Monday, 14 December 2015 00:00

The EU and Kazakhstan: Developing a Partnership in Trade and Transport

by S. Frederick Starr and Svante E. Cornell

Click Here for PDF version

In 2015, the EU revised its Strategy for Central Asia, and finalized an Enhanced Partnership and Cooperation Agreement with Kazakhstan. These welcome steps will not turn the EU into a regional powerhouse overnight, but provide the EU with a platform to play a constructive role in Central Asia. The EU can achieve that if it avoids focusing on issues where it has little hope of direct influence, such as regional security affairs and domestic governance. Instead, to gain such a role eventually, the EU should focus on revitalizing the promise of its visionary initiative of the 1990s – the Transport Corridor linking Europe to Asia via the Caucasus and Central Asia – which it allowed to slip, handing the initiative to other powers, primarily China.


An Enhanced European Profile in Central Asia
On December 21 in Astana, the EU and Kazakhstan signed an Enhanced Partnership and Cooperation Agreement. This agreement, the first of its kind with a Central Asian country, had been initialed in January 2015, and provides an important platform for European engagement with Central Asia. In June, the EU Council in June 2015 also adopted so-called Council Conclusions on the EU Strategy for Central Asia, effectively updating the document dating to 2007. The signing of the Enhanced PCA took place on the sidelines of the eleventh EU-Central Asia Ministerial Meeting, which gathered representatives of the five states of post-Soviet Central Asia, and at which EU High Representative Federica Mogherini termed developments in Central Asia “extremely important” to the European Union.
Yet the PCA, and the broader Strategy, remain general documents that largely lack concrete priorities. They emphasize human rights as well as security and stability, yet the EU is unlikely to develop a sizable role in either area anytime soon. Security and stability in the region remains dependent largely on the regional states themselves, not least of them Afghanistan, and on the priorities of and interaction between Russia, China and the United States in the region. The EU can, and does, play a supporting role in enhancing border control and drug enforcement in the region, but has neither the intention nor the ability to expand its role to other areas. And whereas a number of EU member states have voiced strong concerns over the human rights situation in Central Asian states, the EU lacks the influence to affect the situation. Europe is simply not important enough a partner to affect the domestic priorities of Central Asian leaders, and certainly not to mitigate the adverse effects of the informal power struggles within regional elites that are often at the heart of the lack of meaningful reform.

