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Diplomacy in Action

Chapter 5. Terrorist Safe Havens (7120 Report) -- 5.7. Economic Reform


Office of the Coordinator for Counterterrorism
Report
April 30, 2009

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High unemployment and underemployment, often a result of slow economic growth, are among the most critical issues in predominantly Muslim countries. U.S. assistance programs attempt to address this issue with reforms to improve the investment climate. Such reforms could include business registration, dispute settlement, financial sector and agricultural reforms, combined with education, job training, and health programs.

The U.S. strategy of Total Economic Engagement pursues economic reform, rule of law, and global economic integration, in countries with predominantly Muslim populations. Total Economic Engagement includes:
 

  • Regular bilateral discussions on these topics with host government officials, with both U.S. Embassy officials and officials from a wide range of U.S. agencies participating;
  • Formal structured dialogues, high-level Economic Dialogues, and Trade and Investment Framework Agreement (TIFA) Councils;
  • U.S. bilateral and multilateral assistance programs for economic reform, trade capacity-building, and rule of law managed chiefly through USAID, the Millennium Challenge Corporation (MCC), and the State Department's Middle East Partnership Initiative (MEPI). Programs are often complemented with technical assistance provided by specialized U.S. agencies and offices;
  • Coordinated multilateral policies and assistance strategies to advance reform goals by working with such international organizations as the International Monetary Fund, the World Bank, the World Trade Organization, and OECD (MENA-OECD Investment), and other multilateral donors; and
  • Working with NGOs, such as Transparency International, and U.S. and foreign business associations, such as American Chambers of Commerce and Business Councils, to advance reform issues of mutual concern.

Integrating Predominantly Muslim Countries into the Global Trading System

There are a number of U.S. government-funded programs to promote predominantly Muslim countries' integration into the global trading system. The following table lists U.S. government funding for trade and capacity-building programs in these countries.



 

USG Funding for Trade and Capacity-building1
Country USG FY-2008 Funding
Afghanistan 12,621,961
Bangladesh 773,297
Egypt 17,229,944
Indonesia 13,442,029
Iraq 6,935,264
Jordan 11,271,667
Lebanon 0
Morocco 534,925,7622
Pakistan 836,400
West Bank/Gaza 18,267,194
Yemen 3,955,000

World Trade Organization (WTO) Awareness and Accession. USAID programs with components dealing with WTO awareness, accession, and compliance are being implemented in the following countries:

  • Afghanistan. Since 2003, USAID has been contributing to a thriving and growing economy through private sector strengthening activities and the creation of an enabling environment for trade and business.
    • The Economic Growth and Private Sector Strengthening Project supports the development of sound economic governance across economic ministries and agencies of the Government of Afghanistan.
    • In the area of customs administration reform, USAID supported the development and implementation of a modern Customs code, refurbishment of Customs facilities at key border crossings, and Afghanistan’s observer status in the World Customs Organization (WCO).
    • In the area of trade development, USAID has trained government officials in trade policy. In August, it supported Afghanistan to participate in negotiations to sign onto the South Asia Free Trade Agreement (SAFTA). It also supported public education on free trade and provided assistance to draft Afghanistan’s Memorandum of Foreign Trade Regime (MFTR), to be submitted to the WTO in the coming months as a first step toward WTO accession.
  • Indonesia. The Trade Assistance Project focuses on legal support, economic research, public outreach, organizational development, information technology, and WTO awareness and agreements. The objective is to improve the Ministry of Trade’s capacity to analyze and implement trade reforms that will lead to increased exports and a more attractive investment climate.
  • Iraq. The Trade Policy and Market Access Support Project provides technical assistance to the Government of Iraq on legal, procedural, and practical matters pertaining to Iraq’s bid to join the WTO. This includes technical assistance in completing key accession-relation documentation, in particular agriculture, sanitary and phyto-sanitary, technical barriers to trade, intellectual property, and modifications and updates as WTO-related regulatory reforms progress.
  • Jordan: WTO Accession in 2000 set off numerous successful trade reforms and market liberalization efforts. Current compliance issues are being addressed with a focus on Intellectual Property Rights.
  • Lebanon: Since 2000, the USG has been funding technical assistance to the Government of Lebanon to help it achieve full integration into the world economy and the multilateral trading system through securing membership in the World Trade Organization (WTO). As part of the U.S. government effort, Lebanon is working to meet WTO accession requirements. Working directly with the Lebanese Ministry of Economy and Trade USAID/Middle East Partnership Initiative (MEPI) has provided the necessary technical assistance, guidance, and structure to facilitate the advancement of Lebanon through the accession process. This assistance has also brought in the private sector into the dialogue creating a firmer basis for economic development and stability. With 12 years being the average length of accession, Lebanon is well on track and within the normal range to achieve membership. During a time of civil strife, this process has remained on track despite the numerous political challenges.
  • Yemen: In conjunction with funding from the USAID Mission in Yemen and additional support from the Middle East Partnership Initiative (MEPI), the FASTrade project has been active in supporting a number of customs reform efforts, working primarily with the Yemen Customs Authority (YCA). In 2005, a comprehensive initiative to assist YCA with the implementation of the WTO Valuation Agreement and related reforms was initiated. Over several months time, legal assistance was provided to prepare and recommend a valuation law that would be fully compliant with the WTO Agreement on Customs Valuation. In addition, training on WTO valuation procedures was provided to Customs officials at each of three principal field offices and in the Headquarters in Yemen’s capital, Sanaa. Yemen’s periodic security situation resulted in numerous delays with the provision of further technical assistance. However, by 2007, a team of FASTrade advisors were mobilized to Yemen to carry out extensive training for YCA officials on risk management issues. Extensive preparatory work of appropriate training materials was carried out in the United States after which the team traveled to Yemen to provide both classroom and field training on risk management techniques to enable Yemen to meet best international practices for applying risk management principles in a customs administration. These best practices are consistent with the WCO SAFE Standards and also utilize the application of the Automated System for Customs Data Selectivity Module to target shipments at risk for high revenue loss or otherwise incorrect declarations.

