With about $20 billion worth of contraband entering the country annually, developing a self-reliant, oil-independent domestic economy is impossible.
The statement was recently made by Parliament Speaker Ali Larijani in an address to police commanders and personnel in Tehran.
Larijani described the contraband business in Iran as “an organized crime” and called for a stronger role of police in the fight against smuggling.
Echoing similar remarks, Hossein Ashtari, the head of Police Department who was also present in the gathering, said a major part of goods smuggling are carried out by organized networks, our sister publication Tejarat-e Farda weekly reported.
“We need to make concerted efforts to tackle the scourge of smuggling,” he said.
That economic growth is stymied by smuggling is old news, but hearing top officials speak of organized underground economy is something you can’t turn a deaf ear to.
Generally speaking, the underground economy refers to illegal economic activities. Transactions in the underground economy are illegal either because the goods or services traded are themselves illegal or because the illicit transaction does not comply with government rules and evades payment of import duties.
The first category includes drugs and arms in most jurisdictions but the second includes untaxed labor and sale of goods.
“These smuggled goods can either be brought in by a single individual or an organized smuggling network over an extended period,” Hamid Azarmand, a prominent economic researcher, said.
Stressing that it is difficult to gauge the size of smuggling because they are by nature not subject to government oversight, Azarmand said it is better to study the roots of this phenomenon, instead of trying to give a specific figure.
Asked how these organized networks are formed, the researcher said, “Due to a variety of reasons, policymakers might keep down the foreign exchange rate and interfere in the exchange market. On the other hand, to block the inflow of foreign products, they might raise import tariffs. High import tariffs translate into a gap between the prices of goods on each side of the border. Both low foreign exchange rate and high tariffs turn smuggling into a lucrative business. Non-tariff restrictions would also pave the way for illegal imports.”
To put it simply, the motivation for smuggling comes from the system of tariffs and import controls that are intended to protect local production.
The economist believes that unlike most countries where drugs, weapons and human trafficking make up organized crimes, Iran is home to the systemic smuggling of every-day items such as home appliances, electronic devices, clothing, medicine, cigarettes and cosmetics. Illegal imports have exacerbated problems of domestic producers.
“Despite this, policymakers hold on to their failed policies and import barriers, and this vicious circle continues,” he added.
Unfavorable business environment, poverty, unemployment and economic recession, migration to urban areas, administrative corruption and lack of transparency are some of the factors that, according to Azarmand, help the underground economy grow.
“Elimination of tariff and non-tariff barriers and walking down the path of free trade would help reduce organized smuggling. Setting up long-time trade barriers has never led to a thriving domestic production. In a monopolized market, efforts to improve domestic producers’ motivation for innovation, high quality and productivity have always failed. Monopoly and isolation do not benefit the economy,” he said.
He also noted that the mere adoption of reduced tariff policy, without creating a better business environment would not be sufficient; it may even carry the risk of ending the already meagre production.
Azarmand also thinks that aside from reduction of trade barriers and liberalization of foreign exchange rate, an all-out fight against money laundering is key to putting a curb on smuggling.
“Revenues earned from illegal imports enter the economy via different routes of money laundering. So, conducting a revision over money laundering laws and sticking to them would curtail smuggling and other organized crimes,” he said.
