This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L KABUL 005250 
 
SIPDIS 
 
STATE FOR SA/FO, SA/A, EB 
NSC FOR THARRIMAN, KAMEND 
TREASURY FOR APARAMESWARAN 
COMMERCE FOR AADLER 
 
E.O. 12958: DECL: 12/26/2010 
TAGS: ECON EFIN EAID ETRD AF
SUBJECT: IMPACT OF SMUGGLING ON AFGHAN INDUSTRY: HERAT 
GYPSUM TRADE 
 
 
Classified By: A/DCM ANGUS SIMMONS. REASONS 1.4 (B,D) 
 
¶1. (SBU) PRT Herat State and USAID officers visited a Herat 
gypsum manufacturer who had been forced to end production due 
to a flood of lower-priced Iranian gypsum being dumped on the 
Afghan market.  The GoA, in theory, prohibits gypsum imports 
(used in plaster, whitewash, chalk, etc.) in order, to 
protect Afghan manufacturers.  In practice, the prohibition 
is observed in the breach.  The wholesale price in Herat of 
Iranian gypsum is about 10% lower than the cost of production 
for the Afghan product, making it more attractive for Herati 
wholesalers who then receive a higher profit margin in the 
retail market.  The factory owner with whom we spoke believed 
the Iranians were targeting Afghan gypsum manufacturers like 
himself in order to eliminate competition. 
 
¶2. (SBU)  Why is Afghan gypsum more expensive?  Electricity 
costs for one.  The price of diesel in Herat (AF32/lt ) USD 
0.65/lt) for running generators is 10 times higher than in 
Iran.  And running off the generator, the owner told us, is 
just 10-15% more costly than off the grid.  While the Iranian 
company allegedly receives GOI subsidies, the Afghan company 
pays a 5% tax on its raw materials, purchased from the 
government-owned quarry, even though the company itself must 
mine and transport the rock. The industrialist alleged that 
the cascade of Iranian gypsum is part of a barter 
arrangement, most likely for Afghan opium. 
 
¶3. (SBU)  Out of 100 employees, 40 have already been fired 
since operations were halted.  On site, about 16,000 bags of 
gypsum inventory lie unsold.  Unprocessed gypsum rock, valued 
at over USD100,000.00 are also at the factory location. 
 
¶4. (C)  According to informed sources, the &illegal8 import 
of gypsum is being facilitated by provincial political 
leaders, up to the Governor.  One report stated that Herat 
Governor Anwari ordered the Head of the Border Police to 
allow gypsum to enter without inspection.  Another report 
told of a shipment of over 15,000 tons of gypsum consigned to 
the PRT in Qal-I Naw, Badghis.  (We have heard other examples 
of imports illegally consigned to tax exempt entities, 
including to PRTs, UN agencies, and NGOs.) 
 
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Comment 
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¶5. (C) Gypsum is a bulk product, heavy and difficult to hide, 
and unlikely to be smuggled over difficult terrain or on pack 
animals.  It is entering Afghanistan under the eyes of Afghan 
customs officials who when asked, acknowledged that its 
importation is prohibited by the Ministry of Trade.  This is 
just one example of Afghanistan's corrupt customs system, and 
how local investment is being crushed by predatory Iranian 
trade practices.  But the gypsum trade is also evidence that 
the rot, permitting flagrant violation of Afghan law, runs 
above and beyond local customs officials. 
NEUMANN