Importance of Strategic Deals With 3 Neighbors Highlighted

EghtesadOnline: Authorities in charge of foreign trade have recently spoken of $100-billion worth of export capacity, while seeking to export $35 billion worth of goods to these countries in the next four years.

News ID: ۷۸۷۱۶۲

17 October 2021

This was stated by Ali Chaqarvand, director of Plan Management, Planning and Monitoring Department of Iran Chamber of Commerce, Industries, Mines and Agriculture, in his write-up published by Tasnim News Agency.

A translation of the text follows:

The target markets that officials seek to increase trade with are those of neighboring countries. Iran accounts for only 2.5% of the $1,160-billion market of neighbors, despite having advantages such as cultural affinities, market proximity and ease of transportation.

Iran’s trade balance with many neighboring countries remains negative.

The country’s top five export markets are China, Iraq, the United Arab Emirates, Turkey and Afghanistan, which together account for more than 70% of the country’s total exports. Four of these five countries are neighbors and a large part of export targeting has been focused on them.

Foreign trade statistics in the first four months of the current year [March 21-July 22] show that three neighbors, namely Iraq, the UAE and Turkey, account for more than 37% of Iran’s foreign trade. Total trade with these three countries, which are the second, third and fourth most important Iranian export markets respectively, is about 7% more than Iran’s trade with China as the top trading partner.

Among these three neighboring countries, the UAE and Turkey are also the first and third top partners in import, as the duo account for 42.5% of Iran’s overall imports in terms of value.

The analysis of these statistics shows that except for Iraq, with which the trade balance was positive, the UAE and Turkey were the first and second trading partners with the highest negative trade balance in the four months under review.

Export Hurdles

Apart from the political issues that sometimes strain relations with neighboring countries, infrastructural challenges such as poor logistics and rail, road and air transportation infrastructure, lack of port and customs facilities and problems with trade flow, including the complexity of securing business visas and absence of border terminals on the one hand, and the poor quality and standards of some products, non-competitive prices, poor marketing, absence of export and supply chain management companies, difficulties with currency and monetary obligations, banking, insurance and tax issues on the other hand have disrupted the development of exports to Turkey, the UAE and Iraq.

For instance, despite the preferential tariff agreement Iran has signed with Turkey, restrictions regarding border and export infrastructures and transportation, standards and low quality of some export items and tariffs remain the main barriers in the way of trade with the neighboring country.

Political tensions, problems with issuing business and residence visas, banking issues, inadequate export infrastructures, including refrigeration facilities for the export of agricultural products, and instability of numerous bylaws have always hampered trade with the UAE.

The most important obstacles to trade with Iraq are visa issues, lack of a specific body to address the problems and claims of economic actors on both sides, poor export infrastructures, non-compliance with standards of goods, transportation challenges, lack of competitive pricing and poor packaging and marketing.

Regardless of these hurdles and given the fact that Iran is not a member of the World Trade Organization, which has made the cost of trade higher for us compared with these countries, bilateral and multilateral regional agreements as well as preferential agreements will help increase foreign trade with the three neighboring countries.

Under the current circumstances, exploring new markets for production and industrial units, boosting economic interactions with regional countries and establishing strategic links through trade agreements will help increase foreign exchange revenues, non-oil exports and trade surplus.

Tips to Bolster Trade

Iran’s accession to the Shanghai Cooperation Organization will open up a new window of opportunities for bolstering trade with the member states, including China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India and Pakistan.

Despite all hurdles that might prevent its implementation, it can serve as a model for the establishment of joint trade agreements with other export destinations and the three neighbors.

It is vital to note that the higher the share of Iran's exports to the allies, the greater the benefits of trade agreements. Therefore, all capacities of the private sector in improving exports should be tapped.

When it comes to seizing the opportunity of trade agreements, we need to enhance the role of private sector as well as the synergies and consultations that economic actors can created in the target countries. The whole thing would boost the volume and variety of export items and exports of value-added goods.

Establishing marketing offices and providing information services to private sector players, which is currently being carried out by Iran Chamber of Commerce, Industries, Mines and Agriculture, can be instrumental in improving trade with target countries and developing overseas markets.

Appropriate marketing of products by weighing the capacity of different Iranian provinces in exports, accurate identification and analysis of target markets, rivals and their market share, the gathering of statistical information on exports of goods and services to different regions, the employment of appropriate packaging and payment methods, using the capacities of the private sector and chambers of commerce across the country will help increase exports and opportunities that bilateral trade agreements offer.

Focusing on cultural commonalities and interests will play an undeniable role in the prosperity and advancement of trade with neighboring countries, especially the three strategic neighbors. The establishment of social and cultural networks with export targets, which will ultimately lead to a boom in trade, can be achieved by using the capacities of the joint chambers of commerce.

Joint chambers can be an intermediary for facilitating the conclusion of bilateral agreements, thanks to their knowledge of the two countries’ markets and business opportunities. They can act as a representative of the two countries’ private sector and play a more prominent role in negotiations.

Finalizing preferential trade agreements requires active trade diplomacy in the region. Collecting business data and conducting market research, introducing the country's private enterprises and companies to related sectors in foreign countries, introducing products to foreign markets by holding seminars, exhibitions and direct trade relations, resolving trade disputes and pursuing the enforcement of each country’s trade strategies are the key missions of trade diplomacy.

According to Article 13 of the Rules of Foreign Exchange and Trade Policies for Export Development and Import Management that has been recently communicated to government agencies, the Ministry of Industries, Mining and Trade is obliged to expedite the coordination among relevant executive bodies regarding the enactment of bilateral or multilateral trade and customs agreements with the neighboring countries. Such agreements with 11 target trade partners must be finalized and enforced within a year of issuing the related directive.

In addition, employment of commercial attachés, removal of legal barriers to exports, regulation of domestic market, improving the quality of products, removing hurdles to production, providing incentives, overhauling customs procedures, strengthening the distribution and marketing networks, developing exhibition capacities and setting financial and monetary mechanisms to advance business goals by foreign trade trustees should be prioritized.

Finally, although trade agreements as well as bilateral monetary deals with neighbors reduce reliance on foreign currency and banking assets, lowering the risk of political tensions and helping lift sanctions on monetary and banking transfers are also vital, if we are to take advantage of the country's economic and trade capacities as well as trade agreements.

By moving in that direction, exports will rise, production will thrive and employment will improve, leading to technology transfer, more investments and higher economic growth.