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"I believe that to meet the challenges of our times, human beings will have to develop a greater sense of universal responsibility. It is the foundation for world peace."

Importance of Silk Route

October 14, 2008

By Dr Hashim Iqbal Malik
Kashmir Watch
October 13, 2008

As it happened that silk became a precious commodity highly sought by
other countries at a very early time, and it is believed that the
silk trade was actually started before the Silk Road was officially
opened in the second century BC. An Egyptian female mummy with silk
has been discovered in the village of Deir el Medina near Thebes and
the Valley of the Kings, dated 1070 BC, which is probably the
earliest evidence of the silk trade. During the second century BC,
the Chinese emperor, Han Wu Di's ambassadors traveled as far west as
Persia and Mesopotamia, bearing gifts including silks. A Han embassy
reached Baghdad in AD 97, and important finds of Han silks have been
made along the Silk Road. One of the most dramatic finds of Tang
silks along the Silk Road was made in 1907 by Aurel Stein. Some time
around 1015, Buddhist monks, possibly alarmed by the threat of
invasion by a Tibetan people, the Tanguts, sealed more than ten
thousand manuscripts and silk paintings, silk banners, and textiles
into a room at the Caves of the Thousand Buddhas near Dunhuang, a
station on the Silk Road in north-west Gansu.

 From about the fourth century BC, the Greeks and Romans began
talking of Seres, the Kingdom of Silk. Some historians believe the
first Romans to set eyes upon the fabulous fabric were the legions of
Marcus Licinius Crassus, Governor of Syria. At the fateful battle of
Carrhae near the Euphrates River in 53 BC, the soldiers were so
startled by the bright silken banners of the Parthian troops that
they fled in panic. Within decades Chinese silks became widely worn
by the rich and noble families of Rome. The Roman Emperor
Heliogabalus (AD 218 - 222) wore nothing but silk. By 380 AD,
Marcellinus Ammianus reported, "The use of silk which was once
confined to the nobility has now spread to all classes without
distinction, even to the lowest." The craving of silk continued to
increase over the centuries. The price of silk was very hight in
Rome. The best Chinese bark ( a particular kind of silk) cost as much
as 300 denarii (a Roman soldier's salary for an entire year!). Many
sources quote that Roman citizens' demand for imported silks was so
great as to be damaging to the Roman economy.

Silk was even beginning to have a civilizing effect on the
barbarians. In 408 AD when Alaric, a Goth, besieged Rome, his price
for sparing the city included 5000 pounds of gold, 3000 pounds of
pepper, 30,000 pounds of silver and 4000 tunics of silk.

The description of Silk Route to the west as the `Silk Road' is
somewhat misleading. Firstly, no single route was taken; crossing
Central Asia several different branches developed, passing through
different oasis settlements. The routes all started from the capital
in Changan, headed up the Gansu corridor, and reached Dunhuang on the
edge of the Taklimakan. The northern route then passed through Yumen
Guan (Jade Gate Pass) and crossed the neck of the Gobi desert to Hami
(Kumul), before following the Tianshan mountains round the northern
fringes of the Taklimakan. It passed through the major oases of
Turfan and Kuqa before arriving at Kashgar, at the foot of the
Pamirs. The southern route branched off at Dunhuang, passing through
the Yang Guan and skirting the southern edges of the desert, via
Miran, Hetian (Khotan) and Shache (Yarkand), finally turning north
again to meet the other route at Kashgar. Numerous other routes were
also used to a lesser extent; one branched off from the southern
route and headed through the Eastern end of the Taklimakan to the
city of Loulan, before joining the Northern route at Korla. Kashgar
became the new crossroads of Asia; from here the routes again
divided, heading across the Pamirs to Samarkand and to the south of
the Caspian Sea, or to the South, over the Karakorum into India; a
further route split from the northern route after Kuqa and headed
across the Tianshan range to eventually reach the shores of the
Caspian Sea, via Tashkent.

