been sort of a mystery to me why there aren't
more low-cost air carriers across the subregion.
I don't want to look at a glass half empty here and see what's
wrong with the place. I see just all kinds of opportunities. For all
the sort of attention that--for all the reports we read in the media
about how things aren't going so well militarily, even politically in
Afghanistan, my view from the trenches there is that, at least
economically--and if you look at what development partners together
with and others are doing, you know, there's a real success story that
can be told.
Who has the upper hand at this point? I don't know. The politicians
or the business people? You know, one could really muck it up for the
other, but I can't help but think that things aren't as bad as maybe
we'd like to believe sometimes.
On harmonization, what can I say? The fact that Russia has joined
the WTO is huge, and now that they've sort of set terms and conditions
for their own participation, I think the expectation for a long time
has been that Central Asian countries will follow suit, you know, with
a very similar package.
When it comes to some of the trade issues we've been hearing about,
I think WTO will sort of provide a framework where everyone can
negotiate a way forward. There's a spaghetti soup of trade agreements
across the region that sort of, you know, has everyone confused, if not
paralyzed at the moment, but thanks to WTO, I think, you know, there's
a way out of this mess yet.
Ms. Han. Danica, is WTO sufficient or what else do we need to do to
get harmonization going?
Ms. Starks. Sure. Well, being in the WTO alone is not sufficient.
It's what you make of it. Passing laws is not enough. It's enforcement.
However, it does provide an incredible framework. The actual process of
accession is a tremendous opportunity to take a look at the entire
trade infrastructure from a policy standpoint.
But again, a lot of it comes down to something that Josh implied
when he was talking, which is political will, that you can have all the
great laws in the world, but if there are interests who benefit from
those laws not working, then you ultimately are not going to be able to
move forward.
Answering Eric's comment about the Eurasian Economic Community and
the Customs Union, it has been very interesting to watch. The interplay
between Russia, Kazakhstan and Belarus as they negotiate, in some cases
not negotiate, tariffs and other--and common borders and looking at
intellectual property rights and other things, it's a little bit
complicated because, for example, Russia got into the WTO; Kazakhstan
is still acceding. And so there are things that have had to change over
time.
But it's been fascinating to watch because it's forced a dialogue,
and the dialogue is not between countries of the region and the U.S.
It's not about what the U.S. or Europe or what anybody else wants. It's
them looking at their own country, their own nascent industries and
trying to work out among neighbors.
It's an interesting idea, but I don't know that the complexity that
it requires is something that there's political will for right now in
Central Asia in terms of looking at that level of harmonization that's
needed.
I do think that your example, Eric, of looking at the Baltics or
some other countries as there a country--interlocutors and models is a
great idea. Again, I use the term ``regional collaboration'' over, say,
integration not because integration in some cases is necessary--Eric
and others mentioned that harmonization is a key area--but in some
cases, the collaboration is to enable each country to develop
individually. But right now, in a lot of cases, they are competing
against each other.
Everybody is trying to make the same things. Everybody is trying to
sell the same commodities. The region has not really realized the
comparative advantages that it could if countries could actually
specialize amongst themselves. If everybody would agree that this is
the country that's going to specialize in this area, this is the
country that's going to specialize in this area--there were some
examples given the other day that there are countries that are
producing products that they really don't have the economies of scale
to make enough money on.
It would be great if they could just stop producing those products,
but that's not that easy to tell a country that's struggling to prove
that it can operate independently and on its own, but a regional
approach in terms of collaboration and looking at where are the niche
areas that we can fulfill.
You mentioned the Baltics. I look at Estonia. I was there actually
on vacation recently, and I'd gone on a cruise. You pull up to the
port, and they basically did everything possible to encourage you to
get off that ship and spend money in Estonia. I mean, everything but--
come on and wheel you around in a golf cart. In terms of making it very
easy to enter into the port, no bureaucracy in terms of getting into
the country; English and Chinese, Japanese speaking tour guides waiting
around, and sightseeing and those types of things.
