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After the (Iraq-Iran) war, several policies for economic reform and recovery, including those that pertained to the field of trade, were put into effect. Some attempts were made for liberalizing imports coupled with the transfer of foreign exchange, as well as moves toward deregulation in dollar exchange. Nevertheless, these only resulted in an unwarranted increase in the debts of Iran and in the volume of imported items into the country.

The year 1370 (March 22, 1991 to March 21, 1992) was a turning point in Iranian commerce, and the government, pursuing the economic adjustment policy that it initiated in 1989, took important steps toward the liberalization of imports. The series of policies that were adopted had a great impact on the production sectors, price indices, the country's balance of payments, and many other elements of the economy. An effort was made here to touch on the liberalization process as well as its implementation. If foreign exchange and tariff and non-tariff policies were considered as the most important variables of the commercial system, then, the most important changes that led to import liberalization during the period were those that were brought about in the non-tariff and foreign exchange sectors.

One of the objectives of the First Plan in the realm of monetary policy, was a reduction in the types of foreign exchange rates that prevailed in the country. In line with these goals, during 1370 (March 22, 1991 - March 21, 1992), all foreign exchange notes were converted based on three kinds of rates, namely, official, competitive and floating, and most of the required essential goods, which were for distribution via coupons or through cooperatives, were bought from abroad by state companies using the official rate of exchange. Furthermore, the machinery needed by the public sector were imported mostly at the official rate, although they were also bought based on the competitive rate, and at times, even the floating rate was applied.

According to Table 1, about 66%, 20.6% and 13.4% of imported goods were sourced in the same year using the official, competitive and floating rates respectively. The attempts at unifying the rates of foreign currency conversion continued in recent years till 1993, when it was prescribed that all imports should be computed using the floating rate, which was to be determined by the Bank Markazi (Central Bank) of Iran. Only some basic items were allowed for importation during this period based on the official rate.

Initially, the CBI tried to stabilize foreign exchange prices with the application of a floating rate and for this purpose, it resorted to selling dollars through the banking system at the floating rate.

But after a while, the country's foreign exchange reserve was diminished, and the market again witnessed a duality of exchange prices. The increase in the price of imported essential and capital goods, which constituted the bulk of imports, had a great impact on the volume of imports and the level of effective protection for domestic products.

Tariff rates did not change appreciably in 1370; only in some cases, import duty was changed through the omission of non-tariff restrictions from certain goods. The more important commercial reform policies in the non-tariff sector included the lifting of prohibitions and restrictions in importing goods. Although the import and export laws, which should have been ratified by the Legislature, were not altered at all and in that year, the same law of 1988 was enforced using notes of the law which allowed ministries to issue authorization for import of goods, yet, the ground was prepared for trade liberalization on the basis of decrees and amendments approved by the Cabinet. The decrees and amendments pertaining to 1990-1991 and 1992 indicated the move toward the liberalization of trade that was adopted by the Executive system. A large part of this trade opening was carried out by increasing the number of goods that were no longer subjected to the foreign exchange transfer requirement.

Therefore, importation without the prerequisite foreign exchange transfer is considered the focal point of trade liberalization policies during this period. Although the system of importing goods without foreign exchange transfer had been in force for many years, it had not been seriously and continuously considered. (Article 9 of the Import and Export Regulations of 1948 stipulated: "If anyone wishes to import authorized goods from a country without foreign exchange transfer, then the goods ordered should be included in the list of goods that can be imported without foreign exchange transfer; otherwise, an import license will not be issued and it will not be possible to import the goods.") Upon the termination of the (Iraqi) imposed war in 1988, it was deemed necessary to draw up the First Economic, Social and Cultural Development Plan, within the context of national economic restructuring policies, wherein trade liberalization was a pivotal point.

