World Trade Organization’s Policies Affecting Afghan Fragile Economy

Sarfraz Khan*
& Noreen Naseer**

This paper attempts to assess policies of World Trade Organization (WTO) adversely affecting Afghanistan’s fragile economy. It also charts policies of WTO that not only grant supremacy to trade and commercial interests over values such as human rights, labor rights but also discriminates domestic trade in least developed states such as Afghanistan. It illustrates that every global economic agency may not aim at bringing prosperity and alleviates poverty, in Afghanistan.
The formation of WTO has changed the approach of the world community, both in the (developed) North as well as in the (developing) South towards trade and commerce. Ironically many states of the South became members of WTO without fully appreciating and understanding its agenda. Some of the developing states have undergone numerous economic changes: some states, such as China, became huge exporters; others, such as India and Brazil began encouraging foreign investment and multinationals. Therefore, participation in WTO of developing states, with exports or markets, became inevitable, since many complex issues associated with trade and commerce arose and needed resolution. Numerous developing states joining WTO were attracted by a mechanism that deals with trade, services and labor issues. However, many (least developing) states were forced or pushed to join WTO due to fear of economic isolation.
Till to date none of the ministerial conferences of the WTO can be considered a complete success. The recent Doha Round faced tough resistance from developing states on expanding free trade. Pascal Lamy, Director General of WTO, expressed alarm regarding the failure of the Doha Round that may threaten even the very existence of WTO. Since its inception, debates on agreements related to free trade, competitive markets, environmental issues and labor standards continue without a general consensus on any of these problems. Rather these problems have created misunderstanding and mistrust even amongst the countries of the North.
Afghanistan situated at the confluence of hydro-carbon rich, Middle East, Central Asia and densely populated Indian sub-continent, owing to its fragile economy and political turmoil, initially declined to join WTO. However, in 2003, Afghan government applied for observer status and may eventually get membership following fulfillment of certain economic obligations.
This paper is descriptive and analytical, assessing certain WTO policies affecting fragile economy of Afghanistan.

Key Words:   WTO, Afghanistan, Economy, Policies, Poverty, Least Develop.

Introduction

WTO is a corporate entity, trying to create a world of privatization by privatizing all the public services such as education, health care, energy, water, telecommunications through General Agreement on Trade and Services (GATS). WTO’s GATS has been endangering almost one hundred and sixty public services in the name of better standards and freer trade. Another important requirement has been the Most Favored Nation (MFN) status binding WTO member states to treat each other and every state and corporation equally without any discrimination.  WTO professes to prohibit local laws: protecting infant industry; granting concessions to hard core local investors respecting environment; culture and values; also grant of subsidies to local products. Hence many states are compelled to change domestic legislation regarding investment and trade to bring it in conformity with the WTO regulations.
Agreement on Agriculture is also an eye opener for the agrarian economies of least developed and developing nations. According to the WTO agreement, markets forces should control agriculture policies rather than the concerned farmer community. This particular arrangement erodes farmer interests and food security. According to the Universal Declaration of Human Rights, food is a basic right of every human but WTO agriculture agreement negates every right by commercializing agriculture sector. Majority of the developing countries and least developing countries are the exporter of agriculture products. Liberalization process and subsidies provided by developed states to their farmers are affecting the poor farmers in the developing states. In fact agriculture is treated as a secondary issue in WTO.
Another important issue in WTO is of the labor and labor standards under social clause. These standards are about child labor, forced labor, right to labor union, wages, health facilities and working hours. In Singapore Conference in 1996, the member states agreed to recognize labor standards but on a condition that it should not be used as a protection measure to retard trade. The members also agreed to identify International Labor Organization as a proficient body to deal with labor standards but in practice, WTO like a corporate giant, encourage direct foreign investment in the regions where labor is cheap and at the same time discourage trade with those developing and least developed members where child labor is prevalent. WTO considers child labor and human rights as ‘non-commercial values’ normally resulting in retarded trade and commercial activities among the world community.
Free Trade slogan has not been benefiting the least developed and developing members: United Nation Program for Development (UNDP) reports that the 20% of the rich industrialized states consume 86% of the world resources while the 80% poor agrarian developing and least developed states are left with 14%. In reality the investment in the name of free and liberal trade has manipulated the poor labor and raw material of the developing members. Multi-national invests in a place where labor is exploited easily and resources are available below the standard prices without any respect to environment or labor rights.
Afghanistan, a least developed, low income state, aspires to become a member of WTO. On 10th April 2003, Afghanistan applied for WTO membership under Article X11 of the Marrakesh Agreement. Facilitating Afghan entry, General Council of WTO, formed a working committee to scrutinize the request and granted her observer status on 13th December 2004. Since then Ministry of Commerce and Industry has been dealing with Afghanistan’s accession and requirement process in WTO, hence, WTO’s technical director’s desk was created at Ministry of Commerce. In 2009, Memorandum on Foreign Trade Regime was circulated and a case of Afghan accession waits for working party to meet. Though Afghanistan is in no position to benefit immediately from WTO regulations, however, with the support of United States, she intends to become a part of the global economy and aspires to join WTO.
Afghanistan is a land locked, low income group, agrarian country, with a population of 30.4 million and 40th in world ranking. She has Gross Domestic Product (GDP) purchasing power parity 29.99 billion dollars, ranking 110; GDP official exchange rate is 17.9 billion; growth rate 7.1 ranking 20th; annual exports of 571 million dollars and huge imports of 5.3 billion dollars. She has GDP per capita of 1000 dollars thus ranking 214th; population living below poverty line is 36% and unemployment ratio of 35%, ranking at 181 position. Oxfam report 2007 summarized its socio-economic indicators, stating that Afghanistan’s 70% population lives below poverty line, with low literacy rate of 28.1%, unemployment rate has been above 30% and more than 30% population lacks access to clean water or proper sanitation. Afghanistan’s current economic growth, however, is indebted to foreign funding and aid activities. According to Bertelsmann Transformation Index 2010 (BTI) Afghanistan Country Report, 53% of the population lives below the poverty line: hardly 10% of the population has an average income of $920 per month; 90% population lives on an average of $130, while 35% earns less than $100 per month. Literacy rate is 28% and there is no marked progress in rural areas. Informal Afghan economy needs much effort to be transformed into formal. Last but not least 60% of the country’s economy is based upon opium production. All these reports establish this fact that Afghanistan needs to reconstruct and develop several of its sectors to face the corporate centric policies of WTO. There exist numerous impediments needed to be addressed before joining WTO. According to different sources compiled data indicating economic health of Afghanistan is shown in a given table:

