Why is Uzbekistan still not a member to the WTO?

Mavjuda Ostanaboyeva

Image source: www.daryo.uz 

Joining the World Trade Organization (WTO) is gaining great importance in the economic development of the countries in the world. Because the accession to the WTO gives countries great opportunities in domestic and foreign trade, economic and financial development. Unfortunately, Uzbekistan has not yet been accepted as a member of the WTO, despite the fact that it has submitted an application for membership to this organization 29 years ago. In this blog post, I will analyze the legal reasons why Uzbekistan still cannot become a member of the WTO and provide alternative proposals.

WTO and its accession requirement

The WTO is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible. Although the WTO was officially established in 1995 in order to liberalize international trade between member states, to regulate trade and political relations, it is actually the successor of the international agreement concluded in 1947 – GATT (General Agreement on Tariffs and Trade).

Any state or customs territory having full autonomy in the conduct of its trade policies may become a member (“accede to”) the WTO, but all WTO members must agree on the terms. This is done through the establishment of a working party of WTO members and through a process of negotiations. In order to become a member of the WTO, the countries must first adapt their domestic economy, legislation and other similar areas to the rules of the WTO and also abandon the systems that contradict the WTO rules. Otherwise, they will not be accepted into the WTO membership, or the process of reviewing applications may be prolonged.

Overview of Uzbekistan’s accession to WTO

After gaining independence, Uzbekistan began to work on cooperation in the global economy and establishing multilateral trade relations. Uzbekistan has been in active negotiations to become a member of the WTO for 29 years, which is one of the longest-running negotiations. For comparison, it took Russia 19 years, and the Kyrgyz Republic only 2 years to become a member of the WTO. Uzbekistan’s application for WTO membership began on December 21, 1994, but these processes stopped in 2005. Nevertheless, the working group that was formed for Uzbekistan’s membership to the WTO increased its activity again in 2019 at the initiative of new Uzbek government, and the meetings of this joint working group were resumed from July 7, 2020. In general, the processes of Uzbekistan’s membership in the WTO are longer than those of other countries. The following table shows the membership status of Central Asian countries in this organization.

Problems preventing Uzbekistan from the accession to the WTO

Uzbekistan is accelerating efforts to join the WTO, sparking discussions on the potential gains and losses associated with membership. The government has made WTO membership a top priority, especially after 2020. According to the information on the official web site of the Ministry of Investment, Industry and Trade “A delegation from the Republic of Uzbekistan headed by Deputy Prime Minister Jamshid Khodjaev was on a working visit to Geneva, Switzerland. To date, a number of meetings have been held with representatives of international organizations on the visit’s agenda. In particular, on March 14, 2023, Deputy Prime Minister J.Khodjaev met with Director General of the World Trade Organization (WTO) Ngozi Okonjo-Iweala.

During the negotiations, issues of accelerating the process of Uzbekistan’s accession to the WTO were discussed, including holding the 6th meeting of the Working Group on March 14-15, 2023. The need to intensify bilateral negotiations on market access for goods and services with all WTO member countries and signing relevant protocols on their completion to accelerate the country’s accession to the Organization was noted.”

However, there are several other problems along the way. Based on the opinions of foreign experts and representatives of our national government, we will analyze the existing obstacles for becoming a member of the WTO one by one.

• Harmonization of domestic rules with WTO Agreements

Deputy Prime Minister Jamshid Khojayev emphasized the need for Uzbekistan to adapt its domestic legislation to WTO rules, in particular, in the areas of the entry of foreign products into the local market and the protection of intellectual property.

• Eliminating State subsidies

Secondly, according to the Dr. Lawrence (Rui) Dang, EU advisor: “One of the biggest obstacles is that Uzbekistan needs to provide a future road map on how to treat foreign companies fairly”. When asked about the impact of membership on Uzbekistan’s domestic market, Dr. Dang raised some concerns. According to him, “There are many state-owned companies and some of them receive state subsidies, which is against WTO rules. Domestic legal changes to bring them into line with WTO rules will be a big challenge, but it is also a good opportunity”.

• State intervention into economy and regulation of monopolies

Thirdly, economic analyst Nodirbek Rasulov sheds light on the implications in an exclusive interview with “Daryo”. According to him: “To become a WTO member, a country must open its economy to the world market, minimize state intervention, and regulate monopolies”. Rasulov underscores the need for legal adaptations, referencing recent constitutional reforms, including Article 67, aimed at creating a favorable investment environment, regulating monopolistic activities, and ensuring open mutual trade. Also he added: “Wherever there is a monopoly, there is an abundance of low-quality products. In a monopoly, the demand is set by the producer.”

Analysis of above problems

Based on the opinions of the experts mentioned above, we can say that there are a number of obstacles for Uzbekistan to join the WTO.

They are as follows:

• Legal system
• State subsidies
• Monopolies

First and foremost, Uzbekistan must modify its domestic legal framework to comply with WTO regulations and member state laws. Undoubtedly, this takes a great deal of effort and negotiation.

Secondly, governmental subsidies are known to be given to a large number of state companies in Uzbekistan. Consequently, certain WTO regulations are not being followed. That is why the allocation of some types of state subsidies contradict WTO regulations.

Thirdly, the monopolization of certain sectors in our country creates great obstacles in our membership of the WTO. In other words, extremely high tax rates are applied to the importation of equivalent foreign goods. This just results in one manufacturing entity having the monopoly in the whole country. We can use UzAuto Motors as an obvious example of this.

In order to eliminate the existing problems, the Government must first develop legislation that can meet the requirements of the WTO and put it into practice. Also, as mentioned above, it is necessary to put an end to allocating subsidies by the state to some companies. Because WTO requirements include rules such as non-discrimination and creating equal conditions for all foreign and domestic enterprises. This, in turn, leads to the restriction of monopoly at the country level. Implementing legislation that adheres to WTO requirements and eliminating state subsidies to certain companies can help ensure fair competition and prevent monopolies from forming at the country level. By creating equal conditions for both foreign and domestic enterprises, the state can promote a more competitive market environment and encourage innovation and efficiency. Additionally, by upholding principles of non-discrimination, the state can foster transparency and fairness in economic activities, ultimately benefiting consumers and businesses alike.

Conclusion

In conclusion, Uzbekistan’s efforts to become a member of the WTO have been gaining momentum in recent years. The process of negotiations with each WTO member state has started, and some of them have been successfully conducted. However, we cannot claim that the procedures for accessing and negotiating the WTO are absolutely perfect. Undoubtedly, lots of efforts are being taken by the country to address current issues and weaknesses. Namely, Uzbekistan must adapt its domestic legal framework to comply with WTO regulations. Additionally, the allocation of state subsidies to state companies may not follow WTO regulations, and the monopolization of certain sectors in the country creates significant obstacles in its membership. Only after embracing bold domestic reforms, Uzbekistan can become a more competitive and open member of the WTO.

Cite as:  Mavjuda Ostanaboyeva, “Why is Uzbekistan still not a member to the WTO?”, Uzbekistan Law Blog, 04.03.2024.