Border Regimes and

Trade in Central Asia

Saumya Mitra
The World Bank
Brussels, March 2-3, 2009

World Banks involvement

Cross-border trade within the CAREC (2007)

completed
Trade Corridor Performance Measurement in Central &
South Asia (2006 and 2007)
Bazaars and Trade Integration of CAREC countries
(June-October 2008) ongoing
Deepening integration in border regions within
CAREC - ongoing

Cross-border trade within the CAREC

Background
Ministers of CAREC countries recognize the importance of border trade;
At a meeting in Urumqi in October 2006, they requested that the World Bank
conduct a study on border trade amongst the CAREC countries.
Key objectives
To identify
The scope and content of border trade actual and potential;
Its drivers;
The impediments it faces, such as physical, i.e., infrastructure of border
crossing points, and non-physical barriers (e.g., customs practices);
Major actors; and
Its impact on poverty reduction
The World Banks response
Project was designed in January-February 2007
It was launched in April 2007 with the completion of recruitment of national
teams in Kazakhstan, Kyrgyzstan and Tajikistan. Uzbekistan refused
participating in it.
Surveys of selected border crossing points in three countries above were
conducted in May and June 2007
3

Cross-border trade within the CAREC

Our work has shown that cross-border trade hinges critically on:

The ability of people to routinely cross the border without

paying a large unofficial payment;
The ability of people to routinely cross the border with
goods without having to pay prohibitive tariffs, or taxes or
duties and border charges
The ability of people to cross the border with their own
passenger vehicles or with light vehicles from bordering
regions.

Cross-border trade within the CAREC

Governments can intervene to facilitate cross-border trade
First example:
The Afghan-Tajik cross-border project represents the first stage towards wider and deeper
integration based on cross-region cooperation. In 2003, the Government of Tajikistan launched
a program designed to facilitate cross-border trade with Afghanistan. The program has enabled
the opening of BCPs together with bazaars located within Tajik territory (diagram below for their
layout). The facilitating aspects can be summarized as follows:
Bazaars opened at several BCPs between Tajikistan and Afghanistan
No visas required from Afghan citizens to enter the bazaar (they surrender ID or passport
and collect it when they leave the fenced bazaar);
Second example: The Chinese-Kazakh Korgas BCP
Cross-border trade benefits from two key measures:
Residents of the Kazakh Panfilov district can enter China without any visa if they stay no longer
than one day. The waiving of the visa requirement is important, as visas can be only obtained
in Almaty, about 300 kilometers from Jarkent, and are expensive.
Some cargo brought into Kazakhstan from China is duty-free. Cargo whose weight does not
exceed 50 kilograms and value not exceed US$1,000 can be brought into Kazakhstan without
paying any border charges.
This set of preferential arrangements has benefited the development of cross-border trade. The
Korgas bazaar, often described as a "showcase of cross-border trade," has emerged as one of
the most important platforms supplying southwestern parts of Kazakhstan.

Cross-border trade within the CAREC

But Government intervention can create obstacles to Cross
Border trade
Visa requirements
The cost of a visa alone can erect an insurmountable barrier to cross-border trade. Visa
requirements or even visa-free entry if combined with large stamps (covering at times an entire
page) to mark each entry and exit in the passport, constitute a barrier to engage in trading
activities. Applying and obtaining a visa requires a trip to the capital or the consulate city.
Vehicular restrictions
Local people usually cannot drive their own vehicles in other countries, are restricted to a few
kilometers into the territory of another country, or are burdened with unreasonable paperwork
and high fees.
Opening hours for BCPs
Hours of operation could be a significant barrier.

Cross-border trade within the CAREC (cont.)

Closure of BCPs
Several BCPs of Uzbekistan vis--vis Kazakhstan, Kyrgyzstan and Tajikistan have
been closed. Examples are BCPs in Batken and Djalal Abad oblasts. Evidence
suggests that such closures have had an adverse impact on local livelihoods.
Exemptions
Uzbekistan imposes much smaller limits on exemptions from taxes and other
border charges than other central Asian Carec countries. This clearly discourages
cross-border trade.
Uncertainty in implementation of rules
Cross-border traffic can be limited by uncertainty associated with the
implementation of rules. Thus, the open border agreement between Kyrgyzstan
and Uzbekistan, which went into effect on February 12, 2007, ceased to be
implemented from March 2007, thereby compelling Kyrgyz and Uzbek nationals to
obtain visas, but was subsequently restored so that both nationals can now travel
visa-free and without stamps in passports.

Cross-border trade within the CAREC

Closure of bazaars
There are cases of bazaars located next to BCPs being forcibly closed
or being made to move 20-odd kilometers away from the border (e.g.,
the one near Dostuk BCP in the Ferghana valley).
Infrastructure
Among border posts sampled in the reports survey, border-post
infrastructure has not appeared as a significant constraint to crossborder trade. But rehabilitated infrastructure will support border-trade
only if accompanied by facilitating procedures.
Role of regulations
Transport arrangements may discriminate against cross-border traders.
Example of the Kulma pass BCP. But regulations can also ease border
resident movements.

Wider public policy concerns

Security is often cited as a factor for imposing controls as is the
discouragement of contraband trade. But such governmentimposed obstacles are usually a blunt and expensive instrument
to attain such public policy aims.
Visa, security policies and the like are often very difficult
questions. The effectiveness of government-imposed obstacles
can be weak (restrictions often are countered by smuggling or
unofficial payments).
The ultimate public policy aim of prosperity and security is
perhaps best achieved through a combination of highly liberal
cross-border trading conditions accompanied by intelligent
policing and customs practices.