Then I look at a lot of the countries in the region that have some
of the--have similar touristic ambitions but it's impossible just to
buy a plane ticket over the Internet in some cases. So the ability to
actually develop a niche, but to have the political will to make the
changes necessary I think is key.
In terms of the idea of harmonization, I think one the tacks that
we've taken is exactly what Eric mentioned, that, in some cases, it
doesn't always work to put everybody in the same room and try to get
everybody to speak the same language. You're right. In addition to the
Central Asia Trade Investment Framework Agreement to have bilateral
working groups to work individually with countries.
Our commercial--our development program--I believe we have a
representative here, Emily Lanihan. In the back. They've put together a
proposal that would do just that, that would look at standards and
customs and other issues but work individually with each country to get
them up to international standard. If you get everybody up to
international standard, then you eliminate just right there a lot of
the barriers. Then you can talk to each other on a regional level
because everybody's speaking from the same page.
So that's another strategy going forward. Whether or not the sort
of Customs Union idea would work, I just--I'm not sure. It remains to
be seen. It's still in the development stages for what it is, but it is
an interesting model to look at.
Ms. Han. Eric, do you have a comment?
Mr. Stewart. Sure. Just building on this idea. There's so many
cultural differences and so many ways of doing business that are
different from us and Central Asia. That's the reason I suggested
looking outside the box.
I don't think you can continue to say this is the way we do it and,
Central Asia, adopt our programs. It's not going to work. We've got to
find ways to do things together that make sense from a Central Asian
perspective and working to their culture and their ideas for business.
That's the reason I threw out something what I think as sort of
unconventional, if you will.
But to go back to your question, Shelly, on the idea of investment
and how does Central Asia play a role and not just be, you know, passed
over or passed through, if you will, transient from one to the other.
If you look at where American companies and Western companies and
any kind of companies invest, they're not political decisions, they're
decisions based on costs, on supply chains, on consumers and the
ability to, you know, efficiently run an operation.
I mean, you look at your example of HP. They've opened their plants
in western China, where issues of corruption run rampant, where crime
is high, where poverty is high, people are still on a couple of dollars
a day. They are in the Wild, Wild West, if you will, of China with
their plant. What country in the world doesn't want HP to open a plant
in their country? Every country wants an HP plant, so western China has
one. There's no reason that that same plant couldn't be housed in any
one of the Central Asian countries, but there are reasons today why
they are not. And one of them is the ability to move efficiently.
I don't think it's so much just focusing on what do the Central
Asians have today that they, you know, grow or that they develop or
that they manufacture that would fit into the overall scheme. It's what
opportunities can they attract, and what types of companies can they
attract, and what types of companies can they bring in? Because a lot
of countries around the world haven't necessarily developed from
themselves what their niche is, right? They brought it in and they made
themselves competitive.
You have tiny little countries all over the world who have made
themselves extremely competitive by being transparent and open and
having the ability to create themselves as a hub for other parts of the
world. I think that's the--that's the message to continue to push.
Frankly, when I look at the countries of Central Asia, I'm not sure
there is a single big American investment anywhere in Central Asia,
outside of energy, outside of the energy sphere. I'm not sure that here
is something significant. There are few things here and there. I mean--
I know Uzbekistan has an assembly planned from Case New Holland, and
they've got the Ford----
Ms. Starks. GM.
Mr. Stewart. GM, sorry. That was an Uzbek sort of financed
operation as they were losing the plant from another company. But I
think the point being, for me, it still goes down to the very
fundamental fact that this is what needs to be developed and it's the
ability to move across borders. If that happens, as you talked to--you
said, as you termed it, the soft--if that happens, the hard
infrastructure will come. The companies will build the roads. The
government doesn't need to do that, the companies will do it. If they
see the opportunity to do business, they'll put the money into the
infrastructure. They'll put the money into the ports, into the
stations, into whatever it takes if there is a system there that shows
them they're going to be able to move the goods.