The first step in this direction was taken early in 1989, when the Reconstruction Council issued its first decree agreeing to the import of goods that were needed by the general pubic, without foreign exchange transfer.(1)

Therefore various lists were approved and announced by the Council, and in the latest decree, the Ministry of Commerce was designated as the authority to determine and announce the importable goods with due regard to the economic situation of the country; after investigating the shortages and applications, the Ministry of Commerce can announce the liberalization of new items every now and then and this process is still continuing. The foreign exchange-free importation system has a unique feature, which attracts many applicants, as all importers, whether real persons or legal entities, having Iranian citizenship can avail of this privilege. In the case of real persons, the only conditions are that they should have reached eighteen years of age and their military service situation (for males) must be clear.

Under the system, the commercial card and the production ministries' authorization of non-manufacture are no longer required and the prices of goods do not have to be confirmed by the goods procurement and distribution centers (GPDC) (2). Until July 1991, it was obligatory to obtain authorization from the GPDCs. At that time, another step was taken for trade liberalization. In other words, through omission of the requirement to obtain authorization from GPDCs, an important trade reform was effected. The importation of goods was facilitated on the basis of the decree of the Council of Ministers dated 29.5.91, which stated that obtaining authorization from GPDCs was no longer required, provided an additional 10% import duty was paid (3).

By means of this concise decree, all non-tariff restrictions (for unauthorized and conditionally authorized goods) can be eliminated, only with the payment of 10% import duty, which were calculated based on CIF value and taking into account the official rate of exchange (70 rials).

Furthermore, there were other decrees in 1370 (1991) that intensified the trade liberalization process, including the following:

- On the basis of the decree of 29.5.91, commercial goods imported from Kish Island and its suburbs were exempted from 30% import duty.

- Declaration on 10.5.92, stating the Ministry of Industries' general agreement to the importation of 216 items.

- Ministry of Heavy Industries' list for importation of various kinds of vehicles based on the floating rate of exchange.

- Ministry of Industries' delegation of authority regarding issuance of authorization for clearance of second-hand machinery in exchange-free form (July 7, 1992), and the addition of passenger vehicles and D vans to the list of importable vehicles (June 1, 1992)(4).

Another important decree for trade liberalization during 1991, was the stipulation concerning the dissolution of GPDCs. "The High Council of Administration, in its eighth session of Feb. 6, 1991, at the suggestion of the Organization for State Employment and Administrative Affairs approved that, (a) for the implementation of the First Economic, Social and Cultural Plan of the Islamic Republic of Iran, and in order to make government agencies more suitable and merge those with similar and overlapping duties, and to eliminate parallel and unnecessary agencies for control of and supervision over imports, and further, to enable the production units to import those items they require and in view of the need to follow various stages for work execution, all GPDCs are hereby dissolved (after going through the following stages and within a maximum of six months)...(5).

Table (2) shows the situation of non-tariff restrictions before and after the trade reforms of 1991. On the basis of the aforementioned table, it is seen that the main liberalization moves were related to the conditionally authorized goods. Although the number of unauthorized goods declined after liberalization, the figure, nevertheless, was not significant. From the point of view of the number of goods under tariff, most of the liberalization moves in the economic sectors was related to manufactured products, so that there were 3,516 tariff goods in these sectors before 1991, out of which only 176 were authorized; after liberalization though, the number of authorized goods increased to 1,888, and these items could be imported without any need for non-manufacture authorization from the concerned ministries and an import authorization from GPDCs.

In addition to these laws, there were various ways for importing goods that extended the trade liberalization trend and some of these are referred to hereunder:

The World Bank, Islamic Republic of Iran: An Agenda for Trade Reform, August 1992, p. 15.

Unit: number of goods under tariffs; Source: Calculated on the basis of source (1)

The activities of the Kish and Qeshm free trade zones began in 1989. In order to attract domestic and foreign investments and create suitable conditions for the extension of productive and export industries, it was necessary to establish the appropriate economic, technical and welfare infrastructures, including jetties, airports as well as social, recreational, and modern communication facilities, water, electricity and energy utilities. Among the free trade zones, only Kish had some facilities for a long time, and it was necessary to also provide the required infrastructural support in Qeshm and Chahbahar. As constructing these required a large amount of fixed investments and Iranian and foreign investors did not show any inclination to make such investments, in order to make these free zones active during the First Plan years, goods were imported to these areas, duties were charged on the imports, storage rights collected and purchase cards were sold. Thus, a part of the development and infrastructure expenses of the zones was secured through such earnings as well as through the temporary transfer of land to investors.

