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his advocacy paper is the result of a series of international consultations conducted by the EastWest Institute (EWI) under the name of Afghanistan Reconnected Process and co-financed by the Governments of Abu Dhabi and Germany. Since 2012, EWI’s Afghanistan Reconnected Process has focused on promoting the win-win potential of enhanced regional economic and political cooperation to foster not only 1 development but security and stability in Afghanistan and Greater Central Asia. EWI launched this initiative as Afghanistan approached its “Decade of Transformation”, marked by the conclusion of the ISAF mission and the need for radical political and economic reforms, which will affect the future of this country at the crossroads of Asia. Recognizing the challenges entailed by this transition for the region as a whole, as well as the interdependence of security and development, participants in the process have sought to determine and promote opportunities for economic growth both in Afghanistan and in the region. The Afghanistan Reconnected consultations have involved private sector leaders from Greater Central Asia and have benefited from their expertise and direct experience with the challenges of regional trade, transit and investment. Moreover, members of parliament and government officials from the region have been engaged throughout the process to establish a strong connection between the insights from the private sector and the adoption of business and trade-friendly legislation in the concerned countries. In its current stage, “Businesses Take Action to Unlock Trade in the Region,” the Afghanistan Reconnected Process aims to build sustainable partnerships between the public and private sector in Greater Central Asia. This goal is based on the conviction that the private sector can play a major role in helping to shape public policy in areas such as trade and economy, while concerned governments have the ability to create an enabling regulatory framework for entrepreneurship and economic cooperation. With this objective in mind, EWI is committed to undertaking comprehensive advocacy and outreach missions to the major capitals of the region to discuss the implementation of a set of actionable recommendations developed by the participants in the Afghanistan Reconnected Process in 2014. The first of these missions took place in Islamabad, Pakistan, in March 2015 and received much attention and follow up from senior 2 government officials. This document includes the conclusions resulting from the 2013-2014 Afghanistan Reconnected consultations as well as the preliminary findings of EWI’s first mission to Pakistan. In light of India’s role in the region as a political actor and an economic driving force, EWI is pleased to present its recommendations to concerned representatives of the Indian government in the framework of its Advocacy and Outreach Mission to India (June 14-16, 2015). This paper sets the ground for the discussions during the event and aims to propose steps that would contribute to making the region more secure and prosperous while developing its resources and skills in the spirit of cooperation.
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For the purpose of this paper, the notion of Greater Central Asia includes not only Afghanistan’s immediate neighbors, but also major regional players such as India. 2 A full report on the Advocacy and Outreach Mission to Pakistan is available at: http://www.ewi.info/idea/ewimeets-pakistani-president-and-ministers.
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he platform of experts established through the Afghanistan Reconnected Process has the clear advantage of producing first-hand knowledge of challenges and opportunities for regional economic cooperation in Greater Central Asia. Based on this expertise, the Afghanistan Reconnected consultations have identified three main priority areas for reforms:
Cross-border trade and transit Transport infrastructure Energy trade and transit In these fields, the most immediate challenges can be found at the national level and consist of inadequate regulatory frameworks and weak institutions. Issues such as lack of transparency and accountability, ineffective rule of law and inadequate enforcement mechanisms for property rights hinder the possibility to unlock the region’s economic potential. Capacity-building remains a crucial need of Afghanistan, as well as of several of its neighbors and regional organizations operating in the area. As indicated in the conclusions of the 2014 Afghanistan Reconnected Istanbul Conference, the transfer of best practices and technical knowhow from countries with pertinent experience, such as Turkey, could help 3 build political trust and improve regional trade.
At a regional level, a common economic vision and political will are missing due to historic and geopolitical factors. Political disputes and insecurities influence national and foreign policies in the entire region, preventing the fruits of regional cooperation from being harvested. Regional projects such as the Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI) and the Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) depend on strong leadership, commitment and a shared vision to succeed and contribute to the region’s development. As suggested at EWI’s Istanbul Conference, economic trust-building initiatives such as the “Industry for Peace Initiative” could help overcome insecurities 4 and diffidence by bringing about quick and concrete results and building momentum for further cooperation. Participants in the Afghanistan Reconnected Process share the view that Afghanistan has a great potential for business and investment, dependent on improved and efficient trade, transit and custom management procedures. Trade policy liberalization, reforms in trade logistics and road rehabilitation, especially within Afghanistan, would create an enabling environment for trade, private investment and entrepreneurial development, with significant benefits for Afghanistan and its neighbors in the medium term.
