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Payame Darya, Economic-Scientific (Monthly); By: Mohammad Reza Raf'ati
June 1995, Vol. 4, No. 33

Summary:

This report will consider the place and position of Iran in the global trade of goods and services, as well as the possible impact that Iran's membership in the GATT would have on different economic sectors, including agriculture, services, and industries.

Text:

Statistics place the share of the Islamic Republic of Iran in the global imports at around 0.8 percent and in global exports at 0.5 percent considering oil exports and 0.1 percent without considering oil exports. About 75 percent of Iran's imports and nearly 60 percent of Iran's exports are carried out with advanced industrial states. Among these countries, Iran imports about 50 percent of its needed goods from the European Union (EU) member states and exports 40 percent of its non-oil goods to them.

Japan, too, is another trade partner of Iran with a 12 percent share in what the country imports. But Japan does not have much of a role in Iran's exports. Europe's free trade zone also meets around 7 percent of Iran's imports requirements and has a similar share in the country's exports.

The developing countries meet about 20 percent of Iran's imports requirements, with 5.2 percent met by the United Arab Emirates (UAE) and 2.2 percent by South Korea. Though Turkey and Pakistan are members of the Economic Cooperation Organization (ECO), they only meet 2.5 percent of Iran's imports needs and 13.5 percent of exports. The share of other developing countries in Iran's imports is less than 1 percent, with the exception of Argentine which holds 14.2 percent.

Among the socialist and east European countries, China holds 1.1 percent, Russia 1.08 percent, and the republic of Azerbaijan 0.66 percent of Iran's imports. The share of most East European countries in Iran's imports is less than 0.5 percent. The share of China and the former Soviet Union in Iran's exports is 5 percent each.

In addition, the share of the developing countries in Iran's non-oil exports is about 40 percent, 11 percent of which belongs to the United Arab Emirates (UAE) and 11.5 percent of which belongs to Turkey. The share of the majority of other developing countries in Iran's exports is less than one percent.

It can then be said that the major part of Iran's foreign trade transactions takes place with the developed countries. Among the developing countries, Turkey, the United Arab Emirates, and South Korea have a major share in Iran's imports, while among the socialist countries Russia and China have the highest shares.

A comparison of Iran's several billion exports figures with the hundred billion exports figures of advanced states of the world indicates the high potential that can be conceived for the promotion of Iran's exports. For instance, if Iran can get hold of only one percent of the imports of the EU member states, it can raise its non-oil exports to $14 billion per year. This rate of exports will not deal a serious blow to the EU markets.

It is worthy of note that of the 20 countries which had the highest share in meeting Iran's imports requirements in 1372 (amounting to more than 86 percent of the country's total imports), only China, Russia, and Azerbaijan with a total share of about 5.5 percent of the imports) are not members of the General Agreement on Tariffs and Trade (GATT). Of course, Russia's request for membership is under survey in the relevant working group and Azerbaijan has an observer status.

In addition, of the 17 main purchasers of Iranian commodities with a share of more than 85 percent of the total non-oil exports in 1372, China, Sudan, Azerbaijan, and Turkmenistan, with a share exceeding 15 percent of the total non-oil exports, are not members of the GATT. Of course, Turkmenistan, like Azerbaijan, has an observer status in the GATT. In addition, China's share of the total non-oil exports is 8.7 percent.

Several points should be underscored in regard to the framework of the global trade of services. First, trade of services comprises about 50 percent of the global trade of goods. In 1992, the volume of the global trade of services exceeded $1,800 billion. Second, the developed countries are in charge of about 85 percent of the international trade of services. Third, interests on loans and transportation make up about half of the figures for the global services trade.

Among the developed countries, the U.S., Germany, Japan, France, Italy, and Britain are the most important exporters and importers in most services sectors. They mainly hold about half of the global trade of services . Most newly industrialized countries of the world (the republic of Korea, Taiwan, and Singapore), as well as China, Thailand, Mexico, Brazil, Malaysia, and Indonesia, are among the top twenty importers and exporters of services worldwide.

The top twenty importers and exporters of services control between 70 to 90 percent of the subsectors of the global trade of services.

The lists of the major exporters and importers of shipping services, passenger services, and other means of transportation and travel do not have much of a difference with each other. But in regard to the export of the work-force, the major exporters are among the developing countries, while the major importers (apart from Saudi Arabia and Kuwait) are mostly from the developed countries. This reflects the existence of cheap labor force in the developing countries which export such services.