Therefore, the main activities of these areas entailed the importation of foreign goods, which was based mainly on the law that exempted goods carried by passengers going to, or coming from, abroad. In Kish Island, authorization was granted to Iranian and foreign businessmen to import various kinds of goods to the island, outside the framework of laws and regulations governing the import and export of goods into the mainland, and on the basis of exemption of goods carried by passengers coming from abroad, to the extent of $700 per year. In the case of the Qeshm free zone, which started its activities with the activation of the Bahman jetty in February 1991, a ceiling of $200 exemption was envisaged for every passenger. For Chahbahar, a $200 exemption was allowed for goods carried by every passenger (6).

With such laws that facilitated imports, the zones, which had been created to attract technology, to process exports and raise production activities in the country, were, in practice, turned into centers for unwarranted exports, a factor for the destruction of the national economy and served as centers for the penetration of foreign goods into the country.

After a while the method of importation from these zones, using the legal exemption of imported items carried by passengers, deviated from its natural and ordinary course, and through misinterpretation of such exemption laws for goods brought by travelers, this was turned into a channel for unwarranted export of goods from the zones. Through proxy purchase by the family heads using identity cards of family members, purchasing on behalf of others and in group form, by representatives of organizations, institutions and some cooperative societies, were among the actions that disturbed the logical course of importation into the country.

The volume of goods imported through Kish Island during 1989 to 1993 is shown in Table 3.

Based on this table, the value of imports during these years increased considerably, reaching $400 million in 1992 (which was 1.53 times the figure for 1991), and it was forecast to hit $800 million in 1993, prior to prohibition of goods clearance.

Table (3) - The value of goods imported through Kish Island during 1368 (March 21, 1989 - March 20, 1990) to 1372 (figures are in million dollars)

Source: "Free Zones, Why Smuggling?" Free Zones Magazine, no. 33, Nov. 1993, p. 7.

The volume of imports into Qeshm during 1371 (March 22, 1992 - March 21, 1993) was more than 145,000 tons of goods valued approximately at 700 billion rials (equivalent to $500 million), which was imported officially through the said free zone using card clearance exemption of goods (7).

In addition to official imports, one of the major ways for the penetration of foreign goods into the country is via smuggling, which itself has various economic and social motives. Extended coasts in the south of Hormuzgan province and in other adjoining provinces and the existence of an uncontrollable number of large and small vessels in the region are conducive to the illegal entry of large quantities of smuggled goods. Furthermore, in the case of Qeshm Island, as one of the free trade zones and with its various natural jetties along the southern coast, it is possible to load and unload smuggled items in small quantities at so many points dotting the island's 230-kilometer coastline.

Studies carried out about the entry of goods in the southern coasts of Iran showed that illegal importation and the smuggling of goods have been done through the following methods:

Direct transport from parts of the United Arab Emirates and the littoral areas, by means of secret passages traversing lanes and forests in the vicinity of Qeshm. Boats are normally for bringing these goods from U.A.E. ports to Qeshm and also for direct transportation of goods from these countries to Iranian coasts. The transfer of goods from Qeshm to Bandar Abbas however, is usually carried out by means of boats with capacities ranging from one to five tons. Calculations made in relation to this indicated that a minimum of 1,500 runs are done by these boats to the jetty of Bandar Abbas and the other subsidiary jetties per day, and that at least, two-thirds of these boats carry goods from Qeshm to Bandar Abbas. Assuming that a boat had, on the average, a one-ton capacity, the approximate volume of goods exceeded 1,000 tons per day or 300,000 tons per year, and this amount constituted 1.5% of aggregate imports during 1371 (1992).

