Bringing together all of the non-Arab Islamic countries west of India,
ECO has some cultural
unity.(1) The organization's ten member states contain 325 million
people spread over almost eight
million square kilometers. ECO, provides a forum for discussion of
regional disputes and for
peaceful cooperation between the three original members (Iran, Pakistan
and Turkey) and the newly
independent member countries and Afghanistan.
Its ten members, however, have little shared history and linguistically
are divided among
Persian-speaking Iran and Tajikistan, Pakistan, multilingual Afghanistan
and the six Turkic-speaking
members. Alternative regional groupings include some, but not all,
ECO members; the CIS countries
are pulled northwards, and Turkey is pulled westwards by its customs
union with the European
Union. The three original ECO members compete for pipeline and transport
routes between the
landlocked ECO members and the open sea. All of Afghanistan's neighbors
are involved directly or
indirectly on the various sides of that country's internal conflicts.
By 1997 the ten ECO heads of state were meeting at annual summits. They
discuss important
regional issues, but the organization's ability to play a meaningful
role has still to be proven.
From Cold Warriors to Regional Cooperation
The origins of ECO lie in the Cold War treaty organization which brought
together Turkey, Iran and
Pakistan on the southern rim of the Soviet Union. An economic dimension,
known as Regional
Cooperation for Development (RCD), was added in 1964 but its basic
charter, the Treaty of Izmir,
was only signed in 1977. The RCD had little impact other than channeling
small amounts of aid from
Iran to Pakistan during the final year's of the Shah's reign, and it
ceased to function in 1979 after the
Iranian revolution.
The Economic Cooperation Organization (ECO) was founded in 1985 by Iran,
Pakistan and Turkey
to promote economic, technical and cultural cooperation among the member
states. It was explicitly
the successor organization to the RCD, and the Treaty of Izmir remains
the basic charter. In 1992
seven new members, Afghanistan, Azerbaijan, Kazakstan, Kyrgyzstan,
Tajikistan, Turkmenistan,
and Uzbekistan, joined ECO.
The formal accession ceremony for the seven new members in November,
1992, gave ECO a new
impetus. The February, 1993, Quetta Plan of Action and the July, 1993,
Istanbul Declaration
contain the blueprint for regional cooperation. The three founding
members have contributed
$100,000 each towards a Special Fund to finance feasibility studies
of projects related to this
blueprint. A project-oriented Outline Plan for transport and communications
development was
adopted at Almaty in October, 1993.
Paper Plans but Little Implementation
The RCD/ECO had little economic impact before its 1992 expansion. The
Treaty of Izmir included
some specific measures, such as establishment of a trade and development
bank, a reinsurance
company and a joint shipping company, to which the Quetta Plan of Action
added an ECO airline.
In May, 1991, a Protocol on Preferential Tariffs was signed, for implementation
in May, 1993. Even
since 1992, ECO's implementation record has been unimpressive.
The Protocol on Preferential Tariffs was signed by the then three ECO
members in May, 1991. The
signatories agreed to offer a ten percent preferential tariff reduction
on selected commodities. The
lists were drawn up and implementation began in May, 1993, but the
initial progress was
disappointing. The lists of commodities on which Iran and Pakistan
were willing to give tariff
preferences both contained sixteen items. Turkey's list was longer,
but still limited. Many of the items
were narrowly defined (eg. paper bags for cement, bentonite, leg protectors
used in sports - to
quote one item from each country's list). After implementation began
in May, 1993, some uncertainty
remained as to whether the preferences were being applied, and, even
if they were, a ten percent
margin of preference seemed unlikely to have much impact.
The ECO Committee on Preferential Tariffs at its 1993-5, meetings repeatedly
encouraged the
submission of longer lists, widening of preference margins to twenty
percent, and participation of the
seven new members in the preferential trading arrangement. Little progress
was made on any of
these fronts. In 1996, the ECO Secretariat began trying to reorient
attention to include discussion of
the implications of the Uruguay Round and the World Trade Organization
for the ECO region, ie., to
promote open multilateralism rather than discriminatory regionalism.