Ms. Han. Thanks. Just one more question from me and then I'm going
to open it up to the audience, so you all can be thinking about what
you might want to ask.
I want to talk a little bit more about the role of China and the
European Union, and how things are moving across, and what push and
pull factors are there. I know that China is really active in Central
Asia. You probably, Eric, run across trade delegations from China in
Turkmenistan all the time. But I'm curious--do you ever run across
European trade delegations with the same frequency? Do we see the same
type of engagement? Then does the European Union support the ADB and
CAREC programs? What kind of engagement do you have from Europe in
terms of trying to create some sort of integration that way?
Danica, how are you all working with China? Do you work with the
Chinese in the region or is there any sort of engagement on that side?
Thanks.
Ms. Starks. In terms of Commerce specifically, I can't think of an
area where we directly--in terms of third-party work, work with the
Chinese on the region. I think--as far as commerce is concerned, we're
market oriented. We're following what the companies are doing. We are
not taking the lead and telling companies where to go and what to do.
Often, we will--we will look at opportunities where U.S. companies
have expressed an interest in a certain sector, and there might be
Chinese interest in that sector. We will do our best to try to promote
the U.S. component.
But in general, we have not had any sort of third country or
bilateral cooperation with the Chinese in any commercial spheres. But
yes, you do see quite a bit of engagement by the Chinese, as they
should. They're neighbors. So that makes sense.
Ms. Han. Do you see them opening up opportunities that U.S.
companies might--perhaps the Chinese are willing to put in some extra
time and effort or money that doesn't necessarily make sense for
American companies.
Ms. Starks. I would say in general, a lot of the sectors where
we've seen a lot of the Chinese interest are not necessarily areas
where U.S. companies have been as interested in general. So there
hasn't been that cross-pollination as much.
Ms. Han. Except for maybe energy would be the exception.
Ms. Starks. But even there, look at, for example, Uzbekistan.
There's quite a bit of Chinese interest in the energy sector in
Uzbekistan, but you don't really have any U.S. majors that are doing
exploration and development there.
Mr. Stewart. Smaller energy. It's not the huge projects.
Ms. Starks. Very small. Part of it is our interests are different.
China actually borders Central Asia, so it's interested in pipelines
and roads going to and from places that don't necessarily have an
attraction for a U.S. company. It doesn't mean it's not good for the
region, but I think there are a lot of areas where there's a Chinese
interest that there just is not a U.S. interest, and that's OK.
Mr. Steffensen. A lot of what Danica just said about China versus
Central Asia is true. The EU--is there EU interest in CAREC? Yeah,
definitely. We're both involved in trade facilitation work. They made
very clear for years they're interested in joining CAREC, but as a
bilateral at best. We kept them out because once we open the door to
the EU, then the U.S. and the Germans and Chinese and others and Japan
aren't far behind. And the countries themselves decided just to limit
this thing to current membership plus or minus a couple of countries to
ensure that it remains a forum where their interests--that is, the
countries' interests--can be discussed and not those of their
development partners. Yeah.
You said something earlier regarding the New York Times article,
and if I could share or relate something unrelated to Central Asia, but
related to this railway. About a year ago, I had a discussion with the
chief policy advisor to the Thai prime minister. He started talking
about these time trials to move containers between Chengdu, China, and
Lodz, Poland. And I didn't know what the heck he was talking about, so
I went back and started Googling and found a few articles, including a
good one on Business Week. The gist of the New York Times article.
Bottom line is, you know, there is no rail connection between Southeast
Asia and China for that matter between Southeast Asia and Europe today.
