Afghanistan » Economy

WTO Membership and its Consequences

Published Date: December 26, 2015

Afghanistan received the membership of World Trade Organization (WTO) at the 10th WTO ministerial conference in Nairobi, Kenya, December 17, 2015. Afghanistan is 146th in the world and 36th among the less developed countries that received WTO’s membership.

Receiving membership in this organization is a long process and Afghanistan, however, accessed this organization after 11 years of negotiations. This news has positive reaction in Afghanistan and the senior Afghan officials have warmly welcomed this development; Afghanistan is, however, among the least developed countries, and there are some expectations that the accession of Afghanistan to WTO would impact the newly emerged industries.

The Afghan policy toward WTO in past 11 years, the reason behind Afghanistan’s request to become a member of WTO and impacts of accession to WTO on the country are analyzed here.

The Background of WTO

After WII, the original intention was to create a third institution to handle the trade side of international economic cooperation, joining the two “Bretton Woods” institutions, the World Bank and the International Monetary Fund. Over 50 countries participated in negotiations to create an International Trade Organization (ITO) as a specialized agency of the United Nations. However, these negotiations failed, the draft ITO Charter was ambitious. It extended beyond world trade disciplines[1].

Meanwhile, 15 countries had begun talks in December 1945 to reduce and bind customs tariffs. With the Second World War only recently ended, they wanted to give an early boost to trade liberalization, and to begin to correct the legacy of protectionist measures which remained in place from the early 1930s.

As a result of these negotiations, the new General Agreement on Tariffs and Trade was born, with 23 founding members (officially “contracting parties”) in Geneva in 1947.

For almost half a century (1994), the GATT’s basic legal principles remained much as they were in 1948, and several other meetings were held on further decreasing tariffs and for other relevant issues. For example, in 1960s, the Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping[2] Agreement and a section on development. The Tokyo Round during the seventies was the first major attempt to tackle trade barriers that do not take the form of tariffs, and to improve the system. The eighth, the Uruguay Round of 1986-94, was the last and most extensive of all. It led to the WTO and a new set of agreements.

Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other[3].

The basic difference between GATT and WTO is that the GATT dealt with trade in goods; but the WTO deals with trade in services and intellectual property as well.

 

Chronology of Afghanistan’s membership in WTO

WTO established in 1994; at that time, Afghanistan was involved in civil war and did not have a good central government. With the emergence of the Taliban in Afghanistan, the security situation was somehow good; although, the world did not recognize the government of Afghanistan and the representatives of the Mujahedeen government were representing Afghanistan in the UN. Besides that, economic sanctions were also put on Afghanistan at that time. Hence, the government could not receive membership in WTO, then. However, after the new regime was established under the leadership of Hamid Karzai in Afghanistan; this country officially asked membership in the organization on November 21, 2004.

Following the official request from Afghanistan, WTO established a Working Party, consisted of 28 countries and led by Netherland, for Afghanistan in December 13, 2004. Among those 28 countries, most of them were those having trade ties with Afghanistan; like its neighboring countries (China, Pakistan and Tajikistan), India, Japan Russia, Saudi Arabia, the European Union (EU) and etc.

Afghanistan presented its Trade Policy report (Memorandum) on March 31, 2009, and the questions and replies were sent on July 26, 2010.

The working party held five meetings which took place on the following dates: the first meeting was held on 31 January 2011; the second meeting was held on 18 June 2012; the third meeting was held on 7 December 2012; the fourth meeting was held on 25 July 2013 and the fifth and final meeting was held on 11 November 2015.

Also, Afghanistan had trade-related negotiations with other members of WTO and had an agreement on it. Eventually, the Working Party presented its finalized report to WTO on 13 November, 2015 and, finally, Afghanistan received membership after Afghan First Deputy Chief Executive Mohammad Khan signed the protocol of this organization at the 10th WTO ministerial conference in Nairobi, Kenya, December 17, 2015.

 

The policy of Afghanistan toward the WTO

Generally, the aim behind Afghanistan’s membership in WTO was that Afghanistan would develop economically and it would receive a lot of trade-related freedoms and privileges. Its trade-and-transit-related problems would solve and it would be able to attract foreign investment[4].

