The Middle Corridor: Development and Opportunities

The Middle Corridor: A Promising Alternative in Challenging Times

Focus on the OECD's Role

The OECD has actively participated in the development of trade and transport connectivity across the Eurasian landmass since 2017. This engagement became particularly pivotal following the geopolitical shifts caused by Russia's full-scale invasion of Ukraine in 2022, which disrupted the Northern Corridor. In response, increased attention was directed to the Trans-Caspian International Transport Route, commonly known as the "Middle Corridor."

The OECD's involvement entails understanding the challenges and opportunities associated with this corridor from a regional integration perspective. Key stakeholders include the governments of Türkiye, Azerbaijan, Georgia, and Kazakhstan, where collaborative efforts aim to establish a competitive and viable route for regional and continental trade.

This engagement has led to significant research initiatives, including consultations with over 170 respondents through surveys and interviews, to identify bottlenecks and needs within the four study countries. The culmination of these efforts was the development of a comprehensive study that maps the main reform priorities, investigates infrastructure boons and constraints, and suggests pathways towards better regional integration driven by complementary reforms and enhanced private sector involvement.

The study produced by the OECD highlights the multifaceted benefits the Middle Corridor could bring to the table, particularly by enhancing multimodal connectivity. It suggests reform areas like improving bottlenecks at ports and border crossings to reduce congestion, advancing digitalisation and harmonisation of trade documents, and strengthening supra-national coordination.

By leveraging its expertise and fostering collaborations between governmental and non-governmental actors, the OECD aims to support the development of the Middle Corridor not just as an alternative trade route but as a catalyst for economic growth and integration that aligns with global trade patterns and modern logistical needs.

The Middle Corridor: Overview and Potential

The Middle Corridor, officially known as the Trans-Caspian International Transport Route, has emerged as a significant alternative for freight transportation between China and Europe, especially in light of disruptions along the Northern Corridor due to geopolitical tensions.

This complex multimodal route traverses through the heart of Central Asia and the South Caucasus, with key transit points in Kazakhstan, Azerbaijan, Georgia, and Türkiye. While historically overshadowed by the Northern Corridor, recent global developments have brought renewed focus on its potential to drive regional economic integration.

Current Challenges and Infrastructure Developments

Despite significant investments in transport infrastructure across the corridor, stakeholders face challenges related to multiple border crossings, potentially inconsistent regulatory frameworks, and logistical complexities inherent in multimodal transport networks. The corridor's geography, coupled with varying national regulations, demands a high degree of coordination and strategic planning.

Opportunities for Economic Growth

The increased traffic offers substantial economic opportunities. However, to capitalize on these, there's a pressing need for regional cooperation to address infrastructure bottlenecks and to improve the efficiency of border procedures. The Middle Corridor is not just a transit route; it has the potential to significantly enhance intra-regional trade across Central Asia and the South Caucasus, thereby stimulating private sector development and trade diversification.

Facilitating Trade: Harmonisation and Digitalisation for Traffic Development

Trade facilitation is a critical factor in the development of the Middle Corridor, with stakeholders highlighting the need for harmonising and digitalising transit and border requirements. While each country along the route has made progress individually, the absence of a regional approach has resulted in redundant documentation and cumbersome procedures, leading to unpredictable transit times and increased costs.

Progress and Challenges

Each country—Azerbaijan, Georgia, Kazakhstan, and Türkiye—has made improvements in customs regulation and digitalisation of border procedures, as evidenced by better scores on the OECD Trade Facilitation Indicators (TFI). However, issues such as border delays persist due to a lack of regional harmonisation. The overlap of multiple license and permit requirements for each country along the route, coupled with deficiencies in customs cooperation, leads to congestion and delays.

Harmonisation Efforts

There have been efforts in multilateral initiatives to improve trade facilitation. Preliminary agreements, like the one between Azerbaijan, Georgia, and Türkiye for data exchange, indicate a move toward greater collaboration. Initiatives such as the Carec Programme and TRACECA aim to enhance regional connectivity. However, these efforts remain scattered and not fully coordinated across the region.

Road and Rail Transit Issues

For road transport, the absence of standardised vehicle and driver requirements complicates traffic flows. Variable standards and permits across countries discourage seamless transit, adding to delays. On the rail front, the coexistence of different legal frameworks (CIM and SMGS) creates technical and operational hindrances. Although initiatives like the unified CIM/SMGS consignment note exist, they are not consistently utilised, resulting in unnecessary duplication of procedures and costs.

Infrastructure Investment in the Middle Corridor

Azerbaijan, Georgia, Kazakhstan, and Türkiye have made significant strides in developing their transport infrastructure to enhance the Middle Corridor's efficiency and capacity. Ports, rail networks, and road infrastructure have been key focus areas. Despite these investments, several infrastructure-related challenges persist along the Middle Corridor, requiring future strategic development.

Regional Coordination

The report highlights a flurry of regional initiatives aimed at bolstering the Middle Corridor as a viable trade route linking Asia with Europe. This includes heightened cooperation among Kazakhstan, Azerbaijan, Georgia, and Turkey, with the quartet working on expanding and optimizing existing logistics and transportation networks. With commitments to increase throughput and digitalize processes, the Middle Corridor is gearing up to handle increased traffic efficiently.

The year 2022 was pivotal in intensifying intergovernmental dialogue on the Middle Corridor, signaling a collective intent to improve trans-Caspian connectivity. Kazakhstan, Azerbaijan, and Georgia initiated the Eurasian Joint Alliance for streamlined logistics services, showcasing administrative synergy conducive to efficient customs and border crossing management.

Moreover, an influential Ministerial meeting in Aktau culminated in a Roadmap and Action Plan that envisions scaling the Middle Corridor's capacity substantially by 2025. These plans include multi-phase expansions of port capabilities, the addition of logistics centers, and the sought-after simplification of transit procedures.

Central to these efforts is a developing co-ordination mechanism aimed at harmonizing efforts across the region, tackling infrastructure challenges, and aligning national transit regulations with international standards. The initiatives recognize the need for a robust governance framework to shepherd these ambitious infrastructure projects to fruition, ensuring they not only attract outside traffic but also catalyze regional trade.

This collective regional approach underlines a coordinated commitment to evolving the Middle Corridor beyond a mere geographical passage. It stands poised to serve as a dynamic artery for regional economic activity, integrating Central Asian economies and enhancing their trade linkages with global markets.

Recommendations

To enhance trade facilitation along the Middle Corridor, countries should focus on developing a single legal framework covering all transport modes, ensuring the standardisation and interoperability of documents and procedures across regions. Regions could adopt digital systems for efficient data exchanges. Improving border customs capacity through training and infrastructure investment will be critical for reducing bottlenecks.

Additionally, a regional approach to transit permits and vehicle standards, as seen with efforts like the TIR and ATA Carnet systems, can drive efficiency. Effective coordination can be achieved through institutional bodies involving both governmental and private sector stakeholders to align reform prioritisation and infrastructure investments.

The report underscores that for the Middle Corridor to fulfill its potential as a key regional trade route, it should not only serve as a passage for external trade but also bolster regional economic cohesion and prosperity. Overall, while significant progress has been made in terms of infrastructure development along the Middle Corridor, continued regional cooperation and strategic investments are essential to build a competitive and sustainable route connecting Asia and Europe.