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Status of Liberalization with a Focus on Preferential Trade Agreements in the Islamic Republic of Iran

Enhancing the contribution of PTAs to inclusive and equitable trade: Islamic Republic of Iran 13-15 August 2017 Seyed Komail Tayebi, PhD Tehran Director Center of Excellence for International University of Isfahan, Iran Zahra Zamani, PhD Post-doc Researcher Center of Excellence for University of Isfahan, Iran Part I An Overview on Iranian Economy ✓Basis of the economy: oil and gas industries. - National revenues are secured by oil and gas exploration. - Iran owns the second largest reserves of gas and the third largest reserves of crude oil in the world. - The crude oil production is about four million barrels per day and the daily natural gas production is more than 120 billion M3.

✓Private sector activities: Auto manufacturing, textile, petrochemicals, metallurgy, food industries, steel GDP GDP per capita • $1.535 trillion (2017, PPP), •$19,05\0 (2017, PPP), • $550 billion (2017, Nominal) • $5,383 (2017, Nominal) GDP rank GDP per capita rank: • 27th (nominal) /18th •96th (nominal); 68th (PPP) (PPP)GDP growth GDP by sector • 4.8% (2018f), •: 9.1% • 5.2% (2017f), •Industry: 39.9% • 4.5% (2016), •Services: 51% • 0.4% (2015), • 4.3% (2014), Iran at a Glance •Iran is rich in Mines and Metal: • of iron ore, construction and decorative stones, cooper ore, , zinc, lead, …, •World rank of Iran in producing of some mines: 4th of World rank in Zinc, Lead and Cobalt, 6th in Copper •Metal industries have started to grow up since 1990s •FAO (2005): Iran is ranked as the fourth for diversity of agricultural products. •Share of agricultural products in the world market: Saffron (90%), Pistachio (52.5%), Stoned fruits (44%), Mulberry (35.9%), Dates (13.9%) •Of Top 10 countries for Tourist Attraction Isfahan and Shiraz: Centers of and Culture Persepolis Iran Crude Oil Production Iranian Total supply and consumption of Oil Oil Exports (million Barrel) Oil Exports (million Barrel)

2500

2000

1500

oil Linear (oil export) 1000

500

0 Oil (M3)

Oil Imports (M3) 12000

10000

8000

6000 oil Linear (oil import)

4000

2000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Non-Oil Exports (Billion Rials) Non Oil Exports (Billion Rials) 70000

60000

50000

40000

30000 Non oil export Linear (Non oil export) 20000

10000

0 1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

-10000

-20000 Source: world bank Rate

15.00

12.50

10.00 9.12 8.64 8.08

6.58 5.85 5.70

5.00 4.34 4.21 4.34 3.75

2.39 2.31

0.92

0.00 -1.50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -20131.91 2014 2015 2016

-5.00 -6.61

-10.00 GDP growth rate Source: world bank Trade Balance (TBS in 2016) Foreign Direct Investment

Source: tradingeconomics.com Exchange Rate Official and Exchange Rate Non- Official (IRR/USD)

12000

10000

8000

6000 exchange rate official exchange rate non official

4000

2000

0 197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Source: of Iran Terms of Trade

250

200

150

Terms of Trade Linear (Terms of Trade)

100

50

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 International Tourism, Number of Arrivals

6000000

5000000

4000000

3000000

2000000

1000000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

International tourism, number of arrivals Source: Central Bank of Iran Trend of Inflation Rate

Source: knoema.com Sectoral composition of Iranian GDP in 2015

9.12 6.94

15.43

15.20 Agriculture OIL Mining Manufacture 0.82 Electricity, gas and water supply Construction Restaurant and Hotelin 3.98 Transport, storage and communications

