07.06.2009
SCO-2009: Development Problems
№2 2009 April/June

On the eve of the Shanghai Cooperation Organization’s summit,
due to open on June 15, 2009 in Yekaterinburg, issues of security
and economic cooperation in Eurasia are objectively coming to the
fore. The West is again resuming old discussions about a new “Asian
NATO,” “subversive” Chinese stratagems vis-a-vis Central Asia and
Russia, and other possible developments, including the impact of
the crisis on the SCO.

Of the very long list of issues on the agenda, let me focus on
seven major points in this article: 1) the notion of “SCO space”
and its interpretation; 2) the influence of the global financial
crisis on this organization and measures to counter the crisis; 3)
the security agenda of the SCO; 4) the Afghan issue and its impact
on regional security; 5) the state of Central Asian economies; 6)
new accents in the “Energy Club” concept; and 7) the role of the
institution of observers.
 
INTERPRETATIONS OF THE “SCO SPACE” CONCEPT

The present expert discourse names Central Asia as the SCO’s main
geographical target area, which is understandable and absolutely
right. The Shanghai Five, the SCO’s predecessor, was founded in
1996 by Russia, China and its Central Asian neighbors Kazakhstan,
Tajikistan and Kyrgyzstan. In 2001, the Shanghai Five was
reorganized into the SCO after the organization was joined by
Uzbekistan which has no border with China. The SCO’s key programs
for security (struggle against “three evils” – separatism,
religious extremism, and terrorism) and economic and humanitarian
cooperation are largely connected with this region.

The SCO’s Central Asian dimension is very special: four states in
the region are subjects of economic and security policies in their
relations with Russia and China and, simultaneously, objects of
Russian-Chinese initiatives. This object/subject nature of
relations stems, on the one hand, from the independent status of
new states in the region, which emerged after 1991 and which have a
right to independent foreign policy, and on the other hand, from
the difference between their economic and political potentials as
compared with Russia and China. The economic superiority of the
latter two countries (especially China) allows Beijing and Moscow
to regularly initiate various projects in the region, targeted
largely at Central Asian markets and territories.

This dimension has been codified in SCO legal documents and will
remain the main determining factor for a long time yet.

At the same time, the SCO is shaping a new dimension targeted at a
broader geopolitical (Eurasian) context. It is based on an existing
SCO institution – namely, the system of observer states (India,
Pakistan, Iran and Mongolia). The Eurasian dimension involves
mainly long-term projects and the organization’s possible future
enlargement with regard to both full members and observers.
The Eurasian dimension can be structured as a system of three
interacting vectors. These include a Caspian vector, which suggests
the SCO’s active cooperation in energy and transport with
Turkmenistan and Iran (as an observer) and, possibly, with
Azerbaijan. The main feature of this vector is high competitive
capacity with regard to Western energy projects (for example, the
Baku-Tbilisi-Ceyhan oil pipeline). Therefore, the SCO has the
biggest chances in this vector with Turkmenistan.

Another vector is South Asia (Afghanistan-Pakistan-India), which is
based on the well-established political format of tripartite
cooperation within RIC (Russia-India-China). Also, a good
groundwork has been laid in the SCO members’ bilateral relations
with India in trade, economy, humanitarian issues, and long-term
energy and transport projects. The main impediment to the
development of this SCO vector is Afghanistan.

The third vector is East Asia – Russia, China, Mongolia, the Korean
Peninsula (North and South Korea), Japan, and the Association of
Southeast Asian Nations (ASEAN). This vector can embrace the whole
spectrum of energy interaction, investment and technological
exchanges, and trade.

Both dimensions – Central Asian (narrow) and Eurasian (wide) – do
not contradict but rather supplement each other, as they are parts
of the SCO’s long-term development strategy. At the same time, such
a structure gives the SCO advantages over the Eurasian Economic
Community (EurAsEC) and the Collective Security Treaty Organization
(CSTO), which focus solely on the Central Asian region.

SCO ECONOMIC AGENDA AND THE GLOBAL FINANCIAL CRISIS

The world crisis has put issues of economic security and
survivability on the top of the SCO agenda. All the six SCO members
have worked out special programs for overcoming its aftermath and
allocated large sums of money for them. The anti-crisis measures
include: austerity policy, support for the banking and financial
sector, stimulation of domestic demand, job creation, and the
organization of community services to reduce social tensions in
society.

