The Potential of the Trans-Caspian Trade Route

Remarks
Kurt Tong
Principal Deputy Assistant Secretary, Bureau of Economic and Business Affairs
Trans-Caspian East-West Trade and Transit Corridor Forum
Kenney Herter Auditorium, School of Advanced International Studies, Johns Hopkins University
Washington, DC
April 28, 2016


Ambassadors, distinguished guests, and friends. I greatly appreciate the opportunity to join you here today.

And my thanks to the Central Asia and Caucasus Institute, the World Bank and the U.S. Chamber of Commerce for organizing this important and timely conference.

I recently returned from trips to Central Asia and the Caucasus to see first-hand how several countries are preparing to take advantage of the great potential of the Trans-Caspian Trade Route.

In Bishkek, I led the U.S. delegation to the first joint Economic Working Group meeting of the United States and all five Central Asian states. The meeting was first proposed during Secretary of State John Kerry’s historic visit to all five Central Asian states last fall as a way for our six countries to discuss ways to increase economic cooperation, boost trade and investment and promote regional integration. Of course, increasing trade connections both east-west and north-south was a key topic of discussion during the meeting.

In Georgia, I traveled to Poti to see the port operations there and learn about their plans for expansion. I also visited the site of the proposed Black Sea deep-water port at Anaklia and met with the American and Georgian consortium seeking to develop that project. Shortly thereafter, I visited the Port of Alat, outside Baku, to learn how they are preparing to expand their links across the Caspian Sea to Kazakhstan and Turkmenistan and then west to Georgia, Turkey and onward to Central Europe.

In all three countries, I was deeply impressed by the desire of so many government officials and private sector representatives to expand trade and investment connections between neighboring countries in order to better integrate into global networks and sustainably grow their economies.

As all of you know better than anyone, this is a challenging time for the economies of many countries in the region. Today let me share some thoughts on the task ahead in improving trade and investment ties, and how we view the great potential of the region to establish a series of “value added” hubs on the Trans-Caspian Trade Route.

Economic Shocks Underline Importance of Diversification

Several economies in the region have been hit by a series of negative shocks – in particular, low commodity prices including oil, weaker growth, and currency depreciations in trading partner countries.

Governments in the region, as well as others around the globe, have come to understand that diversification of their economies is imperative to sustainable economic growth. Already we have seen a number of actions in response to the worsening external environment, and the United States stands ready to assist in these efforts.

Central to this process of diversification, of course, is increasing trade and investment ties with neighbors in the region, with the EU and with the United States.

Over the past few years, many governments have worked to integrate their countries more fully into the global marketplace, attract foreign investment and boost trade ties. One recent example is the signing earlier this month of the U.S.-Azerbaijan Open Skies Agreement, liberalizing air transport between our two countries.

Efforts to attract investment in areas outside the oil and gas sector, however, have often been limited by inefficient bureaucracies, weak legal institutions, lack of transparency and endemic corruption.

The United States stands ready to provide technical assistance to support the development of financial sectors, combat corruption and strengthen economic governance. We want to help improve the business climate and increase U.S. trade and investment in a wide array of economic sectors.

Increasing Connectivity

As you well know, this region of the world is where globalization really began centuries ago, as the heart of a vital economic and cultural artery stretching from Istanbul to the East China Sea.

The revival of the historic Silk Road is consistent with the type of economic development that the United States is supporting worldwide: increasing regional economic integration and interconnectivity.

In the modern era, nations will continue to look to major economic centers such as the United States, Western Europe and Northeast Asia to help spur growth. But they must also build tighter networks with their immediate neighbors as well. Azerbaijan, Georgia, Kazakhstan, Turkey and their neighbors can – and should – be drivers of economic growth and prosperity in the 21st Century.

This will require more coordination between all countries across the continent, since any one country’s success depends on the ability of all to make trade and transit through the region as seamless as possible. A barrier erected by one country inhibits the entire corridor. Azerbaijan, Georgia and Kazakhstan’s recent formation of the International Trans-Caspian Transportation Consortium exemplifies the type of concrete steps governments can take to better coordinate regional trade and transit.

Of course, in order for the corridor to flourish, we also need peace. To that end, we cannot ignore the impact of conflict on the economies in this region, and we will continue to work with all of our partners to push for a more peaceful, prosperous region and an inclusive vision of the New Silk Road. The promise of shared prosperity should offer a path towards regional reconciliation, rather than a dividing line.

But here’s the main point: Taking advantage of the great potential of the Trans-Caspian Trade Route will help bring sustainable security and economic development to tens of millions of people across the Caucasus and Central Asia – with positive results both regionally and globally.

