Status of Trade 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 Iran13-15 August 2017

TehranSeyed Komail Tayebi, PhD

DirectorCenter of Excellence for International Economics

University of Isfahan, Iran

Zahra Zamani, PhDPost-doc Researcher

Center of Excellence for International EconomicsUniversity of Isfahan, Iran

Part IAn 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

• $1.535 trillion (2017, PPP),

• $550 billion (2017, Nominal)

GDP rank

• 27th (nominal) /18th

(PPP)GDP growth

• 4.8% (2018f),

• 5.2% (2017f),

• 4.5% (2016),

• 0.4% (2015),

• 4.3% (2014),

GDP per capita

•$19,05\0 (2017, PPP),

• $5,383 (2017, Nominal)

GDP per capita rank:

•96th (nominal); 68th (PPP)

GDP by sector

•Agriculture: 9.1%

•Industry: 39.9%

•Services: 51%

Iran at a Glance

•Iran is rich in Mines and Metal:

•Exports of iron ore, construction and decorative stones, cooper ore, coal, 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 Civilization

and Culture

Persepolis

Iran Crude Oil Production

Iranian Total supply and consumption of Oil

0

500

1000

1500

2000

2500

Oil Exports (million Barrel)

oil export

Linear (oil export)

Oil Exports (million Barrel)

0

2000

4000

6000

8000

10000

12000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Oil Imports (M3)

oil import

Linear (oil import)

Oil Imports (M3)

-20000

-10000

0

10000

20000

30000

40000

50000

60000

70000

1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Non Oil Exports (Billion Rials)

Non oil export

Linear (Non oil export)

Non-Oil Exports (Billion Rials)

Source: world bank

5.85

2.39

8.088.64

4.34 4.21

5.70

9.12

0.92

2.31

6.58

3.75

-6.61

-1.91

4.34

-1.50

12.50

-10.00

-5.00

0.00

5.00

10.00

15.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDP growth rate

Economic 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)

0

2000

4000

6000

8000

10000

12000

197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

exchange rate official

exchange rate non official

Source: Central Bank of Iran

Terms of Trade

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Terms of Trade

Linear (Terms of Trade)

International Tourism, Number of Arrivals

0

1000000

2000000

3000000

4000000

5000000

6000000

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

6.94

15.43

0.82

11.95

6.80

5.7111.20

9.86

3.98

15.20

9.12

Agriculture

OIL

Mining

Manufacture

Electricity, gas and water supply

Construction

Restaurant and Hotelin

Transport, storage and communications

Financial and Monetary Sector

Other business services

Public services

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 &

Manufacture1089946 1162169 1222645 1344742 1441396 1485291 1591269 1667793 1628630 1560620 1645573 1545843

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

water supply236822 246997 271772 295874 315006 331052 350714 355722 363314 371973 402374 415626

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

Hotelin591858 643988 669788 712831 681229 712779 764147 793667 728444 725699 729269 684897

Transport, storage

and

communications

359944 387411 423032 466173 509797 546309 575685 591700 625809 631811 641688 602699

Financial and

Monetary Sector127105 142950 172373 184331 173459 194889 219931 216148 214583 228096 241132 243664

Other business

services492344 542689 615294 736324 727017 700529 739742 816469 879878 897791 921807 929334

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

Rank Country Import Value (USD) % Rank CountryExport Value

(USD)%

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

2United Arab

Emirate6,976,149,290 21 2 Iraq 6,205,640,549 23

3 South Korea 3,682,281,912 11 3United Arab

Emirate4,892,542,185 18

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

Trade Values and Ranks of top 10 Iran’s Major Trading Partners in 2015

32

2111

9

7

7

5

32 2

China

United Arab Emirate

South Korea

Turkey

Switzerland

India

Germany

Italy

Netherlands

France

27

23

18

9

9

5

33 2 1

China

Iraq

United Arab Emirate

Afghanistan

India

Turkey

Italy

Turkmenistan

Pakistan

Oman

Top 10 Iran’s Major Trading Partners

Import from Export to

National poverty line

(Trend of Gini Coefficient)

Unemployment rate (1996-2015)

0

2

4

6

8

10

12

14

16

199619971998199920002001200220032004200520062007200820092010201120122013201420152016

Unemployment Rate

0.35

0.36

0.37

0.38

0.39

0.4

0.41

0.42

0.43

Source: Central Bank of Iran

2014 2015

Agriculture 0.3 0.3

OIL 1.1 9.8

Industry and Mine -1.7 0.6

Services -1.2 1.9

Share

of economic

sectors in

GDP

Growth (%)

Composition of Iran’s Imports (2005 - 2015)

0

5

10

15

20

25

30

35

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)

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

Part IIStatus 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 comparative advantage, 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 competition,

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 economic integration 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 Uruguay Round. It covers all internationally traded

services such as financial, environmental and educational services.