11.95 Financial and Monetary Sector Other business services Public services 9.86

6.80

11.20 5.71 Source: Central Bank of Iran Iran Current Account Sectoral composition of Iranian GDP (IIR Billion) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Agriculture 300027 335334 361289 369314 294147 316556 335920 348425 364659 384633 405433 424173 OIL 1384091 1383908 1421162 1434587 1416984 1349381 1418656 1397460 887000 841459 879686 943428 Mining & 1089946 1162169 1222645 1344742 1441396 1485291 1591269 1667793 1628630 1560620 1645573 1545843 Manufacture Mining 22451 23946 26792 29589 34304 34483 41452 47827 48492 54405 56145 50250 Manufacture 493437 545269 588494 600123 618820 668986 739220 780967 749131 709792 766482 730920

Electricity, gas and 236822 246997 271772 295874 315006 331052 350714 355722 363314 371973 402374 415626 water supply

Construction 337236 345958 335586 419155 473266 450770 459883 483277 467693 424449 420572 349047 Services 2271625 2435726 2609697 2847349 2810812 2841267 2992704 3113076 3159254 3231108 3277191 3201959 Restaurant and 591858 643988 669788 712831 681229 712779 764147 793667 728444 725699 729269 684897 Hotelin

Transport, storage and 359944 387411 423032 466173 509797 546309 575685 591700 625809 631811 641688 602699 communications

Financial and 127105 142950 172373 184331 173459 194889 219931 216148 214583 228096 241132 243664 Monetary Sector Other business 492344 542689 615294 736324 727017 700529 739742 816469 879878 897791 921807 929334 services Public services 540789 532547 544189 536814 519656 495811 492051 508939 524346 548476 551404 557996 Social services 159585 186141 185021 210876 199654 190950 201148 186153 186193 199236 191891 183368 Trade Values and Ranks of top 10 Iran’s Major Trading Partners in 2015

Export Value Rank Country Import Value (USD) % Rank Country % (USD)

1 China 10,449,966,218 32 1 China 7,228,136,090 27

United Arab 2 6,976,149,290 21 2 6,205,640,549 23 Emirate

United Arab 3 South Korea 3,682,281,912 11 3 4,892,542,185 18 Emirate

4 Turkey 2,994,639,813 9 4 Afghanistan 2,572,647,766 9

5 Switzerland 2,379,771,285 7 5 India 2,529,800,216 9

6 India 2,296,231,586 7 6 Turkey 1,313,654,621 5

7 Germany 1,803,773,211 5 7 Italy 774,580,110 3

8 Italy 906,138,196 3 8 Turkmenistan 720,592,371 3

9 Netherlands 786,735,505 2 9 Pakistan 635,077,118 2

10 France 734,742,459 2 10 Oman 375,198,165 1 Top 10 Iran’s Major Trading Partners

2 2 1 3 3 2 5 3 5 27 7 32 China China

United Arab Emirate 9 Iraq South Korea United Arab Emirate Turkey Afghanistan 7 Switzerland India India Turkey 9 Germany Italy Italy Turkmenistan 9 Netherlands Pakistan France Oman

23 18 11 21

Import from Export to 0.43

National poverty line 0.42 (Trend of Gini Coefficient) 0.41 0.4

0.39

0.38

0.37

Unemployment rate (1996-2015) 0.36

0.35 16

14

12

10

8

6

4

2

0 199619971998199920002001200220032004200520062007200820092010201120122013201420152016

Unemployment Rate Source: Central Bank of Iran 2014 2015 Share Agriculture 0.3 0.3 of economic

OIL 1.1 9.8 sectors in GDP

Industry and Mine -1.7 0.6 Growth (%)

Services -1.2 1.9 Composition of Iran’s Imports (2005 - 2015) 35

30

25 20 Trade Openness 15 [(EX+IM)/GDP]= 23.5 (on average)

10

5

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Imports of goods and services (% of GDP) Exports of goods and services (% of GDP) Part II Status of Trade Liberalization in Iran Importance of Trade liberalization • All countries that have had sustained growth and prosperity have opened up their markets to trade and investment.

• By liberalizing trade and capitalizing on areas of , countries can benefit economically.

• Use of resources - land, labor, physical and human capital - should focus on what countries do best. Trade liberalization measures should be taken on a multilateral basis and complemented by appropriate employment, labor and education policies, so that the benefits of trade can be shared.

