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July 17, 2008

Trade Facilitation Ideas Aim to Help Those Who Need Trade Most–But will it work in the very worst of scenarios?


On July 11th I had the privilege of attending CATO’s Capitol Hill briefing on the merits of trade facilitation for encouraging economic growth. on behalf of the Minaret of Freedom Institute. Cato trade policy analyst Daniel Ikenson and World Bank economist Simeon Djankov touted trade facilitation (TF) policies—including streamlined administrative procedures and infrastructure—as beneficial for both industrialized countries as well as developing ones. The benefits of trade for developing countries are unquestionable. I agree, it would therefore make sense to pursue trade facilitation policies geared at making the most of that beneficial trade.

However, from what I gathered from Friday’s presentation, Ikenson and Djankov consider trade facilitation the decisive factor in a country’s ability to develop, and I wonder how well the argument for trade facilitation stands when the very countries needing the benefits of trade most lack in the first place those policies and infrastructures Ikenson and Djankov suggest they amend. Take, for example, Afghanistan: years of ongoing war and instability have certainly mutilated structures of both trade and government.

First, the administrative structure, where it exists at all, is fractious at best. Charged with the assisting the reconstruction of a new Afghan government, the U.S. has stressed security issues and thus promoted a strong, Kabul-centered government. In an ethnically divided country where regional rule has historically prevailed, it comes as no surprise years later to see the lack of affinity afforded a central government that has too often resorted to corruption and favoritism. With such little confidence in a national government, how can one expect any liberal internal trade policies pursued to be uniform and, more importantly, respected?

Second, after years of war, there exists little infrastructure at all to speak of, and any improvements would quite literally be made from the ground up. Furthermore, the geography of the country itself creates additional challenges to a policy of development. The Hindu Kush mountain range, located in the very middle of the country, is the main geographic feature inhibiting transportation of goods. An internal road system is lacking. Afghanistan does have a highway network encircling the mountain range. However, much of the so dubbed the “Ring Road” passes through Taliban territory, and after years of war and neglect conditions have deteriorated so much that one can only drive 10 km/hour in some sections.

Simply speaking, the geographic and political situation of Afghanistan is a trading nightmare.

While the U.S. has contributed $37 million toward a bridge spanning the Panj River to facilitate trade between Afghanistan and Tajikistan, ease of trade between Afghanistan’s North and South areas has yet to be addressed. While top-down security operations are underway to counter the rebirth of Taliban forces, resistance is still growing and conditions are still not friendly for trade. While public/private partnerships might help build new infrastructure, it is hard to imagine that the average Afghan with a $1000 GDP per capita can afford to contribute their income to the massive government expenditures required by Ikenson and Djankov’s recommendations. While foreign investment, as an alternative, might contribute to the construction needed, it is hard to imagine still that any company in its right mind would invest in a nation plagued by instability, or that any foreign government would find reason to voluntarily abet easier shipment of Afghanistan’s opium exports.

So how would one even begin to consider trade facilitation policies? Citing Robert Guest’s experience following a beer truck that was horrendously stalled in Cameroon due to inefficient checkpoints and corrupt officers, Ikenson obviously read The Shackled Continent. However, he must have forgotten the take-home message: a country needs good governance.

The opium poppy is not a safe crop option for the Afghan farmer. Cultivation of it continues, however, because it is simply more profitable than grapes in the current market. Bad government is the same way. It, too, continues because someone along the line profits. In the case of Afghanistan, it is the American-installed group ruling Kabul that stands to gain. In my conversation with Djankov after the lecture, he insisted that Afghanistan has untapped opportunities in dried fruits and vineyards, as well as natural resources in marble and gold. If anyone should ever expect those to be viable economic activities, they should first consider a government with a federalist-style configuration and strong local autonomy to answer questions of security and government accountability.

Trade facilitation is important but it is by no means a comprehensive solution to developmental challenges. Rather, a base of infrastructure and governance must first exist before one can expect TF policies to be implemented fruitfully.

Kasia Rada
Minaret of Freedom Institute Intern

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