Economic cooperation within SCO


MOSCOW. (RIA Novosti economic commentator Nina Kulikova)

The Shanghai Cooperation Organization (SCO), an international club that unites Kazakhstan, Kyrgyzstan, China, Russia, Tajikistan and Uzbekistan, was first set up to resolve border problems and to improve security in Central Asia. In recent years, however, it has been increasingly focussing on economic issues.

The trend toward expanding economic interaction in the region is logical, because the SCO member states have a huge potential for joint activities in trade, primary industries and investment. Yet this potential is far from being fully exploited.

In recent years, all SCO countries have sustained economic growth at 6-8%, which is significantly higher than in Europe. According to forecasts, the pace can be sustained for another five years, first of all due to China's steady growth, which in the last three years has stayed above 9%.

Positive developments in the Russian economy are also important for cooperation in Central Asia to progress. Last year, Russia's GDP grew by 6.4%, which was better than in many developed countries, but lower than in China and most CIS member states. Kazakhstan, for example, has seen its economy grow by 9% annually over the last three years, while Tajikistan has posted a rise of 8% and Uzbekistan of 7%.

Trade turnover between the SCO members has also been growing steadily. According to the Chinese authorities, SCO turnover in 2003 was $19.7 billion. In the first five months of 2004, it reached $8.2 billion, according to the Kazakh government, up 68.7% against the same period the year before. Yet despite the active growth of SCO economies, the organization's trade in absolute figures leaves much to be desired.

According to the Russian Institute for Strategic Studies ("The Shanghai Cooperation Organization: Shaping a New Reality" study, edited by Yevgeny Kozhokin, the Institute's head), China has been the country one to steadily increase trade with regional partners in recent years. Indeed, the statistics of the Chinese Ministry of Commerce shows that Russian-Chinese trade has reached $29.1 billion in 2005, up 37.1% from the previous year. At the same time, last year's Russian-Kazakh turnover equaled $10 billion, and the Russian-Kyrgyz trade was just $543 million.

Further expansion of trade links between the SCO member states depends to a certain degree on when they join the World Trade Organization. China and Kyrgyzstan are already WTO members, while Russia, Kazakhstan, Tajikistan and Uzbekistan are in the process of accession.

The Institute's experts say that China, which has the most powerful economy in the region, is increasingly claiming the role of the SCO economic leader. Its influence on the economic situation in neighboring countries grows every year as it takes part in energy and transport projects in Kazakhstan, Turkmenistan and other states.

This is easy to explain: China's mid-term goal is to develop its western and central provinces. It has already launched investment projects to construct roads, hydropower plants and primary industry facilities in the western and central parts of the country. In case of its successful economic development, Central Asia, which borders on China's northwest province of Xinjiang, can contribute to the region's growth, first of all by its energy resources. According to the province authorities, trade and economic cooperation between the Xinjiang Uygur Autonomous Region and neighboring countries have grown substantially in recent years. In 2005, SCO Central Asian countries accounted for as much as two thirds of the province's foreign trade. Its main trade partner is Kazakhstan.

SCO economic projects are in line with Central Asian states' national interests. Dinara Kaliyeva of the Kazakh Institute of Strategic Studies under the President, says that China's huge economic potential and investment opportunities make economic cooperation within the SCO preferable to other regional unions of the same states. Moreover, China's experience in economic reform can be crucial for Central Asian transitional economies. Shared experience and active cooperation with one of the world's fastest-growing economies will contribute to economic growth in Central Asia.

Russia is also interested in developing economic cooperation within the SCO, as this will raise the organization's influence and, consequently, strengthen Russia's presence in Central Asia. According to Russian President Vladimir Putin, the SCO has gone far beyond its original goals and economic interaction within the organization is gaining importance.

Economic cooperation was first taken up at SCO meetings back in the 1990s.

In 2001, the SCO member states signed the memorandum on main goals and areas of regional economic cooperation and on the launch of measures to ensure favorable conditions in trade and investment.

In 2003, it adopted a program of multilateral trade and economic cooperation. Its long-term goal for 2020 is to shape a new integrated economic space, including favorable conditions for trade and investment in order to gradually ensure free movement of goods, capital, services and technologies within the SCO. In fact, it provides for the creation of an SCO free trade zone in the future.

In 2004, it adopted the action plan for the program of 127 clauses, out of which 19 are related to energy cooperation, 20 to transport cooperation and about one third to education, science and technology.

Energy production, development of new hydrocarbon fields and construction of oil and gas pipelines are a priority area of cooperation within the SCO. Kazakh Prime Minister Danial Akhmetov says that the plan would help to develop a new energy network in the Asian region.

Russia, Kazakhstan, Turkmenistan and Uzbekistan are the region's largest commodities exporters and they need reliable markets. China is the world's largest oil consumer and is projected to import about 200 million tons by 2010 and 250 million tons by 2020. Given the global growth of energy consumption and oil prices, energy partnership is becoming the key area of international cooperation. SCO members can become a stable source of energy for China. According to the Russian Institute for Strategic Studies, Kazakhstan alone will supply China with 15-20 million tons annually in a few years, after a pipeline is constructed under the 2003 agreement.

