Iran Auto Parts Makers Association is taking the Central Bank of Iran and the Islamic Republic of Iran Customs Administration to court over misallocation of subsidized currencies, which according to the association has undermined local producers.
Iranian parts makers rely on imports for some of the raw materials they need and several key automotive components which they cannot independently produce. In doing so and curbing overhead costs they have always relied on the government to provide them hard currency at subsidized rates.
IAPMA secretary Maziar Beiglou tells local news website Asre Khodro that due to a reading of government monetary policies by the CBI and the IRICA “auto parts worth $800 million are stuck in customs warehouses,” which has hampered production of local firms and put thousands out of work.
The association will file a complaint with the Court of Administrative Justice against the two entities this week, he said.
Since US President Donald Trump decided to withdraw from the historic Iran nuclear deal and reimpose sanctions against Tehran, Tehran has been forced to revise its monetary policies, cutting subsidized forex to many sectors, including the key auto manufacturing industry. However, some policies have been amended and the Minister of Industries Mohammad Shariatmadari has said parts makers are also eligible for forex subsidies (USD1 = 42,000 rials). The allocations, according to Beiglou, have yet to be made.
> Supply Bottleneck
Beiglou says, “Releasing of auto parts from customs warehouses is still annoyingly slow. Both the CBI and the IRICA insist on their own interpretation of regulations,” and are demanding suppliers pay the difference between the subsidized currency rate and the secondary forex rates that are close to 182,000 rials.
He is of the opinion that “All auto parts shipments with bills of lading issued before August 7 should be exempt from paying” the massive difference in the subsidized and the secondary market rates
As part of an agreement between the private sector and the government, the exemption was to be incorporated unambiguously in the government’s amendment to its latest monetary policies. However, according to Beiglou, “the motion was sabotaged.” He did not elaborate further.
The senior parts maker is hopeful that the sector will receive a court order in two to three weeks.
“In order to keep production lines running and to protect the industry [from total shutdown], suppliers have agreed to present commitment letters to the CBI and the IRICA.” He did not elaborate on the nature of such letters, but it seems these are statements in which suppliers pledge to pay the contested amounts if the matter is not resolved by government intervention.
Beiglou is of the opinion that demanding such commitment letters from companies is illegal.
> Impact on Jobs
The association secretary says that local parts makers’ production lines are now working at 40% capacity.
Without playing with words, Beiglou talks of an embattled industry. “We don’t have enough raw materials to keep production lines working. By mid-August, the supply chain was forced to cut over 100,000 jobs. Moreover, many firms have not renewed contracts with their workers and this means that 150,000 other workers will soon join the dole queues.”
If the industry is not reformed a massive wave of unemployment will be coming and “over 450,000 will join the army of the unemployed.”
> The Problem Explained
The government of President Hassan Rouhani announced in May that importers can bring goods into the country only with the subsidized 42,000 rial to the dollar rate and after the government accepts the validity and need of their goods.
As time passed and the foreign currency reserves dwindled at terrible speed, the government had a change of heart and said to release imported goods from customs businesses must pay the difference between the subsidized currency they had received earlier and the USD rate in the secondary forex market, compelling businesses to pay double for goods they had already paid for.
Beiglou says auto parts makers would not have even considered imports if they had known the government would so soon reverse policy to the detriment of manufactures.
In a renewed bid at damage control, the Industries Ministry has now exempted auto parts makers from paying the difference between the subsidized and the secondary forex market rates.
However, the CBI and IRICA have yet to wake up from their long slumber and perform as per regulations announced by the government.