But he was talking about the importance of engaging the Chinese
now, even before a rail connection is built maybe through Myanmar or
Laos or Cambodia and Vietnam, to ensure that one day Thailand has
access to the Chinese railway network to be able to export its
containers to Europe in a way that's cheaper and almost as fast as--
well, cheaper than air transport--almost as fast as sending it by ship
that's green and that would, you know, improve logistics and lower
transport cost and improve Thailand's competitiveness.
This railway experiment, it's potentially a game-changer, I think,
in the way we see trade across the continent. The Thai authorities are
looking at it very carefully. ADB has begun to look at it in terms of
the intermodal possibilities that we could be--should be supporting.
But it's potentially a huge development, yeah.
Ms. Han. All right. Eric and then Josh, I don't know if you have
anything to say about China and EU. I'll let Eric start, then you can
finish. Then we'll go to questions.
Mr. Stewart. Before I forget, let me also just include talks about
WTO. Please keep focusing on WTO. It is a very, very good thing. From
the Turkmenistan perspective, we're extremely pleased that Turkmenistan
has started down this process. It's a good thing. It's a painful, long,
arduous thing to go through, but at the end of the day it's positive
regardless of how it plays out.
I think what's actually going to be interesting, going back to your
question, well--one--actually one historical thing that's sort of
interesting. If you look back at the European Union, back when it was
the EEC, before it was the European Union, you know, land
transportation was a big component of that actually coming together and
frankly bringing countries like France and Germany to be able to do
business together. I think actually Europe continues to be--and again,
going back to the point of the Baltic and the Central Europeans, a
good, I think, interlocutor for working with the Central Asian
countries.
Every dynamic has politics in it. There is some politics involved
obviously in that because the Europeans want oil and gas coming from
the region. That's not a bad thing, that's a good thing. But that is a
factor. I think what's actually interesting and I don't know the answer
to this, but I think what's actually interesting and maybe this is not
accurate, but it would seem to me that post-Afghanistan, actually the
U.S. would be a sort of a benign interlocutor in a sense because there
is less of an agenda in the region, right? I mean, the agenda at this
point, will be simply, you know, business opportunities for American
companies and the development of the Central Asian countries.
I think that's actually a very interesting question, sort of
flipping it around and looking at it post-2014.
Mr. Kucera. Well, I'd make the point sort of the converse of what
Eric just said that the U.S. has a very different interest in all of
this than China and the EU in that China, especially, to a lesser
extent EU, I mean, they actually have an economic interest in this
trade. I mean, they can get cheaper stuff or export their stuff
cheaper, whereas the U.S., you know, only very indirectly will benefit
economically from trade in Eurasia. The U.S.' interest is kind of more
geopolitical. I think that to the extent that the U.S. is doing
anything, it's more driven by geopolitics than economics.
Whether the U.S. being an outsider makes them an honest broker,
like you suggested, or if, in fact, you know, maybe they have less at
stake, and so they're more willing to meddle without getting benefit.
Maybe China and Europe's interest is in fact sort of pure in that we
want open markets to--for our benefit for open trades.
One more point I wanted to make that I was thinking about the
Eurasian Union. In my presentation, I made blanket statements about all
of Central Asia. I think Kazakhstan is an exception in a lot of ways to
what I said, that Kazakhstan is in fact interested much more than the
other countries in free trade. I mean, this HP example is one. I
sometimes get the sense that people in Astana are more interested in
the New Silk Road initiative than people in Washington are. They're
constantly asking about it. They're promoting the port at Aktau for the
U.S. to build up and so on.
This also speaks to the Eurasian Union, that they're willing to do
this with Russia and Belarus as well. Kazakhstan does seem to be, in
fact, quite interested in free trade. It's the other ones that we
should have questions about.
Ms. Han. All right, thanks. Now, I'm going to turn to the audience
to see if anyone has any questions. We do have a microphone, I think,
Max, is that right? We're not sure. OK. We do need you to speak into
the mike, though, right? If they don't speak into the mike, is that OK?
All right. If you're going to ask a question, please speak loudly.
