UZBEKISTAN AND THE WORLD TRADE ORGANIZATION

Uzbekistan is actively pushing to achieve WTO membership after what will have been the longest accession negotiations ever. Uzbekistan application to join the WTO dates from December 1994 but became dormant in the 2000s while still at a fairly early stage. After President Karimov died in August 2016, the process was reactivated by his successor, President Shavkat Mirziyoyev. The lengthy break was related to Karimov’s inwardlooking and interventionist economic development strategy and the revival after 2016 is associated with Mirziyoyev’s more outward-oriented strategy. This paper analyzes the evolution of Uzbekistan’s application and the evolution of the WTO over this period. It concludes with examination of the current state of the application, potential obstacles to completing the negotiations, and the benefits and costs of accession to the WTO. The answer to the question of whether Uzbekistan will, or should, join the WTO depends on the commitment to economic reform. If the government is serious about replacing dependence on resource exports and protected manufacturing activities by a more diversified competitive economy, then Uzbekistan will achieve and benefit from WTO membership. If the economy remains resistant to fundamental reform, then accession will be difficult and of little value if it happens. Paper to be presented on 8 July 2020 in the series Virtual Seminars on Applied Economics and Policy Analysis in Central Asia, jointly organized by Westminster International University in Tashkent (WIUT), International Food Policy Research Institute (IFPRI) and Leibniz Institute of Agricultural Development in Transition Economies (IAMO).

The historical background played a role in the evolution of attitudes towards WTO membership. The Kyrgyz Republic's WTO experience became a disputed element in trade policy debates elsewhere in Central Asia and in Azerbaijan. Opponents of WTO membership cited the Kyrgyz Republic's poor economic performance after 1998 as evidence of a harmful effect of WTO membership (e.g. Trend, 2003, 55-60), but there are many other explanations for the country's disappointing economic performance around the turn of the century: the 1998 Russian Crisis, Kazakhstan's large currency devaluation, and the Kyrgyz Republic's banking and external debt crises were major negative shocks which coincided with WTO accession. The weakened Kyrgyz economy failed to reap much in the way of immediate benefits from WTO membership, although it is hard to demonstrate that the Kyrgyz Republic suffered harm from accession. Meanwhile, Uzbekistan, like its neighbours Kazakhstan and Turkmenistan, was benefitting from the resource boom that lasted from the end of the 1990s until 2014 and WTO membership was of little relevance to market access for gas or gold exports.
The benefits from WTO membership are long term rather than immediate. WTO accession signals a commitment to abide by accepted world trade law. The basic WTO principles (non-discrimination, transparency, and so forth) are good rules for any country, and the WTO's dispute settlement mechanism offers small countries some protection against abuse of these principles by large countries. With a positive domestic environment, WTO membership helps to ensure that a country can reap benefits from specialization and trade with diminished fear of protectionist responses in foreign markets. 1 WTO accession also signals a commitment to good policies and good governance that helps traders and makes foreign direct investment, as well as domestic investment, more attractive. 2

Uzbekistan's Long and Winding Road to the WTO
The status of Uzbekistan's WTO accession process has been strongly influenced by domestic economic and political developments. Uzbekistan's application, the first in Central Asia, was lodged in December 1994. After the shocks of the dissolution of the USSR in December 1991, disruption of demand and supply chains, hyperinflation, the collapse of the ruble zone in 1992-3 and issue of sum coupons, Uzbekistan followed creation of the national currency, the sum, by a conventional macroeconomic package in the second half of 1994. In 1995 Uzbekistan appeared as the reform leader in Central Asia as Kazakhstan's initial steps of democratic voucher privatization began to be overshadowed by corrupt dealings. Everything changed in October 1996 when the Uzbek 1 WTO membership would also grant some leverage to reduce existing illiberal polices in export markets, e.g. as a WTO member Uzbekistan could have joined Brazil and West African countries lobbying for reduced subsidies to cotton producers in the USA and EU. 2 In a study of twenty-five transition economies during the period 1990-8, Campos (2004) found no robust relationship between WTO membership and the rate of economic growth, although he did find a positive effect of WTO membership on domestic reform; see also, Bachetta and Drabek (2002). The commitment to reform together with China's WTO accession provided an institutional foundation for the Kyrgyz Republic's emergence as the entrepôt for Central Asia (Kaminski and Mitra, 2012). government reacted to declining receipts from cotton exports by imposing draconian foreign exchange controls and the WTO accession negotiations slowed down.