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As highlighted during the Afghanistan Reconnected consultations, the results of increased regional transit and trade will boost private investment and growth in the short- to medium-term, and will help to realize the longterm vision of Afghanistan as a trade and transit hub in Greater Central Asia. Furthermore, the entire region will perceive that sustained stability in Afghanistan made possible by open-trade and economic growth, facilitated by supportive public policies, institutions and infrastructure investments, will foster development and reduce future economic insecurity.
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For more information on the EastWest Institute’s 2014 Istanbul Conference, please visit: http://www.ewi.info/idea/afghanistan-reconnected-businesses-take-action-unlock-trade-region. 4 The “Industry for Peace Initiative” is a joint project by the Union of Chambers and Commodity Exchanges of Turkey (TOBB) and the Economic Policy Research Institute (TEPAV). See more at: http://www.tepav.org.tr/upload/files/1265709030r8671.Industry_for_Peace_Initiative.pdf.
Participants in the Afghanistan Reconnected process strongly believe that private sector-led reforms and projects are central to the development of regional cooperation in Greater Central Asia. The private sector can ignite change and show the immediate results of increased cooperation, acting as a catalyst for the implementation of reforms by policy-makers in the region.
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espite current obstacles, opportunities for trade, economic growth and cooperation in Greater Central Asia are immense and can be seized through enhanced partnerships between the public and private sectors of the concerned countries. Starting from this assumption, two years of Afghanistan Reconnected consultations resulted in a set of recommendations aimed at promoting short- and long-term policy changes in the fields of cross-border trade and transit, transport infrastructure and energy trade and transit.
a) Cross-border Trade and Transit Trade facilitation is a complicated process, as it entails intervening in and reforming policy areas that are politically sensitive for some countries in the region. However, it is fundamental to promote more open trade policies, as restrictive measures are counterproductive, and push trade into the informal sector instead of protecting domestic markets. In this respect, the Afghanistan Reconnected consultations led to the identification of the following short-term measures (summarized in Table 1): 1.
Establish a Regional Business Advocacy Council comprised of influential business leaders from Afghanistan, Pakistan, India, Central Asian Republics, Turkey and Iran to advocate for standardized transportations fees (container guarantees, insurance guarantee for customs duties, insurance of goods, truckers’ wages and container security fees).
2.
Establish model cross-border free trade zones on the borders of Afghanistan-Pakistan, Pakistan-India, Afghanistan-Iran and/or Afghanistan-Tajikistan, where people and goods can move freely. This would generate new employment opportunities in the border areas and would also help separate the informal trade in goods from narcotics and crime by creating incentives (low tax, duty-free trade) for informal traders to declare their products. Border guards and customs officials would be better able to expedite border processes, concentrate on stopping criminals and control large cargos, rather than dissipating efforts and resources with small individual traders.
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Adopt a generous long-term, multi-entry visa regime for businesspersons for easy regional travel.
4.
Undertake regional entrepreneurship and skill development exchange programs (sponsored and supported by governments, national trade associations, donors / aid organizations and chambers of commerce and industry) to promote regional trade and investment opportunities.
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Adopt the Build, Maintain and Transfer Border Management Framework developed by the Union of Chambers and Commodity Exchanges of Turkey. Implement one pilot project at the Torkham border crossing point between Afghanistan and Pakistan to improve border crossing procedures.
6.
Convene leaders of banks and financial institutions from India, Pakistan, Afghanistan, Iran, Turkey and Central Asian Republics to streamline financial and trade transactions.
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During the recent visit to Afghanistan of Pakistani Minister of Commerce, H.E. Eng. Khurram Dastgir Khan, President Ghani promised that all necessary arrangements will be made for the issuing of multiple-entry visas for Pakistani businesspeople and skilled workers on a reciprocal basis. Source: Raja Asghar, “NA told of major steps to help Afghan trade�, Dawn, April 28, 2015. http://www.dawn.com/news/1178598.
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Develop the Computerized Custom Clearance System (WeBOC) between Afghanistan and Pakistan to help bring transparency and enable importers and customs authorities in both countries to trace cargo exports to Afghanistan, help smooth the transit of goods across borders and minimize clearance time.
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Amend Pakistan’s custom procedures for the transit of break-bulk minerals from Afghanistan by allowing the trans-shipment of Afghan export products at the border under customs authorities’ supervision and control.
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Expedite Afghan import transit via Pakistan by eliminating the single-bonded transport company policy. Instead, various bonded transport companies should be allowed to share carrying containers, which will address long delays and resultant port storage as well as shipping line detentions charged to Afghan importers.