• Consumers ultimately benefit because liberalized trade can help to lower prices and broaden the range of quality goods and services available. • Companies can benefit because liberalized trade diversifies risks and channels resources to where returns are highest. When accompanied by appropriate domestic policies, trade openness also facilitates , investment and increases in productivity.

• Trade reforms, even if beneficial for a country overall, may negatively affect some industries or some jobs and many commentators worry about negative effects on the environment. The solution to these problems is not to restrict trade. They should be tackled directly at source through labor, education and environmental policies Importance of Trade Agreements (FTA, PTA, …)

PTA/FTA are agreements between two or more countries giving reciprocal preferential market access to each other on all or some products and services; reciprocity can be partial or full.

A PTA facilitates that provides for mutual preferential treatment among member nations (i.e., nations party to the agreement), through lower trade barriers. It is not necessary, however, for preferences to apply to all trade between member nations, the degree of coverage depending on the types of PTAs formed. • With the emergence of the need for deeper integration in global trade policy, there has been a significant rise in the number of preferential agreements that have included investment in their ambit as a type of non-merchandise trade.

• Apart from including investment as a subject in existing or future agreements, there has been an increase in the number of regional and bilateral investment treaties. Bilateral Investment Treaties (BITs) and Regional Investment Treaties (RITs) focus exclusively on investment provisions between pairs of countries or between countries of a specific region. The term Preferential Trade and Investment Agreements (PTIAs) can also be used for PTAs that cover investment issues • Various statistics seem to indicate that PTAs have encouraged foreign direct investment (FDI) flows into member countries.

• Services are seen as “intangible, invisible and perishable, requiring simultaneous production and consumption. The service sector is the fastest growing sector of the global economy, accounting for two-thirds of the world’s output, a third of global employment and almost 20 percent of the world’s trade. As a result of the rise in trading activity in the service sector, a General Agreement on Trade in Services (GATS) was negotiated in the . It covers all internationally traded services such as financial, environmental and educational services. The two broad consequences of preferential agreements are:

Trade Creation: This is the favorable effect of a discriminatory trading arrangement and is defined as the addition to the volume of , brought about by a preferential trade arrangement. Consider the case of a country not importing a specific product, but instead, locally producing it in an inefficient manner. However, as a result of the formation of a trading bloc, the product is imported from firms in member countries that produce it efficiently. This results in and since the product in question was not being imported from a non-member state prior to the formation of the agreement, outsiders do not lose out on exports and are, hence, unaffected. In addition, new product varieties are imported as a result of the PTA, which can lead to a rise in consumer .

• : This is the efficiency-reducing consequence of a trading bloc. It happens when a member state was previously importing a product from an efficiently producing non-member state. As a result of discriminatory tariff cuts provided for by the agreement, another member nation takes export sales away from the non-member. World efficiency is reduced because trade is diverted from low-cost to higher-cost sources Developing countries (especially LDCs) often cannot get full benefits associated with trade expansion due to many challenges they face, such as: • Inadequate productive capacities, • Limited access to finance, • High cost to trade across , • Difficulties to comply with norms, standards and other rules and regulations (e.g. sanitary and phytosanitary measures, rules of origin, etc.), • Growing informal sector employing significant share or women and youth often under precarious conditions,

• Lack of capacity and coordination to effectively design and/or negotiate trade agreements, etc…

• Thereby, potential positive impacts of PTAs/RTAs often remain unrealized Trade Liberalization in Iran Until the end of the 1990s, Iranian trade policy meant extremely high nominal tariffs and a huge amount of nontariff barriers. • Nominal tariffs were in general redundant. The price difference between domestic and international prices was much lower than the tariffs suggested. • Imports were restricted not because of high nominal tariffs but mainly by huge nontariff restrictions like the lists of prohibited imported goods, difficult access to import authorization.

In 1990, there was the first attempt to rationalize trade policy. Some of the nontariff barriers were extinguished (elimination of some on imported goods and some of the special regimes faced by several industries), and nominal tariffs had a small reduction.

