Afghanistan - Articles

Afghanistan in SAFTA: Issues and Implications

Regional organisations like the E.U and ASEAN are dealing with widening membership and deepening issues in their mid-life. As SAARC enters its third decade it has included Afghanistan in the regional grouping, subject to a completion of formalities. In the E.U, such formalities, known as the Copenhagen criteria, include - among other requirements - a commitment to democratic governance and a market economy.

Afghanistan is  geographically, historically and culturally close to the Indian sub-continent and is making a gradual transition from a war economy to a peace economy. A liberal commercial policy and greater regional integration will have a salutary effect on its economic growth and institutional stability - a proposition enunciated by proponents of the "second image reversed effect". Preventive measures like international political and military presence and economic assistance have suppressed conflict. However, since international assistance fluctuates with strategic objectives, Afghanistan needs facilitative measures like  regional integration for peace building and long-term economic growth. Trade, for sure, ensures larger welfare gains for a nation than aid.

The IMF estimates that Afghanistan can grow at 10 -19 percent per annum with a non-drug economy -a goal enshrined in the 2004 government strategy document titled "Securing Afghanistan's Future". According to the ADB, 43.3 percent of Afghanistan's exports and 32.8 percent of Afghanistan's imports in 2004 came from India and Pakistan. Since 2001, Afghanistan's imports and exports have increased around 2.7 times. India and Pakistan, as the two important pillars of SAFTA, can play a critical role in Afghanistan's rebuilding. Its economic links with the Central Asian Republics and Middle East are still preliminary and its membership of the Economic Cooperation Organisation (ECO )- involving some countries of both regions - has not yielded tangible gains.

Article 7(6) of SAFTA stipulates that imports from LDCs will be duty free by 2008; hence, Afghanistan's exports would benefit from this dispensation. The Special and Differential (S & D) mechanism to enhance exports from LDCs, Mechanism for the Compensation for Revenue Loss (MCRL) due to implementation of SAFTA concessions and the Technical Assistance clauses in SAFTA can facilitate Afghanistan' economic reconstruction and promote state capacity building.

Afghanistan is rich in natural resources like natural gas, petroleum, coal, copper, iron ore and precious stones, which can be exported using the SAFTA concessions. Currently, Afghanistan has 1.6 trillion cubic feet of natural gas, 95 million barrels of oil and 400 MT of coal - critical inputs for a possible resolution of the regional energy problem. South Asia, in turn, will be linked by land with the Central Asian Republics to facilitate trade and energy security initiatives.

India had made a determined effort to secure Afghanistan's entry into SAARC and this is a major success for Indian diplomacy. Both India and Pakistan supported Afghanistan's membership, albeit from different viewpoints. Pakistan wants to keep Afghanistan within its sphere of economic influence, step up economic cooperation through trade agreements and provide a fresh impetus to the Afghanistan Trade and Transit Agreement (ATTA). India's backing of Afghanistan's derives from its policy of supporting the post-Taliban democratic government in Kabul and its view that Afghanistan is a key link to energy rich Central Asia. India has already signed a Preferential Trading Agreement (PTA) with Afghanistan in 2003 and Prime Minister Manmohan Singh stressed on an Indo-Afghanistan strategic partnership during his visit to Kabul in October 2005.

SAARC, like ASEAN, follows a consensual decision making principle and Pakistan might pose obstacles to Afghanistan's smooth entry into SAFTA. It does not enjoy good relations with the current Afghan regime as compared to its friendly relations with the earlier Taliban regime. The Afghan administration, has accused Pakistan of supporting the Taliban and not doing enough to combat terrorism. India's active participation in rebuilding Afghanistan , where for instance - by providing $80 million assistance for constructing a road for improving Afghanistan's trade access to Iran, is seen in Islamabad as intended to wean Afghanistan away from Pakistan.

Pakistan holds that Afghanistan has not managed to develop its fiscal and tariff structures, with the intention of putting pressure on Afghanistan. India has been demanding transit facilities through Pakistan to allow its goods to reach Afghanistan and the Central Asian Republics. Indo-Afghan trade, currently around $212 million a year, is about 30 percent of Pak-Afghan trade. Pakistan states security reasons for not allowing transit, as it fears this move will further tilt the South Asian balance of power towards India and place Kabul firmly within New Delhi's sphere of influence. Such myopic views will hinder South Asian economic integration. Article 8 of SAFTA posits that states shall take steps to ensure transit facilities for efficient intra-SAARC trade, especially for land-locked countries.

Afghanistan's entry into SAFTA will promote its economic growth and induce greater interdependence amongst South Asian countries. SAARC has already started debating services sector liberalisation, poverty alleviation and counter-terrorism measures from which Afghanistan can benefit in future.