Boosting US Trade & Investment in Central Asia

On July 24, I happened to be home in the US, and attended a briefing on Boosting US Trade and Investment in Central Asia that was held at the Capitol Hill Club in Washington, D.C. The event was organized by CIPE (Center for International Private Enterprise) and ITIC (International Tax and Investment Center). Here are some of my notes:

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The event was moderated by Margarita Assenova, Senior Fellow, Jamestown Foundation.

Speakers included:

Eric Hontz, Director, Center for Accountable Investment, CIPE

Ariel Cohen, Managing Director, Energy, Growth & Security Program, ITIC

Matthew Edwards, Director, Office of Russia, Ukraine & Eurasia, International Trade Administration

Yerzhan Ashikbayev, Ambassador of the Republic of Kazakhstan to the United States

Jimmy Panetta of California, Congressman – US Representative from the State of California

Lars Hickey, Managing Director, Project Finance and International Government Affairs, Waptec

Daniel Witt, President, ITIC

Joe Wilson, Congressman, US Representative from the State of South Carolina. Chair, Subcommittee on MENA (Middle East and North Africa) and Central Asia, and the Helsinki Committee.

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In introductory remarks, it was noted that Kazakhstan has made progress in recent years in terms of the fact that the current President, Kassym-Jomart Tokayev, has announced that he will be a one-term president, and will step down after his current term. Notably, Kazakhstan also recently passed a landmark law against domestic violence.

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Matt Edwards talked primarily about opportunities for US trade and investment in Central Asia, as well as about current issues:

1)??? Transport and Logistics – Countries are landlocked and so transport costs 60% more. They need software, regulation reforms, and infrastructure. Meanwhile, there is a growth of Demand for cargo transit capacity. The MC (Middle Corridor that transits Central Asia) only accounts for 4% of EU-China trade, which keeps growing.

2)??? Agriculture – Agricultural associations of Kazakhstan, Kyrgyzstan, Uzbekistan are now cooperating.

3)??? E-Commerce – Need regional integration to unlock market of 70M people.

4)??? Critical Raw Materials – Mining, Adding Value, ESG standards – clean labor supply chain.

5)??? Tourism – Need regional cooperation. Attractive for tourists to be able to visit more than one country on their trips to Central Asia.

Edwards also noted that:

Kazakhstan has a multi-vector foreign policy.

Kazakhstan represents 2/3 of the Central Asian economy, and is the 2nd-largest in the former Soviet Union, after Russia.

Kazakhstan wants to boost ties with the US, not just to increase trade, but to unlock the internal potential of the region.

So, they have initiated regional consultations, meetings of heads of state, hosted B5+1 Forum, US Dept of Commerce Tradewinds mission, USTR (US Trade Representative) Katherine Tsai visited the region, hosted CRM dialogue in February, partners of MSP (Middle Security Partnership Forum), Helena Matza visited Kazakhstan and Uzbekistan and the Middle Corridor. Waptech facility is 100% US-owned and produced American locomotives in Kazakhstan.

Kazakhstan delegation was also in the US this past week to consult on AI and innovation.

In the past, Central Asia was not integrated, but that is now changing. 5 years ago, trade in the region was less than 5% of each individual country’s total trade. Now, regional trade is up 80% to more than $10B, and soon will reach $15B.

Kazakhstan itself wants to reach $450B in total trade by 2029.

The bill to remove the Jackson-Vanik Amendment now has 37 co-sponsors. Congressman Pannetta of California noted that Jackson-Vanik should be abolished for Central Asian countries, as it is an impediment to US trade with and investment in Central Asia. It is a relic of the Cold War, when the Jackson-Vanik Amendment passed as part of the 1974 trade act, and was intended to punish the Soviet Union by restricting investments and trade relations due to the Soviet Union discriminating against Jews and not allowing them to emigrate. As some of the constituent states of the former Soviet Union, the 5 Central Asian countries are still subject to Jackson-Vanik, as it was never repealed for them. Currently, the Central Asian states get year-to-year waivers, but the general agreement is that being on the Jackson-Vanik list puts these countries on the list with other bottom feeders and prevents more investment and trade. Therefore, the 5 countries should be removed from the list.

However, Congress must ratify the bill, and Congress is dealing with many issues. Jackson-Vanik is not at the top of those.

Congressman Trent Kelly has proposed the Uzbekistan Normalized Trade Act.