Trade Corridor Performance Measurement in

Central & South Asia
Key objectives
Identify barriers to trade flows
Develop recommendations on improvement of
infrastructure and procedures
Dialogue with the regional governments
Establish baseline to measure project impact: road
construction, customs modernizations, trade
facilitation and other projects
Benchmark against other trade corridors and Regional
TTF programs

Trade and border issues as seen within Trade Corridor

Performance Measurement in Central & South Asia
Central Asia has the potential to flourish as a corridor for
transit trade between Russia, China, South Asia and
Europe
Significant physical and non-physical barriers to trade
and transport, thereby increasing the economic distance
Transit transport by road is primarily used for connecting
Central Asia with markets in Western Europe, Turkey and
the Russian Federation
In physical terms, the corridor through Afghanistan and
Pakistan offers the shortest distance to the Indian Ocean!
Lack of cooperation between countries, is a major issue.

Instruments
Five major instruments are being
employed:
On-site physical
measurements
Truck driver interviews
Survey of freight forwarders
Survey of customs brokers
Trip diaries
Next step is of Corridor
Performance Measurements to
South Asia (co-financed by
USAID)

Summary of observations
Informal barriers are high in Central Asia
Delays by other border agencies can be
significantly more than Customs
Elimination of delays needs careful assessment
Measurements should be continued on a
systemic basis
Results should be disseminated in and outside
the region
Further support from Governments and
International organizations is needed

Bazaars and Trade Integration of CAREC countries

Key objectives
Identification of the map of bazaar trading
activities in terms of sources of supply and
direction of flows: hubs and spokes.
Estimate of the scope and composition foreign
trade flows intermediated by bazaars.
Estimate of welfare effects of bazaars
Identification of policy implications and
developing recommendations

Bazaars and Trade Integration of CAREC countries

Significance of the foreign trade bazaar transmission

channel
Shuttle large-bazaar-destined trade takes place in regional
hubs with international reach and local spokes.
It is the major source of supply for most consumer products,
with aggregate turnover exceeding that of retail stores in
most Central Asian countries;
It is also an important source of employment and livelihood
for large number of traders and producers alike.

Bazaars and Trade Integration of CAREC countries

An examination of the bazaar channel and its welfare effects

has important policy implication

First, a good understanding of factors driving this trade will shed

light on weaknesses in respective foreign trade regime (as it
applies to standard trade) or more broadly in business climate.
Second, there are important lessons that can be drawn from its
use for necessary policy reforms that would transform these
flows into regular or standard trade flows.
Third, an assessment of welfare impacts of these flows may tip
the balance against taking measures designed to suppress this
trade because of alleged foregone customs and tax revenues.
One suspects that welfare gains in terms of employment and
poverty reduction may be much higher than revenue losses

Deepening integration in border

regions within CAREC
What is Euroregio?

Its underlying concept stems from the simple idea that going a step further and
deeper beyond the existing framework of bilateral relations between governments is
beneficial to the welfare of contiguous local communities, while paving way for better
relations between nations.
It is a framework for cooperation among regions located across national borders;
It dates back to the late 1950s when a fatal episode close to the Dutch-German
border in 1958 generated a push towards opening of the borders between two
bordering regions;
Starting in the 1990s, the concept was adopted by countries outside the EU as well,
with the strong support of both the European Commission and the Council of Europe.

Model of Euroregio usually entails cross-border cooperation:

Covering various areas such as development, environment, health and emergency

assistance, business and trade, tourism activities, as well as culture and sport.
Addressing the movement of people, capital, goods and services often going beyond
rules negotiated for the national economy.
In other issue-areas of relevance to contiguous communities

Examples of cross-border cooperation

HEALTH
Emergency ambulances
operation across border
(Belgium France)
Cooperation of mountain
assistance (France-Italy;
Briancon-Turin)
Nurse training (FranceSpain; Lavelanet-Mataro)
Cross-border Network for
the primary prevention of
drug addiction (GermanyPoland)

BUSINESS, TRADE and

TOURISM
EureGo (Udine and
Slovenia) local transport
and infrastructure, joint
tourist festivals and labor
market activities)
Euroregio Karelia
(Russia and Finland) - The
coordination of Interreg
and Tacis programmes
Kaliningrad (Russia),
Poland and Lithuania
wholesale food market,
development fund for
Kaliningrad, aviation,
transport

ENVIRONMENT and
CULTURE
Adriatic Euroregion
Includes projects for
protection of the cultural
heritage; protection of the
environment; Ecotourism,
fishery and agriculture
Euroregion Baltic
(energy and water
forums, green circle
schools network of
schools for education and
training in sustainable
environmental
development

Deepening integration in border

regions within CAREC
Why is the experience with Euroregio worth exploring?

It has laid foundation for sharing benefits of more open borders also among
countries not parties to preferential regional arrangements
It has piloted various ideas of deeper integration tested first at a micro-level
It has proven to be an effective instrument complementing bottom-down
integration
It has energized public support and set the groundwork for closer cooperation at
central government level

Can Euroregio be transplanted?

While no equivalent of Euroregio has as yet emerged along the borders of
contiguous CAREC members, interactions already occurring and potential
benefits stemming from their expansion make it an attractive concept to
explore for CAREC governments.
Various arrangements already exist between bordering regions, formal and
informal, that would benefit from stability assured by the status of Asiaregio
e.g. Kulundu on TJK-KRG border and Korgaz on KAZ-CHN border below)

Deepening integration in border

regions within CAREC
Key objectives:
To adopt the concept to CAREC conditions and
assess its potential benefits:
To identify contiguous regions that might benefit
from institutionalized forms of closer
cooperation:
To activate a bottom-up dimension of CARECled regional integration effort.
To develop ideas for the areas to be included
as Asiaregio-type cross-border cooperation