In regard to Iran's place in the global trade of services, the statistics of services imports and exports in 1370 place Iran as an importer of services. In this year, Iran's exports of services amounted to $1,368 million while the country's imports in this field stood at $5,800 million. As a result, Iran's share in the global exports of services is around 0.08 percent, a figure lower than the country's share in the global trade of goods.

In relation to the important subsectors of imported and exported services to Iran, it could be said that the incomes of investment and other private services make up around three fourths of the total exported services. In the imported services sector, the fare of transportation and other governmental services is about 75 percent of the total imports of services.

Like its share in the global trade of goods, Iran's share in the global trade of services is very slight. This slight share in itself indicates that if the needed ground is paved, Iran can rapidly boost its exports of goods and services in a way that would not be perceptible in the global markets. But in this connection, Iran is not the only country which tries to pocket more foreign currency through the export of goods and services. Other countries around the world also compete with Iran in this process.

With the ratification of the Uruguay round trade agreement, which also embraces the services sector, these competitions will from now on become systematic. If Iran joins the GATT, it should grant certain concessions in return for the concessions gained in regard to access to the markets of goods and services of other countries.

Possible Effects that Membership in the GATT Would Have on the Country's Economy

Any country's membership in the GATT primarily affects its trade and tariff policies. Granting tariff concessions and opening a part of the domestic market to the foreign products (of course, in tune with the country's level of economic development) are the most important commitments undertaken by any country that accedes to the GATT.

Here a survey will be made on the possible effects that reduced tariffs would have on some parts of Iran's economy. In addition, reference will be made to the effects of agreements on services, copyright, foreign investment, and some possible changes in other economic variables.

-Turning into Tariffs the non-Tariff Restrictions: Turning imports restrictions or imports quotas into tariffs under the worst conditions (i.e. when imports are fully banned) will have no effect on domestic prices or government incomes. This is because the tariffs can be specified at such a high rate to prevent imports.

Under normal conditions (of imports shares), if the amount of the tariff is not correctly fixed, it will cause the transfer of interests from domestic suppliers or foreign producers to the government (i.e. customs tariffs) without affecting domestic prices and inflicting loss on the consumers. As a result, if the tariffs are correctly fixed, placing tariffs on imports barriers and limitations will be advantageous to the country.

-Stabilization or Reduction of Tariffs

Economically speaking, increase in or suspension of tariffs on a particular commodity will on the whole be disadvantageous for the country, because it mars the optimal allocation of sources. Even though it increases the revenues of the government and the domestic producers, the losses incurred by the consumers due to higher prices will be more than these earnings.

Tariffs will be economically justified only when a country has exclusive or semi-exclusive power in the global markets, when its demand has a decisive role in the global prices, or when the industry under discussion is beset with market failure (for instance upward output as compared with production). As a result, in most cases, even if reduced tariffs decrease government earnings, these tariffs will be on the whole beneficial for the country.

On the whole, a preliminary estimation is needed about the change in the government's tariff earnings, because these revenues have a considerable share in the government incomes. In this regard, preliminary estimations show that tariff incomes will not be reduced much for the following reasons:

1) If the tariffs are stabilized, they will not affect the tariff revenues. Of course, there is the possibility for the tariffs to be stabilized at a higher level. In this case, the incomes can even be increased.

2) Supposing that tariffs of the agriculture sector are reduced at the estimated level (i.e. 24 percent over five years), given the -0.46 elasticity of imports over the tariffs, the rate of imports under stable conditions will increase by about 11 percent. As a result, over these five years, the tariff incomes of the country will be 13 percent (or annually about 2.5 percent) lower than the figures specified if tariffs were not reduced.

3) Fixing tariffs for non-tariff restrictions will increase the government's customs incomes. But it is difficult to estimate this increase.

Of course, simultaneous with reduced customs revenues of the government and the received difference, government expenses (i.e. subsidies) will also be decreased. As a result, no considerable change will be expected in the government's net incomes.

In addition, new estimations of the effect of the Uruguay round agreement on global production and trade show respectively $500 billion and between 8 to 24 percent growth until the year 2005.

A small part of the above figure will boost Iran's foreign currency revenues and imports through demands for Iranian exports. For this purpose, in relation to the government's customs incomes, no considerable decrease is in sight.

Another positive aspect of stabilization and reduction of tariffs following accession to the GATT is that Iranian exporters will be able to have a better position at the foreign markets due to the following reasons:

1) Reduced tariffs of exportable goods will result in reduced production expenses and costs.