The EU’s Comparative Advantage: Trade and Transport
There is, however, an area in which the EU could have significant impact – and one that would, in the long run, make it a much more credible force in enhancing security and promoting human rights. That is the development of Continental Transport and Trade – an area where the EU took the initiative in the early 1990s but ran out of steam.
With its visionary but poorly implemented TRACECA project (Transport Corridor Europe-Caucasus-Asia), the EU pioneered the idea of rebuilding trade and transportation arteries between Europe and Asia across Central Asia and the Caucasus. Since 1998, when the EU co-hosted a conference in Baku on the “Restoration of the Historical Silk Road,” the term “New Silk Road” has gained currency in a virtual competition of initiatives. The U.S. launched its New Silk Road (NSR) initiative in 2010, which nevertheless remained focus on a North-South axis centered on Afghanistan, and failed to get the endorsement from the Presidential level needed for its success. In 2013, China launched the much more well-endowed Silk Road Economic Belt. It is remarkable that the EU is now absent from the list of leaders of this grand project. In fact, initiatives of the regional countries themselves have gained a profile much greater than TRACECA’s. Kazakhstan and Uzbekistan have made major investments in railroad development; Azerbaijan, Kazakhstan and Turkmenistan have each developed modern port facilities on the Caspian Sea; and Azerbaijan, Georgia and Turkey are about to complete the missing links in a railroad corridor that could link Hamburg to Hanoi. Further west, Georgia has developed the capacity of its Black Sea ports, while Lithuania has pioneered a “Viking Railway” linking the Baltic and Black Seas across Belarus and Ukraine.
But while overland trade links offer great potential benefits, these corridors are only in a formative stage. Approximately 90 percent of the cargo from Europe to China is transported by ship via the Suez Canal; most of the remaining volume is flown by air. The overland corridors traversing Central Asia are shorter compared to sea routes, but are presently inefficient and, in some cases, relatively expensive. Several obstacles must be overcome in order to make overland transport corridors genuinely competitive. Notable among these are slow borders, but other causes for delay range from impediments in the legal, economic, tax, organizational, and banking sectors to issues with security and communications. Furthermore, there is a need to create integrated and competitive intermodal transportation and logistics networks across the region. The fact that Central Asia is landlocked compounds these problems, but the heart of the problem is that bottlenecks in one section of a given route end up affecting the entire route and those trading along it. It is in these areas that the EU could play an important role.
As European leaders consider the expansion of trade and transportation links, Kazakhstan occupies a unique position in at least three ways. First, by virtue of geography, Kazakhstan forms a one-country link between China and the Caspian Sea. Second, as the signing of the Enhanced PCA shows, Kazakhstan is the Central Asian country that has gone the farthest in terms of deepening institutional cooperation with the EU. Third, in a regional context Kazakhstan offers an improving business environment crucial to the establishment of a trading hub: In the World Bank’s Doing Business 2016 ranking, Kazakhstan jumped 12 positions in a year, from 53rd to 41st. If the EU were to take a more strategic approach to continental transport and trade, it will be natural to focus initially on the partnership with Kazakhstan. Importantly, this should not occur at the expense of a focus on other regional countries, but as a first step in what must ultimately be a regional effort that includes all Central Asian states, including Afghanistan.
To date, the EU and Kazakhstan have focused their efforts almost entirely on the link between China and Europe. In light of the advanced development of infrastructure along this route such a focus is entirely natural. However,Europe's long-term interest will include an equal emphasis on connecting Europe and India. This development is almost inevitable, given the demographic future of the Indian sub-continent (India, Bangladesh, and Pakistan). Within twenty years this region will be far more populous than China and, unlike China, with its rapidly ageing population, all three countries on the Indian sub-continent will have a far larger working age population. In this respect, India's cohort alone will far outstrip China. Even if the economies of the subcontinent progress at a slower rate than China did in the period 1991-2016, one can be certain that the importance of their land trade with Europe will soar.
Kazakhstan's location offers great potential for such trade with both northern Europe and Russia, but such potential will not be achieved without focused and joint attention to the Europe-Kazakhstan-India route by the EU and Kazakhstan together.

