Traceca, a Route to the Future
Thomas Lamnidis, Team Leader of TRACECA Common Legal Basis for Transit Transportation Project, answers questions from our magazine
Mr. Lamnidis, could you please tell us a few words about TRACECA?
In 1991, the European Commission created the TACIS programme as the main instrument for cooperation with the countries of Eastern Europe, the Caucasus and Central Asia. The TACIS programme consists mainly of technical assistance for those countries promoting the transition to a market economy and reinforcing democracy and the rule of law in partner states.
Within the framework of the TACIS programme, in 1993 the European Union launched the Transport Corridor Europe-Caucasus-Asia programme, known as TRACECA programme, during the Conference in Brussels. Countries from Central Asia, Europe and Caucasus agreed to implement the European Union funded technical assistance programme to develop the transport corridor of west-east axis from Europe, across the Black Sea from the Caucasus and the Caspian See to Central Asia. The member states decided to develop economic relations, trade and transport communications in the regions of Europe, the Black Sea, the Caucasus, the Caspian Sea and Asia as a natural link between Europe and Asia, taking their geographical location as a major advantage. TRACECA may also be considered as the possibility for the ancient
Silk Road to become once again a major and additional trade corridor.
Silk Road to become once again a major and additional trade corridor.
The main objectives of TRACECA are to facilitate the access to the international network of road, air and railway transport infrastructure, commercial maritime navigation, as well as to enhance the conditions and volumes of the international transportation of goods and passengers. Besides these, the TRACECA countries have expressed the wish to ensure transportation safety, security of goods and environmental protection. One of the main objectives of TRACECA is the harmonisation of the transport and trade policy, including the legal environment between the TRACECA countries.
So, as you may notice, the objectives of TRACECA are very ambitious and I believe that their further development can bring stability and economic growth in the region and provide a real gate to the international market for the landlocked Central Asian and Caucasus countries.
Could you please tell us about major results of the TRACECA implementation?
A major achievement of the TRACECA programme was, inter alia, the signing of the Basic Multilateral Agreement on International Transport for the Development of the Transport Corridor Europe?Caucasus?Asia and its Technical Annexes and Protocols of amendments. This Agreement was signed in 1998 in Baku by 8 member countries. Besides the Basic Multilateral Agreement, a number of protocols and technical annexes have been adopted by the TRACECA countries, which are amendments and additions to the MLA envisaging specific issues and establishing provisions in line with the new demands and necessities of the international transport industry. Among them is the Protocol on Amendments to the Basic Multilateral Agreement, including provisions on the SMGS railway bill, application of a zero-VAT rate on railway services and non-application of customs deposits, bank guarantees, financial risk insurance policies, railway guarantees for transit of goods by railway transport. The Protocol was approved at the 2nd Annual Meeting in Tashkent.
The Draft Protocol on Amendments to the Technical Annexes on International Road Transport and Customs Documentation Procedures through which it is proposed the permit and quota system, designed to facilitate the movement of goods by road transport along the TRACECA corridor. The amendments contained therein meant to introduce the TRACECA multilateral permit system, where: permits would be issued for a period of one year; permits would be issued to a carrier (specific individual or legal entity), registered in the TRACECA member state, assigned to a specific motor vehicle, which would ensure responsibility of a particular vehicle owner; permit holders would be exempted from taxes, duties and other payments irrespective of their names and origin excluding trip payment across toll-roads, tunnels and bridges; allocation of quotas administered by the PS IG- TRACECA on the basis of criteria agreed by the countries.
Other protocols and technical annexes which are currently under elaboration by the institutions of TRACECA: the Protocol on TRACECA Visa, the Draft Technical Annex on Multimodal Transportations, the Draft Technical Annex on TRACECA Investment, the Draft Technical Annex on Freight forwarding operations.
Thus TRACECA programme works in the same way as other technical assistance programmes, but since it is addressed to all countries of the TRACECA Corridor, it has a predominant regional cooperation nature.
