On 17 June 2016, Russian President Vladimir Putin put forward a proposal to create a more extensive Eurasian partnership on the basis of the Eurasian Economic Union (EAEU) that would involve China, India, Pakistan, Iran and a number of Community of Independent States (CIS) countries among others willing to join. The President was speaking at the plenary session of the 2016 Saint Petersburg International Economic Forum. The Union has an integrated single market of 183 million people and a gross domestic product of over 4 trillion US dollars. The EAEU introduces the free movement of goods, capital, services and people and provides for common transport, agriculture and energy policies, with provisions for a single currency and more extensive integration in the future. The creation of «greater» Eurasian partnership is an alternative to the US-sponsored Trans-Pacific Partnership (TPP), a trade agreement among twelve Pacific Rim countries signed on 4 February 2016, and the Transatlantic Trade and Investment Partnership (TTIP), a proposed trade agreement between the European Union and the United States, with the aim of promoting trade and multilateral economic growth. We asked Esfandiar Omidbakhsh, Director General, Multilateral Relations of Iran Chamber of Commerce, Industries, Mines and Agriculture and one of the Iran-EEU Free Trade Area negotiators, what steps have been taken so far and what future he anticipate for this agreement.
The negotiation of Iran-EEU Free Trade Area is in what stage and as a member of the negotiating team, what progress do we achieve?
“During the past few years, the key strategic discussion on Iran’s interaction with regional and global economies has been raised. This issue has especially been discussed more vigorously after the Joint Comprehensive Plan of Action (JCPOA), proportional to the atmosphere created in economic relations. Now this question is raised that which of the economic areas can have the greatest link with them in the world? The answer can be Europe and America, or the neighboring and regional and even the East Asian countries that are all poles of development. Of course, I still believe that we lack the strategic understanding about the interactions with the world, and this is resulting from the fact that Iran has no approach called an economic diplomacy in which these issues can be strategically defined, and each area can be given a special place. So most economic options are mainly political rather than purely economic. In this context, one of the areas opened to the Islamic Republic of Iran is to establish economic interaction with Eurasia that in fact can be considered as the Eurasian Economic Union (EEU).
“These talks, as far as I know as the representative of the private sector, will lead to concluding a Free Trade Agreement (FTA) with the EEU countries. The Islamic Republic of Iran has not so far signed such an agreement with any state and region. This agreement involves applying zero tariffs. Meanwhile, a number of goods will be excluded as [the goods on] the negative list, and regarding other goods in the Iranian customs tables, tariffs will be gradually driven to zero. So far, there have been three rounds of negotiations with the EEU countries, and the five states of Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan have been negotiated with, but the talks are currently at the level of exchanging information and demands, and no special event has happened, or any decision has been taken yet. Although both sides are keen to bring the negotiations to a conclusion, free trade talks are time-consuming in nature, and different dimensions should be revealed to have the negotiations brought to a conclusion. My prediction is that in January a delegation of Eurasian countries will visit Iran to continue negotiations, but the relevant authorities - Trade Promotion Organization - are aware of the more detailed information.
“Overall, if I want to evaluate and judge the situation, [I should say that] these states are Iran’s neighbors. Like it or not, these states are present in Iran’s geo-economic space, and four out of five members of the Eurasian Union, are members of the World Trade Organization. This means they pioneer in getting involved with the international trade, and having links with the global economy. Unfortunately, Iran has fallen behind. However, any trade agreement usually has two different dimensions. The first part consists of rules and regulations that govern the parties. Rules and regulations that will govern the Union are the WTO rules, because the parties have no other rules, and/or cannot establish them in their relations. Another issue is having access to the markets of these countries. The two sides are very fond of driving tariffs on the market access to zero. On the other hand, after initiating free trade agreement with these countries, Iran can also trade with other countries. But this issue has not so far been seriously discussed, and decided on by the decision-making system. Although the relevant ministers have endorsed it, the final version of this agreement and that what consequences it will have for Iran’s imports and exports are among time-consuming issues. This is especially important for the private sector, because it believes that the government should prepare the way, and provide a platform for the private sector activity and export promotion. If the private sector does not get involved with this process, or is unwilling to get involved, in practice, these efforts will be futile. Of course, we have ourselves held seminars in the Iranian Chamber of Commerce to get the private sector familiarized with this area, because it is a very new issue. We are defining this issue that what benefits and facilities can be achieved through having free trade with the Eurasian Union.”
In this agreement, what prospect for Iran’s economy is being anticipated?