Secondly, the Silk Road was not a trade route that existed solely for
the purpose of trading in silk; many other commodities were also
traded, from gold and ivory to exotic animals and plants. Of all the
precious goods crossing this area, silk was perhaps the most
remarkable for the people of the West. It is often thought that the
Romans had first encountered silk in one of their campaigns against
the Parthians in 53 B.C, and realised that it could not have been
produced by this relatively unsophisticated people. They reputedly
learnt from Parthian prisoners that it came from a mysterious tribe
in the east, who they came to refer to as the silk people, `Seres'.
In practice, it is likely that silk and other goods were beginning to
filter into Europe before this time, though only in very small
quantities. The Romans obtained samples of this new material, and it
quickly became very popular in Rome, for its soft texture and
attractiveness. The Parthians quickly realised that there was money
to be made from trading the material, and sent trade missions towards
the east. The Romans also sent their own agents out to explore the
route, and to try to obtain silk at a lower price than that set by
the Parthians. For this reason, the trade route to the East was seen
by the Romans as a route for silk rather than the other goods that
were traded. The name `Silk Road' itself does not originate from the
Romans, however, but is a nineteenth century term, coined by the
German scholar, von Richthofen.

In addition to silk, the route carried many other precious
commodities. Caravans heading towards China carried gold and other
precious metals, ivory, precious stones, and glass, which was not
manufactured in China until the fifth century. In the opposite
direction furs, ceramics, jade, bronze objects, lacquer and iron were
carried. Many of these goods were bartered for others along the way,
and objects often changed hands several times. There are no records
of Roman traders being seen in Changan, nor Chinese merchants in
Rome, though their goods were appreciated in both places. This would
obviously have been in the interests of the Parthians and other
middlemen, who took as large a profit from the change of hands as
they could. However, this route declined in 18th century after
hostile environment in the region and mainly due to Anglo Sino rivalry.

Now in the the 21st century, the great East-West trading route has
regained major prominence. The New Silk Road -- the revival of trade
and investment between the Gulf and Asia -- features large movements
of capital as well as goods.

China is a major part of this metaphorical roadway. Trade between the
Middle East and China totaled 69 billion U.S. dollars in 2007.

I spoke of revitalising the Silk Road; but perhaps it would be better
to speak of re-energising the Silk Road. After all, one of the big
global issues today is energy security of supply and security of
demand. The question is whether energy security will increase
interdependence and cooperation, as it should, or serve as a bone of
contention and even lead to zero-sum competition.

Objectively speaking, energy should unite us. Indeed, in the
twenty-first century, Realpolitik means seeking mutual benefit. But
this presupposes that we all resist the age-old human temptation to
focus on short-term relative gains at the expense of others, and
instead strive for mutual benefit.

Most recently European Commission published a Green Paper on Energy
for the European Union, formulating a Europe-wide energy policy. It
consists of three main pillars: 1) enhancing security of supply; 2)
promoting free market principles inside and outside the European
Union; and 3) promoting sustainability.

 From a European perspective, Kazakhstan, like Russia and other
countries, has become a key energy partner. The Green Paper says the
'Caspian and Mediterranean countries are important gas suppliers and
transit routes'. Kazakhstan possesses significant amounts of oil and
gas, and is blessed with a strategic location. Given sufficient
investment, Kazakhstan could develop within ten years into one of the
world's top eight oil producers.

Exploration and production are not the only key problems, however.
Transport from producers to consumers is another. Consumers want
security of supply; producers want security of demand. This requires
long-term cooperation and mutual trust. At the same time, all need to
diversify. Regardless of whether a country finds itself on the supply
side or the demand side, all need to reduce the risk that crises or
disruption in one part of the world will have a big impact on another
part of the world. That is why building more pipelines is crucial.
For Eurasia, gas and oil pipelines are the Silk Road of the
twenty-first century. While creating networks of mutual dependence,
one can at the same time spread our collective risks.

There is also an environmental aspect to building a more extensive
pipeline network in Eurasia. As oil and gas have to be transported
over steadily greater distances in steadily greater quantities, the
environmental risks also rise.

One example drawn from the link between your region and the European
Union is the vulnerable shores of the Bosporus, where many ships with
dangerous cargoes pass through the heart of Istanbul. New pipelines
offer a good alternative.

We will be able to discuss these issues this coming November at a
ministerial energy conference between the European Union and the
Black Sea / Caspian Sea region.