Trade Creation: This is the favorable effect of a discriminatory trading arrangement

and is defined as the addition to the volume of international trade, 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 trade creation 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 welfare.

• Trade Diversion: 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

The two broad consequences of preferential agreements are:

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 borders,

• 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

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 government import authorization.

In 1990, there was the first attempt to rationalize trade policy.

Some of the nontariff barriers were extinguished (elimination of some taxes 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 duty-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 free trade zones.

Trade Liberalization in Iran

• 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 European Union countries and developing countries have supported Iran’s

accession. However, the most recent negotiations for accession have ceased because of political

reasons.

Attempts towards WTO’s Accession• The Iranian government is of two minds regarding the country’s accession to GATT and the World

Trade Organization (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 economic liberalization and lead neighbors to think of Iran as a lucrative country to do

business with.

• Significant strides towards trade liberalization, economic diversification, and privatization since 1997.

• The government introduced some structural reforms such as:

➢ tax 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 monetary policy 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

More Economic Reforms in Iran

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)

Iran has small numbers of PTA with its trading partners

1 FTAs (Free Trade Agreement) 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

Country Number and Type of PTA/FTAHS-

digitYear

UzbekistanExports (Petrochemical, textile, …): 27 (PTA)

Imports(Confectionary production, cloths, … ) 27(PTA)6&8 2005

PakistanExports: (Stone products, chemicals, cloths, …) 309(PTA),

Imports: (Cereal, vegetables, cement, machinery, …) 338(PTA)

6

62006

TunisiaExports (Construction products, Chemicals, detergents, …) 256(PTA)

Imports (Machinery, Oil products, …) 174(PTA)

4,6&8

6&82007

CubaExports (Sea food, Marine products, Juice products, …) 44(PTA)

Imports (Petrochemical products, Vehicles, Electric lights, …) 88(PTA)

8

6&82008

SyriaExports (Honey, Alcohols, flowers, Public transportation, …) FTA

Imports (Leather Bags, Materials) FTA- 2008

Bosnia and

Herzegovina

Exports (Fruits, Vegetables, Oil/Gas products, …) 170(PTA)

Imports (Caviar, tobacco, textile, …) 170(PTA)

6

6&42009

KyrgyzstanExports (Dairy products, Metals, Household appliances) 290(PTA)

Imports (Fish, Petrochemical products) 302(PTA)

6&8

6&4&82009

BelarusExports:96

Imports: -8 2012

TurkeyExports (MDF products, Manufacturing engines, steel & Iron, …) 25(PTA)

Imports (Walnuts, fruit, water juice, …) 139(PTA)

6

62014

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

Bosnia and Herzegovina Cuba

Kyrgyzstan Pakistan

Syrian Arab Republic Tunisia

Uzbekistan

0

2000000

4000000

6000000

8000000

10000000

12000000

Turkey

Iran’s Exports to PTA/FTA Partners

Source: uncometrade.com

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

Code ProductAverage of

IIT

Distribution of

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

88Vehicles Other Than Railway Or Tramway Rolling-Stock, And Parts And

Accessories Thereof0.00 GL < 10

89 Ships, Boats And Other Floating Structures 0.00 GL < 10

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

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.

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’s in Various Indicators

Code Product RCA SRCA

69 Ceramic Products 1.053 0.02670 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

Revealed Comparative Advantages of Iran in Various Indicators

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

year

Petroleum oils,

oils from

bitumin.

materials, crude

Motorcycles &

cycles

Women's

clothing, of

textile fabrics

Men's clothing

of textile fabrics,

not knitted

Polymers of

styrene, in

primary forms

Electrical

machinery &

apparatus, n.e.s.

Natural gas,

whether or not

liquefied

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

United Nations 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

Agreement The members of the Economic Cooperation 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, customs, 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