The Legal Framework of Uzbek Cotton Procurement and Export Mavlyuda Kulikova Presented at the SOAS conference ”The Cotton Sector in Central Asia: economic policy and development challenges”, 3-4 November 2005 (English version)

The Main Legal Documents Regulating the Export of Cotton in Uzbekistan: basic documents The Constitution “the state guarantees the freedom of economic activity, entrepreneurship and labour, taking into account the central importance of consumer rights, equality and legal protection of all forms of property” The Civil Code Determines the legal status of participants in the civil process, regulates contractual and other obligations The Customs Code Identifies export as a customs process, defines the legal basis of its regulation, sets out the main provisions of the General Agreement on Tariffs and Trade. 03/12/2018

The Main Legal Documents Regulating the Export of Cotton in Uzbekistan: laws «On external economic activity» (June 14, 1991) Declares that freedom and economic independence of foreign economic actors are the main principles of external economic activity «On currency regulation» (May 7, 1993) Regulates export with regard to currency transactions between participants in external economic activity «On the contractual-legal basis of economic activity» (August 29, 1998) Identifies the legal basis for the conclusion, execution, amendment and termination of economic agreements; defines the rights and responsibilities of economic actors «On guarantees of the freedom of entrepreneurial activity» (May 25, 2000) Identifies guarantees and conditions for the free participation and interest of citizens in entrepreneurial activity 03/12/2018

The Development of the Export System and the Legislation on External Economic Activities of Uzbekistan: main stages 1 (1991-1995) 2 (1995-1997) 3 (from November 1997) 03/12/2018

The First Stage Establishment of market conditions, stimulation of external economic activity, reduction of customs duty, elimination of the state monopoly on foreign trade, pricing with a high degree of state intervention, subsidies for agriculture The continuing economic slump which moderate state regulation in the agricultural sector had failed to prevent provoked the transition to a broader, stabilizing structural reform. The introduction of a national currency in 1994 was a sign of an independent monetary policy designed to bring about macro-economic stabilization and economic growth. The limited scope for the conversion of national currency, however, held back the development of foreign trade and hampered the export of cotton. Government steps to further the liberalisation of prices, strengthen control over banks and the execution of economic legislation stabilised the country’s macroeconomic and financial situation. 03/12/2018

The Second Stage Fostering export-oriented production, introducing a system of tariff-regulated import, decreasing export duties The list of export commodities subject to licensing and quotas still contains cotton, grain, non-ferrous metals and energy carriers Financial support from the IMF for systemic transformation and for the development of a certification system for cotton fibre Due to the drop in world export prices and a bad cotton harvest in 1996: export indicators worsened, the payment balance deteriorated, foreign trade and currency exchange regulations tightened, administrative control over exchange rate and currency operations became more strict. From 1 April 1996: differentiated rates of export customs (not for cotton fibre and cotton scrap) and tax privileges for export producers (except for enterprises producing raw materials such as cotton fibre and yarn) 1996: problem of untimely currency gains; the need to establish control over the quantity, quality and price of export articles Creation of an Interagency Commission to introduce obligatory certification of highly liquid goods on foreign markets and registration of exporters to international raw material exchanges Creation of a republic centre with a network of regional laboratories to organise certification and quality control of cotton fibre and to administer warehouses for certified cotton fibre 03/12/2018

The Third Stage Adoption of a policy of export stimulation, abolition of customs duty on export and elimination of export licenses for cotton fibre and yarn Gradual liberalization of foreign currency from 1998 led to liberalization of the currency market, a partial decrease in tax pressure, a narrowing of exchange rate differences and the stabilization of cotton export Privileges granted to economic actors: export of articles for freely convertible currency, no preliminary payment and accreditation required Enterprises exporting self-produced articles for freely convertible currency to CIS countries were exempt from paying excise tax and value-added tax; enterprises exporting cotton fibre and yarn are not affected by this 03/12/2018

Exporting Cotton Fibre: crisis of orientation The nominal purchasing price of cotton increased 1.4-1.6 times from year to year, starting in 1995, and world prices decreased from 1995 to 2000 almost 1.5 times (from USD 1880 per ton to USD 1280); nonetheless, it is difficult to talk about a narrowing gap between internal purchasing and world prices. 1999: sudden drop of export prices for Uzbek cotton (by almost 35%, probably due to the diminishing quality of the exported cotton); domestic purchasing prices also went down (from USD 950 per ton at the beginning of the period to USD 670-750 in 2000-1) The same situation applies to the purchasing price of wheat, which allows me to conclude that there is no progress towards a closer alignment of the domestic and world prices for important agricultural products. (Ch. Murodov. Internal and export prices for agricultural crops http://r0.unctad.org/infocomm/comm_docs/docs/projectp/docsuzbe/MurodovP.pdf) 03/12/2018

Recommendations Abolition of price limits and the state system of raw cotton procurement; Elaboration of mechanisms to develop competition in the cotton and technical maintenance industries Implementation of land reforms to improve farm management and create mechanisms to transfer land to more productive farmers; Elimination of limits on export quantity such as bans and quotas; Abolition of the registration of trade contracts; Termination of the system of advance payments and commodity credits and introduction of special credit support; Organisation of state purchases through open competitive bidding (this system will gradually be replaced); Establishment of an incentive scheme for cotton producers; Coordination of action among all participants in the production and export of cotton; Alignment of the CIS laws that regulate agro-industrial activity. 03/12/2018