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10. Expand the Afghanistan Pakistan Trade and Transit Agreement (APTTA), by concluding tripartite talks on the inclusion of Tajikistan. The agreement could also be extended to India and other countries in the region. Table 1. Short-term recommendations on cross-border trade and transit.
Challenge
Action(s) Required
Visa restrictions for businesses
Adopt a generous long-term multi-entry visa regime for businesspersons to easily move around in the region.
Bilateral arrangements: • Pakistan-Afghanistan • India-Pakistan • Tajikistan-Turkmenistan • Afghanistan-Iran • Afghanistan-Tajikistan
Cross-border smuggling/ informal trade
Establish cross-border free trade zones to offer incentives (duty-free, low tax).
Bilateral arrangements: • Afghanistan-Pakistan • Afghanistan-Iran • Afghanistan-Tajikistan • India-Pakistan
Lack of harmonized custom procedures
Adopt a single window custom clearance system.
Border administration: • Afghanistan-Pakistan • India-Pakistan • Afghanistan-Tajikistan • Afghanistan-Iran
Increase awareness of cross-border trade procedures across the region. 6
Inadequate intraregional trade and transit
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Key Players
Expand Afghanistan-Pakistan Trade and Transit Agreement by including Tajikistan and India.
Governments of Afghanistan, Pakistan, Tajikistan and India
According to the findings of EWI’s recent Advocacy and Outreach Mission to Pakistan, the problem of Afghan trucks at the Wagah border crossing has been resolved, as well as the issue of partial shipment of Afghani commercial goods via Karachi port.
Challenge Inefficient transit between Afghanistan and Pakistan
Action(s) Required Amend Pakistan’s custom procedures for the transit of break-bulk minerals cargo from Afghanistan;
Key Players Governments of Afghanistan, Pakistan and India
Expedite Afghan import transit via Pakistan by eliminating single bonded transport company policy and increasing the size of the bonded carried fleet. Lack of transparency in cargo tracking facilities at the PakistanAfghanistan border
Develop the Computerized Custom Clearance System to enhance transparency and speed up custom clearance.
Governments of Afghanistan and Pakistan; national and international logistics companies
Inadequate financial transaction policies, procedures and facilities
Convene leaders of banks and financial institutions from the region to streamline financial transactions.
EWI with support from institutional donors or governments
Limited private sector participation in regional policy discussions
Provide a leading role to the businesses from the region by forming a Regional Business Advocacy Council to provide inputs to the regional policy structure.
EWI, regional businesses, governments and donors
Lack of awareness and expertise on trade and investment opportunities across the region
Undertake regional entrepreneurship and skill development exchange programs.
Governments, national trade associations, donors, and chambers of commerce and industry in Greater Central Asia
b) Transport infrastructure Enhanced regional cooperation on transport has great potential in the region. However, improvements in this field require large-scale investments and maintenance; commitment and coordinated financial support from political leaders in the region and donors are fundamental to achieve progress in this sector. As an initial step, it may be useful to target investment to a specific transport corridor, where the benefits of cooperation could be clearly demonstrated. Donors’ assistance should be structured in a way that would maximize opportunities for cooperation. In the meantime, investment in infrastructure development should mainly be subject to policy change, as well as implementation or updating of bilateral agreements at a national level. External factors, such as the WTO accession process or existing regional cooperation bodies, could be used to coordinate and streamline national policies. The private sector could play a valuable role in the construction of large- and small-scale infrastructure projects, which would generate employment opportunities. Participants in the Afghanistan Reconnected consultations developed the following recommendations for reforms in the medium-term (summarized in Table 2):
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Donors may invest in the development and extension of Afghan railways to important seaports in the region such as Chabahar (Iran), Bandar Abbas (Iran), and Gwadar (Pakistan). The creation of targeted rail capabilities and continued road improvement are vital to the extractive industry and energy development.
2.
The Afghan government needs to establish credible institutions to ensure the maintenance of transport infrastructure. Mineral endowment and revenue from energy and transit could be reinvested in infrastructure development.
3.
Establish a regional infrastructure trust fund with contributions from India, Turkey, China, Pakistan and Afghanistan to invest in designing, developing and expanding one intra-regional transport infrastructure, connecting Central Asia with South Asia, China and beyond. Major financial institutions such as the Asian Development Bank may also contribute. Table 2. Medium-term recommendations on regional transport infrastructure.
Challenge Lack of railway infrastructure
Immature regional transport interconnectivity
Lack of credible institutions to ensure maintenance of infrastructure
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Action(s) Required
Key Players
Development and extension of the Afghan railway infrastructure to connect with key ports in Pakistan, Turkmenistan and Iran.