In the early 2000s the government discussed easing of the forex controls, although it never seemed willing to take decisive steps towards making the Uzbek currency freely convertible. From 2000 the government reduced the black-market premium, first by devaluation of the official exchange rate from 149 sum per US dollar in April 2000 to 693 sum per dollar in December 2000 and then helped by increasing export revenues during the resource boom. In 2003, the government's announcement of the end of forex controls was followed by a number of workshops and other projects to analyze the impact of WTO accession (Normatov, 2018). The OECD organized a project on Economic and Trade Impact of WTO Accession to which I contributed a paper on Central Asia at a January 2004 workshop (Pomfret, 2004). Vernon Roningen and Dean DeRosa (2004) and Valentina Baturina et al. (2004)  After the May 2005 Andijon events, foreign funding dried up and relations between Uzbekistan and international financial institutions became frosty. 4 Although the government subsequently, but briefly, returned to the question of liberalizing access to foreign exchange, the black-market premium widened after 2008 to around 50% by 2012. After the resource boom ended in 2014, the premium exploded ( Figure 1). In sum, despite statements of intent to remove foreign exchange controls and implementation of some cosmetic measures, forex liberalization did not happen during the presidency of Islam Karimov. 5 Restricted access to foreign currencies with which to pay for imports was a fundamental obstacle to WTO accession.
3 If WTO accession is seen primarily in terms of reducing tariffs and other protection from imports, then there will be winners and losers and an agnostic assessment of net benefits is more likely -especially if some of the protected activities are considered inherently desirable. 4 Tensions had already emerged at the 2003 annual meeting of the European Bank for Reconstructing and Development (EBRD) in Tashkent, where President Karimov refused to bow to external political pressure to renounce the use of torture. 5 Nevertheless, similar to the 2003-5 period, there were perceptions of liberalization again around 2010, although discussion of WTO accession was muted. Source: Ben Slay, private correspondence (Pomfret, 2019, 113), based on Central Bank of Uzbekistan data and UNDP calculations. and limiting countries' ability to increase tariffs after their upper value had been bound.
GATT contracting parties could reduce their own tariffs with less fear that trading partners would take advantage by increasing their tariffs. 7 The GATT had a small secretariat in Geneva to keep records and organize meetings.
The most visible GATT activities were a series of rounds of multilateral trade negotiations. The early rounds consisted of bilateral negotiations between principal suppliers of goods to reduce tariffs; the non-discrimination principle meant that any tariff reductions would apply to imports from all GATT contracting parties. Starting with the 1964-7 Kennedy Round, multilateral negotiations led to more general tariff reductions and in the 1973-9 Tokyo Round this strategy was applied to non-tariff barriers. Finally, the 1986-94 Uruguay Round ended special treatment for some previously excluded sectors (agriculture, and textiles and clothing), continued the regulation of non-tariff barriers to trade, and introduced a General Agreement on Trade in Services.
