Iran is just two months away from joining the Free Trade Zone with the five-member Eurasian Economic Union, that is, sixty days to prepare the necessary infrastructure to fully benefit from a nearly 200-million-strong market.
Starting 28 October, Iran will formally be part of an initial Free Trade Agreement (FTA) with the Eurasian Economic Union (EAEU) that includes Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia.
To prepare the ground for a smooth transition and entrance to the EAEU, Iranian Energy Minister Reza Ardakanian flew to Russia, accompanied by Foreign Minister Mohammad Javad Zarif, holding talks with corresponding Russian authorities.
Iran has announced that it will sign the complete and final FTA with the Eurasian Economic Union and that after three years, nearly all goods and commodities will be subject to the rates stipulated in the deal, which is a significant reduction of tariffs.
The agreement means that Iranian producers and exporters will be able to export their goods under lesser tariffs, leaving a higher profit margin for them.
Also, dollars will not be the prevailing currency, meaning more than 70% of all transactions will be carried out using the six countries' national currencies, the Russian ruble or euro.
What is Eurasian Economic Union (EAEU)?
The Eurasian Economic Union (EAEU) is an economic union of states located in central and northern Asia and Eastern Europe.
The Treaty on the Eurasian Economic Union was signed on 29 May 2014 by the leaders of Belarus, Kazakhstan and Russia, and came into force on 1 January 2015.
Treaties aiming for Armenia's and Kyrgyzstan's accession to the Eurasian Economic Union were signed on 9 October and 23 December 2014, respectively. Armenia's accession treaty came into force on 2 January 2015. Kyrgyzstan's accession treaty came into effect on 6 August 2015. It participated in the EAEU from the day of its establishment as an acceding state.
In 1994, during a speech at Moscow State University, the first President of Kazakhstan, Nursultan Nazarbayev, suggested the idea of creating a "common defense" space and regional trading bloc in order to connect to and profit from the growing economies of Europe and East Asia. The idea was quickly seen as a way to bolster trade, boost investments in the region, and serve as a counterweight to Western integration unions.
“We have created a powerful and interesting growth centre, connecting 170 million people with each other,” said Russian President Vladimir Putin on the day of the union’s establishment.
The Eurasian Economic Union has an integrated single market of nearly 200 million people and a gross domestic product (GDP) of over $4 trillion.
The EAEU introduces the free movement of goods, capital, services and people and provides for common policies in the macroeconomic sphere, transport, industry and agriculture, energy, foreign trade and investment, customs, technical regulation, competition and antitrust regulation.
It also foresees the creation of a single currency and greater integration in the future.
Iran joins FTZ with EAEU
The agreement was brokered after two years of negotiations and Iran was initially accepted into the union’s market.
The Iranian parliament passed a law that allows for Iran’s accession into Free Trade Zone (FTZ), that was later signed into law by Iranian President Hassan Rouhani.
“Iran is the second country after Vietnam that signs an FTA with the EAEU. 40 other countries are waiting to join such an agreement with this union,” said Iran’s Energy Minister Reza Ardakanian on his recent visit to Moscow.
One of the first benefits of Iran joining the bloc’s FTZ is that preferential tariffs will be imposed on at least 864 goods, that is, their tariffs will be reduced.
Preferential tariffs will be imposed on 503 Iranian goods that can be exported to the five countries of the bloc.
Also, tariffs on 175 items such as all kinds of carpet, pistachio, shrimp, fruits like orange and lemon, vegetables, dates, biscuits and sweets, propylene polymers, plastic sheets, hygienic products will be reduced to zero.
Some of the products on the list enjoy partial production advantage in each country. “It’s possible that some of the goods that are subject to preferential tariffs will be produced in Iran,” said Secretary of Iran-Russia Trade and Economic Cooperation Committee Davud Mirzakhani.
Iran’s trade surplus with the EAEU states is negative. Iran exported $670,000 while imported $819,000 from the five countries of the union in 2017. It’s Iran’s golden time to lay out all the necessary infrastructure to turn its trade balances into positive.
To faciliate a smoother transition into this period, Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) called for the creation of joint chambers of commerce of all the six countries (Iran included).
Earlier, Daniel Ibrayev, a member of the EAEU's trade council stressed the importance of Iran's accession to the FTZ with the five-member regional body.
Video: Ibrayev of Eurasian Economic Union discusses future trade with Iran