Monetary and Capital Market Exclusive, March 2004

Monetary and Capital Market in Iran

WTO Why Not?

WTO membership would be advantageous for Iran in some ways and the U.S. is preventing Iran from availing itself of those advantages.

Dr. E. Omidbakhsh, Head of the Plenipotentiary Representative Office

Following the frequent applications by the Islamic Republic of Iran for membership in the World Trade Organization (WTO), the United States representative to the world body had repeated this statement 15 times, “We are not ready to study Iran’s membership and this issue must be discussed during the next meeting.”

To see into this problem, perhaps there is nobody better than Dr. Esfandiyar Omidbakhsh, who has been working with the Institute for Trade Studies and Research since 1983. He has focused his efforts on research, educational and executive activities relating to GATT and WTO since 1991. He was appointed as Head of the Plenipotentiary Representative Office of the Islamic Republic of Iran in 2001.

What is the main problem for Iran’s accession to WTO?

Iran submitted its formal request to the Secretariat of WTO in July 1996. Iran was later informed that due to lack of a consensus as a decision-making procedure in the General Council of the organization, its request had not even been brought up during the General Council’s meetings. In fact, the United States’ obstructionism prevented Iran’s request from being discussed. Therefore, we could not even know the viewpoints of other members about our membership. This situation went on for 5 years and following a series of diplomatic endeavors, Iran succeeded in placing its application on the agenda. However, no tangible results were gained. Since that time—from May 2001 up to October 2003—Iran’s request was on the General Council’s agenda 15 times, but each time it was balked at by Washington and a consensus was not reached. Naturally, no working party was established in order to see into the case.

Except for Iran, has there been any other country whose membership application has taken seven years?

No. Iran’s situation is quite unique among world countries. That is, the 50-60 year old record of GATT and WTO does not show any such precedence and proves that no country has been facing the problems that we are currently grappling with. We have not been able to start the process for forming a working group and it is still unclear when this process would start.

In your opinion, how long will this trend continue?

It is not predictable and is related to Iran’s international relations with big powers and especially the United States. That is, the international political economic system is a hegemonic one and the U.S. has been and still is capable of curbing other countries and depriving them of certain opportunities. WTO membership would be advantageous for Iran in some ways and the U.S. is preventing Iran from availing itself of those advantages. This obstructionism vis-à-vis Iran’s membership should be viewed as part of a constellation of animosities demonstrated by that country against Iran during the past 25 years. As long as the relations of the two countries have not been adjusted one way or another, it could not be predicted how this predicament would be overcome.

What is your personal view?

My personal opinion is that joining the WTO is the right of all countries based on the principle of universality and no country should have to give privileges to a big power to accede to the organization.

What person or organization is responsible for solving the current predicament?

Mr. Shariatmadari, the Minister of Commerce was appointed by a presidential decree, as the Plenipotentiary Trade Representative of Iran in 2001 and I am the Head of the Plenipotentiary Trade Representative Office.  This Office is not responsible for solving this problem. This deadlock is a totally political issue and should be solved by the country’s diplomatic apparatus. Finding a solution to this problem and paving the way for our country’s accession to the WTO is a mission for bodies such as the Ministry of Foreign Affairs.

If Iran’s membership in the WTO were harmful for the country, why is its arch-foe, the United States, opposed to it?

I too have pointed this out. The WTO is a manifestation of the institutionalized form of global economy and trade. Before asking about the benefits and disadvantages of Iran’s membership, we must ask about Iran’s presence in the global economy. Is the globalized economy to the benefit of Iran or not? Does Iran intend to interact with the global economy or not? If we could find answers to these strategic questions, the same could be said about membership in the WTO. Presence in the globalized economy and presence in the WTO would entail similar consequences. The sole difference is that our regular membership in the organization would be followed by certain consequences and commitments and we must see whether Iran wants to develop within its national borders or intends to interact with the global economy.

In view of three development plans and on the threshold of the fourth one, is Iran willing to interact with the outside world?

