Afghanistan’s Accession to WTO: A Cost – Benefit Analysis

Afghanistan applied for World Trade Organization accession on 21 November 2004, on 13 December 2004 a working party was created to give Afghanistan an observer status. Since then relevant government organizations especially the Ministry of Commerce and Industries of the country has taken certain initiatives to approve laws, regulations and take steps in order to accede World Trade Organization.

These steps include initial step of the submission of application to World Trade Organization general council, information gathering, and negotiations and finally submission of the accession package in Nairobi to World Trade Organization Ministerial conference for final approval.

Background

Out of forty eight Least Developed Countries (LDC’s) thirty four of them are World Trade Organization members. Afghanistan’s accession to World Trade Organization as a least developed country was finalized in 2015 and was presented to tenth Ministerial Conference in Nairobi Kenya for formal adoption. Ministers adopted the package of accession and Afghanistan become thirty sixth least developed member of World Trade Organization. Joining WTO will integrate Afghanistan into the global economy, increase trade, create jobs, and allow Afghans to import products at a lower price. World Trade Organization accession will create new trading opportunities for Afghanistan and it will increase the economic growth of the country. 

Accession to World Trade Organization is a long and complicated process, to accede, Afghanistan must like members reflect WTO rules in its laws, eliminate World Trade Organization inconsistencies, and make binding commitments that facilitate trade. Some of the most important steps which are taken by Afghanistan while negotiating to join World Trade Organization as a member includes, initial step, information gathering, negotiation and final steps which should be considered carefully while joining WTO.

Almost all trading partners of Afghanistan, Economic Cooperation Organization (ECO), South Asian Association for Regional Cooperation (SARC) and Central Asia Regional Economic Cooperation (CAREC) are WTO members of in the process of becoming WTO member. Thus WTO membership will help Afghanistan to approach trade issues in a better way and settle its trading disputes on an international platform through WTO.

Recognizing the importance of WTO accession for Afghanistan and in acknowledgement of the progress made by the Government of the Islamic Republic of Afghanistan (GIRoA), WTO members support a fast-tracked accession for Afghanistan.

WTO Director General Roberto Azevedo while accepting the accession package of Afghanistan to WTO said that “This is really positive news for Afghanistan and the WTO. WTO membership will help to create new trading opportunities for Afghanistan to boost economic development. I praise World Trade Organization members for promoting the integration of another Least Developed Country into the rules-based multilateral trading system”.

Here, I would like to highlight the cost and benefit of Afghanistan’s accession to WTO and will answer the important question whether it is a good or bad idea for Afghanistan to join WTO?

Cost – Benefit Analysis

Benefits: World Trade Organization has certain rules and regulations of trade for the member countries, WTO accession will give economic credibility to the economy of Afghanistan. Afghanistan and Afghanistan’s products will be recognized by the international body and member countries of World Trade Organization and the country will face less trade barriers in the future. Moreover consumers will have access to goods and serves in lower prices than before, commodities will flow to the country without barriers and prices will go down at an overall level. Furthermore export will improve but the competition would also increase, increase in competition will motivate the quality of the goods in services produced in the economy of the country and will last into standardization of the commodities. Since Afghanistan is specialized in the production of certain goods (e.g. dry fruits, gems, carpets) accession to WTO will boost the production of goods in which Afghanistan have absolute and comparative advantage and which will bring further specialization. 

Since WTO has some specific and effective principles for trade development within the member countries, Afghanistan will benefit from practicing the principles. Joining WTO will give Afghanistan the opportunity to access all WTO member countries markets on a most favored nation (MFN) principle basis. This treatment will definitely provide the eligible path way for Afghanistan to export to any country of the World Trade Organization member without any kind of discrimination. Afghanistan will be also able to use legal tools provided by WTO in order to fight the international violation of trade regulation by the neighbour countries and trading partners. Moreover World Trade Organization will take part in capacity building of the trade sector in Afghanistan and this will send a positive message to the investors that within the country there is an international commitment for a stable and long run business and trade environment in the country. Afghanistan will be also able to protect the food security, animal and plant life by using sanitary and phytosanitary measures.

One thing that makes World Trade Organization different and unique from other international organization is that trade under WTO is based on rules, regulations and principles rather than power which help small and least developed countries like Afghanistan.

These rules give equal opportunity to all the member countries to trade with each other. The principle of nondiscrimination in trade of goods and services between member countries, the principle of transparency and safety valves are very beneficial and it will provide more trading opportunities for goods and services produced in Afghanistan in foreign markets.

Moreover World Trade Organization gives voice to the least developed countries and Afghanistan would be able to settle trade disputes with neighbour countries especially with Pakistan which creates trade barriers to Afghanistan times to times.

