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Why
Tariffs Are Not Sufficient
According to the Fourth
Economic Development Plan Act, apart from forbidden goods, every citizen can
import any amount of any good. In short, there is no limitation for export and
import of commodities. This is, per se, a requisite of a liberal economy. It
increases competition between domestic and international companies and enables
domestic producers to compete at an international level. Finally, it will
enable national production sector to prove its capacities both in terms of
quality and quantity, at international level. Therefore, the act is based on
accepting the principle of competition and quality within the framework of an
international system and no opposition to it can be considered logical.
Tariffs show competitiveness of an industry. For example, when tariffs for an
industry are set at 80 percent, the figure is enough to show that the industry
is not capable of international competition.
The government can use
tariffs as a mechanism to regulate domestic markets. This will create a
balance between the interests of producers and consumers. The government
should create a balance point for every field of industry in view of national
interests. Since winter is a time when tariffs for the next years are
determined, the following points may prove useful:
1. Determining tariffs: When
determining tariffs for various goods, attention should be paid to annual
inflation rate and foreign exchange rate because if inflation rate in a
country is two-digit while in rival countries is one-digit and, on the other
hand, foreign exchange rate is constant, the government should note that
difference in inflation rate will reduce effectiveness of tariffs. Therefore,
this should be taken into account when setting tariffs for the next years.
2. Reallocation of
subsidies: Reallocation of subsidies will naturally affect cost price of all
domestic products and will reduce their competitive power. Therefore, since
the plan is to be implemented, its effect on prices should be taken into
account when determining tariffs.
3. Global recession: Global
recession is a reality which has plagued the world economy. Recession first
affects sales of various goods and causes drastic cut in prices. Therefore,
global prices of most goods have fallen from 30 percent to 50 percent. Since
effective tariff is the product of price of a good by amount of tariff,
severed reduction in prices in the current year has reduced effective tariffs.
That is, effective tariffs have been reduced in the current year due to a
corresponding fall in prices. Even if we planned to introduce effective
tariffs equal to the current year’s tariffs, we should note that due to
reduction in prices and tariffs, the rate should be increased in order to
reach a suitable tariff rate for the current year. At the same time, cost of
imports will not change compared to the current year.
4. Economic sanctions: Since
the Iranian nation insists on its legitimate rights, Western countries have
increased economic pressures on the country and will continue to do so. The
main target of those pressures is Iranian economic corporations. Therefore,
domestic production is the main target of those sanctions and although
national production has continued due to devotion of domestic workforce, the
tariff mechanism should be used to provide industries with more support. There
is no reason for us to suffer severe pressures from Western countries and yet
become an attractive market for their products due to low tariffs.
5. Balanced tariffs: The
government claims to be justice-based. That motto should cover all areas of
activity in the country. Domestic industries are doing their best. This does
not mean that we should come up with a uniform tariff for the whole production
sector, but we must follow a normal curve. It would be unjust for a company to
avail of 90-percent tariffs on its products, but be unwilling to procure what
it needs from domestic market due to lower tariffs. An incremental method will
be useful. This means that a tariff should be considered for a final product
and then tariffs are considered in increments or decrements for other products
or even half-made products. It should be noted that the main reason why
production units call for high tariffs is the constant rate of foreign
exchange and annual increase in production costs. If a balance could be
reached between the two elements, the existing tariffs would be sufficient.
However, since the government follows its policy to keep the value of the
national currency, there is no choice to keep production going, but to
consider a plausible increase in tariffs. |