Over the last two years U.S. policy makers have been promoting a new
vision for Central and South Asia. This vision advocates the creation
of a new Silk Road. The idea behind the vision is to restore links
between Afghanistan, the Central Asia Republics, and their neighbors.
Realization of the vision can only occur if barriers to cooperation
and integration are significantly reduced. Conceptually, these
barriers can be understood by viewing them as transaction costs: the
higher the transaction costs, the harder it will be to create a new
Silk Road. High transaction costs are created by geography,
dependence on other countries' transit routes and a variety of
political, social, and economic factors. The most significant factors
contributing to high transaction costs are poor governance,
underdeveloped infrastructure, and insecurity. Finding ways to lower
transaction costs is the critical task for the United States and its
partners. For the United States and its eastern partners to succeed
in their nation building efforts in Afghanistan, they need to find
ways to improve economic conditions in the country. According to
American policy makers, the best way to accomplish this is to expand
economic links between Central and South Asian nations. They believe
Afghanistan has the potential to once again become the "land bridge
connecting the vast Kazakh steppes and beyond with the great ports of
the Indian Ocean and greater Asia." The essence of the American
vision for both regions is the creation of a new Silk Road. Its
creation could conceivably open up new markets and economic
opportunities for the landlocked countries of Central Asia and
Afghanistan. Integrating commerce regionally could spur economic
growth, create new jobs, and bring in foreign investment which could
help reduce poverty, increase regional stability, and potentially set
the stage for the emergence of democratic governance in the region.

Former Soviet Union (FSU) legacies, geography, a lack of
transportation infrastructure, and geopolitics are just a few of the
barriers that hamper regional cooperation and economic integration.
Each of these affects transaction costs which reduce the economic
potential of a new Silk Road. Overcoming high transaction costs
requires cooperation between regional nation-states, regional and
international organizations, international financial institutions,
and major powers like the United States, China, Pakistan, India, and
Russia. Without this cooperation, the vision of creating a new Silk
Road will not likely be realized. Finding ways to manage transaction
costs therefore becomes the critical task for the responsible
nations. American policy makers generally saw Central and South Asia
as distinctly different regions. U.S. relations and solutions to
problems were often pursued on a bilateral basis. Geographically
Afghanistan was grouped by the U.S. State Department (DOS) with the
rest of South Asia. Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan,
and Uzbekistan, the five Central Asian Republics (CARs), were grouped
with Russia. The U.S. Department of Defense (DoD) grouped the CARs,
Afghanistan, and Pakistan with the Middle East in the Central Command
area of responsibility (AOR) and placed India and the rest of South
Asia in the Pacific Command AOR. It was not until Secretary of State
Condoleezza Rice's visit to Central and South Asia in October 2005,
that the United States started viewing Afghanistan, the CARs, India,
Pakistan, and the rest of South Asia as part of a greater South Asia.
The DOS formally aligned its policy organization with this view in
early 2006 with the movement of the CARs from DOS's European and
Eurasia Bureau to its South Asia Bureau. Since Secretary Rice's
visit, U.S. policy makers have been promoting a new vision designed
to increase economic prosperity and cooperation between Central and
South Asia. Central to this vision is the broad idea of a "revival of
the fundamental basis for the Silk Road. Such a revival, they
believe, will restore historic ties between the regions and create
new links in the areas of trade, transport, energy, democracy, and
communications. These linkages are expected to preserve and extend
existing relationships (Europe, Turkey, NATO, Organization for
Security and Cooperation in Europe (OSCE), and Japan) and expand
relationships between Central and South Asia.

However, the landlocked nature of Afghanistan and the CARs means they
must depend on neighboring countries' transit infrastructure.
Therefore, the quality of their neighbors' infrastructure is just as
critical as their own. The quality of infrastructure in Afghanistan
and the CARs, like other landlocked countries, is generally
underdeveloped and not in good condition. According to one estimate,
only 25 percent of the roads in Kyrgyzstan and 20 percent of the
roads in Tajikistan are in good condition. A lack of funding for
repairs, low quality maintenance, and numerous other factors has
contributed to poor quality roads. In addition to roads, the region's
railways, logistics systems, and multimodal transport infrastructure
are also in poor condition and underdeveloped. None of the CARs have
modern logistics centers capable of consolidating freight for
international markets. This deficiency combined with the limited
availability of multimodal transport has created conditions which
have made the costs of international transport services for small
cargo very high. Cross-border movement of trains is inhibited by a
lack of locomotives and train paths which causes substantial delays
at border crossings. Rail links from the CARs heading south through
Afghanistan are underdeveloped and transit connections to Pakistan do
not exist.