2) In the foreign markets, Iranian goods will face fewer tariff barriers and will, consequently, have more power for competition.

3) Reduced support for produced goods that will replace imports, together with the aforementioned factors, will direct the resources toward promotion of exports. This is in tune with the country's strategy to promote non-oil exports.

4) The 1994 GATT agreements will weaken the preferences of under-developed countries. This is a new chance afforded to countries such as the Islamic Republic of Iran which did not use such preferences.

5) In case of non-membership in the GATT, the aforementioned advantages will not be derived. In addition, there is also the possibility that the country's existing exports opportunities will be undermined. For instance, if the People's Republic of China becomes a member of the GATT, it has to offer preferences to the GATT member states and might no longer purchase Iranian steel or other goods or might reduce such purchases, because imports of commodities, such as steel, from other countries will involve lower customs duties.

In general, in the discussion on the reduction of tariffs, the fear of the impact of these reductions on domestic production and employment has stirred more sensitivity as compared to tariff incomes or shifts in exports. We will here attempt to reason out how justifiable this fear it.

In regard to the major agricultural products, the commercial interests are so low that their gradual decrease cannot affect their competitiveness and production. In the case of some other products such as fruits and vegetables which are exported, reduction of tariffs does not appear to considerably change the country's comparative advantage in the production and exports of these items.

On the other hand, elimination of subsidies on agricultural goods will increase the global price of agricultural products and make Iran's products more competitive. For this reason, tariff reduction (for instance from 10 to 7.5 percent) does not appear to leave a perceptible effect on the overall production and employment in the agriculture sector.

The same condition can be observed in the case of mineral, metal, and chemical products. As a result, except for a few cases, these sectors will not be perceptibly affected by tariff reductions, especially at the present juncture when many items such as iron ores and metals are exported and some others such as the products of the photography industry have no domestic competitors.

But the major problem which has caused concern over membership in the GATT applies to a large extent to the industrial sector. Before dealing with a discussion on the industries, however, it is apt to make another reference to the reasons why industries are protected in the developing countries and to the justifications in this regard.

As already pointed out, fixing customs tariffs on imports of goods on the whole will always be disadvantageous to the country which has fixed the tariffs. The exception is when the said country can affect global prices or when the market faces failures such as an upward trend of output, deficient competition, or external effects of an industry which is subject to protectionism.

But unfortunately, in the developing (and even the developed) countries, protectionism does not follow the aforementioned conditions and is governed by political pressures exerted by economic groups for apparently the following reasons:

1) Increased inexpensive imports will reduce production and employment.

2) Any deficiency in the capital or labor market will speedily lead to the absorption of the production factors by other sectors.

In response to these reasons, it should be said that even if such instances are true, the tariff policies do not serve as the best solutions. In such cases, the best policy is one which directly targets the reasons why the market has become deficient, and tariff policies usually come in third or fourth places.

But due to the excessive dispersion of consumers (who incur losses by the tariff policies) on the one hand and concentration of production in several large units (which benefit from tariff policies) and coordination among them on the other hand, the power and influence of producers will be dominant in any decision-making on trade policies.

This trend continues to such a level that the expenses paid by consumers to retain a job in the industry under discussion are several times the wages given to a laborer who is supposed to enjoy protectionism. For instance, maintenance of any job in the U.S. steel industry requires $178,000 as protectionism. This is while a laborer engaged in this industry receives an annual salary which is lower than one third of this figure.

Despite the fact that discussions on protectionism cannot be justified, it should be admitted that Iran's industries sector, due to weakness in regard to prices and quality, has for long required protectionism policies. This is such that most end products in the field of industries enjoy between 30 to 50 percent customs protectionism. Even though capital and intermediary goods have lower customs duties, some goods such as automobiles enjoy higher rates of protectionism.

Before studying the results of tariff reduction on production and employment in the industrial sector, the following points should be mentioned:

1) Goods such as paper pulp and metal wastes which are presently exempt from commercial interests will not be directly affected.

2) Tariff reduction of goods without domestic substitutes cannot directly affect production at home.

3) The major impact of tariff reductions will be on those domestic productions which replace imports and which at present enjoy considerable protectionism. This is such that reduced tariffs will intensely decrease their price advantages or intensify their lack of advantage.