We can hear you, but we just need to make sure that the
transcriptionist can hear you. If you could identify yourself, that
would be great. Anyone have a question? Yes over here.
Questioner: Hi. I hope this is loud enough. My name is Charlie and
I'm working for Senator Sheldon Whitehouse. I just have a question. I
wonder if the rest of panel could react to Mr. Kucera's depiction of
the economic outlook for Afghanistan. I'm wondering if the U.S. is
mistaking economic hopes or fantasies for economic strengths in the
post-2014 world.
Ms. Han. OK. Anybody want to take on Afghanistan? Maybe Craig.
Mr. Steffensen. Yeah, I lived and worked in Kabul for six years.
And I don't know what to say except Afghans are born entrepreneurs and
you know, if the security situation were to improve and if there were
opportunities made available to them, other than to carry a gun, I
think they'd be, you know, out there running a business before we knew
it happened.
That's sort of generally speaking, but the mining sector there, as
I think it's, you know, it's no secret whether it's Ainak or Hajigak or
other parts of the country, iron ore and copper, you know, one estimate
made by a Norwegian mining specialist working in the Ministry of Mines
and Industry was that Hajigak alone could bring, I think it was $3
billion a year in revenues to the government for centuries.
Now, that's not as much as USAID was putting in at one point, but
it's a lot for Afghanistan and it would free up the government, I
think, from using a lot of the funds that we're now providing by way of
support to cover recurrent costs, I mean salaries of government
officials and all that, to begin investing in things, so that the
mining sector could actually take off. By that, I mean railways and
power and training for people to work in that industry, et cetera.
Nothing's going to happen overnight. These are long term solutions
to problems. But I don't doubt for a second that Afghanistan has the
potential to become, you know, a leader economically in that part of
the world. Someone said at one point that--I mean, it was the ministry
of mines said that Afghanistan has more underground than China has in
international reserves in banks. Someone went on to say, well, there's
a big difference between having money in a bank and having it
underground. But that's the, you know, that's the amount of resources
that we're talking about.
Ms. Han. Thanks. Anyone else? Yes.
Questioner: Hi. My name is Olga Kuzmina. I'm from the Center on
Global Interests. It's a new think tank that focuses mostly on U.S.-
Russia relations. To me it seems like Russia here is the big elephant
in the room that we haven't really addressed. I mean, you've mentioned
the customs union and the Eurasian Union that Russia's kind of trying
to build in this area. It seems like your kind of idea's maybe that the
U.S. can kind of piggyback often the progress that's made there, like
if they free up the trade borders and have some kind of internal visa
regime, that would make it easier for the U.S. to trade with the region
as a whole.
I think the kind of understated fact is that Russia is kind of
trying to, you know, contain this area for itself with these projects.
How do you envision working with Russia or what problems do you
anticipate, with Russia as the U.S. has been a supporter of the Silk
Road plan and how do you intend to address them or involve Russia
probably could be better?
Ms. Starks. Sure. I don't think that involvement of Russia and our
interests are mutually exclusive. I think Russia not being brought up
today mostly was because my brief from Shelly was to talk about Central
Asia, not to talk about Russia. It wasn't an intentional slight. I
cover Russia as well and there're actually far more U.S. companies now
that are doing business with Russia that if Central Asia--if
opportunities to transit to Central Asia, even from Russia, were to
open up, that they could benefit.
I don't think they're mutually exclusive. I think they could
actually work together. I think there're a lot of U.S. companies now
that are doing business in Russia that are not in Central Asia could
foresee having better opportunities because they already have a base
from which to operate. But right now, going back to, Eric's point about
the harmonization and customs and other issues, just being in Russia
doesn't necessarily mean that the Central Asian market is open for you.
In the case of the customs union with Russia and Kazakhstan, there
are some U.S. companies that have benefited from the opening of transit
between Russia and Kazakhstan. Companies that are already doing
business and producing or doing things in Russia have been able to
benefit by being able to send goods duty-free into Kazakhstan.