Azerbaijan and Georgia’s Role in the New Silk Road

Earlier this month, as I said, I visited the Ports at Poti and Alat to see how the Trans-Caspian Trade Route works in practice to link East Asia and Europe via Central Asia and the Caucasus. As you will hear from Director-General Ziyadov later this morning, the Port of Alat has ambitious plans to expand to allow for increased transportation of goods between East Asia and the major consumer markets of Western Europe. I learned of similar ambitious plans when I visited Poti and the Anaklia site on the Black Sea coast of Georgia.

All three are exciting facilities, but just transporting goods won’t allow Azerbaijan or Georgia – or any of the countries in the region – to take full advantage of their important geographic locations. Both countries, along with their neighbors, must work to ensure that local businesses are also “adding value” to all the goods which transit the country.

I was heartened, therefore, to learn that all three facilities will also be developing Free Industrial Zones to capitalize on the increased volume of traffic expected to pass through the ports. Logistics, light manufacturing and transportation firms all stand to gain major opportunities from the development of economic capacity beyond merely transporting goods from one end of the country to the other.

Another important element of adding value is strengthening the “software” of trade and investment to complement all of the impressive “hardware” development we’ve recently seen in road, rail and port buildouts. Just as these new land, sea and air connections are critical to increased trade and economic development, so, too, are quick and efficient customs clearances, predictable commercial courts and transparent enforcement of regulations.

For many U.S. firms looking to establish or expand operations in the region, one of the first places they will look to learn about the business climate are international reports such as the World Bank’s “Doing Business” rankings or Transparency International’s “Corruption Perceptions” index. In such a competitive global market for investment, poor scores on key indicators – such as rule of law shortcomings and unpredictable enforcement of contracts, problems with payment of taxes, or weak protection of minority investors – could mean that investors will go somewhere else.

Everyone here today – and your countries and your firms – forms a critical element of these concepts of “increasing connectivity” and “adding value.” Your global perspective, combined with a deep understanding of local conditions and commitment to high international standards, positions you well to help lead – and take advantage of – the great opportunities increased connectivity provides to the region.

I can affirm that in Azerbaijan, Georgia and Kyrgyzstan, I met with leaders determined to connect the countries on both sides of the Caspian Sea to tap the significant potential extending both east and west.

Connectivity East/West/North/South

While not today’s central topic, I would also like to comment on China’s “One Belt One Road” initiative – a project that is aimed at supporting improved regional and global connectivity. China is looking to advance Eurasian connectivity through overland and maritime routes. Greater connectivity can potentially benefit everyone, including the United States. We hope China’s economic assistance will align with the needs of recipient countries, global standards and time-tested safeguards for infrastructure investment.

Frankly, I get worried when I hear references to the so-called “great game” of prior centuries. What we want to see is not a struggle between China and Russia, or the United States, in some zero-sum game. What we want to see, rather, is a Caucasus and Central Asian region that claims its place as an actual, sustainable, innovative engine of growth at the heart of a modern and dynamic global economy.

As real estate markets around the world demonstrate, the most valuable properties in any location are at intersections and the crossroads of traffic, for that is where most economic activity takes place. Too many regions of West Asia and Central Asia, however, are largely cut off from the big growth markets in the rest of South and Southeast Asia. Expanding trade ties within the region and to points south – through Pakistan and on to India for example – could be a real game-changer.

The United States encourages the various initiatives under way designed to help develop strong east-west trade networks, stretching from China and India to Central Asia, across the Caspian to the Caucasus, Turkey, and the rest of Europe, but we want to see north-south links as well.

U.S. Vision for the New Silk Road

This is why the United States is supporting a New Silk Road program focused on advancing regional economic connectivity in four areas: energy; trade and transport; customs and borders; and people-to-people exchanges.

We are working with governments, international financial institutions, aid agencies, civil society and – very importantly – with commercial firms on these programs.

More broadly, the United States continues to finance infrastructure projects in the region as the top shareholder in the World Bank and European Bank for Reconstruction and Development, and as the second largest shareholder in the Asian Development Bank.

Conclusion

So in closing, the United States will remain engaged to assist our partners in the region to implement the tough reforms needed to attract additional trade and investment. We welcome your ideas on how the United States can help foster closer cooperation among countries in the region and beyond.

Globalization means that the prosperity of all of our countries increasingly depends on building connections between and among economies. The countries of the Caucasus and Central Asia are uniquely positioned to take advantage of their geographic location, abundant natural resources and the skills of their people to enter a new period of sustainable economic growth. We are optimistic that expanded regional integration – including through the strong connections between the region’s private sectors – will spur new global growth and stability.

Thank you very much for your attention. I wish you all a productive and enjoyable conference, as well as great success in your efforts to better connect the entire Trans-Caspian region.