Iran

Herat is around 100 km from the border with Iran and while the people are culturally indistinct, the economies are certainly distinct but deeply interconnected. In Herat there is a deep resentment of the Iranians and a strong belief that Iran is dumping products (selling products at below market value) in the Herat market (just as Afghans in Jalalabad in the East believe that Pakistan is dumping products there).

One trader provided me with a concrete example. There is an ice cream factory in Herat that produces good quality ice cream. It sells for 5 Afghanis (the local currency, abbreviated Afs) each. There is an Iranian ice cream that is imported and sold in the Herat market that sells here for 4Afs each, but the trader said that same ice cream sells in Iran for 7Afs each. The only financial incentive for a business to do this is to cut prices and lose money in the short term in the hopes of putting the Herati ice cream factory out of business and then capturing that market; however the local belief in Herat is that this is subsidized by the Iranian government to prevent economic development in Afghanistan and cause political instability. While this may seem a little far fetched, it may not be. The Iranian economy depends heavily on water coming from Afghan rivers, water that will certainly be tapped for use in Afghanistan as Afghanistan develops, causing a reduction in supply to Iran. (See my entry on this from my trip last December.)

Another example of this same issue came from a flour miller. Bread is the staple food in the Afghan diet and so wheat is politically very important but imported flour is preferred to local flour because it is usually of higher quality. The flour miller told me that last year for one month, the Afghan government somehow enforced tariff collections on the border with Iran. The collection of tariffs on wheat increased the price of imported wheat in the Herat market and the local flour miller doubled his production within that month. While I am generally a proponent of free trade, I do believe that there are times when trade barriers can be justified. The US approach to supporting our agricultural sector is to grossly subsidize farmers (something the Afghan government will not be able to afford for a very long time), so why shouldn’t Afghans have tariff’s on imported wheat?