The United States and the New Silk Road

Lynne M. Tracy
Deputy Assistant Secretary, Bureau of South and Central Asian Affairs
Washington, DC
October 25, 2013

Ladies and Gentlemen, I want to thank the Jamestown Foundation for organizing this conference and for bringing together such a distinguished group of experts and officials to discuss the future of U.S. relations with Central Asia. Thank you, Glen Howard, for your invitation to participate today. It’s a great pleasure to be here and update you on U.S. efforts to promote regional economic cooperation – or what we have termed the “New Silk Road.”

I’d like to start off by addressing what many of us in this room have been discussing for months now, which is the transition in Afghanistan next year. For many in the region, it is a time of uncertainty and anxiety about what the future holds. To be sure, 2014 is a turning point for Afghanistan. With simultaneous security, political, and economic transitions, the decisions Afghans will make will either consolidate the gains of the past decade or undermine them.

There are many reasons to be optimistic about the future. What often gets lost in this discourse is the substantial progress that has been achieved in Afghanistan over the past decade. For those of us here who have repeatedly traveled to Afghanistan, we notice right away that today’s Afghanistan is not the Afghanistan of the 1990s. Afghanistan is now connected to the rest of the world. Afghan youth are in schools and on social media. Afghans watch multiple TV stations from around the region and enjoy access to radio and cell phones. They have opinions, and they are heard in public debate – whether through Parliament, civil society, or social media.

Afghans are also now economically connected to their neighbors. Today, Afghanistan trades more with its regional neighbors than it does with the rest of the world. Customs revenues are up, goods are moving across borders, and electricity is flowing from Central Asia to turn the lights on in Kabul. The vast majority of Afghans do not want to return to the chaos and turmoil of the 1990s. They have come too far, shed too much blood, and sacrificed too much to turn back now.

So as next year approaches, the international community has a collective responsibility to ensure that Afghanistan remains connected to the world, and more immediately, to its neighbors. Being landlocked does not have to mean being isolated and vulnerable to extremism and poverty. This is why the vision of regional economic connectivity – a vision the United States first laid out in 2011 and which we have called the “New Silk Road” – is so important as a guiding principle for our collective efforts to anchor Afghanistan economically in the region.

The reality is this is not easy to do, and ultimately, it will be a multi-generational effort. As we all know, Central Asia remains the world’s least economically integrated region. To cite just one telling statistic, intra-regional trade accounts for only 6.2 percent of total global trade for the five Central Asian countries plus Afghanistan. By comparison, intra-EU trade represents 64 percent of the trade turnover among EU member states.

Regional economic cooperation can be challenging on many fronts, but the results can be truly transformative. Take Southeast Asia as an example. Over the past 10 years, the countries that make up ASEAN – the Association of South East Asian Nations – have seen their trade with the world grow 227 percent to nearly 2.5 trillion dollars. And trade among the ASEAN member states has grown even faster; it’s up 255 percent.

The good news in Central Asia is that intra-regional trade is growing, especially once barriers to cross-border movement of goods and people are removed. According to the ADB, the value of intraregional trade in food products, minerals, and textiles has doubled since 2008. Intraregional and extraregional trade grew by an average of 21% per year between 2001 and 2011.

So the potential is there, which is why we in the U.S. government are working so hard with our partners in the region to translate the New Silk road vision into concrete results. What we seek is an economically vibrant, inter-connected region, in which Afghanistan is a full partner. Even as we address the security and political challenges, we have to work on economic connectivity in parallel so that there are real links between Afghanistan and her neighbors that hold. While difficult, we do believe this can be achieved while remaining appropriately vigilant against the security threats emanating from terrorism, narcotics smuggling, and other forms of transnational crime.

So what are the key components of our New Silk Road vision? When we speak of a New Silk Road, we mean on the one hand physical connectivity – transport, communications, and energy infrastructure that links countries of the region together and links them with South Asia, East Asia, the Middle East, and Europe. On the other hand and equally important, we mean the practices, regulations, legislative bases, and international agreements in the areas of trade and transit that allow goods and services to flow efficiently from country to country across this infrastructure. The United States has invested significant resources and political capital in both of these components of the New Silk Road.