International Financial Institutions (Asian Development Bank, World Bank) and China
Upgrading of the Toraghundi-Kandahar broad gauge railway line with a connection to Pakistan, linking Russia and Central Asian markets with Pakistan and India through Afghanistan.
Governments of Russia, Turkmenistan, Afghanistan and Pakistan; private sector
Establishment of a Regional Infrastructure Fund.
Donors: Afghanistan, Turkmenistan, Pakistan, China, India, UN Economic and Social Commission for Asia and the Pacific, Asian Development Bank
Connect investment in Sinkiang and the China-Pakistan corridor with the trade routes planned through Afghanistan as part of the larger Silk Road Economic Belt 7 Initiative.
Governments of China, Pakistan, Afghanistan; private sector; regional organizations (Shanghai Cooperation Organization, Asian Development Bank, World Bank)
Redirect revenue from trade, transit and mineral endowment to national oversight bodies.
Afghan government
The current version of Chinese President Xi’s “One Belt One Road” initiative (OBOR) suggests a routing that bypasses Afghanistan in the north, whereas the Sino-Pakistani corridor is mainly meant to improve access to seaports at the Indian Ocean. However, the Chinese Government stresses that OBOR remains open to all countries in the region willing to cooperate. Since the start of EWI’s Afghanistan Reconnected Process, China has participated but mainly in an observing function. EWI is currently working on a new outreach to engage China more actively, including the possibility of an advocacy mission to Beijing.
c) Energy Trade and Transit The greatest prospects for long-term progress in regional cooperation lie in energy trade. An adequate and steady energy supply is vital for Afghanistan’s economic and social development. Donors are willing to invest in trans-Afghan transmission infrastructure. This will create opportunities for Tajikistan and Turkmenistan to diversify their energy markets. The successful exploitation of such opportunities for regional energy trade will build a track record of cooperation and enhance overall momentum. In addition, there are possibilities for more extensive projects with large benefits for several countries and significant private sector participation. These projects include CASA-1000 and TAPI, as well as other regional energy trade projects. Progress with these two initiatives may open up prospects for developing a regional energy market with major benefits for all the countries involved over the long term. The Afghanistan Reconnected recommendations on the topic are summarized in Table 3. Table 3. Long-term recommendations on energy trade and transit
Challenge
Action(s) Required
Key Players
Slow progress on CASA-1000
Speed up the completion of the initial financial and multi-national power transaction and transmission agreements.
Afghanistan, Pakistan and Tajikistan, World Bank and Islamic Development Bank
Slow progress on TAPI
Finalize selection of a consortium leader for the construction of TAPI; Address political obstacles to the initiation of TAPI.
Afghanistan, Turkmenistan, Pakistan, India and Asian Development Bank
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s an economic giant and a major regional power, India has a clear stake in the integration of Afghanistan and Greater Central Asia in international trade and transit routes, as well as an interest in the stability of Afghanistan. India has heavily supported Afghanistan’s infrastructure, mining, education, healthcare, 8 transport, community-based development projects and small-scale industries, investing over 2 billion USD. India’s keen desire to see Afghanistan progress and prosper is also exhibited by its support to the capacitybuilding of professionals within both India and Afghanistan, as well as to institutional development across sectors in Afghanistan. Moreover, Indian medical missions in Afghanistan’s five major cities are providing free 9 medical consultations and medicines to over 30,000 Afghans each month. Indian initiatives include the construction of the Afghan parliament building, part of the interprovincial Ring Road, electricity transmission lines and the Salma Dam, among others. In addition, India’s economy already absorbs 27 percent of Afghanistan’s exports, and is likely to offer great opportunities to Kabul with the entry into force of the Afghanistan-Pakistan Trade and Transit Agreement (APTTA). India’s influence on Afghanistan can also be perceived through multilateral fora, such as the Heart of Asia-Istanbul Process, the Conference on Interaction and Confidence-Building Measures in Asia and the Regional Economic Cooperation Conference on 10 Afghanistan.
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Rabia Akhtar, Jayita Sarkar, “Pakistan, India, And China After The U.S. Drawdown From Afghanistan: A Visiting Fellow Report”, January 2015, p.5. http://www.stimson.org/images/uploads/research-pdfs/pakistan-indiachina-after-us-afghanistan.pdf. 9 Public Diplomatic Division, Ministry of External Affairs, Government of India, “India and Afghanistan – A Development Partnership”. http://eoi.gov.in/kabul/?pdf0358?000. 10 Alyssa Ayres, “Why the United States Should Work With India to Stabilize Afghanistan”, April 2015. http://www.cfr.org/afghanistan/why-united-states-should-work-india-stabilize-afghanistan/p36414.