In 1993, the newly elected government announced a new trade policy that would change substantially the old regime. • At first, all but a few non tariff barriers were eliminated. Trade policy thereafter would rely mostly on tariffs and on the exchange rate management, although the exchange rate regime was much more flexible than before.

• Second, a 5-year schedule of tariff reductions was announced (the tariff: between 0% and 40%). The average tariff decreased from slightly lower than 50% in 1989 to 14% in 1994. Trade Liberalization in Iran

• At first there was no discrimination among industries except for a higher protection for the production of goods with high technological requirements, such as computers, some chemical sectors, and biotechnology. The tariff structure was designed according to the comparative advantage, the initial tariff level and tariff on inputs.

• There were some exceptions, but the result was a much more rational tariff structure. With a latest Trade (MFN) Tariff Restrictiveness Index (TTRI) score of 13.1 percent, tariff protection in Iran has been one of the most restrictive, substantially higher than an average Middle East and North Africa (MENA) and lower-middle-income country.

• Both the MFN applied and the import-weighted average tariffs (26.2 percent and 19.2 percent respectively) have been above the regional and income group comparator means.

• MFN -free imports accounted for only 8.4 percent of all imports in the early 2000s. A number of nontariff barriers recently have been replaced by their tariff equivalents.

• Characterized by an active public sector, the country has made limited progress with the market reform plans put forth by preceding administrations since the early 1990s. • The government provides large energy subsidies to domestic businesses. Efforts are ongoing to diversify the country’s export sector through investments in non-oil sectors, including in zones. Attempts towards WTO’s Accession • The Iranian government is of two minds regarding the country’s accession to GATT and the (WTO). Economic arguments militate in favor of joining the WTO, while arguments against joining see GATT as a tool of powerful industrialized states and cite possible disadvantages of following its rules. Membership in the WTO would reinforce the country’s current trend toward and lead neighbors to think of Iran as a lucrative country to do business with. • In 1995, Iran asked to join WTO, but the accession to be delayed till in 2005 and through nuclear negotiations with EU, Iran was accepted as an observer member in WTO.

• Today, Iran is the biggest observer economy in the WTO. It is 204 percent bigger than the next economy, i.e. Algeria and 790 percent bigger than Syria.

• Accession to the WTO is a stated priority of the Iranian government. The United States repeatedly blocked Iran’s bids to join the WTO over concerns about Iran’s nuclear program and support for terrorist activities.

• On the other hand, many countries and developing countries have supported Iran’s accession. However, the most recent negotiations for accession have ceased because of political reasons. More Economic Reforms in Iran • Significant strides towards trade liberalization, economic diversification, and privatization since 1997.

• The government introduced some structural reforms such as: ➢ policy changes ➢ adoption of new foreign investment laws to promote Iran’s global market integration ➢ attract investment.

• Iran shifted to a unified managed float exchange rate system in March 2002.

• Since 2005, fiscal and has been expansionary: The government provides extensive public subsidies on gasoline, food, energy and housing. • The government has provided cash handouts to the poor.

• In January 2010, the legislation reduces state subsidies by $20 billion. A goal of the reforms was to reduce overconsumption. • The government has provided low-interest loans for agriculture, tourism, and industry and has instituted loan forgiveness policies.

• Other activities include the creation of a number of social programs to assist farmer and rural residents Iran has small numbers of PTA with its trading partners 9 PTAs have been signed as follows: • Iran - Uzbekistan (2005) • Iran - Pakistan (2006) • Iran – Tunisia (2007) • Iran - Cuba (2008) • Iran – Bosnia and Herzegovina ( 2009) • Iran – Kyrgyzstan (2009), Canceled • Iran – Belarus (2012) • Iran – Turkey (2014) • Iran – Afghanistan ( 2016) 1 FTAs (Free ) with Syrian Arab Republic (2008) Iran recent years The Share of the PTA Partners’ trade to total Iran’s trade: • 8% on average • Turkey: 6.4% (USD 5.9 Billion) • Pakistan: 1.3% (USD 1.3 Billion) • Uzbekistan: 0.3% (USD 0.3 Billion) • Others: 0.4% (under USD 0.5 Billion)

