_ Sepehr Arefmanesh. Teheran, 10 January 2018. Published for debate.
Iran and the Eurasian Economic Union are about to unveil a preferential trade agreement, hoping that the agreement would help traders overcome the ongoing hurdles and compensate for the recent drops in Iran’s exchanges with the five member states of the EAEU.
Foreign Minister Mohammad Javad Zarif, speaking in the Iran-Armenia Business Forum in Yerevan earlier in December, announced that Iran and the union have finalized a PTA deal and presidents of the six countries involved are expected to sign the agreement in the near future. The move is expected to ease trade between Iran and the EAEU members, Zarif added.
A draft agreement between Iran and the EAEU was signed in Yerevan, Armenia, on July 5 after more than a year of negotiations for levying preferential trade tariffs. The final agreement is expected to come into effect as of January 21, according to Trade Promotional Organization of Iran.
EAEU members have been among Iran’s major trade partners in recent decades, though latest data on two-way commercial exchanges indicate that the union members currently account for barely 2% of Iran’s foreign trade at the moment, excluding crude oil sales.
Islamic Republic of Iran Costumes Administration records indicate a 47% drop in Iran-EAEU non-oil trade during the three quarters since the beginning of the current Iranian fiscal year (March 21-December 21) compared with the corresponding period last year, as the total volume of trade between the two sides stood at about $995 million during the nine months. The figure for last year’s similar period stood at $1.88 billion.
Financial Tribune’s data analysis shows that Iran’s trade with Russia, Belarus, Kazakhstan and Armenia experienced significant drops during the period under review. Notably, there was a 54% drop in Iran-Russia trade and a 73% drop in Iran’s trade with Belarus.
Kyrgyzstan was the only EAEU partner of Iran recording growth in trade during the period. The growth was significantly high at 2,293% from $4.3 million last year to $103.3 million this year (three quarters).
Iran’s imports from the union amounted to $547.7 million during the period, drastically lower than $1.45 billion in the last year’s corresponding period. Cathode, sunflower oil, wood, paper, livestock and colza were the main commodities exported to Iran from the Eurasian Economic Union states.
As Russia is Iran’s largest EAEU trade partner, it’s no wonder the 64% drop in imports from Russia had the highest impact on the overall drop in the volume of imports from the union.
Iran’s exports to the EAEU stood at $447.5 million during the period, slightly higher than the $436 million in the same period last year. Gas condensate, fruit and agricultural products, petrochemical products, copper and cement were the main exported commodities, IRICA data shows.
Deputy Minister of Industries, Mining and Trade, Mojtaba Khosrotaj told Iran newspaper that Iran has agreed to lower duties for Eurasian exporters in 70 groups of goods.
Iranian exports to EAEU, on the other hand, can enjoy reduced duties for 51 groups of commodities including petrochemical products, construction materials, agricultural goods, carpet.
Khosrotaj has said exports to the member states of the union will either be fully exempt from customs duty or enjoy a duty cut of up to 80%.
The PTA reportedly covers $700 million worth of Iran-EAEU’s annual trade volume.
Officials from the involved countries believe that the implementation of the preferential trade agreement could be the beginning for expansion of relations in other sectors including, tourism, investments, science and technology and transportation.
Expect No Magic
The PTA cannot be expected to work magic on its own. Iranian business people are still facing major hurdles in resuming trade with their foreign partners, even with strategic partners like Russia. While issues like the low quality of some domestic products or lack of long-term promotion plans need to be tackled by businesses, high costs of banking operations, high costs of production, inefficient trade finance facilities and hardships in transportations are among key issues that need to be addressed by policymakers.
Iran’s Economy Minister Masoud Karbasian during a recent weekly meeting with private sector representatives said that Iranian businesses showed no interest in making use of the “green corridor” proposed by Russia in an attempt to promote agricultural products imports from Iran by offering 25% discount on duties.
“Only two firms used the corridor,” he said.
He also confirmed that the high cost of transportation has lowered the feasibility of trade with Russia.
Iran and the EAEU members are set to be linked through three intra-state transport corridors: International North South Transport Corridor, China-EU corridors (passing through Kazakhstan and Iran), and New China- Kyrgyzstan-Tajikistan-Afghanistan-Iran corridor.
According to the Economy Minister, Qazvin-Rasht railway, a part of the INSTC, is expected to become operational in the coming months, which could help lower transportation fees.
The official also added that the Central Bank of Iran has been negotiating a rial-ruble swap agreement with Russian central bankers.
“The issue was discussed during Iranian mission’s recent visit to Sochi…our trade with Russia is balanced therefore we don’t need a third currency.”
The UUE was established on Jan. 1, 2015, after it superseded the Eurasian Economic Community that functioned from 2000 to 2014. The bloc has an integrated single market of 183 million people and a gross domestic product of over $4 trillion.