By Joel Schectman And Dion Nissenbaum
WASHINGTON--As the U.S. struggled in recent years to help prop up Afghanistan's anemic economy, the American
military turned for help to an unlikely partner: Iran.
The U.S. has no formal relations with Tehran and American companies are restricted from working with Iran by
sanctions over the country's disputed nuclear activities. Nevertheless, a specialized Pentagon task force sought to
engage Afghanistan's western neighbor for major business ventures it was promoting in the country.
Twice in the last two years, the task force secured special permission from the U.S. government, to seek help from
Iran in setting up Afghanistan's first pharmaceutical company and in developing four mines, according to government
documents reviewed by The Wall Street Journal and interviews with people directly involved in the unusual outreach
effort.
Though the engagement with Iran ultimately faltered, the efforts demonstrated the lengths to which the American
military was willing to go to promote business investment in Afghanistan to replace billions of dollars the U.S. and its
allies have spent during 13 years of war.
The Pentagon's request for exemptions from America's strict sanctions regime represented a note of pragmatism.
Encouraging investment in one of the world's poorest countries could, in some cases, take precedence over tight
enforcement of sanctions against Iran.
"For Afghanistan, you can't ignore Iran," said Joseph Catalino, head of the Pentagon's Task Force for Business and
Stability Operations--an agency that seeks to help rebuild Afghanistan's economy by backing investment opportunities and
business ventures. "They're a major partner to them in many ways."
The unusual and quiet cooperation with Iran represents one small example of the Obama administration's tentative
efforts to allow for a closer relationship with America's longtime adversary that would make it easier to work together
in Afghanistan, Iraq and Syria.
From last year's ice-breaking phone call between Mr. Obama and Iranian President Hasan Rouhani to ongoing nuclear
talks, the two nations have been trying to repair their relationship--much to the dismay of American allies such as
Israel and Saudi Arabia, which are wary of Iran's intentions.
For critics of the administration's outreach to Iran, the Pentagon's efforts sent a dangerous signal amid
negotiations between Iran and six world powers aimed at preventing Tehran from developing nuclear weapons.
"It's why they see us as a paper tiger," Sen. Mark Kirk of Illinois said in an interview. "It is impossible to
convey to the Iranians that you are getting tougher on them if DoD personnel are involved in granting Iranians special
favors. It represents a total incoherence in the Obama administration," he added.
"You would expect that Afghans would outreach across the border to Iran, but for Americans to do it is really
stunning and defeats the purpose of nuclear negotiations," he said.
Mr. Catalino is the last in a line of Pentagon officials leading the military's unorthodox, five-year business
development project in Afghanistan. The task force he runs started in Iraq in 2006 to aid investment in that country,
and later turned its efforts to Afghanistan.
Since 2009, the task force has aggressively courted international businesses and encouraged them, with marginal
success, to invest in Afghanistan--a country beset by poverty, violence, governmental uncertainty and an unpredictable
future, especially as U.S. and international forces reduce their presence.
Hundreds of Iranian companies do business in Afghanistan and Tehran is constantly trying to cut into Pakistan's
business in the region, as it seeks to further trade with China and India.
For Tehran, projecting economic influence into Afghanistan also serves as a counterweight to more than a decade of
U.S. military involvement to Iran's east and west.
The International Monetary Fund stopped gathering data on Iranian imports into Afghanistan more than 30 years ago.
But exports from Afghanistan to Iran indicate the relationship has mushroomed in recent years, with exports to Iran
growing from $9.2 million in 2009 to $16.8 million in 2013.
Iran's leaders have pledged they will help with Afghanistan's economic recovery, and Mr. Rouhani told his Afghan
counterpart in congratulatory phone call last month that closer ties were the key to regional security, according to
Iranian state media.
But U.S.-sponsored efforts to involve Iran are much more unusual, and navigating the political minefield in the
region has been a constant challenge. For most business with Iran, firms need special licenses from the Department of
Treasury.