Many infrastructure deficiencies are a direct result of the legacy of
the infrastructure development policies of the FSU. The
infrastructures the CARs inherited from the FSU were designed to
transport raw materials from the CARs to Russia and Ukraine. This
resulted in a transportation network in which all major roads, rail
links, and pipelines pointed north, crossing through multiple CARs on
the way to Soviet markets. The network's northward orientation
ensured that transit corridors to the east, west, and south were
either very limited or nonexistent. Since 1991, transport corridors
to the east and west have been gradually developing in response to
growing trade with China, Iran, and

Turkey. Routes to the south have been much slower to develop;
however, since the ousting of the Taliban regime in Afghanistan this
has started to change (the CARs' exports to India are less than one
percent of their total exports). The major investment in the South
has been the rebuilding of Afghanistan's Ring Road. The Ring Road is
one of the largest and best funded projects in the region. So far,
over US$1.45 billion has been spent on the construction of the Ring
Road and roads linking itto neighbors' border posts. Numerous other
transport projects, intended to integrate the CARs with their
neighbors, are ongoing but progress continues to be slow due to
deteriorated legacy transit corridors, poor coordination of national
transportation projects, and limited financial resources.

The condition of the transit infrastructure in Afghanistan's southern
neighbors, while in better condition and better developed, is also
inefficient, suffers from long wait and travel times, and of low
reliability. Poor performance in Pakistan's transport sector is
estimated to cost Pakistan 4-6 percent of GDP annually. Pakistan
railways take from 21- 28 days to travel 1800 km from the northern
end of the country to its southern ports, which is 4-7 times slower
than in China and the United States. Road freight takes 3-4 days to
travel the same distance (twice as long as in Europe and East Asia).
Iran's transport sector is in better condition but has similar
problems. Its problems include underdeveloped seaports, railways and
road networks, inefficiencies resulting from state ownership of its
railways, and poor quality transportation services. Like Pakistan,
most of Iran's land freight is carried by trucks. The imbalance
between the road and train sectors, in both countries, is not just a
function of underdeveloped railways, but also a function of
government policy which introduces markets distortions which make
rail transport less competitive. Both countries' major seaports
suffer from a lack of capacity. Specifically, the Pakistani seaports
of Karachi and Port Qasim are inefficient, Gwadar, Pakistan and
Chabahar, Iran are undeveloped, and Bandar e-Abbas, Iran needs to be
upgraded. Overall, the transport networks in South Asia are more
developed than those to the North, but they still generate
significant transaction costs.

Another issue is the ability to access neighboring countries' transit
corridors is more than a matter of having the right infrastructure
connections. Access requires good cross-border political relations
with neighbors. For landlocked counties like Afghanistan and the
CARs, bad relations with a neighbor can limit or deny access which
has serious economic and political consequences. The causes of poor
political relations in the region include the inability of
governments to demarcate national borders, a failure to implement
effective water management mechanisms, political vagaries of
neighbors, criminal and insurgent activities in border areas, fears
of Uzbek hegemony, and a general distrust of neighbors. One of the
driving forces of poor political relations in the CARs is
Uzbekistan's policies and actions. Uzbekistan is important because it
shares a border with Afghanistan and the other CARs and controls
important trade routes critical to Tajikistan and Kyrgyzstan. It also
has the largest population and most powerful military in Central
Asia. Uzbekistan sees itself as the dominate power in the region and
often uses its position and power to pressure its neighbors. A recent
example of this activity involves Uzbekistan's refusal to allow
Kyrgyz electricity to pass across its borders on the way to
Tajikistan in October 2006. Uzbek authorities claimed the local power
grid could not support the extra load. Tajik officials disagreed and
believe this action was an effort to force Tajikistan to buy the more
costly Uzbek electricity. Experts also believe this may be part of a
larger effort to inhibit Tajik development which could potentially
threaten Uzbekistan's leadership role in the region.