• Totally, this increased from 3.7% in 2004 t0 8.55 in 2013 Comparison between trends of preferential and non- preferential trade ✓ the status of preferential trade has not really changed during 2004- 2015 ✓ Iran’s trade with these partners: • Non-preferential imports: 49% • Non-preferential exports: 29% • Preferential Imports/exports: 11% ✓ The export values of preferential items have been less than those of non-preferential items during 2004- 20114 (before/after PTAs). Reason: • Less importance of such items in Actual Iran’s Trade Balance Comparison between trends of preferential and non- preferential trade • The preferential exports have exceeded preferential imports in 2015, when Turkey is added to Iran’s PTA partners.

✓ Hence, Iran has benefited from trade excess with its preferential trading partners in very recent years.

Reason: • More competitiveness of Iran’s tradable goods and services • More demand from PTA partners, • …. Effectiveness of the PTAs

Group 1: The PTAs with Turkey and Pakistan improvement in Iran’s Trade Balance

Group 2: The PTAs have not been beneficial (neutral): Bosnia and Herzegovina, Cuba (political issues)

Group 3: The PTAs with Uzbekistan, Tunisia and Kyrgyzstan (cancelled) deteriorated Iran’s Trade Balance Details of Iran’s FTA/PTAs HS- Country Number and Type of PTA/FTA Year digit Exports (Petrochemical, textile, …): 27 (PTA) Uzbekistan 6&8 2005 Imports(Confectionary production, cloths, … ) 27(PTA) Exports: (Stone products, chemicals, cloths, …) 309(PTA), 6 Pakistan 2006 Imports: (Cereal, vegetables, cement, machinery, …) 338(PTA) 6 Exports (Construction products, Chemicals, detergents, …) 256(PTA) 4,6&8 Tunisia 2007 Imports (Machinery, Oil products, …) 174(PTA) 6&8 Exports (Sea food, Marine products, Juice products, …) 44(PTA) 8 Cuba 2008 Imports (Petrochemical products, Vehicles, Electric lights, …) 88(PTA) 6&8 Exports (Honey, Alcohols, flowers, Public transportation, …) FTA Syria - 2008 Imports (Leather Bags, Materials) FTA Bosnia and Exports (Fruits, Vegetables, Oil/Gas products, …) 170(PTA) 6 2009 Herzegovina Imports (Caviar, tobacco, textile, …) 170(PTA) 6&4 Exports (Dairy products, Metals, Household appliances) 290(PTA) 6&8 Kyrgyzstan 2009 Imports (Fish, Petrochemical products) 302(PTA) 6&4&8 Exports:96 Belarus 8 2012 Imports: - Exports (MDF products, Manufacturing engines, steel & Iron, …) 25(PTA) 6 Turkey 2014 Imports (Walnuts, fruit, water juice, …) 139(PTA) 6 450000

400000 350000 Iran’s Exports to PTA/FTA Partners 300000

250000

200000

150000

100000 12000000 50000

0 10000000

Bosnia and Herzegovina Cuba 8000000 Kyrgyzstan Pakistan Syrian Arab Republic Tunisia 6000000 Uzbekistan

4000000

2000000 Source: uncometrade.com

0

Turkey FTA with Syria in 2008

The FTA led the trade relations to increase in 2010: • Iran’s exports from USD 303 million in 2008 to USD 524 million in 2010.

• Iran’s imports from USD 16 million in 2008 to USD 23 million.

However, the Syria’s war stopped the trend. Part III Opportunities and Challenges Why is Trade Integration (PTAs, RTAs, FTAs) more successful in developed countries?

• Trade patterns (IIT, …) • Economic convergence (more FDI, joint venture, ICT, …) • Market size • Efficient executive mechanism • … Strategies towards Trade Expansion

✓Trade Liberalization

✓Trade Integration (PTA, FTA, …)

✓Potentials (Comparative Advantages, ...)