The Pentagon task force touted in one project Afghanistan's untapped mineral resources as a cornerstone of economic
independence. But its efforts to develop a viable mining industry in Afghanistan have made little progress.
In 2012, the task force received word that an Iranian company was interested in a Pentagon request for bids to take
part in four copper and gold mines in Afghanistan.
Though it couldn't work with the Iranian company directly, the task force sought and received approval from the
Treasury Department to provide Iranian officials with online access to mineralogical data gathered by the U.S.
Geological Survey about the mining sites and invited them to tour the sites, said James Bullion, who served as head of
the task force at the time.
"We wanted to see the best bidders come with the best offers for the Afghan people," he said.
Officials didn't name the Iranian firm and helping the company with the mining project proved to be difficult. U.S.
officials couldn't take Iranian businessmen on tours of the mining sites being offered to other potential bidders.
Pentagon officials said such a trip and related communications had to be made indirectly through Afghan officials.
So the Iranian company decided not to bid on the projects, which eventually were awarded to two firms from
Afghanistan, one from Turkey and a fourth based in Canada and the United Arab Emirates.
Though the task force couldn't work closely with Iran, Mr. Bullion said it couldn't ignore Afghanistan's powerful
neighbor.
"They are their natural trading partners," he said.
To attract the best investors to Afghanistan, the task force had to be practical, Mr. Bullion said. And that meant
not excluding Iran.
"It wouldn't have made sense," he said. "Iran is a huge trading partner--more probably than any other neighbor."
While the raw pharmaceutical materials could have been purchased elsewhere--such as from China--the supplies would have
cost more and hurt the company's chances of becoming self-sustaining, Mr. Bullion said.
Another opportunity to work with Iran arose last year while the task force was helping an Afghan company build the
country's first major pharmaceutical plant in Herat Province, which borders Iran.
The company, Afghan Pharma, wanted $10 million in American financing for the plant. But it also planned to ship its
products through Iran. U.S. officials feared that the company would import raw materials from across the border, which
could have violated U.S. sanctions.
Officials at the Overseas Private Investment Corporation, the U.S. agency providing financing for the company, were
uncomfortable with the implications of funding Iranian trade, according to one person familiar with the matter.
The Pentagon task force attempted to persuade OPIC that the jobs created in Afghanistan would make the deal
worthwhile. Pentagon officials said they believed OPIC was reassured when the task force won approval for the deal from
U.S. Treasury Department's Office of Foreign Asset Control, in January.
But OPIC passed on the funding this year, an OPIC spokesman said, with discomfort around the Iran aspect a "
consideration among other considerations."
The failure of the financing effort represented another setback for the task force, which is scheduled to wrap up
its operations at the end of this year.
Some are glad to see the task force go. In 2011, U.S. lawmakers sought to strip the task force of its business
promotion mandate. While the effort failed at the time, it added to controversy surrounding the Pentagon effort.
Afghan Pharma CEO Zalmay Atifi said so far he has been disappointed with the assistance from the task force. After
supplying mountains of paperwork on the project and receiving repeated assurance over two years, he's still waiting for
financial backing for the project.
"Every day, I provide them more and more documents...The only number I didn't provide was the number of my shoes,"
he said. "But they still do not support us at all."
"It's a question of natural trade flows and cost of materials and existing relationships," he said. "To ask them to
pull up all their existing commercial relationships was really not viable."
A Pentagon spokeswoman said that while the company may need to import "a limited number of pharmaceutical products
from Iran," the task force expects "the economic benefit for Iran will be negligible."
Mr. Atifi said that while he has imported pharmaceutical goods from Iran in the past, his plant was unlikely to use
raw chemicals from the country.
His plant would, however, require shipment of chemicals through Iran's Port Bandar Abbas. Trying to ship through
India instead would more than double the price of the goods, he said.
Jay Solomon contributed to this article.
(END) Dow Jones Newswires
11-04-141943ET
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