USAID Global Export Promotion Programs. USAID global export promotion programs include Afghanistan, Bangladesh, Indonesia, and Pakistan:



  • Afghanistan. The Afghanistan Small Medium Enterprise Development (ASMED) Project supports the development of the Afghan private sector by addressing non-governmental barriers to enterprise development. Key activities include improving access to market information through market-sector studies, strengthening internal capacity of business associations to lay the groundwork for future advocacy, a youth internship placement program, an innovative grants program to support global development alliances, technical assistance, market-place development in post-kinetic areas, value chain improvements, participation in trade fair and trade missions, and training for firms and business service providers.
  • Bangladesh. The Shrimp Quality Support Project focuses on improving the quality and quantity of shrimp exports by Bangladesh in socially and environmentally acceptable ways by transferring appropriate applied research to farmers.
  • Indonesia. The Enterprise and Agribusiness Development Activity supports the competitiveness of labor-intensive manufacturing industries, including footwear, furniture, auto parts, garments, home accessories, and information and communications technology. Competitiveness is strengthened by strengthening industry value chains, improving business skills, such as export readiness; and developing new industry-based standards to improve product quality and access to markets.
  • Pakistan. The Initiative for Strategic Development and Competitiveness provides technical assistance and training to increase the competitiveness of Pakistani small and medium-sized enterprises. The project works with a number of sectors, including gems, jewelry, dairy, marble, horticulture, and furniture to improve their capacity to market and export their products. The project has formed six strategic working groups to develop sector-specific strategies aimed at upgrading production and improving marketing and trade.

Customs Reforms. Customs reforms are supported by USAID programs in Egypt and Afghanistan.

USAID Africa Bureau Programs. Programs managed within the USAID Africa Bureau include Sub-Saharan integration into the global trading system, the driving forces of which are the African Growth and Opportunity Act and the African Global Competitiveness Initiative. Program efforts are focused on helping countries build a sound enabling environment including policies, laws, and regulations governing business and trade; improving infrastructure to facilitate trade; strengthening financial services to small and medium-sized enterprises and other businesses; and developing the energy sector to meet the needs of growing African economies.

USAID Asia Bureau Programs:

Central Asia Region. The Regional Trade Liberalization and Customs Project has been operating in Kazakhstan, the Kyrgyz Republic, and Tajikistan since July 2007. The project seeks to help host governments and the private sector capitalize on the advantages of greater regional and global economic integration, by providing assistance and training to improve conditions for international and cross-border trade and transit. Support includes advice on: simplification of tariffs, preferences, and pre-export barriers; World Trade Organization accession or improved compliance with obligations; customs procedures to reduce delays and costs to traders; efficiency of transport and transit for goods and traders; and private sector access to market information.