Afghanistan, in order to receive the membership of WTO, brought some reforms in the fields of trade, economy and investment and has signed 9 bilateral agreements related to goods and 7 others related to services.

The main aim of establishment of WTO is opening borders for trade and reducing tariffs, and due to this, Afghanistan have put an average of 13.5% tariff on products, 33.6% on agricultural products and 10.3% on non-agricultural products.

Afghanistan will join the Information Technology Agreement (ITA) upon accession into WTO. This agreement will ask all the participants to completely eliminate duties on IT products covered by the ITA Agreement. Afghanistan’s export tariffs will also be bound for 243 tariff lines. Of these, 29.6% are bound at 10%, 24.2% are bound at 2.5%. On services, Afghanistan has made specific commitments in 11 services sectors, including 104 subsectors[5].

 

Positive and Negative impacts of Afghanistan’s membership in WTO

Afghanistan’s membership in WTO would have deep impacts on the Afghan economy and trade. As Afghanistan is among the least developing countries; therefore, this membership would have both advantages and disadvantages on Afghanistan:

 

Advantages:

  • Resolving Disputes: one of the aims behind establishing WTO is that the member countries would resolve their trade-related disputes; hence, Afghanistan would be able to resolve its trade-related disputes with other countries.
  • Equal Treatment: JoiningWTO gives Afghan exports access to all WTO member markets on a Most Favored Nation (MFN) basis. This means that Afghan exports will be eligible for the best treatment that the country provides to the goods of other WTO members. 

For example, if the European Union grants the United States a low tariff on its potatoes, then Afghan exports must be given the same low tariff on exports of Bamiyan potatoes to the European Union[6].

  • Free Trade: one of the main aims for establishing WTO is freeing trade in the world and removing obstacles toward it. Therefore, Afghanistan not only would have access to the markets of 146 countries, but its exports would not face high tariffs in other countries, also.
  • Transit Dispute Settlement: Afghanistan is landlocked country and, it, since several decades, is faced with a lot of problems with the world in the field of trade. Joining WTO makes Afghanistan to resolve its transit-related problems in this organization.
  • WTO’s Assistance: some analysts believe that Afghanistan would receive assistance from this organization, then.
  • Anti-Dumping Policy: some developed companies reduce the prices of their goods in other countries and weakens the domestic industries and seize the local market of those countries. One of the aims of WTO is to prevent dumping policy.
  • Attracting Investment: although, the attraction of investment, to a large extent, is linked with security situation and political stability in a country, but Afghanistan, after that, will send a signal to foreign investors that Afghanistan is willing to abide by international trade rules and, through this, the trust of foreign investors will increase, then.

Disadvantages:

  • Threat to Newly Emerged Industries: governments in some countries that have recently started to become industrialized try to increase tariffs on importing goods in order for the domestic industries to survive in rivalry with foreign industries; however, Afghanistan, due to getting WTO’s membership, would not be able to increase tariffs on importing goods and, so for that, the newly emerged domestic industries would suffer a lot in competition with foreign industries and they would become defeated in rivalry with importing goods, then. Therefore, it is believed that unemployment will further increase in the country, then.
  • Ending Subsidy[7]: WTO is emphasizing on eliminating agricultural and industrial subsidy, which would have deep impact on Afghanistan’s agricultural and industrials exports.
  • Reduction in Revenue: Afghanistan, after then, would not be able to put high tariffs on imports and due for this; the government revenue would increase in this field.

 

The End

[1] See online: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact4_e.htm

[2] In economics, “dumping” is a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production. The purpose of this act is sometimes to increase market share in a foreign market or to drive out competition.

[3] See online: https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm

[4] See online: http://www.bbc.com/pashto/afghanistan/2015/12/151217_wto_afghaan_membership_iy

[5] See online: https://www.wto.org/english/news_e/news15_e/afgancommitmentsmc10_e.pdf

[6] See online: http://moci.gov.af/en/page/8774

[7]  A subsidy is a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from Government, the term subsidy can relate to any type of support – for example from NGOs or implicit subsidies.

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