Kazakhstan's Place on Central Asia's New Silk Road
Principal Deputy Assistant Secretary, Bureau of South and Central Asian Affairs
Thank you, Michael, for such a warm introduction. I’d also like to thank the members of Kazakhstan’s American Chamber of Commerce here in Almaty for asking me to speak today. It’s a real pleasure to be back in Kazakhstan, a country blessed by abundant natural resources, and a proud and intellectual citizenry. One need only look out the window here at the majestic Tien-Shan mountains, or visit the ancient caravan routes near lake Balkhash to get a sense of what a truly exceptional place Kazakhstan is.
Bearing in mind this country’s rich history as a crossroads of culture and commerce, I would like to focus my remarks today on Kazakhstan’s robust economic trade relationships with the United States, with its immediate neighbors, and finally with the wider South and Central Asian region, on what we have called the “New Silk Road.” So let’s start with Kazakhstan and the United States.
The U.S-Kazakhstan Relationship
Our relations with Kazakhstan are perhaps our deepest and broadest in Central Asia, with cooperation across a broad range of issues as diverse as non-proliferation, energy, Afghanistan, and regional economic development. Just last week we reaffirmed this broad agenda during the inaugural and very successful first session of our Strategic Partnership Dialogue. Since its earliest days of independence, Kazakhstan has been Central Asia’s economic powerhouse. Looking back, it seems clear that President Nazarbayev’s decision to invite major oil companies to develop the country’s vast hydrocarbon resources in the 1990s was a defining moment for Kazakhstan’s future. Thanks in part to the wisdom of that decision, Kazakhstan is now on track to produce one of the world’s largest increases in non-OPEC global oil supplies over the next 10-15 years, as its oil production more than doubles to 3 million barrels a day by 2020.
And Kazakhstan is clearly the leading destination in the region for U.S. investment. Over the past 20 years American companies have invested more than $16.5 billion in Kazakhstan, with much of that investment focused on the extractive industries particularly the energy sector. But our investment in Kazakhstan hasn’t been totally one-dimensional; U.S. companies increasingly recognize the immense opportunities that exist in other sectors of Kazakhstan’s economy.
Up north in Astana, our Embassy chalked-up 57 concrete export successes in 2011 valued at $7.8 million, and two commercial diplomacy successes valued at $3.4 million. And I’m proud to report that Kazakhstan’s national flag carrier, Air Astana, recently announced the planned purchase of seven Boeing aircraft worth US $1.3 billion. In 2011 alone, U.S. exports to this country rose 13 percent from about $730 million to more than $825 million.
Over the past few years, we have worked hard to establish a number of constructive bilateral dialogues with Kazakhstan, including the U.S. – Kazakhstan Energy Partnership, an agreement on science and technology cooperation, a memorandum of understanding on agricultural cooperation, and our recently concluded Strategic Partnership Dialogue.
Technical assistance co-funded by the United States and the Government of Kazakhstan has also helped regularize the use of international standards for financial reporting, an important step which has improved the business climate here, particularly for U.S. energy companies. Through this sort of assistance, states such as Kazakhstan have become leading reformers in the World Bank’s “Ease of Doing Business” index. Recent initiatives on the government’s part towards WTO accession and increased involvement with the OECD should promote even greater foreign direct investment in Kazakhstan, leading to greater diversification and stability within the Kazakh economy.
Kazakhstan is also wisely investing in the region’s human capital, supporting the next generation of Afghan leaders through a $50 million scholarship program. This program is already on track to educate over one thousand Afghan students in Kazakhstan’s best universities by 2018. The Kazakh government, like the U.S. government, realizes that the region’s political and economic future is inextricably linked to Afghanistan. From our perspective, these people-to-people exchanges are one of the best mechanisms for fostering economic growth and regional cooperation. As Secretary Clinton said recently: “people need a realistic hope for a better life, a job and a chance to provide for their family…that is a lesson we have learned time and again all over the world”.
Increasing Opportunity Through Trade
Yet for all its progress, Central Asia remains one of the least integrated areas of the world. But this hasn’t always been the case. As you know, Central Asia lies at the crossroads of Europe, Asia, and the Middle East. By virtue of this geography, the region historically served as a hub of interlinking trade routes through which ideas, goods, and people passed from one continent to another. Today, Kazakhstan’s neighbors and near-neighbors once again include some of the fastest-growing emerging economies in the world. This broader region of South and Central Asia is home to over one-fifth of the world’s population. That market can fuel both Kazakhstan’s continued economic growth and increased American private sector investment in the region for decades to come.
Economic opportunity changes lives for the better, and one of the best ways to increase economic opportunity is by growing a country’s trade relationships. Trade with neighbors makes good economic sense just look at the United States, where two of our top three trading partners are on our borders, and account for almost thirty percent of our total trade value.