After long negotiations, agreement was reached at the Fourth Meeting
of the ECO Committee for
Economic and Commercial Cooperation in January, 1995, that the ECO
Trade and Development
Bank would be based in Istanbul, and the minutes included a strong
statement of intent that the ECO
Reinsurance Company should be based in Pakistan. The time-consuming
negotiations illustrate the
difficulty in reaching agreement on regional institutions, both with
respect to their functions and with
respect to location. Although agreements on all four regional institutions
were signed at the Third
ECO Summit in Islamabad in March, 1995, they have yet to be implemented.
At the 1995, Summit, the heads of state signed the ECO Transit Trade
Agreement and an
Agreement on the Simplification of Visa Procedures for the Businessmen
of ECO Countries. Such
trade facilitation measures are important steps towards promoting regional
trade. Eight ECO
members signed the Transit Trade Agreement. The two non-signatories,
Afghanistan and
Uzbekistan, lie at important cross-roads of the region, and the unwillingness
of their governments to
accept the principle of free passage of goods in transit is a potential
deterrent to intra-regional trade.
Alternative Modes of Cooperation
The paths followed so far by ECO have been pursued by other regional
organizations with
disappointing results. Establishing a free trade area by piecemeal
steps based on offers of preferential
treatment has never been successful. Domestic interests who benefit
from protection invariably prove
sufficiently strong to keep their product off the offer list, so that
the lists remain short and often
consist only of items for which intra-regional trade is likely to be
small. This was the experience of
the Association of Southeast Asian Nations (ASEAN, with its 1977, preferential
trade agreement
and of several preferential trading arrangements in Latin America and
Africa in the 1960s and
1970s.(2)
The more successful implementations of free trade areas or customs unions
over the last forty years
(such as the European Economic Community, the European Free Trade Association,
the Closer
Economic Relations agreement between Australia and New Zealand, the
Canada-United States
Free Trade Area) have involved across-the-board elimination of tariffs
according to a set timetable,
with little scope for exceptions or delays. It is doubtful whether
the ECO members are prepared for
such a major initiative, but the more limited ECO Protocol on Preferential
Tariffs is unlikely to be a
practical alternative.
The establishment of common regional institutions with international
participation also has a poor
track record. Even within the European Union there are few such institutions,
and the ones which do
exist (such as the European Investment Bank) have not had a major impact
on regional integration.
The main obstacles are disagreements over location, unwillingness to
contribute toward costs, and
concern over loss of sovereignty. Sharing of institutional locations
within the ECO (the Secretariat in
Tehran, the Trade and Development Bank in Istanbul, and an understanding
that the ECO
Reinsurance Company will be in Pakistan) is scarcely conducive to economic
efficiency, and is likely
to arouse demands for common institutions to be based in the next largest
ECO members state.
Perhaps in recognition of the slow progress made towards regional integration,
the 1995, and 1996,
ECO summits called for the establishment of free trade zones in the
ECO region to promote
intra-regional trade. The most successful model of a sub-regional zone
promoting trade is the
Singapore-Riau-Johor growth triangle in ASEAN. This triangle emerged
without formal government
promotion either among the countries concerned or at the ASEAN level.
Subsequent attempts within
ASEAN to promote growth triangles actively (eg. the Northern Triangle
and the East ASEAN
Growth Area) have yet to prove themselves.(3)
The positive point to be drawn from the Singapore-Riau-Johor experience
is that intra-regional trade
can flourish if obstacles are lowered. A crucial prerequisite for the
emergence of the
Singapore-centered growth triangle was the liberalization of goods
and factor flows across the
borders of Malaysia and Indonesia, which happened on a multilateral
rather than a preferential basis.
Multilateral trade liberalization could promote similar phenomena in
ECO, but trade facilitation and
improved transport links are prerequisites. The initial efforts to
simplify visa requirements and to
obtain agreement on the treatment of transit traffic need to be continued.
