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Cablegate: Commerce Depmin Farhadi On Wto Accession, Etc.

VZCZCXRO5942
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #3211/01 3500528
ZNR UUUUU ZZH
P 150528Z DEC 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 6424
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0702
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 003211

DEPT FOR SCA/FO, SCA/RA, AND SCA/A
DEPT PASS AID/ANE
DEPT PASS USTR FOR DEANGELIS AND DELANEY
DEPT PASS OPIC FOR ZAHNISER
DEPT PASS TDA FOR STEIN AND GREENIP
USOECD FOR ENERGY ATTACHE
CENTCOM FOR CSTC-A
NSC FOR JWOOD
TREASURY FOR LMCDONALD, ABAUKOL, BDAHL, AND MNUGENT
OSD FOR SHIVERS
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH

SENSITIVE

SIPDIS

E.O. 12958 N/A
TAGS: ECON ETRD EFIN EAID EINV ENRG WTO AFPK
SUBJECT: COMMERCE DEPMIN FARHADI ON WTO ACCESSION, ETC.

REF: A) KABUL 2810 B) KABUL 3086

1. (SBU) Summary and Comment. Afghan Deputy Commerce Minister
Farhadi says launching the WTO accession process is one of his
highest priorities, but he expressed uncertainty about finalizing
Afghanistan's Memorandum of Foreign Trade Regime by year-end, citing
capacity weakness at the ministry. He complained about trade-policy
disagreements between the Commerce and Finance ministries and about
Parliamentary opposition to privatizing state-owned enterprises.
Farhadi said he aimed to make Commerce a force for economic and
private sector reform but could only succeed with lots of external
assistance. While help for trade policy and private sector
development, some of it for the Commerce Ministry (MOCI), is indeed
needed and on the way, we will proceed carefully given MOCI's long
history of obstructing economic reform. DepMin Farhadi, in
particular, has in other positions been an unreliable partner to the
United States and the international community despite considerable
external assistance. End Summary and Comment.

USAID'S NEW TRADE PROGRAM

2. (SBU) EconCouns and USAID Economic Growth (EG) Office chief met
December 3 with Deputy Minister of Commerce and Industries Adib
Farhadi to discuss a range of trade-related issues. EG chief
described USAID's forthcoming Trade and Accession Facilitation for
Afghanistan (TAFA) program. This is a successor to USAID's Economic
Governance and Private Sector Strengthening project, which ends in
February 2009 and also aims to build capacity at MOCI. EG chief
said the U.S. considered it important to split out trade and customs
work for special emphasis in the new program. It would have three
components: trade policy liberalization, 2) trade facilitation,
including implementation of Reconstruction Opportunity Zone
preferences, and 3) public outreach on trade issues.

3. (SBU) EG chief said USAID hoped to complete the Scope of Work in
a few weeks and put it out for bid by contractors, and hoped to
avoid a gap between old and new programs supporting MOCI. Farhadi
welcomed the new program and urged swift commencement.

WTO ACCESSION

4. (SBU) Farhadi said launching Afghanistan's WTO accession process
was one of his highest priorities. On a recent visit to Geneva, he
said, WTO officials expressed disappointment with the GIRoA for the
long delay in submitting its Memorandum of Foreign Trade Regime
(MFTR). The Netherlands has resigned as informal champion in Geneva
of Afghanistan's application. He said the MFTR is nearly completed
but must be revised to conform to the Afghan National Development
Strategy. Given capacity weakness at MOCI, he was not sure he would
be able to finalize and deliver the MFTR to Geneva by year-end, as
Minister Farhang had earlier forecast. Farhadi noted that WTO
accession remains politically controversial, and Farhang wants to
avoid criticism of the GIRoA from Parliament. Although the original
version of the MFTR received approval, President Karzai stated that
the revised document should be approved again by the full cabinet
before submission to Geneva. However, Farhadi said he hoped to
proceed after securing buy-in from just a few key ministries and
donors.

5. (SBU) EconCouns noted that donors and MOF officials were making
progress on setting up an "economic reform window" in the
Afghanistan Reconstruction Trust Fund (ARTF). One benchmark donors
were likely to ask the GIRoA to meet was submission o the MFTR to
Geneva by a date certain. Farhadi welcomed this development and
urged that donors reward achievement of policy benchmarks with
provision of discretionary funds - exactly what the ARTF reform
process contemplates. EG chief noted that since the current

KABUL 00003211 002 OF 003


contractor has seen the MFTR, the document should be available to
all prospective bidders on the new project upon request. Farhadi
had no objection.

TRADE POLICY "STUCK"

6. (SBU) Farhadi lamented that the Afghan government "has no trade
policy" and donors sometimes give conflicting advice. As an example
of the former, he said the GIRoA skipped two recent SAFTA experts
meetings because MOCI and MOF could not agree on what products to
put on Afghanistan's sensitive list. MOCI, he said, favors more
liberalization (fewer sensitive items) while MOF says cutting import
tariffs too quickly will reduce customs revenues and cause the GIRoA
to miss targets under its IMF program. The IFIs, Farhadi said,
support MOF in this dispute. When the two ministers bring their
disagreement to President Karzai, he tells them to work it outthemselves, but they can't. EconCouns urged Fahadi to regard WTO
accession as the central element of Afghan trade policy and said
there was no disagreement among donors that WTO membership was
desirable for Afghanistan.