In contrast to the short agreement signed in 1947, the Final Act of the Uruguay Round signed in Marrakesh in 1994 was 550 pages long, reflecting accumulation of an extensive body of world trade law. 8 The GATT secretariat was replaced by the World Trade Organization which began operations on 1 January 1995. A dispute settlement mechanism was introduced to give teeth to world trade law. The WTO has no soldiers or policemen but, in early cases brought by Venezuela against the USA and by Ecuador against the EU, the large trade partner accepted the ruling against them and changed the practice that had been challenged. The point was that all countries, large or small, accepted the validity of WTO law and the desirability of upholding it. The GATT was a success story. Initially seen as a temporary arrangement, following lack of agreement on the mandate of an International Trade Organization, the 7 The classic exposition of the economics behind this arrangement is by Bagwell and Staiger (2003); see also Pomfret (2001, 71-80). Bagwell and Staiger (2009) argue that the goal of avoiding beggar-thy-neighbour tariff increases was a more important reason for abiding by the system than the alternative argument that governments used the GATT to tie their own hands against domestic groups demanding protection from imports. Irwin et al. (2008) argue that foreign policy considerations were a third reason for the GATT, but their evidence for this third reason -that US Secretary of State Cordell Hull saw promotion of international trade as the best guarantee of world peace -became less relevant over time. 8 The Agreement Establishing the WTO includes the "Final Act" and other attachments (the agreements on goods, services and intellectual property, dispute settlement, trade policy review mechanism and the plurilateral agreements) as well as the schedules of members' commitments.
small secretariat, decision-making by consensus and slow but steady progress on trade liberalization led to accumulation of a strong, acceptable framework for international trade. Twenty-three countries signed the GATT in 1947; 123 countries negotiated the Uruguay Round. However, the structure was anachronistic by 1995 and the decision to launch a new round of multilateral trade negotiations was mistaken. 9 Although descended from the GATT, the WTO has a different emphasis. The distinction between the WTO and the GATT is important even though it is often obscured by media coverage which highlights the repeated failures of Doha Round negotiations rather than the ongoing successful operation of trade flows or the details of cases addressed by the dispute resolution mechanism. The contrast between the GATT and WTO eras also reflects the changing trade landscape as tariffs became less important and subsidies, taxation and discriminatory regulations took over as the main sources of frictions between trading nations. Such issues are less amenable to multilateral trade negotiations than tariff reduction or identification of major non-tariff barriers. They are better suited to judicial processes based on the trade law of the WTO Charter, although the problem remains of how to revise the laws when they prove unsatisfactory or when new trade-related areas require governance.

The WTO and Formerly Centrally Planned Economies
The GATT/WTO framework was designed for members with market-based economies.
Issues such as public procurement, subsidies, state-owned enterprise, and anti-trust (competition) policy that clearly affected international trade flows were initially assumed to be of secondary importance. Remedies such as anti-dumping actions or countervailing duties assumed knowledge of market-determined prices that would indicate whether exports were under-priced or subsidized. Some Eastern European countries with nonmarket-determined prices had joined GATT but the major challenge was the application by China in 1986. 11 Although China's application was frozen after the June 1989 Tiananmen incident, negotiations were concluded in 2001.
Among the Soviet successor states, the pattern was of smaller economies joining the WTO fairly quickly (Kyrgyzstan in 1998, Latvia and Estonia in 1999, Georgia in 2000, Lithuania and Moldova in 2001, Armenia in 2003. This is consistent with the standard trade theory conclusion that for a small open economy the optimal tariff is zero; the smaller countries were not giving up much when they agreed to bind their tariffs at low levels and foreswear use of non-tariff barriers to trade. The larger economies, including Uzbekistan, could perhaps see an option value in a wait-and-see approach. Moreover, the larger economies were more attracted to industrial policies based on import substitution, which appeared more practical with a larger domestic market and more likely to be constrained by WTO trade law. In practice, across the world, import-substituting industrialization (ISI) has proven to be a poor development strategy that is inferior to specialization and trading. An ISI strategy leads to resource misallocation (in labour-abundant countries it encourages capital-intensive activities, i.e. output grows faster than