It should be borne in mind that reduced tariffs decrease the cost price of raw material and imported intermediary goods used for domestic production. But since the tariffs of end products are normally more than the tariffs of raw material and intermediary goods, reduced tariffs will on the whole weaken the competitiveness of end products.

The share of imports in the Gross Domestic Product (GDP) is about 15 percent. The share of the industries sector is about 15 percent of the GDP. Given the -0.46 percent elasticity of imports as compared with the tariffs of imported goods (for instance 24 percent tariff reduction over five years while other parameters remain stable), imports will be increased by around 11 percent. This will lead to an 11 percent decrease in the country's industrial products. If the elasticity of production as compared with employment is around 0.5 percent, employment in the industrial sector should be decreased to 22 percent. Given the number of wage earners of this sector (amounting to 1.02 million people), it will amount to 220,000 people.

Of course, as already pointed out, this figure will not be equally distributed among all industrial subsectors. It is expected that at present those subsectors which enjoy greater protectionism and have close competition with imports will be highly affected.

Of the total 1 million people employed in the industrial sector, around 270,000 are engaged in the textile, clothes, and leather industries; 210,000 in the machinery and metal equipment industries; and 201,000 in the foodstuff, beverages, and tobacco industries. The non-metal mineral industries with 154,000 people and the chemical industries with 71,000 people hold fourth and fifth places respectively.

In other words, these five industries hold around 90 percent of the country's employees in the industrial sector.

On the other hand, a glance at the column related to these industries' customs tariffs shows that most of them enjoy the highest rates of protectionism. For instance, protectionism is 25 percent for the textiles industry, 50 percent for the clothes industry, and between 50 to 100 percent for the leather industries. The tobacco, beverages, and foodstuff industries respectively enjoy 25, 50, and 50 percent protectionism. In the machinery and metal equipment sector too the present protectionism is often between 30 to 100 percent.

Protectionism for end consumer and luxury products in the chemical and plastic industries is between 25 to 50 percent. Other industrial sectors of the country enjoy lower protectionism. On the whole, they comprise about 10 percent of the employment in the field of industries. Consequently, gradual reduction of protectionism in their case cannot leave serious effects.

A comparison of the share of imports and exports of these sectors will to some extent indicate their competitiveness. Of course, those items which are also similarly produced at home should be compared with one another.

In the first quarter of 1373 (1994-1995) the country's total exports of industrial goods stood at Rials 567 billion. Of this figure, exports of chemical material made up around Rials 143 billion; iron and steel, Rials 163 billion; stone and construction material, Rials 8 billion; preserved food and foodstuff, around Rials 60 billion; textiles, clothes, and shoes (apart from carpets), Rials 63 billion; copper and aluminum plates and utensils made of them, around Rials 90 billion; mosaic, tiles, and ceramic, around Rials 6.5 billion, amounting totally to Rials 535 billion or 94 percent of the country's industrial exports. These are the industries which will probably face increased production and employment.

On the other hand, the pressure of liberalizing foreign trade in tandem with the Uruguay round commitments will grip industries which have had no comparative advantages due to imports and extensive protectionism offered to them in recent years. These include industries such as automobile manufacturing, electrical and electronic utensils, heating and cooling equipment.

A glance at the country's production capacities indicates that by far the machinery and chemical industries are sectors which will be highly affected. In other industries, either a similar domestic production does not exist or the present exports of productions indicate that the domestic items can compete in global markets. Of course, there is the possibility that negative results might emerge in the textiles, clothes, foodstuff, and beverages sectors.

Reduced domestic production and employment, which was previously mentioned, was based on the supposition that the sources and factors of production were not transferred from these sectors to others. But the truth of the matter is something else. Strengthening liberalization in global trade will incur damages on some industries which replace imports but will increase production and exports of goods in those sectors which have comparative advantages. The reasons for this are as follows:

1) Increased production and global trade will increase demands for Iran's exports goods.

2) Reduced customs tariffs ensuing from accession to the GATT will enhance the competitiveness of Iranian goods.

3) Reduced protectionism in the case of industries replacing imports will direct the resources toward more optimal exploitation and promotion of exports.

4) Reduced subsidies and non-tariff restrictions of other countries can strengthen Iran's exports.

As a result, due to the aforementioned reasons, a boost is expected in production and employment in other sectors. Increased production and global trade will also enhance demand for Iranian exports.