Promoting Market-Oriented Initiatives and ‘Soft Infrastructure’
So far, the efforts to promote Eurasian trade routes have been dominated by governmental programs, as is understandable with infrastructure. However, henceforth the progress of the initiatives will increasingly be determined by market realities. The key question is whether shippers in the EU, the Middle East, and Asia will choose to use the infrastructure that governments have helped provide. The development of land routes is occurring at a time when ships are going back and forth between Europe and Asia partially empty. Therefore, the building of trade links in Europe and Central Asia should focus not just on the completion of TRACECA, but more importantly, on making these transit routes attractive from a market standpoint.
The program will rise and fall on the basis of soft infrastructure, which depends solely on the private sector. This means that governments have to focus on easing the crossing of borders, implementing low or at least competitive tariffs, as well as providing frameworks that ensure the quick and fair resolution of disputes arising from shipping. In sum, the task will be to focus on the market and make trade routes both predictable and attractive to businesses near and far.
It is unfortunate that enthusiasm for the construction of “hard infrastructure” has relegated all other forms of infrastructure to a secondary status. The world is littered with grand infrastructure projects that failed due to the postponement or non-existence of the supporting institutions that are essential to their functioning. The widely quoted phrase “Build a road (or railroad) and people will use it” is simply wrong. They are just as likely to ignore it.
“Soft infrastructure” takes many forms. The most obvious is the structure of tariffs imposed on shippers using a given railroad or road. The case for low tariffs is obvious, for without them shippers will turn to more competitive routes. But if they are too low, citizens of the transited country will object, claiming that their territory is being used by others, without adequate payments to them. Reasonable and firm agreements between the EU and Kazakhstan can prevent this from happening. Such agreements must involve all interested countries and parties and must be solidly endorsed by the private sector as well.
A second dimension pertains to private firms in such fields as freight forwarding, logistics, insurance, storage, supplies and equipment maintenance, and hotels. Each of these is important. Indeed, the absence of any one of them could break the chain of institutions necessary for the smooth functioning of an international trade corridor.
To date, there has been little, if any, serious discussion of these crucial issues. Even though private firms in many countries have quietly carried out their own analyses of the needs and prospects, there exists no major study by either European or Central Asian experts on how to encourage the establishment of the network of companies and industries as a whole. Such studies, in which European and Kazakh experts could take the lead, should seek to identify the impediments that will inhibit the free development of private initiatives in each of these areas, and which may arise from national legislation, permit requirements, overly restrictive labor laws, taxation of essential imported equipment, or controls on the repatriation of earnings. The first task of policy must be to identify all such barriers to the development of soft infrastructure in each of the areas listed above and to lead a systematic process to alleviate them.
Further, effective measures must be taken to ensure that a key node is created along the China-Europe route for firms in all the key areas of soft infrastructure, e.g. freight forwarding, logistics, insurance, storage, supplies and equipment maintenance, and hotels. A glance at the map, as well as the country’s economic situation, shows that Kazakhstan is ideally situated to serve as a hub for these services.
However, geography is not destiny, and any number of impediments could neutralize the potential benefits Kazakhstan should derive from its location. While Kazakhstan has embarked on laudable efforts to diversify its economy and has a more beneficial business climate than its neighbors, the country does not presently offer market-friendly conditions to host firms in all these areas. Still less is it able to generate firms of its own that will be able to successfully compete with the international giants that will inevitably appear on the scene. Restrictive regulations, bureaucratic lethargy, and outright corruption are the chief villains. Without a firm hand from the Government of Kazakhstan, backed up by clear and effective support from the EU, Kazakhstan will be doomed to the status of a passive transit country and not an active participant in the new continental economy and a beneficiary of its fruits.
Serious and well-known impediments in Afghanistan and Pakistan/India have caused policy-makers to ignore the opening of a Europe-India route via Kazakhstan. This is a mistake. Both Europe and Kazakhstan have a serious long -term interest in this second continental corridor, and they should therefore be working together now to remove these impediments. Recent visits by the presidents of Pakistan and India to Central Asian capitals, the signs of a practical detente between India and Pakistan on the issue of trade, and the opening of work ion the TAPI pipeline, which involves India, Pakistan, and Afghanistan in a collaborative effort, justify cautious optimism. The EU and Kazakhstan should therefore place diplomatic work in behalf of a future EU-India corridor via Kazakhstan at the top of their regional diplomatic agendas, and begin making practical plans for such a land corridor in the event that a breakthrough occurs.

Going Forward: EU-Kazakhstan Cooperation on a Logistics Hub
The EU and Kazakhstan, involving official bodies but especially the private sector, should develop a partnership in all fields of logistics to accomplish two goals: first, to have them base their Central Eurasian operations in Kazakhstan and, second, to work with Astana to create Kazakh-managed entities locally. In other words, the goal should be to strengthen Kazakhstan’s public and private sector in all the relevant fields of soft infrastructure. Since nearly all of Eurasia’s leading logistics firms are European (mainly German, Swiss, and Danish), it would be possible within the framework of the EU-Kazakhstan partnership to mount a systematic program to build Kazakhstan’s capacity in the area of soft infrastructure to a world-class level. Once this is realized, it is more likely than not that such success will nudge Kazakhstan’s neighbors toward emulating the reforms that were needed for this to be realized.
A recent Kazakh initiative is relevant in this regard: the Astana International Financial Center, modeled on the equivalent center in Dubai, which was announced in July 2015. Confirmed by the Kazakhstani senate in November 2015, the AIFC will be lodged on the grounds of the EXPO 2017 in Astana, be based on British law, and will have a special tax, currency, and visa regime to attract foreign personnel. To establish Astana as a financial center, the AIFC will essentially operate under its own legal regime, derogated from national law. Clearly, this initiative, if realized, will go a long way toward encouraging the type of investments in soft infrastructure that will be crucial for the development of the transport sector, and on this basis, further specific initiatives in the transport sector should be considered.
It would be highly desirable for the EU to propose the creation of a special entity within its consultative process with Central Asia that would focus on land transport and would recommend joint actions that are needed in that area. Since the establishment of such an entity will take time, the EU should begin the process at once on a bilateral basis through its Enhanced PCA with Kazakhstan. However, a bilateral approach can only be a precursor and never a substitute for the region-wide arrangements that both the EU and Central Asian countries need.