Table 1:

According to International Labor Organization report on Afghanistan 2012: “Time to move to Sustainable Jobs, Study on the State of Employment in Afghanistan”, May 2012, total population is 34.4 million increased with 5 million returned Afghan refugees (skilled and semi-skilled), 80% local economy is overshadowed by illicit activities, grants and aid taken till 2011 are 15.7 billion dollars close to Afghanistan GDP of 17.2 billion dollars, unemployment is 7.9% but almost 25% of population has job insecurity, while 36% lives below poverty line (8 million are food insecure and 6 million are food vulnerable), per capita gross national income estimated is at 466 US dollars, in agriculture 59.1%, manufacturing sector has 12.5%. Services has 24.6% and public administration has 3.9% of labor force , see table no 2:

Table 2:

Some of the Major Impediments in Afghanistan’s Accession to WTO

Afghanistan is facing political, social and economic problems in the wake of ongoing internal conflict and strife. Accession to WTO, for a Least Developed Country (LDC), is indeed a difficult, challenging and risky affair. Afghanistan, with the help of several donor agencies, has been trying to adjust her economy according to the standards of WTO to acquire its membership. This task, however, seems not easily attainable for war torn, conflict ridden and poor economy of Afghanistan. Oxfam briefing paper on Afghanistan reports Afghan human development indicators lower than most of the sub- Saharan African countries. Hence Afghanistan needs to address certain very important issues such as poor economic structure and condition, security problems, political and economic isolation, corruption and nepotism, mal-administration and poor governance, placement of skilled personnel in Geneva and most significantly elimination of widespread poverty to gain accession to WTO. 
(a) One of the most significant impediments in the accession to WTO has been the economic structure and conditions of Afghanistan. It lacks proper management and development of economic institutions that may ultimately affect the environment of competitive market economy. No favorable conditions to open new businesses exist: the country is beset with numerous problems including; registering property, access to credit, protecting investors, enforcing contracts and import/export hurdles. Opening new business is time consuming, costly and complicated affair, for instance, registration process of property takes almost eight months. In addition to registration problem, a majority of the properties lack clear title, which in turn, curtails credit opportunities for new businesses and discourages investment by both local and international investors.
Similarly legal trade (regular/transit) activity suffers from too much red tapping and is costly for poor trader, for instance, to import a container through proper channel, following all the required conditions, a trader has to prepare eleven types of documentation costing twenty one hundred dollars. Moreover, there exists no guarantee or security to containers, as it requires two and half months for a container to reach its destination. Credit registry system is complicated and red taped, thus, encourage illicit trade practices, robbing national revenue.
Officially Afghanistan has liberal trade system in the region with low tariff rates and open economy. To modernize custom department, computerized system has been installed at various custom houses, however, process of importing commodities is too bureaucratic and cumbersome. There exists a huge gap between Afghan imports and exports: imports are almost eight times higher than exports. It clearly demonstrates that domestic manufacturing capability is sluggish. And also that domestic manufacturing sector is facing high taxes, security problems and there exist no subsidies to domestic produce to compete imports.
Another economic sector needing urgent attention is the banking system. Current Afghan banking sector is not systemized; it lacks credit and proper market, marred by absence of liquidity and risk management regulations. No properly established foreign exchange auction market, an absolute essential for monetary policy, exists.
(b) Another important issue has been the security situation in Afghanistan. The Afghan war of 1979 disturbed the social, political and economic fabric of the state. Even after war, warlords and their internecine fighting further deteriorated the state of affairs in Afghanistan. During that period Afghanistan’s social, economic and political setup was in complete disarray. After the rise of Taliban in 1994 from madrassa (seminaries), having no public administration knowledge and followers of Sharia, also destroyed the remnants of a fragile society and economy, further increasing poverty, illiteracy and violence in the society.
After 9/11 the situation in Afghanistan changed: the Taliban were replaced by U.S. backed civil administration but it also witnessed marked rise in violence, sufferings and a gradually mounting insurgency. Though US and her allies have been funding several projects to rebuild Afghanistan, however, security situation has not improved yet. According to the U.S. estimates, since 2007 security situation has deteriorated, attacks on allied forces and Afghan army climbed to 83% and instances of suicide bombings rose. Approximately, 7,000 civilians were killed in the operations against the Taliban, generating hatred amongst the masses leading to non-cooperation between the allied security forces and common men. Similarly, Afghanistan a member and part of various multilateral/bilateral arrangements and organizations has been less participatory due to security situation. For instance, Afghanistan is a member of South Asian Free Trade Area but could not gain meaningfully from its membership due to the security hurdles .
