The Forum for Partners in Iran's Marketplace

September 2004 / No. 31

Global Economy

Globalizing Iranís Economy

We will not remain idle in the face of political obstacles to our WTO accession. Iran is trying to develop its relations within the framework of bilateral and then regional agreements.

Before the dissolution of the General Agreement on Tariff and Trade (GATT) and the establishment of the World Trade Organization (WTO), Iran was a supervising member of GATT, a position the country failed to secure in WTO. Iran has since then been held back from WTO membership due to U.S. opposition.

However, lack of WTO membership has not barred Iran from moving in line with the global economy or remaining untouched by its effects. It is obvious that globalization impacts every country, and Iran has been not exception. This article focuses on the economic impact of globalization. But first, globalization needs to be defined. Thinkers have come up with different definitions of globalization. After global developments, which took place after the disintegration of the former Soviet Union, globalization became synonymous with the generalization of market economy. After the implosion of the socialist system and discredit of socialistic economic thoughts, the market economy prevailed. A factor contributing to this effect was revolutionary changes in the field of information technology. Liberalization, privatization, deregulation, and downsizing governments are all elements of the market economy. Now we must see what will be the effect of the development of a market economy and its components on the Iranian economy. Two important variables that affect not only the Iranian economic system, but that of all countries are liberalization and privatization. Two other variables are trade and investment. It has been widely accepted in the world that two factors link countries to the global economy; one is trade and the other is investment. Countries try to achieve both in order to have a more active presence in the global economy.

With regard to trade, a country incapable of trade liberalization would not be able to take advantage of positive or even negative impacts of globalization. Imports and exports clear the way for transfer of national capabilities to the global economy and vice versa. The same is true about investment.

What is foreign direct investment? It means providing grounds in the country for adopting developmental elements from the international economy. Investment does not solely mean money; it also means technology and job creation. For this reason, all countries that have been successful in terms of trade have been already successful in terms of exports, imports and attraction of foreign direct investment.

If a country proves incapable of attracting foreign investment, it will not succeed in developing exports either. Current models in Latin American, Turkey and especially East and Southeast Asia attest to this fact.

Globalizationís Impact on Iran: Iran is not considered a globalized country; nor does it have a globalized economic system. Our major presence in the global economy is through crude oil and this cannot be productive for a country in a global economy. Global economy will mean more industrial (not agricultural) exports. Only industrial exports are productive not such commodities as carpets, pistachios or dry nuts that we have been exporting for many years now. We are discussing Iranian economy in 2004 and we can claim that based on global norms, the Iranian economy is not a global economy. We want to push that economy toward globalization during the Fourth Economic Development Plan. We must see what is the share of Iranís high-added-value exports from global markets? What is Iranís share from production relations and global production cascade? What is Iranís share from attracting international foreign direct investment? What is the ratio of Iranian trade to its gross domestic product? Such indexes will show that we are way behind Brazil, Malaysia or even South Korea in terms of globalization and we even lag behind many developing countries around us.

The U.S. does not want Iran to take advantage of the WTO opportunity and this is a political issue that should be solved through diplomatic means.

Now letís see what are the effects of globalization on the Iranian economy? Globalization will have both positive and negative effects on our country, like any other country. International reports show that such countries as China and India managed to boost their share of the global economy during the past decade. There were also countries that lagged behind. Experiences in many countries show that countries open to the global economy have prospered more than countries with closed economic systems. This, however, does not mean that globalization is an elixir; any country that takes it will prosper and any country not taking it will deteriorate. The main point is governmental management systems, especially in developing countries. It is unwise to think that a simple link to the global economy will pave the way for availing of the benefits of a global economy. Many countries have been WTO members for years including African countries such as Chad, Libya, Togo, Burkina Faso, and Uganda, which are also among the most impecunious countries in the world. Therefore, we cannot say that membership in the organization will cure every economic woe.

Security Measures: Adopting a security approach to international relations has somehow slowed down the process of globalization. During Former American President Bill Clintonís time in office, which was the acme of the global economy and even the acme of the American economy, the process of globalization was the dominant current in international relations. But under the Bush Administration a security variable was added to that process, which reduced its status in many countries. We must see whether globalization is a project used by big powers to exploit developing and less developed states or not? This is not likely, because behavior of other developing countries does not support this. At present, 147 countries are WTO members and 24-25 countries are negotiating to become members. Entering the world body is tantamount to interacting with the global economy. Now, are those countries aware of the negative consequences of globalization and move toward an open economy despite those effects? The disputes rife in our country during the last couple of years result from a concept known as Washingtonian Consensus.