At least, during the Third Development Plan and now that we are on the threshold of the Fourth Plan, it is clear that Iran intends to interact with the global economy. Many measures taken by our country including many policies, decisions and regulations uphold this point that we want to interact within the framework of the globalized economy. If we accept that this as a principle of our economic and political system, the issue of globalization could be handled within the same framework. However, this does not mean that we would be able to predict all the advantages of membership beforehand. The prolongation of negotiations with the WTO would provide countries with a good opportunity to test their presence in the organization. In this way we would be spared a lot of consequences that we consider as untoward. Members of the WTO are governments and governments are responsible for managing economic and political systems of their countries. If a government has clear-cut developmental programs, that is, specific support, industrial and trade policies, it can test them during the process of negotiations on joining the WTO and can then decide about every individual industry or even commodity and see what the consequences would be for production, employment and competitiveness of a specific industry or commodity, if it is asked to reduce the tariff for a given good. We must not think that joining the WTO would flood our country with commodities without our being able to defend our economy and that we would be obliged to give in to the global economy. No, this is not the case. This arises from lack of awareness on the part of people. Undoubtedly, entering a competitive space will have natural consequences for every country and it is important for us to decide whether we want to live under a supportive atmosphere or prepare our industries gradually through wise policies for competitive conditions. This is related to strategic management, under which any industry or sector must act. The consequences and, on the whole, advantages and disadvantages are other problems which exist in any organization or establishment or even any choice or decision. Any choice would be followed by certain costs and advantages. Naturally, we must assess the benefits and the costs and then make a decision.

To what extent can the experiences gained by other countries help us in this regard?

The experiences gained by other countries could be very helpful. At present, the organization has 148 members and 24 countries are negotiating to join and increase the number of member states to 172. Working parties for four countries of Iran, Libya, Syria and Afghanistan have not been formed. Naturally, when 176 countries become members, there would be no important country remaining that has not joined. We want to have trade with all countries. When they are members of the WTO they would ask us to comply with the procedures and regulations of the organization. On the other hand, we cannot expect them to work against their commitments to the WTO. We are currently faced with this problem; that is, during bilateral negotiations with the EU and some developing countries, since all of them are members of the WTO, the legal basis of commitments is the same as stipulated by the organization. That is, although we are not a member of the WTO, our intention to extend our relations in a regional and bilateral manner, would make us face the obligations of the organization. Therefore, it is wrong to think that only membership in the world body would entail those obligations for us.

There are concerns as to what would happen if all or most countries join the WTO while we are still outside?

It would not be a good situation. It would be like when Iran wants to trade on an isolated island. Of course, this does not mean that the country would be totally isolated in the international scene. Now that the WTO is closed to us, the government wants to get access to other markets through boosting bilateral and regional relations through enforcing preferential tariff rates.

Iran’s membership in the WTO will directly affect activities of ministries and other executive bodies. Has anything been done to involve other bodies?

Yes, we hold regular meetings with 15 ministries at the level of ministers and deputy ministers. We have designed joint projects with them and are implementing them. The goal of the projects is involving experts of the said bodies with the issues related to the organization. So far, we have conducted five research activities on the effects of WTO membership and other projects would be completed by the year-end. In addition, extensive measures for information have been taken. We are publishing a WTO Newsletter every month and we have been doing this for seven years. Moreover, we have launched a website at the address of www.irtr.ir which can provide interested individuals with adequate information on issues related to the WTO. We have taken other measures in the form of holding educational courses and seminars and will continue to do so in the future.

What ministries or bodies have conducted the five projects you referred to?

Two projects were carried out by Ministries of Agricultural Jihad as well as Economic Affairs and Finance. Two projects were implemented by the Central Bank of Iran. One of them was related to foreign exchange regimes and the other one to financial and banking services. Another project was carried out on the effects of WTO membership on such basic metal commodities as steel, copper and aluminum. However, research on the industry itself has not been completed. The Ministry of Road and Transportation completed a project recently in the four fields of rail, air, marine and road transportations. We want to assess the consequences of our country’s commitments within the framework of WTO and to evaluate those consequences in a probable and not accurate manner. We would be capable of precise assessment of consequences only during negotiations when our commitments would be determined accurately.