employment and owners of capital benefit more than workers), 11 Czechoslovakia was an original GATT contracting party in 1947, but after adoption of central planning its position became anomalous; in 1993, the Czech Republic and Slovakia became members as independent countries. Yugoslavia joined GATT in 1966(Slovenia in 1994  Two areas of WTO law that have been especially contentious in relation to formerly centrally planned economies concern trade remedies. Anti-dumping duties can be applied to imports if they are being sold below their cost of production. If the exporter is classified as a non-market economy then the AD duties can be based on constructed values of the cost of production rather than on actual prices, which gives the importing country discretion in calculating the appropriate tariff to offset the "dumping". 14 This has 12 The costs of import substitution were documented in a series of case studies published in the 1970s and the benefits of outward-oriented policies were illustrated by a group of newly industrialized economies (a term invented by the OECD in 1975). The trigger for countries to abandon ISI and follow the NIEs varied. The increase in oil prices after 1973 was a catalyst for reform in many countries that could produce neither oil nor the exports needed to pay for imported oil; those who borrowed to pay for imports such as Brazil or Argentina ended up in a debt crisis in 1982. By the 1990s ISI was in disrepute in almost all low-and middle-income market economies, but the lessons had not been learned in countries in transition from Soviet central planning. defines subsidies as a "financial contribution by a government or any public body within the territory of a Member" which gives an unfair advantage to a specific industry, firm or individual and defines five categories of industrial subsidies: cash payments, tax concessions, loan guarantees and other assumptions of risk, public procurement policies at non-market prices, and stock purchases to boost a company's share price. The ASCM provides detailed standards to conduct countervailing duty actions; and provides a workable multilateral discipline governing prohibited and actionable subsidies (Sykes 2005). However, these guidelines are more difficult to follow for an economy in which many enterprises are state owned and when the government is committed to industrial policies directed at encouraging preferred activities.
To some extent concerns about both anti-dumping and countervailing duties involve transparency. The unwillingness of major trading nations (especially the USA, European Union and Japan) to end China's non-market status reflects distrust of prices in China. The same countries' suspicion of the trade practices of state-owned enterprises in China centres on lack of clarity about government involvement in those enterprises.

Is the WTO Still Relevant?
The street demonstration in Seattle in 1999 reflected a backlash against globalization and the role of the WTO. Over the next fifteen years there were frequent signs of the presence of anti-globalist forces, including in high-income countries where populist parties gained  concern about undermining the universality of WTO trade law.
Alternatively, agreements among like-minded countries may be negotiated outside the WTO. Before the 1980s, regional trading arrangements largely involved preferential tariffs as countries formed free trade areas or customs unions and regionalism was seen as a challenge to the nondiscrimination principle of equal treatment of all GATT contracting parties (Pomfret, 2001 With all the caveats about difficulty of law-making by consensus and enforcing laws without a police force, the WTO has proven popular in that almost all countries accept that it is better to be inside the organization than not. Since 2016, the WTO has 164 members and 24 observers, who are at various stages of negotiating accession. 21 The almost universal membership is important for establishing trade rules that are accepted across the globe. Members agree to observe a core set of rules and practices, while acceptance of WTO+ rules is optional and can be done either in a WTO plurilateral or in a deep trade agreement.

Uzbekistan's WTO Accession
The WTO aspires to universal membership: "Any state or customs territory having full autonomy in the conduct of its trade policies may join ("accede to") the WTO, but existing WTO members must agree on the terms" of accession. The process can be long: for Seychelles the accession process lasted 19 years and eleven months, for Russia 19 years and 2 months, for Vanuatu, 17 years and 1 month, and for China 15 years and 5 months. 19 The fifteen RCEP countries are Australia, Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand and Vietnam. 20 It is difficult to quantify the impact of trade agreements in the new areas. Petri and Plummer (2016) forecasted large economic benefits from the TPP, although as with any trade policy changes there will be job "churning" and winners and losers. 21 The only UN member countries with no relation to the WTO are North Korea, Eritrea and several microstates (mainly Pacific islands).
