Integration processes within the SCO in the new economic space

The expert opinion was prepared based on the results of the SPIEF 2023 session “Integration for Development: Practical Aspects of SCO Business Cooperation.”

Definition of cooperation and composition of participants

The Shanghai Cooperation Organization (SCO), which celebrated its 22nd anniversary on June 15, is an important platform for political and economic cooperation between Eurasian countries. Its initial goal was to ensure peace and stability in the region, and the interaction of members was regulated by the Agreement on Confidence-Building in the Military Field in the Border Area (Shanghai, 1996) and the Agreement on the Mutual Reduction of Armed Forces in the Border Area (Moscow, 1997), which served as the main mechanism of mutual trust in the military field in border areas and accelerated the formation of partnerships. Today, the importance of the SCO as an instrument for stabilizing the regional situation and the potential formation and development of a fair, multipolar world order is emerging with renewed vigor.

Despite the heterogeneous composition of the Organization, the different economic weight and potential of its members and the still distant state of full economic integration, there has been a significant increase in its authority as an international intergovernmental structure, including thanks to the principles by which interstate relations within it are built. This is manifested in a sharp increase in the number of countries aspiring to join the Organization: for example, in 2022, Belarus submitted an application; earlier, at the September summit in Samarkand, Iran received membership. In May 2023, the status of a “dialogue partner” country will be increased. received the UAE, which Türkiye, Sri Lanka, Armenia and Azerbaijan already have. Regarding the growing interest among the Gulf countries, it is quite possible that through participation in the SCO they are seeking to diversify their international ties and strengthen their international prestige.

Trade and integration

The SCO has rapidly expanded its scope of activity, and today one of the key aspects of business cooperation is the development of trade, promotion of economic growth and development. The priority areas of trade and economic cooperation until 2035 were recorded in the “New edition of the program for multilateral trade and economic cooperation” in Tashkent 2019. Further, the Samarkand Declaration of the Heads of SCO Member States dated August 16, 2022 confirms the readiness to ensure the security and stability of the international supply chain and maintain openness and transparency in cooperation. In general, the SCO countries account for 15.4% of world trade, and as of 2021, foreign trade turnover amounted to $8.1 trillion. The organization establishes mechanisms to facilitate trade between members, including the reduction of customs duties, simplification of procedures and harmonization of standards, which contributes to increased trade volumes and its diversification.

In 2021, the volume of domestic trade between the SCO countries was measured at $803.7 billion, which amounted to no more than 10% of the total foreign trade turnover. However, individually, the shares of member countries differ significantly: the lowest indicator — China (5.7%) has the largest — in the countries of Central Asia, Kyrgyzstan (76.4), Tajikistan (62.5), etc., which, due to the smaller volume of foreign trade, form turnover through internal transactions in the SCO. However, individual countries are showing trends towards economic coordination: for example, trade between China and Russia has grown by 41% in dollar terms since the beginning of 2023 compared to 2022, and with India — increased by 2.5 times.

Despite the constant postponement of the initiative to open a Free Trade Area (FTA) within the Organization, put forward by N.A. Nazarbayev and then supported by V.V. Putin and Xi Jinping back in 2015, separate attempts were made to create local FTAs. Thus, on the border of Uzbekistan and Kyrgyzstan in the Namangan region, it is planned to open a large free trade zone, with the abolition of customs duties and fees and the removal of quantitative restrictions on trade operations. This year, a train was launched for the first time along the multimodal transport corridor “China” Kyrgyzstan — Uzbekistan”, the supply of which was agreed upon at the “China &mdash” forum. Central Asia". Also, starting from 2022, local logistics companies will appear in the transportation sector, aimed at ensuring the efficiency of product deliveries.

The creation of a wider Eurasian economic space can be facilitated by the “joining” of projects of the EAEU and the Silk Road Economic Belt (SREB), due to significant overlap in the composition of the participants. At the expense of observer states and dialogue partners of the SCO, the economic opportunities of both sides will increase. In addition, in 2022, the EAEU reoriented itself to the East, increasing trade with the SCO and BRICS by 35% (a third of the total turnover). Integration is also facilitated by a significant 14% increase in mutual trade among the EAEU countries and key foreign trade partners represented by China, with a trade turnover of $220 billion by 2022.

Innovation and investment

Technological integration of the SCO countries is carried out at the level of regional cooperation: for example, there are various demonstration and pilot SCO cooperation zones, following the example in Qingdao, established in 2018. On its basis there are 54 funds for the development of Russian-Chinese interaction, including in particular, investment mechanisms, technological exchange.

Interaction between SCO member countries in the field of innovative development and digital technologies is carried out on the basis of the “Concept of cooperation in the field of digitalization and information and communication technologies” of 2019 and “Statement of the Council of Heads of State of the SCO Member States on Cooperation in the Field of the Digital Economy” 2020 In October 2021, a draft digital business platform for the SCO countries was presented, which would guarantee the implementation of full cycles of economic transactions. At the summit in 2022, the “Program of Cooperation of SCO Member States for the Development of Artificial Intelligence” was also adopted. in order to stimulate economic development, ensure regional and national security. In this regard, the first deputy chairman of the board of Sber, Alexander Vedyakhin, proposed creating a common system for regulating artificial intelligence in the SCO spaces, starting with the development of general ethical rules for the creation and application of AI ethics.

