How can Uzbekistan integrate into the global economy?

Three pathways

The WTO has given many reasons for Uzbekistan to depart from its previous posture of protectionism and gear towards openness and economic integration. In 1994, Uzbekistan applied to become a member of the World Trade Organization. However, talks stalled for years due to the autarkic policies under the first president. After a suspension of talks for fifteen years, the government started the negotiation in 2020 to acquire membership. The move is part of a broader economic reform agenda in Uzbekistan that aims to improve the business climate, ease regulatory barriers, and foster transparency in trade practices.

We can observe the logical reasoning behind the renewed negotiations from the officials’ statements. First, WTO accession is considered by the government a necessary step to harmonize Uzbekistan’s trade regime with globally accepted norms. The membership opens the way to uniform commercial practices, cuts red tape relevant to external trade and helps to expand its economic model beyond agriculture and hydrocarbons. To this end, the government intends to remove subsidies and exemptions that are given to encourage exports. Additionally, WTO accession also provides Uzbekistan access to independent dispute resolution mechanisms, meaning the country could defend its trade interests more efficiently as it develops its global trading relationships.

With the accession, investor confidence is expected to improve as the legislation sends a strong signal in favor of the rule of law, transparency and non-discrimination that would help attract foreign direct investment (FDI) in crucial areas like energy, infrastructure and agriculture.

Alongside efforts to accede to the WTO, Uzbekistan has sought key FTAs as part of its broader economic reform program. These agreements, too, focus on facilitating greater integration into export markets and deeper connectivity with them. So far, Uzbekistan has established most-favored-nation treaties with 47 countries. In 2020, Uzbekistan became an observer of the Eurasian Economic Union (EAEU). However, the FTAs Uzbekistan has entered to date fall short of true “deep agreements”. In this regard, two important milestones—the agreements with the European Union (EU) and South Korea—demonstrate the government’s seriousness in pursuing strategic, beyond-WTO trade partnerships with significant international actors.

Uzbekistan made significant progress in developing strong relations with the EU. In April 2021, the European Union accorded Uzbekistan beneficiary status within the General System of Preferences Plus (GSP+), waiving tariffs on 6,200 product lines on condition that Uzbekistan implements twenty-seven international conventions related to human rights, labor rights, environmentalism and good governance. In addition, in 2022, Uzbekistan also concluded negotiations on an Enhanced Partnership and Cooperation Agreement (EPCA) with the EU. Complementing Uzbekistan’s GSP+ status, the EPCA aims to deliver an even deeper level of market access by addressing non-tariff barriers and bringing Uzbek products in line with EU standards. Since then, external trade has already increased between each party. For instance, in 2017 and 2018, EU exports to Uzbekistan amounted to €4.35 billion, with imports from Uzbekistan amounting to €780 million.

Looking to the East, the government of Uzbekistan had already been in talks with South Korea to discuss the feasibility of FTA between countries. Uzbekistan and South Korea announced plans to begin FTA negotiations following the completion of feasibility studies in November 2020. The deal is strategically important for Uzbekistan because South Korea is one of its major partners in technology, manufacturing and infrastructure development. In fact, in recent years, South Korean investment in Uzbekistan has exceeded $7 billion, which reflects strong economic ties between the nations. South Korea is one of the main trading partners of Uzbekistan after Russia and China. In recent years, this figure has doubled and in 2019 reached $2.5 billion . FTA with South Korea will enhance Uzbekistan’s access to new markets, benefiting key export sectors like textiles and agriculture . As Uzbekistan’s dependence on the Russian market dwindles, reaching a trade agreement with Korea becomes more urgent to escape these penalty duties and avert export outlets.

In addition to the abovementioned changes, Uzbekistan has significantly shifted its trade policy towards neighboring Central Asian countries . The government became more oriented toward building connections with its neighbors for further economic collaboration. This pragmatic foreign policy has led to the reopening of borders and the establishment of new air, bus and rail routes.

These developments have facilitated bilateral, regional cooperation and significantly boosted regional trade. For instance, the trade turnover among Central Asian countries has risen since 2018, doubling within the last six years from $5.7 billion to $11 billion.

Historically, Central Asian countries have been in different trade regimes that impeded a deeper cooperation. Although bilateral agreements have been formed between countries, regional trade and economic cooperation have always required more unified trade regimes. This need gave rise to and revitalized cross-border regional efforts. Because of this need, Uzbekistan and Kazakhstan, for example, created an International Center for Trade and Economic Cooperation (ICTEC) at the border. The regional cooperation gained new momentum with the initiation of a Consultative meeting of Central Asian heads of state in 2018. Once mainly limited to political and security-related matters, the discourse in the meeting now encompasses economic integration, agreements on trade, and political and cultural cooperation. In 2024, during the sixth meeting in Astana, leaders of Kazakhstan and Uzbekistan suggested a set of precise fundamental norms and principles that will be the foundation to more tightly integrated intra-regional interactions.

”The trade policy of Uzbekistan can use WTO accession as a base for credibility and rule adherence while recognizing its limitations due to the organization’s current crises”

Future pathways

The discussion so far gives some pointers to the shape of Uzbek economic integration scenarios. To maneuver the intricacies of the global trading system effectively, the Uzbek government can pursue a hybrid approach which combines multilateralism with targeted regional and bilateral agreements. As the country is furthering its economic restructuring and international integration, the policymakers can leverage both the WTO accession and various new-generation FTAs for more maintaining flexible and adaptive trade policy in a fast-changing economy.

The trade policy of Uzbekistan can use WTO accession as a base for credibility and rule adherence while recognizing its limitations due to the organization’s current crises. Simultaneously, forging FTAs with key partners like the EU and South Korea will allow for preferential market access and innovation in areas like e-commerce, serving as experimental grounds for progressive trade rules. Additionally, despite Central Asia’s low economic interdependence, regional cooperation is vital for enhancing trade infrastructure and facilitating border transactions.

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