In the greater region, the United States is extremely encouraged by the positive recent steps taken by the Governments of India and Pakistan to normalize trade and commercial ties. This process of normalization in both directions, including the eventual extension of Most Favored Nation (MFN) status by Pakistan and the reduction of non-tariff barriers by India, could lead to at least a $10 billion increase in trade, not to mention expanded economic opportunity and stability for this entire region.
We were also pleased by the historic transit trade agreement between Afghanistan and Pakistan (APTTA), full implementation of which will provide a boost to the economies of the region by reducing the costs and delays in transport between Pakistan and Afghanistan, and expanding reach to world markets. We believe APTTA can serve as a model for the region, helping reduce cross-border smuggling, increase government revenues from legitimate trade, and create a multiplier effect as ancillary services grow to support increased trade. As proof of that concept, Kyrgyzstan, Tajikistan, and Afghanistan have just formalized their own Cross-Border Transport Agreement, or CBTA.
We see these types of developing trade relationships as win-win situations, and we are working hard to support them. Ultimately, we believe these regional trade ties will unlock economic potential, and make countries wealthier and more secure by opening-up opportunities for all citizens.
The New Silk Road
As many of you will remember, Secretary Clinton outlined a vision of economic cooperation, trade liberalization, and increased trade flows along these lines during her visit to Chennai last summer, referring to it as a ‘New Silk Road.’ This New Silk Road envisions a network of economic and transit connections running throughout Central and South Asia, with Afghanistan at its heart. In essence, we see the growth of the New Silk Road vision as a way to strengthen regional economic integration and promote economic opportunity between South and Central Asia through two primary means: First, through trade liberalization which includes the reduction of non-tariff trade barriers, improved regulatory regimes, transparent border clearance procedures, and coordinated policies to accelerate the flow of goods, services, and people throughout the region. And second, through energy and infrastructure which includes roads, bridges, electrical transmission grids, railways and pipelines to connect goods, services, and people.
The idea is a simple one: by maximizing the use of transportation and energy infrastructure and actively promoting cross-border collaboration and trade, Central and South Asia can once again become a bustling hub for global commerce. This is the exact same vision President Nazarbeyev was advancing when he proposed a “single Central Asian network of railway and motor roads meant to leverage the region’s central location and make the region one of the world's future global centers.”
The economic potential of a more open and integrated region as dynamic as this one is virtually unlimited. As the New Silk Road vision becomes a reality, it’s easy to imagine textiles and tea made in Bangladesh making their way through Afghanistan to Central Asia, while Kazakh wheat and energy move southward to feed families and light homes in Pakistan and India. As this New Silk Road develops, you can be sure Kazakhstan will emerge as one of the vital links and vital avenues for private U.S. investment across the region.
Countering New Silk Road Criticisms
We know this vision is ambitious, and there is a lot of work to do on the part of regional organizations and governments to make this a reality. But the New Silk Road isn’t a theoretical construct - it is already being built. As I deliver these remarks, electricity from Uzbekistan and Turkmenistan is powering small businesses and government buildings in Afghanistan; rail connections are being built between Kazakhstan, Turkmenistan and Afghanistan and a new rail line from the Uzbek border to Mazar-e-Sharif has been completed; Turkmen, Afghan, Pakistani, and Indian officials are also actively negotiating a pricing agreement for the TAPI gas pipeline, which will one day ship billions of dollars worth of natural gas from energy-rich Central Asia to energy-hungry South Asia.
As you likely know, a private Indian-led consortium of investors recently secured a bid on 1.8 billion tons of high-quality iron ore in the Hajigak tender in central Afghanistan, and just a few years back a Chinese firm secured mining rights to Afghanistan’s Aynak copper mine reserves. With the Afghan government planning to issue six additional mining tenders in the coming months three in copper, two in gold, one in lithium we would love to see American companies like those represented here today submit competitive, and ultimately winning bids on similar resources.
In addition to these capital intensive infrastructure and extractive developments, a push towards trade-friendly regulatory reform, regional capacity-building, and increased cooperation on border management is starting to take root with regional governments. Initiatives such as the Border Management Staff College (BMSC) in Dushanbe and the Customs Training Facility in Bishkek both of which strengthen technical and people-to-people linkages between Afghanistan and neighboring Central Asian states exemplify the New Silk Road vision.
Outside of our own robust USAID regional integration program, initiatives like the Transport Corridor of Europe, the Caucasus and Asia (TRACECA), the Central Asia Regional Economic Cooperation (CAREC) Program, and the ADB’s Regional Improvement of Border Services (RIBS) project all advance this idea of more trade through reduced non-tariff trade barriers and increased economic cooperation and integration. Because ultimately, safer and more effective border-crossing points coupled with streamlined transportation regulation, means more (and more effective) trade – and that means increased prosperity, peace, and stability for the citizens of this region.
