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.

Sergei LUZYANIN is deputy director of the Institute of Far Eastern Studies; head of the Center for North-East Asian and SCO Studies, Russian Academy of Sciences; professor at the Moscow State Institute for International Relations (MGIMO). He holds a Doctorate in History.

“Russia in Global Affairs”, N2, April – June, 2009

Hot topics

• CENTRAL ASIA: GEOPOLITICS, SECURITY, INTEGRATION

Digest

Expert forum