Senator Chris Murphy has proposed Permanent Normal Trade Relations (PNTR), for Kazakhstan, Uzbekistan and Tajikistan.

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Daniel Witt mentioned that ITIC has a new report on Critical Raw Materials (CRM) in Central Asia.

Kazakhstan is ranking high on national competitiveness and this attracts US companies to Kazakhstan.

Companies are looking for sensible economic policies, not too much red tape, rule of law, protection of property and rights.

Now, there is uncertainty over the future due to the Russia-Ukraine war, sanctions, and the willingness of the US government to put in the resources to develop relations with Central Asia.

Since the US is pivoting towards Asia, Central Asia as part of Asia, should be paid attention to.

Central Asia can also serve as sources for Asian countries for minerals and agriculture. Especially, Kazakhstan has a lot of arable land.

With regards to CRM, the US and Kazakhstan held a Strategic Energy Dialogue last week and signed an MOU to diversify CRM supply chains.

Central Asia wants more US economic and business presence in the region and looks to US technological leadership.

US should work with allies, commercially – these can include countries such as the Gulf States and Turkey.

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Obstacles:

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1)??? How much can Central Asian countries cooperate and integrate with each other?

2)??? Need for harmonizing products and safety standards, customs procedures. Uzbekistan has liberalized in this regard.

3)??? Need for greater logistics cooperation among countries of the region. Azerbaijan, Kazakhstan and Georgia have created joint logistics coordination, while Turkmenistan, Romania, Azerbaijan and Georgia created the Caspian Sea-Black Sea Transport Corridor.

US govt cannot direct companies to invest, that is, it must make commercial sense for companies to do so. But it can facilitate dialogues, like B5+1 and CRM. Meanwhile, it can also help Central Asian partners learn what they need to improve their investment climates.

At the very least, the US can remove barriers to investment, such as Jackson-Vanik.

US govt should also explore deeper financial cooperation, such as USDFC (US Development Finance Corporation), both working with development banks in the region, such as Kazakhstan Development Bank, or US SBA (Small Business Administration) with private banks. US export and development support agencies also need to step up their game.

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Lars Hickey mentioned that Wabtec, a private sector company, has worked with KTZ (Kazakh Temir Zholy), employing over 1K people in Kazakhstan, and investing about $100M/year in production and supply chains, there.

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Eric Hontz talked about the fact that agtech and fintech are developing in Central Asia. As well, he mentioned that the US private sector does not go in to countries to undermine territorial integrity and country sovereignty.

The B5+1 Communique addressed regional integration, private sector collaboration with the government and the harmonizing of regulations, to create a regional market of 70M people.

OECD (Organization for Economic Co-operation and Development) has the proposed idea to create a joint infrastructure fund.

Also, there could be a joint strategy of US and allies engaging in FDI with Central Asia.?

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Ariel Cohen mentioned he is himself a Jackson-Vanik baby, as he and his family emigrated from the Soviet Union. He has talked with the Jewish community in Kazakhstan, and they themselves want Jackson-Vanik repealed. Russia and Belarus were taken off the list, but put back on due to the war.

This should be a bi-partisan issue, as shown by the joint attendance of Wilson (R) and Panetta (D).

China does $90B in trade with Central Asia, Russia does $4B, while US only does $2B.

Regarding geopolitics, Ariel Cohen feels that one area where the US and China probably agree is that the sovereignty and territorial integrity of the 5 CA countries should continue.

Areas of opportunity for US companies in Central Asia include biotech and fintech. The Kazakh company Caspi had an IPO of over $4B, for example.

Does Congress have the time to pass the Jackson-Vanik legislation before the next Congress?

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Ambassador Yeshikbayev stated that he has had over 100 meetings on The Hill regarding Jackson-Vanik. Right now, there is a year-to-year waiver. But, being on the Jackson-Vanik list puts Kazakhstan and other Central Asian countries on a list with the bottom feeders.

?In favor of repealing Jackson-Vanik, he noted that 50% of global uranium is produced in Central Asia.

It is important to recognize Central Asia on its own merits, and not just through a geopolitical competition lens, that is not through Iran, Russia, China, Afghanistan, counterterrorism.

“Not great game, but great gain.”

Different superpowers can all benefit with Kazakhstan and Central Asia serving as a bridge.

It is the united opinion of major Jewish organizations that Jackson-Vanik should be repealed.

Currently, Pepsico has a new production plant in Kazakhstan.

Waptech has $1B credit line from US Eximbank.