An important function of
ECO is as a vehicle for specialist meetings, for example, among customs
and immigration officials
from member countries.
A more fundamental lesson from ASEAN is that a regional organization
can be successful even if it
does not create a preferential trading area and common institutions.
A major benefit to ASEAN
members has come from having a forum in which to discuss regional issues
and to draw up common
negotiating positions with non-members. Especially when a regional
organization contains members
with similar economies (as both ECO and ASEAN do), the common negotiating
function can be
helpful. But even more crucial for southeast Asia's rapid growth since
the establishment of ASEAN
in 1967, has been the maintenance of stability in what had been and
was potentially a highly unstable
region.
Prospects for Regional Integration within ECO
A major difference between ECO and other regional groupings is the poorly
developed transport
network within ECO. The ECO's seven newest members are all landlocked
countries. Moreover,
these countries' road and rail networks were constructed with a northward
orientation, towards
Russia and Ukraine, while the three original members' transport networks
were directed away from
the USSR. An essential step towards promoting intra-ECO trade is to
improve the transport links,
and this requires some coordination for which, ECO could provide the
setting.
The 1992 enlargement of ECO was viewed by its supporters as an opportunity
to change the trade
patterns established by the Soviet Union. Indeed this began to happen
immediately after some of the
Soviet republics achieved independence, and trade expanded especially
between the newly
independent states and Turkey and Iran. This trade was primarily conducted
by individual merchants
selling consumer goods previously unavailable (or of poor quality)
within the USSR. Although such
small-scale border trade can be expected to continue its rapid growth
from a low base, the
long-term growth prospects for such trade are limited. The three original
ECO members are not the
leading global suppliers of consumer goods, and in standardized low-cost
product lines the ECO
partners are likely to have difficulty competing with East Asian countries,
especially China, in the
Central Asian markets.
How complementary are the ECO economies? Although most of the ECO members
can be
considered semi-industrialized economies, they have a fairly narrow
base of export competitiveness,
concentrated on primary products or textiles and clothing. The exports
of Iran and Turkmenistan are
dominated by oil and natural gas, and the medium-term prospects of
Azerbaijan and Kazakstan also
rest heavily on exploitation of their large oil reserves. Kazakstan,
Kyrgyzstan, Tajikistan and
Uzbekistan have minerals which may be commercially exploited. During
the Soviet era the Central
Asian republics' agriculture became a monoculture devoted to cotton,
which is the major export of
Uzbekistan and Tajikistan and important for Turkmenistan, and the Chimkent
region of Kazakstan.
Cotton is also the biggest primary product export of Pakistan. For
Pakistan and Turkey,
manufactured exports are more important than primary products, but
in both countries there is a
heavy concentration on textiles and clothing; for Pakistan these items
accounted for over $5 billion
out of $6.8 billion total exports in 1993, and in Turkey they accounted
for $5.9 billion out of $15
billion total exports.
The prospects for intra-regional trade on the basis of the ECO members'
current export bundles are
limited. Even the three original members' trade with one another is
minor. The largest intra-ECO
bilateral trade flow is between Turkey and Iran, but in 1993 only 2%
of Turkey's exports went to
Iran and 5% of Turkey's imports came from Iran. (4) In 1992/3, a tenth
of Iran's exports went to
Turkey, 1.8% to Azerbaijan, 1.2% to Pakistan, 1.1% to Turkmenistan,
and no other ECO member
accounted for more than 0.5%, while on the import side Azerbaijan (2.9%),
Pakistan (1.1%) and
Turkey (0.5%) were Iran's only significant suppliers from within ECO.
Less than 1% of Pakistan's
1993 exports went to Turkey.
Trade among the former Soviet republics is poorly monitored and the
ultimate destination often
unrecorded. Within the Soviet Union their economies were closely integrated
in the national
economy, with 85-90% of the republics' external trade being intra-USSR.