S. Frederick Starr is Chairman and Svante E. Cornell Director of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Center affiliated with Johns Hopkins University-SAIS and the Institute for Security and Development Policy.

Read 10808 times Last modified on Monday, 11 January 2016 15:58





  • CACI Chairman S. Frederick Starr comments on "Preparing Now for a Post-Putin Russia"
    Friday, 03 November 2023 18:30

    Whether Russian President Vladimir Putin dies in office, is ousted in a palace coup, or relinquishes power for some unforeseen reason, the United States and its allies would face a radically different Russia with the Kremlin under new management. The geopolitical stakes mean that policymakers would be negligent not to plan for the consequences of a post-Putin Russia. On November 2, 2023, CACI Chairman S. Frederick Starr joined a panel organized by the Hudson Institute’s Center on Europe and Eurasia for a discussion on how US and allied policymakers can prepare for a Russia after Putin.

    Click here to watch on YouTube or scroll down to watch the full panel discussion.

  • Central Asia Diplomats Call for Closer Ties With US
    Monday, 26 June 2023 00:00

    REPRINTED with permission from Voice of America News
    By Navbahor Imamova

    WASHINGTON -- U.S.-based diplomats from Central Asia, a region long dominated by Russia and more recently China, say they are eager for more engagement with the United States.

    Many American foreign policy experts agree that a more robust relationship would be mutually beneficial, though U.S.-based nongovernmental organizations express deep concerns about human rights and authoritarian rule in the five countries: Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan.

    Michael Delaney, a former U.S. trade official, argued in favor of greater engagement this week at a webinar organized by the American-Uzbekistan Chamber of Commerce.

    He noted that three of the five republics are World Trade Organization members and the other two are in the accession process — a goal actively encouraged by the U.S. government.

    "I've always believed that this is a geographically disadvantaged area. There are relatively small national economies," he said. But, he said, collectively the region represents a potentially more connected market, about 80 million people.

    Key issues

    In this virtual gathering, all five Central Asian ambassadors to Washington expressed eagerness to work on issues the U.S. has long pushed for, such as water and energy sustainability, security cooperation, environmental protection and climate, and connectivity.

    Kazakhstan's Ambassador Yerzhan Ashikbayev said that despite all factors, the United States does not want to leave the field to China, its global competitor, which actively invests in the region.

    "Recent visit by 20 companies to Kazakhstan as a part of certified U.S. trade mission, including technology giants like Apple, Microsoft, Google, but also other partners like Boeing, have shown a growing interest," Ashikbayev said.

    The Kazakh diplomat described a "synergy" of economies and diplomatic efforts. All Central Asian states are committed to dialogue, trade and multilateralism, he said. "As we are witnessing the return of the divisive bloc mentalities almost unseen for 30 years, it's in our best interest to prevent Central Asia from turning into another battleground of global powers."

    During his first tour of Central Asia earlier this year, Secretary of State Antony Blinken visited Kazakhstan and Uzbekistan, meeting separately with the foreign ministers of all five countries.

    That was deeply appreciated, said Meret Orazov, Turkmenistan's longtime ambassador, who also praised the regular bilateral consultations the U.S. holds with these countries.

