In the 1950s, Joseph Schumpeter, an Austrian-American economist, proposed a revolutionary theory that highlighted the role of a competitive business environment on increasing the use of modern technologies in industries and services.
Yet, decades on, countries like Iran still tussle with obstacles to competitiveness such as excessive trade tariffs, wrote the Persian weekly Tejarat-e-Farda.
Iranian economists and officials are currently stressing that it might be the right time for the government to review its tariff policies, considering the new economic climate following the July 14 nuclear deal between Iran and six world powers and the imminent lifting of western sanctions against the country.
Domestic industries see new opportunities to connect with the world business communities and expect the government to ease this process.
With average tariffs of 21.6%, based on data released by Trade Promotion Organization of Iran, the country ranks second globally among high-tariff nations.
While the main goal pursued by governments in imposing high tariffs is to support domestic manufacturing, economists believe tariffs have done little to accommodate manufacturers, traders and consumers.
Many experts refer to Iran’s manufacturing sector, automotive in particular, as “an aged infant”, which flourished through the full support of the government, but as years passed by these excessive advantages did not give the industries the chance to grow and compete with international businesses.
Tariffs have always provided domestic industries an edge in domestic markets against foreign products of higher quality. This resulted in forcing consumers to choose cheaper domestically manufactured commodities of lesser quality over high-quality foreign products.
The reason for that, according to expert Mostafa Nemati, is that by imposing tariffs, policymakers act as though the interests of consumers and manufacturers oppose one another. Thus, the government is bound to support one side at the expense of the other.
“That is a false notion. And over the longer haul, both consumers and manufacturers find themselves on the losing side. This is the current situation of Iran’s manufacturing sector,” he said.
On the other hand, reducing trade tariffs could provide a win-win situation for both consumers and industries. In a competitive environment, Nemati says, consumers enjoy quality commodities and empowered manufacturing firms see a hike in profit.
Mehdi Karbasian, the head of Iran Customs Administration, noted that in the past few years, tariff policies have failed to function as a measure for reducing imports.
According to ICA figures, in the past decade, imports have not been affected by tariff rates.
Furthermore, a brief look at foreign exchange rate fluctuations in the past few years and their relationship with tariff rates shows that there is a reverse relationship between the two variables.
At low exchange rates, Mohsen Jalalpour, the head of Iran’s chamber of commerce, argues that imported commodities end up at prices lower than domestically manufactured commodities. The government consequently increases tariffs to raise the prices of imported commodities to support domestic goods.
Those supportive policies, according to Jalalpour who speaks on behalf of private businesses, have a reverse effect on domestic industries.
“In the long run, the private sector does not seek support, it needs competition,” he says.
He believes that in a less competitive market, businesses fail to interact with the world, do not attract international capital and are deprived of modern equipment and technologies.
The biggest support from the government, Jalalpour stresses, could be drafting consistent and coherent long-term policies on making the market more competitive in a 5- to 10-year timeframe so that the business environment would be predictable for investors and manufacturers.
Jalalpour refers to tariff policies as a two-way street.
“High duties could hurt exports as much as they affect imports. Such policies are sticking points that only keep the country from having free economic interactions with the world,” he said.
“Iran has long been planning to join World Trade Organization. To this end, drafting comprehensive, long-term plans for reducing tariffs is inevitable.”
