AFGHAN COMMERCE MINISTER VISIT - OPPORTUNITY TO STRESS OUR

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E.O. 12958: N/A
TAGS: ETRD ECON EINV EFIN AF
SUBJECT: AFGHAN COMMERCE MINISTER VISIT - OPPORTUNITY TO STRESS OUR
PRIORITIES

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(U) This cable contains SENSITIVE BUT UNCLASSIFIED INFORMATION,
Please protect accordingly. Not for INTERNET DISTRIBUTION.

TAGS: ETRD ECON EINV EFIN AF
SUBJECT: VISIT OF AFGHAN COMMERCE MINISTER FARHANG - AN OPPORTUNITY
TO STRESS OUR ECONOMIC PRIORITIES

(U) This cable contains SENSITIVE BUT UNCLASSIFIED INFORMATION,
Please protect accordingly. Not for INTERNET DISTRIBUTION.

1.(SBU) SUMMARY: The Afghan Minister of Commerce and Industry
(MOCI),Dr Mir Mohammad Amin Farhang, will be visiting the U.S. to
participate in the Annual Matchmaking conference of the Afghan
International Chamber of Commerce (AICC). He will meet with senior
USG officials to discuss economic cooperation and policy. Since
moving from the Ministry of Economy to MOCI, Farhang has done little
to meet London Compact donor benchmarks on market-oriented
commercial law reform. Indeed, Embassy perceives that the
German-educated Farhang is being strongly influenced by GTZ staff
who are advising him to stall commercial reform. Additionally, GTZ
is pushing to establish a European-modeled unitary chamber of
commerce that threatens the legal existence of the AICC. Meanwhile,
progress towards a private sector friendly commercial environment,
WTO Accession and other key trade policy goals is moving slowly.
Embassy requests that senior Washington officials deliver a strong
message to Farhang to make commercial legislative and policy reform,
WTO accession, and implementation of the Border Management
Initiative his highest priorities. Embassy is considering a
bilateral intervention with the German Ambassador regarding GTZ's
activities that are diverting Farhang from goals established by the
donor community. We will also continue coordinate actively with
other donors through the London Compact JCMB process to press the
GoA to take the critical steps needed in these areas. See key
recommended policy points for Farhang meetings in para 8). END
SUMMARY

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New Minister Meeting Low Expectations
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2.(SBU) The new Minister of Commerce and Industry was previously the
Minister of Economy where his performance was rated by most
international agencies as poor. In his new job, Farhang has started
slowly with the design and implementation of the economic reform
policies essential for economic growth and development. In
particular, the MoCI has not aggressively moved toward developing an
economic environment built upon an open trading system and a sound
commercial legal framework. For example, MoCI is responsible for
implementing two benchmarks agreed as part of the Afghanistan
Compact: (8.3) Private Sector Development and Trade and (8.5)
Regional Cooperation. Reporting has been poor, coordination weak,
and action virtually nonexistent. Embassy regards the following
issues as urgent and strategic to improving budget sustainability
and economic growth.

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COMMERCIAL LEGAL AND REGULATORY REFORM
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3.(SBU) MoCI is responsible for reforming Afghanistan's commercial
legal framework to make the country more attractive to domestic and
foreign investors. This is a major element in the Afghanistan
Compact benchmark 8.3 to submit to Parliament 'Business
Organization' legislation (i.e., the Corporation and Partnership
Laws); prepare and submit to the Council of Ministers the remaining
key commercial laws, including (i) Contract Law; (ii) Mediation Law;
(iii) Standards Law; (iv) Trademark Law; (v) Patent Law; (vi)
Copyright Law and (vii) Arbitration Law. Bearing Point contractors,
supported by the American Bar Association have drafted the laws.
The drafts have been circulated among donors, government officials,
and the business community and comments have been incorporated into

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the revised version. Embassy has also sent the drafts to USTR for
review for WTO compatibility in order to bolster them against
potential attempts to amend them by Afghanistan's parliament.
Unfortunately, GTZ advisors in the ministry appear to be influencing
the minister to slow down his introduction of the laws to
parliament. In contrast, the Finance Ministry has moved seven key
financial reform laws through parliament already.

4.(SBU) Enacting new legislation is only the beginning of this
reform process. New regulations and procedures must also be drafted
to implement the new laws. In addition, MoCI needs to review and
reform commercial regulations for which it is responsible, with the
highest priority being the system of business (trade) licensing.
Ideally, this system should be eliminated or radically streamlined.
A second initiative in this area is strengthening consumer
protection by establishing a consumer protection unit as part of the
new Legal and Regulatory Affairs Directorate in MOCI. Finally, as
part of the newly established Afghanistan National Standards
Authority (ANSA),MOCI needs to establish appropriate standards
policies and technical committees, create a Technical Regulations
Inspectorate within ANSA, and develop metrology laboratories. What
progress we have made to date has been due to the proactive
interventions of USAID's Bearing Point contractors.