✓Trade Patterns (IIT, ITT, …)

✓Trade Networking (Products, Partners, …) Effect of PTA on Bilateral Trade, Evidence: Gravity Regression Analysis to Iran and its PTA Partners

Variable Coef. z P>|z| Cons -35.4 1.55 .121 lGDPi 0.88 14.22 .000 lGDPj 0.93 2.39 .000 Dis -0.0001 -5.79 .000 PTAij 0.59 2.02 .043 FLeamer(7, 147) = 23.26 Prob > F = 0.0000 LR chi2(7) = 58.04 Prob > chi2 = 0.0000 Trade Patterns: IIT (Intra-Industry Trade) and ITT (Inter-Industry Trade), Evidence Definition of IIT: Importing and Exporting of same goods and/or same services

How to Measure? Measures of GL Intra-Industry Trade, on Average, for Iran and Korea in the 2-Digit Level during 1998-2014, (%)

Code Product Average of IIT Distribution of IIT 26 Ores, Slag and Ash 0.09 GL < 10 27 Mineral Fuels, Oils, Distillation Products, etc. 7.80 GL < 10 28 Inorganic Chemicals, Precious Metal Compound, Isotope 9.84 GL < 10 29 Organic Chemicals 25.77 GL > 10 30 Pharmaceutical Products 0.23 GL < 10 31 Fertilizers 0.26 GL < 10 32 Tanning, Dyeing Extracts, Tannins, Derives, Pigments et 0.15 GL < 10 33 Essential Oils, Perfumes, Cosmetics, Toiletries 0.06 GL < 10 34 Soaps, Lubricants, Waxes, Candles, Modeling Pastes 0.12 GL < 10 35 Albuminoids, Modified Starches, Glues, Enzymes 0.00 GL < 10 37 Photographic or Cinematographic Goods 0.00 GL < 10 38 Miscellaneous Chemical Products 8.30 GL < 10 39 Plastics and Articles Thereof 0.67 GL < 10 44 Wood and Articles of Wood, Wood Charcoal 2.08 GL < 10 57 Carpets and Other Textile Floor Covering Knotted 16.39 GL > 10 68 Stone Mosaic Tiles, Artificial Colored Chips etc. 5.05 GL < 10 69 Ceramic Products 0.82 GL < 10 70 Glass and Glassware 1.28 GL < 10 Measures of GL Intra-Industry Trade, on Average, for Iran and Korea in the 2-Digit Level during 1998-2014, (%)

Average of Distribution of Code Product IIT IIT 72 Iron and Steel 2.44 GL < 10 73 Articles of Iron or Steel 0.00 GL < 10 74 Copper and Articles Thereof 5.90 GL < 10 75 Nickel and Articles Thereof 0.00 GL < 10 76 Aluminum and Articles Thereof 0.00 GL < 10 79 Zinc and Articles Thereof 6.01 GL < 10 82 Tools, Implements, Cutlery, Etc. of Base Metal 0.00 GL < 10 84 Nuclear Reactors, Boilers, Machinery, etc. 0.06 GL < 10 85 Electrical, Electronic Equipment 0.06 GL < 10 86 Railway, Tramway Locomotives, Rolling Stock, Equipment 0.00 GL < 10 87 Vehicles Other Than Railway, Tramway 0.02 GL < 10 Vehicles Other Than Railway Or Tramway Rolling-Stock, And Parts And 88 0.00 GL < 10 Accessories Thereof 89 Ships, Boats And Other Floating Structures 0.00 GL < 10 Iran’s Revealed Comparative Advantages, Evidence The revealed comparative advantage (RCA) is an index used in international economics for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows

The most widely used RCA measure built on exports defines as below:

This index ranges from 0 to ∞, with RCA between 0 to 1 representing lack of comparative advantages, while value above 1 shows existing comparative advantages in exporting goods Revealed Symmetric CA (RSCA): If the RCA is above 1 the country is said to be specialized in that sector and if the RCA is below 1 it is said not to be specialized (or under-specialized).