Recently, interaction between business structures of SCO members has been established, which is facilitated by the SCO Business Council and the SCO Interbank Association (IBO). The Business Council is participating in the formation of a non-governmental venture investment fund and an electronic exchange. Business representatives created on the sidelines of the SCO a register of the most interesting multilateral development projects, with an emphasis on renewable energy and agro-industry, as well as innovative economics, logistics and transport. Measures are being taken to deepen mutually beneficial cooperation in the field of innovation, in particular — through SMEs, implementation of cross-border and interregional projects and the creation of joint ventures.

There are also bilateral funds between the participating countries, an example of which is the Russian-Kyrgyz Development Fund, which has financed over 3,300 projects totaling $518 million. The most active loans were issued for agricultural projects (57%), logistics and infrastructure development . At the end of 2022, the Fund issued $214 million in soft loans, including for the implementation of 44 new projects. Among the tools of multilateral dialogue — various economic forums and events, for example, “Industrial Innovation Week”, “Industrial Cooperation Forum” SCO countries and others.

As for the IBO, since 2008 it has established partnerships with the Eurasian Development Bank and has been financing joint projects, but large multilateral projects are not among them, since the IBO does not have financial instruments to support them. The creation of its own financial mechanisms has long been contested, due to strong competition from the already existing BRICS Bank and the Asian Infrastructure Investment Bank. However, a similar initiative to open the SCO Development Bank and the Special Account of the Development Fund for economic projects was put forward by the Kyrgyz side, and in 2022, a second credit line of the State Development Bank of China was opened for SCO member countries. For 2023, the SCO aims to improve project financing guarantees and continue consultations on the creation of a Bank and Development Fund.

Financial system and currency

As one of the effective measures to protect their own economic interests, the SCO countries plan to make a gradual transition from the dollar to national currencies within the framework of the association. At the expert level, such plans were worked out even before the aggravation of the global financial situation and the introduction of the sanctions regime against Russia. In 2022, at the Samarkand Forum, member states adopted a roadmap to increase the share of payments in national currency, supporting expanded cooperation in this area. It is expected that only interested states will take part in the first stage of its implementation, due to the sensitivity of the issue and internal restrictions. The road map involves conducting an examination of the currency regulation of the participating countries, potential restrictions on the use of national currencies; at the next stage — developing approaches to bilateral and multilateral currency relations, taking into account all issues of liberalization of currency legislation. A local example of such an initiative is the expected launch of the joint Russian-Turkish payment system Rebit Card, which will allow Russians to carry out monetary transactions with a virtual card in Turkiye.

Also today, due to the development of countries in the field of digitalization of the economy, one can observe the integration of digital currencies into the economic sector of the country. Central bank digital currency technologies have successfully passed the testing stage in China and are under development in the Russian Federation and a number of other countries. Therefore, one of the promising areas of interaction between the SCO countries could be mutual settlements in digital monetary equivalents, with the creation of a unified digital ecosystem.

Internal problems and external pressure

Reverse processes are also taking place among the SCO members, hampering the establishment of mutually beneficial cooperation and the transition to effective economic development, for example, competition between Central Asian countries, processes of regional disintegration, and gravitation towards various regional centers of power. There are many conflicts smoldering in the Organization based on border territories and resources between Uzbekistan, Kyrgyzstan and Tajikistan. The situation is aggravated by the discontent of Western countries, which is caused by the aggressive anti-Western orientation attributed to the SCO.

Western political scientists began to say that the SCO has a strong anti-Western orientation almost immediately after the creation of this organization.

Although the peacekeeping and defense, rather than military-expansionary, nature of the SCO’s activities is recorded in all program strategic documents (2007, 2015) and has been confirmed more than once by facts, Western countries are taking aggressive actions to create a split in the ranks of the SCO members. For example, after freezing the assets of the Russian-Kyrgyz Development Fund, stored in the Belgian financial company Euroclear Bank, in June of this year, Kyrgyzstan abolished the law on foreign agents, and the head of the Foreign Ministry announced the possibility of broader, direct cooperation on military issues, beyond the CIS and SCO. Under these conditions, the issue of developing multipolarity and defending economic and political independence in international relations arises even more clearly.

Recommendations for state and municipal authorities

In order to achieve integration within the framework of the association and meet the challenges of stability and security in the region, it is necessary to introduce comprehensive practice-oriented solutions in trade, economic, customs, fiscal, investment and other areas, with the expansion of strategic dialogue between the participants. The priority is:

• development of a procedure for admitting new members to the Organization;
• implementation of a mechanism for monitoring and control over the effectiveness of project implementation in participating countries;
• increasing the share of domestic trade between member countries by creating favorable conditions for conducting trade and economic activities, close to a preferential duty-free regime
• further expansion of demonstration areas;
• continuing work on the institutionalization of our own banking and investment instruments, as well as the concept of a single foreign trade currency in physical or digital terms;
• development of an organizational apparatus for rapid response to maintain unity within the Organization.