Why Afghanistan Should Join WTO?

  • Joining WTO 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.
  • Afghanistan will have the ability to seek redress and compensation from WTO dispute settlement mechanism for violations of international trade rules by its neighbors and trading partners.  Afghanistan will be protected against the whims of more powerful countries.  All WTO legal agreements are enforceable through the WTO dispute settlement mechanism.
  •  With more stable trade rules, Afghan businesses will be better able to compete in domestic and international markets.  Afghanistan will also have the right to WTO grants and capacity building.
  • It sends a signal to foreign investors that Afghanistan is willing to abide by international trade rules.  Removing uncertainty is key indicator for investors when they assess destinations for potential investment.
  • Joining WTO enhances Afghanistan’s stature on the world stage through having a voice at the negotiating table.  It can join like-minded countries to create economically stronger ties.
  • Increases in trade and business activity means greater government revenue through customs collection and taxes.
  • Under WTO, improved Sanitary and Phyto-sanitary (SPS) measures ensures protection for Afghan food supplies.

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Why Low Tariffs are Good for the Afghan Economy?
World Trade Organization (WTO)
Why Low Tariffs are Good for the Afghan Economy?
Low Tariffs Reduce the Price of Inputs for Afghan Producers, Making Their Products More Price Competitive
The Afghan economy is still in its infancy and Afghan producers need to have access to the best inputs at the lowest price.  Low cost inputs will make Afghan producers more competitive domestically and in foreign markets.
Low Tariffs Reduce the Cost of Living
Protectionism is expensive as it raises prices.  High tariffs put the heaviest burden on poor people because they must pay a high price for staple goods.  
Low Tariffs Enables More Choice of Products
Lower tariffs provide the impetus to import more goods and services.  As a consequence, Afghan consumers are provided with a broad selection and price range of products from which to choose.
Low Tariffs Encourages Producers to Innovate
Domestic companies rarely innovate without serious competition, locally or from abroad.  Erecting tariff walls to protect local industries make those industries inefficient and less competitive over the long term.
Low Tariffs Attracts Foreign Investment to Afghanistan
Lower tariffs are synonymous with a business friendly environment.  To stimulate investment in Afghanistan, investors look for open, dynamic, and a market driven business climate that is anchored by a low tariff regime so that inputs to production are available at the lowest possible cost.  Since investors have a choice of investment destinations, it is in Afghanistan’s best interest to create the best conditions to attract foreign investment, including setting up a low tariff regime.
High Tariffs in a Country with Porous Borders Bolsters Corruption
Afghanistan has porous borders with six countries and is difficult to police. This means that high tariffs will only serve to worsen corruption at the borders and undermine the rule of law.  Goods will enter Afghanistan, regardless.
WTO and Trade Agreements
World Trade Organization (WTO)
WTO and Trade Agreements
The WTO consists of over two dozen separate agreements.  The most important ones are shown in the table below.
Key WTO Agreements
No.    Agreement Name    Brief Description
1.General Agreement on Tariffs and Trade (GATT, 1994)    Covers broad principles of trade in goods.  Includes the original General Agreement on Tariffs and Trade dated October 20, 1947
2.Agreement on Agriculture
    Improves market access and removes trade-distorting subsidies in agriculture
3. Agreement on Sanitary and Phyto-sanitary Measures    Ensures food safety and animal and plant health
4. Agreement on Technical Barriers to Trade
    Ensures that regulations, standards, testing, and certification procedures do not create unnecessary barriers to trade
5.Agreement on Trade in Services
    Most dynamic sector in international trade.  Lays out four modes of supply: cross border trade, consumption abroad, commercial presence and movement of natural persons
6.Agreement on Implementation of Article VI (Anti Dumping)
    Rules to restrict the export of a product at a price lower than normally charged in the home market
7.Agreement on Implementation of Article VII (Custom Valuation)
    Lays out a fair, uniform and neutral system for valuing goods at customs
8.Agreement on Pre-shipment Inspection
    Sets out obligations for both importing and exporting countries to ensure that pre-shipment inspections are non-discriminatory, transparent and avoid unreasonable delays
9.Agreement on Rules of Origin
    Sets out rules for determining where a product is made.  Rules of origin are also used for compiling trade statistics
10. Agreement on Subsidies and Countervailing Measures
    Members can request removal of an illegal subsidy or charge a “countervailing duty” for subsidized goods that are found to harm domestic industry
11. Agreement on Safeguards
    A member can restrict temporarily products from which a surge in imports caused or is threatening to cause serious injury to a specific domestic industry
12. Agreement on Import Licensing Procedures
    Sets out rules for both the application and administration of import-licensing rules
13.General Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)    Sets out rules for the enforcement of copyright, patents, trademarks, industrial designs, integrate circuits and geographical indications
14. Agreement on Trade-Related Investment Measures (TRIMS)
    Prohibits trade-related investment measures such as local content requirements that are inconsistent with GATT, 1994
History of WTO
World Trade Organization (WTO)
History of WTO
While the WTO began on January 1, 1995, its origins go back almost half a century.  Its precursor, the General Agreement on Tariffs and Trade (GATT) was first intended to be a set of provisional trade rules.  The fledgling GATT grew into an unexpected economic powerhouse, a testament to the ingenuity, pragmatism and perseverance of its leaders.