I am pleased to report that we have made real progress in the past few years in these areas. We have made direct investments in infrastructure – mostly in Afghanistan. In fact, the United States has provided more than $2 billion for energy transmission lines, hydropower plants, and associated energy reforms in Afghanistan. We have built or rehabilitated more than 3,000 kilometers of roads, and have helped Afghanistan establish a National Rail Authority and develop a national rail plan. And with U.S. technical assistance, Afghanistan now has more than 4,000 kilometers in fiber optic cable.

The United States is also supporting international financial institutions and private companies in their efforts to develop infrastructure projects throughout the region, particularly in the energy sector. Utilized effectively, Central Asia’s abundant gas and hydropower resources can drive employment and investment, generate billions in public revenues, and meet the rising energy demands of South Asia.

For instance, we are supporting efforts by the World Bank and Islamic Development Bank to build the CASA-1000 electricity transmission project, which is moving forward and slated to begin construction in 2014. CASA would allow Tajikistan and Kyrgyzstan to profit from existing, unused summer generation capacity by selling electricity to Pakistan – which in turn would benefit from a cheaper alternative to the oil-fueled power generation it has been using during its peak demand period. By linking the Central and South Asia energy markets, we see CASA as a transformative “proof of concept” that could pave the way for similar regional electricity projects.

Through USAID, the United States is funding the CASA Secretariat, which, among other things, is helping the participating countries finalize the project’s agreements and contracts. We welcome Pakistan’s recent signing of CASA’s Intergovernmental Council Resolution, a major step forward for the project. We are working with the World Bank and CASA countries to see how the remaining financing gaps can be closed. And we are looking at how CASA can be complementary to efforts by the ADB to build the TUTAP project, whose electricity lines from Turkmenistan, Uzbekistan, and Tajikistan would flow to Afghanistan and ultimately, Pakistan.

The TAPI pipeline bringing gas from Turkmenistan to Afghanistan, Pakistan, and India would be another transformative project. TAPI’s construction, operation, and maintenance would generate thousands of jobs, and the pipeline would represent a major step forward in economic cooperation between Pakistan and India. We are optimistic about the progress made in recent months between the government of Turkmenistan and interested international oil companies toward the formation of a consortium to develop the project. The United States is working closely with Turkmenistan to help move the project forward.

The United States has also provided substantial support for improving the “rules of the road,” by helping the Central Asian countries and Afghanistan develop and implement the practices, regulations, legislative bases, and international agreements to allow goods and services to flow more freely across borders. This is an on-going effort, given the massive challenges. For instance, while the average cost of a border crossing fell from $186 to $157 between 2010 and 2012 along the six CAREC corridors we are supporting through the ADB, the average crossing time increased from 8.7 to 10.9 hours. The average truck speed on roads in the region has gone up, but due to border crossing delays, trucks have a slower journey in getting goods to market.

Our collective goal is to bring down the costs of doing business in the region, since we all know that trade, like water, finds the path of least resistance. Let me cite a few specific examples of what we have done. We have helped Afghanistan accede to the International Transport Systems, which allows Afghan trucks to transit through Central and South Asia and beyond. We have also been working with the countries of the region on cross-border trade and transit. There has been real momentum this year in moving forward on implementation of such key agreements as the Afghanistan-Pakistan Trade Transit Agreement, which could be extended to include Tajikistan; the Kyrgyzstan-Tajikistan-Afghanistan Cross Border Trade Agreement; and bilateral trade and transit agreements between Uzbekistan and Afghanistan and Turkmenistan and Afghanistan.

I want to add that Afghanistan’s decision to rejoin the International Road Transport Convention in September is particularly noteworthy because all five Central Asian states are active members, and thus there is now a framework by which goods can move more quickly across the roads of member countries.

The United States is working closely with Kazakhstan and Afghanistan on their impending accession to the WTO. We also welcome Uzbekistan’s efforts to revive its own accession negotiations and Turkmenistan’s renewed interest in the organization. WTO requirements help businesses in the region cut costs, decrease wait times at the borders, and level the playing field.

