DUELING AFGAN CHAMBERS OF COMMERCE

UNCLAS SECTION 01 OF 03 KABUL 005118

SIPDIS

DEPARTMENT FOR SA/FO, SA/A
TREASURY FOR PARAMESWARAN
NSC FOR AHARRIMAN, KAMEND
CJTF-76 FOR POLAD, CENTCOM FOR CG CFC-A
COMMERCE FOR AADLER


SENSITIVE

E.O.12958: N/A
TAGS: ECON ETRD EFIN PREL EAID PGOV AF
SUBJECT: DUELING AFGAN CHAMBERS OF COMMERCE

--------------
Summary
--------------


1. (SBU) An ongoing battle between the AID-supported Afghan
International Chamber of Commerce (AICC) and the GTZ-
supported Afghan Chamber of Commerce and Industry is
heating up with a proposed law that would effectively
eliminate the AICC, dealing a significant blow to the
development of an independent voice for the private sector
in Afghanistan. The Mission wholeheartedly supports the
AICC in this debate and is voicing strong opposition to
this law, as well as any chamber reform initiative that
would weaken the newly-established AICC or any other
independent business association. End Summary.

--------------
A New Chamber for New Afghanistan
--------------


2. (U) A national chamber of commerce has long existed in
Afghanistan. The Soviet-style Afghan Chamber of Commerce
and Industry (ACCI) was established in the 1970s and, while
it represents itself as an independent voice for the
private sector, in reality it falls under the supervision
of the Ministry of Commerce. ACCIs membership base
consists largely of insolvent state-owned enterprises.


3. (SBU) During the Soviet era, one of ACCIs principle
responsibilities involved valuing goods imported into
Afghanistan, a value used by Customs to assess duties. For
r
this service ACCI collected a hefty two percent fee. On
the recommendation of USAIDs customs advisor, this
service was discontinued in 2002 because of ACCIs
tendency to significantly undervalue imported goods to the
benefit of its members. Without this source of revenue,
ACCI relies on a limited operating budget provided by the
Ministry. Though the ACCI has a presence in every province
of the country, it is largely moribund. It is estimated to
have over 300 employees on the payroll, who even Ministry
representatives admit do essentially nothing. The ACCI
is also said to own over $1.5 million in property across
the country, though the organization has never been
formally audited.


4. (U) Frustrated by the Communist-era mentality and lack
of initiative at the ACCI, several Afghan businessmen opted
to create a new organization to support private investment
based on the principals of a free market. In 2004, the
Afghan International Chamber of Commerce (AICC) was
) was
established as an independent voice for the private sector.
The AICC represents over 2500 businesspeople through
eighteen affiliated organizations, including the Afghan
Builders Association, the Afghan Womens Business
Federation and the Afghan American Chamber of Commerce, all
of whose leaders sit on the AICC board.


5. (U) The AICC provides its members with business
development services and engages in public policy advocacy
and investment and trade promotion. In April 2004, USAID
provided the Center International Private Enterprise
(CIPE),an affiliate of the U.S. Chamber of Commerce and
National Endowment for Democracy core grantee, with USD 6
million over three years to build the capacity and
professionalism of the AICC and promote its sustainability.

--------------
The German Approach
--------------


6. (SBU) While USAID has long felt that the ACCI should be
SUBJECT: DUELING AGAN CHAMBERS OF COMMERCE
dissolved, the German government, through its development
partner GTZ, is funding a project to reform it. The
e
project is providing the ACCI with capacity building
training and has also created an ACCI Reform Commission to
examine the structure and role of the Chamber, its
relationship to other business organizations in Afghanistan
and a new chamber law.


7. (SBU) The Commission initially excluded the AICC, who
secured participation for three members only through the
intervention of Mahmood Karzai, Chairman of the Afghan
American Chamber of Commerce and brother of President
Karzai. In Commission discussions, the AICC has expressed
its preference for an independent chamber, but has agreed
to work with a separate, reformed ACCI should the
Commission recommend it. Karzai submitted a concept paper
detailing the potential functions of a reformed ACCI and
its relationship with AICC, but recommended that any
chamber should be a voluntary, non-governmental
organization.


8. (U) The Reform Commission initially recommended the
merging of AICC and ACCI, without detailing how such a
merger would take place. It has now tabled a business
association law that will authorize a government-supported
Afghan Chamber of Commerce and Industry to become the
exclusive business organization for the private sector.
This law is modeled on German chamber law, which mandates a
single, government-supported Chamber of Commerce which all
businesses must be members of.

--------------
Legislative Implications
--------------


9. (U) The proposed law would establish the ACCI as
Afghanistans single representative interest for
businesses in Afghanistan. Participation would be
mandatory. It also gives the GOA the right to dissolve
any other organizations that use the name Chamber of
Commerce, such as the AICC. The draft also states that
the Government may assign specific sovereign tasks to the
Chamber.


10. (SBU) The implications of this legislation are grave.
At best, the AICC faces isolation; at worst, dissolution.
The new Chamber, under whatever name, will essentially
tially
continue to function as the ACCI has in the past; as a
mouthpiece for the government.

--------------
Symptoms of a Larger Debate
--------------


11. (SBU) The debate on the chamber law speaks to
differences between the U.S. and German economic
development strategies in Afghanistan. It also illustrates
what is increasingly perceived by the business community as
a sharp dichotomy in the rhetoric of the Ministry of
Commerce and facts on the ground. Commerce Minister
Arsalas interest in reviving a GoA-controlled ACCI
reflects a worldview that government should play a strong
and paternalistic role in guiding the growth of
Afghanistans nascent private sector. It also demonstrates
the ongoing debate within the senior GoA bureaucracy on the
merits of a German-style model of close coordination
between private sector and government verses the U.S. arms-
length model. (Note: The German government is also funding
the Afghan Investment Support Agency, a MoC affiliate that
t
serves as a business promotion and investment licensing
entity. End Note) Arsalas preference for a malleable
Chamber of Commerce more likely to toe the GoA line also
relates to the increasingly vocal criticism leveled by the
exuberantly independent AICC at the GoAs failure to
consult with the private sector in a number of sensitive
areas, including tax policy and the drafting of fundamental
commercial and investment legislation.

--------------
What Will We Do About This?
--------------


12. (SBU) Mission policy is to promote a private, non-
government affiliated Chamber of Commerce that is governed
by elected leadership and has a voluntary membership. We
will not support any proposed legislation that would
position ACCI as a state-controlled chamber of commerce and
prevent the establishment of any other chamber of commerce.
Mission members have been outspoken of this policy, in
meetings with the Ministry of Commerce, GTZ, and other
r
donors such as UNDP, who, at the Ministrys behest, are
beginning to channel funding for various projects through
the ACCI. We will continue to press this with these
partners.


13. (SBU) As the new Parliament sits on December 19, it is
unlikely that the proposed chamber law will be passed by
decree. It will instead face the uncharted territory of a
new and likely contentious legislative process. Post will
monitor this initiative and engage when and where
appropriate to express our concerns. Post will also
encourage both Ministry of Commerce officials and the AICC
to build a productive relationship that will better support
private sector growth in Afghanistan.

NEUMANN