The Business Environment Improvement Project was launched for Kazakhstan, the Kyrgyz Republic, and Tajikistan in October 2006. This program supports the streamlining of legal and regulatory processes and facilitates multi-party engagement to improve the business, trade, and legal environment.

The Central Asia Infrastructure Integration Initiative, under the Regional Electricity Market Assistance Project, helps to establish a transparent and competitive regional electricity market to increase regional electricity trade, stimulate economic growth, and provide market-based solutions for regional disputes related to hydro facilities and reservoirs.

USAID supports the U.S.-Central Asia Republics Trade and Investment Framework Agreement to help foster increased regional trade through reduced transaction costs for businesses through streamlining of border-crossing procedures and increasing information.

Kazakhstan. The Regional Trade Liberalization and Customs Project provides analysis and recommendations on World Trade Organization (WTO)-compliant laws and regulations, including technical regulations, amendments to the Customs Code, veterinary, food safety and phyto-sanitary controls; and copyright, trademarks, patents, and trade-related intellectual property rights. Training is provided for WTO-compliant implementation for proposed food safety reforms; implementation of the Customs Valuation Agreement; and calculation of aggregate measures of support in agriculture. Support to Customs modernization includes analysis of Integrated Border Management issues, assessing status and capacity building on risk management. Activities to improve trade and transit include legal analysis and advice on recommendations for a “Single Window” system for pre-customs clearance, which is designed to streamline required paperwork and reform the import and export licensing system. The Kazakhstan Small Business Development Project, funded in October 2006, aims to promote the development of small business.

Kyrgyz Republic. The Regional Trade Liberalization and Customs Project provides support to the World Trade Organization (WTO) Department within the Kyrgyz Ministry of Economic Development and Trade (MEDT). Among its goals are to strengthen MEDT’s technical capacity in legal and regulatory processes to meet outstanding WTO compliance obligations, including technical regulations and protection of trade-related intellectual property rights. Training is conducted on requirements of accession to the WTO Government Procurement Agreement and on improved implementation of the Customs Valuation Agreement. Assistance on trade facilitation includes assessment of the Customs risk management system, developing draft instructions on the interaction of state control bodies for border-crossing points, and expert advice on simplification of export and import procedures and documentation.

Tajikistan. The Regional Trade Liberalization and Customs Project works directly with the Tajik government to prepare it to meet its World Trade Organization (WTO) commitments by revising and updating legislation to bring trade-related legislation into conformity with the provisions of WTO Agreements, currently focusing on sanitary and phyto-sanitary standards, veterinary surveillance, technical regulations, trade related intellectual property rights protection, and customs valuation. Trade facilitation work focuses on improving customs procedures and border transit management, including assessment and recommendations for the Customs risk management system, advising on amendments to the Customs Code to bring it fully in line with the Customs Valuation Agreement; providing expert recommendations on simplification of export and import procedures and documentation; and on measures to increase efficiency of trade management, such as bonded warehouses and expedited border-crossing procedures. Fiscal reform projects focus on reducing regional disparities by increasing the effectiveness of local tax administration and increasing the capacity of local governments to develop and execute budgets.

Turkmenistan. USAID works to foster trade advisory services and implement International Financial Reporting Standards in Turkmenistan.

USAID Europe and Eurasia Bureau Programs

Albania. The objective in Albania is to strengthen its integration into the Euro-Atlantic community and promote its contribution to integration of ethnic groups in the region. USAID worked with the Albanian government to improve the business climate for private sector growth and investment, and to improve private sector competitiveness to meet international export requirements. The Albanian Center for International Trade, founded in 2003, assists the Government of Albania to improve the quality of its trade policies. The Enterprise Development and Export Market Services Project, which ran through September 2008, promoted the competitiveness of small and medium Albanian enterprises in domestic and foreign markets, and accelerated the entry of Albanian exports into global markets.

Azerbaijan. Azerbaijan's program emphasizes economic growth and reform, with a focus on developing the non-oil sectors of the economy.

Bosnia and Herzegovina (BiH). The program in BiH supports progress towards full integration into the EU. USAID/BiH worked to integrate the energy sector into the regional European framework and supported the development and implementation of a coherent regionally competitive direct taxation system. USAID's competitiveness projects promote trade and investment in agribusiness, wood processing, and tourism by improving the competitiveness of the firms, industries, and training firms to meet EU standards.