For each of the Asian
republics, trade with Russia and Ukraine was far more important than
trade with other Asian
republics, and these northward trade links remain important in the
post-1991, era, although the
volume of trade has declined sharply. Azerbaijan has steadily increased
its trade with Iran, which
mainly consists of exporting refined oil in return for food and other
consumer goods, and in 1995,
Iran displaced Russia as Azerbaijan's number one trading partner.
The most important scope for regional integration in the immediate future
lies in the development of
transit routes for the trade of the landlocked members of ECO. The
former Soviet republics' main
rail, road and pipeline links lead north through Russia or the Caucasus.
Kazakstan has a rail link with
Xinjiang Province in China and there are road links between China and
Kazakstan and Kyrgyzstan,
but they involve a long cross-China transit for trade with third countries.
Azerbaijan has road and sea
links with Iran, which have become more significant since links with
Azerbaijan's traditional trading
partners became disrupted by the Chechnya conflict in September, 1994.
Uzbekistan has road
connections to Afghanistan, which constitute the key link in overland
transport between Central Asia
and Pakistan. The completion of the railway between Tejen in Turkmenistan
and Meshed in Iran
forms the first connection between the Soviet rail network and a line
to an Indian Ocean port.
Twelve regional heads of state participated in the official opening
ceremony held in Sarakhs on the
Iran-Turkmenistan border on 13 May, 1996, on the eve of the ECO Summit
in Ashgabat. Although
some freight traffic has been using the line, it operates far below
capacity, and a year after the
opening ceremony the first passenger had not yet used the international
rail link. Further
improvements in the transport network to provide feasible alternative
routes for the landlocked
members' exports overseas would be a major step towards closer integration,
but the hard
infrastructure will only be of value if the soft infrastructure of
trade facilitation and ease of movement
is also in place.
Pipe Dreams
Interest in accessing the oil and gas reserves of the Caspian Basin
and Central Asia predates the
dissolution of the USSR, but concerns about outlet routes became sharper
in 1994-5. Chevron,
whose 1991 oil agreement with Kazakstan is the largest single foreign
investment project in the CIS,
experienced frustrations in using the Russian pipeline network to export
oil. Turkmenistan found that
when natural gas customers within the CIS (mainly Ukraine) failed to
pay their bills, there were no
serious alternative destinations. The oil pipeline north from Azerbaijan
became disrupted by the
Chechnya conflict in September 1994. Discussions of alternative pipeline
routes to the
Mediterranean through Turkey or to the Indian Ocean through Iran or
to the Pacific Ocean through
China gathered momentum.
In April, 1995, Turkmenistan signed an agreement with Iran and Turkey
to build a gas pipeline to
Europe. Shortly before, the Turkmen president and Pakistan's prime
minister commissioned the
Argentinean oil company, Bridas, to prepare a feasibility report for
a gas pipeline from Turkmenistan
through Afghanistan to Pakistan. After reaching agreements with the
Afghan government and the
Taliban rebels, Bridas found its position undermined when the Turkmen
president signed an
agreement with Unocal of the USA and Delta Oil of Saudi Arabia to build
a gas pipeline from
Turkmenistan to Pakistan. However, the conflict between the Bridas
and Unocal projects is
resolved, a pipeline to take Turkmenistan's abundant gas to the huge
South Asian markets is on the
cards and will require coordination between at least three ECO members.
The key to the Bridas/Unocal projects is stability in Afghanistan. The
lines in the conflict are sharply
divided with Pakistan supporting the Taliban, and Iran and most of
the Central Asian republics
supporting forces opposing the Taliban. ECO provides a forum in which
Afghanistan's neighbors
could cool things down. Whether the three original members will cooperate
in this exercise or
whether they will compete in trying to establish their own ports as
Central Asia's major outlet to the
sea remains unclear. The May, 1997, ECO summit in Ashgabat focussed
on pipeline projects as
well as trade issues, and agreed to establish a permanent Transport
Commission based in Ashgabat.