We are also helping countries in the region lower barriers to trade and thus increase economic growth through the U.S.-Central Asia Trade and Investment Framework Agreement – or TIFA. We look forward to the next TIFA Council meeting, which Turkmenistan will host in November in Ashgabat. Afghanistan will participate again in the Council meeting as an observer. To connect their economies, the countries of the region must connect their business people – both men and women. So we have sponsored a variety of initiatives along these lines. For example, earlier this month in Kazakhstan, the United States organized the Central Asia Trade Forum that brought together 400 businesspeople and 50 companies from Central Asia, Afghanistan, and Pakistan to generate new business deals. And our Women’s Economic Symposiums in Bishkek and Dhaka have brought together women business leaders from across Central and South Asia to help them connect and network.

We remain cognizant that as we facilitate trade, we must also ensure that terrorists and criminals, including narco-traffickers, don’t take advantage of freer transit across borders for their own purposes. This is why the United States has also backed a variety of border security initiatives for the region. Through State Department and Defense Department programs, we have built the capacity of customs and border control officials in Central Asia and Afghanistan. This includes providing assistance and training to combat narco-trafficking. We also support OSCE efforts along these lines. To date, over 400 Afghan officials have been trained through the OSCE’s Border Management Staff College in Dushanbe and its Customs Academy in Bishkek.

Our New Silk Road vision is complemented by and complementary with the efforts of others. The United States has been a strong supporter of the ADB’s Central Asian Regional Economic Cooperation program. CAREC is successful because the participating countries themselves decide how best to cooperate. For the world’s least economically-integrated region, CAREC is a great example for how regional economic cooperation can actually work. Fatema Sumar, our new Deputy Assistant Secretary of State for South and Central Asian Affairs covering regional issues like the New Silk Road, is on her way back today from Kazakhstan, where she headed the U.S. observer delegation to CAREC’s ministerial conference in Astana.

CAREC is one of several regional groupings that we believe can usefully advance regional economic cooperation. However, what had been missing was something to align the various regional initiatives, and bring coherence to an emerging consensus in support of regional peace, stability, and prosperity. To their credit, the Afghans themselves have attempted to fill this gap with the Istanbul Heart of Asia Process, which Afghanistan and its neighbors designed to address security, political, and economic cooperation. This cooperation is manifesting itself in a variety of ways. For example, India heads the Heart of Asia Working Group on Trade, Commerce, and Investment, and will host a business conference on Afghanistan in November. Turkmenistan and Azerbaijan have convened the Working Group on Regional Infrastructure, where work has focused on big projects like TAPI or CASA and small projects, like improving roads between Afghanistan and Pakistan. The U.A.E. and Turkey lead a group on counterterrorism, which held a productive regional forum on countering the threat posed by improvised explosive devices earlier this year.

We also welcome the efforts of China to develop energy and transportation infrastructure in the region, including the projects announced during President Xi’s recent visit. We see all these efforts as mutually reinforcing and beneficial to the Central Asia countries and Afghanistan. We are realistic. The United States is an important partner for all the countries of the region, and our companies are major players there, particularly in the energy sector. But China, as a neighbor to these countries and as a result of its own dramatic economic growth, is naturally going to be leader there in trade and investment. We want to work with China, Russia – another country with significant economic ties to Central Asia – and other regional countries to support peace, stability, and prosperity in what is the least-economically integrated region in the world today. And we believe that there is plenty of work to go around.

I’ve talked a lot about the efforts of governments and multilateral institutions and organizations, but I don’t want to be remiss in noting that, in the end, the private sector must be the engine for the region’s long-term economic growth. The private sector is, of course, a partner with the public sector in developing regional energy, communications, and transport infrastructure. More importantly, it’s the private sector that will drive and benefit from increased trade in goods and services made possible by new infrastructure and improved “rules of the road.”

Again, I want to thank the conference organizers for giving me the opportunity to deliver this lunchtime address. I now welcome your questions.