GATT believed in the need for trade rules to make world trade both stable and predictable.  The new trade rules aimed to reduce protectionism which was crippling the world economy.  Protectionism policies were exacerbating poverty, conflict, and geopolitical instability.  GATT imposed a discipline on world trade that led to the reduction of tariffs and more steady and established trade rules.
Twenty-three countries became Contracting Parties (CPs) to the original GATT in 1948.  The CPs met every six months to discuss a range of trade problems, and dealt with trade disputes.  Every few years, larger negotiating sessions or “rounds” were held to deal with new issues, or renew efforts to further reduce tariffs.
At the 1960 Dillon Round, GATT covered $4.9 billion worth of trade involving 45 countries.  By the beginning of the Uruguay Round in 1986, GATT covered $3.7 trillion in trade involving over 120 countries.  Also, from 1950 to 1986, tariffs dropped 35% every round (about every five years).
Over the years, GATT evolved to cover more issues and assume greater responsibility.  With tariffs falling substantially, countries turned their attention to combating non-tariff trade barriers that were hurting world trade.  
CPs dramatically increased the breadth of GATT trade activities by negotiating “Codes” during the Tokyo Round in 1973-79.  These Codes covered non-tariff measures that distorted trade including subsidies, government procurement, and the widespread use of product standards to block trade.
At the start of the Uruguay Round, no-one expected it to give birth to a much-expanded trade organization, covering a host of new subject matter.  More than 120 countries participated in the Uruguay Round, the largest and most complex trade negotiations ever.  The results of the Uruguay Round negotiations were formally signed in Marrakesh, Morocco on 15 April, 1994 and the World Trade Organization (WTO) was born.
Whereas GATT had mainly dealt with trade in goods, the WTO and its two dozen corollary agreements covered a much broader range of activities including trade in services, investment, subsidies, standards, safeguards, market access, and intellectual property (inventions, trademarks, and designs).
It launched a first rate dispute settlement mechanism, which many experts consider the best system for settling economic disputes in the world.  Where GATT cobbled together a tiny secretariat over time, the WTO Charter set up a full-fledged international organization.  Countries still control the overall WTO process, but there is now an international organization to propel issues forward and manage the overall system governing international trade.
Principles of the WTO Trading System
World Trade Organization (WTO)
Principles of the WTO Trading System
WTO establishes a framework for national trade policies.  Five core WTO principles are especially important to Afghanistan.
Principle 1: Non-Discrimination
Fundamentally, WTO is built on a foundation of non-discrimination which has two major components: the Most Favored Nation rule and the National Treatment Policy.
Most Favored Nation Rule
The Most Favored Nation rule (MFN) has been a main feature of international trade policy for a long time.  The Most Favored Nation rule prohibits discrimination between like products originating in, or destined, for different countries.
Once Afghanistan joins WTO, all 159 other members must apply to Afghan exports the best treatment that they apply to the goods of any other WTO member country.  This will be an advantage for Afghan exports.
MFN treatment covers both discrimination de facto and de jure.  It does not matter if a measure legally treats goods from all countries the same, if the goods from one country are in fact given treatment less favorable than goods from another country, discrimination applies.
MFN covers all goods, bound or unbound (see Principle 2 below).  A country cannot select which imports get MFN treatment.
MFN treatment must be granted immediately and unconditionally.  For instance, a country cannot tie MFN treatment to certain conditions, such as importing a specific amount, or following a specific environmental standard.
There are exceptions to MFN treatment.  In fact, much of the world’s trade is not conducted in accordance with the MFN treatment obligation.  There are hundreds of bilateral and regional treaties which offer special treatment to the goods of neighboring countries or strategic partners.
Afghan exports already receive preferential treatment from many countries because Afghanistan is considered a Least Developed Country.  Preferential treatment is an exception to the MFN principle.  However, preferential treatment is granted at the discretion of the granting country, meaning that it can be removed from the special treatment anytime.
By contrast, MFN treatment is guaranteed to all WTO member countries and cannot be removed.  For this reason, joining WTO and getting MFN treatment for Afghan exports will be such an important advantage for Afghanistan.
National Treatment
National Treatment means that foreign imported goods, after they cross the border, should be treated no less favorably than domestically-produced goods.  The underlying rationale behind national treatment is to ensure that tax and domestic regulation are not used to restrain trade.
The national treatment obligation is found in Article III of GATT, 1994.  It compels member states to avoid using taxes or regulations so as to afford protection to domestic production.  For instance, the government of Afghanistan cannot put a special tax on foreign cement in order to protect Afghan-produced cement.
National treatment only applies after imported goods have crossed the border.  Foreign imports are obviously subject to tariffs at the border. Additionally, national treatment only applies to government measures.  National companies like banks or manufacturers are free to give better treatment to special customers.
Like Most Favored Nation (MFN) treatment, national treatment applies to all products, not just bound products.  Incentives for importing manufacturers to source their inputs locally or other domestic content rules are strictly forbidden.