Scenarios for the Future
ECO's past emphasis on preferential tariff reduction and creation of
common institutions has had
disappointing results. The ECO Secretariat is already trying to move
the organization along new
paths, and ECO's future will depend in large part on the outcome of
this shift in emphasis. Most
importantly, it will depend upon member governments' willingness to
cooperate rather than (or as
well as) competing for influence in the region.
The Secretariat's current approach to regional integration is an evolutionary
one, based upon trade
liberalization on a multilateral basis consistent with WTO principles.
Unilateral trade liberalization has
major practical advantages over negotiated preferential tariff reductions
in the ECO context. The
resistance of domestic vested interests can be reduced if tariff reductions
are part of an
across-the-board liberalization program, and especially if this offers
prospects of improved access to
major export markets. The latter condition could be met by accession
to the World Trade
Organization, to which only two ECO members (Pakistan and Turkey) currently
belong.(5)
The evolutionary approach of unilateral non-preferential trade liberalization
fits in with the current
development strategy of all ECO members. The three original members
have all undertaken
substantial liberalization measures in recent years, while the former
Soviet republics have dismantled
the mechanisms of central planning and are committed to the creation
of a market-based economy.
Indeed, some of the ECO members (notably Kyrgyzstan) have extremely
liberal import regimes, and
this could be built upon. In order to maximize the gains from trade
liberalization, attention needs to
be given to trade facilitation and transport projects, which could
be coordinated under the aegis of
ECO. Additionally the ECO Secretariat could help to promote ECO as
a forum for working out
common positions and dealing with other organizations.
If ECO pursues the evolutionary approach to regional integration, the
positive outcome of
accelerated regional growth within the context of increased participation
in global markets is
plausible. There are, however, alternative less positive scenarios.
The region contains serious military
conflicts, especially in Afghanistan and Tajikistan, which could spread.
(6) The three original ECO
members are in competition for political and economic influence in
Central Asia, and cooperation
over routes to the sea for the landlocked ECO members could break down
in acrimony. The
economies of the former Soviet republics remain closely interconnected
after seven decades of
central planning which ignored republics' borders, and they are subject
to political pressures to
reestablish links with their northern neighbors within the CIS. Thus
any optimism over ECO's future
must be viewed with caution, although that underlines the organization's
potential for doing good.
NOTE
* This paper draws on and updates article "The Economic Cooperation
Organization: Current Status
and Future Prospects" by Richard Pomfret in Europe-Asia Studies, 49(4),
July 1997, pp. 649-59,
and for background information on the chapters on Azerbaijan and Central
Asia in my book Asian
Economies in Transition: Reforming Centrally Planned Economies (Edward
Elgar, Cheltenham
UK, 1996).
References
1. The Turkish Muslim Community of Cyprus is not a member, but its representative
often attends
ECO meetings.
2. The literature on these arrangements is surveyed in my book The Economics
of Regional
Trading Arrangements (Clarendon Press, Oxford, 1997) and on ASEAN in
my article "ASEAN:
Always at the Crossroads?" Journal of the Asia-Pacific Economy, 1 (3),
1996, pp. 365-90.
3. Toh Mun Heng and Linda Low (Regional Cooperation and Growth Triangles
in ASEAN,
Times Academic Press, Singapore, 1993) and Richard Pomfret ("Sub-regional
Economic Zones" in
Bijit Bora and Christopher Findlay (eds.) Regionalism and the Asia-Pacific,
Oxford University
Press, Melbourne, 1996, pp. 207-22) analyses the experience of East
Asian growth triangles.
4. Even these bilateral trade figures exaggerate intra-ECO trade insofar
as some Iranian exports to
Turkey are for re-export via the Mediterranean.
5. Working Parties to discuss the WTO membership applications of Kyrgyzstan
and Kazakstan held
their first meetings in March 1997. Uzbekistan has also lodged a formal
membership application.
6. In addition several ECO members have long-standing disputes with
non-ECO neighbors in the
Aegean, in Kashmir and in the Caucasus.