John Williamson brought up this discussion about the World Bank in 1989. He said countries should reduce governmentís interference in economy by downsizing it, deregulation and liberalization of the economy and pave the way for growth of the private sector. The policies adopted in our country during the past few years have been a kind of Washingtonian Consensus. Critics believe that such a consensus is mainly based on growth policies and ignores distribution and justice-seeking policies. Many accept that growth and distribution should be pursued simultaneously, but the point is that globalization, market economy and free trade are all production and growth theories. Critics say globalization has negative consequences for which all countries must be ready. International bodies have focused on eliminating poverty during the past years because if poverty and poor people are ignored no development would be possible. Therefore, developing countries pursuing democracy should concurrently pursue distribution policies too. All international bodies have advised that the two kinds of policies should be followed concurrently.

A country incapable of trade liberalization would not be able to take advantage of positive or even negative impacts of globalization.

The negative effects of this newly added security component has not only affected us, but the region as a whole. The security component goes particularly against development. When the issue of terrorism and war is highlighted in a region, the first reaction is flight of capital. Under such conditions, development will not be a priority. The Middle East has turned into a crisis region and the main pivot of United Statesí security approach. Introduction of the security element has not marginalized globalization as a dominant world process, but has slackened its pace. However, the security approach could not be a permanent one and the international system will go back to the main elements of development and welfare.

Iranís WTO Accession: The issue of Iranís WTO accession is political, and we cannot discuss it from a purely economic standpoint at this juncture. The issue per se is a totally economic and legal matter, but what we see now has nothing to do with the WTO and its agreements.

This is a direct result of relations between the Islamic Republic of Iran and the United States of America during the past 25 years. Iran proposed to join the WTO in 1996, under President Hashemi Rafsanjani, which was rejected by the United States. Despite the lapse of eight years and Iran repeating its request 17 times, we have not been able to enter the next phase.

The reason is that the United States aims to deprive Iran of opportunities for development and this refutes claims surfaced by those opposing Iranís membership in WTO on grounds that it is a tool used by advanced countries to exploit developing ones. If this was true, the United States could have used it to exploit Iran much earlier. The United States does not want us to take advantage of this opportunity and this is a totally political issue that should be solved through diplomatic means. The United States should reach a reasonable level of relations with Iran to be able to revise its past policy vis-ŗ-vis the country.

It is important to note that Iranís membership is not a merit that will given by the United States. This is a right of all countries and we too must avail of it. There is a principle about the WTO which is known as universality. It says that all countries are entitled to become a member of the organization and if a country has deprived us of our right we must not give any concessions to reclaim it. We must wait until the problem is solved in a way not derogatory to our dignity.

A series of measure are being taken in the country and we are developing our relations with neighboring countries within the framework of regional agreements and bilateral free trade agreements. A policy pursued by Ministry of Commerce is membership in regional treaties and concluding free trade agreements with neighboring countries. We have also reached conclusions with some countries.

Iran will not remain idle in the face of political obstacles to its WTO accession. Iran is trying to develop its relations, at least, within the framework of bilateral and then regional agreements. An important matter for the WTO is international rules and regulations. They oblige you to follow a certain set of international standards as the core of your relations with other countries. Current laws and regulations in Iran are not international, but we are trying to bring them close to international norms.

Trade regulations in our country are being attuned with WTO standards. For example, we are canceling entry permits, lifting non-tariff barriers and even reviewing foreign investment, customs, and taxation. Most of the measures taken during past 5-6 years are in line with international norms and they can enable us to propose a trade regime to the organization.

We have many other things to do. Part of our backwardness is due to obstacles erected by other countries. This is a big challenge that should be addressed by Iran. A country like Saudi Arabia has been engaged in negotiations for 11 years and the Russia has also been negotiating for 11 years, but neither country has succeeded to satisfy the World Trade Organization. Of course they are going through final stages. It is predicted that the issue of Iranís accession to WTO will reach an acceptable state in 2005. You must not think that the current problem will go on forever. We are now being heavily supported at WTO and its general assembly by many countries including the European Union and all developing states. In fact, it is the United States which is currently under increasing pressure and should find a good answer to this problem.


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  Sep.  2004 / No. 31