Uzbekistan's poor handling of border issues has also strained
political relations and restricted access to transit corridors. The
1999-2000 mining of borders with landmines and unilateral demarcation
of disputed borders with Kazakhstan, Tajikistan, and Kyrgyzstan
resulted in higher cross border tensions. The fallout from these
actions and the resulting landmine removal operations continues to
cause minor conflicts along Uzbekistan's borders and sour relations
with its neighbors. Demarcation disputes are also prevalent between
Tajikistan and Kyrgyzstan, especially in the Ferghana Valley. The
Ferghana Valley, home to nine million people, has some of the most
contentious border disputes in the region. The combination of porous
borders and presence of multiple ethnic enclaves (one Kyrgyz enclave
in Uzbekistan, four Tajik enclaves in Kyrgyzstan, and two Uzbek
enclaves in Kyrgyzstan) make border control and demarcation very
difficult. Border tensions over the years have resulted in numerous
incidents and riots at border stations. The most recent incident
occurred on September 19, 2006 when Tajik border guards captured an
Uzbek soldier and contract worker for illegally crossing into Tajik
territory near Kurak. Water is another significant source of
political tension in Central Asia. Most of the region's water
originates in Tajikistan and Kyrgyzstan, states not well endowed in
energy resources. In the winter, Tajikistan and Kyrgyzstan release
water from their dams to create electricity which leaves less water
available for the summer uses of downstream neighbors. Downstream
users, Kazakhstan and Uzbekistan, which are well endowed in natural
gas and oil resources, are the CARs biggest consumers of water. They
use water in the summer to grow cotton and other crops. As the
economies in upstream users grow, their demand for energy will
increase, especially in high energy consumption industries like
Tajikistan's aluminum industry (over 40 percent of Tajikistan's
exports). Uzbekistan's plan to increase the price of natural gas it
sells Kyrgyzstan this winter could result in increased releases of
water to generate more electricity to offset gas prices. These
factors create a situation which makes water usage a strategic
resource and a source of tension between the CARs. Turkmenistan
severely limits foreign contact with its citizens and access to the
country. It generally enjoys good trading relations only with states
(Iran and Russia) which enable it to transport its main resources,
oil and natural gas, to foreign markets. Relations with other states
like Uzbekistan tend to be poor. Turkmenistan's isolationist policies
severely limit opportunities for cooperation and its potential as a
transit corridor. Cross-border political friction is not limited to
the CARs. South Asian states suffer from the same disease.

Therefore, States undergoing civil wars, major political unrest,
combating insurgencies or suffering from high levels of criminal
activity develop conditions which cause states to close or severely
restrict access across borders. Over the last decade the Central and
South Asian regions have experienced all these problems. The largest
source of instability has been Afghanistan. Concerns over the
infiltration of terrorist groups and other extremists along with the
expansion of the drug trade and its associated criminal activity have
caused Afghanistan's neighbors to restrict border access. Instability
in other states has also been a source of border closures and
restrictions. Kazakhstan and Uzbekistan closed their borders with
Kyrgyzstan in March 2005 during the Kyrgyz Tulip Revolution.
Kazakhstan also closed its border with Kyrgyzstan on November 29,
2005 until after the December 4, 2005 presidential elections.36 The
Uzbek- Kyrgyz border was closed after the May 2005 unrest in Andijan.
This incident was not the first time the Uzbek border was closed.
Uzbekistan has a history of closing or restricting access to its
borders. The Uzbek government's primary rationale for tighter border
controls has largely been based on security concerns related to the
activities of radical Islamic groups. Incidents like the March 2004
attacks in Bukhara and Tashkenthave intensified the regime's fears of
radical Islamist group infiltration. Uzbekistan also closed its
borders over economic issues in January 2003. During this period,
Uzbekistan blew up a bridge at the border crossing near the Kyrgyz
town of Kara Su and accused its neighbors of "economic aggression."