Could you tell us about the key factors influencing the implementation of the Basic Agreement?
The Basic Agreement was signed in 1998, but has not been totally implemented in all the signatory countries yet. That takes time and patience, because you can’t change the legal framework or the whole system overnight. It is still in question: how to reduce or mitigate risks of any type simultaneously in all these countries? How to create the necessary feeling of security in order to attract foreign and local investors?
One of the strongest points of TRACECA is the common understanding of all TRACECA countries that, in order to attract investments and consequently to upgrade transport infrastructure facilities and increase trade volume, some important preconditions, which are necessary for any international financing, have to be met. In other words we have to address the three main requirements for any international financing: legality, security and profitability.
However, among these three factors, profitability is the only calculated one. Eventually, it is the only one that concerns the investors. But it would not be achievable without the other two, legality and safety.
Legality was already addressed in the TRACECA Basic Multilateral Agreement and their respective protocols and technical annexes, as well as various conventions and treaties that have been signed by all TRACECA countries with predominant position the MIGA (Multilateral Investment Guarantee Agency of World Bank Group) Convention covering all non-commercial risks (i.e., political risk insurance).
Security could be addressed through state and inter-state guarantees (of non-financial nature), as it is explicitly incorporated in the Investment Technical Annex of TRACECA MLA. Such guarantees, in conjunction with an efficient Settlement of Disputes Mechanism, could lead to a sufficient level of security in order to attract investors for the implementation of such major gas transportation projects.
Profitability. It is clearly a business decision based on calculated costs and risks: as long as the legality and the security have been properly addressed and non-commercial risks (i.e., political risk insurance) have been sufficiently mitigated, it is up to investors (local and international) to make up their minds as to whether they wish to participate in such a major project.
What we are striving to achieve is to ensure legality and security, which will then lead to profitability. It is recommended to take these two steps, before considering profitability and eventually attract investment. Therefore, the right order that should be followed is to:
· agree on the appropriate legal formula,
· go ahead with safety enhancement measures,
· put the TRACECA routes in place,
· make them work,
· display their success, and
· convince potential investors that there is a good reason why they should come to invest.
Are there any economic and political problems facing the Basic Multilateral Agreement?
First of all, every international treaty or agreement has always problems and weaknesses in its implementation. Even within the framework of the European Union we have a lot of problems in the implementation of the European legislation within the legal order of the member states. I don’t see how the TRACECA countries will not face problems and weaknesses in the implementation of the Basic Multilateral Agreement.
Already the political maturity of the TRACECA countries to sign the multilateral agreement and to further develop its institutional framework must be considered as a unique regional cooperation achievement.
We should not forget that some of the TRACECA countries are developing and newly established countries. When the Basic Agreement was signed, the countries knew that there would be obstacles in implementing it. To this end, it was proposed to draw up a Protocol for settling potential disputes. Such a legal document could envisage the difficult situations that could appear during the implementation of the rules applying in accordance to the Basic Multilateral Agreement and its Protocols and Technical Annexes.
Finally, answering your question, we could say yes, but as usual, all problems and obstacles of cooperation and common interests could be overcome. This process is time consuming but at the end, commonly accepted solutions could be reached. Especially due to the fact that TRACECA has its own institutional structure and procedures in place in order to solve problems and overcome obstacles, everything is possible.
Can you give us some positive examples of the creation of the TRACECA Corridor?
EU initiated the programme of development of the TRACECA Corridor in 1993. Since then, the number of participants of the Basic Multilateral Agreement has grown to 12 and 3 more countries (Afghanistan, Iran and Pakistan) expressed their wish to join. I am not highlighting the growth in the number of member states, but the presence of consolidated transit systems in the interregional area of TRACECA could give us the right to use the term “TRACECA Network”, being sure that the states will cooperate in this issue.
