through the prism of identifying potent reforms to instill competition within the Uzbekistan economy, WTO accession should be a clear priority for the Government.

**_Improving the_** _Policy_ **_Regime for Foreign Direct Investment_** Improving the legal and regulatory regime governing foreign direct investment (FDI) inflows to Uzbekistan should be seen as another important policy component of the broader structural reform program to enhance competition within the country's industrial base. FDI inflows not only mean the transfer of financial resources, but more importantly usually mean the economy is host to the transfer of advances in technology, the introduction of new products and production processes, enhancements in managerial and technical skills, and competitive pressure on domestic firms to perform more efficiently. Bringing Uzbekistan's FDI policy regime in line with international best practice would entail, among other measures that would facilitate new entry: providing for non-discriminatory, "national treatment" to foreign investors; phasing out existing trade-related investment measures (e.g., local content restrictions, export performance requirements and restrictions on use of foreign exchange); freedom for investment-related transfers (e.g., profits, royalties); binding international arbitration for investor-State disputes; and international law standards for expropriation.<sup>6</sup>

**_Industrial Policy._** There is also the need for the design of country's industrial policy program. lto be better informed by-indeed be reconciled with-the Government's emerging competition policy objectives. While the latter is to give emphasis to greater use of market forces in the economy, the industrial policy program still bears a heavy administrative imprint and market control. To illustrate the problem, Box I shows how the draft _Program of Formation of a Competitive Environmentfor 2000-2005_ formulates the plan for the competitive restructuring (or demonopolization) of the cognac sector. The plan is striking for its detail as to the seemingly engineered changes in production and market shares for the various producers in the sector. It casts strong doubt about any significant role envisioned by its drafters that market forces will play in the sector's future structure.

# **Box 1: Restructuring Plan for Joint Stock Company (JSC) "Khovrenko": Cognac Producer**

The current (1999) market share of JSC "Khovrenko" is 41.3%. The plan is to reduce the share of the "monopolist" on domestic market down to 24-26% by the year 2005 by increasing the market shares of:

- JSC "Yangiyul" -from 18% in the year 2000 up to 20-22% in the year 2005;

- JSC "Shakhrud" - from 20% in 2000 up to 22-24% in 2005;

- JV "Bulungur" - from 13% in 2000 up to 15-18% in 2005;

- JSC "Urgench Sharobi" - from 7% in 2000 up to 8-9% in 2005.

- Increase exports of JSC "Khovrenko" from 25% in 2000 up to 30% in 2005.

> In the year 2005 JSC "Khovrenko" will be excluded from the State Registry of Monopolists since its market share will be reduced.

_Source:_ Annex II, _Program of Formation of a Competitive Environment for 2000-2005,_ Government of Uzbekistan; dnlft of October 1999.

6See Bergsman, Broadman and Drebentsov (1999).

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