Eurasian integration to be strengthened by Iran

Victoria Panfilova, columnist of Nezavisimaya Gazeta, specially for Vestnik Kavkaza
Eurasian integration to be strengthened by Iran

Iran and the Eurasian Economic Union (EEU) begin work with the free trade zone (FTA) regime in late July. The agreement has already been ratified by the parliaments of the EEU countries - Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan, as well as the Iranian parliament. Earlier, Iran’s Supreme Leader Ali Khamenei expressed hope that in the future Iran will become a full member of the EEU.

"Iran’s membership in the EEU will allow national products to be sold in countries, which have a common culture and history with Iran. This is a priority in the context of the resistant economy, given that Iran’s trade turnover with most of the EEU countries is rather low today," Khamenei said. In May 2018, the EEU and Iran signed a temporary FTA agreement to increase trade between the countries by easing the customs regime. The only downside is that this agreement is temporary and will be in force for three years only. But the situation is redeemable. No later than one year after its entry into force, the parties must restart negotiations and reach a permanent FTA agreement or begin the process of Iran’s entry into the EEU.

As a result of the FTA between Iran and the EEU, mutual trade will be expanded. The EEU reduced customs fees for Iran on 502 goods. This applies to the most sought-after food products in the post-Soviet space - pistachios, dates, figs, raisins, shrimps, as well as dishes, household chemicals and carpets. In the face of sanctions, the Iranian economy urgently needs the influx of currency, which will create more sustainable jobs. Iran, in turn, will reduce fees on 864 goods. The EEU countries will increase the export of medicines, chemicals, paper, textiles, steel products, various types of mechanical and electrical equipment, cars. Total exports may increase by 73%. Kazakhstan's exports of barley, rolled steel, rapeseed and lamb will definitely increase.

Another thing is that neither a temporary nor a permanent FTA agreement can change the situation radically in the economies of our countries, it requires systemic changes. In addition, the share of mutual trade is still too small, slightly affecting the economic growth. For example, the share of trade between Iran and Russia last year was at the level of the Russian-Armenian trade. This is certainly not enough. However, according to the results of the analysis of the Eurasian Economic Commission, the largest GDP growth from the EEU-Iran FTA is expected in Russia - about $1.3 billion, in Kazakhstan - $508.6 million. Belarus will see an increase of $78.6 million, Armenia - $27 million, and Kyrgyzstan - $12 million.

A scientist of the Institute for Economics of the RAS, Alexander Karavaev, believes that the main thing is to create non-dollar payment systems, or at least those independent of the SWIFT settlement system. "Iran has concluded bilateral currency agreements with Turkey, Russia, China, India, Azerbaijan. But dependence on the dollar is largely an internal problem of the countries, even in Russia, a significant part of transactions is still denominated in dollars," Karavaev told Vestnik Kavkaza.

As for logistics, according to the expert, there are certain positive developments with Azerbaijan, in Astara (a granary and warehouse for finished products were built near the railway line connecting Iran with Russia). The FTA with Iran will serve as an incentive for the development of the transport and logistics infrastructure of both parties, which has a number of problems impeding trade. In connection with the formation of the FTA, a new point of trade and economic attraction will be created, which should have a positive effect on the development of the North-South international transport corridor. The sea route implies the development of a corridor through the Caspian Sea, which directly connects Iran and Russia. On the land route, development can be made towards the organization of railway transit through Georgia and Armenia, or through Azerbaijan.

Several memorandums  for cooperation on trade and customs were signed with Kazakhstan. In Armenia, the Meghri free trade zone (FEZ) is involved in trade with Iran: Iranian producers can import raw materials into the FEZ and get finished products to be supplied to the EEU market. Belarus is interested in supplying its engineering products and remove various legal restrictions rather quickly. But the main share of bilateral projects will fall on Russia. For example, according to the Russian Export Center's survey, out of76 promising and ongoing EEU projects in Iran, 63 projects are from Russia, 5 from Kyrgyzstan, 4 from Kazakhstan and 4 from Belarus.

At the same time, the EEU countries are calculating the disadvantages of cooperation with a country that is under tough U.S. sanctions. If the EEU countries do not oppose cooperation in the framework of the FTA, then it’s still premature to talk about Iran’s joining the EEU. In particular, as political analyst Zhanar Tulindinova told Vestnik Kavkaza, Kazakhstan will not support the idea of Iran’s membership in this organization. "This inevitably contributes to the politicization of the EEU in the eyes of the international community and its transformation into a kind of anti-Western coalition, given the complex relationship with the 'collective West' of both Russia and Iran, and it is highly undesirable for Kazakhstan. Trade and economic cooperation with the West is extremely sensitive issue for Kazakhstan, since the EU is a major destination of Kazakhstan’s energy commodities, and Tengizchevroil, with the U.S. holding 75% interest in the consortium, is the largest taxpayer in Kazakhstan. One of the sources of eurasia-phobia in Kazakhstan were the Western sanctions against Russia or rather, their impact on the economies of other member countries of the EEU, to be more precise, the risk of sanctions being imposed on the organization," Tulindinova said. According to her, given that Iran is an active participant in the sanctions confrontation with the West, these phobias will only intensify. It must be said that one of the main arguments of Kazakh Eurasiaskeptics is the fear that they view the EEU not as an economic association, but as a political union. Russia's focus on the inclusion of conditional "rogue states" in the EEU can only strengthen the anti-Eurasian sentiment in the Kazakh public agenda.