Afghanistan’s accession to WTO will positively affect the private sector of the country and will boost economic growth of the country after the accession, since WTO is a great opportunity for countries similar to Afghanistan in order to access international markets and find new markets for its products. Private sector of Afghanistan will get access to the international markets and they will have more choices to sell their products then before and gain more profit. More markets for the goods and services produced in the country which mean more productions for the producers in the economy and increase in Gross Domestic Product (GDP) which will result in economic growth at the end of the day. The country is one of the most important producers of dry fruits and carpets in the world and has comparative advantage; WTO membership will provide more opportunities for the country in order to sell these products in international markets and emerges as a major player in production of these two commodities.

Attracting Foreign Direct Investment (FDI) will be another benefit of Afghanistan’s accession to WTO, since there would be no investment restriction in the country for investors, the untapped resources of the country, cheap labor will attract FDI’s all over the country which will benefit the economy as a whole, particularly it will create jobs, revenue for the government and business opportunities for the private sector in the mining industry.

WTO accession will also help Afghanistan to attract the investors to invest in Afghanistan from one hand and to accumulate capital from the other hand.

World Trade Organization membership will help Afghanistan to initiate domestic legal and economic reform. Accession to World Trade Organization and then committing its rule and regulation is not a simple process to access the world trading system Afghanistan first must go through certain legal, economic and judicial reforms in order to access the organization and also survive after accession. So it’s necessary for Afghanistan to have certain number of rules and regulation in its economic and trading body to access the World Trade Organization and then survive after accession. Currently there is no such rule and regulations publically available to show that the country is ready to access and then survive.

Currently the country is full member of WTO and the organization agreed on the full membership of Afghanistan. It means that that the country is ready and has been through certain process of reforms at the Ministry of Commerce and industries. According to the ministry of commerce and industry the leadership of the ministry has recently reformed and passed several laws and regulation, including investment law, commercial attribution law, law of tax and consumer goods, law of trademarks to access WTO and bring positive change in trading system of the country. 

After the accession to World Trade Organization Afghanistan would receive technical assistance from WTO and that would improve the capacity of the country in terms of trade in the region and international markets. Moreover, accession to World Trade Organization will not only lead the country to legal and economic reform in the trading body it will also lead to more transparency in the trade system of the country and will also facilitate in to the flow of capital which will help Afghanistan to overcome its economic growth challenges and its least develop status.

It’s very important to know that World Trade Organization membership does not automatically guarantee that the benefits of multilateral trade will be apportioned equitably, especially with respect to developing or least-developed countries. It is very complex to say that how to promote development in Least Developed Countries (LDC’s). The issue has evolved into a very complex debate between the World Trade Organization members even starting from the inception of GATT. Today the issue of development for LDS’s is very significant.This is most likely due to that most of the World Trade Organization members are LDC’s.

Costs: Accession of Afghanistan as a land locked and least developed country to WTO will definitely have costs as well. Infant industry of the country, reduction in the government revenue from tariffs and quotas within the borders are the most controversial ones and critics of Afghanistan’s accession to WTO are concerned about it.

Since after the accession to World Trade Organization, Afghanistan like other member countries must follow the rules and regulation to trade under WTO. The government of Afghanistan will be not allowed to impose high tariffs and quotas while importing and exporting goods and services anymore, this concern of critics of Afghanistan’s accession to World Trade Organization is understandable that after the accession the government will earn less revenue than before but in contrast the consumers will benefit at the end of the day, consumers will be able to buy less expensive goods and use less expensive services in the market. Since government would be not imposing tariffs and quotas on the imported commodities, goods and services will be available in lower prices in the market.

Since after accession the borders of Afghanistan will be open for trade with its trade partners and WTO members, the country will face a remarkable flow of goods and services, the infant industry will be subject to international trade and will face some difficulties to compete in domestic and foreign market in the short run. In this case Afghanistan can receive preferential treatment from WTO member countries for short run in order to support the infant industry through social utilities and subsidies and enable it to compete in the market.

The World Trade Organization is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. Developing and Least Developed Countries are interested to become member of World Trade Organization because they want to trade in a way which will benefit all at the end of the day and World Trade Organization is providing this opportunity. The result of joining in to the World Trade Organization is assurance, consumers will be assured that they will have a plenty of choices to make in the market in lower price since there will be competition in the market, and the producers will be assured that foreign markets will be open for their products and they will be able to supply their products in a number of markets. Over all the result of joining WTO are more prosperous, peaceful and more accountable economic world and that will benefit all.

Comparative Analysis (Experience of countries similar to Afghanistan)

Cambodia, affected by war and domestic upheaval in the last twenty-five years, is one of the poorest and least developed states in both East Asia and the world.6 According to Cambodia’s trade legislative body in the world trade organization and available data Cambodia’s accession to World Trade Organization as the first least developed country was a successful accession for the country. The country has experienced significant economic growth and gained trading opportunities in the region and international markets. Cambodia’s integration to the world economy also helped the country to alleviate the poverty and boost socio economic development.