Economic State Craft
As a final point here, I want to touch upon a new initiative at the very heart of our Foreign Policy agenda, and that is the idea of Economic Statecraft. As Secretary Clinton has said, “…our problems have never respected dividing lines between global economics and international diplomacy. And neither can our solutions.” As you know, emerging nations increasingly deal in economic power as their primary means of measuring and exercising influence. At the same time, America’s global leadership is linked to the vitality of its domestic economy. Simply put, America’s economic strength and our global leadership are a package deal. A strong economy has been a pillar of American power in the world. It gives us the leverage we need to exert influence and advance our interests. It gives other countries the confidence in our leadership and a greater stake in partnering with us.
We know that future U.S. competitiveness depends on our ability to curb the growing host of market distortions that too often skew the playing field against U.S. firms including unfair subsidies and regulatory regimes, lax labor and environmental standards, and sub-market export financing. To address these issues, the Department of State is launching a comprehensive trade and commercial diplomacy agenda that aggressively promotes America’s economic renewal. Initiatives like the National Export Initiative, which seeks to double exports by 2014, and the SelectUSA program, which seeks to promote greater investment in the United States, are designed to highlight the role that private sector plays at home and abroad. We are working to address investment barriers globally for example, pushing back against unfair joint venture and tech transfer requirements. We are also working hard to identify unfair practices around state-owned enterprises and to create a level playing field for U.S. firms.
This last point is one I want to focus on a bit, because I think it’s increasingly a point of concern for American business abroad. We are all confronting new and complicated barriers that are emerging not at borders but behind borders, denying American companies a chance to compete on their merits. And this is not just an issue for trade negotiations; it is a challenge for our diplomacy around the world. When governments impose a so-called tollbooth that forces unfair terms on companies just to enter or expand a new market, we push back. When countries turn a blind eye to piracy or other problems, we have to demand that they protect intellectual property. And our embassies are there on the front lines. We step in when we see corruption, red tape, or bullying of small or medium-sized businesses.
When companies want to compete, then countries have to open up their government contracts, and not just expect us to open ours. We are pushing international procurement standards so that it’s not just, again, a one-way street. Because when American companies are not given a chance to compete fairly, that costs us jobs at home. Just as the WTO eliminated the most harmful global tariffs in the 1990s, today we need institutions that can provide solutions to these new market distortions that go beyond tariffs. Countries that share the same economic values need to create and enforce new agreements and mechanisms to guarantee fair competition.
To make the most of open markets, however, we have to make sure that all companies play by the same rules, whether their owners sit in corporate boardrooms or government ministries. Too often, national favorites enjoy preferential access to government resources and special protection from competition in their markets. That gives these companies, whether they are wholly owned or partially owned by a government, an unfair advantage and harms foreign competitors and local entrepreneurs alike. We are working to include a chapter on state-owned enterprises in the Trans-Pacific Partnership and to finalize new OECD guidelines. Our premise is simple; the rules must apply equally to all companies. We call this commonsense principle competitive neutrality, and we promote it all over the world.
But this can’t just be about the government; our businesses also need to lead. Many companies today are sitting on large cash reserves. And in many countries often ask us “Where are the American businesses? Why aren’t they here competing for this contract, for this mining deal, for this business opportunity?” Well, we are working to create an environment where American companies, large and small, at home and abroad, have the tools and the confidence to go full-bore. But ultimately, it’s up to all of you to hire, invest, and take the kinds of informed risks that have always been essential to America’s success.
Today, as always, our foreign and economic relations remain indivisible. Only now, our great challenge is not deterring any single military foe, but advancing our global leadership at a time when power is more often measured and exercised in economic terms.
Our policies are designed to strengthen the American economy, create business opportunities in the region, and to advance stability and prosperity in South and Central Asia. We believe private sector participation and investment in this region not only makes good business sense, but is central to the success of our regional foreign policy objectives.
Along the New Silk Road, all of Afghanistan’s neighbors and near-neighbors, including Kazakhstan, stand to benefit from an end to the insurgency and a broad-based political solution. As Afghanistan assumes lead responsibility for its own security, it is critical that the international community, including Kazakhstan, remain engaged to ensure that the progress we have all worked so hard to achieve in the past 10 years is preserved and has the momentum to continue.
One of the greatest vehicles this region has to promote peace and stability is the promise of economic opportunity. For us, the task ahead will be to continue to open doors for greater private sector engagement. Now more than ever, your involvement as leading business participants in this collaboration is critical, not only to the success of our foreign policy objectives, but to the growth and prosperity of the businesses that help make our country a world leader.
Thank you very much I’ll now gladly take any questions.