UZBEKISTAN AGRICULTURE MODERNIZATION TECHNICAL ASSISTANCE (P162303) Public Disclosure Authorized Uzbekistan: Agricultural Trade Policy Report Public Disclosure Authorized Final Report August 16, 2018 Public Disclosure Authorized Public Disclosure Authorized Acknowledgements The preparation of this Report was led by Kateryna Schroeder (Agricultural Economist, World Bank), with the task team consisting of Iryna Kobuta, Andrea Zimmermann and Ekaterina Krivonos from the Trade and Markets Division of the Food and Agriculture Organization (FAO) of the United Nations, as well as Darya Ilina (Institute for Forecasting and Macroeconomic Research, Tashkent, Uzbekistan), Valeriy Piatnytskyi (International Consultant, FAO), Adkham Akbarov (International Consultant, FAO), Olivier Durand (Senior Agricultural Economist, World Bank), and Sergiy Zorya (Lead Agricultural Economist, World Bank). 2 Contents Executive summary ................................................................................................................................. 5 1 Introduction .................................................................................................................................... 5 2 Evolution of agricultural trade in Uzbekistan ................................................................................. 8 2.1 Agricultural exports and key export products ........................................................................ 8 2.2 Key export destinations ........................................................................................................ 10 2.3 Agricultural imports .............................................................................................................. 13 3 Overview of Uzbekistan’s trade and related policies ................................................................... 13 3.1 Regulatory framework for trade policy................................................................................. 13 3.2 Trade policy measures .......................................................................................................... 14 3.2.1 Import tariffs ................................................................................................................................... 14 3.2.2 Export restrictions........................................................................................................................... 15 3.3 Domestic support to agriculture ........................................................................................... 16 4 Trade agreements and WTO accession status .............................................................................. 17 4.1 WTO accession status ........................................................................................................... 17 4.2 Regional and bilateral trade agreements ............................................................................. 17 5 Market access conditions for exports in the key markets ............................................................ 18 5.1 Kazakhstan, Russia and the Eurasian Economic Union (EAEU) ............................................. 19 5.1.1 Trade summary ............................................................................................................................... 19 5.1.2 Tariffs .............................................................................................................................................. 20 5.1.3 Regulatory requirements ................................................................................................................ 21 5.2 China ..................................................................................................................................... 22 5.2.1 Tariffs .............................................................................................................................................. 23 5.2.2 Regulatory requirements ................................................................................................................ 23 5.3 European Union .................................................................................................................... 25 5.3.1 Tariffs .............................................................................................................................................. 25 5.3.2 Regulatory requirements ................................................................................................................ 26 5.3.3 Private standards ............................................................................................................................ 28 5.4 Turkey ................................................................................................................................... 28 5.4.1 Trade summary ............................................................................................................................... 28 5.4.2 Tariffs .............................................................................................................................................. 29 5.4.3 Regulatory requirements ................................................................................................................ 29 6 Prospects for Uzbekistan to develop agricultural trade ............................................................... 30 7 Policy recommendations for expanding and diversifying agri-food exports from Uzbekistan .... 31 3 List of Acronyms AQSIQ General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China CET Common External Tariff CIS Commonwealth of Independent States CU Customs Union EAEU Eurasian Economic Union EEC Eurasian Economic Commission EU European Union FTA Free Trade Agreement GAP Good Agricultural Practice GDP Gross Domestic Product GoU Government of Uzbekistan GSP Generalized System of Preferences HACCP Hazard Analysis and Critical Control Points HS Harmonized System IPPC International Plant Protection Convention ISO International Organization for Standardization ITC International Trade Centre MFN Most Favoured Nation NTMs Non-tariff measures OIE World Organization for Animal Health PAH Polycyclic Aromatic Hydrocarbons PCA Partnership and Cooperation Agreement PCBs Polychlorinated Biphenyls SME Small and medium sized enterprise SPS Sanitary and phytosanitary measure (WTO Agreement) TBT Technical barriers to trade (WTO Agreement) TFA Agreement on Trade Facilitation (WTO Agreement) TPR Trade Policy Review USD United States dollar UZS Uzbek Soms WTO World Trade Organization 4 Executive summary In February 2017, the Government of Uzbekistan (GoU) adopted and began implementing its Strategy of Actions for the Development of Uzbekistan for 2017–20211, which outlined its political, economic and social priorities, including measures to liberalize the economy and trade. The development strategy for 2017-2021 identifies goals such as the “liberalisation and facilitation of export activities, diversification of the export structure and geography, and the expansion and mobilisation of the export potential of economic sectors and territories”. The program envisages an “export activities development concept for 2018-2021” that would include programs for the identification and development of prospective industries for export-oriented products, export market diversification and trade infrastructure development. The government also aims at a full liberalisation of foreign economic activities related to exports and the removal of existing obstacles for exporting firms. An important step in this direction was taken by the GoU in September 2017, when it allowed the exchange rate to float and lifted restrictions on currency exchange, leading to the Uzbek Som (UZS) losing almost half of its value in a single day. However, the GoU recognizes that to promote private investment while ensuring environmental sustainability and inclusive growth, the liberalization of the foreign exchange regime needs to be accompanied by other structural reforms.2 As part of this reform process, the GoU is now engaged in progressively transforming its agriculture sector into a modern, diversified and sustainable production, processing and marketing system. Over the last two years it has adopted a number of measures to improve market incentives in agriculture by lifting price controls for certain raw materials and production inputs, and extending the use of commodity market exchanges. In the cotton sector, the government raised the state procurement prices, gradually shifted some cotton low-yielding areas to production of fruits and vegetables, and piloted cotton clusters with private sector participation incentivizes to boost farmer productivity and improve sector efficiency. The export of fruits and vegetables has been largely liberalized by permitting the competition among exporters and very recently removing the minimum export prices. To support the reform process, the World Bank has been engaged in a policy dialogue with the GoU of its overall agricultural modernization agenda. During FY16, a Just in Time Technical Assistance helped initiate the policy dialogue with the Government on agricultural modernization. A cross-Practice technical group, led by the Agriculture GP, was established from the Bank side to oversee the policy dialogue, adopt a multi-sector approach to the agriculture modernization agenda and to provide multi-sector answers and guidance to the Government. This report, produced as part of the Uzbekistan