Based on latest estimations, the Uruguay round trade negotiations will increase global production until 2005 by about $250 billion annually and global trade by $755 billion. Given this consideration, one can regard Iran's present share in global trade in view of the country's diversity of exports goods to come up with estimations of the increased demands for Iranian commodities.

At present, the volume of the world's imports is about $3,800 billion. Given the country's present non-oil exports (amounting to about $3.8 billion), Iran's share of it is about 0.1 percent.

Consequently, if the volume of the world's imports in the coming 15 years increases to about $755 billion and if this increase is equally shared by all countries, the demand for Iranian exports will increase by about $755 million.

But since it has been estimated that the share of the developing countries in the outcomes of the Uruguay round discussions should be lower than that of the industrial countries and because of about 20 percent dependence of the industries on imports, it is more realistic to adjust the increased demand for Iranian exports goods and base the figure on $500 million.

Of course, Iran's present exports are mainly comprised of traditional and agricultural items which do not have high price elasticity and earnings. As a result, the employment generation will be for about 156,000 people (with the supposition of an annual salary of Rials 4 million for the laborers in the industrial sector and considering each dollar to be equal to Rials 2,500).

In other words, about three fourths of the reduced employment rates caused by increased imports can be neutralized by promoting exports. Of course, alongside this boost in employment, one should also consider the dynamic interests of optimal resource allocation. Though difficult to measure, these interests are by far higher than stagnant ones, as the dominant view holds.

One should not worry over this matter either because, firstly, for the developing countries, protectionism can be equal only to 10 percent of the value of the agriculture sector's productions. And, secondly, this figure can be spent on particular sectors such as the production of wheat or other strategic commodities.

At present, the agriculture sector has a yield of around 60 million tons. Granting that each kilogram is priced at Rials 300, the estimated value will amount to Rials 18,000 billion. As a result, total protectionism in this sector can be Rials 1,800 billion.

The average subsidy paid to this sector during the Second Plan amounts to around Rials 2,200 billion, 90 percent of which is paid to consumers of wheat. Domestic wheat prices are not much different from global prices. As a result, this does not appear to create any difficulty, especially since subsidies on foodstuff can be paid to the deprived classes.

At any rate, it is necessary to survey the existing protectionism and subsidies of this sector to firstly realize which agricultural products enjoy protectionism and to secondly understand the extent each is protected and to thirdly find how much such protectionism should be reduced after the country's membership in the GATT.

In regard to exports subsidies, there are exemptions for marketing and transportation subsidies.

Given the slight facilities accorded to the exporters in this regard, the country's exports will not suffer when these subsidies are cut off. This is because of the following reasons:

1) Reduced tariffs of other countries and membership in the GATT will enhance the competitive power of the exporters.

2) Major exportable agricultural goods (such as carpets, dried fruits, animal hides and intestines, caviar, fruits, and vegetables) are not subject to considerable subsidies.

3) Reduction of subsidies and protectionism of domestic production in the developing countries is two thirds the reduction observed in advanced countries and will take place over ten years.

4) Keeping the rate of the foreign currency low for exports will mainly affect the taxes rather than the subsidies.

Of course, some industrial commodities to which official rates of foreign currency are applied will be affected by the negative effects of subsidies.

At any rate, contrary to what is popularly believed, payment of subsidies for exports goods is not economically justified. Like tariffs, the subsidies have also resulted in the non-optimal allocation of resources and have, in practice, reduced public welfare.

Domestic consumers will face higher prices and the government should also pay subsidies. In practice, trade deals will change to the disadvantage of the country. But, on the other hand, producers and exporters will be able to gain benefits. As a result, in this connection, too, the country should not face any losses.

In addition, reduction of subsidies and protectionism will take place gradually without creating sudden and intense problems related to adjustment and transfer of resources.

On the other hand, in the services sector, it is difficult to estimate the effect of the General Agreement on Services because of the following reasons:

1) Countries can demand exemptions on laws related to the most-favored nations. These exemptions can span over ten years.

2) In regard to laws related to protectionism, subsidies, and government purchases, negotiations have not as yet been finalized.

3) If there are any problems on the balance of payments--as observed in the case of Iran--certain limitations can be put into effect.

Services can be rendered in different forms: rendering services from abroad, enabling consumers to travel, being involved in trade, and having legal entities involved. Most developing countries have not undertaken a considerable liberalization plan in this connection. Most of their commitments apply to tourism, commercial services, financial services, and telecommunications.

