Economy, Business And Markets

A Tale of Two Neighbors

Domestic Economy Desk
A Tale of Two NeighborsA Tale of Two Neighbors

Iran’s accession to the World Trade Organization is pending after almost 19 years, which has made the country’s membership bid one of the longest in the history of the international pro-free trade organization. This is while Afghanistan, with an economy almost 18 times smaller than that of neighboring Iran, is all set to become a full member of WTO 11 years after it applied for membership in 2004.

December 17 was “a historic day” for Afghanistan, according to the country’s First Deputy Chief Executive Mohammad Khan Rahmani, in his address to the WTO’s 10th Ministerial Conference in Nairobi, Kenya, where world trade ministers formally approved Afghanistan’s membership terms. Kabul’s final step will be ratification of the deal it had reached back in November with 161 members of the organization by June 2016.

The US, as one of the most influential members of the organization, has played a central role in Afghanistan’s accession process. For one thing, US-based state organizations such as USAID helped ease Afghanistan’s accession by assisting the country in performing structural reforms regarding foreign trade.

For Iran, nevertheless, the US role in WTO worked the other way. Although Iran applied for membership in 1996, it took almost a decade for the institution to start to consider the move, mainly because of US opposition.

“Iran’s request was rejected 22 times by the US. Eventually it passed through Jacques Chirac, former French president, to the then president of the United States George W. Bush. The move was effective in changing the American stance,” Esfandiar Omidbakhsh, head of Iranian Scientific Commerce Association, was quoted by the Persian weekly Tejarat-e Farda as saying.

WTO regulations help lower tariff and non-tariff barriers that impede international free trade, which would in turn assist many countries cross the bumpy road to development. That is, indeed, what Afghan decision-makers have been aiming for amid the economic downturn and longstanding militancy in the country.

In fact, Kabul sees a bright economic future after WTO membership, which is expected to materialize eventually. Nonetheless, it will certainly be no easy task for a country with annual exports worth below $1 billion as opposed to imports of about $7 billion.

Although experts believe one of the short-term benefits of Afghanistan joining the global free trade market would be lower prices of imported commodities, Afghan exports are not likely to pick up any time soon.

Revving up exports calls for huge investments, which Afghanistan expects to attract by joining the WTO. Afghan membership, according to President Ashraf Ghani, paves the way for “domestic reforms and transformation to an effective and functioning market economy.”

However, to receive the capital needed to spur an economy deprived of industrial and manufacturing infrastructures, the country will need to stabilize before it can lure foreign investors. Due to the rising risks of doing business in Afghanistan, the country’s foreign direct investment dropped by 30% in the first half of 2015, according to the Afghanistan Investment Support Agency.

This is while unlike Afghanistan, Iran has established the infrastructures of many of its industries, including auto, textile and oil sectors, and decades before the submission of its accession bid to the WTO.

The country had developed a stock market to showcase industries for investors along with a long-performing customs administration to facilitate foreign trade. One problem, however, was that with economic growth came more regulations, causing trouble for trade and manufacturing sectors.

Tehran started talks on deregulation with a working party established by the WTO in 2005, but such efforts never came to fruition. The escalated nuclear standoff between Iran and the West a few years later evaporated all hopes of membership. Even before WTO members chose a chairperson for the working party, the United States and other world powers imposed punishing sanctions on Iran’s economy, financially cutting off the country from the rest of the world.

In July 14, 2015, however, Tehran hammered out a deal with world powers to turn the tide. The nuclear deadlock is now a thing of the past and sanctions are expected to be lifted in the upcoming weeks. Resuming talks with WTO is now a top priority for the Iranian government, according to Iran’s Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh, who was present at WTO’s 2015 session in Nairobi.

“As the largest non-member economy in the world, our full membership will be a win-win for all and a significant step toward creating a truly universal organization,” he said.