An article appeared on Registan last week that presented Kyrgyzstan’s bid to enter the Russian-led customs union as an inevitable capitulation of the weaker state to the whims of the stronger. The author, Reid Standish, follows a familiar line of analysis whereby Russia continues to use “great power” strategies to reconstitute its sphere of influence, forcing CIS states to abandon other partnerships in commerce, security, and other areas of foreign policy. This narrative has quite a bit of appeal, especially in light of the current events in Ukraine, where the loyalty of an older cadre of political elite plays a key role in allowing Putin to assert an artificial “us or them” calculus onto Ukraine’s relations with the EU. As compelling as this narrative is, however, it can easily conflate two distinct dimensions of regional dynamics: asymmetric power, and misaligned interests. Standish is correct in pointing out that the power asymmetry between Russia and Kyrgyzstan reduces the accession process to a mere “illusion of choice.” However, it does not necessarily follow that Russia’s interests in expanding the customs union necessarily come at the expense of local actors in Kyrgyzstan. To assume that they do is to project the same zero-sum logic onto the customs union issue that Putin does, and forces us to write off those who would gain from accession as mere stooges of Putin’s tactics. Their interests and their voices are equally valid in the discussion, even if they have admittedly little say in the matter.
To be fair, Standish himself does not directly conflate the issues of power asymmetry and misaligned interests. However, he makes it easy for his readers to do so by focusing on one major bargaining chip that Russia holds, and one major cost of acquiescence for Kyrgyzstan. The bargaining chip is Russia’s evolving policy on labor migration, which is due to become increasingly restrictive to non-members of the customs union – not inconsequential to states such as Kyrgyzstan that are partially dependent on remittances from migrants in Russia. The cost of joining the customs union, however, is the increased price that Kyrgyzstan’s population will have to pay for the cheap Chinese commodities entering the country through its southeastern border, an outlet for trade that by some accounts holds more future potential than do old soviet alignments. Indeed, when asked how land-locked Kyrgyzstan could expect to develop its foreign trade, former President Askar Akaev once quipped that his country did not require direct access to the ocean, because it borders China, “the greatest ocean.”
While I find a number of Standish’s points spot on, I felt that the overall narrative he followed was more in tune with large, accessible economic trends than with daily economic life in the capital, if not across the country. I therefore felt compelled to respond with some personal observations of economic processes that fly just below the radar of aggregate economic data on Kyrgyzstan, the latter tending to focus disproportionately on Kumtor, foreign direct investment, and labor migration.
First, although resource extraction and FDI may be crucial to the national budget, agriculture and small, export-oriented businesses provide for many people’s livelihoods. The textile sector in Kyrgyzstan has grown dramatically over the last five years, and dozens of abandoned factories in Bishkek are now booming producers of high-quality tailored goods. The “Kyrgyz brand” is increasingly demanded by retailers in Russia, where Kyrgyz workmanship has gained a reputation for being both cheap and of high quality. As just one example, a massive factory that stands along Jibek Jolu avenue across from the Orthodox Church was entirely derelict as late as 2007. Although it will likely never be restored to a fully-operating industrial complex along the lines of its original design, today every floor is rented out by private sewing firms exporting their goods to Kazakhstan and Russia.
For these businesses and for the agricultural sector, the customs union represents an important market and stability in future demand for their product. And while there are concerns among some such entrepreneurs that the cost of material inputs will rise with accession the to customs union, others speculate that Kyrgyzstan, as the only WTO signatory among the customs union nations, will retain most features of its current trade relations, and even come to serve as a crucial bridge between Russia’s customs union and the the WTO framework.
The matter of Chinese commodities is similarly complex. At the level of average consumers, “cheap Chinese commodities” do not compete directly with commodities imported from CIS countries; they are two different market niches. I can hardly overemphasize how acutely aware locals are that Chinese commodities are cheap products of poorly regulated industry. Chinese consumer goods are disparaged as being of low quality, and Chinese produce has attained an almost mythical status as being laden with artificial and potentially harmful chemicals. Consumers make complex decisions about want vs. need when choosing which products to buy, and though accession to the customs union may impose new costs on the consumption of Chinese goods, it will also bring down prices on other goods that, in my observations, consumers value more.
Produce and consumer goods are two different animals, of course, so I will treat them separately. In the case of produce, I agree in part with Standish’s general predictions. People of any means prefer to buy local produce, and shun the flavorless apples and tomatoes brought to market from China. However, in the winter time, when agriculture in Kyrgyzstan and Uzbekistan can no longer meet local demand, prices rise dramatically on local produce, putting it out of reach for many households. Customs union accession may exacerbate this issue on two fronts – first, easing the export of local produce to more lucrative markets in Kazakhstan at the expense of local consumers, and second, increasing prices on Chinese produce, which may become locals’ only choice once domestic produce is exported. At the same time, the customs union may also make Turkish and Iranian produce, already readily available in Kyrgyzstan’s markets, even more accessible and affordable, as a unified customs border may offer new shipping routs that cross fewer national boundaries on the way to Kyrgyzstan.
The matter of consumer goods is even more complex. Most westerners are familiar with the quality of Chinese goods produced along China’s coast that are intended for export to western markets. The Chinese goods that come into Central Asian markets are produced by in-land industry for consumption by China’s domestic markets, and are of a far cheaper quality than goods produced for export. We cannot reduce the issue to Kyrgyzstan’s northern vs. eastern borders, though. There are other players in the market as well. Korean electronics have gained a reputation for quality in Kyrgyzstan, and their prices will likely remain stable or even drop if Kyrgyzstan enters the customs union, as they are currently shipped across multiple borders before reaching local markets. A wide variety of Turkish goods, from textiles to appliances, have also gained a good reputation and strong demand in Kyrgyzstan, and it is as of yet unclear how accession would affect their prices, as the customs union will share no direct border with Turkey, but neither does Kyrgyzstan. The customs union may offer more cost-effective routes for moving goods than those traders currently use.
In any event, the price of Chinese goods likely represent a singular cost imposed on Kyrgyzstan by customs union accession, and as I have tried to demonstrate, buyers and sellers alike discriminate Chinese goods from all others. This pattern holds true across Bishkek’s many local markets, ranging from textile sellers in Madina Bazaar to building materials in MegaComfort, and among clothing sellers both in Dordoi Bazaar on the outskirts of town and Dordoi Plaza right in the center.
Thus, the results of a price increase in Chinese goods would be mixed, and probably tip consumers’ calculations even more in favor of other goods. Unfortunately, the biggest losers in this process (aside from shuttle traders who import Chinese goods) will likely be those consumers who cannot afford to discriminate the products they buy, and for whom marginal decreases in the price of CIS and other goods are still not enough to put them comfortably in reach. On the other end of the equation, the national product will likely gain from increased access of local clothiers to their primary markets, in addition to the continued flow of remittances from labor migrants.
The broader point, however, is that we would be wrong to write off the legitimate interests of local entrepreneurs and certain strata of consumers in joining the customs union, just because their interests line up with the whims of a larger, self-serving power. Putin is attempting to impose a zero-sum logic on the issue of customs union accession, yes, but his interests do not in all cases come at the expense of local interests.