Uzbekistan's will be longer than any of these. 22 After a country applies for membership, the accession process involves four steps, primarily intended to ensure compatibility between the applicant's pre-existing policies and WTO membership. 23 In the first step, the government applying for membership submits a factual description of all aspects of its trade and economic policies that have a bearing on WTO agreements. 24 This is examined by a working party whose chair is appointed by the WTO (in Uzbekistan's case the Chair is from the Republic of Korea, currently Ambassador Ji-ah

Paik) and on which membership is open to all WTO members expressing an interest.
Questions about the factual statement can be extensive, e.g. in Tajikistan's case they numbered over 1300 (Jekic, 2019).
When the working party has made sufficient progress on principles and policies, parallel bilateral talks begin between the prospective new member and individual countries. They are bilateral because different countries have different trading interests.
These talks cover tariff rates and specific market access commitments, and other policies in goods and services. However, the new member's eventual commitments will apply equally to all WTO members under the non-discrimination (unconditional most-favoured nation) principle.
In The four-step process is described on the WTO website http://www.wto.org/english/thewto_e/whatis_e/tif_e/org3_e.htm . 24 After Uzbekistan's December 1994 application, a memorandum of Uzbekistan's foreign trade regime was presented in September 1998 and written answers to questions from WTO members were prepared. On 17 July 2002, the first Working Group meeting on Uzbekistan accession to WTO was held in Geneva, where the main issue was article-by-article study of the memorandum on Uzbekistan's foreign trade regime. After negotiations were broken off in 2005, the process languished and when it was reactivated a new memorandum was submitted in July 2019.
("protocol of accession") and lists ("schedules") of the applicant's commitments, is presented to the WTO General Council or the Ministerial Conference. If WTO members vote in favour, the applicant is free to sign the protocol and to accede to the organization.
In many cases, the country's own parliament or legislature has to ratify the agreement before membership is complete. After that, these commitments become part of the legal package of WTO documents and national legislation, and the country acquires the status of a member of the WTO.
The starting point for negotiations is that the applicant must accept the preexisting WTO multilateral agreements. The WTO Charter is centred on the GATT as It should be noted that while WTO members may request reduction of what they consider to be excessive trade barriers, the applicant has bargaining room to maintain protectionist tariffs that it considers to be important. Tajikistan, for example, agreed to an average bound rate of 10.4% on agricultural goods and 7.6% on manufactured goods, which included higher duties on strategic agricultural goods (dried fruits 15-20%, honey 20%, fresh fruits and vegetables 20-23%, cotton 20%, alcoholic products 18-23%) and industrial goods (textile 20%, shoes 20-30%, carpets 30%, tobacco products 18%, and some chemical products 20%), as well as to permissible support for agriculture up to 8% of GDP. The working party may also raise questions about other trade-related policies (e.g. foreign exchange and payments, balance-of-payment measures, investment regime, state ownership and privatization, and pricing policies) and about institutions (e.g. the structure and powers of government, administration of policies on WTO-related issues, authority of sub-central governments, uniform administration of trade regime, and judicial review, including the right of appeal). 27 State-owned enterprises with explicit or implicit subsidies will come under scrutiny during the accession process. The Uzbek government has already begun reform of the car industry by reducing support for the monopoly producer, Uzavtosanoat, and encouraging entry by foreign producers (O'Casey, 2018;Umirdinov and Turakulov, 2019). There are also plurilateral agreements, which WTO members can choose to sign but are not binding on WTO members that do not sign them.