(c) Afghanistan distressed by wars and rivalries had to face political and economic isolation in two phases: firstly during Cold War, from 1979 to 1994 when so called ‘Free World’, capitalist countries led by US and its allies, following Afghan ‘Saur Revolution’ and subsequent Soviet invasion, armed and aided Afghan Mujahidin. That crippled Afghan economy and Afghanistan became victim of rivalry between capitalist U.S.A. and socialist USSR.
Secondly from 1994 till 2001, due to policies of Taliban government, Afghanistan remained completely isolated from the international community. Hence, Afghanistan’s participation in international bodies such as UNO, WB, IMF and GATT remained almost non-existent. Following a long period of isolation, an economically weak, inexperienced Afghanistan has to join WTO. Isolation, not only led to non-participation in regional organizations, but also made Afghan economy suffer from slow foreign investment. Though massive funding did arrive from a few donor states in human development sectors, however, despite U.S. protection, key foreign investments in business and manufacturing sectors by other states has been very slow due to prevailing uncertainty.
(d) Rampant corruption has been an additional problem, retarding growth of economy and progress in the reforms. Corruption and nepotism is rampant in every department of the Afghan government. People in government or their relatives control major trade and commercial activities, discouraging participation of masses and creation of open, free and competitive market. While WTO policies and regulations are about competitive markets and liberal trade without any monopolies that Afghanistan clearly lacks due to nepotism. Most of the political, social and economic reforms are hampered by immense corruption, absence of effective, honest leadership and skilled individuals. However, on the insistence of international community to control corruption and nepotism, Afghan government created, in 2008, the High Office of Oversight and a special anti-corruption investigative unit within the Office of the Attorney General. This unit, appointed by Afghan President, comprise a director general assisted by several directors, but has failed to curb corruption. Recently brother of Afghan President, Hamid Karzai who was allegedly involved in Kabul Bank scam received no punishment which prompted IMF to curtail funds to the central bank.
(e) Coupled with corruption another major problem in the accession of WTO has been mal-administration and ill-conceived planning. The new constitution of Afghanistan established a unitary state system, thus, concentrating political, economic and administrative powers at the centre. All the financial and administrative decisions of every province and district are taken by the central government at Kabul. Thus, at centre, President assisted by Vice President directly elected by the people enjoys huge powers. The provinces are administered by Governors appointed by the President with no or little power in administration and decision making. These provinces are further divided into districts which are poorly equipped and some do not have any administrative machinery. To improve governance and better administration at local level, Afghan government setup Independent Directorate for Local Governance (IDLG), in 2007 through a presidential decree, however, it failed to decentralize the powers of centre. Local government’s role in financial and administrative realm is quite ambiguous, therefore, has multiplied administrative and governance problems. Absence of a decentralized system and absence of GDP generative tax and custom collection system will be an insurmountable hurdle in becoming a member of WTO.
(f) In addition to administrative and governance problems at home, Afghanistan also lacks expert team to negotiate fair terms and conditions for her membership in WTO in Geneva. As an observer state attending ministerial conferences and taking part in different workshops, Afghanistan has no proper WTO mission in Geneva. It is very important for a state to have a body of experts in Geneva to participate and negotiate in WTO sessions. WTO agreements are very costly for acceding member and the implementation cost estimated by WB for Afghanistan is $100 million per agreement.
(g)  Another important hurdle in the way of Afghan accession to WTO has been wide spread poverty, highest amongst the least developing states, 35% of the population lives below poverty line and the situation is not improving, Afghanistan is still ranked, in terms of Human Development Index, as the poorest and least developed country of the world. Rural and border areas where majority of Afghan population resides are poor, underdeveloped, politically and socially excluded. Due to lack of other economic incentives, these areas are the center of drugs/narcotics and illicit trade activities. Though international help and aid reaches Afghanistan but colossal disparity in distribution of aid among urban and rural areas, exists. In face of this situation it seems very difficult for Afghanistan to accede to WTO.