I don't think that it's an issue. I don't think that the U.S.--and
I'll let my State Department colleagues take over the political
aspect--but commercially, we're not looking to compete with Russia in
the region. I think similar to China, a lot of our interests
commercially are very different. Right now, as Josh mentioned, the
amount of U.S. investment and trade in the region, apart from oil and
gas, is quite minimal. In terms of the commercial perspective, I don't
think that we could compete with Russia even if we tried at this point.
I don't think that we're necessarily going after the same things.
For example, one of the areas in which several of the countries of the
region are looking for investment is in hydropower. Hydropower is not
an area generally where U.S. companies invest in and manage projects.
We might supply equipment and services, but it's not an area where you
see a lot of U.S. interest in investment. That's a major area where
we're not actually competing with anyone. It's not an area where we
feel that we have an advantage looking forward.
In terms of this, whatever sphere Russia may or may not want to
create, we cannot--that's Russian foreign policy. That's their choice.
I actually had a lunch, several years ago, with trade attache's from
Russia, Japan, Germany and a couple of other countries in Uzbekistan.
We all had the same challenges. The Russians, the Europeans, the
Japanese, everybody was facing some of the same business environment
challenges, so I think actually greater Russian investment and looking
at opportunities in the region could still actually promote a lot of
this opening of doors and opening of harmonization. I don't think it
would be to our detriment if there was greater Russian interest in the
region on the commercial sphere.
Politically, that's a whole different ballgame, but commercially, I
don't know that that actually takes anything away from us.
Mr. Stewart. Yeah, my point in mentioning the issue or throwing out
there the issue was simply--look at it from a Central Asian
perspective. If you've got this--Kazakh perspective--you've got this
customs union already with Belorussia and Russia. The Americans come
along and say we've got this great new border harmonization program we
want you to implement. Then here we go again. Is it the Russians or the
Americans? I mean, you're stuck in the middle of the two, right? My
point in saying the businesses aren't interested in the political
jockeying. The businesses are interested in getting business done.
If that means taking the already existing--the only customs union
that I'm aware of in the region and saying how do we use that as a
starting point to create something broader that we can support and that
we can buy into and that makes sense for American companies, then let's
go that road. That was simply the proposal and the idea. To sort of
further what Danica was saying, when I take business missions to this
part of the world, almost every executive that comes from an American
company is--not all of them, but a majority of them are based out of
Moscow.
This is for them a regional approach to doing business. If we can
find ways to simplify it and to make it easy and make it happen, that's
all we want.
Mr. Kucera. I would just add that, you know, the U.S. does engage
in a lot of Eurasian trade right now, which is the NDN. And Russia is,
in fact, very cooperative with that. I mean, they host almost all of
the equipment and have never really caused any problems from it.
One thing I'm curious and this discussion got me thinking, and I
wonder if somebody in the audience knows--if so, tell me afterwards--
you know, whether the customs union has made it in fact easier because
most of this NDN traffic goes, you know, from the Baltics through
Russia or through--but through Russia, then Kazakhstan, then the rest
of Central Asia. I wonder if this customs union has made that Russia-
Kazakhstan border crossing easier.
Mr. Stewart. On that point, you tried Josh and I think he did a
good job of trying to clarify what is the Silk Road right now. I
actually think there's two different things that we talk about. There's
the north and the south and then there's the east and the west. They're
very, very different proposals and programs. There is the potential for
them to both work together and intersect together, but how that works
at this point is yet to be determined. I mean, it's unclear.
We know it works north to south now with military, but is that long
term, sustainable via the private sector. Look at companies like Maersk
that are moving goods from, you know, Klaipeda to Afghanistan. I mean,
that's working great. You're seeing a neat supply chain that's building
out of that. Hopefully, that's sustainable before '14, but the answer
to that question is yet to be determined.