At the same time, the SCO has not worked out a common anti-crisis
program. SCO foreign-trade and foreign-economic ministers discussed
the need for such a program in Beijing on September 24-25, 2008,
but failed to reach a consensus. The SCO Heads of Government
Council (HGC), which met in Kazakhstan’s capital Astana on October
30, 2008, made no mention of ways to overcome the crisis and its
aftermath in its joint communiqu?, either. The Council’s decisions
focused on cooperation in the following areas:

  • creating stable and predictable conditions for mutual trade and
    investment, and strengthening market mechanisms;
  • increasing energy efficiency, developing green energy
    technologies, using renewable energy sources, and ensuring energy
    security;
  • introducing innovative technologies;
  • promoting transport projects;
  • deepening interaction in customs control;
  • developing cooperation in healthcare, particularly in the
    prevention, diagnosis and treatment of infectious diseases.

The HGC endorsed an updated edition of the Plan of Action for
implementing the Program for Multilateral Trade and Economic
Cooperation of the SCO Member States (adopted in 2003 for the
period ending in 2020).

SCO experts have formulated five major proposals to minimize the
crisis aftermath: 1) establishing an anti-crisis SCO Fund with a
common program of action of the six member states; 2) founding a
SCO Bank that would unite state and private commercial banks; 3)
switching to settlements in national currencies under individual
interstate SCO projects; 4) involving the SCO Business Council and
the SCO Interbank Association on a larger scale in the
implementation of projects provided for by the Plan; and 5)
increasing the coordination of efforts among the SCO members on a
bilateral basis to work out anti-crisis measures.

SCO SECURITY AGENDA

The SCO holds that challenges and threats, both internal (Central
Asian) and external (Afghan-Pakistani), will grow increasingly
complicated and differentiated. The spectrum and types of
challenges increase particularly in the field of the so-called
non-traditional threats, ranging from cross-border crime and drug
trafficking to natural disasters, water and energy problems, and
environmental and food security.

The SCO relies on the experience of its Regional Anti-Terrorist
Center, headquartered in Tashkent, Uzbekistan, and on the
successful experience of military and anti-terrorism exercises,
held by the SCO from 2002 to 2008 in various formats.

The above suggests that a) the SCO will increase its military and
anti-terrorism efforts, while preserving its main feature – the
absence of bloc-type and military-political components (such as
NATO or the CSTO); b) the universal nature of the organization, as
an organization of strategic partnership, will be preserved; and c)
a dichotomy security system may be created in Central Asia with the
SCO’s help, in which the primary role would be assigned to the
CSTO, especially considering the recent establishment of the
Collective Rapid Response Forces. The SCO does not have permanent
collective defense forces.

Apart from the SCO and the CSTO, the region is covered by NATO
programs (Partnership for Peace and others) and special programs of
the Organization for Security and Cooperation in Europe (OSCE). The
situation in this field is due to the following factors:

  • SCO and CSTO security projects in the region are competitors to
    NATO projects;
  • all structures are related to the Afghan security problem. Some
    of them are involved in Afghanistan directly (the operation of
    U.S.-led coalition troops), while others have indirect relation
    (the CSTO and the SCO, which acknowledge the presence of a complex
    Afghan threat);
  • multilateral organizations (the CSTO and the SCO) do not impede
    but, on the contrary, encourage the development of bilateral
    relations of neighboring member states with Afghanistan.

The path to an effective future for the SCO lies in the
development of a common strategy that would embrace all areas
specified in the SCO Charter (political, economic, humanitarian and
defense) on a mutually advantageous and multilateral basis.

In October 2007, the SCO signed an agreement with the Collective
Security Treaty Organization. Prior to that, the two organizations
had not had any joint documents on interaction and cooperation.
Characteristically, both alliances held parallel military exercises
in 2007 – “Frontier” (CSTO) and “Peace Mission” (SCO).

Specifics of CSTO-SCO Interaction

  • Legal basis: “Memorandum of Understanding Between the
    Secretariat of the Collective Security Treaty Organization and the
    Secretariat of the Shanghai Cooperation Organization” of 2007;
  • Forms of interaction: consultations and information
    exchanges;
  • Reciprocal invitations to each other’s events;
  • Joint cooperation programs embracing major areas of the two
    organizations’ activities;
  • Deeper equitable cooperation between the SCO and CSTO
    Secretariats after the status of the SCO Secretary General was
    raised to Chief Executive Officer in 2007;
  • The elaboration (at expert level) of the issue of the need to
    intensify interaction between the anti-terrorist structures of the
    SCO, the CSTO and the Anti-Terrorist Center of the Commonwealth of
    Independent States with a view to broadening exchanges of
    operational and analytical information.