In these sectors, services have been rendered in the form of being involved in trade rather than being served from abroad in order to encourage foreign investment. In regard to enabling people to travel for trade deals, instead of paying attention to special sectors, agreement has been reached so that managers of companies would be able to enjoy these facilities.

Iran can also adopt a similar strategy in order to attract foreign investment, increase competitiveness in the services sector, and largely prevent the adverse effects of the involvement of foreign services institutions in the country.

The needed surveys have not as yet been undertaken in regard to the competitiveness of services in the country. But apparently, in fields such as commercial services and tourism, the involvement of foreign firms will not have a very high negative impact throughout the country.

Actually, to flourish some of these fields--such as tourism--the country can use the experiences of the foreign firms.

At any rate, it is not at present possible to precisely estimate the impacts of the Uruguay round agreement on this sector. Figures related to the country's balance of payments in 1370 indicate that $1.36 billion has been spent on exports and $5.8 billion on purchase of services from abroad.

A profound and extensive survey is, however, needed to realize the competitiveness of Iran's large services sectors such as transportation, insurance and banking, communications, health, engineering and construction services and to see which requires concessions.

Generally speaking, it could be said that the major advantage of Iran in this sector will be limited to subsectors which do not require high capital and complex technology and skill. At any rate, since the share of the services sector in the country's GDP is about three times the share of each of the agriculture and industries sectors, it is necessary to pay more heed to the issue of grant of concessions, especially since in this sector it is possible to make some subsectors exempt from the negotiations.

Matters related to TRIPS are among highly debatable items of the Uruguay round agreement. Since most discoveries and innovations take place in advanced industrial states and since the developing countries do not have much of a role in this regard, recognition and preservation of these rights for the developed countries will require increased incomes while for the developing countries, these will lead to considerable expenses. For this purpose, the developing countries will incur losses at least in the short term. Of course, in return, the advanced countries reason out that technology is not transferred to the developing states mainly because these countries do not respect TRIPS.

At any rate, even if this is true, the developing countries--including Iran--should meet two types of expenses in this regard in the short term. First, rights and expenses that they should observe to use these discoveries and innovations. Second, expenses which should be undertaken to prevent cheating and misuse of these.

Unfortunately, in this regard, comprehensive statistics and data are not available in Iran to enable a primary assessment of the outcomes of accession to this agreement. But statistics presented for other countries speak of the transfer of considerable sums of money in this field. For instance, it has been estimated that India's pharmaceuticals companies and Indian consumers that illegally imported and consumed medicine in the past should pay between $477 to $1,300 billion for the special right of the medicine. This figure is estimated at $387 million in Argentina. In Iran, too, if the plan for the use of generic medicine involves the use of registered formula of the medicine of other countries without paying the special right expenses, the country should pay around $700 million if it accedes to the TRIPS agreement.

Another matter related to the TRIPS agreement is the copyright for authors of books. In this connection, it is necessary to make an estimation about the relevant economic outcomes. In Iran, each year around 2,000 books are translated for the first time irrespective of copyright considerations. The ordinary circulation of each book is 3,000 copies. If for translation of every title, around $100,000 is to be paid to the foreign author or publisher, this will annually involve $20 million in expenses for Iran.

But, in practice, this will not take place because if we wish to pay $100,000 for every title, the price of each book will increase by Rials 88,333, supposing that each dollar is equal to Rials 2,650. In other words, a book which previously cost about Rials 1,600 will now stand at around Rials 100,000. Naturally, with such a price, there will be no demand for this book. As a result, the foreign author or publisher will not logically ask for such a price. In this case, foreign publishers can at most demand around $5,000. For new books, this will annually involve $100,000 in expenses.

On the other hand, due to high purchasing power and circulation of books abroad, Iranian publishers and authors will easily be able to present only several titles of books to earn a similar amount for the country. From this perspective, no loss will be inflicted on the country. But considering the volume of books which have been previously translated, one can anticipate the payment of considerable sums in a short span of time.

In regard to recording tapes and copying computer programs, Iran will not face much damage, since the said items can hardly be controlled. In addition, Iran has the ability to engage in exports in this field.

Alongside payment of these expenses, one should consider the side-effects. Since the use of foreign discoveries and innovations will involve considerable expenses, domestic discoverers and innovators will have a fit ground to engage in novelties. This can strengthen research and development in the country. For instance, instead of translating many foreign books into Farsi, books will be originally written in the country after research and compilation.