First of all, many common procedures concerning trade facilitation and cross border rules have been implemented by all TRACECA countries. Some key infrastructure projects have been financed by the Technical Assistance programme of the European Union in order to eliminate various weaknesses of the TRACECA network. As for Kazakhstan, TRACECA has financed the rehabilitation of the Ferry Terminal in the Port of Aktau (2 million euros). Time has shown that it was the right decision as the port’s turnover has increased dramatically.
In addition, I would like to underline the great deal of effort that has been done within the framework of TRACECA concerning the transportation of humanitarian aid via the TRACECA network to Afghanistan.
Except for the European Union, which other international organisations are interested in the development of the TRACECA Corridor?
I am happy that you have asked me such a question because even if TRACECA is the “baby” of the European Union, there is also interest expressed by other international organisations and especially private companies. The Europe-Caucasus-Asia TRACECA Corridor has been officially acknowledged by the leading international institutions (EEC UN, ESCAP UN, ECMT) as one of the natural transit bridges between Europe and Asia.
The International Organisation of Railways has already signed an agreement of cooperation with the Permanent Secretariat of TRACECA and series of agreements with various international organisations are being elaborated.
For large scale investments, international financial institutions such as the European Bank of Reconstruction and Development (EBRD), the World Bank and its affiliates, the Asian Development Bank, the Islamic Development Bank which have already actively participated in a lot of TRACECA Conferences and events, are willing to finance future TRACECA investments.
What is your opinion about possible competition between EU supported TRACECA Corridor and the Russian North?South Corridor initiative? Is that possible that Russia will join the TRACECA Programme?
The European Union is promoting the market rules and the fair competition in order to increase the effectiveness of the market, identify the best solutions for transportation by increasing competitiveness and improving the quality of services.
I see all these complementary routes as the future of the region in view of its fast growing economic evolution.
My understanding is that why not, Russia could also participate in the TRACECA network, unless they accept already established rules and procedures of the TRACECA and MLA institutional framework.
In your view, what should be the next steps in developing the transport corridors, and, in this respect, what are the plans of the TRACECA Programme in the coming years?
Speaking about TRACECA perspectives, I believe that the direction that the TRACECA countries should go is the integrated approach of the uninterrupted chain of transport?trade?investment in the TRACECA Corridor.
This approach should take into consideration the following factors such as: the connection with the presence of private interests and international financial institutions; the complexity of bureaucratic procedures and the active involvement of various ministries and administrative bodies in every country for the creation of any interstate transportation system; the gained international experience (especially in the Eurasian continent) in various problems that could appear either during the construction, or the operation of interstate transportation systems.
In addition to existing international agreements MLA, MIGA Convention following legal and institutional structures could establish:
· a transparent Mechanism for Settlement of Disputes concerning reconciliation in the case of major differences in implementation of such interstate transportation system amongst the actors involved into its creation and operation;
· a Guarantee Trust Fund that could be envisaged as a mechanism covering any non-commercial risks (i.e., political risk insurance) that might emerge during the implementation and operation of such projects, especially those risks covered under the MIGA Convention. A Guarantee Trust Fund could further enhance the legality component and the investment-friendly nature of such structured interstate transportation system through the reduction of non-commercial risks (i.e., political risk insurance). For instance, similar Guarantee Trust Funds have been successfully used in investments of Gaza Strip and Bosnia;
· TRACECA Economic Interest Grouping, being a light structure of joint venture similar to the existing one for the EU countries European Economic Interest Grouping.
We believe that these combined institutional tools could considerably enhance legality, security and fair participation structures with direct reference to the question: who bears the risk every time that it occurs.
As long as non-calculated risks are properly addressed, this type of interstate transportation systems with such a level of complexity and huge political impact to the peace and stability in South-Eastern Europe and the Caucasus could be much more attractive for investors and consequently for their efficient, and less time-consuming implementation. Hopefully, with such an approach of using, without prejudice, all of the existing instruments and institutional tools already elaborated between the TRACECA countries, the implementation of such interstate transportation systems, creating the TRACECA network, could be achieved easier.
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