Chabahar Port –A new Trade Paradigm in the Region

Wednesday, 15 November 2017 03:25 Written by  Obaidullah Published in Economy Read 75 times

The Chabahar Project was conceived fifteen years ago. But because of US-imposed International Sanctions on Iran, the project stalled for several years. During 2016 Iran reached  an agreement on its nuclear program with group of World Powers known as the P5+1 (the permanent members of the United Nations Security Council –the United States, Russia, the United Kingdom, China, and France; plus Germany). The agreement lifted some of the sanctions. The sanctions easement prompted India to invest USD 500 million in an effort to build cargo berths, terminals and connecting roads and rail lines is the foundation of the strategy to improve linkage to Afghanistan and Central Asia.

 

The investment will enable India to have access to Afghanistan and Central Asian Markets and facilitate trade between Central Asia and South Asia (CA & SA). Subsequently, in 2016 Afghanistan, Iran and India signed trilateral agreement. The Agreement serves as a legal framework for three states to trade via Chabahar port. The sea route is the second trade route between India and Afghanistan: in June 2016 the two countries launched an Air Corridor Project to facilitate trade between two nations. So far, hundreds of tons of cargo have been traded via air corridor between two nations. On October 29 of this year, the first consignment of wheat was shipped via Chabahar Port to Afghanistan.

The Chabahar project is a win-win situation for Afghanistan-Iran and India and the wider region. The access to Central Asia will boost India trade relation with Central Asia and Afghanistan.

The connectivity is also in-line with newly released US South Asia Strategy. This strategy requires India to play a bigger role in Afghanistan’s stabilization and economic development. In turn, Iran got its first deep-water port that will enable the country to conduct trade with big cargo ships compared to small, uneconomic ships Iran’s ports are handling now. Additionally, Afghanistan and Iran will be entitled to annually receive tens of millions of dollars as transit fees from trade between CA & SA.

Several policy analysts argued that Chabahar port is the alternative route to Pakistan’s congested Karachi Port, and the newly established port will give end or will minimize trade with Pakistan because in the past Pakistan used the trade as a policy tools to pressure Afghanistan, which is a landlocked country. However, the current author believes that Afghanistan simply took advantage of its legitimate right to have several routes to trade with other countries. Having choices will give an end Afghanistan’s being hugely dependent on Karachi trade route and will pave the ground for regional development and economic integration. This development will contribute to stability and growth in the region which is in the interest of entire region. Additionally, CA & SA have different production and demand gaps: CA is energy rich and SA is energy starved whereas SA is specialized in technology and manufacturing products needed by CA. Hence the trade route can greatly increase CA oil and gas revenues while enable India and the manufacturing and technology giants such as Japan to have access to a new market that now has revenues to pay for their products and services.

The author recommends that Government of Islamic Republic of Afghanistan (GoIRA) should take maximum advantage of the improved and new transportation routes to establish trade relations. Taking advantage includes, but not limited to, signing trade agreements with industrialized nations such as Japan, United States of America, the European Union and India. The GoIRA is expected to facilitate export of mining products to the industrialized world.

For decades Afghanistan mines were exported under trade mark of the neighboring countries. For the time being, industrialized countries are not directly purchasing mining products from Afghanistan’s traders and under the trademark of Afghanistan, because they believe the money will go to insurgent’s movements and branded the mines as “Blood Mines”. Instead, the mines are first traded via intermediaries to neighboring countries and then sold to industrialized countries. The author argues that change of trade destination and bringing intermediaries in between could inhibit this flow of cash to illegal armed groups. Instead the industrialized world could purchase the mines directly from Afghanistan markets and Afghanistan companies and partnerships. This requires that the transactions should be monitored by Government of Islamic Republic of Afghanistan and fairly taxed. Furthermore, the document of transactions should be publicly available as only then we could avoid outflow of cash to the insurgents’ movements.

To boost and speed-up the trade via Chabahar port we recommend that Afghanistan should propose to have One-Stop-Border-Post (OSBP) with Iran. This OSBP will combine the administrative unit of both countries at border of Iran and Afghanistan or any other alternative agreeable location and at the lower end of the cargo destination with Central Asia. The OSBP construction expenditure will be paid by the two nations. The OSBP border post will reduce the time that shipments spend at the border. Significantly, the OSBP will reduce fraudulent practices in tax collection as well. Upon successful completion and implementation of an OSBP with Iran, the government could propose establishing similar facilities with other neighboring countries as well. Because, strategically and from an economic point of view, it is not advisable to be wholly dependent on single route for conducting trade with foreign world. The One-Stop-Border-Post is not a new concept.  For example, the idea was implemented in Uganda and Kenya border, and truck drivers reported significant time reduction that they spend at border ports (the time reduced from 2 days to less than 8 hours).