Of course, accession to this agreement will have other benefits as well. For instance, Iran's competitors will not be able to use the names of Kerman and Kashan to offer their own carpets to the markets in the name of Iranian carpets. In return, many domestic Iranian products will no longer be able to use foreign names (for instance, as brands and marks for clothes).

As per the commercial aspects of TRIPS, a point should be underscored: Observing these rights will, in practice, create an exclusive privilege and concession for the discoverers and innovators. This can reduce competition among the producers. On the other hand, the 1994 GATT agreement allows the payment of subsidies for research and development purposes.

Therefore, considering the existing academic and financial potential in the advanced countries, they are expected to enjoy ample benefits in future in regard to the TRIPS agreement. For this reason, in order to prevent the transfer of these benefits abroad, Iran should be more active than before and make utmost use of the extensive market that will appear in this field. Otherwise, each year, huge sums will leave the country to be paid for the rights of discovery and copyright.

The major undertakings shouldered after acceding to this agreement include the fact that commitments on domestic production, as well as trade and foreign exchange balance can no longer be implemented on foreign investments. Of course, this will be gradually done over a five-year period.

As with customs tariffs and exports subsidies, for TRIMS, too, no acceptable economic justification can be found when there is full competition. Prevalent trade theories reason out that compelling multinational companies to use or export a part of domestic production or to establish relative balance between their imports and exports will not help the developing countries when full competition prevails. This trend will rather reduce comparative advantages in the long run and prevent the growth and development of the said countries.

This is because if the developing country has an advantage in these fields, there is no need for it to resort to the said limitations. But if it lacks comparative advantages, the said limitations will result in increased production costs and non-optimal allocation of resources.

Of course, modern economic theories indicate that foreign investments are usually made in industries with high concentration such as the vehicle and petrochemical industries which normally do not have the conditions for complete competition. Elimination of TRIMS can be disadvantageous for the developing countries and for Iran.

As a result, if the country accedes to the TRIMS agreement, foreign investments should be directed toward areas where the country has comparative advantages for production and exports (and/or for use of domestic products).

Iran's membership in the GATT will have certain effects on the country's inflation, parity rates of foreign currency, interest rates, tax and customs policies, income distribution. These will be briefly dealt with.

Since membership in the GATT eliminates imports shares, reduces customs tariffs, and exposes Iran to global competitions, it should decelerate the pressure exerted by inflation. For instance, a 24 percent decrease in the average existing customs tariffs will reduce the inflation rate by 0.5 percent in the period under survey.

On the other hand, increased exports due to a 36 percent decrease in customs tariffs of other countries can increase the country's inflation by about 0.3 percent, supposing a 20 percent average tariff for Iranian goods.

Increased expenses on the rights of discoveries will also lead to price hikes. But the effects of intensified competitions are expected to have a higher role--as compared with other effects--in the stability of the prices.

Apparently, after accession to the GATT, Iran will have to make its foreign currency rates more floating. This is because if the country artificially stabilizes the foreign currency rates, Iranian exports and imports goods will be rapidly affected due to the differences in the rates of inflation at home and abroad.

Since it is practically impossible or at least very difficult to grant subsidies to exports or to increase customs protectionism, change in foreign currency rates will be imperative.

Foreign competition in fields such as banking, insurance, and transportation will compel Iran to make the rates of its interests and insurance rights competitive. This is because if these sectors are not exempted in the negotiations to accede to the GATT, Iran's exclusive market will become competitive.

A significant point that should be accounted for prior to membership in the GATT is the need to survey and revise some of the country's tax and customs laws. This is because after membership, the GATT members will have very limited authority to specify taxes and customs duties for imports of goods and services.

Principles, such as the most-favored nation status and national behavior, necessitate that concessions granted to one member be applied to other members as well. Foreign legal entities will enjoy the same concessions which are granted to citizens. Therefore, a revision of these policies prior to the start of the negotiations is exigent.

Income distribution is one of the aspects related to reduction of domestic protectionism. Not much has been said about this parameter in the GATT discussions.

As a general rule, reducing or cutting protectionism in a field will reduce the real income of the major producers in the said field.

On the other hand, the real income of major producers who gain access to new markets because of reduced foreign protectionism will be increased. In other words, if membership in the GATT results in increased production and exports of agricultural, mineral, some metal, and industrial goods, the real income of the laborers in these fields will be increased.

On the other hand, the real income of laborers and benefits of owners will drop in industries which previously enjoyed high protectionism.

