Uzbekistan’s accession to the EAEU could increase the country’s GDP by at least 4%

_ Eurasian Studies. Munich, 30 April 2020.

The lower chamber of the Republic of Uzbekistan approved the country’s accession to the Eurasian Economic Union (EAEU) as an observer state. The idea is to study in more detail the experience of the other member states of the union (ARM, BLR, KAZ, KGZ, RUS) and to better weigh all the pros and cons of a possible accession to the EAEU closer to 2025. A special working group at the UZB parliament concluded that closer cooperation with the EAEU would be in the country’s national economic interests.

Currently, Yuri Kofner, head of the Munich-based analytical media “Eurasian Studies”, is conducting a comprehensive study on the challenges and opportunities of Uzbekistan’s potential participation in the EAEU.

The preliminary results of his research so far are compiled below:

Trade in goods

Uzbekistan joining the EAEU would affect thei mutual merchandise trade the following way (currently, results are available only for selected product groups):

Product group Export of UZB to EAEU Export of EAEU to UZB Comment
Fruits and vegetables Increase by USD 236 mln (+27%) Increase by USD 13 mln (+50%) Producer surplus for both parties.
Natural gas Increase by USD 268 mln (+53%) Increase by USD 16 mln (+17%) KAZ and RUS incur producer loss, but ARM, BLR, KGZ gain consumer surplus.
Textiles and clothing Increase by USD 197 mln (+25%) Increase by USD 16 mln (+81%) Producer surplus for both parties (no loss for EAEU).
Non-ferrous metals Increase by USD 46 mln (+56%) Increase by USD 77 mln (+41%) Producer surplus for both parties.
Ferrous metals and metal products Increase by USD 17 mln (+62%) Increase by USD 729 mln (+62%) Producer surplus for both parties (no loss for UZB).
Motor vehicles and parts* Increase by USD 11 mln (+23%) Increase by USD 446 mln (+110%) Producer surplus for both parties (no loss for UZB).

* Under the model simulation Uzbekistan was granted an exemption in the form of preserving its import duties for motor vehicles and parts from third parties at the current (higher) national level.

Consequently, the mutual trade liberalization, implemented if Uzbekistan were to join the EAEU, only for these product groups would mean an increase in commodity exports from Uzbekistan to the Eurasian Economic Union by USD 775 million. This would correspond to an increase in the country’s GDP by at least 1.5%. Divided by population, conditionally, every Uzbek citizen would be USD 23 richer.

Trade in services

Uzbekistan’s participation in the union’s common capital market would increase total Uzbek exports of banking services to the Eurasian Economic Union by USD 1.5 million (+54%) and increase Eurasian exports to Uzbekistan of banking services by USD 5.3 million (74%) (USD 2.3 mln). The gross welfare effect of financial market integration would be USD 2.3 mln for the Republic of Uzbekistan. Neither Uzbekistani, nor Eurasian banks would incur producer losses from the mutual opening of their capital markets.

Labor migration

Upon a potential accession of Uzbekistan to the Eurasian Economic Union, the inflow of Uzbekistani labor migrants to the EAEU member states would increase by 734 thousand people (+37%).  Mutual labor migration between the other five EAEU member states, i.e. most likely from KGZ and ARM to RUS and KAZ, would decrease by 268 thousand people (-3.6%). Personal money transfers from the EAEU countries to UZB could increase by USD 1.2 billion. This would increase the country’s GDP by 2.4%.

All of the above listed preliminary results of the study were estimated using a partial equilibrium model. For Uzbekistan, the author compiled the most relevant information on tariff rates, excise tax rates on imports, and also estimated the ad valorem equivalents of the relevant non-tariff barriers.

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