Reforms and Projects Launched by Afghanistan to Facilitate WTO Accession

Afghanistan is in no position to become a part of a competitive agency such as WTO. Therefore to become a full fledge member of WTO, Afghanistan has to undergo rigorous reforms. However, these forced reforms without adjusting human values will adversely affect the Afghan fragile economy and labor working in different economic sectors. To become a member of WTO, numerous economic reforms have been introduced by Afghan government with the assistance of U.S., World Bank and International Monetary Fund along with other foreign funding agencies. These include reforms in custom department, tax and tariff structure, budget system, banking sector, and reconstruction of Afghanistan.
(a) U.S., the most important donor is actively lobbying for Afghanistan to become a part of capitalist economy and integrate Afghans in international economic system. Thus, to facilitate Afghan entry into WTO, U.S., through USAID program, has funded Trade and Accession Facilitation for Afghanistan (TAFA). The major objective of this project is to assist Afghan accession to WTO by rationalizing trade regime and making it compatible with WTO regulations. TAFA assists Afghanistan in developing regional cooperation with her neighbors, encouraging foreign investment and environment for investors with in the state. It provides assistance to Afghan Ministry of Commerce to modernize its institutional setup and conduct trade according to international norms and standards. The major achievement of TAFA is facilitating both Afghanistan and Pakistan in signing new transit treaty of 2010. It also supported and helped Afghan government in ratification of South Asia Free Trade Area to develop commercial relations within the region. It has provided training facilities to officials of Afghan Ministry of Commerce and related departments to understand the working of international trade and commerce. Under this project Afghanistan has reorganized and updated working of her custom department by establishment of computerized software system ASYCUDA. The modernization reforms related to custom department aims at adopting the WTO principles related to Custom Valuation. It also helped in formation of Afghan Memorandum of Foreign Trade Regime to the WTO accession.
(b) Afghan tax and tariff department has also been reformed to generate maximum revenue at home and to generate money for government international commitments. According to the report of Afghan International Chamber of Commerce, Afghan tax department is collecting different kinds of taxes from its citizens and business community. Ordinary citizens have to pay property tax, income tax, road tax and taxes on utility goods. An Afghan has to pay 2 to 60% in different taxes. Similarly business community has to pay different kinds of duties and taxes while conducting business. There is 2.5% mandatory membership fee of the Afghan Chamber of Commerce and Industry and on every transaction at customs one has to additionally pay 2% taxes levied by Finance Ministry of Afghanistan.  For example, reconstruction tax worth 150 dollars is collected by the nongovernmental groups at the international borders (Islam Qala and Torghundi) of Afghanistan. Afghan Courts and Agriculture Ministry are also authorized under new setup to collect taxes. Afghan Courts collect 5% tax in the shape of registration of vehicles. While Ministry of Agriculture is collecting 2% tax at different toll plazas from trader in Afghanistan. These reforms are not only paving ways for accession to WTO but also following IMF and WB policies of economic liberalization.
(c)  WB is sponsoring twenty two development and reconstruction projects worth 1.25 billion dollars in Afghanistan. These projects are for health, education, public administration, agriculture development, tax and tariff improvement, trade facilitation, development of infrastructure, livelihood support and development and improvement of other social sectors. For instance, WB with Asian Development Bank, Islamic Development Bank, United Nations Assistance Mission for Afghanistan and twenty five other donors, WB has started a project called, Afghanistan Reconstruction Trust Fund (ARTF) to support Afghanistan’s recurrent budget. Similarly Japan Social Development Fund under the supervision of WB is also supporting Afghanistan national projects to help Afghans.
(d) International Monetary Fund (IMF) is providing funds and loans to Afghanistan to adjust her economic policies according to WTO regulations. Since 2002, IMF has been financing shattered economy of Afghanistan. IMF not only provided finances to Afghanistan but also technical assistance by sending experts to assist in reconstruction of vital economic institutions such as Ministry of Finance and the Central Bank of Afghanistan (Da Afghanistan Bank). IMF teams of experts advise Afghan government on economic policies and has introduced reforms that will facilitate Afghan entry into WTO. IMF has also established and installed a permanent resident representative in Kabul. This representative is  performing many tasks such as providing technical support to build fiscal apparatus, strengthen the central bank, update foreign exchange regulations, restore and modernize tax and customs organization, and improve public financial management.
(e) Besides funding projects and programs, Afghanistan is also receiving trade benefits from U.S., under generalized system of preferences program. Likewise Canada and Japan have given LDC preferences to Afghan trade and commerce by providing them economic concessions on locally manufactured goods in the form of zero tariff duties. EU assisted Afghanistan in technical assistance and capacity building by providing facilities, equipment and training to the Afghan border police along Tajik and Pakistan border to stop illicit trade activities. They provided funds for the establishment of custom buildings and transport corridor between Pakistan and Afghanistan. EU has accorded preferential trade duties to Afghanistan to facilitate her trade activities.
The major objective of these economic adjustments and projects is the reconstruction in Afghanistan and the creation of an open capitalist economy compatible with WTO policies. Failure of these reforms will result in failure of fulfilling requirements of WTO accession. And it is also very important for least developing country such as Afghanistan with rampant poverty, corruption, poor economic and administrative setup to reconsider the decision of joining WTO.