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OTHER PRIORITIES?
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5.(SBU) While progress on the above legislative and regulatory
reform agendas has largely stalled, the ministry, in conjunction
with GTZ advisors to the Minister, has drafted and circulated a new
Chamber of Commerce Law based on the European unitary chamber model.
The US Mission has invested heavily in the organization of AICC as
an independent business advocacy and promotion group. In August,
the old Afghanistan Chamber of Commerce and Industry Reform
Commission led a process to determine how to work with AICC. A vote
was held after regional consultations on whether the private sector
preferred a single or multiple chamber system. A badly flawed
process produced a decision in favor of the unitary system. We have
taken the position that the GOA can designate any entity as its
"official" chamber of commerce, so long as freedom of association
and the right to petition government for change is not abridged.
(NOTE: AICC is the co-sponsor of the matchmaking/roadshow visit to
the U.S. in which Farhang is participating. It would be helpful to
highlight AICC's positive role both publicly and privately. END
NOTE)

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DEVELOPING TRADE POLICY CAPACITY
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6.(SBU) The MOCI is the lead GOA institution for the development and
implementation of Afghanistan's national trade policy. At present,
this is defined through publicly stated goals of acceding to both
the WTO and the South Asia Free Trade Area (SAFTA). The US Mission
along with Bearing Point contractors have been pushing the pace of
these projects, but capacity within the ministry is limited. The
Minister recently agreed that Bearing Point would provide a 3-month
long trade policy capacity building course for GOA staff to bring
them to a level at which they can effectively participate in WTO
Accession negotiations. The course is expected to begin in January.
Our plan is to arrange for a small group of graduates from this
program then to travel to Washington for two weeks of advanced
training on WTO issues and trade policy. Meanwhile, the draft
Memorandum of Trade Regime is still a work in process, the proposal
to form a ministerial level WTO accession coordination committee has
not yet been approved, and the GOA has not yet established a
well-defined strategic plan for accession.

7.(SBU) For Afghanistan to achieve its vision of resuming its
historical role as the "crossroads of Asia," Minister Farhang and

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the MOCI must rise to the challenge of improving the commercial and
transit trade environment. Renegotiating the Afghan Trade and
Transit Agreement with Pakistan and reactivating Afghanistan's
membership in the Transport Internationaux Routiers (TIR). Another
pair of projects within MOCI's jurisdiction includes implementing
the Corridor Development Plan of the Central and South Asia
Transport and Trade Forum initiative, and the transit and customs
initiatives embodied in the Central Asia Regional Cooperation
(CAREC) and Central and South Asia Transport and Trade Forum
(CSATTF) agreements. Finally, we have increased efforts to work with
the MOCI directly to make sure it is contributing to progress on the
Border Management Initiative.

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FARHANG VISIT: AN OPPORTUNITY TO ADVANCE USG AGENDA
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8.(SBU) Minister Farhang's visit to the US is an opportunity to
engage him on the issues outlined above and influence him to
accelerate the market-oriented reforms we are advocating to attract
private sector investment, both domestic and international.
Specifically, he should be pressed to support rapid commercial
legislative reform and advocate these changes with parliament. The
reforms should be WTO compliant and be quickly presented to Cabinet
and then introduced to parliament. Senior U.S. officials should
underscore that Chamber of Commerce reform should take a back seat
to the broader legislative agenda and that it should not abridge
freedom of association and the right to petition government for
change. U.S. officials should make clear the importance of WTO
accession as a means to drive reform and that the MOCI should pursue
this with vigor. In addition, it is important that Farhang hear in
Washington that his cooperation with the Border Management
Initiative is imperative to that program's success. Lastly, the
Minister should be encouraged to rely on US Bearing Point advisors
to assist him in implementing these important reforms.

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COMMENT
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9.(SBU) According to USAID Bearing Point advisors and Embassy ECON
staff, Minister Farhang is open to persuasion. Since he is fluent
in German and was a long-time German resident, the German advisors,
principally an Afghan German advisor, have his ear, so Farhang has
been sympathetic to German advice to slow progress on commercial
reform while moving forward on the Chamber of Commerce initiative.
Farhang is also known for a predilection to socialist thinking that
makes him susceptible to European arguments towards more state
control of the economy. This orientation does not incline him to the
fast track policy implementation that is needed to address
Afghanistan's current political, economic and security situation.
Immediate results are required and fast track policy implementation
is needed to achieve this.


10. (SBU) Post will continue to coordinate actively with other
donors through the London Compact Joint Coordinating and Monitoring
Board (JCMB) to press the GoA to take the critical steps needed in
these areas. We have raised this previously with key donors in the
JCMB informal Tea Club format, and have recently pressed our
objectives in both the relevant Afghan National Development Strategy
(ANDS) working group (WGs) and coordinating groups (CGs -
Ministerial level). We further intend to highlight these concerns
during the upcoming half-year plenary session of the JCMB scheduled
on November 12. A clear message to Farhang on the key points above
from Washington interlocutors would make a significant contribution
in helping to advance our major policy objectives.

11.(SBU) Building on Minister Farhang's experience and cultural
connections to Germany, GTZ staff, particularly Afghan-German Senior
Advisor to the Ministry Shafic Gawhari, has gained an advantageous
position in the Ministry, adversely affecting relations between the

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MOCI and USAID Bearing Point. Bearing Point has also received
signals from the Minister that it should seek offices outside of the
Ministry, and the advisors have been increasingly marginalized from
what is happening in the Ministry. Post will continue to examine
ways to improve GTZ-USAID and German - USA donor coordination. END
COMMENT.