Similarly considering the case of another least developed country Nepal we can see that after accession to WTO the economic condition of the country gets better off. Nepal is a small land-locked country that reported a per capita GDP of $694 in 2013 and conducts a majority of its trade with India.7 Before accession to WTO while the country was applying to join GATT the government of the country strongly believed that Nepal’s integration to world economy will help the country to overcome its development problems and alleviate the poverty. During the accession Nepal also hoped that the commitments of Nepal to World Trade Organization and member countries would “consistent to the competence of Land locked countries and account to its development needs”8 not more than that. Now looking to economic condition of the country and increase in the trade of the country one can say that the decision of accession to World Trade Organization was a wise decision and that the accession to WTO helped the country to get better off.

Considering the cases of Cambodia and Nepal as least developed member countries of World Trade Organization and their experience of costs and benefits they had after accession. Afghanistan can take a lesson that the country should go to the WTO membership with a vision and commitments which are based on realities of the country and trading partners in the region in order to maximize the benefits of accession and minimize the costs.

Potential Effects Beyond Trade and Economy Afghanistan will also benefit from accession to WTO in terms of achieving peace in the region and international level, the more countries trade with each other the more their future long run economic interest will tie to each other and they will prefer to have peace and welfare instead of conflicts and disputes. The idea of that trade pushes countries to make peace and think about welfare of their people rather than having conflicts has been proved in our would, and the greatest example is European Union, after the second world war and destruction of Europe from a deadly war they tied their economic interests and integrated in terms of economic cooperation and trade more than ever before. This economic integration and free trade in goods and services resulted in economic development and prosperity of the people in Europe. We can consider the same assumption in case of Afghanistan, right after the accession to WTO and getting the support from the member countries the government of Afghanistan has the opportunity to initiate a mass campaign for peace through free trade and economic integration in the region with neighbor countries. In order to trade and take part in the development of the region and world rather than making conflicts and disputes for each other.

Many other areas of the WTO’s agreements can also help reduce corruption and bad government. This means that World Trade Organization accession will encourage the government of Afghanistan to start practicing good governance in real and fight against corruption. After the accession to World Trade Organization Afghanistan fight against corruption will be very important not only for the country itself but for its trading partners in the region and international market as well in order to attract them that the country is doing good in terms of governance. One that has a direct impact via the public sector is the Government Procurement Agreement. This disciplines how participating governments make their purchases, and opens major parts of the procurement markets to foreign competition.

Conclusion

Afghanistan’s accession to WTO will be a major achievement in terms of achieving sustainable economic growth in the long run. Afghanistan submitted its accession package to WTO directorate this year in November and the member countries agreed by consensus on the accession of Afghanistan to WTO. World Trade Organization accession will give economic credibility to the economy of the country and will boost the economic growth. This research paper undertakes qualitative research method of cost benefit analysis and also compares similar problems on which the paper focuses. 

After accession to World Trade Organization Afghanistan will be able to trade under the rules, regulations and principles of WTO which will be equally available and applicable to Afghanistan and other member countries. Accession to World Organization will enable Afghanistan to get cooperation and support of the organization in terms of practicing good governance and legal, economic and judicial reforms. This accession will also help the leadership of the country to use the opportunity and bring the agenda of peace and economic integration instead of war and conflicts in the region. Afghanistan will also gain in terms of capital flow in to the country since the borders of the country will be open for investment and capital flow; investors will find the markets of the country as an opportunity and will invest in deferent sectors especially in the mining sector. 

Accession to World Trade Organization will definitely have certain costs for the country. Infant industry of the country and reduction in the government revenue are the most important ones which will critically affect the public and private sector of the country. After accession to World Trade Organization under the rules and regulations of WTO Afghanistan will be not allowed to impose high tariffs and quotas in the borders which will decrease the government revenue but it will benefit the consumers in terms of decrease in the prices and verity of goods and services available in the market.  Open border for trade on goods and services is a potential treat for the infant industry of the country but the representing party of Afghanistan can discuss it in the WTO in order to get a number of safeguard measures to protect the industry for a specific time.  Experience of other least developed countries shows that accession to World Trade Organization is first step to integrate in world economy and boost the economic growth. The cases of Nepal and Cambodia’s accession to WTO are very good examples for Afghanistan to learn from their experience and get the membership of the organization with a clear vision and specific commitments based on the realities of county’s economy and government abilities.

Finally, considering the short term and long term costs and benefits of this historical accession to world’s largest trading organization trade and economic sector of the country will get better off.

Zabihullah Mudabber is currently pursuing his MA in Economic Governance and Development at OSCE Academy, OSCE Studies, Bishkek Kyrgyzstan and is a former employee of the Ministry of Commerce and Industries of Afghanistan.

The views expressed by the author do not necessarily reflect the views and policies of the CSA BUSINESS.