WTO Policies and Afghanistan

Much literature is not available to analyze the impact of WTO policies and regulations on Afghanistan. However, Oxfam carried out study and published a paper in 2007, recording certain observations: discussing Afghan accession to WTO under a reasonable negotiated deal, it argued for the massive development and reconstruction. The Oxfam report also observed that Afghanistan is not in any position to liberalize her economy, neither she will be able to change the tax and tariff system according to foreign investment laws on WTO dictates. The report states that Afghanistan’s 70% population lives below poverty line, with low literacy rate of 28.1%, unemployment rate of30% and maximum of her current economic growth is indebted to foreign funding and aid activities. Therefore owing to her poor socio-economic conditions, she should not be forced to liberalize her essential sectors such as agriculture, industry and trade under WTO obligations. An appeal was also made to the international donor community to provide more aid and technical assistance before awarding WTO membership to Afghanistan. It also warned the international community that if slapped with WTO regulations on Afghans the country might lead to economic crises further affecting war torn economy of Afghanistan. And suggested that special pro-accession aid package should be given to Afghanistan to prepare her for the policies and regulations of WTO.
No matter how conciliatory WTO deal is, Afghanistan agriculture, manufacturing sector and labor is bound to suffer adversely from its policies. Under Single Undertaking clause, Afghanistan, after becoming member of WTO, will be bound by its Annexure 1A, the Multilateral Agreement on Trade in Goods, also known as General Agreement on Tariff and Trade (GATT) 1994 which has been strengthened further by six understandings on Article II. Afghanistan shall have to adopt Marrakesh Protocol to the GATT 1994 comprising: of stringent regulations related to agriculture and agro based industries such as Agreement on Agriculture; Agreement on the Application of Sanitary and Phytosanitary Measures; Agreement on Textile and Clothing; then liberalization and regulation of trade and commerce through Agreement on Technical Barriers to Trade; Agreement on Trade Related Investment; Agreement on Implementation of Article VI of the General Agreement on Tariff and Trade 1994; Agreement on Implementation of Article VII of General Agreement on Tariff and Trade 1994; Agreement on Pre-shipment inspection; Agreement on Rules of Origin; Agreement on Import Licensing Procedures; Agreement on Subsidies and Countervailing Measures and Agreement on Safeguards.
Afghanistan will also have to abide by :Annexure 1B of WTO, regarding General Agreement on Trade in Services and Annexure 1C,Agreement on Trade-Related Aspects of Intellectual Property Rights; Annexure 2, dealing with Understanding on Rules and Procedures Governing the Settlement of Disputes; Annexure 3 of the WTO handling Trade Policy Review Mechanism; Annexure 4  relating to Plurilateral Trade Agreements (consists of four agreements and those are Trade Agreement on Civil Aircraft, Agreement on Government Procurement, International Dairy Agreement and International Bovine Meat Agreement). After becoming a member of WTO, Afghanistan will have no option but accept all these agreements and regulations.