The CARs and their neighbors have significantly different national
transportation regulations and procedures. Border procedures and
tariffs are also governed by a complex regional regulatory framework
which is based on numerous bilateral, multilateral, and international
agreements. This mosaic of agreements creates a situation which has
resulted in little harmonization of transport procedures and
increased the costs of crossborder and transit traffic among the CARs
and their neighbors. The way this situation increases transaction
costs can best be demonstrated by examining tariffs, customs regimes,
and visa procedures. Customs regimes, while they vary widely from
country to country, can generally be characterized as inefficient,
uncoordinated, time consuming, and costly. Typically, at each border
checkpoint or port of entry, each state has multiple inspection and
enforcement agencies. Each agency has its own paperwork requirements
and fees. Custom clearance can take anywhere from 3 to 97 days
depending on the country. The number of documents and signatures
required to import into the region are: 18 and 32 for Uzbekistan, 10
and 57 for Afghanistan, 18 and 27 for Kyrgyzstan, 18 and 17 for
Kazakhstan, and 12 and 15 for Pakistan. In Tajikistan more than 60
administrative steps are typically required to import a product. A
similar number of administrative requirements and delays exist for
exports. The fees associated with clearing customs can be
considerable. For a truck to transit from the Talas Oblast in East
Kyrgyzstan to the Termez, Afghanistan border crossing, it would have
to make four border crossings (Kyrgyzstan-Uzbekistan,
Uzbekistan-Tajikistan, Tajikistan-Uzbekistan,

and Uzbekistan-Afghanistan). Tariffs also lack harmonization and are
a significant barrier to trade in Central and South Asia. The tariff
rates and schedules employed by the CARs differ considerably.
Turkmenistan (10 to 100 percent on 94 commodities), Kazakhstan (7.9
percent average with some as high as 100 percent), and Uzbekistan
have relatively high tariff rates and the latter two countries employ
a very complex tariff schedule. Kazakhstan, Tajikistan, and
Uzbekistan frequently and unpredictably change their tariff
schedules. Railway tariffs have also been a source of tension between
Uzbekistan and Tajikistan. Implicit tariffs in the form of taxes are
also levied by Kazakhstan and Uzbekistan on selected imported goods
in order to protect domestically produced goods. Burdensome customs
procedures and paperwork, complicated border crossing procedures, a
lack of harmonization in tariff policy, and other administrative
practices of the CARs has created an environment that imposes several
barriers to cross-border and regional trade and cooperation. All of
these barriers are a matter of policy. Unlike physical barriers, like
poor geography, which impose transaction costs that are largely
fixed, administrative practices are barriers which create transaction
costs that can be lowered through better policy. Unfortunately,
creating and carrying out better policy can be very difficult where
powerful vested interests benefit from the status quo.

In addition to being landlocked and the costs arising from
dependency, several other conditions produce transaction costs which
can potentially inhibit a new Silk Road. These conditions are based
on a wide variety of political, economic, and social factors. The
most significant factors include border effects, informal barriers, a
lack of economic diversity and inadequate markets of scale, the
"spaghetti bowl" problem, business and social network effects, and
the actions of major powers. All create barriers that will need to be
considered and addressed. The first factor policy makers should
consider is what economists refer to as the "border effect." The mere
presence of a border inhibits integration and impedes trade. Borders
create a strong "home-bias" in the pattern of trade. Different legal
systems, regulatory schemes, currencies, languages, and cultural
practices all contribute to this effect. Many of the differences have
become more pronounced in the CARs since the breakup of the Soviet
Union. Each of the CARs has strove to create their own national
identities which have resulted in similar, but different forms of
governance. The legal systems and governmental institutions of each
state have contributed to more jurisdictional and institutional
differences within the region. Different jurisdictions and
institutions are barriers that generate transaction costs. Local
languages like Turkmen, Kazakh, Northern Uzbek, Tajiki, and Kirghiz
are replacing Russian as the language of choice. South Asian states
also speak a wide variety of different languages (Urdu and Sindhi in
Pakistan; Farsi, Pashto, Southern Uzbek, and Turkmen in Afghanistan;
Hindi and English are the dominate languages in India). The numerous
currencies in use in the two regions include the Uzbekistani Soum,
Indian Rupee, Pakistani Rupee, Afghani, Somoni, Turkmen Manat, and
the Tenge. These and other factors present in Central and South Asia
create a strong disincentive to integrateInformal barriers to trade
and cooperation arising from internal factors are the second factor
which creates higher costs. They include poor governance, corruption,
criminal activity, and poor economic conditions. All these factors
feed on each other. Poor governance creates opportunities for
corruption and criminal activity and vice versa.