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India’s involvement in Afghanistan is strongly affected by its relation with Pakistan. Mutual diffidence and concerns about interference in what are seen as areas of exclusive influence affect India’s ability to engage further with Afghanistan. However, stronger ties between India and Afghanistan could eventually have positive repercussions on India-Pakistan relations that would also benefit from increased trade and transit. In particular, through an increased Indian involvement, Afghanistan could achieve a degree of stability sufficient to make it an effective and reliable partner for regional cooperation in the energy sector. This initiative could contribute to the strengthening of relations within the South Asian Association for Regional Cooperation (SAARC), which in the past has been mostly serving as a discussion platform towards symbolic outcomes and declarations, lacking action and tangible progress. Relations among SAARC countries have often been 11 characterized not only by lack of close coordination, but also by an absence of trust between some members. India’s membership in the Shanghai Cooperation Organization (SCO), expected to become effective in July 2015, might help member states set their sights on a new vision for regional cooperation in the 2015-2025 decade. Moreover, it may help India and Pakistan determine what pursuits are most beneficial for each of them. Indeed, India and Pakistan share the same energy interests, and would benefit from increased trade of electricity, oil and gas from resource-rich Central Asian countries. Finally, increased trade through Afghanistan could contribute to the diversification of India’s energy supply lines, allowing it to secure sufficient supply for its 12 growing energy consumption. The initiatives that the Indian government could take include:
Negotiating a long-term visa regime for businesspeople for travel in the region; Exploring the feasibility of a single window customs clearance service along the border with Pakistan; Considering joining an expanded Afghanistan Pakistan Trade and Transit Agreement; Supporting the swift selection of a consortium leader for TAPI. This step would allow for the start of pipeline construction.
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he potential benefits of promoting trade through Afghanistan are extensive and long-term, and the required investment has undeniably enticing returns. In addition, the realization of Afghanistan’s potential as a trade and transit hub in Greater Central Asia will stimulate numerous investment projects in the region. The reconstruction of Afghanistan would become an integral part of a successful regional development strategy.
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The Afghanistan Reconnected participants demonstrated, through their examination of the regional energy markets, that Central Asia and South Asia could help to fulfill each other’s needs. The proximity of supplier and consumer countries, the seasonal nature of hydroelectric power production and the huge pull from the explosive economic growth in India and Pakistan all set the stage for successful region-wide trade in gas, oil and electrical energy. Impoverished populations in Afghanistan and Pakistan will benefit immediately. Particularly in Afghanistan, where energy costs are among the highest of any country, the energy programs would not only create economic corridors and support alternative sustainable incomes generation against the threats from drug trafficking, but also add much needed revenue streams for the country. Donors and participating countries have an unprecedented opportunity to decisively engage in closer cooperation, a small price to pay for regional prosperity and for the creation of closer ties among nations that will lead to significant economic expansion, sustained stability and increased regional security.
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D. N. Raina et al., “Regional Energy Security for South Asia”. http://pdf.usaid.gov/pdf_docs/PNADS866.pdf. Aziz, Masood, “Afghanistan”, The New Silk Roads. Transport and Trade in Greater Central Asia, 2007. http://www.silkroadstudies.org/resources/pdf/Monographs/GCAPUB-02.pdf. 12
For further information on the EastWest Institute’s Afghanistan Reconnected Process, please visit www.ewi.info/department/regional-security or contact Ettore Marchesoni at emarchesoni@ewi.info.
05/2015 New Delhi, India: Advocacy and outreach mission to India
03/2015 Islamabad, Pakistan: Advocacy and outreach mission to Pakistan
11/2014 Istanbul, Turkey: Conference “Afghanistan Reconnected: Businesses Take Action to Unlock Trade in the Region”
10/2014 New York, U.S.A.: Report launch “Afghanistan Reconnected: Regional Economic Security Beyond 2014”
10/2014 Washington D.C., U.S.A.: Report launch “Afghanistan Reconnected: Regional Economic Security Beyond 2014”
06/2014 Brussels, Belgium: Roundtable discussion and report launch “2014 – Afghanistan in Transition”
04/2014 Berlin, Germany: Consultation “Afghanistan Reconnected: Creating Momentum for Regional Economic Security”
11/2013 New Delhi, India: Consultation “Unlocking Investment Potential in the Region”
09/2013 Islamabad, Pakistan: Consultation “Linking Energy Suppliers to Consumers in Asia”
04/2013 Istanbul, Turkey: Consultation “The Potential for Afghanistan to Act as an Economic Land Bridge in Asia”
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