    Uzbek Ambassador Furqat Sidiqov sees the U.S. as an important partner, with "long-standing friendship and cooperation which have only grown stronger over the years."

    "The U.S. has played a significant role in promoting dialogue and cooperation among the Central Asian nations through initiatives such as the C5+1," he said, referring to a diplomatic platform comprising Washington and the region's five governments.

    "This is where we address common concerns and enhance integration," said Sidiqov. "We encourage the U.S. to bolster this mechanism."

    Tashkent regards Afghanistan as key to Central Asia's development, potentially linking the landlocked region to the markets and seaports of South Asia. Sidiqov said his country counts on American assistance.

    'Possibility of positive change'

    Fred Starr, chairman of the Central Asia-Caucasus Institute in Washington, ardently advocates for the U.S. to adopt closer political, economic and people-to-people ties with the region.

    In a recent paper, he wrote that among dozens of officials, diplomats, entrepreneurs, experts, journalists and civil society leaders interviewed in Central Asia, "even those most critical of American positions saw the possibility of positive change and … all acknowledged that the need for change is on both sides, theirs as well as ours."

    This is the only region that doesn't have its own organization, said Starr, arguing that the U.S. could support this effort. "We have not done so, probably because we think that this is somehow going to interfere with their relations with their other big neighbors, the north and east, but it's not going to. It's not against anyone."

    "Easy to do, low cost, very big outcome," he added, also underscoring that "there is a feeling the U.S. should be much more attentive to security."

    "Japan, the European Union, Russia, China, their top leaders have visited. … No U.S. president has ever set foot in Central Asia," he said. He added that regional officials are left to wonder, "Are we so insignificant that they can't take the time to visit?"

    Starr urges U.S. President Joe Biden to convene the C5+1 in New York during the 78th session of the U.N. General Assembly in September. "This would not be a big drain on the president's time, but it would be symbolically extremely important," he said. "All of them want this to happen."

    Read at VOA News

  • Read CACI Chairman S. Frederick Starr's recent interview on the resurgence of Imperial Russia with The American Purpose
    Tuesday, 23 May 2023 00:00

    Why Russians Support the War: Jeffrey Gedmin interviews S. Frederick Starr on the resurgence of Imperial Russia.

    The American Purpose, May 23, 2023

    Jeffrey Gedmin: Do we have a Putin problem or a Russia problem today?

    S. Frederick Starr: We have a Putin problem because we have a Russia problem. Bluntly, the mass of Russians are passive and easily manipulated—down to the moment they aren’t. Two decades ago they made a deal with Vladimir Putin, as they have done with many of his predecessors: You give us a basic income, prospects for a better future, and a country we can take pride in, and we will give you a free hand. This is the same formula for autocracy that prevailed in Soviet times, and, before that, under the czars. The difference is that this time Russia’s leader—Putin—and his entourage have adopted a bizarre and dangerous ideology, “Eurasianism,” that empowers them to expand Russian power at will over the entire former territory of the USSR and even beyond. It is a grand and awful vision that puffs up ruler and ruled alike.

    What do most Russians think of this deal? It leaves them bereft of the normal rights of citizenship but free from its day-to-day responsibilities. So instead of debating, voting, and demonstrating, Russians store up their frustrations and then release them in elemental, often destructive, and usually futile acts of rebellion. This “Russia problem” leaves the prospect of change in Russia today in the hands of alienated members of Putin’s immediate entourage, many of whom share his vision of Russia’s destiny and are anyway subject to Putin’s ample levers for control. Thus, our “Putin problem” arises from our “Russia problem.”

    Click to continue reading...

  • CACI director Svante Cornell's interviewed on the 'John Batchelor Show' podcast regarding Turkey's 2023 presidential election
    Friday, 19 May 2023 00:00

    Listen to CACI director Svante Cornell's recent interview on the 'John Batchelor Show' podcast regarding Turkey's 2023 presidential election. Click here!

  • New Article Series on Changing Geopolitics of Central Asia and the Caucasus
    Wednesday, 24 November 2021 11:53