“In this Union, no future plan has been predicted for Iran. Any country, working with the world, and accepting to exploit world economic resources in her economy, has two channels before her. One argument is about trade including exports and imports, and the other argument is foreign investment. If Iran is willing to enjoy economic interactions with any country and region, these two areas should be enabled. Especially, export promotion should receive special attention. In fact, this should be followed with the intention of having the policy of export promotion realized. On the other hand, unfortunately, the level of the Eurasian Union members’ investment is negligible, and even the Iranian foreign investment in these countries is higher. Therefore, this agreement should have a significant achievement upon which Iran is ready to reduce her tariffs to zero for the exports to and imports from these countries. A series of feasibility studies should be done on this issue, and this issue should be seen in negotiations and even in the participation of governmental organizations for agricultural and industrial goods. The outcome of these activities should be seen in the result of this agreement. However, it is not easy to negotiate on trade, particularly in the area of free trade, and unfortunately, Iran does not have any experience in this regard. As mentioned, Iran has not so far signed any free trade agreement with any country, and her contracts has been in the form of preferential tariff which has not had much benefit for Iran. In the process, she should move forward, and consider this is [an untraveled] rough path that should be walked upon slowly to have it paved. This path should gradually become smooth by those who are negotiating based on reason, logic, strategic considerations, and geopolitical and geo-economic requirements that hopefully will have positive results for people.”
Given what you said, political dialogue should be prioritized to the trade one?
“This is helpful. But it should be noted that Russia plays the main role here. It is a fact that if Iran's political relations with Russia had not been to the current level, there would never be discussions on FTA with the EEU. So it cannot be said that Iran has searched everywhere, and now has found a suitable union that she is willing to link up with it. Therefore, good political relations between Tehran and Moscow prepared the ground for Iran to pursue this field as a tool that other countries are following, and Iran is also willing to be linked up to their economy. Of course, no one is against it, but this should not be limited only to the Union. If Iran is supposed to enter into free trade agreement with the Eurasian Union, it should be fully based on the considerations of market and the private sector. Otherwise, the country will suffer in the long run. So the criteria for the market economy, competition and considerations regarded in the negotiations on free trade should be also observed. Therefore, political relations may be helpful, but economic considerations cannot in any way be replaced by them.”
What if any disagreement between Iran and the member states to emerge?
“Whatever happens, Iran has not signed any contract or memorandum of understanding with these five countries, and just the initial negotiations have taken place. Therefore, there is no binding legal text that based on its requirements states would like to study their differences. We predict that Iran and these countries will achieve some result in their negotiations in 2017. In addition, the presidential elections will be held next year in Iran, and usually the future negotiations will unfortunately be postponed until the result of the upcoming elections is clear.”
What role the private sector could play?
“We must first design the plan, and then see if the private sector is willing to participate in it or not! However, this approach should be changed that the private sector obeys whatever the government says. We hope to see a time when the government is following the private sector rather than the reverse; in this situation, the government should find where the interests of the private sector are met, and then follow its negotiations proportionate to it, but, of course, this is time-consuming.”
In your opinion, could we expect economic growth by relying on public/governmental sector?
“The government cannot definitely be as versatile as it desires, because we still remember the negative experience of joint commissions in which governments usually come to agreement with each other, and determine some task for the private sector, but the set goals will never be achieved, since these agreements are not accepted by the private sector as the agent who wants to implement them.”
How do assess the economic advantage of both sides?
“I think it will serve as a supplement. Regardless of energy issues, a series of industrial and agricultural products can be used in this business, but first the details of the talks should be proposed, and the related organizations should be asked what products they are willing to export to the EEU countries, and what problems they are facing. We even negotiated with the private sector to identify the Union market to determine what goods can be exported, and what barriers and tariffs these goods are facing in the markets of these countries so that we can remove these barriers in negotiations.”
Earlier, you mentioned that in the private sector, there are technical analyses. What do you mean?
“It should be clear in these talks on what products we are willing to take advantage from the other side. We had a bad experience with the Turk regarding the discussion on the preferential trade agreement with Turkey which has come to a halt now. The main problem of the agreement was the selection of goods that was not a correct selection. We must learn from this experience, and the private sector should play an active role in this issue. That is to say, the private sector should tell the government on what products it is willing to negotiate. Because the service sector is not now the issue in which the government plays more role, and these are the products that are focused upon here. Therefore, it should first be determined whether the Iranian private sector is willing to have business with Armenia, Belarus, Russia, Kazakhstan and Kyrgyzstan. What areas, in terms of exports, can be transformed from potential to actual? Or to check what other obstacles are technically there in case of tariff cuts. Even these countries’ standards are very different from those of Iran, and these issues should be paid attention to. So these points should be addressed in the negotiations to reach an acceptable product list, and win the support of the private sector in the negotiations.”
It appears Eurasia is not appealing to private sector. What could we do to change this perception?
“These problems must be solved gradually. A space should be provided for the private sector to feel the need to change its trade route. For example, if there have been so far exports to Africa and some European country, the EEU countries’ markets should now be also paid attention to, provided that these markets become attractive to the private sector by providing [the required] conditions and facilities. For example, when the Russian fruit market was discussed, none of the Iranian traders could use the atmosphere created, due to the lack of [required] hardware and software. Now the ball is in the Iranian government’s court, and it is up to the government that how it provides the space attractive to the private sector.”
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