Spotlight on Streamlining Iran's Trade Regime With World

EghtesadOnline: More than 23 years have passed since the World Trade Organization received Iran’s application for accession on July 19, 1996.

News ID: ۷۸۵۲۳۰

08 January 2020

It took the organization nine years to accept Iran as an observer member, but the full membership has proved elusive, Financial Tribune reported.

Would the sanctions have been less stringent if Iran had joined WTO? This is the question Zahra Abbasi, a commerce expert, seeks to answer in a write-up for Tehran Commerce Chamber of Industries, Mines and Agriculture’s news outlet.

“Iran’s accession to WTO has always been a matter of debate at home. Some say joining under the country’s current economic conditions, its reliance on imports and the insignificant share of non-oil exports would disadvantage domestic manufacturing industries and could lead to their closure. The WTO membership would increase reliance on imports and reduce non-oil exports,” Abbasi wrote.

“Others question whether it is possible to keep the country in a so-called freeze mode, despite the dynamics of global economy, until non-oil exports pick up or the volume of imports reaches a proper level and we decide to join WTO?”

The commerce expert noted that in order to become a member of WTO, countries must conform their business laws and strategies with the rules of the organization.

“The removal of non-tariff barriers to trade, fixing specific tariffs, restricting governmental monopolies and injecting transparency into commercial laws are requisites for joining WTO. Stability and transparency of the markets and business environment would be the main outcomes of access to WTO. With a more stable economic condition, the chances of long-term trade planning and less political tensions increase,” she said.

“Had Iran been a member to WTO, it could have used the mechanisms of this international organization to file complaints against the United States; even if the desired results were not achieved, Iran could have conveyed its message about its stance to the global community. WTO membership could provide the country with more effective tools to defend it national rights.”

Abbasi then provided an example of the October 2018 ruling by The Hague, the Netherlands, wherein the United Nations’ International Court of Justice reprimanded the US over its reimposition of sanctions on Iran and ordered it to lift restrictive measures linked to humanitarian trade, food, medicine and civil aviation.

“This is a telling example of how tapping into the potential of international organizations can help Iran under the sanctions regime. It was a victory for Iran after it complained to ICJ in July 2018 that the reimposition of sanctions by [US President] Donald Trump following the US withdrawal from the 2015 landmark nuclear agreement was in violation of the Treaty of Amity, a 1955 pre-revolutionary friendship treaty.

Boosting Ties With Neighbors

The government’s efforts to improve trade ties with other countries, especially neighboring countries, is indicative of the fact that officials are aware of the importance of having more economic interactions with the world.

In the absence of WTO’s potential to reduce sanctions’ impacts, Iran can tap into the capacity of other international organizations to gain an economic advantage.

“The Ministry of Industries, Mining and Trade has set a target to raise Iran's annual exports to its neighboring countries to $48 billion by the fiscal 2021-22,” says deputy minister of industries, mining and trade, Hossein Modarres Khiyabani.

According to the official, Iran currently has a 2% share in the neighboring countries' total imports and if the target is realized, the share will rise to 4%, IRNA reported.

“Neighboring states have $1.2 trillion worth of imports [per year] while Iran’s share is only $24 billion,” he said.

“Iran's export commodities are being closely monitored so that sufficient data for exploring more options to boost exports can be collected.”

Khiyabani believes Iran’s exports to its 15 neighbors, namely the UAE, Iraq, Turkey, Afghanistan, Pakistan, Russia, Oman, Azerbaijan, Turkmenistan, Kuwait, Qatar, Kazakhstan, Armenia, Bahrain and Saudi Arabia, have the potential to reach $100 billion per year.

According to the deputy minister, the average value of Iran's exported commodities presently stands at $400 per ton while it’s $1,200 for imported commodities.

He explained that the gap between the average value of exported and imported commodities indicates that a wrong strategy has been mapped out, meaning that raw materials are exported while processed products are imported instead of the other way round.

Khiyabani said increasing the average value of exported commodities is possible by processing raw materials, turning them into finished products with high value added and diversifying the range of exported goods.

EEU Trade Deal

Three years ago, the Iranian government proposed the creation of a free trade zone between member states of the Eurasian Economic Union.

Iran and the EEU are looking to substantially increase trade, as the two sides signed a three-year provisional agreement on May 17, 2018, for the bloc to welcome Iran into EEU. The arrangement is the first step in implementing free trade between Iran and the five EEU members.

It lowers or abolishes customs duties, setting off a three-year process for a permanent trade agreement.

The trade deal came into effect on Oct. 27 and the two sides have signed a three-year provisional agreement to transform the treaty into a free trade deal.

Iran exported more than $28.2 million worth of commodities to EEU member states under preferential tariffs from Oct. 27, when a trade agreement between the two sides came into effect on Nov. 29.

According to Director General of the Islamic Republic of Iran Customs Administration Mehdi Mir-Ashrafi, EEU’s exports to Iran under the preferential trade agreement stood at around $166 million during the same period.

"The imports mostly included essential goods,” the customs chief was quoted as saying by Mehr News Agency.

The official further said Iran’s total exports and imports to and from the five EEU member states during the period amounted to $137.9 million and $193 million respectively.

The above figures show more than 20% of Iran's exports to the EEU and 83% of imports from the bloc into Iran were carried out under the trade agreement.

The average tariff set by EEU for Iranian goods as part of their provisional preferential trade agreement stands at 3.1%, while Iran’s average tariff for commodities from EEU amounts to 12.9%, according to the deputy for International Affairs with Iran Chamber of Commerce, Industries, Mines and Agricultures.

Iran and EEU have 862 types of commodities listed on their provisional PTA. As per the deal, Iran will enjoy easier export terms and lower customs duties on 502 items and the same applies to 360 items from the EEU member states.

Hossein Selahvarzi, the deputy head of Iran Chamber of Commerce, Industries, Mines and Agriculture, says the agreement is more of a practice in free trade for Iran rather than a short-lived escape from the US sanctions.

The official says free trade is the “rescue route” for Iran’s economy.

“If at the end of the road to joining EEU, Iran can identify its points of weakness and strength in free trade, we can say it has made the most out of the agreement,” he was quoted as saying by Donya-e-Eqtesad.

“The level of trade exchanges between Iran and Eurasia could exceed $30 billion [per year],” said Khiyabani said at the Iran-Eurasia Trade Forum hosted in Tehran earlier this month.

He put the current volume of Eurasia’s trade exchanges with other countries at $900 billion.

Cooperation Among Islamic Countries

Another example is Iran’s efforts to improve trade with East Asian countries, Abbasi said.

During President Hassan Rouhani’s December visit to the summit of Islamic countries at the invitation of Malaysian authorities, he made three important proposals.

Iran put forward plans to set up a joint fund under the auspices of Kuala Lumpur to provide capital to finance technical cooperation among Muslim countries. As per this plan, Muslim countries, including Iran, have vast potentials in the region due to their location, specialized human resources and infrastructure; higher per capita income could also portend a bright future for Muslim countries.

Many of these countries rely too heavily on oil revenues and the focus on this issue may separate them from the oil economy, Iuvmpress.com quoted the president as saying.

Under the joint fund, Iran has also offered to set up a joint research center to monitor new and emerging technologies, including artificial intelligence.

Iran’s plan is based on the premise that science and scientific movements can save Muslim countries from new colonialism. By establishing a joint research center, their cybersecurity will be raised to deal with cyber threats and insecurity.