SCO energy cooperation promises to be lucrative, says Russian Deputy Foreign Minister Alexander Yakovenko. There is a prospect to organize joint geologic exploration and this way start joint development of Central Asian resources. There are also plans to carry out large pipeline projects, such as a pipeline from Central Asia to Xinjiang Uygur Autonomous Region with a complete overhaul of the Kyrgyz pipeline network. Another project of the century can be the construction of a Russia-China pipeline, he says.

The Kazakh prime minister believes that the most promising of the SCO joint projects are the construction of the oil pipeline from Atasu (Kazakhstan) to Alashankou in China, the resumption of oil pumping along the Omsk - Pavlodar - Shymkent - Chardzhou pipeline, cooperation on Central Asian and Russian gas transit, gas supply to China, joint exploitation of the Kyrgyz section of the pipeline from the Bukhara gas-bearing area to Tashkent and on to Bishkek and Almaty.

Also, the first SCO investment and development forum held in 2002 showed that Chinese companies were interested in developing Caspian fields, says Gulnara Karimova, director of the Center for Policy Studies in Uzbekistan. The most important Russian-Chinese project is the West - East pipeline that will transport gas from the Tarimsky basin to Xinjiang and also to Shanghai, she said.

Finally, Central Asian commodities exporters will be able to boost their profits if they develop a single strategy toward consumers. This can be done if the SCO energy club functions efficiently. At present, the consumer takes advantage of exporters' disunity and manipulates prices, says Vitaly Bushuyev, director of the Energy Strategy Institute.

The SCO holds a dialog on developing transport cooperation. Its goal is to work out a coordinated policy on transit shipments and to set up international transport corridors.

According to Yakovenko, the SCO plans to develop the concept of a single transport space. It is already working to modernize motor transport corridors, to study the possibility of new routes, including railways, from China's western provinces to Europe. New transport corridors can create absolutely new directions in the regional economic policies, he says. Their favorable influence will be felt in the short term both in Central Asian states and in their neighbors.

At present, the priority is given to developing such international transport corridors as the Trans-Siberian Railway and the North-South Corridor, which ensure cargo shipments from Europe to Asia, says Alexander Misharin, Russian deputy transportation minister. However, for these corridors to function properly, all SCO states need to have a unified legal framework.

According to the statements made by the Tajik Transportation Ministry, one of the most topical corridors may run along Uzbekistan - Dushanbe - Pamir - Kulma passage - Xinjiang Uygur Autonomous Region. Tajikistan hopes to ship cargos from Russia and Europe by this corridor. However, to make the route comply with international standards, the country will have to invest in reconstructing some of its sections, especially in the Gorno-Badakhshan Autonomous Region.

In 2003, the member states agreed on a set of measures to improve road communications within the SCO. However, many opportunities in the sphere remain unrealized, says Kyrgyz President Kurmanbek Bakiyev. He believes that issues related to road communications require additional work.

The construction of railway, road, river and air communications connecting the ASEAN countries with Europe via Central Asia would promote trade and stable economic growth in the latter, says Kaliyeva. Development of the trans-continental communications corridor following the ancient Great Silk Road, is important even for China, which wants to get access to Caspian oil resources and find new ways to European markets, she points out. China's interest in developing communications across Central Asia will be increasing as its economy grows and its western provinces develop.

Russia attaches special importance to promoting financial cooperation within the SCO. President Putin says that Russia will welcome the organization's plans on mounting cooperation between financial and banking institutions and the planned Eurasian economic forum.

At present, the countries are working on draft agreements to encourage and protect mutual investment. Notably, Kazakhstan presented its draft in April 2006.

In 2003, Chinese companies invested $1.6 billion in the SCO countries. At that time, Chinese Deputy Minister of Commerce Zhang Zhigang said that the amount was not big and that his country would work to develop cooperation with its partners within the SCO.

In 2004, Chinese President Hu Jintao announced that his country would provide other SCO member states with subsidized commodity loans worth $900 million in order to spur economic cooperation. In future, China intends to expand its export credit program for the SCO. "The Chinese government will be increasing the sums of loans as needs will grow," said Chinese Prime Minister Wen Jiabao.

This will definitely promote broader economic cooperation within the organization. However, experts of the Russian Institute of Strategic Studies, say that China seeks to provide commodity loans to SCO members, as it boosts its trade volume.

In 2005, the SCO countries signed the agreement on inter-bank cooperation, which seeks to improve bank cooperation on financing and servicing large-scale investment projects in the member states. The parties hope to shape modern efficient infrastructure to support trade and economic links between the SCO members. If the agreement works in practice, it will simplify mutual settlements and guarantees on banking operations. This will help to involve SCO business and financial circles in large investment projects in the region.

Among other priority areas the program names interaction in high information and telecommunication technologies, agriculture, education, science and innovation, and healthcare. According to Yakovenko, this is in fact a program of the region's joint development in the first half of the 21st century.

The Shanghai Cooperation Organization plays an increasingly prominent role among regional structures set up in the post-Soviet period to ensure multipolar development. Moreover, as economic cooperation was launched, interaction within the SCO acquired a new pace, its international prestige has grown, and the interest on the part of the world community has increased. However, economic talks within the SCO take a long time. Although the member states have seen a trend of economic growth in recent years, which offers favorable conditions to develop trade and boost investment, the level of economic interaction in the region is rather low. It remains to be seen whether the SCO will be able to achieve an economic recovery and boost trade and economic links between the member states.

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