Kosovo. The objective in Kosovo is to strengthen its economic ties in the region and promote its integration into Euro-Atlantic institutions. USAID’s goal is to help Kosovo make the transition from international administration to self-governance in an effective and peaceful manner. USAID provides training and expert counsel to build capacity in the fiscal and economic policy sectors, private enterprise development, and energy management. One such program is the Kosovo Private Enterprise Program, which assists businesses in targeted sectors (including agriculture, road construction, and forestry and wood processing) by promoting improved productivity, improving the business operating environment, providing workforce training to improve job skills in targeted areas, and identifying trade, marketing, and import-substitution opportunities.

The Regional Cooperation Council (RCC). The RCC was officially launched in February 2008 as the successor to the Stability Pact for South Central Europe. Since Kosovo’s declaration of independence on February 17, 2008, the RCC has encountered difficulties in arranging meetings that involve both Serbia and Kosovo. The RCC has several relevant programs related to global trade that affect parts of the region with significant Muslim populations, including Albania, Bosnia and Herzegovina, and Kosovo. The RCC's Trade Working Group has encouraged the negotiation, ratification, and implementation of a network of bilateral free trade agreements among the members of the RCC and supports negotiation of a single regional trade agreement to harmonize bilateral trade agreements to encompass all RCC members. The United States supports this process by providing technical assistance to lower non-tariff barriers within the region, consistent with World Trade Organization principles.

Under RCC auspices, the Organization of European Cooperation and Development Investment Compact for Southeastern Europe aims to improve the region's investment conditions, by setting out commitments for policy reform and to encourage increasing local and foreign direct investment. Signatories include Albania and Bosnia and Herzegovina.

Possible Actions to Promote Intraregional Trade and Rule of Law in the Region

Intraregional Trade



  • The vision of a Middle East Free Trade Area (MEFTA) by 2013, linking countries in the region with each other and the United States, is the centerpiece of our effort to promote intraregional trade. Our strategy for attaining MEFTA includes:
    • Negotiating Free Trade Agreements (FTAs) with countries ready for that step. The United States has concluded FTAs with Israel, Jordan, Morocco, Bahrain, and Oman;
    • Working with additional countries through the TIFA process to advance readiness for FTA negotiations; and
    • Assisting reform-minded Middle East countries that are not yet in the World Trade Organization (WTO) accession process.
  • The MEPI, MCC, and USAID Missions in the Middle East provide support for the MEFTA initiative through a variety of programs in trade capacity-building. MEPI and USAID missions in the Middle East are supporting the WTO accession efforts of Iraq, Yemen, and Lebanon. U.S. government assistance programs assist FTA partners Jordan, Morocco, Bahrain, and Oman with free trade implementation with the United States.
  • USAID/Jordan’s Business Development Center supports implementation of the FTA between the United States and Jordan, and assists small and medium-sized firms to modernize and improve their competitiveness so they can move into higher value sectors and take advantage of FTA export opportunities.
  • USAID/Morocco's New Business Opportunities (NBO) Program helps export-oriented Moroccan firms to take advantage of new opportunities for entry and expansion into the United States created by the Morocco-U.S. Free Trade Agreement. NBO includes business development services that help exporting firms to identify new market opportunities, and then work to improve their marketing and promotion to turn these opportunities into exports to the United States.

The Rule of Law



  • The Middle East Partnership Initiative (MEPI) will continue to support rule of law activities aimed at strengthening the capacity of regional governments to enact and implement commercial laws conducive to promoting economic growth. By working with legislators, judges, lawyers, and business persons, improvements in the commercial legal and regulatory environment focused on international best practices should lead to increased investment and employment across the region.
  • Egypt. USAID’s Administration of Justice Support II project promotes the rule of law by reforming and modernizing the commercial court system and improving the access to quality legal services.
  • Indonesia. USAID’s Financial Crime Prevention Project (FCPP), which ended in June 2008, was designed to strengthen Indonesia’s ability to combat financial crimes. FCPP provided technical assistance to the FIU (PPATK), Supreme Audit Commission, Attorney General’s Office, Corruption Eradication Commission, and Ministry of Finance-Inspector General Office. FCPP’s work aided Indonesia’s own efforts to build a more modern legal and institutional framework to detect and prosecute corruption and financial crime. The USG will continue to provide assistance to the Indonesian government to strengthen its capacity to combat financial crime.