Apart from the detailed bilateral negotiations on tariff bindings and pre-existing trade barriers, accession negotiations may include general issues such as status for special and differentiated (S&D) treatment. The 2017 Trade Facilitation Agreement, for example, required developed countries to implement all commitments while developing countries could delay or limit the scope of commitments conditional on receipt of financial aid-for-trade support. S&D also features in the Joint Statement Initiative proposing a plurilateral agreement on e-commerce, which foresees developing countries that sign the agreement having lower ambition, committing to less scope, having a longer time frame and implement later (the "four Ls"). Within the WTO, developing country status is self-determined; once acknowledged to be a developing country a member has little incentive to graduate. 28 The S&D issue is controversial because it undermines the universal application of WTO trade law and to some countries it seems unfair that major trading nations like China should qualify for special treatment. In December 2018 the USA presented a proposal to the General Council emphasizing the need for transparent qualification appointed to the post of advisor to the Minister of Foreign Trade of the Republic of Uzbekistan in October 2018. 27 In addition to the WTO website, this paragraph draws on the analysis of Belarus and the WTO by Kolesnikova, (2013). 28 Note that S&D is distinct from access to Generalized System of Preferences (GSP) schemes that were introduced in the 1970s and are permitted under the 1979 Enabling Clause. GSP grants exemption from GATT Article I (on unconditional MFN treatment) to developed countries unilaterally granting preferential tariff treatment to developing countries; GSP schemes are donor-determined and the donor decides which countries qualify for preferential treatment and under what terms. The specific category of least-developed countries (LDCs) is defined by the UN and WTO members accept the composition of the LDC group but the category of developing country is not defined. for special status rather than self-identification; the proposal is strongly opposed by China, India and Brazil among others. In sum, developing country status is a benefit worth seeking because it adds to a member's flexibility, but it may be a transient benefit. 29

Conclusions
Under President Karimov, Uzbekistan had a controversial economic record. After a brief interlude of market-oriented reform in 1994-6 the overall policy record was of gradual change and pervasive government intervention. Economic performance in the 1990s was good relative to other former Soviet republics, but more mixed in the twenty-first century when it fell behind that of neighbouring Kazakhstan and saw two million workers migrate to Russia and Kazakhstan in search of better jobs than were available in Uzbekistan.
Opposition to the authoritarian regime was forcibly repressed, and the president saw little reason to cooperate with multilateral economic institutions and no need to pursue WTO membership.
Following Karimov's death in 2016 and succession by President Mirziyoyev, hopes were high that the generational shift would be a harbinger of reform. From the start, President Mirziyoyev mended bridges with neighbours and worked to improve international economic relations. In September 2017 he implemented the crucial liberalization of foreign exchange markets. Other measures are less spectacular and harder to evaluate, but they reinforce appearances that a revived WTO application will be easier to conclude successfully than the earlier negotiations.
Uzbekistan's inward-looking interventionist policies raised average living standards, especially when helped by high world prices for exports of minerals and natural gas, but after the end of the resource boom in 2014 the strategy was heading to a dead-end. The obvious solution was diversification from the fairly narrow economic base of cotton, gas, minerals and a heavily protected manufacturing sector, and the only feasible route to sustainable diversification is to engage in the global economy. That in 29 A separate issue is categorization of a country as a non-market economy. A country pursuing an anti-dumping case against a member whose domestic prices are considered artificial and hence inappropriate benchmarks may use constructed prices to determine whether the good is being exported at a price below "cost". This practice is detested because it allows discretion in how the benchmark prices are constructed. Since non-market status is determined by the importer, it is valuable to obtain commitments that it will not be invoked in AD cases against Uzbekistan.
turn requires access to imported inputs and to export markets, both of which will be aided by WTO membership.
Negotiations will take place because the WTO in the 2020s is less about agreeing on the height of tariffs or extent of quantitative barriers to trade than about ensuring a level playing field. WTO members will expect Uzbekistan to abolish many of the measures used to help particular sectors or even individual producers, from the highprofile widely abhorred and now abolished use of child labour in cotton harvesting to the pervasive credit rationing by the state-dominated financial sector. At the same time, Uzbekistan must take the opportunity to negotiate exemptions from WTO regulations and codes that are not in its national interest, e.g. where health, safety or environmental reasons for the exclusion are strong. If Uzbekistan is as committed to reform as President Mirziyoyev sometimes claims, then the path to WTO membership will be easier and WTO membership will benefit the reformed economy.