REGIONAL COOPERATION

7. (SBU) Farhadi was more upbeat about the "tremendous cooperation
with Pakistan" in evidence at the recent meeting of the Afghan-Pak
Joint Economic Commission (ref B). He sought USG support in the
GIRoA's bid to enable Afghan trucks to transit Pakistan en route to
India, and said the GIRoA was considering a new MOU on trade with
India that would be necessary if Pakistan allowed such transit. At
our urging, Farhadi said the GIRoA would be willing to send a
delegation to Islamabad in January to negotiate a new bilateral
transit agreement despite the Regional Economic Cooperation
Conference (RECC) having been postponed. He said the USG should
also give diplomatic support for early transit talks. In view of
the RECC's postponement, Farhadi said he was recommending to
President Karzai that he propose holding the RECC in a country other
than Pakistan.

CENTRAL BUSINESS REGISTRY

8. (SBU) Farhadi said he was concerned that MOCI would not be able
to maintain the newly-lunched, USAID-funded Central Business
Registry (CBR) after USAID contractors now running it depart in
February. MOCI-paid employees do not know how to run the system,
and contractors have not passed this knowledge to these employees to
ensure sustainability. Farhadi said he hoped eventually to move CBR
out of the MOCI building and make it an independent or loosely-tied
service agency that could generate its own revenues. We noted the
importance of exending CBR to the provinces and that this could be
another benchmark for the ARTF reform window. Farhadi welcomed this
and said he hoped to extend CBR at least to major provincial cities
in 2009.

RESTRUCTURING THE COMMERCE MINISRY

9. (SBU) Farhadi said he hopes to restructure and streamline MOCI,
which he said has not changed since the Soviet occupation. A new
organizational structure would enable the ministry to eliminate
duplication and be more market-oriented. MOCI also needs improved
capacity to monitor and evaluate progress on implementing ANDS
commitments related to private sector development. He suggested
that restructuring MOCI be made an ARTF reform-window benchmark.

U.S. EXPORT CONTROL ASSISTANCE

10. (SBU) Farhadi said MOCI lacked funds to operate new equipment
the EXBS program would deliver later this month to raise export

KABUL 00003211 003 OF 003


control capacity. He said MOCI wants this program to succeed but
faces a constraint on IT support. EconCouns undertook to look into
the matter.

PRIVATIZATION BACKLASH

11. (SBU) Farhadi said Parliament has passed a regulation under the
State Owned Enterprise law requiring that all liquidations be
approved by Parliament. Workers at such enterprises who fear they
will lose their jobs have written Parliament complaining about
Farhadi's support for privatization. He must now appear before a
Parliamentary committee and explain his position. Farhadi warned
that anti-reform sentiment will increase as elections next year
approach and appealed to the USG to "be patient with us."

HARRASSING FUEL IMPORTS

12. (SBU) EconCouns informed Farhadi about restrictions placed in
recent days on fuel imports by a U.S. military contractor at the
northern border city of Hayretan in violation of the bilateral
DoD-GIROA agreement governing such imports. FLGE, the government's
fuel import agency under MOCI, would allow the contractor to use its
own off-loading facility at Hayretan rail depot only if it submitted
to a spurious safety inspection costing $15,000. EconCouns noted
the history of corruption at FLGE and stressed the urgency of
resolving the matter as the fuel was needed for the war effort.

13. (SBU) Farhadi said he knew of the problems at FLGE and had tried
to effect change, but without success. An international auditing
firm hired to examine FLGE was about to give up on the job because
FLGE would not share its books (comment: if it even has any).
Meanwhile, at the last cabinet meeting, Karzai had instructed FLGE
to import $10 million worth of fuel. The President, Farhadi said,
is frustrated that the price of fuel in Afghanistan has not fallen
as much as world prices. "Unwritten price controls" are now in
effect, two gas stations have been closed for over-charging, and
Karzai has authorized the rescinding of traders' licenses. Farhadi
undertook to look into the problem at Hayretan and later the same
day informed EconCouns that the shipments in question could be moved
and without any safety inspection at the contractor's facility,
facts later confirmed by the contractor. (Comment: while Farhadi
was keen to take credit for freeing the shipment, post understands a
visit to Hayretan the same day by uniformed U.S. Transcom officers
probably played a more important role.)

COMMENT

14. (SBU) Farhadi's comments and his focus reveal much of what is
wrong with MOCI. Beyond its lack of capacity, we question its
priorities. Launching the WTO accession process is not unimportant
but may not bring tangible benefits for years to come. Farhadi and
the MOCI also need to focus on commercial laws that have now
languished for over 18 months owing to MOCI's inability and lack of
commitment to getting them through, and in some cases even to,
Parliament. They also need to focus more on implementing other
long-standing GIRoA commitments to improve the climate for private
business and stop linking progress there to infusions of additional
external aid. Farhadi is a smooth spokesman, skilled at admitting
his new ministry's shortcomings, which he knows we also recognize.
Unfortunately, he is stronger on talk than walk.

WOOD

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