An August 2006 report by the Afghan International Chamber of Commerce (AICC) notes optimistically that “Afghanistan’s location at the heart of the expanding Central Asian market makes it a gateway to doing business and investing in the region.” Although land-locked, Afghanistan is a land-bridge between Central and South Asia, such that “investors can reach not only the estimated 25 million people in Afghanistan, but potentially also the 150 million people in close proximity to Afghanistan.” In order to accomplish the AICC’s cheerful dream, of course, tremendous impediments to international trade must first be overcome. The deplorable security situation discourages investment in the critical infrastructure of international trade and discourages travel and transit overall. The disarray of the legal framework – especially the inadequate, and in some cases incoherent, body of commercial law – is described in detail throughout the other sections of this Diagnostic. Summarizing those findings, however, one must note that the absence of commercial laws drafted and implemented to the standards of the international marketplace will severely hamper Afghanistan’s progress toward becoming a meaningful international trading partner.
Afghanistan is one of the poorest countries in the world. It is estimated that at as much as 80-90% of Afghan private sector activity is “concentrated in the informal sector.” Out of a population of approximately 25 million persons, more than two million are directly involved in the opium trade, with many more benefiting at least indirectly from the narco-economy. Beyond the illicit opium trade, the remainder of the economy is dominated by subsistence farming and unregistered businesses, especially since corruption and other impediments in the regulatory environment make it difficult to engage in licit trade activities.
Significantly, the ratio of imports into Afghanistan to (at least licit) exports is 8:1. Neighboring countries (especially Iran and Pakistan), and even some slightly more distant countries such as China and India, are pouring their products into Afghanistan. Afghanistan lacks manufacturing capacity and is unable to either produce those products for domestic consumption or to even begin to compete in international trade. While higher taxes on all imports are suggested by many business leaders, as well as more targeted import duties on certain products in order to encourage local Afghan business and industry, the problems with security, power and other basic business infrastructure items (including roads, office parks, trade facilities, and water supply) continue to impede a meaningful role for Afghan business and industry in international trade.
Significantly, as discussed in more detail in this Report’s chapter on Flows of Goods and Services across Borders, an open and transparent trade regime continues to be a priority of the Afghan government. Indeed, “Afghanistan maintains import bans on very few products and imposes no seasonal restrictions, quotas, or other non-tariff barriers” – and assesses an average customs duty of only 4%. In fact, the Afghan International Chamber of Commerce even recommends a 2% across-the-board duty on imports into Afghanistan and zero duty on exports. Several business leaders, during interviews in connection with this Diagnostic, noted that there is a significant tension within the business community on the issue of trade policy. Some businessmen point out that Afghanistan is in a region in which trade protection policies are common-place, citing India as an example of a country with few imports and Pakistan as a country with very high (reportedly as much as 57%) import tariffs on some products. These businessmen strenuously argue that Afghanistan must increase its import tariffs, at least on a targeted basis. Others cite the lack of domestic production capacity, concerns about increased smuggling, and a need for more liberal regional trade in favor of maintaining lower import tariffs. In sum, there appears to be a considerable lack of both understanding and agreement on tariffs and trade policies within the Afghan business community.
Perhaps one of the greatest motivators for Afghanistan to get its economy on-track, looming large on virtually everyone’s radar, is Afghanistan’s pending World Trade Organization (WTO) accession. The commercial law framework in Afghanistan is being completely reformed in anticipation of WTO accession, with ten primary commercial laws targeted (five of which have been redrafted at the time of this Diagnostic – contracts law, discussed in another section of this Report, being the fifth and most recently completed draft). Moreover, in aspiration of WTO accession by the end of 2010, the Afghan government has benchmarked a number of strategic goals for achievement by that time:
- Government will establish an open and transparent business environment, systematically addressing trade and investment barriers;
- Transit and customs procedures and documents will be streamlined with a view to harmonizing them with the trading partners;
- Government will also pursue general trade liberalization;
- Existing transit agreements will be revised and new transit agreements will be negotiated while capacity is strengthened to implement and monitor the agreements;
- Exports benefiting from preferential agreements with U.S., EU, Japan, Canada, and India will increase;
- The private sector [will be encouraged] to become increasingly engaged in trade facilitation;
- Government seeks to improve operational efficiency of customs while curbing corruption;
- Government is also determined to move toward full computerization and to develop trans[aren’t procedures; and
- Government will reduce average import times by 20 days, and export times by 15 days.
In addition, the Afghan government is committed to increased trade liberalization (complemented by its commitment to a market economy, as discussed in this Report’s chapter on Foreign Direct Investment) with a view toward WTO accession; further emphasis on developing other policies and programs to facilitate trade; pursuing opportunities to enter into energy purchasing agreements with neighboring countries; and the encouragement of greater private sector participation in areas of regional cooperation.