Ms. Han. And Craig, that was one of the questions that I wanted to
ask you was the issue of the north-south versus east-west. And
certainly, I think, the U.S. is focused more on the South Asia
integration. There's lots of ADB programs that focus on that. You
support TAPI and other things, but I mean, do you think that there's
relative value to one or the other, or is it an all-of-the-above
strategy?
Mr. Steffensen. The last time I looked, I think there was about 1
percent of trade going north-south as there was going east to west. It
was mentioned earlier. I think Josh mentioned it that a lot of
countries would prefer, you know, not to pin their hopes on Afghanistan
as a transport--trans-accorder at this point in time. That's exactly
right.
It's been stated as much in quite a few CAREC meetings. Until the
security situation calms down and the cost of trucks from Central Asia
transiting Afghanistan to Pakistan comes down as well.
We didn't mention Russia very much. We also didn't mention Iran.
The northern and western parts of Afghanistan have security incidents
once in a while. They do. But it's a lot safer up there relatively
speaking than it is to the east and south in Afghanistan. And if only
Iran were part of the picture, you know, we might be able to facilitate
movement of people, goods, and vehicles between Central Asia and, well,
ports on the Caspian Sea.
The ports in Bandar Abbas, in Chabahar are just waiting for these
goods to move in their direction, but you know, until now, I think all
of the incentives are to access ports in Pakistan. Until that changes,
you know, I think it's unrealistic to expect the trade picture between
Central Asia, South Asia to change a whole lot.
Ms. Han. OK. I'm going to wrap it up with one last question and
give the panelists one last chance to respond. I think one of the
themes that we identified today is the issue of trust among the
countries and how that, in conjunction with political will, is a
necessary precondition to creating a better economic environment there,
the precursors for a better economic environment. Wondered if you had
thoughts on what sort of confidence building measures or what sort of
things we should be doing, either from the U.S. government strategy or
from international organizations or other areas that would help move
that forward, the trust issue. I'll start with Josh. I know you're not
a policy person, but give it a shot.
Mr. Kucera. I think you have to think in generational terms,
frankly. I think you have to think in generational terms. I think these
political systems that have arisen in these countries are, you know,
the closed borders and the insularity is built into the system. What
can the U.S. do about that?
Frankly I'm at a loss, other than, you know, wait and perhaps train
younger cadres of people on how to do things more in the way that we
would like them that in the case that there's a slow opening in the
future, those people will have the technical expertise to do something
better. But we have to think very modestly.
Ms. Han. Danica.
Ms. Starks. I don't know that it's something that the U.S. as a
government can make people trust each other. I just don't know how that
could possibly happen. Speaking as a commercial person, I would say
commercial success that involves these countries working together to
achieve a goal could do it. I go back to the Baku-Tbilisi-Ceyhan
example, BTC, and look what that did for the relationship between
Georgia, Azerbaijan, and Turkey. It created--friendship might be too
strong a word, maybe it's not strong enough, but these countries now
depend on each other and depend on each other's security for the
viability of that pipeline.
When Georgia faced troubles early on in the decade, Azerbaijan was
very supportive of Georgia in helping them to develop and keep the
lights on and that type of thing. There's a lot of interest in the
security of the pipeline because Turkey had an interest in what
happened in Georgia.
I don't want to beat the TAPI horse too much, but that's why the
State Department and others have pushed this and other similar
projects, is if you can get these countries to work together for an
overriding goal and have something that important at stake, that's what
can build the trust, having something where everybody in this
particular project is benefiting, but you need everybody to cooperate
and having those kinds of things in place.
But as Josh mentioned, that could be generational. I mean, these
projects don't happen in one year. Craig said he's been working on TAPI
for a decade. And it may not be TAPI. Maybe it's something else. But I
do think that in the long term, there're going to be some projects that
will not go forward unless two or more or three or more countries in
the region come together. And the benefit and the economic benefit and
the economic outlook of that project is going to be so good that it
will force some people to come to the table.
