On Monday, when they opened their Tokyo meetings, representatives from the United States and other donor nations began deciding how much reconstruction aid they will give to Afghanistan. Sen. Joseph Biden, Delaware Democrat and chairman of the Foreign Relations Committee, says the United States should help to contribute between $10 billion and $15 billion over the next five years. Afghanistan's interim government, led by Hamid Karzai, is asking for $45 billion over ten.
But economic aid won't achieve the sustainable progress Biden, Karzai, and others hope for. The real long-term answer to Afghanistan's development lies with free trade and the internal pro-market reforms that trade helps bring about. The Bush administration should therefore pledge to negotiate a sweeping free-trade agreement with Afghanistan's newly formed government once the Senate passes trade promotion authority (TPA)--something that needs to happen soon.
Why a trade pact with Afghanistan? For one thing, the political costs are low. Afghanistan currently has few exports that pose a threat to any of the major protectionist lobbies in the United States; i.e. steel, agriculture, textiles, etc. (Afghanistan has historically exported mostly niche market products like carpets). If the administration does encounter resistance, it should make the case that in addition to being economically beneficial, open trade is an important tool of U.S. foreign policy, essential for bringing stability to a troubled region.
By publicly designating Afghanistan as the first country he will sign a free-trade agreement with under renewed TPA, Bush would show the world that the United States is serious about helping Afghanistan without turning it into a perpetual welfare recipient. Since World War II the United States alone has provided $1 trillion in foreign aid to countries around the world. The result? According to the United Nations, 70 of the countries that received aid were poorer in 1997 than they were in 1980, and an incredible 43 were worse off than in 1970.
The real source of poverty and isolation in much of the world lies in the unwillingness of many states--especially Muslim states--to make themselves competitive in the global economy. Poor countries, in other words, have adopted poor policies. The key to fighting poverty doesn't lie in foreign aid, which often merely helps recalcitrant governments avoid necessary reforms. Developing countries must reduce trade barriers, establish the rule of law, protect private property, curb inflation, cut wasteful spending and corruption, and stop meddling in domestic markets. A trade deal wouldn' t prompt those changes overnight, but it would introduce external discipline to get the basics right.
Right now the United States imposes its highest trade barriers on exports that are most important to poor countries, such as sugar, footwear, clothing, and textiles. In the World Trade Organization's Agreement on Textiles and Clothing, for instance, the United States pledged in 1995 to phase out all textile and apparel quotas over a 10-year period. Only a tiny percentage has been scrapped so far. On average, developing countries face tariffs on their manufactured exports that are nearly four times the tariffs facing exports of developed countries. Because of that inequitable pattern of protectionism, Thomas W. Hertel and Will Martin of the World Bank have concluded that developing countries would capture around 75 percent of the world economic benefits from further trade liberalization in the manufacturing sector.
In other words, Washington could deliver far more important and long-lasting "aid" to poor farmers and workers around the world by allowing them to sell what they produce duty-free in the U.S. market.
Aid's long-term prospects are much bleaker. When Harry Truman took enormous political risks in 1947 to push the Marshall Plan through Congress, he was dealing with nations very different from Afghanistan. If massive government spending could work anywhere, it was in post-war Europe: Skilled labor was widely available, the rule of law and property rights had a long history, and the customs of a commercial society were recoverable. All Europe needed was physical capital. Afghanistan currently lacks all of those things, so massive foreign aid won't achieve much. It would likely create an addiction to freebies among Afghanistan's political elite that they would eventually use to blackmail the West: Give us more money or "the bad guys might come back."
TPA is as crucial today as the Marshall plan was in 1947. That's why the Bush administration needs to keep pressuring labor-backed senators to approve TPA as soon as possible. This is a historic opportunity to make a high-profile shift from "aid" to "trade" as America's preferred development strategy -- and Afghanistan is the perfect place to start.