Think Tank Scrutinizes Iran’s Trade Agreements Since 1979

EghtesadOnline: Iran’s application for accession to the World Trade Organization has been hanging in the air for nearly 24 years and counting.

News ID: ۷۵۰۴۱۱

07 July 2020

This, on top of tough US sanctions reimposed on the country has prompted Iranian authorities to opt for bilateral, trilateral and regional trade agreements in the hope that the detrimental effects of trade restrictions can be curbed.

Iran has signed 138 trade and customs agreements with 69 countries since the 1979 Islamic Revolution. Yet, experts with the Iranian Parliament’s Research Center believe these agreements have failed to offer tangible results in expanding the country’s economy.

Drawing on data provided by the Islamic Republic of Iran Customs Administration, Majlis Research Center wrote in a recent report that out of the 138 trade and customs agreements signed by Iran, only 16 were with countries that were among its top 30 trade partners.

Looking at the list of countries with which Iran has signed more than four such deals, namely Tunisia (7 trade agreements), Syria (6), Kazakhstan (5), Algeria (4), Kyrgyzstan (4), Armenia (4), Cuba (4) and Tajikistan (4), it becomes clear that not a single one of them were among the country’s top 30 trade partners through the fiscal 2010-11 to 2018-19.

On the other hand, despite Iran’s high volume of trade with the UAE and Iraq, no trade or customs agreements have been signed with these two neighboring countries after the Islamic Revolution and only two agreements each have been signed with China and Turkey. All these countries are among Iran’s top 10 trade partners.

The parliament report posits that instead of helping expand the country’s economic and trade ties, the main reason behind choosing countries for signing trade agreements with during the post-revolution era has been to achieve political goals and this, of course, will never take the country where trade agreements aim for.

Moreover, the commodities chosen by Iranian officials to enjoy preferential, lower or no tariffs as part of these agreements are often those that are already absent from the country’s list of main exported goods or what is called “export basket”.

On top of that, Iranian authorities limit their negotiations to tariff reductions only, whereas trade agreements offer a wide range of solutions to ease economic interactions and reduce costs by removing non-tariff barriers.

Except for the free trade agreement with Syria, Iran’s agreements with the remaining 68 countries are preferential, trade and customs agreements, meaning that the number of items and the amount by which tariffs are reduced on these goods are limited.

Combined with the fact that Iran’s trade agreements are not with its top trade partners, the inevitable conclusion is that these trade agreements are not doing much for the economy, the report reads.

PTA With Turkey

In a most recent example of a preferential trade agreement with Turkey, signed in January 2014, which took effect a year later, the neighboring country lowered tariffs for 125 Iranian goods and Iran reduced rates for 140 Turkish commodities.

Later, when the PTA details were revealed to Iranian businesses, traders and economic analysts, a common complaint was that the lion’s share of goods for which Iran received lowered tariffs included agricultural raw material while Turkey had mostly industrial goods and products with high value added on its list.

Negotiators were reprimanded for not consulting economic experts and the private sector, or considering the interests of Iranian traders.

Luckily, it had been stipulated in the Iran-Turkey PTA that the agreement may be revised over time upon the request of either side. This took place in December 2017, when Turkey’s Minister of Economic Affairs Nihat Zeybekçi and Iran’s then industries minister, Mohammad Shariatmadari, signed a memorandum of understanding for the two sides to add 60 categories of goods each to their PTA.

Secretary-general of the two countries’ commercial council, Jalal Ebrahimi, told Financial Tribune at the time that the lion’s share of what Iran is going to add to the agreement is petrochemical products.

Recommendations

Majlis Research Center believes prompt measures must be taken to rectify the mistakes of economic officials in negotiations concerning trade, customs and preferential agreements.

It stressed that the main indices that should be considered before signing agreements of this kind with any country are Export Concentration Index, Revealed Comparative Advantage Index, trade intensity, trade potential, trade complementarity and Import Dependence Index.

The report added that no data on such indices have been measured or published since the fiscal 2014-15.

Iranian economic officials, the report went on to say, must be mandated to release accurate data on the aforementioned indices as well as the extent to which the signed agreements are positively or negatively affecting the economy, on a regular basis.

The commodities to receive preferential or reduced tariffs must be chosen based on their volume and value share in the country’s export basket. Being content with reducing tariff-related barriers diminishes the gains of such agreements. Non-tariff issues, including ease of trade regulations, transportation, joint investments and dispute settlement mechanism, should also be considered as part of negotiations.

Another factor that can be highly beneficial to Iran’s economy under the current circumstances, the report reads, is to negotiate the use of local currencies in bilateral trade with the signatories.

Trade agreements can act as a bargaining tool in political relations. The number and combination of goods can be of importance in this regard. Yet, the parliament experts suggest this is the last thing to be considered in negotiations.

There is also a misconception that trade agreements with countries that have amicable political ties can benefit bilateral trade and the domestic economy.