Criminal activities contribute to corruption and poor governance.
Poor economic conditions frequently result of poor governance and bad
economic policy in states like Uzbekistan and Turkmenistan. In
states, like Kyrgyzstan, with reasonably good economic policies,
corruption and criminal activity undermine governance. None of the
Central or South Asian states rank low on corruption indexes. Many
informal barriers arise directly from the administrative and policy
actions already discussed. Multiple control points along transit
routes, bureaucratic red tape, high taxes, import-export
restrictions, and cumbersome border crossing procedures create
conditions and opportunities for corruption and rent seeking
activities. These activities come in many forms and include bribes
and unofficial payments, under invoicing, and smuggling. In the
transportation sector, unofficial payments often exceed official
payments. Truck drivers on the Dushanbe-Moscow Road reportedly pay
US$842 in official fees and Kazakhstan. Informal payments at internal
checkpoints in Tajikistan may amount to as much as one percent of GDP
annually. Kyrgyz trucks traveling routes toward Western Europe and
Turkey report making unofficial payments to police and customs
officials as high as 12 percent of the value of the cargo carried.
Labor immigrants traveling by train from Tajikistan to Moscow report
making similar unofficial payments to border guards, custom
officials, and transport police. These unofficial costs do not
include the costs and impacts associated with illegal trade. These
same administrative and policy actions create incentives for local
populations to engage in illegal trade which further perpetuate
corruption and poor governance. Poorly paid border guards, customs
and other government officials often demand bribes from local
traders. To make a living, these same traders often have to engage in
smuggling and under-invoicing in order to get around trade
restrictions and taxes. This creates a shadow economy in which
illegal activity is the norm. Money earned in a shadow economy is
often concealed and not deposited in banks to avoid discovery by
government officials. Currency black marketers in Uzbekistan claim
most of their customers are traders engaged in smuggling and police
and other officials who receive large sums of money in the form of
bribes. In such an environment corruption and rent seeking thrive
which allows patron-client networks to become firmly entrenched and
further erode governance. Capital created from the shadow economy
allows criminal actors to influence local economic and political
activities. In some cases, these actors are able to move into the
political domain and become elected officials. All of this creates a
poor business environment which raises transaction costs.

In addition to economic factors related to corruption and shadow
markets, a lack of economic diversity and inadequate markets of scale
create barriers that are the third factor which contribute to higher
transaction costs. All of the CARs and Afghanistan have very small,
undiversified markets, and depend on a narrow range of products.
Small market size restricts their ability to diversify their exports
and makes it very difficult for them to create economies of scale in
transportation and exploit market specialization. The only way for
the CARs and smaller South Asian states to benefit from economics of
scale and specialization would be to maintain high export levels and
have well functioning internal markets. Neither of these conditions
exists. Social, ethnic, and business network effects are the fourth
factor which creates barriers to cooperation and increases
transaction costs. National politics and economic activity within
Afghanistan and the CARs are driven by a social structure of power
brokers generally divided along three lines: kinship systems,
regional networks, and magnates who control major resources and
industries. The interaction of the power brokers determines the
limits and scope of cooperation within and between countries.
Economic and political activity generally conforms to these three
groupings. The effects produced as these groups jockey for political
and economic power can in some cases turn violent, but usually
results in the "in group" controlling key resources and the major
instruments of state power. The "spaghetti bowl" problem is the fifth
factor which has the potential to create higher transaction costs. It
is a result of Central and South Asian states' entry into numerous
bilateral and multilateral regional trade agreements (RTAs). The most
notable multilateral RTAs include the Single Economic Space (SES),
Commonwealth of Independent States (CIS), Eurasia Economic Community
(EAEC), and Economic Cooperation Organization. The discriminatory
nature of many RTAs can create inconsistencies and situations which
greater complicate customs policies and tariff schedules. This can in
turn divert existing trade, worsen social welfare, and hinder
integration into the international trading system. Full
implementation of the EAEC has potential to createall of these
effects and increase external tariffs in Kyrgyzstan and Tajikistan.

