AF: Current Afghan preparedness for ROZ implementation

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REF: (A) Kabul 502, (B) SECSTATE 14195

E.O. 12958 N/A
TAGS: ENRG EFIN ETRD KPWR EAID PGOV AF
SUBJECT: AF: Current Afghan preparedness for ROZ implementation


1. (SBU) This message is keyed to reftel questions about
Afghanistan's preparedness to implement the Reconstruction
Opportunity Zone (ROZ) initiative after it is passed by the U.S.
Congress. Although the Afghan government has been slow in its
preparations and lacks capacity to implement many of the required
actions, USG and other donor programs being implemented in-country
can be effectively tapped to bolster ROZ implementation efforts.


2. (SBU) TRANSIT TRADE: What is the current status of IROA and
local stakeholder discussions to address Pak-Afghan transit trade
concerns? As the USG may have resources to assist, Department would
appreciate assessment from Post on technical vs. political
considerations for unresolved issues as well as any further
recommendations.

-- Very few discussions of Pakistan-Afghanistan transit trade issues
have taken place, despite the fact that both sides complain of
cross-border trade problems. The only national forum in which such
discussions are planned, are follow-on sessions to the August 2007
Afghan-Pakistan Peace Jirga. The renegotiation of the 1965 Afghan
Trade and Transit Agreement (ATTA) would offer an excellent
opportunity to address transit trade concerns. Although the two
sides have yet to set any date for ATTA negotiations, this issue may
be addressed at the Regional Economic Cooperation Conference (RECC)
to be held in Islamabad in April 2008. Other than localized
discussions between customs and border officials of both nations at
specific border crossing points, we are not aware of any current
exchanges.

-- With regard to technical considerations, a
USAID/Afghanistan-funded study on cross-border transportation issues
revealed Pakistan's primary concerns to be: a) lack of insurance
among Afghanistan vehicles; b) the poor condition of Afghanistan
vehicles (operation beyond their useful life, and safety),and c)
lack of competence among Afghanistan drivers. In response, USAID
programming is targeting interventions along the value chain to
mitigate these concerns during the next few months. USAID
assistance has helped to establish the first Afghanistan insurance
company which will now allow for drivers to carry insurance (though
enforcement may not be immediate),fostered a GDA partnership with
U.S. Ford Motor Company to make used cars with an average age of 5-8
years old available for lease, and establishment of a driving school
for Afghans to receive driver training.


3. (SBU) LABOR: What training, local legislation or local solutions
are necessary to ensure that labor standards within the ROZ's would
meet minimum international standards?

-- Please see ref A.


4. (SBU) How will host governments and industry monitor and protect
workers rights within the ROZ's?

This can be addressed in general terms if/when additional resources
for ROZ become available.


5. (SBU) TRANSSHIPMENT OF GOODS: What mechanisms are in place or can
be developed to monitor and prevent transshipment of goods seeking
duty-free access to U.S. markets that were not produced in an ROZ?

-- Few mechanisms exist, but they can be created. The danger of
transshipment is more an issue of geography. If there are
transshipment dangers, they can be expected from two sources -
primarily China and possibly Iran. Transshipment from Pakistan is
unlikely because it would be easier to falsify the location of the
production within the qualified zones in Pakistan, than to involve
Afghans in a fraud.

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-- Regarding China, Afghanistan has fewer than 75 miles of
contiguous border with China in the very rugged Wakhan Corridor area
of Badakhshan Province. The process of moving significant
quantities of textiles or such into Afghanistan to take advantage of
the ROZ benefits via the Corridor seem to be more trouble than it
would be worth since the material would still have to be moved out
of that most isolated portion of Afghanistan to the United States.
Verification would be possible although the effort might also be
more costly than any enforcement benefit as well. Any other
movement of Chinese material for transshipment purposes would
involve moving through Afghanistan's northern neighbors by truck or
by air through Kabul Airport. This would expose the would-be
transshipper to banditry on the road, or to greater law enforcement
exposure with the most effective units of the Afghan Customs
Department (ACD),a division of the Ministry of Finance.

-- The border with Iran poses more problems. The degree of control
that ACD central management has over the Iranian border provinces is
limited, and control mechanisms would be difficult to put into place
and audit. Nevertheless, the sudden appearance of any manufactured
goods from the western part of Afghanistan would immediately raise
questions, since this area is primarily agricultural, involved in
narcotics production, and highly contested by insurgent and
government forces.


6. (SBU) Would appropriate local authorities be open to U.S. customs
verification teams monitoring and enforcing those anti-transshipment
measures contained in ROZ legislation?

-- The Afghan Customs Department (ACD) is committed to the idea of
creating mobile verification teams to post audit compliance with
import requirements in connection with traffic through border
crossing points. These teams would be similar in function and form
to the verification teams above. If U.S. government verification
efforts were presented as an adjunct to this ACD initiative, the ACD
response is more likely to be positive. The Embassy's Border
Management Task Force (BMTF) can support and liaise with the
verification teams both upon entry into Afghanistan and for on-site
visits, particularly to Afghan border crossing points, where the
BMTF has mentors and resources on site.


7. (SBU) RULES OF ORIGIN: What mechanisms are in place or can be
developed to monitor and document rules of origin to ensure that 35
percent of the value of the products comes from ROZ processing?

-- Our experience with the details of ACD law indicates that there
are currently no such rules or mechanisms since country of origin is
not an issue of great impact/priority at this time. International
donor support or Embassy support through the Economics Section, the
Rule of Law Section, the BMTF, or other interested parties could
assist the ACD in creating such rules and procedures to carry them
out. Pending availability of future resources for ROZs, this issue
could be addressed under a new USAID program under design which will
focus on trade facilitation.


8. (SBU) INTELLECTUAL PROPERTY RIGHTS: For the types of products to
be produced in an ROZ, does Post antcipate IPR concerns?

-- Based on discussionswith interested business groups, initial
prodction in Afghan ROZ's is likely to center aroun textiles and
their finishing (as allowed by he legislation). Therefore it is
unlikely IPR concerns will come to the fore until several years down
the road as Afghanistan's manufacturing capacity, as well as its
ability to enforce IPR protections, matures. Pending availability
of future resources for ROZ, USAID can address this issue.


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9. (SBU) VETTING OF COMPANIES: Please describe institutional
capacity for how governments will screen and/or select companies
that can derive ROZ benefits.

-- Currently there is no process in place within the Ministry of
Commerce and Industry (MOCI),Afghanistan Investment Support Agency
(AISA),or Export Promotion Agency of Afghanistan (EPAA) for
selecting firms to participate in ROZs. However, EPAA has had
experience identifying companies for foreign trade shows and fairs,
and this capacity could be the foundation for facilitating such a
process for ROZs. In addition, OPIC has supported several U.S.
investors that have established Afghan operations that may also eed
into an identification process from the US side. Pending
availability of future resoures for ROZs, USAID can provide
assistance to address this issue and the Economic Section can
provide advice to the government ministries and agencies.


10. (SBU) OVERALL ASSESSMENT: Based on business interest,
government support and any other local issues, how quickly does post
envision ROZ activities beginning after U.S. Congressional action on
ROZ legislation?

-- Although there is currently some business and government interest
in ROZ development/activities, more substantive interest will depend
largely on the comprehensiveness of textile products eligible for
ROZs. Depending upon Congressional restrictions on tariff lines,
interest in the ROZ project could vary.

Wood