In practice, national treatment raises many issues for governments around the world.  There are many legitimate regulatory measures a government would like to place on imports.  For instance, these could relate to health or environmental protection.  Article XX of GATT, 1994 allows a government to place restrictions on imports for listed reasons such as human, animal or plant life and health, protection of national treasures, protection of public morals or the conservation of natural resources.
These exceptions to national treatment cannot be disguised restrictions on trade.  A similar type of constraint has to be applied to the locally-produced product as well or a WTO panel will ultimately consider it as a disguised restriction on trade.
The WTO has not permitted countries to place even modest restrictions on imports for reasons not enumerated in Article XX.  Therefore, taxes on foreign gasoline for environment protection goals, a ban on advertising foreign cigarettes, or a tax benefit for advertisers in local magazines to protect national culture, were all considered inconsistent with the WTO national treatment obligation.
WTO panels especially look at whether a measure has given protection to a local industry in determining if there’s been a breach of the national treatment obligation.
Other than agreed during tariff negotiations, the Afghan government will not be able to put restrictions on imported goods in order to afford protection to domestic industry.
Principle 2:  Binding and Enforceable Commitments
Tariff commitments are made by WTO members during trade negotiations.  These negotiations are bilateral (one country to one country) during the accession process, and then become multilateral (all countries together) after a country has joined WTO.
When a country accedes to the WTO, these commitments are listed in a schedule with ceiling bindings or maximum tariff rate. A country cannot exceed these bound rates without negotiating with its trading partners.  It could mean compensating them for loss of trade.  If satisfaction is not obtained, the complaining country may refer the matter to the WTO dispute settlement body.

Principle 3:  Transparency
WTO members are required to publish their trade regulations and to make sure any decisions affecting trade are notified to other WTO members and to the WTO Secretariat itself.  The WTO also has a Trade Policy Review Mechanism (TPRM) which periodically reviews the laws and regulations of a WTO-member country.
Principle 4:  Single Undertaking
All WTO agreements are held together as a single undertaking.  This means that member countries cannot selectively choose which agreement they will join.  The WTO, and all of its agreements, is a single package that member states must join on an all or nothing basis.
Principle 5:  Safety Valves
In certain circumstances, governments are allowed to restrict trade.  For instance, under the Agreement on Safeguards, a country is allowed to restrict temporarily products from which a surge in imports caused or is threatening to cause serious injury to a specific domestic industry.
Voting System
The WTO operates on a one country, one vote system, but actual votes are rarely taken.  In fact, there are only limited cases where a vote could be taken.  Decision making is by consensus.  The advantage of consensus decision-making is that it encourages efforts to find the most widely acceptable decision, and member countries are more likely to abide by a rule they agreed to.
The main disadvantages include large time requirements and many rounds of negotiation to develop a consensus decision, and the tendency for final agreements to use ambiguous language on contentious points that makes future interpretation of treaties difficult.
World Trade Organization (WTO)
The World Trade Organization (WTO) is the pre-eminent global trading organization.  It regulates international trade and more than 150 countries have agreed to WTO trade rules.
These rules attempt to reduce trade barriers among countries so that goods and services can be exported efficiently and more cheaply.  Additionally, WTO also helps to resolve trade disputes among member countries.
Joining WTO will integrate Afghanistan into the global economy, increase trade, create jobs, and allow Afghans to import products at a lower price.
The WTO also serves to make global trade rules more stable, secure, and predictable.  All WTO trade rules are agreed upon by governments, decisions are by consensus, and member countries decide on every issue.
Acceding to WTO will give Afghanistan a voice at the global trade negotiating table and allow Afghanistan to rebuild its traditional role as a vibrant trading nation.
Dispute Resolution
World Trade Organization (WTO)
Dispute Resolution
Trade relations often involve conflicting interests between countries.  The dispute resolution procedures are a hallmark of the WTO.  Without a means of settling disputes, the rules-based system of the WTO would be less effective because the rules would not be enforced.
All rights and obligations are enforceable through the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes.  Any WTO member country can ask a panel of three judges to rule that another member country has violated a WTO obligation.
A panel will decide if a domestic measure (for example, national law or regulation) is inconsistent with a WTO obligation.  Once a measure has been determined to be in violation of a WTO obligation, the offending country must move to make the measure compliant with WTO rules.
In the event of non-compliance, the panel can recommend compensation, and the suspension of trade concessions until the measure in violation of a WTO obligation is removed.  There are strict timeframes for the various stages of the panel’s work to ensure that cases are not dragged out.
 The WTO’s dispute settlement provision will be especially important to Afghanistan.  As one of the world’s twenty landlocked Least Developing countries, it suffers from a litany of trade-related problems.  Transit and trade facilitation are often thorny issues with its neighbors.  
At the same time, trade will be critical to Afghanistan’s economic growth and development, particularly after the transition of international forces, now scheduled for 2014.  The WTO’s dispute settlement agreement will allow Afghanistan to seek redress and compensation for any violations in WTO legal rules by its neighbors and trading partners.