A glance at the goods imported during the first quarter of 1372 (March 21, 1993 - March 20, 1994) shows that a considerable part of the goods sourced from abroad during the above quarter included air fresheners, insecticides, brushes, combs, shampoos, goods for babies, towels, toiletries, detergent powders, perfumes, eau de cologne, toys, artificial flowers, belts, switch sheaths, watch ribbons, hair pins, and figurines.(8).

During the second half of 1372 (Sept. 1993 - Mar. 20, 1994), an important change took place in the trade and foreign exchange system of the country. The more significant of the amendments that pertained to trade were the change in the basis of calculation of import duty and customs duties from the official to the floating exchange; also, the alterations in tariff rates as well as reductions in the official rates of these tariffs. On the foreign exchange side, the unification of currency conversion rates and importation on the basis of floating rate of exchange were among the revisions mentioned above. Furthermore, during the same period, as a result of foreign exchange bottlenecks and difficulties in borrowing, there was a return to restrictive policies.

In the field of trade reform, the circulars of the Central Bank (Bank Markazi) during 1370 (1991) initiated the trade liberalization in Iran; in the same way, the CBI circulars slapped import restrictions during the latter period. The more important of these memoranda have been mentioned hereunder:

"The Department of Import Affairs of the Iranian Customs Administration, through Circular No. 110/1054 - 73/125/307/9684, dated Dec. 10, 1993, communicated all new foreign exchange regulations that had been enforced through circulars of the Bank Markazi of the Islamic Republic of Iran, to all customs offices in the country.

In view of the approvals of the committee, the subject matter of paragraph 3, note 29 of the Budget Law of the current year, which has been notified by the Central Bank of Iran, it is necessary to comply with the following points regarding importation and clearance of foreign goods:

a- As of Oct. 31. 1993, all ministries, organizations, companies and institutes covered by, and affiliated to, the government, as well as the revolutionary institutions, are bound to purchase foreign exchange from the banking system for the importation of goods, and submit a foreign exchange declaration for clearance of their goods.

b- As of Nov. 29, 1993, all importers of goods with foreign exchange transfer should, after order registration in the Ministry of Commerce, purchase their required foreign exchange from the banking system, obtain the foreign exchange sale declaration and submit the same to the customs office at the time of clearance of the goods.

c- As of Nov. 28, 1993, the importation of goods carried by a passenger himself, is permitted at the Kish free trade zone to the amount of $200, and through the Chahbahar and Qeshm free trade zones to the amount of $80 for every passenger (and by the passenger himself), with due regard to the relevant regulations.

d- The maximum amount that a passenger can take out of the country, in the form of bank notes or traveler's checks or banking checks is $5,000 for every passport.(9)

These policies, adopted with due regard to economic conditions and foreign exchange bottlenecks, as compared with regulations that were adopted during previous periods (1991 - Sept. 1993) when trade liberalization was enforced, points to the instability of the trade agenda. Playing the most important role in the commercial and economic policies of the country is the foreign exchange balance, and industrial programs have an insignificant role. Furthermore, it is the Bank Markazi that, by means of its decisions, governs all the economic policies of the state.

1- Decree No. 1, M/1-2645, dated 18.5.88, Reconstruction Council.

2- Mehran Ebrahimi, Regulations Pertaining to Import and Clearance of Goods Without Foreign Exchange Transfer (Tehran: Institute for Commercial Research and Studies, Jan. 1993), pp. 1 & .

3- Decree No. H136T/6563, dated, July 13, 1991, Council of Ministers.

4- Pakdaman, Reza, Laws and Regulations Pertaining to Import of Goods (Tehran: Institute of Commercial Research, March 1994).

5- Pakdaman, Reza, Ibid.

6- Pakdaman, Reza, Ibid.

7- (Free Trade Zones, "Why Smuggling?" Free Trade Zone Magazine, no. 33, Nov. 1993, p. 9.

8- Ibid, p. 9.

9- Pakdaman, Reza, "The Latest Economic Laws and Regulations", Commercial Studies Monthly Magazine, 7th year (February 1994), no. 81, p. 111.