Uzbekistan’s Accession To The Eurasian Economic Union: Advantages and Risks

This blog is part of the series, “Joining the Eurasian Economic Union: Perspectives from the Eurasian Business Community.” It features analysis from renowned economists from EAEU member states and Uzbekistan. This series follows the CIPE-supported virtual roundtable held on October 13, 2020 in partnership with the American Chamber of Commerce in Uzbekistan. The event recording is available in both English and Russian. 

Uzbekistan is not a member of either the WTO or Eurasian Economic Union (EAEU) but has begun the accession process to both organizations. Currently the country’s trade is shaped by the Commonwealth of Independent States (CIS) Free Trade Agreement and numerous bilateral trade agreements. Since all EAEU countries are members of the CIS agreement, further integration within the EAEU bloc will necessitate the redirection of some trade from other markets to the core members of the trade union.

It is not clear whether Uzbekistan will experience a significant inflow of the investment it desperately needs after accession to the EAEU.

If Uzbekistan becomes a member of EAEU before it joins the WTO, this could complicate its accession process to WTO. It is quite likely that Uzbekistan will have to negotiate numerous exemptions with all EAEU members before becoming a WTO member, as in the case of Kazakhstan, which negotiated some 2,400 exemptions.

Regarding Uzbekistan’s potential trade balance with EAEU member states, Uzbekistan will want to maximize its comparative advantage, mainly in agricultural products and processed foods. But a significant increase in the country’s exports will be limited by existing restrictions, since many EAEU standards and technical regulations are not harmonized with international standards. For example, the EAEU still relies on end-product certification. EAEU SPS measures are adopted as technical regulations, which do not comply with WTO TBT and SPS agreements.

Uzbekistan uses excise tax as an instrument of protection for domestic industries. Several years ago, some 2,000 groups of goods, including cars, electronic appliances, food products, cosmetics, medical equipment, and medicine, were subject to discriminatory excise taxes on imported goods. The list currently includes roughly 800 goods, but the discriminatory nature of the excise taxes has not changed.

It is not clear whether Uzbekistan will experience a significant inflow of the investment it desperately needs after accession to the EAEU. For investments to increase, the country needs to create an enabling environment for foreign investment through major economic and trade reform with tangible changes. There is also the risk that Western sanctions on Russia will have a negative impact on Uzbekistan’s access to Western technologies, if it were to join the EAEU.

Since Uzbekistan is not a member of EAEU, it is difficult to quantify the impact of the trade union on the country. However, we can expect the elimination of discriminatory excise taxes on imported goods and a reduction in import duties, in general. The accession also likely to act as an incentive for domestic trade reforms, as well as the modernization of SPS and TBT systems. These changes would help create a better investment climate in Uzbekistan and enable greater integration with the global economy.

The main takeaway from our research is that Uzbekistan needs to reconsider its trade regime and priorities and accelerate its efforts to join WTO. If EAEU accession does indeed serve as a push for Uzbekistan to reform its archaic trade regime, it will certainly have a positive impact on the country. In recent years, the Uzbek government has resolved long-standing issues, such as the unification of multiple exchange rates and punitive tax system. However, reforms in the trade regime and reevaluation of trade restrictions are long overdue. Uzbekistan’s possible accession to the EAEU should also be analyzed from the same standpoint: will it enable the country to modernize its trade regime and better utilize its comparative advantages?

Our participation in the October 2020 conference offered us an excellent opportunity to exchange opinions with researchers from other member states of the EAEU. The conference demonstrated a convergence in the opinions of researchers from different countries on the claim that the EAEU is as much a political as it is an economic institution. Nevertheless, it will have good prospects if it overcomes major integration issues, such as arbitrary decision-making, using trade restrictions to achieve political ends, and the lack of enforcement mechanisms for settlements.

Umida Khaknazar is a trade policy expert at the Center for Economic Development, an economic think tank based in Tashkent, Uzbekistan. She has been involved in international development projects on WTO accession and post accession in Central Asia and CAREC member states (Central Asia Regional Economic Cooperation), funded by various international development institutions, such as ADB, World Bank, USAID, UN FAO, and the EU. Her key expertise is in providing technical assistance in the WTO accession process, preparing draft legislation in WTO related areas, such as Technical Regulation, Sanitary Phytosanitary Measures, Intellectual Property Rights, Regional Trade Agreements, Customs Regulation, Trade Facilitation, etc. She received her LL.M. from Georgetown University Law Center in Washington D.C. and her LL.B. from the University of World Economy and Diplomacy in Tashkent, Uzbekistan.

Ziyodullo Parpiev has over 20 years of experience as a policy analyst and economic advisor. His primary areas of expertise are cost-benefit analysis and policy impact assessment. Ziyodullo is a Senior Lecturer in Economics at Westminster International University if Tashkent. He has worked in public as well as private sector, advised international organizations, such as UNDP and ADB. Ziyodullo received his MA from Saitama University, Japan, and his PhD from the National Graduate Institute for Policy Studies (GRIPS), Japan.