The actions of regional powers like Russia and China will continue to
have a significant influence on events in Central and South Asia over
the near-to-medium term. Politically and economically, Russia is
still the most influential power in Central Asia although Chinese
influence in the region has increased significantly over the past
decade. Both countries have significant economic and security
interests in the region. Since 2001, due to geopolitics and security
concerns, there has been considerable convergence between Russian and
Chinese Central Asian interests. This convergence has resulted in
increased security and economic cooperation with the CARs. The rising
importance of the SCO and increased Russian engagement with other
regional organizations (Collective Security Treaty Organization
(CSTO) and Eurasian Economic Commonwealth (EEC)) are manifestations
of this trend. Other major powers (India and Japan) have also
increased their engagements activities with the CARs, especially in
the energy sector. Russian and Chinese influence in Afghanistan is
considerably less. Chinese influence in South Asia is

much greater than Russia's and has been on the rise especially in
Pakistan. Iran, Pakistan, and India are the more significant regional
powers in Afghanistan. Each has significant interests in Afghanistan
based on numerous cultural, historical, and economic factors. Iran
and Pakistan, which share long borders with Afghanistan, have a
history of meddling in Afghanistan's internal affairs. India, while
it does not share a border with Afghanistan, has strong business and
cultural ties with Afghanistan and has been an increasingly active
player in Afghanistan's economic and security sectors. Pakistan has
not welcomed this development and tends to view Indian actions with
considerable suspicion. As Indian influence in Afghanistan increases,
Pakistan's fear of encirclement by India will likely drive it to find
ways to counter Indian influence. While, all three countries have an
interest in seeing the security situation and economic conditions
improve in Afghanistan; geopolitics and other national interests may
drive them to pursue their interests in a manner that may preclude
cooperation amongst themselves and with other powers such as the
United States. The actions and policies regional powers pursue to
advance their own national interests may not naturally converge with
the U.S. vision of a Greater Central and South Asia. Individually or
in partnership, China, Russia, India, Iran, and Pakistan have the
potential to act as spoilers and derail any U.S. effort to build a
new Silk Road. In the near future, the majority of U.S. focus and
resources will likely remain on Afghanistan. The current security
situation and high political stakes make it difficult to devote more
resources towards the CARs. The more likely prospect is fewer
resources will be directed toward the CARs. As U.S. assistance has
already decreased to less than half of the 2005 level. It is also
quite possible that programs such as Central Asian Infrastructure
Integration Initiative may push more of U.S. assistance in the
direction of energy infrastructure improvement. Connecting the energy
infrastructure of the CARs, especially Tajikistan and Kyrgyzstan's,
with South Asia should create positive economic benefits for each
country and is consistent with the U.S. vision of creating more
options. It will not necessarily do much to reduce many other
existing transaction costs. Conclusion The fundamental idea behind
the new U.S. vision for Central and South Asia is sound. Landlocked
countries like Afghanistan and the CARs have the economic and social
development deck stacked against them. Their integration into a
regional trading network and connection to their southern neighbors
has the potential to significantly improve their

economic development. For this to happen, major investments need to
be made in better governance, security, and transport infrastructure.
Investments should be made based on the following criteria: does the
investment lower transaction costs? The United States and the donor
community have committed significant resources towards improving
regional infrastructure which will aid in transaction cost reduction
resulting from physical factors. Costs resulting from non-physical
factors will be much more difficult to reduce. The policy choices
regional leaders make will greatly impact future transaction costs.
The current baseline of transaction costs will likely prevent the
creation of a new Silk Road over the short-to-medium term. A new Silk
Road is a long term project which cannot be accomplishes on the
cheap. It will require significant resources, regional cooperation,
and focus by policy makers.

(The Author is Research Officer in National Institute of
Administrative Research, LBS National Academy of Administration,
Mussoorie and can be reached at

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