What that project is necessarily, I don't know, but it's going to
be something--it's going to be a deal of a lifetime that the countries
are not going to want to pass up. They're going to work together. That
is one of the ways that trust can be built. But do I think that it can
come from a random government policy? No. I think we can support
projects and things that can, in small ways, help build trust, but I
don't know that there's any one particular thing that we can do.
Ms. Han. It's one way of doing it. Craig.
Mr. Steffensen. Yeah, I agree with everything that Josh and Danica
have said. Clearly there's a new form of multilateralism going on out
there that doesn't include the U.S., and whether it's the Shanghai
Cooperation Organization or the European Economic Community or CACO or
some others. It's important for all of us just to be realistic about
what the U.S. can say and achieve in a part of the world that others
consider their backyard, not ours.
Maybe we need to be a little more collaborative in our approach to
getting things done. The bilateral approach oftentimes is easier, but I
think the sure way to success is just doing something Eric said,
meeting with people privately before you go to a meeting and talk about
it as a group, you know, focusing the discussion on some issues that
people aren't prepared to discuss and not allowing the discussion to go
off course because the next thing you know, they're talking about
trans-boundary water management and all hell breaks loose.
As people have said, it's really a generational thing, not just in
terms of addressing these problems because they're big problems, but I
think a new generation of leadership in that part of the world is
probably required too before we can see solutions to some of these
things.
Mr. Stewart. I think a lot of it is expectations; I mean,
expectations on both sides. What I mean by that is, we're working very
closely with Uzbekistan on the NDN and we say, Uzbekistan, what do you
want? Well, we want investment. We want companies. We bring the
companies, but then they don't invest. Then the Uzbeks look at us and
say, what are you doing for us, right? I think managing the
expectations that our system doesn't work that way, right? We can't go
to HP and say, Uzbekistan is a great friend of ours, put a plant there.
That just doesn't work that way.
I'm going to beat my drum of the customs and border harmonization,
that's what's going to bring the companies. But little that the U.S.
government tells the companies is going to make a difference. What
actually takes place in the region is what's going to make the
difference and what's going to attract the companies.
What else can we do? I think, going back to what I mentioned
earlier, is I really think we need to engage Russia, engage the EU,
engage Turkey, engage China and have these Central Asian talking
points, something of common trilateral, multilateral, whatever you want
to call it. And so when working with the Central Asians or working
directly with the individual countries in Central Asia, they hear a
common theme from Russia. They hear the same theme from the U.S. They
hear the same theme from Turkey. Then it becomes the right answer
versus what do the Russians want, what do the Americans want. They're
constantly being pulled in so many different directions from so many
different entities that want something. But if they continue to hear
the same answer and the same issue repeatedly, then it becomes the
right thing to do.
From that perspective, going back to the question about Russia--
there are so many opportunities to be had in Central Asia and there are
so many opportunities for investment, for trade. There's a lot of
development that needs to take place. There's a lot of money to be made
for each of the countries, but also for the interlocutors that are
working with them.
From the Russia perspective, they actually would have the upper
hand from the Americans because of location and because of historical
reasons, et cetera. I tend to believe--I'll put an American company up
against any company in the world, head to head, and I'll take us. But
at the same time, the natural advantage for Russia would give them--
would give them the lead. There are a lot of opportunities and I think
there should be less us versus them and more, if we would do this all
together, we're all going to benefit.
Ms. Han. Yes, that's a great point. Because the U.S. does have
interests there besides promoting U.S. business. I think we want to see
economic development happen regardless if it's U.S. companies that are
doing it or not. So that's a good point.
I want to thank all of our speakers for participating today. You've
made a great contribution to this discussion. I look forward to
continuing the discussion on this as we go forward. Thanks for coming
and thanks all of you for participating as well.
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