What has been the result of five projects that were implemented?

In general, we have fewer problems in those sectors that enjoy competition capabilities and do not take advantage of prerogatives and monopolies. For example, we will not face major problems with regard to the agriculture sector and perhaps our membership would be advantageous for the sector. However, the issue is different for industry and services sectors. In the services sector, a major problem would be faced by the banking system because a requisite for WTO membership is to allow foreign banks to become active along side domestic banks. At present, there is no law inside the country to make way for activity of foreign banks along with the domestic ones. The same is true about insurance. Of course, the insurance sector is solving the problem. Many officials welcome presence of both foreign banks and foreign insurance firms. Therefore, the way should be gradually paved through providing legal grounds.

What have been the research results on the industrial sector?

I think such industrial sectors as automobile manufacturing companies which enjoy very high tariffs will be facing problems. The reason for high tariffs is that we are trying to control our goods through a tariff system. We must not consider the current 170% tariffs on vehicles as acceptable for joining the WTO. Perhaps our accession to the organization will happen 10 years from now and at that time the tariff would be 5% in 2013. I mean the tariff process is a decrescendo process. You know the year 1382 (2003-04) is the first year that Iran is using tariffs as the main trade policy instrument for controlling trade.

A research project on steel, copper and aluminum has been finished. What have been the results?

The tariffs for the three metals are low. These metals, especially copper, have comparative advantage and there are good grounds for their exports. However, trade is not the main concern and it also depends on production technology, modern marketing methods and other measures required for establishing a presence in competitive foreign markets.

For example, we are facing problems with regard to steel exports to the European Union because they give special quotas and since we don’t have trade agreements with the EU, we cannot take much advantage of those quotas. Anyway, being a member of such international bodies as the WTO would be advantageous for us. For instance, if we intended to export steel to Europe and Turkey wanted to do the same, since Turkey has signed free trade agreement with the European Union and that agreement entails zero tariffs, they would be in a better position to enter the European markets. On the opposite, we are facing 10-15 percent tariffs. However, our problems with regard to steel exports are not acute. What I said here are general remarks and we must wait until the projects become public.

Since oil is not covered in WTO negotiations, what is your forecast? Could it be included in future or not?

Crude oil had neither been included in GATT negotiations, nor in WTO talks. However, there have recently been rumors about inclusion of oil in negotiations of the World Trade Organization, which if true, would not be a welcome development for OPEC members, especially countries such as Iran and Saudi Arabia, which are mainly dependent on crude oil exports. As you know, crude oil exports are incompatible with principles of free trade because OPEC determines both production quotas and price, which is against free trade principles. Supply and demand form the basis for free trade and this is a major problem facing OPEC members. Another problem is dual prices in force for crude oil. That is, oil is marketed inside the country at a much lower price than its export equivalent. This will become a problem when joining the World Trade Organization. Russia is now facing a similar problem with its natural gas. The Russians were criticized because they sold natural gas inside the country at $19 per one thousand cubic feet while the export price for the same amount of gas was $90. This was considered a privilege for Russian companies which was withheld from other companies. In other words, it gave Russian companies a spurious competitive capability. The Russians said it was a comparative advantage for their country. Anyway, similar criticism is probable about Iran and other OPEC members with regard to dual pricing taking into account that OPEC’s relationship with Kyoto protocol is in debate though some countries have still not joined it.

You mean if the WTO included crude oil in its negotiations, OPEC would be broken up?

I cannot give an accurate forecast in this regard. Perhaps OPEC members would not accept crude oil to be included in the WTO agenda, because many of them are already members to the World Trade Organization.

Which OPEC members have joined WTO?

Nigeria, Indonesia, the United Arab Emirates, Kuwait, Venezuela and Qatar sit on both organizations, while Algeria and Saudi Arabia are still negotiating. I think only Iran, Libya and Iraq are not members of the WTO. Saudi Arabia, which is the most important OPEC member, is currently negotiating to join the WTO. Perhaps Saudi Arabia and other OPEC members would not allow oil to become part of the World Trade Organization’s agenda.