Since the RCA results in an output which cannot be compared on both sides of 1 (its neutral value), Revealed Symmetric Comparative Advantage (RSCA) can help to solve this problem. RSCA making the index symmetric, and is defined as:

This index ranges from -1 to +1, with negative value representing lack of comparative advantages, while positive value shows existing comparative advantages in exporting goods. Revealed Comparative Advantages of Iran’s in Various Indicators

Code Product RCA SRCA

26 Ores, Slag and Ash 0.910 -0.047 27 Mineral Fuels, Oils, Distillation Products, etc. 6.177 0.721 28 Inorganic Chemicals, Precious Metal Compound, Isotope 1.035 0.017 29 Organic Chemicals 1.500 0.200 30 Pharmaceutical Products 0.035 -0.932 31 Fertilizers 65.505 0.970

32 Tanning, Dyeing Extracts, Tannins, Derives, Pigments et 0.195 -0.674

33 Essential Oils, Perfumes, Cosmetics, Toiletries 0.032 -0.937

34 Soaps, Lubricants, Waxes, Candles, Modeling Pastes 0.360 -0.470

35 Albuminoids, Modified Starches, Glues, Enzymes 0.190 -0.681 37 Photographic or Cinematographic Goods 0.018 -0.964 38 Miscellaneous Chemical Products 0.337 -0.496 39 Plastics and Articles Thereof 0.917 -0.044 44 Wood and Articles of Wood, Wood Charcoal 0.012 -0.977 57 Carpets and Other Textile Floor Covering Knotted 6.246 0.724 68 Stone Mosaic Tiles, Artificial Colored Chips etc. 0.284 -0.558 Revealed Comparative Advantages of Iran in Various Indicators

Code Product RCA SRCA 69 Ceramic Products 1.053 0.026 70 Glass and Glassware 0.379 -0.451 71 Pearls, Natural or Cultured, Not Mounted or Set 0.397 -0.432 72 Iron and Steel 0.312 -0.525 73 Articles of Iron or Steel 0.242 -0.610 74 Copper and Articles Thereof 1.013 0.006 75 Nickel and Articles Thereof 0.006 -0.989 76 Aluminum and Articles Thereof 0.495 -0.337 78 Lead and Articles Thereof 7.867 0.774 79 Zinc and Articles Thereof 4.437 0.632 82 Tools, Implements, Cutlery, Etc. of Base Metal 0.007 -0.987

84 Nuclear Reactors, Boilers, Machinery, etc. 0.052 -0.902 85 Electrical, Electronic Equipment 0.024 -0.953 86 Railway, Tramway Locomotives, Rolling Stock, Equipment 0.011 -0.979 87 Vehicles Other Than Railway, Tramway 0.042 -0.919 88 Tramway Rolling-Stock, and Parts and Accessories Thereof 0.000 -1.000 0.991 Trade Network Indicator (γ) • Every product is traded in a network. • Countries can be interpreted as the nodes of these networks, and trade volume as weighted directed edges. • Network theory can therefore be used to good’s effect in the analysis of the trading network. • The γ variable shows good's trading network. • If a good is produced by a large number of countries, then the γ variable for this good will tend to be small. • If some goods are so diversified that trading them requires a large amount of social interaction, and only a small number of countries have such well realized correlations, then the γ variable will tend to be large. • We estimate the γ parameters for each product group and every year of the period 1995–2015 by using a maximum likelihood estimation method (MLE). Measurement of the Network Indicator (γ)

the log-Likelihood function is given by

Now the logarithm expression can be maximized with respect to γ in order to maximize the Likelihood. Hence we take the corresponding derivative and set it to zero: The Value of γ for the selected 7 trading product groups, Silk Road