Afghanistan Agriculture Sector and WTO                                 

Afghanistan is 80% rural and agriculture sector is the major source of livelihood. Agriculture sector contributes 53% to the GDP while engaging 67% of the labor force. The total land area of Afghanistan is 65 million hectors mostly mountainous at periphery and desert area around. Forest covered area has been less than 2%, illegal logging is rampant and a timber mafia operates on border of Afghanistan and Pakistan. That leaves 12.13% of the land arable and only half of it is cultivable . Afghan agriculture GDP is a combination of licit and illicit sectors. Cash crops include cotton, fruits and vegetables however, major cash crop is opium. Cotton, wheat, cereals, fruits, nuts and products related to livestock are contributing 38% to the GDP while opium has 37% contribution.
Around 65% of the Afghan farming population is involved in beekeeping, wool making, carpet weaving, poultry, cheese making, skin processing and handicrafts. These non-farming rural enterprises, intimately related to agriculture sector, not only contribute much to the GDP of the country but some of them also comprise major exports of Afghanistan. In non-farming products carpets and dried fruits are the most important exports. Moreover, this sector in Afghanistan engages 80% of the female workers and children.
Numerous problems are encountered by the farmers of Afghanistan working in agriculture sector.  The erratic climatic conditions in the form of long dry spells and sometimes floods constitute one of the serious problems, adversely affecting both production of crops and the natural resources. Water availability and management issues are also faced by the farmers in Afghanistan besides access to quality seeds, fertilizers and pesticides.
A vast majority of the Afghan farmers has been using old age, traditional methods of farming. Very few farmers have access to modern equipment such as harvester, seeder, tractor and other tools. There is an absence of proper strategy of distribution of land and recourses. There is also a need for the new agriculture technology and technological skills to equip Afghan farmers. Above all neither Afghan farmer possess any knowledge about the WTO agreement related to agriculture nor Afghan government allocated any resources or founded any mechanism to educate farmers about these regulations.
With such a fragile agriculture sector, Afghanistan is going to suffer under WTO strenuous agreement on agriculture as mentioned above. After the concession period is lapsed, time frame (5-7yrs) for implementation and assisting them with technical assistance to adjust her economy. Afghanistan will be slapped by WTO members with the Agreement on Agriculture, this agreement has three major devices including; market access, domestic support and export subsidy. Implementation of such instruments mean Afghanistan will gain access to foreign markets but on the condition of reciprocity. The major concern is that Afghanistan’s poor agriculture sector is in no position to provide domestic support (subsidized quality seeds, fertilizers, modern machinery etc.,) to her farmer nor can provide export subsidy. As a result Afghan agro products will face a competition from foreign agro products displacing poor local farmer. Along with these instruments, the agreement also encompasses Agreement on Sanitary and Phytosanitary Measures (SPS).
In case of SPS, even WTO officials admit that it is too difficult for developing world to implement these measures related to food safety and prevention of diseases. Hence WTO has given two to five years period of relaxation to each member state from South to adjust. Again Afghanistan local farmer has no knowledge about food safety and is in no position to adopt SPS. Through SPS (non-tariff barrier) Afghan agro based products will be debarred from international markets. Trade Related Aspect of Intellectual Property Rights (TRIPS) is another regulation which will indirectly affect agriculture products. To enact TRIPS, Afghanistan is in need of legislation of Intellectual Property Rights (IPR). Even if IPR is implemented within realm of TRIPS, Afghanistan like other South states is lacking finances (need to have infrastructure such as judiciary custom control and compulsory licensing) and human resources to implement technical agreement such as TRIPS.
Besides these agreements and regulations it is not possible for the Afghan farmers to replace a cash crop of opium by any other crop due to poverty, lack of agriculture support and meager land holdings. And in the production of opium crop, some very high officials serving in government of Afghanistan are also involved. As mentioned above 37% of Afghan GDP in agriculture is generated through opium. According to the survey of United Nation Office on Drugs and Crime 2011, Afghan farmers earned 1.4 billion dollars from opium thus contributing 9% to Afghanistan GDP. With all the huge funding by US, EU and Japan, world community has failed to curtail the poppy and opium business. According to local narrative in the last ten years there has been no serious or positive endeavor to discourage the production of opium and poppy crops. The major concern is that how will WTO handle narcotics related issue in Afghanistan? Whether there will be a special mechanism devised for Afghanistan to replace opium with other crops? or simply devising punitive laws to punish opium growers.

