Economy, Domestic Economy

Debate Rages on Role of Free Trade Zones

Debate Rages on Role of Free Trade ZonesDebate Rages on Role of Free Trade Zones

Iran’s High Council of Free Trade and Special Economic Zones is lobbying for setting up new zones across the country. However, the move is facing strong opposition from opponents trying to block a related bill from being approved in parliament.

Opponents counter that the free trade areas have failed to serve their purpose, which was to primarily attract foreign investment and emerge as export hubs. They  blame the FTZs for unrestrained imports and smuggling.

Iranian FTZs attracted as little as $350 million in foreign investment over the past nine years, that is $38.8 million a year on average, says Mohammad Reza Pour-Ebrahimi, chairman of the Majlis Economic Commission and a staunch opponent of new zones.

“Instead of being a launching pad for exports, FTZs have actually turned into platforms for imports,” he was quoted by Shahrvand daily as saying. The representative from Kerman Province said exports from the free areas is less than half a billion dollars a year. He compared the Iranian free areas to those in the UAE, saying that both investment and exports are significantly higher in the Arab country’s free zones.

“These areas were supposed to help increase production, improve non-oil exports and create jobs. Instead they are helping importers of consumer goods rake in dollars.”

Abdul-Rasoul Khalili, university professor and an expert on free trade zone development, has a different opinion. “The original purpose of establishing FTZs—back in 1993—was to reduce poverty and increase employment in those areas,” he says, adding that the rules and regulations never called for boosting foreign investment.

Iran started to experiment with free zones in the early 1990s. China’s Special Economic Zones had gained global attention for their role in spurring growth in a mostly state-owned economy and Iran hoped to follow suit.

In contrast to China, however, Iran saw FTZs as a solution to falling global oil prices and revenues. In 1989, annual oil revenues had fallen to barely $7 billion, significantly below the average $20 billion at the time. The government under the watch of former president Akbar Hashemi Rafsanjani believed FTZs could boost non-oil exports.

As per Article 19 of the First Five-Year Economic Development Plan (1991-1996), Iran’s first three FTZs were formally established. Since then the total number of such zones has grown to seven, including Kish, Qeshm, Chabahar, Aras, Anzali, Arvand and Maku.

“Expectation from the development of these areas must be on par with economic infrastructure. In other countries, governments introduce free trade zones to foster economic activities and foreign investment without the impediments of domestic bureaucracy and intervention of customs authorities. But in our country, geographic areas which lack roads, airports and infrastructure are singled out as free trade zones and people are asked to go there,” the academician rued.

In Iran the FTZs are believed to be a haven for smugglers thanks to the proximity of the zones to border areas. The Anti-Smuggling Organization says it is going to destroy 13 luxury cars smuggled into the country, including Porsche and Mercedes-Benz, worth 140 billion rials ($4 million) in Shiraz on Wednesday. The unprecedented move has once again sparked debate on the role of free areas in illegal imports.