THE AFGHAN ISSUE

The problem of Afghanistan is old and well known to Russia and its
partners in the SCO. Today, new accents have appeared in approaches
to this problem. The “Plan of Action of the Shanghai Cooperation
Organization Member States and the Islamic Republic of Afghanistan
on combating terrorism, illicit drug trafficking and organized
crime,” signed on March 27, 2009 in Moscow, provides for practical
interaction between the parties in combating terrorism in the
following areas: “conducting joint operations to counter terrorist
threats; involving Afghanistan, in a phased manner, in the SCO-wide
collaboration in fighting terrorism in the region; […] inviting
relevant Afghan bodies to take part in joint law enforcement
exercises carried out by the Member States.” The Statement, the
Declaration and other documents of a special conference on
Afghanistan, held in Moscow under the SCO auspices, express the
organization’s support for the efforts of the Afghan government and
international organizations and forces – the United Nations, the
CIS, the CSTO, the OSCE, NATO and the Conference on Interaction and
Confidence-Building Measures in Asia (CICA) – to resolve the Afghan
problem.

The SCO strictly abides by its strategic policy of non-interference
in the military-political sphere of Afghan affairs. However,
considering the results of the Moscow conference and other new
developments (for example, the improvement of the U.S.-Russian
dialogue under President Barack Obama, and the opening of cargo
transit for Afghanistan via Russia and other SCO members), tactics
are obviously changing towards broadening the field of cooperation
between the SCO and the CSTO, on the one hand, and NATO and other
Western security projects, on the other.

THE STATE OF CENTRAL ASIAN SCO ECONOMIES

Among the SCO’s Central Asian members, Kazakhstan saw the greatest
fall in GDP growth rates in 2008 to a mere 2.7 percent. Formally,
Kazakhstan posted single-digit inflation – 9.5 percent, but given
the inflation rate in the previous year (2007) which amounted to
18.8 percent, this indicator was also among the lowest. Industrial
output in 2008 rose by only 2.1 percent. The share of unprofitable
enterprises (according to fiscal reports) was 36 percent. Stock
quotations at the Kazakhstan Stock Exchange in 2008 fell by 66
percent. The target for national budget revenues was met by only
99.5 percent. The government allocated U.S. $10 billion for
anti-crisis measures. The 2009 budget was adopted with a
4.76-billion-dollar deficit.

The situation in Tajikistan is much worse, although formal figures
may give a better impression. Inflation in 2008 exceeded 20
percent. National debts increased by 247 million dollars (almost by
20 percent) over the year. Tajikistan has almost no international
reserves – they stand at less than $200 million. Private
remittances from Tajik migrant workers in Russia fell last year by
40 percent, or by two billion dollars.

Russia continues to be a reliable pillar of the Tajik economy. It
has been the only country to build a large hydroelectric power
station in Tajikistan since it gained independence – not the Rogun
power plant, whose construction has been dragging on since 1976,
but Sangtuda-1 (670 MW capacity). For comparison: Sangtuda-2,
being built by Iran, will have a capacity of 220 MW. The first
phase of Sangtuda-1 was put into operation in January 2008; the
second phase in June, and the third in November.

The situation in two other Central Asian countries, Kyrgyzstan and
Uzbekistan, is difficult, too. They are faced with a prospect of
soaring unemployment and a decrease of industrial production. In
agriculture, harvests have been consistently falling (raw cotton
production in Uzbekistan in 2008 was about 300,000 tons less than
in 2007, while grain output decreased by 100,000 tons).

NEW ACCENTS IN THE “ENERGY CLUB” CONCEPT

The current crisis has not taken off the agenda plans to establish
a SCO Energy Club. The growing energy shortage is a weak point of
the Chinese economy. Energy cooperation among Russia, Central Asian
countries and China could be equally advantageous to all
participants in the project (including Turkmenistan which is not a
SCO member).

The idea of creating a SCO Energy Club was put forward by
then-Russian President Vladimir Putin in December 2006. The Energy
Club concept has at least four dimensions: a) global; b)
regional/Eurasian (Russia, China and four Central Asian countries);
c) sub-regional/Central Asia (Kazakhstan, Tajikistan, Uzbekistan
and Kyrgyzstan); and d) national (the development of national
energy models by the six SCO members). For the time being, priority
is given to the regional/Eurasian dimension. A global format is a
longer-term prospect, although some of its elements are already
seen in the implementation of Russia’s energy security concept (for
example, the decisions of the G8 summit in St. Petersburg) and in
the difficult dialogue between Russia and the European Union on the
Energy Charter. The Energy Club would enable the SCO members to
build a self-sufficient energy structure (“producer-
supplier-customer”) in the Eurasian space, would essentially enrich
the SCO general development strategy, and introduce new resources
of influence into the traditional spheres of security and economic
and humanitarian cooperation.

The Club activity suggests broad and transparent cooperation not
only among the SCO members but also between them and observer
countries, as well as with a large number of non-state actors
(private energy companies, etc.). A more flexible version of the
Energy Club, rid of the political ballast, would make it possible
to involve in energy cooperation such countries as gas-rich
Turkmenistan (considering the position of the new Turkmen
leadership), Azerbaijan and others. Theoretically, this approach
enables negotiations with the GUAM (Georgia, Ukraine, Azerbaijan
and Moldova) and other organizations.