Another upshot of membership in the GATT is increased economic competition and efficiency. Naturally, under such conditions, real prices and comparative advantages will find a fit chance to emerge.

For this reason, those economic sectors which lack the needed advantage and efficiency will forcibly be weakened. Reduced exclusive concessions and domestic protectionism, as well as the need to compete with foreign products, will create more incentive to make the governmental institutions privatized and efficient.

Obviously, in the process of privatization and economic adjustment and with the appearance of the country's real comparative advantages in the production and exports of goods, a transitional period will emerge to move from a protected economy to a competitive one. During this process, transfer of factors of production (i.e. work-force and capital) will be sluggish.

This is because the owners of industries who enjoyed protectionism in the past will not at first take the change in the country's strategy seriously. They will probably exert pressure to regain protectionism. Also a part of the work-force, lacking the needed skills, will not be absorbed by the industries having comparative advantages.

Over this period, the statesmen should display their political resolve so that the capital holders will quickly forget about protectionism and transfer their resources to other sectors.

For the unemployed laborers, too, wages for the periods of their unemployment should be specified and, in addition, courses should be held to give them the needed training on various relevant skills. All factors impeding their progress and dynamism should be eliminated. While granting agreements in principle, the amount of production and competitiveness should be especially considered.

In case the Islamic Republic of Iran accedes to the GATT, what will take place in practice will largely depend on Iran's awareness of the Uruguay round agreement on the one hand and the country's performance during and after the negotiations for membership in the GATT on the other hand.

In recent years, Iran has approved and pursued plausible economic ideas such as the creation of free trade and industrial zones, privatization, and fixation of a single parity rate for the foreign exchange. But Iran's not-so-calculated performance has often lead to results that were contrary to the expectations.

Instead of exporting goods, Iran's free trade zones have mainly been importers. Privatization has not taken place at the requisite pace and in the desirable form. Still the foreign currency has several parity rates.

If the past policies are continued, a similar fate will await the country in relation to its membership in the GATT, unless from now on and simultaneous with the consideration and approval of Iran's accession to the GATT--a process which will possibly take several years--a group of highly competent experts of economic, commercial, and legal issues and international relations seriously start surveys and dialogs and follow up Iran's membership.

Demand for membership will inflict no loss on the country, because if during the surveys and future negotiations Iran finds that accession will have unfavorable results, it can withdraw its demand.

In addition, the later Iran becomes a member of the GATT, the less chance it will have to change and adjust its policies.

Moreover, by making a request for membership and taking part in negotiations, Iran will be acquainted with the trade systems of other countries and will imply to the domestic production and services sectors to rapidly boost efficiency and enhance the quality of their products. The economic officialdom and policy-makers of the country will also find the needed chance to make changes and adjustments in the rules and regulations.

In the modern world, the countries, to a large extent, reap benefit of regional arrangements. But, unfortunately, Iran has had a very weak performance in this field. Now if the several remaining major countries such as China and Russia become members of the GATT, around 95 percent of global trade will practically take place through regional cooperation or based on the principle of the most-favored nation status with insignificant tariffs.

Iran's aloofness from these multilateral arrangements and relations will mean that the country's productions will face a considerable absence of advantages. This will in no way be favorable for Iran which aims at developing non-oil exports.

A point worthy of mention is that the mentality prevalent in Iran should also undergo change. An export-oriented mind is needed for the exports of goods. Such a mentality will not allow protectionism for inefficient industries.

Iran should naturally let some industries be effaced and simultaneously endeavor to speedily direct all resources and production factors toward efficient industries.

Unemployment, updating information, investment, and renewed employment is a trend that should be taken up. The statesmen should not bar this trend. To the contrary, they should expedite it.

Of course, one should not exaggerate on the influx of imports and increased unemployment. This is because the excessive flow of imports to the country requires a great deal of foreign currency reserves and incomes, both of which do not abound at present.

In addition, the experiences of countries such as Japan and India have indicated that in case the country shows a fit reaction, no influx will appear.

The officials and policy-makers should accept that in future they would face more limitations in formulating economic and commercial rules and regulations.

For this purpose, they should be like chess players by considering their own move and the moves that will be taken in response.

Finally, accession to any agreement or membership in any international organization accords rights to and creates responsibilities for the members. No one should expect a privilege without granting a privilege in return.

The same is tenable in the case of the Uruguay round agreement. Distribution of privileges and concessions will be specified to a large extent by Iran's grasp over the agreement and by negotiations and activities to implement it.