USAID’s Judicial Reform Support Program assists Indonesia’s Attorney General’s Office (AGO) to implement reforms in the public prosecution system including development of a database to track prosecutors and profiles, development of a code of conduct, continuing legal education for prosecutors, and bureaucratic reform to improve human resources. This support is helping to reduce the backlog of civilian complaints and establish more objective assessment criteria for evaluating performance of prosecutors and work units. Assistance is also being extended to the Supreme Court under this program.

The Millennium Challenge Corporation (MCC). The MCC provides assistance for transformational development in countries that perform well on 17 independent, transparent policy indicators in the areas of ruling justly, investing in people, and economic freedom. Besides the financial support provided by MCC programs, the selection criteria creates an incentive for candidate countries to adopt related legal, policy, regulatory, and institutional reforms.

Summary of Millennium Challenge Corporation (MCC) Activities in Predominantly Muslim Countries:

Compact-Eligible Countries. Based on their good performance on the 17 policy indicators mentioned above, Compact-Eligible countries are invited to apply for substantial grants from MCC for programs that they design and implement through a "Compact."

Mali. Mali signed a five-year, $460.8 million Compact with MCC in November 2006 that entered into force in September 2007. It aims to reduce rural poverty and to help achieve national food security through a sustainable increase in the economic performance of the agricultural sector, and to spur economic growth and reduce poverty by increasing the competitiveness of light industry and increasing the value-added of exports and tourism. These objectives will be met through investments that increase farmers' productivity, enhance agricultural supply chains, reduce transport costs, and create a platform for industry. The Compact focuses on improved infrastructure at the Bamako Airport, a key gateway for trade, and along the Niger River for irrigated agriculture.

Burkina Faso. Burkina Faso signed a five-year, $480.9 million Compact with MCC in July 2008. It aims to promote economic growth in the rural sector by fostering land tenure security; investing in irrigation and watershed management infrastructure for agricultural purposes; constructing national roads, feeder roads, and market infrastructure; and improving existing agro-industrial supply chains.

Morocco. Morocco signed a five-year, $697.5 million Compact with MCC in August 2007 which entered into force in September 2008. The Compact focuses on relieving constraints to growth in the agriculture, fishing, artisan, and small enterprise finance sectors.

Threshold Programs are designed to assist countries that have demonstrated significant commitment to improving their performance on MCC selection criteria, but do not yet pass more than half the indicators in each of the three selection categories of ruling justly, investing in people, and encouraging economic freedom. A Threshold Program provides financial assistance to help improve a low score on at least one of MCC's policy indicators.

Albania. Reducing corruption was the primary focus of the $13.9 million Albanian program signed in April 2006. The MCC program funded projects designed to reform tax administration, public procurement, and business administration and helped to reduce the extensive red tape and below-board payments needed to start a business while increasing the national tax base. Albania signed a second Threshold program with MCC in October 2008, which builds on the success of the first program and seeks to institutionalize reforms in public administration and judicial capacity building to support further anticorruption activities.

Burkina Faso. Burkina Faso’s $12.9 million program, signed in July 2005, officially ended on September 30, 2008. The program sought to improve performance on girls' primary education completion rates. Specific interventions included the construction of 132 "girl-friendly" schools, teacher training, provision of take-home dry rations to girls who maintain a 90 percent school attendance rate, and literacy training for mothers.

Indonesia. Indonesia’s $55 million program, signed in November 2006, seeks to immunize at least 80 percent of children under the age of one for diphtheria, tetanus, and pertussis, and 90 percent of all children for measles. The Threshold Program also has a component aimed at curbing public corruption by reforming the judiciary and strengthening government institutions that fight corruption. Indonesia is also eligible for Compact assistance.

Jordan. Jordan’s $25 million Jordanian program, signed in October 2006, aims to strengthen democratic institutions by supporting Jordan's efforts to broaden public participation in the political and electoral process, increasing government transparency and accountability, and enhancing the efficiency and effectiveness of customs administration. The Threshold Program is also a part of Jordan's reform efforts focused on improvements in public administration, civil liberties, infrastructure, and the economy. Jordan is also eligible for Compact assistance.

Kyrgyz Republic. The Kyrgyz Republic’s $16 million Threshold Program was signed in March 2008 to help the Kyrgyz government fight corruption and improve the rule of law through judicial, criminal justice, and law enforcement reforms.



1 For further information, see the Trade Capacity Building Database at: http://qesdb.usaid.gov/tcb/

2 Figure includes $532 million of the $697.5 million (total) Millennium Challenge Compact, which will be spent over a five year period beginning in FY2009.

 



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