Tajikistan is expected to join the World Trade Organization (WTO) in spring of 2013 becoming country 159 on the list of nations in the crew. The move has some long-term positive potential for the impoverished Central Asian economy, but faces an arsenal of intractable challenges.
Pascal Lamy, Chairman of the WTO said that Tajikistan accession will “send a clear signal to all its partners that Tajikistan is willing to play by global rules.” The rules referred to include:
- Non-discrimination in trade agreements
- Binding and enforceable commitments
- Safety valves
Wikipedia can give you the breakdown of what these entail. Lamy’s statement speaks to the transparency that full WTO compliance could bring to Tajikistan. Meanwhile the Minister of Economic Development and Trade, Sharif Rahimzoda’s hopes that ascension forecasts prosperity for the country—as neoclassical economics would have us believe—however, similar experiences have not produced idyllic results. Kyrgyzstan was the first Central Asian nation to join the WTO in 1998. Also an impoverished, relatively resource-scarce mountain nation, the lessons from its experience should be critically examined when anticipating future impacts in Tajikistan.
When import tariffs collapsed, Chinese goods flooded into Kyrgyz marketplaces driving out domestic producers and concentrating wealth into the hands of those who could negotiate the best import contracts from outside. While economists laud this move as a wakeup call to economies that forces them to recognize their comparative advantage in the global marketplace and reallocate resources accordingly, the friction of transition is undeniable. Further, not all nations are equipped to fully capture their comparative advantage. In Tajikistan’s case hydropower exploitation and export could provide a dramatic boom to the economy; however, neighboring Uzbekistan downstream regards dam building as a threat to its own national security. In this case capitalizing on a comparative advantage could, ironically, leave Tajikistan worse off if regional disagreements can’t be assuaged.
In Tajikistan’s case, WTO accession similarly risks exposing nascent domestic industries (agriculture and textiles) to heightened price competition. If significant dislocation occurs—which can be expected—two outcomes are possible and not mutually exclusive: 1) more Tajik men leave the country to work in other Central Asian countries and Russia where job markets are stronger or 2) unemployment increases along with the probability of civil unrest. Scenario 1 would lead to divided families, remittance incomes that are subject to international currency movements and a perpetuation of the brain drain plaguing Tajikistan. Scenario 2 could imply rioting or increased pressure to traffic in narcotics from Afghanistan.
Falling domestic output and rising imports would also stimulate an increase of Tajikistan’s trade deficit, as happened in Kyrgyzstan, and put further downward pressure on the exchange rate. While this will help those families living off remittances from abroad (because foreign currencies will buy more Somoni), while import goods that average Tajik citizens rely on such as fuel, clothing and electronics will become relatively more expensive.
The World Bank lists Tajikistan’s low rate of private investment as its biggest hurdle to economic development in years to come. The greatest benefit Tajikistan can expect in the near term is greater consideration for foreign direct investment in mining, hydrocarbon extraction (if such stores become proven), textile production and farming. The mandatory regulatory reforms that come with WTO accession will make Tajikistan a bit more favorable in the eyes of multinational corporations, however, Dushanbe will still be competing with a slew of other developing nations for this attention.
WTO regulatory reform could help, but there are a number of other hurdles that foreign investors face including ongoing corruption, interruptions in electricity, poor infrastructure and the fact that it’s landlocked. Uzbekistan and Tajikistan’s thorny relationship will likely not improve in the future, nor will Afghanistan’s safety as a transit nation. Adjusting to the new WTO regulations will not be painless or quick. Capitalizing on the benefits of the global marketplace will require Tajikistan to pursue much more important and difficult issues than trade reform.