The regional and sub-regional formats provide for a broader
interpretation of the Energy Club’s territorial frameworks,
including the territories of the observer countries – Iran, India,
Pakistan and Mongolia. The proposal by Kazakhstan President
Nursultan Nazarbayev to establish an Asian energy market, and
Iranian President Mahmoud Ahmadinejad’s statement that his country
could serve as a platform for SCO energy ministers’ meetings with a
view to studying possible regional cooperation in the exploration,
extraction, transportation and refining of oil and gas expand the
contours and potentialities of the Energy Club idea. The Asian
energy market concept, as a kind of philosophy of energy
interaction in Eurasia, can develop in parallel with the Energy
Club project or can organically absorb it. There is no
contradiction here; on the contrary, both approaches can serve as a
prototype for some Eurasian Energy Charter, akin to the European
document.
The SCO energy space is characterized by the following special
features and potentialities:

  • The absence of third countries on energy transport routes;
  • An organic geo-economic combination of groups of energy
    producers/exporters (Russia, Kazakhstan and Uzbekistan) and
    consumers/importers (China, Kyrgyzstan and Tajikistan). Taking into
    account the observer countries, one could speak about interaction
    between an axis of energy producers
    (Russia-Kazakhstan-Uzbekistan-Iran) and an axis of consumers
    (China-Tajikistan-Kyrgyzstan-India-Pakistan-Mongolia). The
    implementation of the first and, especially, the second model
    (together with the observers) would make the SCO a self-sufficient
    energy system both regionally and globally. To these two axes, one
    should add an axis of transporting countries. Interaction between
    these three axes (in gas, oil, nuclear power, and electricity
    supply) at its initial stage will apparently focus on the
    development of a common policy with regard to prices (taking into
    account world energy prices and long-term agreements), supply
    routes, and the volume of sales. Unlike OPEC, the SCO Energy Club
    would unite producers, transporters, and consumers of energy
    resources, which would make it possible, already at the initial
    stage, to implement a strategy of comparative advantages;
  • The possibility of supplementing the SCO energy project with an
    integration project, namely a SCO free trade zone. However, energy
    interaction, due to greater mutual interest of the participants in
    it, is expected to develop faster than integration processes;
  • The SCO Energy Club can become an effective regulator of energy
    conflicts in Central Asia, especially between Uzbekistan and
    Tajikistan, and between Uzbekistan and Kyrgyzstan over the supply
    of Uzbek gas and electricity in exchange for water supplies from
    Kyrgyzstan and Tajikistan. Unfortunately, plans by Central Asian
    states and EurAsEC members to create water consortia do not help to
    reduce tensions.

There are objective difficulties in the way of the Energy Club
project, stemming primarily from the different sizes of SCO
economies and the clashes of interests between energy producers and
consumers. Within both groups (producers and consumers), there
always exists competition, for example among Russia, Kazakhstan and
Iran for oil and gas markets or among major energy importers, such
as India and China, for sources, routes and amounts of energy
supply. However, this tendency can be overcome within the Energy
Club frameworks. In particular, the huge Chinese market is capable
of absorbing any amounts of oil and gas offered by Russia,
Kazakhstan and Iran.

Although Turkmenistan is not a member or observer of the SCO, an
agreement to build a Caspian gas pipeline, signed by Russia,
Kazakhstan and Turkmenistan on December 17, 2007, also works for
the Energy Club idea, even though indirectly. Moscow and Astana
would like to involve Ashgabat in SCO activities even as an
observer – that would enable Russia and Kazakhstan to promote this
and other gas projects more efficiently. Such a possibility is not
ruled out, considering the “democratic” behavior of the new Turkmen
leader.
 
THE ROLE OF OBSERVERS

Cooperation among SCO observers (Iran, India, Pakistan and
Mongolia) is obviously deepening. These countries are highly
interested in the development of cooperation with the SCO in
energy, transport, investment, technological exchanges, and other
areas. Some observer states (Pakistan and Iran) have repeatedly
declared their desire to join the SCO as full members.

The SCO leadership takes an individual approach to observer
countries on membership prospects. Priority with regard to possible
admission to the SCO is given to the less troubled countries –
Mongolia and India. Considering the unresolved nuclear problem in
Iran and the aggravation of the political crisis in Pakistan,
Tehran and Islamabad are not yet considered as candidates for full
membership.

At the same time, preparations are under way for the establishment
of an institution of “dialogue partners.” Belarus and Sri Lanka
have already applied for dialogue partner status, while Turkey and
Japan have asked for documents on this project.

Thus, the implementation of the SCO project is both a serious
challenge to Russia and, at the same time, a chance to use
collective resources for consolidating its positions in Central
Asia and strengthening the Russian-Chinese strategic
partnership.