Petroleum oils, Women's Men's clothing Polymers of Electrical Natural gas, oils from Motorcycles & clothing, of of textile fabrics, styrene, in machinery & whether or not year bitumin. cycles textile fabrics not knitted primary forms apparatus, n.e.s. liquefied materials, crude 2000 1.55 1.38 1.45 1.47 2.02 1.61 2.02 2001 1.39 1.41 1.88 1.54 1.74 1.79 1.74 2002 1.40 1.44 1.69 1.55 1.74 1.58 1.74 2003 1.45 1.42 1.57 1.50 1.88 1.60 1.88 2004 1.45 1.47 1.45 1.44 2.02 1.61 2.02 2005 1.46 1.41 1.61 1.54 1.74 1.79 1.74 2006 1.40 1.40 1.55 1.46 1.58 1.50 1.58 2007 1.41 1.45 2.35 1.52 1.43 2.35 1.62 2008 1.50 1.45 1.48 1.41 1.66 1.48 1.66 2009 1.44 1.48 1.88 1.53 1.61 1.61 1.61 2010 1.52 1.39 1.55 1.44 1.79 1.48 1.79 2011 1.38 1.41 2.02 1.74 1.73 1.88 1.73 2012 1.40 1.46 1.44 1.41 1.66 1.45 1.66 2013 1.42 1.45 1.88 1.79 1.61 1.61 1.61 2014 1.44 1.55 1.55 1.44 1.79 1.45 1.79 2015 1.50 1.40 2.35 1.74 2.35 1.88 2.35 average 1.44 1.44 1.73 1.53 1.77 1.67 1.78 Important Remarks to benefit from implementing TI

✓ Market Size: 80 million population, ✓ Economy Size (GDP): USD 550 Billion in 2017, ✓Current Situation: Inflation, Booming Current Account, 12.5% growth rate (2016), ✓ Lifting sanctions ✓ Human resource abundant, ✓ Booming tourist industry ✓ Top ten trading partners (2015): China, United Arab Emirates, S. Korea, Turkey, Switzerland, India, Germany, Italy, Netherlands and France ✓ Increasing FDI inflows ✓ Diversified product rather than oil structure ✓The time for WTO’s accession ✓Main Policy towards Sustainability Why? Environmental issues, regional problems (dust problem), no adequate water, higher quality of goods and services, higher quality of jobs ✓ Implementing trade pattern in practice, ✓Nine current PTAs (with Pakistan, Turkey, Tunisia, Bosnia, Uzbekistan, … ✓Towards deepening economic regionalization ✓ Iran’s potentials for PTAs: ECO, D8,Silk-Road and SCO (Shanghai Cooperation Organization) Shanghai Cooperation Organization

Iran has observer status in the organisation, and applied for full membership on 24 March 2008. However, because it was under sanctions levied by the at the time, it was blocked from admission as a new member. The SCO stated that any country under UN sanctions could not be admitted. After the UN sanctions were lifted, Chinese president Xi Jinping announced its support for Iran's full membership in SCO during a state visit to Iran in January 2016 Silk Road as an Opportunity for Regional Trade Expansion Economic Cooperation Organization Ecota: ECO Trade

The members of the EconomicAgreementCooperation Organization (hereinafter referred to as ECO); the Transitional Islamic State of Afghanistan, the Republic of Azerbaijan, the Islamic Republic of Iran, the Republic of Kazakhstan, the Kyrgyz Republic, the Islamic Republic of Pakistan, the Republic of Tajikistan, the Republic of Turkey, Turkmenistan and the Republic of Uzbekistan Iran qualifies from many respects to be a good location for investments and doing business. Some of the features are highlighted below: 1) Strategic Location: A unique geographical location at the heart of a cross-road connecting the Middle East, Asia and Europe, coupled with many inter- and trans- regional trade, , tax and investment arrangements; 2) Market Potentials and Proximity: Vast domestic market with a population of 70 million growing steadily as well as quick access to neighboring markets with approximately 400 million inhabitants;

3) Climate Characteristics: A four-season climate endowment as a privilege to agricultural activities throughout the country and throughout all seasons; 4) Labor Privileges: Large pool of trained and efficient manpower at very competitive cost in a diversified economy with an extensive industrial base and service sector. 5) Low Utility and Production Cost: Diversified range of energy, telecommunication, transportation, as well as a public utilities; 6) Abundant Natural Resources: Varied and plentiful reserves of natural resources ranging from oil and gas to metallic and non-metallic species reflecting the country’s accessibility to readily available new materials; Thank you for your attention