July 2016 marked the historic moment when Afghanistan became the 164th member of the World Trade Organization (WTO). Director Abdul Safir Sahar elaborates on what this means for the future of Afghanistan.

How does accession to the World Trade Organization (WTO) impact Afghanistan?

The Afghan companies that will benefit from WTO membership will predominantly be those companies with current and potential capacity to export. The WTO provides guaranteed, secured, and non-discriminatory market access for Afghan producers in the markets of WTO countries, which constitute more than 95 percent of world trade in goods and services. The WTO will also guarantee transit for Afghan vehicles and goods through the territory of WTO countries.

The overall economy is expected to gain from WTO accession, as well. The fact that Afghanistan became a WTO member — with a sound legislative framework in place and access to markets — will encourage investment, which will create jobs, increase real income and standards of living, enlarge the tax base, and lead to economic growth. Particularly, WTO rules will create a favorable business environment, which will reduce the cost for Afghan businesses and make them competitive domestically and abroad.

How will WTO membership protect Afghanistan from dumping, subsidizing, and excessive imports? How will imports be affected?

Dumping, or exporting products at a price that is lower in the foreign market than the price charged in the domestic market, can cause material injury for Afghan producers. As a WTO member, Afghanistan is allowed to apply anti-dumping duties for additional protective measures. In case of subsidization, which can also cause material injury to Afghan producers, Afghanistan is allowed under the WTO to apply countervailing duties for additional protective measures.

In case of sudden and excessive imports, which can also be harmful to Afghan producers, Afghanistan can apply safeguard measures by exceeding the WTO bound rates to allow protection for a temporary period of time (three years renewable).

Overall, imports are not likely to be significantly affected, given that most tariffs will not be changed. There might be a slight increase in the importation of information technology products, which will be good from an economic development perspective, as it will increase productivity and reduce costs of doing business and thus increase competitiveness.

How will WTO membership impact investment in Afghanistan? Which exports will be most affected by WTO membership, and how will membership affect small- and medium-sized enterprises (SMEs)?

In general, WTO membership is expected to increase exports across all sectors in varying degrees. There will be an increase in production in companies with current and potential capacity to export. Investment is expected to increase, given improvements in the business environment based on WTO rules, access to other markets, and ease of transit. Sectors in which investment is likely to occur are the value-added industry in both the mining and agricultural sectors, as well as construction materials and carpets. There will be a need to identify the comparative advantage of Afghanistan to discover where new production, particularly manufacturing, can be developed, given WTO access.

Under the WTO, it will also be possible for Afghanistan to run an infant industries development policy, or use tariff protection to develop infant industries. First, bound rates (maximum rate of tariff allowed by WTO to any member state for imports from another member state) offer a significant policy space. Second, for most key industries where Afghanistan will likely develop infant industry, the rates were left unbound — meaning Afghanistan can decide on any level of protection it wishes. Third, Afghanistan, as a WTO member, can negotiate higher bound rates (to apply permanently) for goods concerning certain industries that it wishes to develop.

Agricultural exports are the primary beneficiaries from WTO membership. The markets of WTO countries can no longer prohibit, restrict, discriminate against, or impose any arbitrary measures on Afghan agricultural exports. In addition, transit will have to be facilitated which will transport fresh Afghan agricultural exports much more quickly to destination markets.

WTO members have obligations to help Afghanistan, as a Least Developed Countries member, to improve food safety and quality standards of Afghan agricultural products. This will make these products more competitive in Afghanistan and export markets. Additionally, the WTO requires countries to recognize certification and testing procedures and encourages mutual recognition. This will, in turn, reduce costs of exporting agricultural products and facilitate entry to WTO markets.

Regarding SMEs, the application of the WTO rules in Afghanistan are expected to reduce the cost of doing business for SMEs and will facilitate trade transactions by SMEs. In this way, SMEs can focus their limited resources to improve production and capacity.