Afghanistan Manufacturing Sector and WTO

Afghanistan manufacturing sector prior to conflicts has always been underdeveloped and impoverished. There were few selected agro based industries such as textile, sugar and chemical fertilizers. After 2000, the donor countries started investing in the manufacturing sector. The industrial aid by donors is provided to major cities of Afghanistan mostly they encouraged establishment of industrial units in Kabul. Consequently the manufacturing sectors of carpets, rugs, processed food items, wool, leather and medicinal seeds picked up and became major exports. After Agriculture products, manufacturing sector and textiles (wool, cotton, carpets and rugs) became the second largest exports accounting 24% of the Afghanistan total GDP and engaging 10% of the labor force.
Manufacturing sector in Afghanistan mostly comprise small family owned private businesses/small industrial units operating informally and irregularly. There is no concept and notion of medium or large scale manufacturing. There exist a few foreign funded or expatriate invested industrial units involved in large scale manufacturing in Afghanistan. Some of these large scale units are inaugurated but are not operative such as Baghlan cement factory due to funding problems. In 2005, industrial park in Heart with three hundred units was inaugurated but half of the units were closed down due to several reasons. And also most of these large scale industrial units are importing raw material mostly from abroad, thus, making it more difficult for the large scale investor to generate maximum profit. Therefore, small agro based industries are surviving due to reliance and availability of local agriculture raw material .
As mentioned earlier that some large scale manufacturing units were closed down as there are many problems and obstacles faced by the Afghanistan manufacturing sector. The main obstacle is the underdeveloped infrastructure of Afghan industry in both public and private sectors. Energy shortage and land access problems are too grave to handle. Around 64% of manufacturers facing electricity problem and they have to rely on generators. Almost 60% foreign investors and other private investors reported that access to land is a major hurdle. There are too many rules and regulations still no security granted to the investors in terms of land acquisition. Then lack of financial institutions and capital has been another important issue that hampers manufacturing sector. Banking system to Afghans is a new experience following prolonged wars, money transfers and funding was earlier regulated by mostly a Hawala system. Public and private banks are established in Afghanistan but these banks according to the law laid down recently, can’t extend loans and funds for more than three years. People in manufacturing sector are reluctant to borrow money for such a short period of time. Even some of the NGO are also borrowing money through Hawala system to fund small scale industrial units. There is dearth of skilled labor and expertise in manufacturing units, mostly the labor and expertise are from neighboring states. Transport is expensive, local taxes are high and for investment the laws are too rigid. With these hurdles and problems, it is very difficult to predict the takeoff or recovery time period of Afghanistan industries. However Afghanistan being an observer state of WTO is playing to the tunes of its trade liberalization policy that is “tax your local produce and allow every imports with no or nominal duty”. Afghanistan local produce has to pay 30% of the taxes toppled with electricity problem, red taped system and land acquisition problems while the imported commodity is taxed from 2% to 4% encouraging foreign commodities with no or minimum trade barriers.
Afghanistan industrial capacity is in the non-traditional manufactures and will take a long time to develop non-traditional manufacturing sector to reduce import and increase exports. The vital problem is that how will Afghanistan survive with the traditional manufacturing sector in WTO and its policies of trade liberalization. With meager annual exports of 571 million dollars (mostly agro products) and huge imports of 5.3 billion dollars, Afghan economy is incapable of addressing issues such as budget deficiency, low GNP and GDP, unemployment, poverty, illiteracy and illicit activities related to drugs and weapon trade. At the moment Afghanistan manufacturing sector with low taxes policy is suffering severely from dumping policies of Iran and China. Low priced poor quality commodities are displacing better quality expensive Afghan manufactured goods. The recent report of British Broad Casting on the plight of labor working in carpet industry depicts that how Turkish and Iranian machine made carpets are replaced by handmade Afghans carpets and incurred loss of 46 million dollars loss hitting labor (mostly women and children) directly as well indirectly.
If WTO policies, (Multilateral Agreement on Trade in Goods also known as General Agreement on Tariff and Trade) of free trade (zero taxes and duties) is enacted then Afghans products will face even tougher competition and whatever is left will be adversely affected. Free trade in WTO is enjoyed by the states with comparative advantage, in Afghanistan case we don’t see any commodity that has comparative advantage over others. Before embarking upon WTO membership, Afghanistan needs to conduct a proper survey to understand the agenda and policies of this organization.

