Afghanistan may appear to many to be an unlikely candidate for a group whose mission is to boost global growth through trade. War-torn for the last 15 years, and embroiled in conflict for much of the past three decades, the country is deeply impoverished and depends largely on foreign aid and illicit industries to prop up its fledgling economy. Yet in December 2015 the South Asian country was granted full approval to join the World Trade Organization.
Its official membership into the free trade bloc is still subject to certain domestic government approvals but having been voted in at the WTO’s 10th Ministerial Conference in Kenya, Afghanistan is set to become just the ninth least developed country and one of the poorest ever to join the World Trade Organization. Its inclusion raises many questions and even a few perplexities about the investment case for a conflict zone and the role that the development industry can play to support a trade-led economic growth strategy.
Devex spoke with Abdul Safir Sahar, an expert on Afghanistan’s trade and customs issues with Chemonics International, to provide context and insight to the issue. Sahar is based in Kabul and was an adviser to the “Trade and Accession Facilitation for Afghanistan” process, a U.S. Agency for International Development-led initiative for business and legislative reforms to support Afghanistan’s WTO application.
WTO membership is, of course, not exclusively reserved for upper- or middle-income countries. The economic benefits of free trade appeal to countries of all income levels, particularly to developing nations looking to boost growth through exports.
Afghanistan was no exception. Much of its economy is based on textile and agricultural exports such as carpets, wool, raisins, pistachios and almonds. As a WTO member, Afghanistan can benefit from access to new markets, inclusion in global supply chains and lower tariffs that officials hope will ultimately lead to more competitive industries and higher wages. Free trade can also allow local businesses to purchase inputs at lower costs leading to more competitive prices for manufactured goods.
WTO accession was initially a controversial issue for Afghanistan. As in many developing countries, local producers feared that they would lose out to a flood of low-priced imports. But through close consultations with the private sector, the government and WTO negotiators were able to settle upon a package of tariff rates that provides a fair degree of protection to local businesses, Sahar said. For example, more than 300 industrial items remain “unbound,” or not subject to maximum tariff rates, he said.
Tariffs on agricultural imports, however, are capped at certain levels, which can threaten the market share of local food producers. Yet Sahar contends that local agriculture is still well protected. Average tariffs for food imports, for example, are above 30 percent, compared to 10 percent average tariffs for nonagricultural goods. Given Afghanistan’s development status, Sahar said that the terms negotiated with the WTO “left enough policy space to protect the local industries.”
Afghanistan’s efforts to join the WTO were driven by an interest in the business-friendly framework that membership offers, in addition to the specific trade conditions that can foster local industries. By joining the WTO, Afghanistan will become part of a system of member-based rules and procedures that provide the type of predictability and certainty that are the basic building blocks of attracting long-term investment. And specific WTO articles that protect the freedom of transit of goods were a strong incentive to mediate a long and complicated border dispute between Afghanistan and neighboring Pakistan, according to Sahar.
But the process to even get to the point of discussing the specific tariffs and regulations was long, and would likely have been impossible without donor and development industry support.
The country first applied for accession in 2004 and was granted WTO observer status that same year. But its application process virtually stalled for the next five years until the launch of the TAFA process in 2009 to promote business and legal reforms specifically around Afghanistan’s WTO application. TAFA programs eventually assisted in developing more than 30 reforms that cover trade policy, intellectual property, customs and food safety.
Much more assistance from donors and civil society will be needed as the accession process continues. The Afghan government has until June 30 to ratify the WTO’s terms of accession. Before then, the government needs to pass the nearly two dozen laws and adopt the additional regulations that it committed to in its WTO application.
“There is still lots of work on the regulation front,” Sahar said, adding that in many ways this is the first time that Afghanistan will be adopting formal laws around food safety and intellectual property.
As a result there will be a tremendous need both immediately and over the long term to build up government capacity to implement and enforce the country’s WTO reforms. The country will need advisors to construct the regulators and train the private sector on how to adhere to WTO reforms. It will also require educational outreach to inform the private sector on the rights granted by WTO membership and the protocol for entering into dispute settlements.
All of these regulatory changes will require transparency initiatives to monitor WTO compliance in a country that ranks 166 out of 168 on Transparency International’s Corruption Perceptions Index.
Afghan officials studied the experience of other least developed countries such as Nepal, Kyrgyzstan and Tajikistan in implementing WTO reforms, Sahar said. Based on those lessons Kabul estimates there will be a 1.5 percent boost in Afghanistan’s gross domestic product and a 10 percent increase in employment within three to four years of joining the WTO.
“But the WTO won’t hand out benefits directly to the country,” Sahar pointed out. “Ultimately, it’s up to Afghanistan on how to extract the most benefits from WTO membership.
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