Afghanistan and WTO Social Clause

WTO Social Clause describes labor standards and associated trade liberalization. In Afghanistan maximum of the labor force in different sectors comprises of women and children. Due to prolonged conflict and strife, male population of the state has either died or crippled (migrated/fled involved in war/resistance) and consequently the economic support system has fallen on the shoulders of women and children. Presently women and children are working in agriculture, textile embroidery, leather goods, wood and stone carving, jewelry making, carpet and rug making. Afghanistan major exports are manufactured by female and children. If social clause is applied by any member of the WTO against Afghan carpets then the meager exports of the state will suffer and also affect the women and children workers.
Already Afghan female workers are bearing a brunt of Afghanistan’s adjustment for WTO accession by liberalizing her trade. Working women in carpet and other domestic industries are complaining that due to low tariff there is an influx of cheaper imported carpets and goods in Afghanistan local markets. Thus robbing them of their income and jobs as there is less demand for the locally made commodities. This situation has created a dangerous and uncertain environment for female and children workers. Fear of losing job, make them vulnerable to all sort of exploitation. Again the question arises that how these vulnerable workers cope with the implementation of WTO policies.
The issue of child labor is more serious in Afghanistan as compared to other least developing nations. According to UNICEF, 50% of the Afghan population is under 18, 30% of the school going children are working and are the major source of income for their families. These children are working in carpet industries, on farms, street vendors, shops, motor workshops, tailoring and other petty jobs on the streets. Under the social clause, WTO members can boycott the Afghan commodities on the pretext that its manufactured by under paid women or child labor. The graph cited below demonstrates the poor state of Afghan economy.

Sources: Compiled data by authors based on WB, IMF and CIA World Fact Books (2010-12)

Conclusion and Recommendations

Afghan government needs to address some core issues prior to becoming a part of any competitive organization. In the realm of trade and tariff, Afghan government needs to develop an uncomplicated credit registry and remove bureaucratic red-tapism to discourage illegal practices and illicit trade, robbing Afghanistan of large revenue. For liberal trade, Afghanistan needs to rebuild its infrastructure both in physical and institutional terms as these deficiencies are impeding the foreign trade and commerce. Similarly Afghan custom and tariff departments need to meet the requirement of other trading nations and remove hurdles. Afghan custom and tariff needs to be systemized, facilitated with credit, market, liquidity and risk management regulations. Afghanistan affected by war needs huge investment to address her immediate economic problems rather than becoming a member of ruthless WTO.
For better and viable monetary policy, there is a need to establish foreign exchange auction market, as foreign exchange auction is the key mechanism of monetary policy. To join WTO, it is required from the Afghan government to focus on establishment of a monetary policy and economic mechanism that not only encourage foreign investment and liberal trade regime but also encourages a conducive economic environment, for WTO members, facilitating them with proper economic setup of trade friendly customs department and better reliable banking sector. For better administration and governance, decentralization is required that in turn encourage positive economic activities. Again all these requirements are too costly and Afghanistan needs at least another twenty years to get economic stability to be a part of any competitive entity.
Unless security issues in Afghanistan are addressed adequately no economic activity can be fruitful or effective. To achieve economic stability through foreign investment and agreements, one of the requirements of WTO and Afghanistan, she needs to address her security problem to benefit from investment and different economic agreements. It is pertinent to mention that WTO doesn’t have any provision or regulation that can handle member states in a state of war neither it gives special preference to states in conflict. There are special and differential treatment provisions for least developing countries but these concessions are meant to adjust their economies to other member states. It means Afghanistan will be compelled to adjust her domestic policies according to WTO regulations at the expense of her fragile economic sectors that can lead to human catastrophe in terms of food security and employment.
Along with security Afghanistan needs to eradicate corruption and nepotism in their society. Money concentration in hands of a few will further distance the poor farmer, trader and labor participation in economic activity. Poverty and deprivation in Afghanistan is a challenge for international community. It is very important for the world community especially for U.S. to pay more attention to Afghanistan’s more pertinent issues rather than pushing her towards WTO membership. Even if these problems are removed and reforms are implemented, Afghanistan is in no position to become a part of an organization that encouraged cut throat competition among the member states.
WTO, a corporate body, prioritizes corporate interests over human values and labor rights. Thus poor and unskilled farmer, manufacturer and labor of Afghanistan will suffer from WTO policies. As already discussed Afghan farmer with no government support will suffer from low-priced imported agriculture products from other states. Its fragile manufacturing sector as discussed above is pressed hard due to lack of proper investment and government patronage will collapse completely with influx of cheap affordable goods due to trade liberalization. Labor working in cottage industries mostly women and children will be the most affected with cheap influx of goods from neighboring states.
Instead of becoming a part of competitive globalized world and suffer, she should get closer to her regional partners in terms of her economic and commercial interests but with certain precautionary measures to protect her domestic economy. At the moment Afghan economy can’t take pressures of globalized agencies and groups with an agenda of liberalization at the expense of her domestic economy. As we can see in the graph cited above, GDP of Afghanistan with comparison to her neighbors and developed US. Afghanistan ranked the lowest in GDP that is 1247 dollars which adversely affects the life expectancy of the people and is a major cause of poverty and thus in no position to sustain the onslaught of the globalized agency WTO. It will adversely affect the fragile economy of Afghanistan.

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